Chancellor: 'Let’s create a golden decade for the UK-China relationship'
Chancellor of the Exchequer, George Osborne, delivers a speech to the Shanghai Stock Exchange in China.
Thank you all for coming, and thank you to President Huang and to our hosts at the Shanghai Stock Exchange. It’s very good to be here at this extraordinary venue.
Shanghai has long been one of the great centres of the world economy – a crossroads where people come to trade and do business.
And this city has played a central role in the extraordinary success story of China’s economic development.
I first visited this city as a student, carrying a backpack over 20 years ago.
Back then the population of Shanghai was 13 million, and the Chinese economy was worth about $500 billion per year.
The old buildings on the Bund were there, but the new skyscrapers of Pudong were not.
Today I come back to a city whose population has doubled to 26 million and the Chinese economy has grown twenty-fold.
This is not some abstract number.
500 million Chinese citizens have been lifted out of the grinding poverty their families have lived in since time immemorial – the biggest single contribution to making poverty history in my lifetime.
Shanghai also tells a story of an even more recent period of our economic history – the recovery from the Great Recession of 2008 to 2009.
I visited this city shortly after then, just weeks after becoming Britain’s Chancellor.
I marvelled at your Expo and saw Britain’s brilliant contribution to it – our iconic seed cathedral pavilion designed by the brilliant Thomas Heatherwick.
Back in 2010 the Chinese economy was one of the very few bright spots in the world economy, and the UK was in the grip of economic crisis.
A third of all global growth came from China, and the Chinese economy was to go on expanding by $4 trillion in just 4 years.
The global economy was like a damaged aeroplane, flying with one engine, China’s engine.
The world needed China.
Some things have changed these last 5 years. Britain has turned itself around.
We followed a clear plan – and for the last 2 years we’ve been the fastest growing of all the major advanced economies and making our own big contribution to keeping the world’s economy aloft and moving forward.
But my message is the same.
The world still needs China’s help.
We need China to power our economy forward.
That’s why I’ve come to China again and again in this job.
That’s why I’ve brought with me here this week leading British businesses, the heads of great British cultural institutions, the civic leaders of Britain’s great northern cities and the largest ministerial delegation that I have ever brought to China.
I’ve travelled not just to Beijing for our formal economic and financial dialogue with the Chinese government, not just here to the financial centre of Shanghai, but on to Chengdu and even to Urumqi – far in the West. And I’m told I’m the first British government minister ever to do so.
Because I want Britain to be connected to every part of this vast nation.
And in my thousands of miles of travel this week, across 4 provinces I could have chosen anywhere in China to give this message to the British and Chinese people.
But I very deliberately chose to come here, to the Shanghai Stock Exchange, to the epicentre of the volatility in financial markets this summer, to say this:
Whatever the headlines, regardless of the challenges, we shouldn’t be running away from China.
And my message is clear:
Through the ups and downs, let’s stick together.
Let’s stick together to grow our economies.
Let’s stick together to make Britain China’s best partner in the West.
Let’s stick together and create a golden decade for both of our countries.
Britain and China: we’ll stick together.
Recently those ups and downs have been significant.
A lot has been written about what the recent financial market volatility means; for the UK, for China, for the global economy.
For me it boils down to 2 fundamental questions; what to make of it, and what to do about it?
First, what to make of it?
No-one should ever lightly dismiss financial volatility.
The Chinese authorities have taken a number of measures in recent weeks, as other countries have had to during periods of financial stress. But they remained committed to market liberalisation and should be supported as they continue this journey.
And as Christine Lagarde, the head of IMF said earlier this month – China’s transition to a more market based economy, and the unwinding of risks built up in recent years is complex and could well be somewhat bumpy. I agree with her assessment.
The Shanghai composite is still up on where it was a year ago, China has a well-diversified financial system, and the equity markets only represent a small proportion of total household assets.
Of course we need to stay vigilant, to short term ups and downs.
It’s precisely because of the uncertainty of this world that Britain has strengthened our financial system and our public finances.
Then there are those who ask about what the longer term future holds for China. Here too I am cautiously optimistic.
Of course, the Chinese economy is undergoing a major transformation from an economy sustained by investment, to an economy powered by consumption.
That is what the Chinese leadership call the “new normal”. That’s an enormous, tectonic shift.
It will be bumpy. It will create challenges
It inevitably means a slower growth rate than the double digit growth of the last decade.
But if China continues to grow as the IMF forecasts it would mean going from GDP of $11 trillion this year to a GDP around $16 trillion in just 5 years.
That would add an economy larger than Germany’s or Japan’s to world GDP.
So it is clear that even as China undergoes this transformation, 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.
So to answer my first question – China’s undergoing difficult change – but it’s still a huge contributor to our economic future.
The second question is: what we should do about it?
My answer is to support and encourage China on this journey of economic change – and to say: don’t turn back.
We need to see the vision set out in the third Plenum made even more of a reality.
The consumption led growth.
The focus on fiscal management.
The enhanced social provision.
The steady liberalisation of financial markets.
The gradual opening up of the capital account – and the internationalisation of the renminbi.
This is the road China is rightly travelling – and Britain wants to be your partner in that journey.
How do we do that?
Well, first, British businesses can provide the quality products and services that this new China wants to consume.
I want to see British film, entertainment and television companies exporting more brilliant shows like Downton Abbey, Sherlock and James Bond, and new collaboration with Chinese production companies.
I want to see great professional services firms like PwC, KPMG, Deloitte and EY providing advice to the 10,000 new businesses that are established in China every single day. I want to see banks like HSBC and Standard Chartered.
And as China seeks private sector expertise to help build new cities and new airports, I want British firms like Arup, DWA Architects and Mott Macdonald to use their experience in partnering with the UK government to play a role in China.
In the last 5 years our goods and services exports to China have almost doubled – and China has become the UK’s sixth largest export market.
If we maintain our current market share of trade with China, UK exports could be worth over £30 billion by 2020. If China rebalances more significantly these opportunities could be even greater.
I also want to make sure the UK remains a top destination for Chinese tourists – Visa applications are up 11% year on year but I want to see that increase even faster.
And I want those tourists to receive a warm welcome, not just in London, but across the UK.
This is good for Britain.
Attracting the best students from around the world to our universities is also good for Britain. There are now more foreign Chinese students at our universities than any other nationality.
Increasing exports, boosting tourism and attracting the brightest and the best students to the UK will drive job creation and productivity growth in our economy. It’s why it’s such an important part of our long term economic plan.
Both Britain and China also recognise the importance of rebalancing our economies.
It’s another way we can partner each other on the journey ahead.
Rebalancing for us means above all strengthening the economy in the North of England by building the Northern Powerhouse.
That’s why I asked a delegation of senior business and civic leaders to join me on this trip.
For China rebalancing means delivering President Xi’s ‘One Belt One Road’ initiative that looks to foster growth across the ancient Silk Road trading route between Europe and the East.
That’s why tomorrow, as I say, I will become the first British government minister ever to visit Xinjang province in the far West of China.
Developing this infrastructure will create huge opportunities for European and Asian businesses, as will the new Asian Infrastructure Investment Bank which will boost regional investment.
That’s why Britain was the first major Western country to apply to be a member of the AIIB and the UK is committed to it being a success.
I also believe China deserves an even stronger voice in other multilateral institutions like the IMF.
As the RMB becomes increasingly important as a global currency and meets existing IMF criteria, I would like to see it included alongside pound sterling in the IMF’s Special Drawing Right’s Basket.
There’s a third way we can be partners on this journey.
As the home to the world’s global financial centre, Britain can support China’s important financial reforms.
China and Britain developed the two most important inventions in the history of finance.
It was China that developed the first system of paper money, allowing economies to shift from barter to market based trade.
And Britain invented the joint stock bank, allowing deposits to be converted into loans.
We’ve led the world in the past with our financial innovation. Let’s lead the world in the future with our financial cooperation.
Some would look at the recent volatility in China’s markets, and question whether we should maintain the market linkages we have created over the past 5 years.
But I want to take opposite path, protecting the bridges between our financial systems, and building more over the next 5 years.
That will help create deep, diversified and stable markets. Sticking together here will make us better off too.
For as China’s economy continues to develop, the need for access to capital markets will only increase.
I want the City of London to be the global partner of choice for China as it raises finance on international markets.
Thanks to the steps the British and Chinese governments have taken in recent financial dialogues we increasingly are.
Thanks to our efforts together the UK is now the unrivalled Western centre for RMB business.
We’ve been the first G7 country to agree a swap line with China.
We’ve been the first ever country outside China to issue RMB denominated sovereign debt.
And last year we welcomed the first branches of mainland Chinese banks to the UK since the founding of the People’s Republic of China.
This week we’ve taken further steps to cement our role as a RMB hub, with the Bank of England and People’s Bank of China agreeing to extend the RMB/Sterling currency swap line.
The People’s Bank of China will issue short term central bank RMB bonds in London, the first time these bonds will be issued outside China.
We also welcome other new bond issuances, including Agricultural Bank of China announcing its intention to issue an RMB green bond.
But I want to go further still.
The mutual benefits of connecting our markets are clear – increased access to international capital for Chinese firms, unparalleled investment opportunities for Chinese and international investors, enhanced stability for both markets and efficient allocation of resources – acting as the basis for sustainable economic growth.
So I want to see our stock markets in London and Shanghai formally connected, with UK firms raising funds from Chinese savers, and Chinese firms listing in London.
This week we’ve announced with the Chinese government and this stock exchange a landmark feasibility study to look at how we could do this.
Connecting our stock exchanges means:
More jobs. More investment. Higher living standards as a result in both our countries.
A win: win for China and Britain.
I’m the finance minister here in a stock exchange, so I’ve talked today about financial markets and economic growth.
But I’m also someone who believes strongly that not everything can be measured in pounds and renminbi – that there are some things in life that are even more valuable.
Britain and China are 2 countries whose cultures have done more to shape the world than almost anyone else.
Our philosophers, our scientists, our writers have influenced people across the globe, far beyond our own shores.
When Chinese people are asked where in the world they’d most like to visit – Britain features right at the top of their list.
And in Britain, there is a hunger to learn more and understand more about this great civilisation.
I see it at home in Downing Street every night as my twelve year old daughter does her Mandarin homework.
We have different political systems. We’re a multi-party democracy.
So, of course we will disagree on issues.
But let’s conduct our discussion on the basis of the mutual respect of our 2 great nations.
And let’s strengthen the ties that bind us – do more to understand each other.
It’s through our theatre and our painting and our writing and our art that a society best expresses itself and explains itself to others.
That’s why I made a particular point to bring with me leaders of our cultural institutions – from the British Museum and British Library, to the Royal Shakespeare Company and the Tate – so Shakespeare’s plays are performed here in Mandarin, so David Hockney’s pictures are seen here in Chinese galleries, and so the British Museum’s greatest modern exhibition opens here to Chinese visitors.
It says so much about this civilisation that there are more artefacts from China in the 100 Objects that Changed the World exhibition than from anywhere else on the planet.
Next month we will host the first State visit by a Chinese President for a decade.
When the Queen and Prime Minister welcome President Xi and his wife to the UK I’m confident that it will build on the success of this week’s dialogue and take another big step forward in our relationship.
As I’ve set out today, I believe our 2 countries are perfectly positioned to be partners in growth.
Britain can be China’s best partner in the West.
Of course, there will be ups and downs in the road ahead, but by sticking together we can make this a golden era for the UK-China relationship for many years to come.