George Osborne is betting big on China

The Chancellor wants closer ties with the Middle Kingdom, despite all its economic warning signs flashing.

by Rachel Savage
Last Updated: 19 Oct 2015

No matter that China’s turbo-charged growth is slowing and its stock markets are choppier than the North Sea in midwinter - George Osborne is betting big on the Middle Kingdom, and he wants everyone to know it.

The chancellor is currently on a trade visit to China and had some big announcements up his sleeve for the occasion. Yesterday he stated the government would guarantee £2bn of loans for the currently stuck-in-a-rut Hinkley Point nuclear reactor. Today was the turn of the stock markets.

Osborne wants to see London and Shanghai’s bourses connected, despite the latter having plunged almost 40% since June and heavy-handed government intervention failing to quell the volatility. He announced a ‘landmark feasibility study’, which will no doubt take as long as it takes for Chinese stocks to settle down.

Source: Bloomberg

‘I want to see our stock markets formally linked, with UK firms raising funds from Chinese savers, and Chinese firms listing in London,’ he said in a speech earlier today.

The chancellor also unveiled more measures that should give London a strong shot at being China’s financial doorway to the rest of the world, as it takes cautious steps towards further opening up its state-supervised economy. The yuan/sterling swap line is being expanded, while the People’s Bank of China will issue short-term yuan-denominated bonds in London.

‘I very deliberately chose to come here, to the Shanghai Stock Exchange, to the epicentre of the volatility in financial markets this summer,’ Osborne declared. ‘Whatever the headlines, regardless of the challenges, we shouldn't be running away from China.’

He is right – with a fifth of the world’s population, China is only going to get more important in the global economy. Osborne also made the obvious and fair, albeit debatable, point about human rights: ‘isn’t it better to engage?’ All music to his hosts ears.

But China’s vast economy is stuttering – no one expects it to actually grow 7% this year, though the government will no doubt massage the official figures to that effect. And the state is loath to wean itself off command and control, as its ham-fisted failure to manage the market gyrations this summer showed.

It’s also vastly less transparent than Western economies, plus cyber attacks on companies and governments abroad aren’t going anywhere. Open the UK up to China by all means. But Osborne should be wary of being burned by the dragon.

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