Speech by: Lord Mandelson
Venue: Party School Beijing
Thank you for your welcome. It is nice to be back. I first came here when the school was much smaller and the audience far fewer in number.
It is nice to be back in the place where you work to get “the truth from facts” in Deng’s words. It is very apposite for what I have to say this morning.
And also it’s nice to come now, just as you approach the 60th anniversary of the founding of the People’s Republic. China’s achievements are a cause of celebration for all of us. And I also celebrate the fact that relations between Britain and China have never been stronger. We have fifteen British government departments represented in our Beijing embassy which I think is testimony to the extent and depth of our bilateral relationship
I last spoke here as EU Trade Commissioner. It was during my time in that job that I really became convinced that China’s reemergence as a global power would redefine not only Asia but the whole landscape of international economics and politics.
All this would be difficult and complex enough - but added to that challenge is the task of governing China itself through a period of immense social, economic and environmental change.
Regional imbalances, income disparities, ethnic tensions, provision of education, health, and pensions: these are familiar challenges for most governments. But in China, the scale of these challenges and necessary speed of change is unique in the world.
All of you here this morning are the policymakers of China’s future. And politicians and leaders of my generation – in China, in Europe, in America - need to be acutely aware that the decisions that we are making now, and the decisions that we face over the next few years, will profoundly shape the world that you will face the challenge of governing in decades to come.
You will need to be the most internationalist generation of leaders in China’s history. Although we are slow to recognise it, some of the biggest problems in world politics are no longer questions of how we position our states for national advantage, but how we deploy national action to solve international problems. There is no contradiction between patriotism and internationalism.
The banking and financial crisis is an obvious example, and with it the bigger questions of how we manage a globalised economy. The challenge of development, above all in Africa as well as in Asia. But it is climate change that is perhaps the most pressing and most fundamental. This is a problem that has no solely national dimension – there are no borders in the atmosphere. It has only an international solution by definition, and I want to come back to that later in my remarks.
As someone who has spent a lot of time in international negotiating rooms this should worry me. I have seen some good and necessary global agendas stalled by parochial national politics. The Doha world trade negotiation is one obvious example. I think we are entering a new, pressured phase of globalization – one that will be defined much more by the competition for resources, an urgency to make painful compromises, the demand to change the way we govern the global economy. From policymakers and politicians this will require much more than the usual measure of flexibility. It should force us to aim for much more than the lowest common denominator of agreement because there is so much at stake, with so much more riding on the decisions we take, for so many people.
I want to say a few things about this next phase of globalization today. I will argue that our national responses to the banking crisis and the international recession will be critical to the health of the global economy for a long time to come. If we get this wrong, the consequences could be very far reaching. And China is central to this.
I will argue that climate change confronts us with an even more compelling problem of international cooperation. China is central to this too.
Finally I want to say a little about Britain and Europe and how we can continue to strengthen our relationship with China.
After the financial crisis
The last two decades have been a relatively optimistic time for the global economy – certainly a time of powerful positive economic change in China. If you traveled back in time to, say, 1979, you would find it difficult to find an economist who would predict that the Pacific Rim of Asia was about to experience the biggest and most sustained growth boom in global history. Or that Brazil and Latin America would have their own version of that export-led economic takeoff.
And this economic history didn’t happen by chance. It happened by choice. The choice to open our markets to international trade. The choice to accept a model of production based on global supply chains and the exercise of comparative advantage. The choice of economic internationalism over economic nationalism. The choice of free markets over state capitalism.
Some would argue that the banking crisis has discredited these choices, that they have somehow undermined their validity. I hear those voices both in China and back at home, in the UK and in Europe. I do not agree. I reject that view. The banking crisis was, yes, a warning: but against failing properly to regulate the financial sector and those who operate its standards. A warning about the need to globalize some of the governance of the global economy to take account of the way that the global economy now works in the twenty-first century.
But if this is the first crisis of the global economic age, it is not a crisis of globalization. Of course globalization spread the negative effects of this crisis around the world, but only just as much as it has transmitted the benefits of economic integration across all continents.
It is true, however, that the global banking crisis and the downturn have revealed weaknesses in all of our economies. Many parts of the Western mortgage and investment banking industries suffered what can only be described as a crisis of professional and regulatory competence. Britain’s households carried too much debt and its large financial services sector made it vulnerable to failures in financial markets. Collapsing global demand impacted heavily on export-led powerhouses like Germany and China – which drove home the fact that they need to balance their successful growth models with greater domestic demand.
More fundamentally, there is an imbalance at the centre of the global economy that must ultimately be righted. This is symbolised by America’s massive deficit and China’s massive surplus. It is simply not in the interests of China’s own people that their high savings are used to finance the excessive spending habits of rich countries.
In this picture of the global economy there are three salient points to make in my view. The first, as Premier Wen said back in March, is that this crisis has not undermined the basic case for open economies, in which resources are allocated in the main by markets rather than governments. We need effective governments to define the reach and limits of markets, but companies and industries, including banking, ultimately need the stimulus and the discipline of market competition to drive growth and innovation. It is the private sector in China, it is worth noting, that has produced the most additional jobs in your economy in recent years.
We have learnt some important and painful lessons about relying too heavily on the self-regulating nature of markets. But that does not discredit the case for liberal economics, it does not discredit private enterprise and markets as a whole and we need to argue back against those who see the financial crisis as an opportunity to restore the power of traditional State Control and state ownership.
This will become even more important when the global economy returns to growth and demand starts to put pressure on the supply of basic commodities. We will need global markets and the forces of supply and demand to send the necessary signals to producers to raise their productivity and keep prices down. The alternative is a race to capture supply, forcing prices up, that we will all lose from in the long run.
Of course, in Britain, the Government also places strong emphasis on social protection and personal opportunity along with our commitment to markets and private enterprise. We believe economic efficiency must go hand in hand with social justice. In this model, China has nothing to fear and much to gain from further opening. This will help rebalance the economy, and stimulate moves to high-technology, high-value added products. Resisting protectionism is essential, but not enough. China has more to lose than most from protectionism’s rise. But it also has more to gain through greater openness and greater reform.
The second point to make is that, we face the difficult reality that what happens in the global economy is the result of sovereign decisions by national governments. It is simply not possible for economies the size of China, Japan, the United States or Europe to ignore the fact that their economic policies have an international dimension and a global impact. That means we all have a legitimate interest in the good governance of all economies. That is part of what David Miliband, our Foreign Secretary in Britain, said in a speech at Peking University last year, and described as “responsible sovereignty”.
So while I would not argue that these decisions can or should be simply internationalized – of course, they cannot simply in this way - there is clearly a need for a much greater awareness of this dimension and this need for international coordination and cooperation of our policies. We need a completely renovated machinery of international economic governance, where the implications of national policy can be assessed and the global dimension debated. The G8 alone is not enough. And we are all agreed that the IFIs, like the IMF and the World Bank, need to be stronger and more representative, indeed as Britain has argued in China’s case in those institutions.
The British government believes that, finally, China is completely central to this process. It accounts for almost 10% of global trade and holds the world’s largest store of forex reserves. It is one of the great engines of global demand and may be the largest economy in the world by the middle of this century if the right decisions are taken. China is at great pains to tread lightly as it grows. But there is now no alternative to the full leadership role, that its economic status deserves.
So we might ask: how well has our response to the banking crisis and the downturn so far reflected these three arguments that I have made to you? I think the answer is broadly positive. We have seen relatively little protectionist economic policy, although this clearly remains one of the key potential risks to recovery.
And completing the Doha Round will be very important to limiting protectionism in the future. It is our insurance policy against isolationism. This is an area where Chinese leadership can really help turn things around, if others are prepared to reciprocate.
The coordination of national fiscal stimuli at the London Summit in April of the G20 also gave a significant boost to international demand – not least through the four trillion yuan package and the planned healthcare reforms here in China.
China and the other emerging economies have become absolutely central to the G20 process. Which is why it is so important that we have empowered bodies like the Financial Stability Board, and that we accelerate reforms that will make the IFIs more representative of the global economy they are monitoring and overseeing. Britain is determined to continue to drive forward this agenda when the G20 meets again in Pittsburgh later this month.
The Climate crisis
Alongside the financial crisis and the management of the global economy we now face the huge challenge of acting to limit the damaging effects of climate change, and, in the process of doing so, unleash much ‘green’ economic activity and new jobs during this century. This is a challenge that is central to the development of modern China because of the costs of dangerous climate change in your country and is critical, at the same time, for all of us. The only sustainable route to economic development is based on low carbon, energy efficient technology coupled with open markets.
Unlike in Europe, most of the homes, the offices, the power stations and infrastructure that will exist in the China of 2030 have not yet been built. That great programme, that future, is ahead of you, and it provides a great opportunity for your planning now for a low carbon future. This means that China’s capacity for green growth and innovation is potentially massive. As Europe’s leader in setting low carbon targets, Britain is an obvious partner in this work and a potential source of expertise and investment.
But a key prerequisite for the kind of green revolution that this implies is a global climate change deal at Copenhagen in December. Nobody doubts the importance of issues of equity involved in a deal that seeks to limit the carbon emissions of both the developed and the developing world. Equity is a core value, a principle that needs to be at the heart of these negotiations and of any emerging deal. Nobody would disagree that the rich world carries a unique and additional burden. But rapidly industrializing countries like China, India and Brazil clearly have an important role to play, if there is to be a deal that meets the challenge we face.
If we allow these problems to become intractable, Copenhagen risks becoming an early and defining failure for the global era. A weak deal would also be a more expensive option: expensive not in the costs of compromise and action, but in the environmental and economic costs of inaction. And by an accident of geography that’s a cost that will fall disproportionately on the poor.
Britain, Europe and China
Let me finally make a couple of points about Britain’s relationship with China, which inevitably also involves the European Union’s relationship with China. In this multi-polar world, the challenge for the EU and China is to create a strategic vision of the kind of partnership we want together to build to benefit us both. One that matches the scale of our economic relationship and the importance of our cooperation in the world. One that is based above all on constructive engagement between us.
It also needs to be durable enough to handle the frictions and to allow us to speak frankly to each other. This matters on political issues like freedom of expression, rule of law and civic freedoms.
These matter to us in their own right, but also because they underpin long-term economic development; it is, for example, confidence in the rule of law that has made Hong Kong a successful international financial centre, and why it continues to flourish.
But the need for durable relationships also matters because Britain and the European Union will continue to argue for the improvement of trading conditions for their companies here; better protection of intellectual property rights, wider access to China’s markets and for our foreign direct investment.
We will continue to test some of China’s trade practices in the WTO – just as I am sure China will test ours, as it is China’s right to do so. These things are an inevitable part of one of the largest trading relationships in the world. In the context of a durable relationship they should not cause excessive political volatility.
I recognise from my time as EU Trade Commissioner that the EU itself has an important role to play in making this relationship a success. The European Union – and I know this from my own experience - can be a complex and sometimes contradictory partner. Senior Chinese negotiators often want and need greater coherence from the European Commission, and a clearer sense of who they should be negotiating with. I believe this is one of the key foreign policy challenges for the EU and the next European Commission that will take office in a few months time. We need to develop a clearer and consistent channel for communicating with China, especially on trade and climate change issues, and other key foreign policy subjects.
But getting this relationship right is also a challenge for China itself. The EU is a willing partner. It is not an aggressive power. It is an essential component of a multipolar world and we want to do business, in every sense, with China.
Conclusion: ‘the larger trend”
There has been some talk lately about the age of the ‘G2’ – America and China setting the global agenda together. To my mind this is an attempt to simplify the world in a way that is actually quite unhelpful. In May Premier Wen said in a speech in Prague that ‘the larger trend’ in world politics is towards multipolarity and multilateralism. And I agree
Europe is China’s largest trading partner; Japan and India two of its most complex and subtle relationships; Africa one of its biggest development policy challenges. There is no simple , bipolar template that reflects this world.
If my remarks today have a simple message – and I say this in conclusion too - it is to reinforce Premier Wen’s argument about the larger trend. In global economic governance; on climate change, in geopolitics in general we are entering the era of necessary internationalism.
The choices that we will make in the next few years will be fundamental to our long term prosperity and security. If we are to preserve the open global economy that has underwritten two decades of growth then we will need to draw the right lessons from the banking crisis and keep our markets open and the state playing an appropriate but not dominant role in business and enterprise. If we are to rise to the challenge of addressing climate change then we will need to be both pragmatic and ambitious. Our task as Chinese or Europeans is to be hopeful, to be flexible, to be committed. And above all to see many of China and Europe’s biggest challenges as common problems, in need of shared solutions.
Thank you very much indeed.