China’s power is truly extraordinary

Allister Heath
REMEMBER the days when manufacturing was concentrated in the G7, while emerging economies supplied raw materials and components to feed rich nations’ demand? If you do, you are clearly showing your age. Even in 2008, as Stephen Lewis from Monument Securities points out, China produced more steel than the USA, the EU and Japan put together. Perhaps that is not surprising any more. But what will still shock many is that China is now also by far the world’s leading car producer, turning out 13.8m units in 2009, twice as many as second-placed Japan’s 7.0m units.
The fifth and sixth positions were held by South Korea and Brazil respectively. China’s share of world car production rose from 3.6 per cent in 2000 to 8.6 per cent in 2005 and 22.6 per cent in 2009. Output in the West may recover slightly this year but that won’t make any real difference; the strength and intensity of the Chinese tidal wave makes it wholly unstoppable, while Western markets remain ludicrously over-supplied with low-productivity plants that are not operating at full capacity but that cannot be shut down for political reasons.

It is not only China that is taking over the global car market. From 2000 to 2009, India’s production of motor vehicles rose more than threefold while Brazil’s doubled. Meanwhile, car output in all the “advanced” economies, including even Germany, declined, the Monument Securities figures reveal. Given that hardly any cars sold in the UK at present come from China, India or Brazil, the scale of the challenge facing Western manufacturers is clearly even more monumental than previously realised. The truth is that there is very little hope, apart from in a few niche areas or when items need to be produced very close to their markets for ease of supply. David Cameron’s strange claim – last week, during one of his trips abroad – that “we are actually starting to reindustrialise some parts of Britain” was bizarre. Of course, manufacturing output is growing again for cyclical reasons, which is good news. But that has nothing to do with the coalition government’s policies (in fact, their sound budgetary measures, by pushing up sterling, will inadvertently hit exports) and no renaissance in manufacturing lies on the horizon.

Industries in which we could still be competitive include finance, business services, research and development, high tech manufacturing, design, arts and entertainment and education. So it is bizarre that the coalition seems to be spending so much time bashing the banks: if we are to earn a living as a nation over the next few decades, it won’t be by making cars.


My story of the day: The forecast from the Centre for Economics and Business Research that the banking bailout will yield a profit of £19bn for the UK taxpayer. This newspaper has been predicting this for ages – yet hardly anybody is aware of the facts. This is not to claim that bailing out banks was a good thing – in fact, it was an economic outrage caused by a defective macroeconomic policy and regulatory system – merely that taxpayers’ weren’t ripped off (they actually ended up exploiting those banks’ original shareholders).

If the bailout cost nothing and even made a profit, why is the deficit so high? The answer is general government overspending, not handouts to the City. The sooner people understand this, the better for everybody.