Beijiing gives verdict on Europe, and the verdict is bleak

Asia: vibrant

In a few hours I will leave Hong Kong to catch a flight back to the UK.

For those who haven't been to the former jewel in the UK crown, the trip from my mid-price range hotel (with service that would grace a five star hotel in the UK, at a fraction of the price) to the airport, will be by complimentary express bus, which naturally always  runs on time. It bristles with efficiency as it deposits me into the gleaming HK airport, where luxury shops are filled with Asian tourists and business people.

I will then climb aboard a British Airways flight where the contrast between the go-getting Asian economic character, and the lack of ambition shown by British companies (and hindered by Unions stuck in a by-gone era) are on show.  I still use BA only because of a patriotic belief that spending on a Britsh company keeps jobs in the UK, and is every British citizen's duty.

But it was business that took me to Hong Kong and China in the first place, and it is the latter's growth and power that were on display at the International BAO Forum in Hainan. 

For here, the world's senior bankers, businessmen and politicians came to hear Zhou Xiaochuan, the Governor of China's Central Bank, give his verdict on the worlds' economies. In the audience were Spanish Prime Minister Jose Zapatero (more on him later), ex French Premier Jean-Pierre Raffarin, and ex Croatian President Stejpan Mesic; as well as John Rice the Vice-Chairman of that great US girant General Electric.

After Zhou had given a glowing report on China's success, he stated that they would have to tackle growing inflation by reducing demand. This was all bad news, as it will feed heavily into the West. He also mentioned that in this process he was requiring China's biggest banks to maintain 20% of their deposits as reserves!

We may look on in envy, but any such requirement in the UK would kill the British economy.

However, the coup de grâce to Europe came from Lou Jiwei, the chairman of the China Investment Corporation (CIC). This "little" company is the Chinese sovereign investment fund, and only has USD 300 billion in reserves to spend. (Ah! If only those sensible minded British economists who suggested we use our oil reserves to build our own UK investment fund hadn't been overuled by Thatcher's civil servants and advisers...)



Europe: stagnant

Mr Lou stated that Europe has the worst economy in the world. "It is the grimmest, with internal demand weak, banks in need of recapitilisation and regional gaps widening". He continued by saying that the EU also had to contend with a sovereign debt crisis, which showed no sign of ending. The nub of his remarks were somber, "the debt crisis is a shadow over the euro's future".

However, it is what he said next that was the most telling. China would not stop investing in Europe, as they had made good returns over the last few years.

Any trader will tell you, that if you can buy at the bottom of the market you will make a killing. Well the CIC has USD 300 billion to spend at the  bottom of the EU market... And here is where all those EU politicians came in, helpful and willing to sell off Europe's assets on the cheap. Jose Zapetero for example, said that Spain would survive the debt crisis on it banks, and that their savings banks would be recapitalised thanks to continued investment from China.

So there you have it in a neat circle: The EU as an economic system has failed. Its politicians are selling off their countries' assets on the cheap, in a desperate bid to save it (and their pride), whilst the Chinese are buying them up at a bargain price. The Chinese economy booms while their people grow rich, spend in expensive shops, and build efficient airports and railways. Whilst us Brits get onto ageing planes populated with surly staff, in order to fly back to a country where the politicians and civil servants are grubbily selling of our assets.

I just wonder what Zapetero will say when he has nothing left to sell?