China: A warning and an opportunity

The idea that China could be decoupled from the woes in the eurozone, a huge market for its stuff, has been blown up.

The latest official survey of Chinese purchasing managers showed that manufacturing in the world's second biggest and strongest economy is contracting - the worst performance since the tail-end of the last recession in 2009.

That discouraging picture was reinforced by HSBC's and Markit's separate survey, that indicated the fastest deceleration in production and new orders for Chinese manufacturers since March 2009.

These figures aren't a disaster for China: most economists assume it means a slowdown from economic growth just under 11% to a little less than 8% next year.

Which for us of course would be nirvana - although for the Chinese government anything below 8% brings with it the spectre of the economy failing to create the jobs necessary to prevent a rise in unemployment and social unrest.

Also, as I witnessed on a recent trip to China when making the Party's Over (broadcast this Sunday at 19:00 on BBC Two- oh yes), the growth rate needed to absorb the many millions still flooding on to the jobs market has probably risen over the past year or two.

The reason is that Chinese companies are investing relatively more in capital equipment: they want to produce more with fewer people, following 30% and 40% rises in factory wages ordered by the authorities that has raised the cost of labour very significantly (one company I visited, the leader in lighting, NVC, said its labour costs were rising again by a quarter this year).

But although the slowdown in China is more immediately worrying for us than for them, in that it probably confirms the eurozone is already in recession (and we may not be far behind), it also speaks to a big opportunity for British companies.

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Because the Chinese response to the slowdown in exports is to attempt to stimulate domestic demand, by encouraging banks to lend more via an easing of reserve requirements.

If Chinese consumers spend more, perhaps they'll buy more stuff and services from British companies - and there will be some progress in closing the UK's structural current-account deficit, which is one of the big causes of our huge aggregate indebtedness and present economic woes (see my post, UK's debts 'biggest in the world').

Our problem, as you know, is that, unlike the Germans, we make so little of the things the Chinese want - and they haven't been as welcoming as we would like to our world-leading service companies.

Against that backdrop, it was hard to be cheered up by Management Today's annual and always-fascinating survey of which businesses and businesses leaders are admired by those who work for 250 of our leading companies.

It is a peer review, overseen by Professor Mike Brown of the City Business School in Birmingham, and this year's winner of "most admired" company is a housebuilder, Berkeley Group.

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Media captionThe BBC's Robert Peston on a move by the central banks of six leading economies to improve the worldwide availability of credit

Now of course it's true that Berkeley's performance has been outstanding through good times and bad. But the idea that a housebuilder is going to solve the UK's economic difficulties is for the birds. In fact some would argue that our obsession with owning a home is part of what's wrong with the UK.

As for the rest of the top 10, it contains two commercial property companies (stars in their class, but a class that hasn't covered itself in glory over the past decade), and a bookmaker (and, to boot, that bookmaker is Paddy Power - which is Irish for gawd's sake).

Others at the top of these charts can be seen as part of a British solution. They included the world leading drinks group, Diageo, the engineer, Rotork, the aero-engines maker, Rolls-Royce, and the consumer products business, Unilever.

They're all great businesses and they sell all over the world. We need more power to them, and more of them.