Prime Minister's speech: The International Economic Crisis: The Urgent Need for an International Response
Wednesday 7 October 1998
Last year, the new Labour Government came to power determined to make a fresh start. A fresh start at home and a fresh start abroad. Britain had lost its way: our relations with Europe were strained; our standing in the wider world was diminished.
Britain is, and should be, resolutely international in its outlook. That is the direction in which our history, our interests and our inclinations point. It is why we attach so much importance to our relations with Asia. It is why one of my Governments main aims has been a new, more productive relationship between Britain and China.
It is exciting to be in China today. I remember too the excitement when, twenty years ago, Deng Xiaoping began the reforms which have changed the face of China. As China reformed and modernised, relations with Britain should have prospered. But too often we seemed to be talking past each other, rather than to one another.
A New Chapter
I believe that a new era has now opened, a new partnership is in prospect. Hong Kong was the great challenge. For both of us. I am proud of the way Britain returned Hong Kong to Chinese sovereignty. We kept our side of the bargain. I believe China is now keeping hers.
The handover ceremony in Hong Kong at the stroke of midnight on 30 June last year was a unique occasion by any standard. There were fears. The doom-merchants of the worlds media predicted the worst. And yet the going concern of Hong Kong has seamlessly become the going concern that is the Special Autonomous Region, despite the unforeseen strains of the Asian financial crisis. The vision of one country, two systems has become a reality.
Our responsibilities in Hong Kong under the Joint Declaration continue. But I have been impressed by the Chinese leaderships hands-off approach. At my talks with Premier Zhu Rongji yesterday, we were able to focus not on concerns about how Hong Kong is run, but on how Hong Kong can best weather the Asian financial crisis. Hong Kong is no longer a barrier between Britain and China. It has become the bridge we always wanted it to be.
Britain and China working together
The challenge we both face is to modernise. In Britain the new Labour Government has embarked on an ambitious programme: a new economic policy with an independent Central Bank to end the destructive cycle of boom and bust seen under previous Governments; welfare reform; devolution and constitutional modernisation; improved education and healthcare; opportunity and re-training for the unemployed.
In China, the scale and pace of modernisation are breathtaking. Premier Zhu told me in London in April about his ambitious reform programme; to turn ailing state enterprises round in three years; to reform the financial system; radical measures on housing, the welfare system and taxation. And to implement these reforms at the same time as slashing the government bureaucracy by half.
Britain has doubled our technical cooperation programme for China. British and Chinese business people are sharing their experiences of how state-owned enterprises can be turned into market entities. How to encourage investors. How new enterprises should be regulated. How to improve productivity.
We are helping to train Chinas financial regulators. We are also bringing young Chinese professionals from financial institutions to learn about the City of London.
Change is always painful. But I believe it is essential.
We must face change and challenge in the wider world too. As permanent members of the Security Council we have a common responsibility in maintaining international peace and security. In Kosovo, Britains aim is to prevent a humanitarian catastrophe and help bring about a negotiated solution. A quarter of a million people have been forced out of their homes, as winter approaches. The Security Council has spelled out to President Milosevic what he must do to end this crisis: above all withdraw Serb security forces, enable the humanitarian organisations to work properly, and begin real negotiations. I have discussed this with both President Clinton and President Yeltsin in the last 24 hours. President Milosevic may think the international community will not act. But, in the end it will act. We are at the end now and he must listen to our warning or face the consequences.
International financial crisis
We also face together the global financial crisis. Around a quarter of the world economy is now in recession. All of us have been affected. Later this week I travel to Hong Kong, which has felt the consequences more deeply. All around the world, including in Britain, growth forecasts are being revised downwards as a result of the global economic situation. We have to hold firm, keep our nerve, stick to policies that provide stability for the long-term and ensure we never go back to the wretched days of boom and bust, record repossessions, record bankruptcies, record borrowing and interest rates at 15%. In Britain, we have set the policies for the long term. There will be no backing down. On the world economy I have kept in regular touch with Zhu Rongji. I applaud China's robust and measured response. Its determination not to devalue the renminbi has been crucial. China is a haven of stability in the region.
The challenge to the international community is immediate. At least there is now a growing consensus behind the need to act both to stabilise the short-term economic crisis and to address the longer-term reform of the international financial system.
But we cant wait around. This isnt going away. Its here. Its now and its urgent. And I reject absolutely the notion that this global crisis is beyond our power to affect.
There are a range of ideas being put forward by the British, the US, France, and most recently Japan. It is time to bring these together. As Chairman of the G7/8 we stand ready to help in any way we can. But the key to restoring confidence is to agree basic principles and have a clear plan as to their future implementation. Otherwise the danger will not be the economic fundamentals but a loss of confidence which spreads.
The key short-term challenge is to prevent an unnecessary global recession. The G7 countries role is vital. We must re-commit ourselves to strong growth and financial stability in each of our economies.
For the US and Britain it means supporting growth, without in any way risking inflation.
In Europe the introduction of the Euro must support strengthening economic recovery.
A strong, sustainable recovery in Japan is crucial for the whole of Asia and indeed the world. The Japanese Government has taken important steps. But further action is urgently required to strengthen the financial system by providing support for viable banks.
The worlds leading economies must also continue to support the many emerging market countries pursuing sensible and fundamentally sustainable policies. The idea put forward by President Clinton of a new short-term emergency fund, based in the IMF, is important and should be supported. It is also essential that the IMF quota increase and the New Arrangements to Borrow are implemented as soon as possible.
For the longer term, we must strengthen the IMF and World Bank by agreeing new international rules of the game which match todays instantaneous and interdependent capital markets. This means new disciplines, new procedures and new thinking. I see a new consensus emerging around these five ideas:
* First and foremost, greater openness and transparency: Agreed codes of good practice on fiscal policy, financial and monetary policy and corporate governance.
* Second, stronger international financial supervision and regulation: our proposed permanent Standing Committee for Global Regulation, bringing together the World Bank, the IMF, the Basle Committee and others could play a key role in preventing future financial crises.
* Third, effective responses to short-term liquidity crises: again the new proposed emergency fund could be established on a more permanent basis to help cushion reforming economies facing immediate short-term crises. We also need to involve the private sector more in helping to resolve future crises within a new framework of partnership and co-operation.
* Fourth, managing capital flows better: capital liberalisation is right but the pre-conditions must be right too.
* Fifth, greater openness and accountability in the international financial institutions themselves: the IMF and the World Bank remain central but they, too, need to be more open. They need to work together much better. A new international code of good practice of social policy, as we have proposed, is essential to protect the poorest in affected countries. We must look urgently at French and other ideas for strengthening the governance of the International Financial Institutions.
When I discussed this with Zhu Rongji yesterday, I was delighted to find how much we had not only a shared analysis, but also a common view of the way forward. We have therefore agreed Britain and Chinas experts and Finance Ministers will work together to address these five points and see how we can jointly take these issues forward. This will be launched when our Finance Ministers meet early next month. It is only through genuinely global solutions that we will conquer this global problem. China has much to contribute.
This is part of a new, more mature dialogue. On human rights, we can also move away from the sterile point-scoring of the past. There is no disguising that we continue to have serious concerns and differences about human rights about political and religious freedoms and about the situation in Tibet, which I discussed at length with President Jiang Zemin today.
The UK has started a human rights dialogue with China. With our encouragement, the European Union has done likewise. We have been able to engage the Chinese authorities and, I hope, to influence them. There is progress. I welcome Chinas growing involvement with the UN human rights system: Mary Robinsons visit last month; signature of the International Covenant on Economic, Social and Cultural Rights in October last year and the International Covenant on Civil and Political Rights at the beginning of this week.
China has much to be proud of in economic and social rights, not least in lifting more than 200 million people out of poverty over the past two decades. But much remains to be done on civil and political rights. Such rights are universal: to be applied to each and every one of us. Progress is not a matter of slogans or gestures. It is a complex process of incremental change in many different areas. We are giving advice to the Chinese authorities on the development of village democracy. We are encouraging legal reform and protection of the rights of vulnerable groups such as women, children and minorities.
This is an important step forward and when incidents like the questioning of a dissident this morning do occur, there is at least a process of dialogue in which they can be addressed and resolved. We can now discuss these with the Chinese authorities in a spirit of cooperation.
China needs to build on what has been achieved so far. To have the confidence and conviction to move forward. To expand freedom, allow dissent. To have the courage and vision to believe that the result will be a China that is stronger, rather than weaker. I urge my Chinese colleagues to go down that road.
We have also opened a new chapter in our commercial relationship. The figures speak for themselves. Our exports up 25% last year; Britain by far the largest European investor in China, with ??12 billion investment pledged. Over 2000 British joint ventures operating here.
Today I witnessed the actual signature of new investment projects totalling some ??500 million, covering power, water, pharmaceuticals and satellite communications. Yesterday Zhu Rongji and I had a very positive discussion of other potential British investments and contracts worth over ??3 billion, and involving major companies such as BP, ICI, British Aerospace, Rolls Royce, Alsthom and Babcock. Shell are of course already involved in by far the single biggest investment here through their $4.5 billion petrochemical project in the South China Sea.
Strengthening Britain in China
The scale of the opportunity, like the country, is vast. But only when you are here do you really appreciate it. This morning I opened by video link new British investments in Shekou and Suzhou, and spoke to a British financial services mission in Wuhan. It was like being in London, while opening investments in Copenhagen, Cairo and Budapest. All in one country.
It is clear that if Britain is to build a new partnership with China, we must broaden our efforts. So:
* We are strengthening and re-launching the China-Britain Business Council and increasing our commercial staff in Shanghai and Guangzhou
* We are expanding our commercial effort beyond the eastern seaboard and aim to open a fourth Consulate in Chongqing
* We are increasing our development effort. I am delighted to announce three new projects, worth over ??30 million, to improve health services, to prevent and control the spread of AIDS, and to improve the efficiency of water supply
* We have given the Commonwealth Development Corporation the go ahead to talk to the Chinese authorities about investment operations here
* We are creating a new UK/China Forum, chaired by Michael Heseltine and Song Jian to provide a non-governmental perspective
* We will be increasing the number of scholarships we give to China under our Chevening programme and in particular ensuring that these are used to assist Chinas development.
I warmly welcome the active involvement of the business community both those accompanying me and those based in China - in pursuing trade and investment for Britain, and in areas like training young Chinese managers in modern business techniques through the Western Management Institute. The British Chamber has done excellent work in promoting this vital wider role.
People in Britain were shocked by the scale of this years floods in China, but impressed by the heroic way in which the authorities and the people themselves tackled the consequences. I am delighted that the proceeds of tonights dinner will go to help victims. I was able to tell President Jiang Zemin today of a further British offer of ??5 million of assistance. I hope we and British companies will also be able to help address the underlying causes of the floods by helping the Chinese authorities with their ambitious reforestation programme.
Zhu Rongji and I agreed yesterday on the importance of Britain and China setting a wider example on the environment. We have signed a Memorandum of Understanding on cooperation. We will work together on energy efficiency. We have established an informal dialogue on climate change. We have a common interest in making sure that next months meeting in Buenos Aires maintains the momentum of Kyoto.
China will be one of the great economies and political forces of the next century. And it can only be good that China plays its full international part. Joins the WTO. Integrates into the global financial system. Shares the responsibilities of international leadership. Has the confidence to evolve politically as well as economically.
And as China does so, Britain will be at her side. We are increasing our cooperation and opening a new chapter.
Strong personal ties between leaders; joint efforts on the international financial crisis; working together in the Security Council; a new commercial relationship; a new dialogue on human rights; Hong Kong as a bridge between us; tackling environment challenges together.
That is the new partnership between Britain and China. It is now well and truly launched.