Give a warm welcome to China, our new best friend

The US dominance of the past century will soon be coming to an end


So we are cosying up to China. And why not? We are a trading nation and China will within the next 10 to 20 years pass the United States to  become the world’s largest economy. It is already the world’s largest car market, its largest oil importer, and to take a less positive yardstick, its largest emitter of carbon dioxide.

But if closer relations suit us, these also suit them. China’s currency, the renminbi, will gradually be transformed to become fully convertible, held in central bank reserves and used for an increasing proportion of global trade. And its principal offshore trading centre will be London, because this is the world’s largest foreign exchange market. It is also the largest centre for managing cross-border investment. So we welcome Chinese banks and investors to use London as a base, just as we make it easier for Chinese tourists to get visas and come and shop. About time too, you might think, on both counts.

However, while we should welcome China as a more important trading partner, we should be aware that this is not an equal relationship. We are very much the junior partner. To understand how we fit in, first a look back and then a look forward. Thanks to the work of the economic historian, the late Angus Maddison, we know a lot about the relative size of the world’s various countries, going right back to the time of Christ. China was the world’s largest economy from around 1500, when it overtook India, until the late 1880s, when it was overtaken by the US. So, on a 500-year perspective, China’s natural place is to be number one. The US dominance of the past century will be over.

Of course, there will not be any one single moment when the baton is passed on, and, of course, Chinese people will remain much poorer in income per head than Americans. But this idea that US dominance is coming to an end is evident in, for example, criticism by the current Chinese leadership of the way the US is handling its debt limit issue.

Now look forward. Estimates of the date when China passes the US range from 2020 to the 2040s. The date depends on how you do the sums, in particular what exchange rate you take. However, I have not seen a single projection, not one, suggesting the US will remain number one beyond 2050. I find the BRICs studies by Goldman Sachs the most persuasive and their passing point is in the late 2020s. Another Goldman study projects the Chinese exchanges passing Wall Street in terms of market capitalisation, leading to the nice notion that a nominally communist country could simultaneously become the world’s largest capitalist one.

We fit into China’s world vision in a number of ways. We are not important enough to be a threat, unlike the US. Indeed, we could be a useful counterweight to the US, certainly in cultural terms, though of course not in economic terms. If you doubt that, ask why so many Chinese families choose to have their children educated here.

We have reasonable relations at a practical level. Though, in Chinese eyes, we mismanaged the run-up to the handover of Hong Kong, we had created a framework there for Chinese people to prosper, which became a model for development on the mainland. China also took our advice, and that of Germany, in the gradual liberalisation of the economy during the 1980s. The Russians, by contrast, listened to ideological American economists and it was a disaster.

So while we are, and will remain, junior partners, we are important and interesting ones. We can be useful to China, and they can be useful to us. That is not a bad basis for a relationship.

Ireland’s austerity agony is nearly over

Ireland’s last austerity budget was duly unwrapped yesterday. It is “last” in the sense that it prescribes one more year of grind before the country reaches, if not sunlit uplands, at least the prospect of modest growth and rising employment. The debts, alas, remain. However, Ireland may well return to the markets as a welcome borrower. The yield on its 10-year debt is down to 3.7 per cent, much lower than those of Italy and Spain. So the implicit chance of a default is much lower than theirs, and only one point higher than the UK. Welcome news not just for Ireland but also for the eurozone, which desperately needs a success story.

But if this is success, what is failure? Irish people have lost roughly 20 per cent of their real incomes as a result of the crisis – they are 20 per cent poorer than they were in 2007. More than 200,000 have moved abroad for work, with some 85 per cent of those in full-time jobs and reporting much higher satisfaction than before they left. A visit to Dublin showed me just how much of a sense of grind there is, and Dublin is doing much better than the rest of the country. We should welcome the prospect of an end to austerity, but what a price has been paid, and will continue to be paid.

React Now

  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Ashdown Group: Data Scientist - London - £50,000 + bonus

£35000 - £50000 per annum + generous bonus: Ashdown Group: Business Analytics ...

Ashdown Group: IT Project Coordinator (Software Development) - Kingston

£45000 - £50000 per annum: Ashdown Group: IT Project Coordinator (Software Dev...

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Day In a Page

Read Next

If I were Prime Minister: I'd make sure we were more gentle with the mentally ill

Vaughan Bell
Nicola Sturgeon and her former boss Alex Salmond  

I voted Yes in the referendum – but that doesn't mean I'm going to vote for the Tory-esque SNP

Alasdair Clark
General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'
Sarah Lucas is the perfect artist to represent Britain at the Venice Biennale

Flesh in Venice

Sarah Lucas has filled the British pavilion at the Venice Biennale with slinky cats and casts of her female friends' private parts. It makes you proud to be a woman, says Karen Wright
11 best anti-ageing day creams

11 best anti-ageing day creams

Slow down the ageing process with one of these high-performance, hardworking anti-agers
Juventus 2 Real Madrid 1: Five things we learnt, including Iker Casillas is past it and Carlos Tevez remains effective

Juventus vs Real Madrid

Five things we learnt from the Italian's Champions League first leg win over the Spanish giants
Ashes 2015: Test series looks a lost cause for England... whoever takes over as ECB director of cricket

Ashes series looks a lost cause for England...

Whoever takes over as ECB director of cricket, says Stephen Brenkley
Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power