0:00:05 > 0:00:09The great economic success story of any age...
0:00:09 > 0:00:12The Chinese economic miracle
0:00:12 > 0:00:14is the story of my generation
0:00:14 > 0:00:17and probably my children's generation as well.
0:00:17 > 0:00:19..the relentless rise of China.
0:00:20 > 0:00:24It's like some sort of mad programmer's vision of the future,
0:00:24 > 0:00:26all those flashing lights.
0:00:28 > 0:00:31Now, China's downturn and collapsing shares
0:00:31 > 0:00:34have caused global financial panic.
0:00:34 > 0:00:36FOGHORN BLARES
0:00:36 > 0:00:41But could China's economic woes be much worse than anyone's admitting?
0:00:42 > 0:00:46Another empty factory. Absolutely nothing going on here.
0:00:46 > 0:00:48The economy has been on a relentless
0:00:48 > 0:00:51and continuous slide in economic growth.
0:00:52 > 0:00:55There is no painless exit from this problem.
0:00:55 > 0:00:56CHEERING
0:00:56 > 0:01:01However, Britain is forging ever-closer links to China.
0:01:01 > 0:01:05It's supposedly a new golden age.
0:01:06 > 0:01:10Good business, or mad, bad and dangerous to our prosperity?
0:01:18 > 0:01:20I'm beginning to feel sick.
0:01:21 > 0:01:22No ears popping,
0:01:22 > 0:01:25just a sense of overwhelming nausea.
0:01:25 > 0:01:27'The Canton Tower - China's tallest.'
0:01:27 > 0:01:29Bloody hell!
0:01:29 > 0:01:31Ugh!
0:01:31 > 0:01:32'Almost a third of a mile high...'
0:01:32 > 0:01:34I don't like heights,
0:01:34 > 0:01:37and I certainly don't like this height.
0:01:38 > 0:01:41'..towering above the world's biggest metropolis.'
0:01:44 > 0:01:47Blimey, look at what the Chinese have achieved.
0:01:47 > 0:01:49One of its many megacities,
0:01:49 > 0:01:5340 million people living in relative prosperity
0:01:53 > 0:01:56where 20 years ago this was dirt-poor farmland.
0:02:00 > 0:02:04From poverty to the world's second biggest economy.
0:02:04 > 0:02:06CAR HORNS HONK
0:02:06 > 0:02:07What a transformation.
0:02:11 > 0:02:15New railways, airports, roads, skyscrapers.
0:02:15 > 0:02:17All built in a few short years.
0:02:19 > 0:02:23And China's growth has driven the world's - and ours.
0:02:30 > 0:02:32But the economic engine may be seizing up.
0:02:34 > 0:02:38In 2014, China's stock market began to soar.
0:02:42 > 0:02:46The Shanghai and Shenzhen stock exchanges hit record highs.
0:02:46 > 0:02:48It was the mother of all bull markets.
0:02:50 > 0:02:53Everyone wanted a piece of the action.
0:02:53 > 0:02:5690 million ordinary Chinese stormed in,
0:02:56 > 0:02:58including Zhu Qiushi.
0:03:00 > 0:03:02My colleagues, my friends,
0:03:02 > 0:03:05told me that, er, "OK, the index is getting
0:03:05 > 0:03:10"very, very good right now, and some stocks is getting, like, crazy."
0:03:12 > 0:03:16It seemed a one-way bet, underwritten by the government.
0:03:18 > 0:03:21The market was going up, people just started piling in.
0:03:21 > 0:03:23Fundamentally, it was all just about the idea that
0:03:23 > 0:03:26the Chinese government wanted the market to heat up
0:03:26 > 0:03:28and therefore they would never let it crash.
0:03:30 > 0:03:32But in fact, Beijing had lost control.
0:03:34 > 0:03:37People were buying stocks with borrowed money,
0:03:37 > 0:03:39provided by so-called "margin lenders."
0:03:41 > 0:03:45We actually had underground margin lenders that were created,
0:03:45 > 0:03:48that started feeding this, so they were outside
0:03:48 > 0:03:53the normal regulatory structure, and so they were off the radar screen.
0:03:53 > 0:03:56So you think the authorities weren't aware of these
0:03:56 > 0:03:58basically unofficial lenders?
0:03:58 > 0:04:02I don't think they had an idea of the magnitude
0:04:02 > 0:04:04of how important they had become at that point.
0:04:05 > 0:04:09- NEWSREADERS:- 'A financial earthquake in China - the stock market has...'
0:04:09 > 0:04:12'The main index in Shanghai closed today more than 8% down...'
0:04:12 > 0:04:17'Hundreds of billions of pounds are wiped off shares around the world...'
0:04:17 > 0:04:21June 2015. China's stock market crashed.
0:04:23 > 0:04:28We can see a big depression from June 8th,
0:04:28 > 0:04:32and then it's getting worse and getting worse, and here is the bottom.
0:04:32 > 0:04:38I lost half of my total one-year income in the stock market.
0:04:38 > 0:04:41Yeah, so it's horrible, it's, er...hard to imagine.
0:04:45 > 0:04:48For over 30 years, the Chinese government had seemed to have,
0:04:48 > 0:04:50well, an immaculate economic touch.
0:04:52 > 0:04:55But now, Beijing floundered.
0:04:56 > 0:04:58You would have contradictory policies
0:04:58 > 0:05:01released by different agencies on the same day.
0:05:01 > 0:05:04OK? And so they hadn't even bothered to pick up the phone
0:05:04 > 0:05:06and talk to each other, apparently.
0:05:06 > 0:05:11So this creates a lot of concern about who's running the show there,
0:05:11 > 0:05:13who's setting financial policy
0:05:13 > 0:05:16in really one of the world's most important economies.
0:05:16 > 0:05:19Since last summer, China's money markets
0:05:19 > 0:05:21have been dangerously volatile,
0:05:21 > 0:05:24spreading anxiety around the world.
0:05:26 > 0:05:28China's stock market boom and bust
0:05:28 > 0:05:32was eerily reminiscent of Wall Street's 1929 Crash,
0:05:32 > 0:05:35which ushered in economic devastation
0:05:35 > 0:05:37in much of the known world.
0:05:37 > 0:05:43So, the big question is - what does China's market crash foretell?
0:05:50 > 0:05:54China's government has sought to downplay the scale of the problem.
0:05:54 > 0:05:57Officially, the economy is growing at 6.9%.
0:05:57 > 0:05:59That's its slowest in 25 years,
0:05:59 > 0:06:02but still much faster than us in the West.
0:06:06 > 0:06:08But how true is that?
0:06:08 > 0:06:11Challenging the official version is not for the faint-hearted.
0:06:11 > 0:06:13Dozens of Chinese financial journalists
0:06:13 > 0:06:15have ended up in jail.
0:06:15 > 0:06:18And it can be hard for foreign journalists
0:06:18 > 0:06:21to get to the places that tell the whole story.
0:06:25 > 0:06:28I'm on my way to the bleak and frozen north-east,
0:06:28 > 0:06:30near the border with North Korea,
0:06:30 > 0:06:32a place seen by few foreigners.
0:06:41 > 0:06:44This is the city of Yingkou.
0:06:44 > 0:06:47During the boom times, it built on a mind-boggling scale.
0:06:50 > 0:06:54It spent around £7 billion on urban renewal -
0:06:54 > 0:06:56new housing, highways,
0:06:56 > 0:06:59even an Olympic-themed sports centre.
0:07:01 > 0:07:04All these buildings look completely deserted,
0:07:04 > 0:07:07goodness only knows why they built them.
0:07:07 > 0:07:10I can't see a single construction worker,
0:07:10 > 0:07:14despite the fact I can see endless half-finished buildings.
0:07:16 > 0:07:20Nothing much going on. At all.
0:07:20 > 0:07:22Nothing. No activity.
0:07:29 > 0:07:33Yingkou's new city is just one of hundreds in China lying empty.
0:07:35 > 0:07:37Ghost towns.
0:07:37 > 0:07:40Trillions of pounds of construction and investment
0:07:40 > 0:07:42kept China's economy growing,
0:07:42 > 0:07:46but far too much was built, and in the wrong places.
0:07:46 > 0:07:48Buildings like this one will never be finished,
0:07:48 > 0:07:50others will never be occupied,
0:07:50 > 0:07:53and those who financed them will lose a fortune.
0:07:56 > 0:07:59I spent an age trying to persuade anyone to discuss
0:07:59 > 0:08:00what's going on here.
0:08:02 > 0:08:04No-one would appear on camera.
0:08:05 > 0:08:08In fact, I'm seeing little evidence
0:08:08 > 0:08:09there's anyone here at all.
0:08:20 > 0:08:22So, back to the massive hotel -
0:08:22 > 0:08:25where I appear to be the only guest -
0:08:25 > 0:08:27for something of a lonely night in.
0:08:30 > 0:08:32FOGHORN BLARES
0:08:38 > 0:08:40The next day, it's off to Yingkou's port,
0:08:40 > 0:08:42one of China's biggest.
0:08:49 > 0:08:52A huge facility for unloading raw materials,
0:08:52 > 0:08:54but there's almost nothing going on,
0:08:54 > 0:08:58because heavy industry and construction are in trouble.
0:09:03 > 0:09:06The stereotypical china we recognise are huge container ports
0:09:06 > 0:09:11sucking in materials, spewing out exports.
0:09:11 > 0:09:15But trade here and everywhere in China ain't what it was.
0:09:15 > 0:09:18And here, there's a serious recession.
0:09:20 > 0:09:24Now, officially, the economy in this area is growing at 3% a year -
0:09:24 > 0:09:26faster than Britain.
0:09:27 > 0:09:30But to be frank, that's inconceivable.
0:09:31 > 0:09:37Times are really hard, I mean, exports which have powered
0:09:37 > 0:09:40the Chinese economy for many, many years
0:09:40 > 0:09:43actually, are down, year over year.
0:09:43 > 0:09:47The economy has been on a one-way street, really,
0:09:47 > 0:09:50a relentless and continuous slide in economic growth.
0:09:58 > 0:10:02For the region's thousands of small private steel companies
0:10:02 > 0:10:04and their workers, it's agony.
0:10:05 > 0:10:07Foundries in rust and ruin.
0:10:10 > 0:10:14So the downturn has already had a very severe effect.
0:10:14 > 0:10:17I'm in a seemingly bustling town with factories on both sides
0:10:17 > 0:10:22of the road, but almost all of them are deserted, closed down.
0:10:28 > 0:10:31It's a bit miserable. Another empty factory.
0:10:31 > 0:10:34Absolutely nothing going on here.
0:10:34 > 0:10:35Just weeds growing.
0:10:41 > 0:10:45For the people, desperate times. No work.
0:10:45 > 0:10:48Ni hao, thank you so much for doing this, it's so kind of you.
0:10:48 > 0:10:50'And just talking about what's going wrong
0:10:50 > 0:10:52'can land you in deep trouble.
0:10:53 > 0:10:56'But one brave laid-off steelworker took the risk.'
0:11:10 > 0:11:12In this area, are there a ny businesses
0:11:12 > 0:11:14being created at the moment?
0:11:21 > 0:11:22HE CHUCKLES
0:11:22 > 0:11:26Are you being helped at all? Are you getting any training?
0:11:34 > 0:11:36DOG BARKS
0:11:36 > 0:11:39Most of China's workers get no unemployment benefits,
0:11:39 > 0:11:42or any help finding work.
0:11:42 > 0:11:44They have to scratch a living where they can.
0:11:52 > 0:11:53LAUGHING:
0:12:04 > 0:12:06'Any attempt by the government to create new jobs here
0:12:06 > 0:12:08'doesn't seem to be working.
0:12:09 > 0:12:12'So no surprise, perhaps, that China
0:12:12 > 0:12:16'doesn't publish unemployment rates for places like this.
0:12:17 > 0:12:20'China's rust belt looks poisoned, ruined.'
0:12:30 > 0:12:34But there ARE businesses providing employment to millions.
0:12:34 > 0:12:37Industrial goliaths owned by the government -
0:12:37 > 0:12:40the so-called state-owned enterprises.
0:12:40 > 0:12:44They collectively employ as many people as live in Britain.
0:12:46 > 0:12:50And their vast production lines made the stuff that rebuilt this country.
0:12:53 > 0:12:56But many are now in deep trouble.
0:12:57 > 0:13:00The term that analysts like to use
0:13:00 > 0:13:02is a very technical term -
0:13:02 > 0:13:06zombie companies, where they are not really
0:13:06 > 0:13:09living, thriving companies that are making money,
0:13:09 > 0:13:11but they're not companies
0:13:11 > 0:13:14that get a stake through the heart and disappear.
0:13:14 > 0:13:18Despite a collapse in demand, the zombies are remorselessly
0:13:18 > 0:13:20producing more and more -
0:13:20 > 0:13:22far more than the world could ever need.
0:13:24 > 0:13:26So their losses are escalating,
0:13:26 > 0:13:29as are colossal, potentially toxic debts.
0:13:31 > 0:13:34They employ a lot of people,
0:13:34 > 0:13:37they have the lion's share of capital invested,
0:13:37 > 0:13:40and they're very inefficient, and they don't make a lot of money now,
0:13:40 > 0:13:42and they're a drag on the economy.
0:13:44 > 0:13:48State enterprises have picked up, accumulated huge amounts of debt,
0:13:48 > 0:13:51and actually have to keep borrowing money now
0:13:51 > 0:13:55to pay interest in principle on the loans they already have.
0:13:55 > 0:13:58The government talks of putting these living-dead companies
0:13:58 > 0:13:59out of their misery,
0:13:59 > 0:14:02but so far, it's mostly just talk.
0:14:04 > 0:14:07Beijing is painfully aware that its state-owned manufacturers
0:14:07 > 0:14:10expanded too far and too fast,
0:14:10 > 0:14:12and that many are generating big losses,
0:14:12 > 0:14:14adding to the country's excessive debts.
0:14:14 > 0:14:17But fixing them is politically impossible,
0:14:17 > 0:14:20because it would involve sacking millions of workers.
0:14:22 > 0:14:27Huge loss-making zombie companies, a stock market bubble,
0:14:27 > 0:14:29the biggest building binge in history.
0:14:31 > 0:14:34China has been on a frenetic spending spree,
0:14:34 > 0:14:37but it was financed with borrowed money.
0:14:38 > 0:14:42So the increase in its debts has been terrifyingly big.
0:14:42 > 0:14:47They've grown faster than what led to our great crash in 2008.
0:14:51 > 0:14:54And still China's debt mountain is expanding...
0:14:56 > 0:14:58..faster than its economy.
0:14:59 > 0:15:03We have one of the biggest debt bubbles the world has ever seen.
0:15:03 > 0:15:05We continue to add two-and-a-half to three trillion
0:15:05 > 0:15:07to that number every year.
0:15:07 > 0:15:11That is weighing on growth, and until we deal with this problem,
0:15:11 > 0:15:12that's going to continue.
0:15:14 > 0:15:17Senior Chinese officials are usually reluctant to discuss
0:15:17 > 0:15:19what's gone wrong.
0:15:19 > 0:15:21But I had the privilege of meeting
0:15:21 > 0:15:25a top economic policymaker who was unusually candid.
0:15:26 > 0:15:29I cannot rule out the possibility
0:15:29 > 0:15:32that some of the investments were not very efficient.
0:15:32 > 0:15:35But overall, I would say the investments,
0:15:35 > 0:15:38in infrastructure particularly, in the hinterland provinces,
0:15:38 > 0:15:41would have been necessary. OK.
0:15:41 > 0:15:44Some of this may lay idle for a number of years,
0:15:44 > 0:15:50but eventually they would, er, be contributing to the local economy.
0:15:50 > 0:15:53You get this massive explosion in the indebtedness of China,
0:15:53 > 0:15:56and that debt is still rising.
0:15:56 > 0:16:01How does China manage the transition without becoming
0:16:01 > 0:16:04too indebted in a very dangerous way?
0:16:04 > 0:16:06HE EXHALES
0:16:06 > 0:16:08Let me put it this way.
0:16:08 > 0:16:13We should focus on the way Chinese economy is moving from
0:16:13 > 0:16:16the older model, which has served China's needs very well
0:16:16 > 0:16:19over the last three decades,
0:16:19 > 0:16:24to a new model which would fit into the 21st century.
0:16:30 > 0:16:34As ever, the Chinese government has a plan.
0:16:35 > 0:16:38It's called "the great rebalancing."
0:16:40 > 0:16:42And maybe it's working here,
0:16:42 > 0:16:44in the booming tropical south.
0:16:45 > 0:16:48I've come to Guangdong province -
0:16:48 > 0:16:53the richest, most populous and most entrepreneurial part of China.
0:16:58 > 0:17:01The government wants Guangdong's two million private companies
0:17:01 > 0:17:04to lead the rebalancing
0:17:04 > 0:17:09by switching from cheap mass-market manufacturing
0:17:09 > 0:17:12to making higher-quality products and proper international brands.
0:17:14 > 0:17:17China's biggest lighting company, NVC, is one of them
0:17:17 > 0:17:20that's taking up Beijing's challenge.
0:17:39 > 0:17:41This is what it's all about -
0:17:41 > 0:17:45a hi-tech, advanced LED lighting production line.
0:17:46 > 0:17:49In response to the slowdown, Chinese companies
0:17:49 > 0:17:53are doing what all good businesses do, which is to invest
0:17:53 > 0:17:55in better, more sophisticated products
0:17:55 > 0:17:57and higher-tech manufacturing.
0:17:59 > 0:18:03NVC now employs 500 workers in research and development.
0:18:05 > 0:18:07As it expands abroad, it'll challenge
0:18:07 > 0:18:09our advanced manufacturers.
0:18:11 > 0:18:15Which is pretty scary news for us, although just what China needs.
0:18:22 > 0:18:25But China doesn't just have to produce more upmarket stuff -
0:18:25 > 0:18:28Chinese people have to spend more.
0:18:31 > 0:18:37China has to shift away from its reliance on investment-led growth,
0:18:37 > 0:18:41and it needs to prioritise households, consumers.
0:18:43 > 0:18:47To become more like us - and really love shopping.
0:18:47 > 0:18:50I always find these Chinese markets somewhat bewildering -
0:18:50 > 0:18:52there's so much choice.
0:18:53 > 0:18:57What we've got here is corn on the cob wars -
0:18:57 > 0:19:00they are queuing on two sides of the road
0:19:00 > 0:19:04to buy this particular delicacy - corn on the cob dipped in batter.
0:19:06 > 0:19:09So I asked for spicy, and actually he did give that to me,
0:19:09 > 0:19:13even though I didn't really think he understood what I was saying.
0:19:13 > 0:19:16So here it is, first mouthwatering deep-fried corn on the cob
0:19:16 > 0:19:18of my life.
0:19:20 > 0:19:22MEN SHOUT IN BACKGROUND
0:19:22 > 0:19:24Mm. Yummy.
0:19:25 > 0:19:28So all this is supposed to refuel China's economy.
0:19:31 > 0:19:34But it isn't working.
0:19:35 > 0:19:39So we've got all the trappings of a consumer society,
0:19:39 > 0:19:42loads of young people out having fun, some of them spending.
0:19:42 > 0:19:45But they're not spending enough to prevent
0:19:45 > 0:19:49the economy from slowing down dangerously.
0:19:52 > 0:19:56I don't think China's economy would be crashing down.
0:19:56 > 0:20:00It is not realistic to expect an emerging market economy
0:20:00 > 0:20:05to sustain its fast growth over a decade, two decades,
0:20:05 > 0:20:07three decades - it's not realistic.
0:20:07 > 0:20:11Slowing down is inevitable, but I am sure
0:20:11 > 0:20:14the Chinese government is doing something proper
0:20:14 > 0:20:16to deal with this new pressure.
0:20:19 > 0:20:23The stakes for the government couldn't be higher.
0:20:23 > 0:20:28Even in rich Guangdong, factories are now closing...
0:20:28 > 0:20:31leaving workers out of a job and owed their salaries.
0:20:33 > 0:20:35But workers aren't taking this lying down.
0:20:37 > 0:20:40Over the past year, the number of strikes has doubled.
0:20:42 > 0:20:46The police often get involved. Labour activists have been arrested.
0:20:47 > 0:20:50I'm meeting an activist prepared to take the risk
0:20:50 > 0:20:52of telling the world what's happening.
0:20:52 > 0:20:56He took me on a tour of one of the more troubled factory districts.
0:21:10 > 0:21:14How many factories that you've come across have gone bankrupt?
0:21:19 > 0:21:23Zhang Zhiru helps pressurise bosses to pay workers their due,
0:21:23 > 0:21:26through public protests and strikes.
0:22:01 > 0:22:04Yet again, what's going on seems much worse
0:22:04 > 0:22:07than the authorities will admit.
0:22:07 > 0:22:11Because the big concern for China's Communist Party is that
0:22:11 > 0:22:14social unrest could shake its grip on power.
0:22:16 > 0:22:19To be honest, it's not something that people talk about
0:22:19 > 0:22:21very much, because it's so sensitive.
0:22:21 > 0:22:24I don't know that the Chinese population will accept
0:22:24 > 0:22:28years of slow or negative GDP growth.
0:22:28 > 0:22:31There has to be some sort of
0:22:31 > 0:22:34social and political stability consequences of that.
0:22:34 > 0:22:38I personally think there is no painless exit from this problem.
0:22:42 > 0:22:47If it's scary for the Chinese, what does China's slowdown mean
0:22:47 > 0:22:52for the world and for us here in Britain?
0:22:52 > 0:22:56You're likely looking at a prolonged slowdown
0:22:56 > 0:23:00in international trade, and that's especially true for
0:23:00 > 0:23:03a lot of the trading countries of Europe,
0:23:03 > 0:23:05whether it's Germany, the UK...
0:23:05 > 0:23:07And that's also going to be true
0:23:07 > 0:23:11of a lot of the commodity producers in Africa and places like Australia.
0:23:11 > 0:23:13It's incredibly serious.
0:23:13 > 0:23:15It means lower Chinese demand
0:23:15 > 0:23:19for all sorts of things, it also means less Chinese investment
0:23:19 > 0:23:24and less money flowing into the rest of the world economy,
0:23:24 > 0:23:26so I think it's incredibly negative,
0:23:26 > 0:23:29but it's going to remain a protracted process.
0:23:32 > 0:23:34Shrinking global trade,
0:23:34 > 0:23:36slower global growth,
0:23:36 > 0:23:40fewer opportunities for British exporters.
0:23:40 > 0:23:44And it's worse than that for the UK's most prominent industry -
0:23:44 > 0:23:46our banks.
0:23:46 > 0:23:50'There are two huge British banks - HSBC and Standard Chartered -
0:23:50 > 0:23:53'whose fates are more closely tied
0:23:53 > 0:23:56'to China than almost any other bank.'
0:23:57 > 0:24:00What is the scale of Standard Chartered's exposure, what is the
0:24:00 > 0:24:03scale of the lending that Standard Chartered has done in China?
0:24:03 > 0:24:06Yeah. Well, we have a very big business in China.
0:24:06 > 0:24:08Billions, tens of billions?
0:24:08 > 0:24:10Yeah, we have tens of billions so the bulk of our exposure,
0:24:10 > 0:24:13the bulk of our lending in China is very short-term,
0:24:13 > 0:24:16and it's to facilitate trade through the Chinese banks.
0:24:16 > 0:24:19So if everything went very badly wrong in China,
0:24:19 > 0:24:20there would be losses.
0:24:20 > 0:24:22Oh, of course, yeah, and we have losses today.
0:24:22 > 0:24:26Where we're feeling it most acutely already is in commodity prices.
0:24:26 > 0:24:29And that's a big structural shift, because of course
0:24:29 > 0:24:32the world built the capacity to feed the beast
0:24:32 > 0:24:35in terms of Chinese property expansion
0:24:35 > 0:24:37and machinery expansion,
0:24:37 > 0:24:40and that's now slowing down. So that's already happened.
0:24:40 > 0:24:43Of course, it could get worse, I mean, markets are markets.
0:24:45 > 0:24:49Standard Chartered, and even bigger HSBC,
0:24:49 > 0:24:52say they're strong enough to weather all but the most extreme
0:24:52 > 0:24:54shock from China.
0:24:55 > 0:24:57They have cut back lending, but still see opportunities
0:24:57 > 0:25:01to make profits by focusing on consumers and private businesses.
0:25:06 > 0:25:09TRUMPET FANFARE AND CHEERING
0:25:11 > 0:25:14But if our banks are now a bit more cautious about China,
0:25:14 > 0:25:17not so the UK government.
0:25:20 > 0:25:23Mr President, we have much reason to celebrate
0:25:23 > 0:25:26the dynamic, growing economic relationship
0:25:26 > 0:25:28between our countries.
0:25:29 > 0:25:31The Chinese economic miracle
0:25:31 > 0:25:33is the story of my generation
0:25:33 > 0:25:36and probably my children's generation as well.
0:25:36 > 0:25:39That economy's growing, it's creating jobs,
0:25:39 > 0:25:41I want Britain to be part of it. and I think if we cut ourselves off
0:25:41 > 0:25:44from China, we're essentially cutting ourselves off
0:25:44 > 0:25:45from the future.
0:25:45 > 0:25:49The Chancellor has hailed a new golden age
0:25:49 > 0:25:53for China-Britain relations.
0:25:53 > 0:25:56More Chinese investment in Britain,
0:25:56 > 0:26:00more opportunities for British businesses in China.
0:26:00 > 0:26:03The City of London is on a major drive to become
0:26:03 > 0:26:07the leading international centre for trading the Chinese currency
0:26:07 > 0:26:09and Chinese debts.
0:26:09 > 0:26:15Good business, or mad, bad and dangerous to our prosperity?
0:26:15 > 0:26:17Well, perhaps both.
0:26:17 > 0:26:20There will be good business for the City from opening up
0:26:20 > 0:26:22China's financial system,
0:26:22 > 0:26:25but deepening the UK's links to a country
0:26:25 > 0:26:29still undergoing the biggest borrowing binge in history
0:26:29 > 0:26:31is, well...risky.
0:26:32 > 0:26:35Because if China becomes more connected to us
0:26:35 > 0:26:38before its economy stabilises,
0:26:38 > 0:26:40well then, its bust would be our bust.
0:26:42 > 0:26:46Isn't there a risk, though, that if there is a great Chinese shock,
0:26:46 > 0:26:50that all we're doing is making ourselves
0:26:50 > 0:26:52more vulnerable to that shock?
0:26:52 > 0:26:54You know, there's no good claiming that London's going to be
0:26:54 > 0:26:57the centre of global finance if you're not engaged
0:26:57 > 0:27:01in trading with China and dealing with China's currency.
0:27:01 > 0:27:05We've also got very good regulators and a tough system in
0:27:05 > 0:27:08the Bank of England that make sure we're constantly checking
0:27:08 > 0:27:13that we have got our house in order, we've got our economy secure.
0:27:15 > 0:27:18The Chancellor points to Chinese promises of putting big money
0:27:18 > 0:27:21into Britain to show that his golden age is real.
0:27:22 > 0:27:24But the closer we stand to China,
0:27:24 > 0:27:26the more we'll feel the shocks
0:27:26 > 0:27:28as good times turn bad.
0:27:30 > 0:27:33I think it is a dangerous phenomenon, I mean,
0:27:33 > 0:27:37I do think what is happening is that we've got a lot of governments
0:27:37 > 0:27:40around the world that buy into the same story
0:27:40 > 0:27:42that the Chinese government does,
0:27:42 > 0:27:44which is that they can grow out of this problem.
0:27:44 > 0:27:47Well, look, China has big economic challenges, but from what
0:27:47 > 0:27:50I can see they're, A - aware of these problems, and they are
0:27:50 > 0:27:51throwing a lot at it.
0:27:51 > 0:27:54And don't underestimate the amount of economic firepower
0:27:54 > 0:27:57that the Chinese authorities can throw at their problem.
0:27:58 > 0:28:01Beijing engineered prosperity for its people
0:28:01 > 0:28:04on a scale no-one thought possible.
0:28:04 > 0:28:08Can it now manage the slowdown and avoid disaster?
0:28:11 > 0:28:15China has enjoyed the longest, strongest boom
0:28:15 > 0:28:18of any important country in history.
0:28:18 > 0:28:22But what goes up inevitably comes down.
0:28:22 > 0:28:25And here's what matters to them and to us.
0:28:25 > 0:28:30The sooner the day of reckoning, the sooner its debts stop increasing
0:28:30 > 0:28:32in a dangerous way,
0:28:32 > 0:28:36the less calamitous that day of reckoning will be.