The tough regulatory crackdown in China isn’t only a worry for investors with exposure to China and tech. Markets everywhere were spooked by the level of ideological control sought by the Chinese authorities over private companies.
And it won’t have helped China’s relationship with the UK – something that has been described as having deteriorated in recent times from “Golden Age to Ice Age” following clashes over Hong Kong, Huawei and human rights. The growing concerns over China are adding to the resolve here to limit the communist state’s reach in key energy infrastructure projects, and may affect trade deals too, despite the fact that both of these areas form key planks of government economic policy over the next decade.
Sometimes you just have to choose the less easy route to avoid storing up problems later, even while trying to find your way out of a pandemic-induced economic crisis. In any case, despite the enormity of the economic challenge which includes the additional twists of Brexit, decarbonisation, supply chain problems and inflation risk, there is plenty of positive news on the economic recovery front. As earnings seasons kicks off – find all our latest analysis on our Companies News page – many companies are reporting a much brightened outlook while the EY Item Club is forecasting that the economy will grow by 7.6 per cent this year and the International Monetary Fund agrees, with its own prediction of 7 per cent. Begbies Traynor reports that the number of businesses in distress has fallen for the first time since Q2 2019, by 10 per cent, but it also warns that Covid has dramatically accentuated the UK’s zombie business population with many firms having taken on unsustainable debts during the pandemic.
But as with investing, the economy is all about the long game. Perhaps more troubling than the risk of further business failures are figures from the ONS which showed a steep fall in business investment in 2020. This wasn’t all pandemic related either. Investment by UK companies was falling well before March 2020. That’s likely to be damaging for future growth and productivity levels, the latter being an area where the UK lags France and Germany – their productivity levels are about 15 per cent higher. That’s one reason the government is keen for total UK investment in R&D to reach 2.4 per cent of GDP by 2027. But just as important will be how skills deficits, essential for innovation, are addressed.
The UK’s infrastructure network is also behind France’s and Germany’s (according to the World Economic Forum) which matters because good infrastructure means productivity gains – the government reckons every 10 per cent increase in the infrastructure networks is linked to an increase of up to 2 per cent in GDP.
That’s one reason a record level of investment in infrastructure networks lies at the core of the government’s ambitious UK growth plan – as outlined in March this year. Other reasons are that it will be decisive in helping areas to level up and in achieving full decarbonisation.
The next decade will be crucial - by 2030, we will know if goals on climate change are being achieved, if tariff free trade deals are good for us as well as our partners, if levelling up has been attained, if the housing crisis and looming energy crisis (as we transition to green) have been resolved, and if we have managed to maintain – and build on – our flair for exporting services. One thing though that is likely not to have changed much by 2030 is our own and the world’s reliance on tech judging by the resounding success – again - of US big tech. Apple, Alphabet and Microsoft between them delivered post-tax profits of almost $5bn per week during the last quarter.