Treasury Select Committee Visit - China

Utterly amazing, is what I think of China........

From the visible lack of personal freedom (and the astonishing lack of concern about it, even from those who live with it) to the remarkable growth story and the vast economic ambition, all cloaked in an aspiration of 'harmony', China is like nowhere else.

Last time I came with a rucksack 20 years ago, and I remember the extreme poverty, the way we foreigners were literally touched and poked as if we came from another planet, and how everything was so dirty and run down. And the cockroaches...

Now, visiting Shanghai and Beijing as part of the Treasury Select Committee delegation, it was like entering a new world. The purpose of our visit was to look into the issue of Global Imbalances (i.e. the massive trade surpluses in the East - plus Germany- versus the massive trade deficits of the West). What role have global imbalances played in the financial crisis? How can a rebalancing take place? What will happen if it doesn't? What lessons can Britain learn from the way the Chinese government handled the crisis? What will Chinese economic reforms mean for Britain?

Huge questions, and my mind is still buzzing with the vast amount of information we gleaned from 5 days of nonstop meetings with Chinese officials, economists, business people and bankers and from the pretty inspiring visits to:

1. Yu Wu commodities market - the biggest under cover 'buyers market' in the world with over 60,000 shops under one roof and where you can buy literally every basic product under the sun. Buyers fly in from around the world to put in their orders. Apparently at one point 95% of the world's button supply came from this one market!

2. The astonishing TEDA - Tianjin Economic Development Area. Once barren salt flats, in 1984 (notice how long ago the concept was conceived...right at the start of the 'de-communising' of China) the Chinese Government granted to the Tianjin Municipal government the infrastructure (electricity, drainage, roads, trains, water etc) to build an economic zone here. It is one of many now sprung up across China. We took the high speed train from Beijing (30 mins) to Tianjin, 6th biggest city in China (population of 12 million). TEDA has 6 specialisations: electronics and telecommunications, automobile, biopharmaceutical, aerospace, new energy and new material. It's year on year growth is between 20 and 30%. It has new housing set around a lake with shopping malls, a golf course and brand new schools. Population is 550,000 people, referred to by the Vice Mayor of Tianjin as a 'village'. It is truly impressive.

Other visits were to a Tesco 'green' distribution centre and to a Chinese hosiery factory where we got a tiny insight into life for the workers. It's not glamorous even bearing in mind we were probably shown the best of it. Many workers come from rural areas, live in dormitories and send their pay home to their families. However conditions in both places looked reasonably good and most parts of China have a minimum wage that (from a low start) has risen each year by well over inflation. All part of the growth story, and probably the reason why there is little social unrest.

We held countless meetings, usually in the formal Chinese style where the two senior people (Andrew Tyrie on our side, as Chairman of the TSC) would sit side by side in large armchairs with a beautiful floral display on a table between them, with interpreters sat behind and the Committee members in armchairs lining the left hand side of the room and their own staff lining the right hand side. Tea would be poured, consisting of loose leaves in a mug of hot water and many polite speeches would be made before we got down to serious questions.

We learnt an incredible amount, not just about the facts of China's amazing growth, but also about the urgent need for greater economic and financial reform in China if they are to continue on their current trajectory. The 'elephant in the room' was always that of democratic reform. The closest we got to an answer on what their plans are, is that the Communist Party are bending over backwards to ensure greater accountability within a one party system. They believe (not surprisingly) that with a population of 1.3bn, a multi party system could not have achieved the recent dramatic improvement in quality of life. One official told us that now, in the 12th '5 Year Plan', there is recognition that economic growth is an insufficient target. Instead the target should be improved quality of life at all levels. In other words, there is a sense that provided growth continues at 8% or better year on year, and this translates into a real improvement in living standards across the board, then social harmony will be maintained.

So can China continue to grow at 8% year on year or better? Without exception the answer from the Chinese was 'yes'. Chinese productivity is rising fast; average income is rising 15-20% p/a from a low base; the response to the financial crisis of a massive increase in public sector infrastructure investment has created capacity for growth. Investment now accounts for 50% of GDP, both from public and private investment, the latter mainly in creating more capacity for export.

The big problems for China that most Government officials focus on are their 'internal' imbalances: per capita income is more than three times greater in the urban and East Coast areas than in rural regions leading to rapid urbanisation with both Shanghai and Beijing now over 20m population; domestic consumption rates are only about 30% (vs 65% in the US) - this is because there is no meaningful welfare net, healthcare or State pension as yet. The Government is moving to change this, now offering a pension of 120RMB (£12 a month) against an average p/c income of RMB 30,000 p/a, some subsidised housing etc.

Savings are a high proportion of income partly because government controlled deposit rates offer a negative net return - therefore people 'oversave' and there is also a tendency toward asset bubbles (housing, the stock market, even alcohol).

A key focus for Government must be to increase domestic demand and reduce reliance on exports. We went there thinking the Chinese should be as worried as we are about global imbalances, but the truth is that their perspective is a China- centric one: with the Eurozone turmoil reducing overseas demand, with the 6% appreciation of the RMB and with the growing cost base as domestic wages increase, they recognise exporting their way to success is not the ultimate answer.

So to grow domestic demand means real reform, and this is where it all became hazy......the local economists and bankers told us what needs to happen: enforceable land and property rights; market pricing for energy; ability for foreigners to list on Shanghai stock exchange; market interest rates etc etc, but it was unclear what will actually happen in this current 5 Year Plan. On the question of tax rates, where consumption taxes are around 60% (so another reason for low consumption) the Vice Head of the Financial Committee (sort of Andrew Tyrie's equivalent) said that tax reform is too difficult to tackle right now and must wait for future plans.

We also asked lots of questions on Chinese debt, around 18% of GDP until you add in 'local' debt, believed to increase the debt total to 80% of GDP. The local debt is due to the infrastructure investment. This is another hugely 'growth dependent' issue - if the economy grows the loans should be ok, but if growth stalls or there is a global 'shock' e.g. from a Euro breakup, then the government would have to stand behind the loans, and the Beijing IMF Rep suggested China would need another fiscal stimulus of around 3% of GDP.

It was all a very circular debate, pointing to the vital need for economic and fiscal reform leading to increased domestic demand and a lower reliance on export markets. I was left with the sense that growth is the only answer, but long term growth requires reform, and that is unlikely to happen anytime soon. The change of leadership at the top of the Party due in 2012 is another reason why reform will be slower than needed.

China offers huge growth potential to the UK - particularly in the traditional financial services areas such as pensions, insurance, savings and mortgages, where only a tiny proportion of the vast population have access to such products. In TEDA, one of the great success stories we were told about is a joint venture between Standard Life and a local Chinese company that now has 80% of the Tianjin market for life products.

Another big area of potential is in 'brands'. It really struck us how smitten the wealthy Chinese are with designer brands, whether it's cars, clothes or electronics. They have no major brands yet themselves, and we should be seizing the opportunity for taking a share of the fast growing luxury market. It's no surprise that Bicester Shopping Village is so popular with Chinese visitors to Britain!

We tried very hard to get a strong feel for Chinese views on the global picture. What did come across is that we certainly can't rely on China continuing its policy of slow appreciation of the RMB; we also got no sense of the timing of any planned deregulation of the currency. It was clear that China is focused on enhancing domestic growth but is not afraid of a continued high trade surplus. We had one interesting comment that China believes the world must save the Euro to avert global economic disaster, and that the Chinese will contribute via the IMF rather than the EFSF. They expect their role at G20, IMF and World Bank to continue to grow as they become an ever more important global player.

My overall impression is of a vast and largely untapped economic powerhouse. The hotels we stayed in were at the cheaper end, but with world class facilities and service - they have clearly got the hang of 'customer service' and the infrastructure (train stations, airports) is also world class. On the other hand, when you go onto wi-fi there is a slightly sinister message telling you that the police may monitor your internet usage and when footage came up on the BBC TV channel about Tibet, the programme shut down for a minute.

The trip probably raised more questions than it answered, but was a fascinating insight into what will soon be the world's biggest economy.

View comments

Post a comment

Towcester By-Elections

By-elections for the District Council and County Council took place in Towcester last week following the sad death of Councillor Di Dallyn and the resignation of Councillor Rosemary Bromwich.

I would like to congratulate Councillor Chris Lofts who took the seat on the County Councillor and Councillor Lisa Samiotis who gained the Town Councillor seat, both for the Liberal Democrats. I look forward to working with them for the benefit of the town.

I think both Councillor Ian McCord and John Gasking, the Conservative candidates deserve congratulating for a well fought and positive campaign. Ian is a well respected Yardley Gobion District Councillor and I know he would have been a strong voice for Towcester on the Council. John Gasking has also been a strong voice for Towcester and I wish him a speedy recovery from his recent illness.

Finally, congratulations to all those that turned out to vote in the by-election on a bitterly cold and snowy February Thursday! The 29% turnout was not bad considering the weather...

View comments

Post a comment

Treasury Select Committee Visit - Singapore

Singapore - the best place in the world to do business! That's according to the World Bank's 'Doing Business' Report.

I am on a Treasury Select Committee visit to Singapore and China and I see our job as 1. Promoting British business; 2. Understanding how financial services are regulated and what Britain can learn from them; 3. Working out whether Singapore is a 'threat' or an 'opportunity' for British financial services; 4. Understanding China's policy toward opening up her economy.

When we arrived we could immediately see why Singapore has such a high business rating. A huge, modern airport, no queuing for passport control or luggage. In fact they target no more than a 12 minute wait........Heathrow could learn something from Changi. And if there was one consistent message right through our visit, it was that efficiency, ease of doing business and openness to trade is key to Singapore's success.

We had a briefing from the High Commissioner, and then formal meetings with Standard Chartered, the Financial Scrutiny Committee of Singapore's Parliament, the British Chamber of Commerce, the Monetary Authority of Singapore (MAS) plus Temasek and GIC, the two fund managers who between them manage Singapore's enormous reserves.

Standard Chartered almost immediately allayed any concerns about regulatory arbitrage opportunities between the City and Singapore - their capital and liquidity requirements remain well above Basel III so even with retail ring fencing in the UK, it's hard to see why any bank would want to move to Singapore. It was also clear from MAS that they are cautious about the size of banks compared to Singapore's GDP...... In fact foreign banks (with the exception of US banks) are only permitted a maximum of 25 outlets (including branches and even ATMs) in Singapore. I was left with the impression that the hints given by bankers who appear in front of the TSC that they might leave London are pretty unfounded at least where Singapore is concerned.....

At the Chamber of Commerce we had a fascinating presentation on China vs Europe and the US. It brought home to us what a vast potential market China offers. With average per capita income of $4,000 per year, the Chinese spend only one third of it, versus the US with $47,000 and spending 65% of it! In the US there are 700 cars per 1,000 of population; in China only 10.

There was a highly unforgiving perspective given to us on the Eurozone. The good news is that Britain is not tarred with the Eurozone brush, and there is consistent and vociferous support for our austerity measures - keep going, they urge! However, Germany is considered to have seriously failed in its duty to shore up the Euro. The argument goes like this.....Germany and China are the two 'problem' economies in terms of global imbalances. (global imbalances meaning the huge trade surpluses of Asia and Germany vs the huge trade deficits of the US and the rest of Europe).

China's policy response to the imbalance has been to permit a slow appreciation of the Renminbi over the last decade (with a notable and unhelpful halt during the financial crisis). This has made Chinese exports gradually more expensive and imports relatively cheaper, therefore encouraging a slow rebalancing of trade.

Germany, on the other hand, has been locked into a relatively suppressed currency (the Euro) versus where the Deutsch Mark might have been. This has boosted their exports outside the EU at the same time as the Single Market has given them unfettered access to the whole of the EU. So Germany took the good times, but her response to the bad times is to force austerity on her neighbours rather than take the real financial hit herself. I don't recall any of those we met believing the Euro can continue without Germany's underwriting it.

GIC and Temasek have undisclosed funds under management, believed to total up to Sing$ 400 billion between them. GIC has a big office in London and bases their infrastructure investment team there. As Britain gets our massive infrastructure programme underway, I hope we will be working hard to attract external funding to relieve the burden on the taxpayer.

Our meetings with Standard Chartered, with Parliament and with MAS were a great advertisement for Statist intervention! All gave the strong impression of Singapore as a huge corporation, where private and public sector decide together on a strategy and then make it happen. The example of shipping finance was given, where decisions were taken to develop an expertise, so while Standard Charter and others recruited the experts, fast track visas were provided and infrastructure to promote shipping was put in place. The tiny local population (5 million, of whom one third are immigrants) means that domestic consumption is tiny relative to international trading volumes. Singapore is a true barometer for the world economy - shipping freight, oil transportation and financial services all mean that Singapore is the first to take the hit in a downturn, and the first to recover afterwards.

My reservation about Singapore's governance is the degree of consensus in their thinking. The MAS is staffed with seriously intelligent people, but they are accountable to the Minister for Finance and then he is accountable to the parliamentary scrutiny committee. It's a far cry from our hearings in Britain where the Treasury Committee directly holds the Governor and the FSA to account, openly challenging their analysis. In Singapore, it's not clear who or how challenge is made. Even their Parliament is almost all one party and there is no effective Opposition. It's fine whilst they continue to get things right, but 'group think' is one of the biggest dangers in any endeavour. On the other hand, it's not Singapore that just suffered a massive financial crisis...

So the answer to the questions: 1. There is huge goodwill towards Britain (apparently even spurred on by our visit) and business opportunities will only get better as the EU free trade agreement is finalised, hopefully this year. 2. Financial Services in Singapore are on an even tighter rein than in the UK.....worth remembering when UK banks complain about regulatory change. 3. In financial services, I saw no evidence that Singapore threatens London's position. However, partnership with the Asian and European time zones is a fantastic opportunity as Asia's economies become ever larger and more globally important.

Next stop Shanghai. We've barely had any sleep yet due to time differences and no rest at all due to nonstop meetings! Still, utterly fascinating and can't wait to get to China. The last time I went was 20 years ago backpacking with my Mum and sister and all I remember was cockroaches everywhere! I'm told it's changed........

View comments

Post a comment

Early Attachment Adjournment Debate

On Tuesday I secured the Adjournment debate in the House of Commons. The debate was called 'Public disorder of August 2011 and the case for Early Intervention.' 'Mob Rule' and 'Flaming Morons' were headlines we saw back in August as a minority of mindless thugs spread fear and intimidation through our society. There can be no justification or excuse for the actions of this minority; it was simply selfish opportunism which can have no place in our society.

We owe a great debt of gratitude to our police officers up and down the country who worked so hard to restore order in such difficult circumstances. I am pleased that strong action was taken against the rioters and that subsequently tough punishments have been handed out. No one made them loot and pillage, no one dragged them out onto the streets to take part. We have to get back to a Society where responsibilities are taken in equal measure to rights.

I am not seeking to justify or excuse the actions of the rioters in August but I would like to explore how we can prevent these scenes from ever being witnessed again. Early Attachment is the ultimate in prevention and I believe that prevention is not only far kinder, but far cheaper, than cure.

I put forward the case that the way to prevent the social breakdown we saw so vividly last August is by early years intervention from conception to age two. This means providing psychotherapeutic support for families struggling with the earliest relationship with their baby. I explained how secure attachment or 'parental love' literally hard wires the baby's brain. 'Loved' babies go on to become emotionally secure adults, able to hold down a job, make friends and keep a partner. Babies who are neglected or abused are likely to become the bullies, the victims, the mentally ill and the criminals - emotional damage done while the baby's brain is still developing has far reaching effects on our society.

It was a great pleasure to discuss the work of the Early Intervention charities OXPIP and NORPIP, who work to support families who may be struggling to bond with their babies. Helping parents to build the strongest possible relationships with their babies during the first two years produces huge benefits for that child as he / she grows up - and society also reaps huge dividends.

I was pleased to be given the opportunity to explain Early Intervention and highlight the impressive, vital and essential work that Parent Infant Projects are doing and can do more of in the future. I'm convinced that Parent Infant Projects can offer a massive contribution to mending our broken society and preventing scenes like the ones we saw on our streets in August.

View comments

Post a comment

New Anti HS2 Group Established

After the Secretary of State's announcement earlier this month to proceed with HS2, I decided to meet with colleagues to discuss how best to go forward with the campaign.

First and foremost I am against this project and will continue to be so because it is a waste of taxpayer's money, will not bring the benefits to the north that are claimed it will, is not environmentally friendly and will take far too long to deliver. I believe there are much better solutions to narrowing the North South and relieving capacity on our railway lines that can be delivered quicker, cheaper and in a more environmentally friendly way.

However, just because I am against this project does not mean that it is not sensible to discuss mitigation and compensation with the Government and HS2 Ltd if they are determined to go ahead with this project. If HS2 does go ahead then many communities are going to be affected but I do not want to see communities destroyed because of unforeseen consequences such as subsidence or social housing being placed in the wrong areas or houses in small communities becoming cut off and isolated.

I want compensation to be fair. If people want to move and can't sell their house then they need to receive compensation regardless of whether they officially qualify for the compensation schemes or not. If the route changes again we need to know what will happen to those homes who have already received a compulsory purchase order and I do not want to see people waiting decades before they see any kind of compensation. A lot of the talk surrounding compensation is regarding homes although we also have to ask questions about what will happen to businesses.

These are questions that were raised at a meeting with MP colleagues today and we urgently need answers to these questions very soon. I will be sending a letter to Justine Greening MP, Secretary of State for Transport that will be jointly signed by other MPs very shortly asking her these questions.

It was also agreed to establish a new group of MPs who are sceptical about this project. The new group will be known as the 'HS2 Compensation and Mitigation Forum' and will meet on a regular basis to discuss campaign ideas and share information. The Secretary of State for Transport, officials from HS2 Ltd and experts who have worked on similar projects will be invited to address the group to answer questions and offer advice.

It is vitally important that we keep up the pressure on the Government and colleagues and I are determined to scrutinise this project closely in every aspect and I hope that this new group will allow us to achieve this.

View comments

Post a comment

Dangerous and Reckless Cycling (Offences) Bill

In March last year I introduced a 10 Minute Rule Bill, 'Dangerous and Reckless Cycling (Offences) Bill'. 10 Minute Rule Bills do not usually make it onto the Statute book, simply because there is not enough time to see them all the way through the legislative process but they are a great way of raising an important issue with the Government.

The Second Reading of my Bill is scheduled to take place on Friday 20 January 2012, however it is number 27 on the Order Paper and usually only two or three Bills get read therefore I do not expect my Bill to be reached! I have produced a Bill text which has been published and can be read below:

Dangerous and Reckless Cycling (Offences) Bill  

I have also written to the Department for Transport to ask the Minister's opinion of the Bill and to encourage him to use it as a template for future road safety legislation.

View comments

Post a comment

HS2 Announcement

The Government have announced today their intention to proceed with the HS2 project. I wanted to provide you with all the information that the Government have produced today. You can view the relevant documents by clicking here.

The Secretary of State's Written Ministerial Statement is now on my website and can be viewed here.

The Secretary of State has announced that changes to the original route proposed have been made along the whole route in response to the consultation. In South Northamptonshire a longer green tunnel has been proposed past Chipping Warden and Aston le Walls and the route will curve to avoid a cluster of important heritage sites around Edgecote. These aim to provide additional mitigation for Aston le Walls, reduce setting impact on Grade I listed Edgecote House, avoid a scheduled momument (the Roman Villa site) and the possible location of the historic Edgecote Moor battlefield.

The alignment has been lowered and a green tunnel introduced past Greatworth, and a short green tunnel at Turweston. These changes aim to help mitigate landscape, noise and visual impacts as well as remove the need for a viaduct. Maps of the revised line of route can be found here.

As you know, I strongly support the need for better transport infrastructure but I continue to believe the existing HS2 project is not the right project and is not good value for taxpayers. I will continue to fight this proposal as strongly as I have before and will continue to try to convince the Government that there are better alternatives available.

View comments

Post a comment

The Day I Took a Year Five Lesson

I visited Yardley Gobion Primary School on Friday 9th December 2011.

Attending the school assembly I had the opportunity to talk to the whole school who were well informed about the role of MPs and Parliament.

During the assembly the school was presented with the International School Award for outstanding development of the International dimension in the curriculum by the British Council and not for the first time but for the third!

I also took the opportunity to take a lesson with Year 5 pupils. It was a wonderful experience to engage with the Year 5 children. It is one of the highlights of being an MP, and I took the opportunity to invite them to visit the Houses of Parliament which I really hope they will take up.

View comments

Post a comment

Value For Your Money

In an effort to be transparent about my work, I thought you might be interested to see an update of my parliamentary expenses so far this financial year (April 2011 to October 2011).

I do not claim expenses for accommodation either in Westminster or in Northamptonshire, nor do I claim expenses for any of my own travel costs on parliamentary business.

I run my office on a tight budget but with a view to making sure we can deal with the workload efficiently - I am conscious of the need to be very careful with taxpayers money. I have spent £10,500 on office costs (rent, printing, stationary, training for my staff etc) in the 7 months since April 2011. This is less than half the annual budget allowed by the Independent Parliamentary Standards Authority (IPSA) of £21,500, so we are well ahead of budget. My staffing costs for the 7 months since April are £55,900, which is again well within the annual budget of £115,000 provided by IPSA. Finally, my staff have claimed £1,260 in travel between Westminster and South Northamptonshire, in conducting 38 out of an allowed 96 single journeys.

Since election in May 2010, I have written over 5,700 letters in response to enquiries from more than 2,600 constituents. In the last year, I have spoken in 73 debates in the House of Commons, and have received answers to 77 written questions. Both of these are above average amongst MPs. I have voted in 84.33% of votes in this Parliament, which again is above average amongst MPs. If you would like more information on the work that I do, you can sign up for alerts at www.theyworkforyou.com.

I will continue to work hard to provide the best service and value for money that I can for South Northamptonshire.

View comments

Post a comment

The Prime Minister Was Right To Use The Veto

I agree entirely with the Prime Minister's approach at the European Council meeting last week. Stability in the Eurozone is clearly in the UK's national interest, as are protecting access to the single market and defending the financial services industry in the UK. The PM sought to achieve all these objectives and was forced to use his veto when it became apparent that other EU leaders were not prepared to allow Britain's own national interest to be taken into account.

The financial services industry employs nearly two million people in Britain, accounts for 10% of GDP, and generates over £50 billion in tax receipts annually in the UK. It is a vital national interest that must be protected. The UK is a gateway to the EU for financial services, but it is important that we also look to the faster growing markets of the Brazil, Russia, India, China and others around the world. We must not get tied down by EU legislation that would prevent our businesses accessing these markets.

Up until the credit crunch of 2008, EU policy on financial services was generally helpful to the City of London, expanding market access and liberalising financial markets across Europe. London was rightly seen by EU policy makers as a leader in the field and an asset to Europe. Since the crisis, the response from UK and EU policy makers has been markedly different. EU policy is generally to restrict activity of financial markets—the default reaction appears to be if you don't like it, ban it. UK policy, on the other hand, is to radically improve regulation and supervision, going further in some cases, such as the Vickers report on banking, than currently allowed under EU law.

There are currently nearly 50 proposals under consideration by the European Union which threaten UK financial services. Some of the most damaging include a Financial Transactions Tax, a ban on some short-selling, and a proposal that transactions on euro-denominated financial products are cleared only in the eurozone.

While having a significant interest in Financial Services, the UK may well be out-voted on matters in the EU. From 2014, the UK will have only 12 per cent of the votes in the Council of Ministers and 10 per cent in the European Parliament, yet it accounts for 36 per cent of the EU's wholesale finance industry and enjoys a 61 per cent share of the EU's net exports of international transactions in financial services.

Over the last two weeks, I have hosted meetings of the cross party group for European Reform and the Fresh Start Project where we discussed the issue of Financial Services. One idea that we have put forward is to negotiate for the UK an 'emergency brake' on EU financial services legislation. This could take the form of a 1 clause, UK specific legal safeguard which would give the UK the ability to block the effects of potentially harmful EU legislation.

Eurozone leaders continue to want to involve all 27 EU members in the treaty change required for closer fiscal union in the eurozone, and to use the institutions of the EU to implement this fiscal union. I don't think it is practical for a new treaty without Britain to be implemented and I suspect we will see other EU member states coming to the same conclusion pretty soon. There is a long way to go, not just in this particular treaty negotiation, but also to stabilise the euro—the crisis is far from over. With this backdrop, the PM is absolutely right to be negotiating in Britain's best interests.

View comments

Post a comment