How Has China’s Economy Affected UK Economy?

Readers Question: How Has China’s Economic Industrialisation Affected the UK’s Economy? And What Policies Could The UK Government Implement To Rectify The Problems Created From China’s Growth?

Lower Goods Inflation. Chinese economic growth has been characterised by low priced manufactured goods. The price of items such as clothes and electronic goods has consistently fallen, helping to maintain low inflation. This downward pressure on prices is particularly helpful given current cost push inflation pressures from energy and food.

Higher price of raw materials. As well as contributing to lower goods inflation. You could argue China’s growth is contributing to rising prices of raw materials e.g. oil. The economic growth in China is pushing up demand and therefore price of oil, which is having an impact on Western inflation

Decline In Manufacturing Sector. The UK’s manufacturing sector has been in relative decline since early 1980s. Chinese growth has in a way speeded up this process as British firms with higher labour costs become uncompetitive compared to Chinese firms.However, the Manufacturing sector may have declined anyway and upto recently job losses in manufacturing sector have been absorbed in service sector.

Current account deficit. The above factor has caused a deterioration in the long term trade balance between UK and China.

Service sector Inflows. Trade between China and UK is not just a one way process. China is increasingly using its financial clout to buy British goods and services. A good example, is education.