China invests in UK Plc

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China’s government wants its economy to grow more sustainably. Currently, the Chinese economy is growing at a rate of 7.8% in the period July to September, compared to 7.5% in the previous quarter. However, this is significantly lower than the high and unsustainable rates of growth that the Chinese economy experienced over the last decade. The Chinese government have set a target growth rate of 7.5% over the next year and analysts believe that this will be achieved.

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China invests in UK Plc

  1. 1. Andy Reeve The Grange School, Hartford, Northwich October 2013 China invests in UK Plc China’s government wants its economy to grow more sustainably. Currently, the Chinese economy is growing at a rate of 7.8% in the period July to September, compared to 7.5% in the previous quarter. However, this is significantly lower than the high and unsustainable rates of growth that the Chinese economy experienced over the last decade. The Chinese government have set a target growth rate of 7.5% over the next year and analysts believe that this will be achieved. However, the manner in which China grows is also a target for its government. Currently, China experiences growth due to the high levels of export-led growth and also large governmental infrastructural investment projects. Investment by firms represents 48% of Chinese national output, compared to 15% in the USA, 14% in the United Kingdom and 20% in Japan. However, the level of consumption in China only accounts for 34% of China’s national output, whereas it accounts for 72% in the US, 66% in the UK and 61% in Japan (See chart) .The Chinese government want the proportion of investment and consumption to switch – as they see this leading to more sustainable long term growth. However, Michael Pettis, reporting in the Financial Times, doubts that this is a feasible objective. He argues that if China aims to increase its proportion of consumption to approximately 50% of GDP then this will take many years. Chinese GDP average annual growth of 6 or 7% would require growth rates in consumption of 10 -11% per annum over a decade for China to rebalance to any extent. The Financial Times report states that “China was not able to achieve such high consumption growth rates even in the best of times, when it and the world were growing much more briskly, and it will prove near impossible for China to manage such high consumption growth under weaker Chinese and global conditions” China USA Japan UK 0% 10% 20% 30% 40% 50% 60% 70% 80% The data for Consumption as % of GDP is China 34%, USA 72%, Japan 61%, UK 66% (source: World Bank 2013)
  2. 2. Andy Reeve The Grange School, Hartford, Northwich Chinese Investment in the UK Recently, the Chancellor, George Osborne visited China with other officials from the United Kingdom, including the charismatic Mayor of London; Boris Johnson. The aim of the trade delegation was to foster increasing trading links between the two nations. The headlines at the end of the visit were that the Government plan to allow Chinese state controlled firms to invest in the UK’s nuclear fuel industry. Osborne has announced that originally the Chinese investment will only be a minority holding but that, over time, the ruling will be relaxed to allow them to become majority stakeholders. China has invested heavily in continental Europe over the past few years. In 2012, it is reported that Chinese state-owned companies invested more than $12.6 billion (£7.8 billion) in the continent – a year on year increase of 20%. In October, the Chancellor also announced a £800 million investment by the Beijing Construction Engineering Group (BCEG) in the development of “Airport City” in Manchester. The development, a joint venture between Manchester Airports Group (MAG), BCEG, Carillion PLC and the Greater Manchester Pension Fund will develop 5 million square feet around the airport, creating hotels, advanced manufacturing sites, logistics hubs and warehousing facilities. It is estimated that the development will create 16,000 new jobs in the region. Overall, the United Kingdom continues to attract inward direct investment. During 2012, it saw a 22% rise in inflows of inward investment. Foreign Direct Investment (FDI) was valued at £40 billion, whilst global inflows fell by 18% to £0.88 trillion. This places the UK in 6th position for attracting FDI – behind the USA, China, Hong Kong, Brazil and the British Virgin Islands. Visit the video clip at the following website www.bbc.co.uk/news/business-24576773 Other sources www.dailymail.co.uk/travel/article-2458582/800mChinese-investment-Manchesters-Airport-City-UKvisa-rules-relaxed.html www.chinadaily.com.cn/china/2013-01/04/content_ 16078867.htm www.ft.com/cms/s/0/7a0f1660-ddc0-11e2-892b00144feab7de.html#axzz2ij1AZzon

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