Arrogant and rich, Victorian Britons were once the ugly face of world tourism. In the 20th century, the crown of shame passed to America. Yanks in slacks became objects of scorn and ridicule from the Louvre to the Uffizi. Debt and the shrinking dollar have upset America’s claim to the title of world’s most despised foreign visitor. A new aspirant has taken up the challenge of bringing sartorial shame to the world’s fleshpots. From Bondi Beach to Phuket, the Chinese tourist is making waves.
Taiwan turned up its nose last year when mainland Chinese arrived after six decades of travel bans. Locals complained about spitting, loud voices and boorish behaviour. For their part, the Chinese tourists found Taiwan “tatty and rundown”. Complaints about uncouth visitors in Thailand prompted China’s Spiritual Civilisation Steering Committee to provide guides on behaviour abroad.
Even so, America and Europe are hoping for an invasion because these new Victorians have something that speaks louder than manners: cash.
After months of nail-biting worry in the workshop, Beijing’s mechanics have coaxed China’s engine out of low gear. Primed with billions of dollars of government funds, the economy is at cruising speed and expected to move into the fast lane this year. The Shanghai stock market is up 85 per cent since the beginning of the year. Last week the company that built the Water Cube aquatic centre at the Beijing Olympics raised $7.3 billion in its first public offering. Investors put up 35 times as much money as there were shares on offer.
The Chinese economy expanded by 7.9 per cent in the second quarter compared with 6.1 per cent in the first, bank lending is up 35 per cent and real estate investment 18 per cent since the start of the year. Buyers are returning to the homes market and car showrooms in droves, while property developers are back in the game.
US and European estate agents hope some of this money will trickle into their bombed-out markets. Where Russian oligarchs swaggered in Hampstead and Cap d’Antibes, we may soon find Chinese tycoons.
So fast and so unexpected is the recovery that Morgan Stanley reckons China may be decoupling from the rest of the world. Like Shanghai’s superfast Maglev train, the China express is breaking free from America’s diesel loco, flying over the rusting rails of the economy.
China lacks our over-borrowed banks, our ballooning government debt and insolvent households but it still needs us, the customers. We have stopped buying the stuff that comes out of Guangdong’s factories. Instead, the Beijing Government is keeping things moving by spending its rainy-day money. Meanwhile, the Chinese people, the world’s greatest savers, are still hiding half their disposable income under the mattress. HSBC’s economists reckon that 80 per cent of the GDP increase was engineered by hundreds of billions of stimulus renminbi. Loosened credit restrictions have created a building boom and car purchase frenzy. Investment was up by a third in June over last year as the State bought steel and cement. But exports fell by more than a fifth.
In the short-term, the Chinese Maglev can surge ahead, but in the long-term, much depends on a big recovery in US consumption (unlikely) or a sea change in Chinese consumer behaviour (improbable). The world will change utterly when China’s rural millions begin to buy the TVs, fridges and knock-off Prada shoes that we can no longer afford. Chinese retail spending is up by 15 per cent but it is half the rate of growth in investment spending. Consumer price deflation continues; there is investment in cars and new homes but not much cash is frittered away on laptops and lipstick. McDonald’s is so worried about weak Chinese spending that it recently cut back expansion plans. Its rival, Yum Brands which owns KFC, is expecting nil growth in China.
Cash is hoarded, not spent on indulgence. There is still no universal pension or health scheme and the Chinese have long memories of hardship and famine. If China is decoupling from the world economy, many want to know where it is headed. Can we afford to go there and do we want to?
For more than a decade, we funded our lifestyles with cheap loans made possible by cash surpluses hoarded in China and recycled into Western economies. Now we have no choice but to save and pay back what we borrowed. Our pensions depend on the dividends of mining and oil companies that supply China’s mills but it is not enough. We must begin once again to make things Chinese people might be tempted to buy.
China’s recovery is hailed as our salvation. Our leaders plead with China — as Hillary Clinton and Tim Geithner did yesterday — to release a floodgate of aspiring Chinese consumers eager to buy stuff from us. It is not clear how this will happen. The Chinese save, because they don’t entirely trust the future mapped out by their unelected leaders.
Our trust should not be taken for granted and we should not let China set the terms of trade. We are entering a world led by a dictatorship that does not believe in individual freedom, the rule of law or even open markets. It is through China’s support and acquiescence that some of the world’s nastiest regimes continue to bully and repress. We bluster about sanctions. Without the support of the world’s most important economy, what does it mean?
Carl Mortished, world business editor.