Re-Shoring - How China is Risking its Future

Alphen, Netherlands. 5 December.  British PR-Meister David Cameron was in Beijing this week selling Britain to the Chinese.  No, I mean literally selling Britain to the Chinese.  I think he got about twenty quid for Scotland, which to my mind is far too much especially as come next September they could well be offering themselves to anyone for next to nothing.  He also promised to raise the issue of human rights with Chinese Premier Li Keqiang.  Given how desperate Dave is for money one can imagine the conversation.  Desperate for dodgy dosh Dave: “So, Li, how are human rights doing in China?” Li: “Fine”.  Dave: “Good.  How much will you give me for Manchester?  Thirty quid and I will throw in free delivery.” 

 

What was strange about Cameron’s trade visit was it seemed completely detached from the volcanic geopolitics in the East China Sea.  Having finally settled on something that to Cameron’s a-strategic mind looks like a strategy – mercantilism – nothing was going to get in the way of a deal.  Now, don’t get me wrong, with the EU a mutual impoverishment pact Dave is right to seek to open up the Chinese market to British business. 

However, the sudden vigour with which he has suddenly discovered China after over three years in office suggests that dear old Angela has told him that now she is in bed with the EU-hugging German Left there will be no EU reform.  Britain could soon be on a slow boat to China via an EU exit.

Dave is not great with timing.  As he was selling Britain China was unilaterally deepening its dangerous dispute with Japan (and by extension the US) by declaring air space sovereignty over the disputed Daioyu/Senkaku islands.  By adding Britain to its now extensive collection of Europeans desperate for Chinese money it would thus be easy to conclude Beijing has neatly split and neutered the old West.

So, has China pulled off a strategic masterstroke?  No.  In fact China’s creeping and burgeoning assertive nationalism is in danger of putting at risk the very thing that has made China rich – globalisation.  Yes, beneath the East China Sea there could well be huge reserves of oil and gas that the Chinese economy desperately needs.  However, the islands dispute is not really about energy, it is about power.

China has become rich precisely because of the relatively stable international order the West, mainly the Americans, created.  In spite of efforts to boost domestic demand the enormous developmental challenges China faces (town/country split, ageing population etc. etc. etc.) China is more developing power than superpower.  China will need to export for years to come.

Given that the last thing that the Chinese economy needs is strategic turbulence and yet that is precisely what China is creating.  The disputed islands are like small pebbles dropped into an enormous strategic pool causing ripples across the world. 

What could be that impact?  Re-shoring is the simple answer.  On November 25^th the Financial Times ran a piece in which it said, “One in six UK companies has brought production back over the past year or is in the process of doing so suggesting re-shoring is starting to gain traction.  The number of companies returning production from countries such as China is outstripping those moving output overseas according to a survey of more than 500 small and medium-sized companies”. 

Re-shoring is gathering momentum across the West with many companies now abandoning Asia to return production to their home markets.  The FT piece suggests that cost of production, lack of quality and long lead times are the primary factors.  Research at the University of Tilburg also cites problems of communication to which add concerns about the cost and reliability of regulatory regimes in Asia.

Now, imagine China really steps up the heat on Japan.  What is now still a trickle of re-shoring would very rapidly become a flood.  In effect, China would be killing the Chinese goose that laid several million golden eggs as the one thing business cannot stand is strategic turbulence.  If China pushes too far its many claims across what it has unilaterally termed its far-ranging Economic Exclusion Zone the ‘cost’ of doing business with or in China could become too great and China’s export-led boom would rapidly end.

Perhaps dear old Dave is not as strategically-challenged as his lightweight premiership might suggest.  It may well be that China needs influential friends in the West as much as Dave needs China.  Perhaps that was what Premier Li meant when he talked of an “indispensable partnership” and there really will be some Chinese give as well as the more normal take.  I wonder if Dave told Li that Britain might leave the EU?

As for Manchester.  Thirty quid?  You must be joking.  Five at best and you can collect it yourself.  Bring a bag.

Julian Lindley-French