GOOD MORNING FROM LONDON
#1 CHINA EXTRACTS – RARE EARTHS
#2 CHINA AND DOMESTIC CONSUMPTION
#3 CHINA AND JACK PERRY. PART 5
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#1 CHINA AND RARE EARTHS
THE WALL STREET JOURNAL
“According to The Wall Street Journal, Chinese exports of critical minerals to the US rose in June, following the latest US-China trade accord, but still remain well short of their 2024 levels. China’s export of rare earth magnets to the US was down 52% last month when compared with June 2024, which believe it or not represents a considerable increase over May, when those exports were down a whopping 93% from the previous year. These declines, which seem pretty fixed at this point, are forcing US firms to find ways to cope with shortages and to prepare for the possibility that US-Chinese tension might flare up again and worsen the situation.”
GRAHAM PERRY COMMENTS;-
It is possible to track China’s handling of its present relationship with the U.S. from Hegel through to Marx and Mao Tsetung. Things have two key characteristics which are direct opposites – hot and cold, wet and dry, debate and confrontation, friendship and animosity. The list is endless. The key feature is that the conflict between opposites leads to progress – a new balance which remains in place until a new imbalance forces a change and the search for a new balance begins.
The essence of the relationship between China and the U.S. is difference. There are similarities – the two nations do need to deliver progress and material advancement to their respective peoples; the governments do have political groupings to whom they are ultimately responsible – either at the ballot box or on the streets. But it is the differences that are the dominating aspect of the relationship. The two countries may talk and discuss and negotiate but do so because they have major differences. Agreement is temporary but disagreement is permanent.
China is a Socialist country administered by a Communist Party. The U.S. is a Capitalist country administered by Republicans or Democrats. The two political systems are quite different. Their long term goals whilst similar in one respect – wanting a better life for its peoples – are dissimilar in the sense that they view each other as long term rivals and opponents. Is it Capitalism v Communism or is it an Established Power (U.S.) v a Rising Power (China). Is it a question of Ideology or is it a question of Power?
The relationship is about concord and discord; about harmony and confrontation; about periods of civility and agreement and periods of animosity and confrontation. Neither country is “going away”. Long term peace is unattainable but long-term aggression is not essential. The world is big enough to accommodate both once they realise that both countries are here to stay. Until that moment is reached there will be good days and bad days. The present relationship is about bad days – tariffs. The differences will be resolved – each side will concede – one side more than the other. It depends on the balance of power re Rare Earths v Semiconductors.
The U.S. focused on semiconductors and since 2018 has pursued a policy of refusing to assist China to develop its semiconductor sector but in so doing the U.S. overlooked its own vulnerability re Rare Earths. The informed conclusion is that the U.S. deficit re Rare Earths is much greater than the China deficit re semiconductors. A settlement will be reached which will favour China more than the U.S. and peace of a kind will break out. But it will be temporary,
The countries know each other but the U.S knows China less than China knows the U.S. due, in part to the long period – from 1952 to 1982 – when the U.S refused to allow any PRC national to visit China. There is a big intellectual self-inflicted deficit on the U.S. side. There is still a long “getting to know” process to be played out.
GRAHAM PERRY
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#2 THE PRIORITY – DOMESTIC CONSUMPTION
GRAHAM PERRY COMMENTS;-
In a phrase China is too dependent on Investment and Exports – both are important generators of economic activity but more is needed. Why?
Exports are a positive and not a negative aren’t they? Exports promote increased income to the country by the sales in foreign countries of Chinese made goods. Exports help to pay for Imports which are needed to bring about the expansion of China’s development – oil in particular but also soya beans and semiconductors. So what is the problem with Exports? They do worry fellow trading partners who find that Chinese made goods compete aggressively with their own domestic companies. The foreign countries shout “Foul” and demand curbs on the volume of Chinese goods. Chinese made motor cars are creating big problems for domestic car manufacturers in the U.S., and Germany in particular.
There is a second point – foreign companies complain that the lack of demand in China for Chinese goods creates an overflow which compels Chinese manufacturers to seek foreign markets. “The Chinese are coming” is the cry that creates resentment against more Chinense exports being allowed entry into the E.U, the U.S.A. and countries particularly in South America.
Investment in China has done much to stimulate the Chinese economy. So why not more investment? China has the money and the famous U.K. economist – John Maynard Keynes – urged governments to invest in public works – roads, factories, ports, airports and infrastructure generally – in order to generate activity across the economy and, in particular, to put money in the hands of the public at large.
The public would spend in shops, on clothes, holidays and family items and thereby trigger additional investment and increased consumption. But Keynes theory applied to economies in recession where the people lacked money to spend. Keynes’ solution was to build roads, ports and power stations But that is not China’s problem today. People do have money and they do spend some of it on consumer goods. The problem is that they do not spend enough.
China needs its people to save less and spend more. China needs a thriving domestic economy which would make it much less vulnerable to the dramatic changes in the world economy.
The Chinese economy needs to be rebalanced. Too much Investment and too many Exports are now a constraint on progress in China. The solution is not to cut back Investment or to reduce Exports. The solution is to increase demand in China so as to encourage investment to create more goods for sale to Chinese consumers instead of for sale to foreign consumers. The Chinese people hold the solution to China’s unbalanced economy in their own hands. They need to spend more. OK – but how?
There are two challenges – first, to raise income levels so that the Chinese people have more to spend and, second, to encourage the Chinese to save less and spend more.
China’s population is unique in that it has a lower propensity to spend even in times of economic growth. Double digit annual growth boosted China following its admission to the WTO. Annual growth is now 5.3% – a figure the U.S., the U.K. and the E.U countries would love to achieve and China can grow faster but the economy must be balanced and for that important target to be achieved the domestic economy needs to thrive and grow. So how to get the Chinese to spend more?
- Higher wages to increase the number of active consumers.
- More social safety nets – for the unemployed in particular.
- Tax reductions.
- Government vouchers instead of pay slips – which can be used only in shops.
- Increased tourism from abroad – leading to greater expenditure in China.
- State paid childcare enabling consumers to increase husband and wife family income.
- State promotion of innovation and the production of new products that appeal to consumers.
The economy needs to rebalanced – away from Exports and Investment and towards consumer spending. The biggest challenge is to change people’s natural inclination to save rather than to spend. It is the best way to insulate China from external economic shocks and thereby increase its level of independence.
GRAHAM PERRY
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# CHINA AND JACK PERRY – PART 5
THE MOSCOW INTRNATIONAL ECONOMIC CONFERENCE 3-12 APRIL 1952,
WORLD WAR II
In 1945 the Soviet Union was the wartime ally of the U.S. and the U.K. – a relationship cemented by the Normandy Landings in June 1944. The German Nazis were caught in a vice-like grip as Stalin ordered the Red Army to push towards Berlin from the East and Eisenhower led the U.S./U.K and Allied Forces from the West. The defeat of Hitler and the Nazis was the common goal of the U.S.S.R, the U.S.A, the U.K. and the allied forces including troops from Canada, Australia and India. The Nazis were the common enemy. They had to be defeated.
The Allies and the U.S.S.R. were triumphant. Hitler and the Nazis surrendered. The War in the Far East continued until the beginning of August 1945 when the U.S. dropped two atom bombs on Nagasaki and Hiroshima and Japan surrendered. The end of hostilities and the outbreak of peace marked the end of one era and the commencement of a new era.
THE COLD WAR
The most significant post War development was the Cold War announced by Winston Churchill in his famous 1946 Fulton Missouri speech when he declared that “from the Baltic in the North to Trieste in the South an Iron Curtain has descended across Europe.” The former Allies no longer sang from the same song-sheet. The Cold War now dominated international relations. It was now the U.S.S.R. who had lost 27 million people in World War II against the Rest. Well, not quite.
CHINA MAKES AN APPEARANCE
The U.S.S.R. was not alone. In 1921 the Communist Party of China was (CPC) formed with the aim of stirring the 600m people of China to throw off the yoke of prolonged poverty exacerbated by the collective colonial power of the U.K., the U.S., France, Germany and Japan. Led by Mao Tsetung, China, who had suffered a Century of National Humiliation from 1840 to 1949, was weak, impoverished and war weary after three Civil Wars against Chiang Kaishek’s KMT interspersed from 1931 to 1945 by the invasion by Japan. China was referred to as the Sick Man of Asia. It was at a low ebb. But it was triumphant – and determined to rebuild the country.
Led by Mao and the Party, China took its first faltering steps on the international stage to restore the self-respect of its people who had endured so much in the previous one hundred years. The Korean War pitted the U.S. led by General Macarthur against China led by Mao and the Party. The War ended in an Armistice but the U.S. had failed in its declared intention of eliminating the new Communist regime. An uneasy peace has prevailed ever since at the 17th Parallel between North Korea and South Korea.
Three dates are significant; 1848 – the publication of the Communist Manifesto; 1917 – the Bolsheviks cast aside the Romanov Dynasty and a Communist Party assumed power in Moscow; 1949 – Mao and the Communist Party announce the inauguration of the People’s Republic of China. The Moscow International Economic Conference held in Moscow in April 1952 was held, therefore, at a key juncture in international affairs.
THE INTERNATIONAL ECONOMIC CONFERENCE IN MOSCOW – APRIL 1952
It was triggered by a determined intention to promote trade between the West – the U.S. and Western Europe – and the Soviet bloc including China. As Jack states in his autobiography – From Brick Lane to the Forbidden City – “the embargo had been instituted by the United Nations but was in fact applied by the Americans. No goods of any kind could go from the U.S. to China. In Western Europe, however, it was applied differently. The embargo was against engineering or metals but consumer goods or raw materials for the Chinese could be supplied”.
Dr Ji Chaoting told Jack that “it was his job (Ji’s) to try to get a number of companies to start trading with China and he also revealed to me that he was instructed not to get involved with any of the ‘old China hands’. They wanted new people and were combing Europe to find such suppliers. I discovered a few years later that his search had taken him to Belgium, France and Holland”
Jack continues “We met for lunch on a few other occasions and each time he said little about himself, talking mostly of Chinese policies and aspirations. At the time my knowledge of the country was limited to a few books I had read in 1949 when the People’s Republic of China was formed, which made me sit up and take notice. However Dr Ji increased my interest. During the course of these initial meetings there was no suggestion that I should consider trading with China. I had an inkling that I was to be involved in some way but had no idea how”.
PROFESSOR JOAN ROBINSON
Professor Joan Robinson now becomes an important figure. She had been approached by a Polish colleague, Oskar Lange, whom she knew well, who had commenced moves to hold an international economic conference to explore the promotion of trade between East and West. Joan Robinson was always blunt and straightforward and pressed Jack to form a UK delegation to attend the Conference. Joan was a formidable figure – as well as being a leading economist – and Jack acquiesced. His own business focus remained the dress business but he became active in putting together a group of businessmen, MPs, Peers from the House of Lords and Trade Unionists to form the UK delegation. Names included Lord Boyd-Orr, Professor Charles Madge, Maurice Dobb of Cambridge University, Alec Horsley of Northern Dairies and MPs – Sydney Silverman, Henry Usborne, Emrys Hughes, Harold Davies and George Drayson. Jack was the Secretary of the British delegation and made a leading speech at the Conference.
The April 1952 Moscow International Economic Conference was an important East-West event because of the confrontational nature of relations between the U.S. and the U.S.S.R. The Conference was frowned upon by the U.S. and U.K, governments because reaching out across the divide ran counter to the two government’s policy of implacable opposition to the U.S.S.R. In the view of Washington and London there must be no entente cordial. None.
But the Conference was important in another sense because it led to a proposal from Dr Ji direct to Jack that led to the initiation of trade and business links between China and the United Kingdom – much to the disapproval of the U.K. Conservative Government and, particularly, Foreign Secretary and Future Prime Minister Anthony Eden.
GRAHAM PERRY
CHAPTER 6; DR JI CHAOTING MAKES A PROPOSAL
