Howard Davies: The MT Diary

A quick fix for Greece?; photo-ops and beauty spots in China; batting for Shropshire.

by Howard Davies
Last Updated: 21 Oct 2011

Corfu (again), China and Shropshire were on the programme last month, a relatively unusual tri-centre holiday, but in climatic terms they overlapped neatly. Corfu was dry and hot, China was hot and damp, Shropshire was damp and cold. The difference with Shropshire, of course, is that it is much harder to get to from London than the other two: no direct flights.

Watching the Greek economy implode has the fascination of observing a train crash in slow motion. Europa is tied to the rails as the unstoppable debt juggernaut bears down on her. Yet another bailout package has been announced, but no one thinks it will work. Some kind of default, known euphemistically by the rating agencies as a 'credit event', seems inevitable sooner or later.

A witty letter to the FT proposed an intriguing transaction between Greece and China. The Greeks, who used to have a patent on it, could sell democracy to the Chinese. A price tag of, say, $100bn would sort out Athens for a decade or more, while for Beijing it would be small change, and a bargain to boot. They'll need to buy it one day, and the price is bound to go up the longer they wait.

When I began advising the Chinese on their financial sector you could see why they might look west for a tip or two. Their banks were essentially bust, weighed down by politically motivated non-performing loans, while ours were riding high. Now the slipper is on the other foot. Four of their banks are in the global top 10 by market capitalisation. That is not the territory in which you find RBS or Lloyds these days.

China has recently joined the Basel Committee of banking supervisors and it will find attentive listeners there among its western counterparts. Part of the country's success is attributable to a large cheque written by the government in favour of the banks a few years back. (There is no Chinese magic which can prevent that.) But since then it has been skilful in manipulating a range of controls on bank reserves, loan to deposit ratios etc. to prevent things getting out of hand. In the crisis, and since, China's toolkit has proved more flexible and effective than ours. We are now reinventing parts of it in New York and London.

At the end of two days of meetings, we (the advisory team) met vice-premier Li Keqiang, who is widely expected to succeed Wen Jiabao as prime minister. That would make him about the fourth most powerful man on the planet, after Barack Obama, Hu-ever succeeds Hu Jintao, and that judge who dishes out superinjunctions.

All the really superior top brass in China hang out in a large compound near Tiananmen Square, surrounding a lake. Meetings follow a set pattern. There is a formal handshake and a photo-op first - well, not so much a photo-op as a photo-ob (as in 'ligation). I've never heard of anyone declining. Then comes the meeting itself, whose significance is measured precisely by its duration. We went 15 minutes over, which was regarded as a very positive sign. We attributed it to the value of our wise counsel, rather than to the late arrival of the next delegation. In fact the state leaders do listen carefully and normally respond point by point.

Just now they are engaged in slowing the economy down, which is part of the reason for some jitters in the markets of late. Even a cut in the growth rate in China from 11% to 9% a year is enough to take the edge off US and German export performance. But it is hard to say China is wrong to want to cut back. Inflation has been too high across the board but especially in the property market and its rulers are determined to put on the dampeners.

There was not much evidence of a slowdown in tourism, though, when we made a side trip to Guilin, a beauty spot in Guangxi province. It was heaving with the Beijing middle class. How to describe the place? I cannot improve on the hotel brochure, 'when you have been here, you would find even a mountain or river, a field of crop that can keep you away from the noisy city, leaving all the pressures and finding out the origin of you ...' Chinglish is developing a special charm of its own.

The Bank of England would no doubt also like to damp down price rises, but fears that a bucket of cold water now would drown the recovery as well as the inflation rate. Things are not looking pretty for George Osborne's growth forecasts.

To cheer himself up he should spend more time on the cricket fields of Shropshire, a good place to take the pulse of the rural economy. Languishing at square leg with the home umpire, I discovered that lambs are selling at £2.30 a kilo, up from only £1 two years ago. Part of the rise is due to bluetongue disease sur le continent, as I am sure my ovine readers know. No doubt the rest is attributable to some CAP quirk or other, but whatever the cause there's gold in them thar hills.

This useful nugget of information justified my place in the team, I felt, though my contribution was not otherwise distinguished. I didn't trouble the scorers by taking a wicket or scoring a run. But then, as the poet said, they also serve who only stand and gossip with the umpire.

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