Osborne New Year speech

There is a triple objection to the terms of George Osborne’s visit to China, and his aim of making Britain “China’s best partner in the West”.  The first is that while, in the economic sphere, it has come to terms with the capitalist system it is still, in political ones, a communist dictatorship – and one, furthermore, that is exporting its contempt for freedom and justice to other parts of the world, such as Africa, thus menacing the interests of western liberal democracies, including ours.

Indeed, the Chancellor, according to this view, is compromising national security by enlisting China, notorious for its enthusiasm for espionage, as a partner in the construction of new nuclear plant at Hinkley Point and Bradwell.  The second part of the charge is that he is risking his money on China’s horse just as it has blown up at the races: its stock markets were convulsed during the summer; its output fell last year to its lowest in a quarter of a century and, as Mark Carney warned recently, its growth has been sustained by debt, which amounts to 200 per cent of the country’s output.  According to this view, the country’s “shadow banking” is a toxic equivalent of America’s sub-prime.

Mention of the United States leads to the third objection – namely, that Osborne’s enthusiasm for China will go down badly with one of our leading allies.  There is pressure from Congress for sanctions on China for stealing tech secrets from American companies.  Furthermore, the far east is a tinderbox.  As if North Korea were not enough to contend with, China and Japan are at loggerheads over the Senaku islands, and the latter has been America’s main post-war ally in the region.  What will become of the Chancellor’s cosying-up to China if there is military conflict between Japan and China – which is far from unimaginable?  How can Britain both be “China’s best partner” and maintain “the special relationship?

Osborne’s answer to the second charge was dramatised in the choice of venue for his main speech during the visit: “I very deliberately chose to come here,” he said, “to the Shanghai Stock Exchange, to the epicentre of the volatility in financial markets this summer, to say…whatever the headlines, regardless of the challenges, we shouldn’t be running away from China.”  The core of his case is that the country is moving from being “an economy sustained by investment, to an economy powered by consumption”, that this shift will be “bumpy”, and that growth will slow – but that, even so, “the vast size and potential of China’s economy means that they will continue to be a key driver of world growth for decades to come.”

As for the first charge, the Chancellor dropped a hint, and more, about his view while saying during this visit to Xinjiang province that he hadn’t forgotten human rights, adding: “ultimately a big part of our values is economic freedom. Giving people more control over their own lives in terms of the economic affairs leads in turn to greater personal freedom”.  Osborne is taking a punt on economic liberalism in China gradually opening the door to political liberalism.  But although the issue doubtless interests him, it will not preoccupy him: he has other fish to fry.  Britain is still burdened by the deficit and by debt.  We urgently need new export markets: Eurosceptics cannot both complain that we need a trading future outside Europe, the Chancellor might argue, and turn up their noses at China at the same time.

David Cameron has himself visited China to help lead Britain’s export drive, but Osborne is diving in deeper – hence his decision to visit Xinjiang, a venue for violence and repression, apparently at his own request.  He is deliberately striving to get in early, before Germany and other competitors.  More broadly, he wants to roll the pitch for British companies in China.  Hence his work to get it to issue renminbi bonds in London, his support for a bigger Chinese presence in the IMF, and his desire to connect the two countries’ stock exchanges, as Britain prepares for President Xi’s visit next month.  And of course his own trip offers an opportunity to showcase a Chancellor as a future Prime Minister.

Osborne first went to China as a backpacking student, but this lover of American politics may have had another journey there in mind as he began his own this week.  The country’s political culture was no less tyrannical and totalitarian when Richard Nixon flew there to meet Mao Tse-Tung in 1972.  Of course, the strategic sweep was different then: there is no Soviet Union now – no grand opponent against which the West is seeking to play China off.

But China remains a fact, with all its strengths and weaknesses, its trading opportunities and its injustices.  Unlike democratic India, it is not an ally.  But neither is it – like Putin’s Russia – in effect an opponent, posing a threat to countries which we are signed up to defend.  Our nuclear deal with it may be a bad one, its economy rickety, and the ethical case against it as powerful as ever.  None the less, Osborne’s punt on China is a rational gamble.

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