Margareta Pagano: Obama's nod to the new global superpower

'Please be nice to us' was the subtext of the President's words as China begins to challenge the West's domination of the world
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The Independent Online

Every century or so there is a shift in geo-politics so powerful that it shakes the world order from top to tail.

We are at the early stages of one of those periods now as China rises again in the East and the sun sets on the West. What doesn't often happen, though, is that the incumbent ruling power itself hands over the baton to the successor in broad daylight. But that is, in effect, what President Barack Obama did when he greeted the 150-strong Chinese delegation to Washington last week for the latest US-China Strategic and Economic Dialogue. The President didn't explicitly give the baton to Vice-Premier Wang Qishan, of course, but he might as well have.

Instead, he chose his words cautiously, declaring a new era of "cooperation, not confrontation" between the two superpowers. But what the President was really saying was, do please be nice to us, we really need your money for our US Treasuries, and promise to get a move on and sort out our fiscal deficit and the yawning trade gap.

The Chinese need us too, but not as much as we need them, certainly not for now. This is because China has undergone the most staggering transformation, turning itself in no time at all from a country dependent on exports for growth, to one that generates its own demand. And that demand is extraordinary. Here are some numbers from Chris Watling and James Wright of Longview Economics. With 1.3bn people, the pace of urbanisation is speeding along at 2.6 per cent, adding millions of souls to the already bulging cities in the east. Demand for oil has doubled over the past 10 years and is likely to at least triple over the next few. A decade ago, China guzzled up a 10th of the world's copper; this year it will consume a third. Much of this will go to build the 41,000km of new railway planned for the next 15 years – there are 70 railway projects, costing around $732bn – and 5,000km of tracks are being laid this year alone.

It's the pent-up demand which is even more mind-boggling. Only four out of every 100 Chinese have a car – can you imagine how many more cars are going to be built if they are to catch up with America, where 80 out of 100 people have a car? Then there is electricity – each person in China consumes about 1,924kWh – compared to 12,793kWh in the US. No wonder China is gobbling up the world's coal – last year it used 43 per cent of global supplies. It's also why China is stockpiling strategic oil reserves in 20 countries, signing loan-for-oil agreements, as well as building three giant pipelines, down to Burma and into the Middle East and through to Turkmenistan, to ensure oil supplies and, more importantly, energy security.

And the boom is at every level; the Shanghai stock market has roared by 85 per cent this year and new issues are being snapped up frenetically by small investors. But, on the flip side, life is still incredibly tough for most Chinese. It takes the average householder a couple of year's income to pay for one "normal" visit to hospital, and hardly anyone has a pension – one of the reasons why the Chinese only spend about half their savings and why the US can't expect the Chinese to keep funding its debt at the same level.

In the short-term, the West can benefit from China's boom, which is fuelling another super-cycle in commodities. Buying into mining or resource stocks and other emerging funds is one way for us to invest in their growth. But, in the long-term, if the West and the East really do want a harmonious, symbiotic relationship, then we need our own new industrial revolution too, when we start, again, making things that the rest of the world wants to buy. I leave you with one more number – at Imperial College in London there are 6,849 British students studying science and engineering degrees – and 1,351 Chinese students.

We need to get cracking.

Yes, Sir Win is a charmer, but where's the logic in giving him the Lloyds job?

White knight, or white elephant? That's the question everyone in the City is asking about Sir Win Bischoff's appointment as chairman of the Lloyds Banking Group. No one I spoke to last week can understand the Government's logic of hiring another ex-banker to fix the problems. I know Sir Win a little; he is utterly charming and an old-school relationship banker who got caught up with the Citigroup lending frenzy. He may well be more than capable – and perhaps still has something to prove – of running Lloyds but the real issue is why company boards and the Government are so useless at imaginative appointments.

I don't buy the argument that there aren't enough good men and women to become non-executive directors and chairmen. Not only is this nonsense, but it is simply not true that you need to be an ex-banker or financier to be on a bank's board. There is nothing too complex to explain to an intelligent person. It's a bit like saying you need special qualifications to be a prime minister, or a US president. A former banker who now coaches bankers, Philippe Truffert of Carpe Diem, goes even further – he says it's a myth, perpetuated by those seeking to preserve the enormous powers of those that run the institutions. Heading a board is about leadership, about being independent and courageous enough to take on a board. But most bank boards are full of inherent conflicts because they choose people who don't challenge them. That's the real point and it's why non-execs should probably be chosen by shareholders; and shareholders should start acting responsibly to their ultimate owners, the public, through our pension funds. When the next crisis hits – and it will – it's bound to be even more severe than this one and with the same sort of people in charge. As Albert Einstein put it so brilliantly: "You can never solve a problem on the level on which it was created."