United Kingdom and China

Lord Stevenson of Balmacara Excerpts

Thursday 7th November 2013 Lords Chamber

[Lord Stevenson of Balmacara (Lab)]

My Lords, I thank the noble Lord, Lord Dobbs, for securing this debate and for his wonderful introductory speech in which he managed to give us a sense of focus. He led us in what the right reverend Prelate the Bishop of Guildford called “an exchange of gifts”. I thought that was a very apposite phrase. Who can complain about a debate in which there is poetry—if you can say that limericks are poetry. The noble Baroness, Lady Valentine, was kind enough to share her thoughts, an aperçu, about some of the problems that the Government have faced in relation to tourism and trade.

I also pay tribute to the two excellent maiden speeches that have graced this debate. Interestingly, they managed to reach the heart of the debate, possibly in an unscripted way, but we benefitted from that. The noble Baroness, Lady Neville-Rolfe, spoke about her experiences in China and the lessons we could learn from the way in which trade is done there. The noble Lord, Lord Whitby, spoke about work that is happening in Birmingham—how investment changes things in a locality—that is the reverse of the coin. These were both influential and helpful to our understanding of this debate.

I add my congratulations to the Minister for a happy birthday. We have not had enough of the noble Lord in this House and are sorry to lose him so quickly. Ironically, as well as today’s debate, we are meeting again next week in another debate, so we are going out in a rush together. As many noble Lords have said, we are sorry that the Minister will not be with us as we go forward into the New Year.

There seems to be common ground that, in addition to a wider understanding and perspective on China, the key to the present relationship is in improving our exports. That is desirable, possible and even necessary. The UK currently exports $474.6 billion a year. We are roughly the 10th largest exporter in the world. However, we are dwarfed by the amount that China exports, which is more than $2 trillion, significantly more than the United States which exports $1.5 trillion. UK exports to China have grown in the past decade from $0.5 billion to nearly $3 billion. This is welcome, but it is from a very low base. In the first two decades of China’s move towards economic openness, the truth is that we have lagged very far behind Germany and France in penetrating Chinese markets. According to a recent article in the Economist, we export only about 50% of the amount that France does and 30% of what Germany does. Our exports to China are only just surpassing our exports to Italy. The graphs crossed in 2011. As my noble friend Lady Dean said, we still export more to Ireland.

There are no major political differences in our wish to improve our export performance, including to China. As part of this debate, we need to examine and address the reason for our continuing poor export performance. Noble Lords are aware that the National Audit Office published a report recently on how we support exporters overseas. It makes for interesting reading. It says that exports need to grow by 10% a year, every single year, to meet the Government’s target of doubling our exports to £1 trillion by 2020. It goes on to say that there seems to be no credible plan or measurement of progress to reach that target. Obviously, UKTI has a key role but it supports too few exporting British firms, according to the NAO. That is not good enough. We have to help more firms to export. Government cannot bridge this gap by itself; it is the firms that do it. We have to help those that already do to export more.

Finance is important in underwriting that. As Daniel Kawczynski, a Conservative MP who has written a report into UKTI performance, has said, over the past 18 months, just 18 small companies have used government export guarantee products which are aimed specifically at them. If we do not deliver more from that route, we are not going to be successful overall. To address this weakness requires an overall system-wide approach within the UK to guide us forward—a rethink of our industrial strategy over the recent period. Whether we pursue this successfully will matter far more in the long run to our economic relationship with China than anything else.

Labour has a credible agenda which the coalition seems to lack. This includes financing innovation, building skills, developing our regions and reforming our banks to ensure that they support the real economy. The economic recovery seems finally to be getting going again after a long and protracted period of stagnation, and that return to growth is something to celebrate and nurture. However, with business investment still on hold, bank lending to SMEs still contracting, youth unemployment still very high and living standards still falling for millions in this country, for most people, there is so far no recovery at all. This is no time for complacency.

In a recent speech the Shadow Chancellor said to the CBI:

“Britain has always succeeded, and can only succeed in the future, as an open and internationalist and outward-facing trading nation, with enterprise, risk and innovation valued and rewarded. Backing entrepreneurs and wealth creation, generating the profits to finance investment and winning the confidence of investors from round the world … That is why we believe it is so vital that government works closely with all businesses—large and small: to promote open markets, competition and long-term wealth creation; and to reform our economy so that, by using and investing in the talents of all, we can deliver rising living standards not just for a few but for everyone in every part of the country”.

We have heard today from several noble Lords that they are optimistic that the UK economic relationship with China will improve as China makes the inevitable transition from being the workshop of the world to being a knowledge and service economy. As this occurs, the argument goes, the Chinese will demand more of our excellent services in areas such as finance, the wider professions, health and higher education. As the noble Lord, Lord Haskel, warned us, we must be careful. In recent years, British universities have congratulated themselves on the large numbers of Chinese who have chosen to study in the UK. They have been welcomed here, and they have also become necessary to the survival of many of our departments and courses. There are various reasons why these students choose the UK, but an important one has been the lack of appropriate courses at home. However, that is fast becoming an obsolete reason, as Chinese higher education develops. The traditional elite universities have taken stock of international examples, welcomed new staff out of foreign postgraduate training, recruited foreign lecturers, started to reform teaching and curricula and developed new courses. Some 1,300 private universities have been established, usually with flexible, practical and very work-oriented courses and modules.

So China presents three challenges to the model we have of us being the experts, giving them UK higher education. First, China will not for long be a source of overseas students if its own universities overtake ours. Secondly, Chinese higher education clearly intends to offer its services in the world education market. Thirdly, in China there are, at present, 16 million students in higher education, with plans for 20% of secondary school leavers to be in higher education by 2010 and 50%—a familiar figure—by 2050. Even if a small proportion of these have a first-rate education and can use English, they will be competing with our graduates in virtually every field, unless, again, we can provide something very special from within the United Kingdom. Does the Minister agree that it is important to learn the lessons of Chinese education, both positive and negative, and apply them to our own institutions?

We have heard that the Government are desperate to secure Chinese investment in the UK. The tough regulatory approach to banking that was introduced after 2008 has been relaxed to promote trading in the Chinese currency in the City. Guaranteed electricity prices—double the present level—have been offered to secure Chinese investment in the EDF nuclear station at Hinkley. We are not against these measures per se, but we would like to see a much more serious debate about their justification and the implications that will flow from them, so perhaps the Minister will comment on that when he responds.

According to a recent article in the Economist in June this year, perhaps the single most disappointing aspect of the British economy in recent years has been its export performance, about which I have been talking. Against that background we have to remember that sterling is 25% cheaper on a trade-weighted basis than it was in 2008, and yet the trade deficit was still a stubborn £36 billion last year—more than 2% of GDP. Of course, as many noble Lords have pointed out, this is partly the result of a fundamental economic mismatch. Britain’s strength is in services; China’s hunger currently is for raw materials and machine tools. China seized 80% of the world’s metals supply last year, boosting exports from Australia in the process. The odd British firm, such as Rio Tinto, has cashed in, but countries such as Germany, whose firms sell kit used in Chinese factories, have done so very much better.

The prospects for British cultural exports are much brighter. However, as has been raised, there are real concerns about IP protection in China. In 2011, Britain’s global exports of TV formats—exciting programmes such as “Strictly Come Dancing” and “MasterChef”—were worth £1.5 billion. I hope that these figures will begin to attract more attention from UKTI, particularly in relation to developing economies and China.

However, the truth is that other countries appear to be taking better advantage of the shifts in China’s economy. I shall end with some questions for the Minister. As many noble Lords have mentioned, Britain seems to have gone out of its way to establish a reputation as a country hostile to business visitors, tourists and students. Visa processing is still slower than for the rest of the EU. As a result, London loses out to Paris as the place where wealthy Chinese like to go to shop. Visa restrictions hold back exports in more subtle ways, too. The Economist points out that Britain’s architectural practices, for example, often want to hire staff from the countries where they plan to bid for work, but this is almost impossible.

In 2011, the Prime Minister said that he wanted to double trade with China by 2015, but the gains that have been made are small. A much touted 2011 trade pact with China covered some 3% of the existing commerce between the two countries. Germany and China, for example, recently agreed on a deal which was 10 times bigger. Is the target set in 2011 still the one for which he is aiming?

My noble friend Lord Haskel mentioned that the warm public welcome for the Dalai Lama’s visit last year, which was largely arranged through No. 10, has not helped relations between the two countries. Like the noble Lord, Lord Watson, I would be grateful if the Minister would comment on that, particularly in the light of the rather underwhelming reception accorded to the Chancellor and the Mayor of London when they visited China recently.

Human rights concerns still affect our relationship with China. It is not just the regular house arrests but the lack of press freedom, the oppression of minorities and the fact that religious dissidents continue to be locked up. What representations have been made? What has the noble Lord said to his Chinese counterparts when he has led delegations to China? It would be interesting to reflect on that.

A continuous theme running through our discussions is that of language. How do we deal with that? How do we get people to speak Chinese? The Economist notes that whereas there is a network of trade envoys covering emerging and developing economies including Azerbaijan, Indonesia and Mexico, there is still no envoy for China. Is that the case? Will the Minister also comment on a long-promised agriculture attaché who apparently has still not been appointed?

UK Industry: International Competitiveness

Lord Stevenson of Balmacara Excerpts

Thursday 5th July 2012 Lords Chamber

[Lord Stevenson of Balmacara]

My Lords, we are grateful to the noble Lord, Lord Jenkin of Roding, for giving us the opportunity for an economic debate this afternoon.

The eyes of the public may well be on the Commons and the ongoing question of how best to review the latest banking scandal, but the issues raised in the Motion are very important. It will be in all our interests as a nation if we can improve the international competitiveness of UK industry, stimulate more inward investment, grow our exports and create jobs—and thereby end this double-dip recession made in Downing Street.

We have had a very good debate, with strong contributions from all sides. As has been mentioned, there is great expertise in your Lordships’ House. Much of that has been on display to great effect today. Any debate containing an erudite, literary and amusing contribution from the noble Lord, Lord Brooke of Sutton Mandeville, has to be cherished.

The noble Lord, Lord Jenkin, asserted that there was a growing consensus that technology and innovation would be the key driver in an export-led recovery by our manufacturing companies. I assume that in saying that he was echoing, at least in part, the recent remarks of the Secretary of State for BIS when he complained to the Prime Minister that this Government have no,

“compelling vision of where the country is heading”,

that their actions were piecemeal, and that they had no,

“clear and confident message about how we will earn our living in the future”.

After all, reading from a Library note which was prepared for this debate, and which contains a lot of very useful information, the situation is far from being satisfactory. The ONS reports that the deficit in net trade was £3.7 billion for quarter 1 of 2012 compared with £2.2 billion in quarter 4 of 2011, and that the month-by-month changes to the balance of trade provide a challenging outlook for the health of UK trade. On FDI, the ONS says that 2010 was a “relatively quiet year”, with,

“flows of both outward and inward at their smallest for several years”.

Generally on the state of the UK economy, the OBR said in March 2012 that it expected UK exports to continue to be supported by the depreciation of sterling which began in 2007. Of course, however, that beneficial situation has now reversed, largely because of the euro crisis.

The OECD describes the recovery of UK exports after 2008 as “disappointing”, particularly in light of the depreciation of sterling. On job creation, unemployment is now 2.61 million, or 8.2%. As the noble Lord, Lord Sheikh, said, it is over 20% for 16 to 24 year-olds; and the headline figure is up 0.5% over the year. As my noble friend Lord Liddle said, we seem to have wasted the opportunity created by our ability to devalue our own currency, so as to grow our exports. We have stifled domestic demand, and we have massively increased social costs because of increased unemployment. It is not a pretty picture.

We are also living through a period of seismic, rapid, global and technological change. The Government, as outlined in the last Budget, seem to be relying on a single policy, one of increasing exports,

“as companies capitalise on global opportunities”.

This will be tricky if, as the last OBR report predicted, there is lower than expected growth in the world economy. So what can we do? There needs to be a twin-track approach, boosting the UK’s capacity to export goods and services, which we would all like to see, with an active government approach, as outlined by my noble friend Lord Liddle, and—this is also very important but rarely discussed—focusing on reducing our dependence on imports.

As many noble Lords have said, our chances of success in the global economy will not come from being quite good at lots of things. There is a premium on being the best. We must develop our areas of existing strength—sectors, technologies and services—where we are already world-class, such as the advanced manufacturing, aerospace and automotive industries, business services, life sciences, the creative industries, higher education, and, yes, financial services. Do the Government accept that they need to get behind these sectors, and do whatever they can to ensure that they prosper and can sell their goods and services abroad? Can the Minister update us about the current BIS schemes which support and underwrite our exports? Also, in response to the question from the noble Lord, Lord Jenkin, can he let us know what the department are doing to help SMEs in particular export more?

Other countries are already pursuing active government approaches. We need to match the best of what is out there. Just because the Americans preach a gospel of free markets does not mean that their Government have not made huge interventions in markets through vehicles like DARPA, the Small Business Innovation Research programme and the National Institutes of Health. Look at Germany with its national investment bank, KfW; its centres of technical and vocational training and research, the Fraunhofer institutes; and its network of 426 local banks providing credit to businesses, the Sparkassen. Look at SPRING Singapore. Can we not match these activities? Institutions like these support business development and growth, provide stable finance, allow for information to be shared, foster innovation and encourage its dissemination, and develop the skills base on which businesses can build. We do not seem to have these institutions in the UK, and BIS does not deliver these services at present. That is why we on this side are looking at plans for a British investment bank.

This is not only about getting individual parts right. It is about the whole. It is about competition policy being reinforced by procurement policy. It is about taxation and regulation reinforcing the strategic direction agreed with business. It is about ensuring that the finance, education, training and skills and infrastructure are there for businesses of all sizes. I hope that when he comes to sum up, the Minister will reassure us that he shares this vision of an active Government working together with businesses large and small across the country. In so doing, he will want to pick up on a number of the points raised by noble Lords in this debate. I have a long list here. I would like him to focus on four or five; perhaps he can deal with the others in correspondence.

The noble Lords, Lord Paul and Lord Jenkin, have also mentioned this: our training problems are long-standing and have never been resolved. There is no coherent plan, particularly for the 50% of people who leave school and do not go on to university. Where are the integrated procedures, and who is responsible for ensuring that these people move forward to proper jobs and have a training for life?

There have been a lot of comments about UKTI, many of them complimentary, but there were questions asked about whether it could do more in-country work. There was also a question about whether it would move away from the point-of-sale promotion which it currently engages in, towards bringing new companies and their products to world markets. There is also an issue I would like the Minister to respond to at some point if he can, which is whether we could build more concern for human rights in business into the work which UKTI does.

We heard a lot about the need to stimulate innovation; we also heard some good stories of work going on, both from the noble Lord, Lord Kakkar, and from my noble friend Lady Warwick. Again, this needs more government support and activity, particularly as we think about the way e-commerce can help. We were all impressed by what the noble Lord, Lord Kakkar, said about telemedicine. The noble Lord, Lord Paul, and many others, talked about the finance requirements for SME growth, and there was a general concern about the way in which money was not flowing yet from the banking system to support our industries.

We also heard about the need for spending on infrastructure to support our work across the various activities that have been referred to. These are matters which we hear a lot about, but again there are no plans coming forward.

Finally, I argue that we also need to focus on activities on which the UK has an opportunity to reduce its import dependency, and in so doing assist the development of a more equal society, as mentioned by my noble friend Lord Haskel. According to a recent report from the Centre for Research on Socio-Cultural Change, the pigmeat supply chain is going through a prolonged and unresolved crisis. The size of the national pig herd has declined by around 50% over the past decade, while over a similar period the UK has gone from 80% self-sufficiency in pigmeat to less than 50% self-sufficiency. Clearly, this worsens the UK’s trade deficit and diminishes UK employment. This is a classic example of UK failure in tradable goods against north European competitors. The UK’s growing volume of pigmeat imports come not from low-wage eastern Europe or from Asia, but from northern European countries, which now provide more than 50% of the UK’s bacon, despite their wages being almost double and their labour market being much less flexible.

The authors of the CRESC report argue that because the UK Government take a narrow “competition is best” policy, UK policy interventions have always been limited to a series of unsuccessful voluntary initiatives that did not recognise that the form of competition being practised in this market is, in fact, the problem. In Denmark and Holland we find that government support for the creation of co-operatives and assistance with marketing for artisanal producers has transformed the capacity of their producers to negotiate with the supermarkets, and has stimulated them to export to other markets like the UK. Changing the food processing industry in the ways suggested increases margins and reduces costs, and society gains through reduced import dependence, higher wages and more stable employment. I hope that this morality tale about restoring the great British bacon sarnie commends itself to the Minister. I look forward to his response.

The noble Lord, Lord Paul, called for a common cause on this issue and I agree. We can surely all get behind a sustainable initiative in this area because the prize is a UK economy that is richer, fairer and more productive, positioned to succeed in the growing markets of the future with the right capabilities to do so.