China … Investment or extracting payment!

The Chinese £6 billion investment in the Hinkley Point Nuclear plant, has been hailed as a coupe for George Osborne arising from his rather extensive trip to China. Certainly the indication of China being prepared to invest a further £3 billion in UK infra structure projects sounds enticing. However, are they not just extracting a payment?

That the government had to guarantee that the Hinkley Point plant would be allowed to charge double the current rate for electricity, index linked for a further 30 years is a little more worrying. We the citizens of the UK are being commited to paying a premium for electricity to make this Investment viable.

Sounds as though Osborne has "bought" this investment at a rather steep price, and worse these extra profits will all be going out of the UK as the plant will be owned by two non UK entities!

For the record, since 2010, China has run a trade surplus (goods and services) against the UK in excess of £20 billion a year, for which, to date, they have only received promissory notes. This "investment" is more like the first step of extracting payment on some of those promissory notes, which they have simply returned to us to be replaced by a physical asset. 

Unfortuneatly this is a natural consequence of running the economy on ever increasing current account deficits. George Osborne, your focus on government deficit rather than international current account, is blinding you to the unforeseen consequences.

A government deficit fully financed by the citizens of the country rather than banks or international markets is neither inflationary nor bad for the economy. It would move some of the money out of the speculative economy into the real economy and result in true growth.  

 

 

 

 

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