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What would the world look like if the Chinese economy really hits the skids?

Businesses and Governments don’t yet seem to have really seen the storm on the horizon and thought about what the landscape could look like when it passes.

  • The Budget forecasts could be wildly over-optimistic
  • What will happen to geo-politics and China?
  • Will government itself have to change?

If the Chinese economy crashes badly some commentators and long-only fund managers have said in pretty blunt terms that ITEM club and Office of Budget Responsibility forecasts for UK growth and revenues may begin to look rather foolish.

In turn if the Chinese economy does continue to head south what will be the political implications for Chinese power both globally and internally. Will the new Chinese middle class who will feel their living standards drop demand new accountability for the state?

Government professionals with foresight at the Lee Kuan Yew School of Public Policy in Singapore and UK practitioners like Geoff Mulgan, now at NESTA, have been pushing for years to remodel not just what the state does but the world view of governments.

In Britain we have a Chancellor of the Exchequer who is keen to remodel the state: yes, to reduce its budget but also to refashion, where possible, the mode of operation and most crucially the means by which it is accountable to the people. Devolution can become an arcane debate at times but consider the position of infrastructure in the North of England – where policy analysts think that the lack of investment in rail spending has impeded the ability to commute from city to city which in turn has seen high skilled jobs growth diminish relative to London. Is this because the markets don’t see value in investing in “the North” or because investment has gone elsewhere? A new economic shock would cause devolutionary processes to accelerate.

In Wales, which has a much lesser form of devolution than in Scotland GVA, one of the key indicators of productivity is at 74.3 per cent of the UK average. In West Wales and the Valleys it is, according to the Welsh Assembly at 62.6 per cent. Those figures are better than in the 90s but to catch up with England a further growth of £1.5 billion of additional growth every year for a decade. The Institute for Welsh Affairs among others are sceptical that will happen unless politics leads that process. To do so means making the political system focus on the problems – i.e. more local accountability and power. The latest efforts at securing devolution don't quite seem up to the task.

In China the state is beginning to change too with corruption being hit hard at some of the highest levels. As with many countries there is the suspicion that anti-corruption prosecutions are politically motivated as well as substantiated in law however.

If China’s economy continues a drastic slowdown that people suspect is already happening, with much chatter that Chinese GDP figures are grossly over-inflated even in the good times, it could be that the burgeoning middle class begins to demand more of its Government. Corruption, recourse to justice, environmental protections, property rights will come to the fore. How the Chinese state responds to this challenge will be fascinating and could send economic and political shocks around the world.

From the Bont to Baoding people want more accountability politically. The question is whether they will get it but don’t be surprised if the ructions over Scottish independence and the debate over Devo Manc are early warnings of something bigger to come.