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Published: 27 January, 2012
by JOHN MILLS

Economic growth in China is slowing, we are told, from about 10 per cent per annum to 8 per cent.

What does this mean and how do we rate this news against Britain’s growth record, which has been about 1.5 per cent per annum for the last 10 years and which is now grinding to a halt?

China’s phenomenal growth record over the past 30 years has indeed been stunning – about 10 per cent a year cumulatively over the whole of this period.

The first time I went to China – in 1981 – there were almost no vehicles on the roads – just thousands of bicycles.

There were almost no high-rise buildings.

Everyone wore the same drab clothes.

The standard of living was very low.

Now all of this has changed, especially in the coastal areas although not everywhere.

There is still lots of rural poverty in China but this is beginning to change fast too.

If China slows down to growing at only eight per cent this year, I don’t think that this is going to be a major disaster and nor do I think it will destabilise the economy very much.

To spread prosperity there needs to be a further big transfer of population from rural to urban areas and slowing down the growth rate will make this a bit more difficult.

On the other side, however, there are big changes taking place in China in other ways in which income can be distributed.

In particular, the Chinese government is now making major efforts to increase living standards everywhere by encouraging China’s manufacturing capacity to supply more to the home market and less to exports. Wages are going up sharply and social security entitlements such as pensions are being raised.

Of course the average standard of living in China is still well below what it is in Britain taking all the population in both countries into account, but how long is this going to last?

If we have a decade of no growth while China continues at eight per cent, in 10 years’ time the average Chinese living standard will have doubled while ours will not even remain static.

It will fall if the population goes on growing.

At 10 per cent per annum – the rate achieved on average over the last decade – the average Chinese citizen will be about 150 per cent better off in 2022 than he or she is now. The gap between the UK and China will then be rapidly be closing.

What is this going to do to the UK’s self-confidence, our position in the world and our capacity, such as it is, to influence the way the world develops?

It will inevitably decline.

We are in real danger of becoming an impoverished backwater relative to the countries in the East as we sink gradually further and further down the league tables for economic performance.

Is all of the austerity and unemployment current in prospect for the UK really necessary?

I don’t think it is but without a radical change in policy, this is the future for which the UK is heading.

There is still time to learn some of the lessons from the Chinese accomplishment, especially the massive success of Chinese manufacturing industry, but far too few people in the UK are focused on doing this.

We still seem to believe that financial services are the way ahead for the UK but this is a huge illusion.

Although they earn an export surplus it is nothing like big enough to offset our huge deficit on manufactured goods.

This is what – more than anything else – is dragging our economy down.

If current trends are allowed to continue, the reality is that it will not be very long before the average Chinese citizen will be able to look down on the average person in Britain as poor, backward and saddled with hopelessly incompetent economic management – a bit like the way we used to look at much of the rest of the world not so very long ago. Is this really what we want?

• John Mills is a leading businessman who runs the global JML online consumer products company. He has written books  on economics and is a former Labour councillor and finance chief of Camden Council.