In an extract from his new book, Labour frontbencher Liam Byrne argues that as links with what will be the world's biggest economy are vital, reaching out to China needs to be a priority
There I was, 10 seconds from facing Gavin Esler live on Newsnight. The polls had just closed. Minutes before, my friend James Purnell had dramatically resigned on the 10 o'clock news and demanded a leadership challenge to Gordon Brown. Clamped to my ear was a phone with Peter Mandelson on the other end speaking from the "war room" at No 10 Downing Street.
"It's down to you, Liam," Peter said calmly. "You've got to say no one will forgive us for fighting among ourselves when the country's in crisis."
Eight months later, just after 11 in the morning, I was standing in the stillness of the chancellor's study in No 11 Downing Street. On Alistair Darling's red-leather-topped desk perched Gladstone's famous red box. It was budget day and Alistair and his wife were about to lead the Treasury team into Downing Street for the famous photos before the hop to the cockpit of the Commons to present Labour's last budget.
When I arrived in the Treasury, I knew Alistair had his suspicions of me, fearing I was a No 10 "spy". But we formed a close partnership and he was now about to present some big plans to a sceptical world. They were bold plans, but not bold enough to stop our election defeat months later. Battered by the giant storm waves of a political and financial crisis, politics rarely gets tougher than Labour's final year. And yet we had nailed down a plan that would have locked in recovery from the greatest crash since the 1930s.
Now, three years on, our country's prospects don't seem better than on that day when I left the Treasury along with Alistair Darling. They seem worse. It seems clearer than ever that our country needs a big ambition: to rebuild, to renew, to jump-start for the new world taking shape around us. Just as we did after the second world war.
When my political hero Clement Attlee took his seals of office in the summer of 1945, his cabinet faced an economic situation of the bleakest proportions. Their answer was tough and determined. Britain would export its way back to health. In December 1945, the cabinet agreed a vast sales push to be pursued "with the same energy as in time of war, whatever measure of industrial and marketing reorganisation and reconstruction may be necessary". New assistance was negotiated from the Americans. Our industry and infrastructure were rebuilt. And as our neighbouring markets in America and Europe began to blossom, our exports boomed and our economy with it.
Now, just as in 1945, we have to trade our way back to strength. The problem is: it's just not happening. Despite the massive fall in the value of the pound since 2007, exports are up by just 1%-2%. Ever since 2010, the OBR has revised its expectations of export growth downwards. Net trade is now a drag on growth – when by now it was supposed to be a growth booster.
And we face a big problem. The friends who helped us out in 1945 – the US and Europe – are in as much trouble as we are.
Yet, the revolution unfolding in China and the east Asian economy powers on. Back in 2004, Goldman Sachs was running some numbers. To everyone's surprise, they concluded that China might be the world's largest economy by 2035. [But] China's economy performed far better than anyone believed possible: by 2008, it was an astonishing $1.7 trillion bigger than initial forecasts. Now as the crash and its aftermath bedevil the west, China speeds forward. The OECD now believes that China will become the world's largest economy in 2016.
The message is fairly clear: if we want to trade our way back to prosperity, we had better start looking east. Between now and 2030, perhaps 50% of the world's growth will arrive from east Asia – more than a fifth of it from China. The great economist Jim O'Neill reminded me that China's growth in 2011 of more than $1.3tn was close to creating the equivalent of another Australia, Spain, Mexico, South Korea, or about two new Turkish economies – or another Greece every 11½ weeks. My rough estimate is that if we tripled the annual growth rate in exports to China, we would increase the UK's GDP by £7bn, or 0.5%. That's a huge prize.
But in this global race others are pulling ahead of us.
Since the handover of Hong Kong, Britain's politicians, diplomats, academics, businesspeople have built good relations with China. On many levels, we can boast that we were leaders in Europe. Our Beijing embassy team is in a league of its own. In the field of science, we co-publish more research with Chinese academics than anyone else in Europe. We educate thousands of Chinese students.
But we're some way down the export league table to China. We might be one of the world's favourite places to invest, but just 0.5% of inward investment in Britain is from China. In 2012 there was a flurry of new investment from China in everything from Weetabix to Heathrow airport. But by 2010, China had invested four times more in Germany – and 60% more in France. And as for our investment abroad: well, over the past decade our investments in the gulf, Russia, South Korea, India – and Belgium – have all grown far faster than our investment in China.
In Europe, Germany is outstripping us. In thinktank-land they talk of a German-Chinese "special relationship". Fully 47% of European exports to China are from Germany, far more than a decade ago. German trade targets for 2015 are three times the size of ours. China's last premier, Wen Jiabao, not only opened the great German trade shows, he hosted joint cabinet meetings with Germany. China hasn't done this with any other EU member state.
So we're on the starting grid of the Asian century. But, good heavens, we need to speed up.
For five years, I've been convinced that a revolution in our links with China, and the great east Asian trading zone of which it is the centre, home to one-third of the world's population, is critical to our future wealth and wellbeing.
We always knew that the 21st century could be the Pacific century. But the global crash means something big: the new order is arriving faster than anyone expected – and we're not ready.
So this book is a very personal story of the travels, the debates and the conversations I've had over the past five years in search of answers to a simple question. How does Britain prosper in the Pacific century?
Our alliance with Asia will demand creativity: we don't share a language; democratic traditions are different. We are not neighbours. But our interests are very much a shared concern. For centuries we were connected only by long and dangerous caravan routes along which we traded spices, silk – and myths.
We don't trade so much spice and silk any more. But there are still plenty of myths. Myth-busting will demand we work very hard together on the business of mutual understanding. To succeed, more of our children must study in China, so must more of our teachers and academics. Chinese firms must do more business here – and more British firms must work in China. Managers and employees must pass back and forth. Brits should own great Chinese brands – and vice versa. Our politicians should know as much about Sun Yat-sen as they do about Abraham Lincoln. Chinese art and culture should not be alien. Globally, there should be causes – counter-poverty, climate change, tackling piracy – on which we work together. Our exchanges should become less ceremonial and more conversational.
The economic prize of globalisation and the huge new prize in Asia seems as certain as anything. A new global middle class is emerging, soon to be two billion citizens in size, in a global economy that will reach $150tn, three times greater than today.
That great tripling could bring extraordinary new riches to Britain, greater even than the empire 200 years ago. It would be almost impossible for Britain to shut itself off from change. But it is possible to imagine a country of merely grudging acceptance, where we limp along reluctantly at incalculable cost to ourselves.
If there's one lesson we should learn from Europe's truculent story and our economic success over three centuries, it is that we thrive on competition. Let's not lose that spirit. Let's be confident enough to throw in our lot with the changing world, to become full-blooded globalisers. In this new world, let's resolve to build a UK where we strike a better balance for working families between the prizes of globalisation and the price. Let's move beyond the comfort zone of our past and, like the pioneers of centuries past, let's look for new markets, new friends, new futures.
But let's also remember the lessons of our history. Times change. The world turns. The next few years may be very uncertain but it seems clearer now how this century is going to unfold. So let's not hang around. Let's get on with the job of turning east.
Liam Byrne's book Turning to Face the East: How Britain Can Prosper in the Asian Century is published by Guardian Books, £12.99. To buy a copy for £8.99 with free UK p&p call 0330 333 6846, or go to guardianbookshop.co.uk
     |
 |
| READ THE ORIGINAL POST AT www.guardian.co.uk |
