I was recently in China for the World Economic Forum's Annual Meeting of New Champions. This 'summer Davos' draws Global Growth companies, tech entrepreneurs, young global leaders and scientists from around the world each September. It was a great opportunity for me to talk to some of Asia's innovators, get some fresh economic thinking and share what's on the minds of British business with global policy-makers. And with UK trade data out today, and China's latest growth figures to in ten days' time, it's an opportunity to reflect on what we can learn from each other. Both Britain and China face a serious 'rebalancing' challenge, though from opposite ends of the spectrum.
China's response to the global financial crisis was to invest on a grand scale. And it worked. Growth in China was above 9% until 2012.
There's been a phenomenal amount of investment in China over the past seven years - transforming its cities with a proliferation of cutting-edge high speed trains, airports and new infrastructure. The scale of building is vast - the number of airports in China is set to increase from 175 in 2010 to 230 in 2015 according to China's 12th Five Year plan.
As Jamil Anderlini of the FT likes to point out, in the two years from 2011 to 2012, China produced more cement than the US did over the entire course of the 20th century.
While growth in China has slowed to just over 7%, it's not the case that China is simply 'over-invested'. Despite this boom, China is only 46th in the world on infrastructure according to the World Economic Forum, so there is still scope to invest more. But there are serious question marks as to whether all this investment has been put to good use given the speed of the boom in building, and the indiscriminate way in which projects are selected. Those important caveats aside, I'd love to think about how the UK's landscape could be transformed by a similar seismic shift in our transport, housing and communications infrastructure.
While this higher capital investment will pay dividends for China's growth over the next few years, helping to keep growth above 6%, China is now looking to how it can wean itself off such high investment rates and shift gears towards a more consumer-led economy. Underpinning this 'rebalancing' is a decisive move up the value-added chain into newer technologies. For instance, China is now the world's leading manufacturer of solar panels.
There is an incredible energy and dynamism in China, driven by many of its young entrepreneurs, which was a real highlight of the conference. It is noticeable that consumers in China can manage their money, order taxis and even invest in money market funds, all from their smartphones. And this pace of innovation is helping to drive demand for new services with more money in the pockets of China's urban middle class.
As one participant argued effectively, the story of China is rapidly transforming from the old "Made in China" factories to the younger "Created in China."
The UK's rebalancing challenge is almost a mirror image. Today's trade data shows that growth in UK exports is still struggling to gain traction. Our share of fixed investment, even after the latest ONS revisions, is still a woeful 16% of GDP, far behind our G7 peers, and completely dwarfed by China's share (close to 45% of GDP). In China, households are putting more than a third of their income into saving for a rainy day, while our rate of savings languishes nearer to 7%. If we could boost household savings in the UK, we could see much more stable consumption over the long run and a better environment for investment.
The balanced solution must be somewhere between the two countries, and there's much I'm sure that we can learn from each other.
Fundamentally, boosting UK productivity would give firmer support to wage growth and household spending. This would facilitate the demand that firms need to go out and invest. This goes hand in hand with targeted action to boost investment in the UK. In a recent report, we outlined a range of actions that would help in reversing the UK's long-standing climate of underinvestment including measures to boost non-bank channels of finance for small and medium-sized firms, and to alleviate drags on firms' retained earnings to fund investment.
Addressing long-standing competitiveness issues in the UK's business environment will also go a long way in both bringing new businesses to the UK, and getting them to invest. That's why bringing our tax incentives to invest in structures and buildings into line with our international competitors is important as well as moves to improve the quality of infrastructure. It would be amazing to think what could be achieved if we focused on these goals. We can't quite match China's phenomenal growth rates but we could see a real boost to productivity and the quality of life in the UK.