Daniel Bentley: Britain may pay price for closer ties with China

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SOON after Sajid Javid was appointed Business Secretary in May, those close to him let it be known that “industrial strategy” – a phrase well on the road to rehabilitation under his predecessors Lord Mandelson and Vince Cable –was not a phrase with which he would be associated.

He would speak instead of an ‘industrial approach’, shedding the image of a government that might be tempted to either pick winners or prop up industries that could not compete in the global market.

If there was any sense then that this was a superficial shift of emphasis there can be little doubt now that it represented an honest embrace of the free market principles associated with his political hero, Margaret Thatcher, whose portrait hangs on his office wall.

With the steel industry on its knees, thousands of jobs gone and many more under threat, the Government protests that it is doing as much as it can under world trade rules and that it cannot, in the words of David Cameron, “set the world price of steel”.

It is true that prices are what they are, although the Prime Minister has had a fine opportunity this week to lobby the Chinese president, Xi Jinping, over his country’s role in driving them so low by dumping huge amounts of steel on export markets.

But his, and Javid’s, suggestion that there is nothing they can do in the face of such prices is false.

They must provide state aid in order to safeguard Britain’s long-term strategic interest in steel-making. China is not producing cheap steel because it is more efficient than British manufacturers: it is able to do so because its output is subsidised by the state. By selling at below the cost of production, China is itself in breach of World Trade Organisation rules.

That Cameron and Javid do not explore such courses of action doubtless owes much to their underlying faith in the sanctity of global markets. But they should remember that even Mrs Thatcher understood the necessity to intervene on behalf of strategically-important industries.

She did so herself with steel, granting £450m in state aid in 1980, and she did so in aerospace, pumping hundreds of millions of pounds of public money into BAE’s Airbus programme and keeping Rolls-Royce going when it was still recovering from its bankruptcy.

Unfortunately, this Government seems content to allow British steel manufacturing to go to the wall, with little consideration of our future interests at a time perhaps when China has driven all of its competitors out of business. Does anybody expect it to be selling steel so cheap when it has something close to a global monopoly on production?

That the Prime Minister has failed to take up the issue of dumping more forcefully with President Xi Jinping during his state visit this week also owes much to a similar strategic failure – the fault of previous administrations – in allowing Britain’s nuclear industry to wither on the vine.

Once a global leader in nuclear technology, we are now reliant on foreign expertise for the development of our next generation of nuclear power stations, principally French-owned EDF, but with enormous investment from none other than – who else? – China. We are now looking to the Chinese not just to invest in new nuclear power stations but to design and build one in Bradwell, Essex.

Cock-a-hoop that the Chinese are going to help us out with nuclear power, Ministers are naturally disinclined to start asking awkward questions about their dumping of steel – or much else for that matter. It has been left to the Commons Speaker John Bercow to raise the case of Burmese democracy campaigner Aung San Suu Kyi and to Labour leader Jeremy Corbyn to raise human rights violations by China’s autocratic government.

One might argue that this is just business, and that diplomatic niceties are essential to any transactional relationship. But China is a country whose repressive political regime is deeply at odds with Britain’s longstanding commitment to freedom and democracy.

And there are practical objections too. Military and intelligence figures are known to be unhappy about the involvement of China, notorious for its cyber-espionage activities, in the development of our nuclear power industry. The prospect is even raised that “trapdoors and backdoors” in nuclear power systems may allow the Chinese to shut down power stations in the event of a dispute.

If this seems far-fetched, consider that in the US Barack Obama will not even stay in New York’s Waldorf-Astoria hotel now that it has been taken over by a Chinese insurance group. George Osborne, by contrast, seeks to make a virtue of the UK’s willingness to become China’s “best partner in the West”. The Chancellor acts as if he is stealing a march on Britain’s rivals. Instead he ought to consider why Britain’s rivals are not competing more vigorously for this privilege.

Daniel Bentley is editorial director of the think-tank Civitas.