Trading With China – As Good As It Seems?

We are constantly being told how important trade with China is and never has this issue more prevalent than this week with the visit of Chinese premier Li Kequiang, but can there really only be an upside to dealing with the world’s second largest economy?

Mr Li came to London with apparently £17 billion in his back pocket in the form of infrastructure deals and other investments in exchange for…we are not sure yet, but visa restrictions are being relaxed to encourage Chinese businessmen.

The way politicians speak you would naturally assume there are only massive plus points for the UK increasing its trading partnerships with China.

In fact UK trade with China has, according to the Chinese ambassador to the UK Liu Xiaoming, increased nearly 14% in the last year, faster than any other EU country.

Yes Mr Farage, that’s right. The UK has increased its trade with China, like that economic powerhouse of Iceland, whilst still part of the EU.

However, it should under no circumstances be assumed this is all good news and in fact closer Sino-UK trading ties should be treated very delicately.

Firstly China is a massive producer, but is not yet a nation of consumers.

Yes, UK companies exported more than £12bn of goods and services in 2013, but the UK imported well over £30bn and this is very dangerous.

With the World Cup currently in progress, Brazil has been a central to the news recently and is a great example of a country which has not benefitted from Chinese imports, despite the country investing in South America.

The Brazilian market has been flooded with cheap Chinese merchandise which has put many domestic producers out of businesses and this is a trend seen in many other countries, not least in America.

In exchange Brazil and many other developing nations in Africa and South America were supposed to benefit both socially and economically from infrastructure deals completed by the Chinese.

However, what ended up happening was a Sinification of public services where the only winners where the Chinese state owned companies who pillaged the land for natural resources in exchange for construction projects carried out by workers from China, not locals.

At a time when America is issuing arrest warrants for Chinese computer hacking of military and commercial computers is this really a nation you want to invite into your country to build a new generation of nuclear power plants and high speed railways?

Human rights also matter…a lot.

Contrary to the opinion of Tory minister Michael Fallon, who said human rights dialogue should not get in the way of trade deals, the way a country treats its people does matter.

How is China able to be competitive on the world stage? Quite simple really. The workers in China are basically treated as slave labour so there are no production costs.

This is how they are able to sell things around the world at knock down prices.

Yes, human rights violations and trade are two separate topics, but there has to be bilateral action to tackle both topics as they are both intrinsically linked.

Until China agrees to play by the same trading rules as everyone else it will always benefit disproportionally more than other countries.

Massive state owned monopolies dominate the industry, there are no health and safety costs, no minimum wage, at best rudimental free markets, pretty much non-existent environmental controls and massive violation of international copyrights.

Pollution levels are appalling and a blatant public health risk and yet there is no effort in China to curb the rapid increase in consumption of carbon based fuels.

Most importantly however, the Chinese currency is still not openly traded.

For years the value of the Yuan, or Renminbi, was pegged to the dollar and it is only in very recent years any effort at all has been made to open up this market.

This makes China unnaturally competitive, especially against the large economies of America and Europe.

The combination of all the aforementioned factors is especially dangerous for the UK and Europe, economies which produce high value products, in particular cars.

China desperately wants to export more vehicles to the US and EU, however Europe is also home to some of the world’s biggest and best car manufacturers.

In the past China has less than subtly ripped off European designs and the cars produced in the country would never pass EU safety standards and crash tests, not to mention they can be produced at remarkably low costs thanks to state funding and what is essentially slave labour.

With many car companies, particularly from Japan, setting up manufacturing bases in the UK and the likes of BMW, Mercedes and Volkswagen, Audi and Ferrari based on the continent it is in our interests to protect the car industry.

While it is undeniably important to increase trade and diplomatic ties with the world’s second largest economy, it is equally important to remember dealing with China has the potential to be a very one sided affair, as many countries in Africa have discovered to their detriment.