While UK examines its own entrails, China marches on
First, the good news: the world economy is accelerating. According to both the World Bank and the International Monetary Fund at their annual meetings last week, every region of the globe can expect an uptick in economic activity.
Against that backdrop one country stood out: the United Kingdom. Our economy will grow by 1.7% this year, down from the 2.0% the IMF had expected in April and well below the 2.1% expected for the eurozone, which is made up of 19 of the 27 countries of the European Union that we want to leave. Next year the story is the same, but worse: the UK grows by 1.5% versus 1.9% across the Channel.
By its own standards the IMF, which has to be diplomatic with the countries that provide it with its working capital, was outspoken in its World Economic Outlook report: “The medium-term growth outlook is highly uncertain and will depend in part on the new economic relationship with the EU and the extent of the increase in barriers to trade, migration, and cross-border financial activity.”
The United States, Germany, France. Japan, Canada and even Italy saw their growth revised up - almost a full house for the Group of Seven countries. Among the other risers was China, which is set to grow by 6.8% and 6.5% this year and next.
The world’s second largest economy is not only providing growth but there are signs it is stepping up to the plate, to use an American expression, as the US shows increasing signs of stepping back from its role as world leader.
the US strikes an isolated figure on many issues
Beijing sent a small army of development bank officials, politicians, and civil servants to this year’s meeting. One of these was Jin Liqun, chairman of the Beijing-based Asian Infrastructure Investment Bank (AIIB), that is seeking to supplement the work of the World Bank and IMF by investing trillions in projects across Asia, Africa and even eastern Europe.
In an interview with GlobalMarkets, the newspaper that covers the meetings, he gave an indication about how China sees its role. “Over the past 70 years, the world has benefited from valued US support. But as time moves on you need more help from donors, supporters and contributors to benefit the whole world. China needs to play a bigger role in international and financial areas.”
The most obvious manifestation of this is China’s One Belt One Road initiative. The programme is an estimated $5 trillion programme of transport and energy initiatives - roads, bridges, gas pipelines, ports, railways, and power plants - that span 60-plus countries across Asia, the Middle East, Europe, and Africa.
Many emerging economies see it as an opportunity. Countries such as Pakistan in Asia, Kenya in Africa, and Uzbekistan in the central Asian/ European zone are delighted with the cash. Others see OBOR as a threat - especially in the US and Europe.
Indeed, the US strikes an isolated figure on many issues. Its protectionist talks on global trade, withdrawal from the Paris climate deal, and the rejection of the World Bank’s capital increase are leaving longstanding US allies nervous about the future and America’s commitment to the rest of the world. At the same time it has resolutely refused to join the AIIB.
the UK will be little more than a curiosity to the other countries
Where does this leave the UK? In line with our imperial historical track record, we have tried to play both sides. The UK made a big show of being one of the first signatories of the AIIB been as the US refusing to sign up as a member. Yet at the same time, Theresa May’s government has been careful to avoid condemning the Trump administration, perhaps hopeful that Britain really will be at the front of the queue for a post-Brexit trade deal. Remember that China currently accounts for 3.6% of our exports about the same amount as we sell to the Netherlands, an economy a fraction of its side.
Britain was notably silent at the IMF meetings, which is an opportunity for all finance ministers to grab some of the limelight from their leaders. The Bank of England governor chose to give the keynote lecture that is normally a highlight of the meetings in September. Chancellor Philip Hammond only hit the headlines with an unfortunate TV interview in which he described the EU as the “enemy”, for which he had to apologise.
As it happens, next year’s annual meetings will be in Indonesia, in the heart of Asia, rather than in Washington, DC. By that time, October 2018, the UK government will either have drawn up its detailed agreement with Brussels on leaving the EU, or will be heading for a hard and destructive Brexit without a deal with its main trading partners. Either way the UK will be little more than a curiosity to the other countries whose eyes will be firmly on the Chinese delegation.
About the author
Phil has run Clarity Economics, a London-based consultancy, since 2007 and, before that, was Economics Correspondent at The Independent.
Phil won feature writer of the year Work Foundation Work World media awards in 2009, and was commended by the Royal Statistical Society in 2007.
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