George Osborne will talk Greece today.
He'll doubtless say that Greece makes the case for austerity. He'll be wrong in doing so. The Greeks had a problem in 2009. It's austerity that turned it onto a crisis. Any claim made that Greece justifies austerity will be to simply get the cart before the horse, and across the world thousands of economists are willing to say so.
But if George Osborne talks Greece and not China today he'll be putting his head in the sand because China's the big issue for the UK. Osborne wants to cut our deficit. As I've explained many, many times the government can only cut its borrowing (or effectively save) if someone else is willing to borrow instead. That's the way that the double entry of national income works. The Office for Budget Responsibility will, no doubt, today forecast a consumer credit boom as the way in which the equation can be cancelled. The government's borrowing will be replaced by consumer borrowing in the absence of any likelihood of much real growth. But there is a problem. And that is the fact that the rest of the world has been piling its money into the UK - which is another factor in this national accounting equation. And overseas investors putting money in the UK is another source of the saving needed to let the government cut its deficit.
In particular, China has been pouring money into the UK, buying real estate, funding our nuclear power and even HS2. But the Chinese economy is tanking, to put it politely, and the Chinese government is spending a fortune at home to bail out its stock market, most of which money it is unlikely to recover. That's likely to be money not coming our way soon as a result, because those who have bought property overseas on the crest of their Chinese stock market gains will no longer be doing so and the Chinese government is unlikely to be pouring money into the UK economy any time soon as a result of the current domestic situation. So far from saving in the UK, which is what Osborne needs China to do, it is more likely to be pulling money out. Some of those London investment properties are going to be on the market soon as people try to cover their stock market losses at home.
And that means that the boost China has given, on which George Osborne has relied to make his books look like they will balance, will be disappearing.
That promise of a balanced budget is disappearing East, fast.
But will Osborne say so? I doubt it.
In itself this factor would almost be enough to justify a budget today because the UK economic outlook is so different from March as a result of the Chinese crisis. But I suspect we won't hear a thing about it. But we should. Chinese money has been Osborne's secret weapon. And it's going.
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The UK has a small current account balance deficit with China. The non EU balance actually shows a small surplus. The EU balance is a large deficit.
Why then is the Chinese story so important to a UK budget?
I think you are looking at trade
I am looking at flows inclduing investment
I’m looking at the total CA balance, including trade + FDI etc. From the Pink book:
http://www.ons.gov.uk/ons/publications/re-reference-tables.html?edition=tcm%3A77-321799
Oh yers, and you’;ve also unpicked the fact that most comes from the BVI have you?
Dream on
We are talking about China here, not the BVI. And the BVI itself doesn’t actually even appear in the Pink Book data, supplied by the ONS. I am literally just looking at the supplied data.
Are you suggesting that the government is falsifying it’s data?
I’m really not sure what you are getting at.
If you knew anything about FSI etc you would know the vast majority of Chinese FSI is routed via tax havens
The data does not reflect that because the data is deliberately distorted
If you opened your eyes to real world you would realise what nonsense you write
And that you just waste my time
Expect to be deleted
If Chinese FSI is routed through tax havens why do few tax havens appear in the Pink Book data, and the ones that do show little in terms of flows?
Of course, the CNY (renminbi) is not a freely convertable currency. Currently the only places you can convert it are China, a few places in Asia and London. So most flows coming into the UK are converted in the UK, making the data the ONS get pretty reliable.
Bt of course, it suits your argument to claim (and it is just a claim, no fact) that Chinese flows are being routed through tax havens (because you don’t like them) and that the ONS is falsifying data.
I think I’ll trust them, not you, thanks all the same.
Look at World Bank and IMF data
vastly more reliable on this issue
Sorry – but you are just wrong on this
All predictable-more use of Greece as a whipping boy: ” if you don’t behave and swallow austerity while WE enrich ourselves you’ll end up there”. All foul, intellectually dishonest garbage-but what else would you expect from this crass bunch of low-lifers and card sharps?
Not sure I get the point here: UK has CA deficit financed by capital flows, some of which are Chinese; current Chinese trouble will reduce these flows i.e. will reduce the savings of foreigners into UK market which reduces the need for another actor in this market (the UK gov) to be a borrower i.e. Chinese troubles should help Osborne here. The mechanism for this would be that the lack of inflows to finance CA deficit will cause sterling to fall. Absent any other changes (i.e. monetary policy response) this should be expansionary for UK economy, boosting tax income and reducing deficit.
The alternative is that UK interest rates rise to attract alternative international capital flow, which leaves deficit unchanged.
I am sorry but you clearly do not know macroeconomic accounting and so your analysis is wrong
Please go and read some
I have explianed it on this blog often
Great Great Grandad found that supplying China with opium balanced the trade nicely and to UK profit. But perhaps not these days. Indeed we have nothing to supply them with at all.