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Saturday, March 1, 2014

The Tea Bag, Sandwiches, Brit Award, Trains, the Great British Immigration Row, Chinese economy 3rd Crash? and a quote from Colbert.

Ever wondered when the tea bag was invented? Well, it was born in that well-known tea drinking nation, the United States of America!  It first appeared in 1904 as a hand-sewn silk bag marketed by Thomas Sullivan in New York.  It was intended that the tea be removed for brewing, but customers soon discovered that a perfectly acceptable cup of tea could be produced by immersing the bag with its contents.  Tea bags have been produced using linen, muslin, paper and string.  Thanks to Fortnum and Mason for this information!  They sell some fine tea and often have interesting information such as this printed in the box.

I love sandwiches but my wife has never been a great fan. The origins of the modern sandwich appear to date from the 18th century. The first written usage of the English word appeared in Edward Gibbon's journal, referring to "bits of cold meat" as a "Sandwich". It was named after John Montagu, 4th Earl of Sandwich, an 18th-century English aristocrat. It is said that he ordered his valet to bring him meat tucked between two pieces of bread, and others began to order "the same as Sandwich!"  It is commonly said that Lord Sandwich was fond of this form of food because it allowed him to continue playing cards, particularly cribbage, while eating, without using a fork, and without getting his cards greasy from eating meat with his bare hands.  Or in today’s language, you can eat a sandwich and continue to read your emails and play World of Warcraft.  However, the origins of the humble sandwich may be far older as the ancient Jewish sage Hillel the Elder is said to have wrapped meat from the Pascal lamb and bitter herbs between two pieces of old-fashioned soft matzah, flat, unleavened bread, during Passover in the manner of a modern sandwich wrap made with flatbread.  Hillel the Elder was born around 30BC, making our humble sandwich over 2,000 years old!  Okay so I said my wife is not keen on them.  Well, at the airport the other day we went to Pret (my favourite) and she had a Pret Club sandwich.  It was so good that it is the first sandwich she had ever finished in her life.  Well done Pret!  The humble sandwich is increasingly becoming a less humble, more sophisticated dish, sometimes closer to haute cuisine and eaten with knife and fork.

I was pleased to see my only real teenage pop music hero win a Brit Award this month.  David Bowie at 67 years old is the oldest person ever to win one.  He is far too cool to accept in person, so he got the model Kate Moss to do so on his behalf, wearing his original Ziggy Stardust costume from his 1972 Rainbow Concert. And even better, Bowie managed to make a political statement in his acceptance speech with Moss saying on his behalf ‘Scotland stay with us’. Well done David!  I expect other celebrities will follow his lead.

Kate Moss collects award on behalf of Bowie

For years (about 20 to be exact) I have battled my way through the rush-hour traffic into central Oxford to take the First Great Western train into London Paddington.  More recently I have taken to walking to the station as it is quicker but that doesn’t help with the train reliability.  Or I should say unreliability.  In the recent wet weather, there have been 60 minute delays in the Didcot area and the signals have not been working around Maidenhead meaning there has been no service between Reading and Paddington.  Even when there is no weather to blame, I always feel that a minor miracle has taken place if I get into Paddington no more than 10 minutes behind schedule.  Fortunately I don’t go to London every day, usually no more than once or twice a week.  Oh and the peak time ticket is £58 excluding tube (bargain I hear you say).  Well I have long known that the Chiltern Line is the most reliable and the best rated by passengers in the country so I have started to use it more often.  I can drive 20 minutes north to Bicester and catch it there.  It is less expensive, more reliable and quicker!  The scheduled time is up to 15 minutes faster (46 minutes journey time) but as they are almost always on time or early the real journey time is much shorter.  (Yes, I go 20 minutes North to take a train South and get there much quicker). And in summer 2015 they will open a new parkway station just North of Oxford with direct rains to London.  This will be the first new railway from a UK city to London in over 100 years!  Can’t wait.
Channel 5 hosted a programme last month which they called the ‘Great British Immigration Row’. Their objective was clearly to improve their viewing figures and I expect they succeeded.  This was a fiery, heated, provocative debate or argument, with a selection of ‘expert’ panellists invited as well as members of the audience who were allowed to say a few words.  The members of the audience were on the whole far more sane than many of the speakers C5 had invited.  Sun columnist and former Apprentice ‘star’ Katie Hopkins was no doubt invited to heat up the proceedings.  That she certainly did with her relentless attacks and inability to let anyone else get a word in.  Even the Daily Star (that fine newspaper) launched a campaign to get her banned from TV last year!  They also interviewed a muslin fundamentalist who refuses to condemn the killers of Lee Rigby.  Again, surely this was to make good TV as it is hard to see how this is directly connected with immigration.  But in between all the drama and viewing stewing, there was actually some good debate and I really enjoyed it.  It seems to me that immigration is essential to our country for the following reasons: we are an aging population and there will be no one to pay our old age pensions unless we get more younger people in working; we should always encourage bright qualified people to come to our country; we should allow businesses to recruit the very best people from across the world and not just limit them in every case to the local population. This will help ensure we build world-class businesses and organisations that will prosper, grow and pay more taxes.  Kelvin MacKenzie (former editor of The Sun) said he was in favour of immigration (that did surprise me) but that immigrants should not have access to the NHS for a certain period of time (measured in years).  This is populism at its worst.  How can we allow people into the UK and then deny them healthcare when they need it? This is inhuman and surely breaches Human Rights.  No to health tourism of course, but we must look after anyone we elect to allow into the country.  That’s the British way.  Professor Tipu Aziz was in the audience.  He is from Bangladesh and arrived in Britain at the age of 17 with just three O-levels. Now he is a neurosurgeon at the JR in Oxford.  When asked how many lives he had saved in the UK he said ‘thousands’.  A Big Yes to immigration as it clearly does us far more good than bad.  What a shame that the political parties still prefer to try to outdo each other their tougher that you stance on immigration and that only The Economist has come out and said Immigration is good not bad.
We all know that the last five years have been amongst the worst ever economically, and certainly the worst in living memory.  Many people are still suffering as a result.  It started in Wall Street and The City in 2008.  The second phase was the Eurozone crisis and we have been gradually recovering, very very slowly since.  However, there are some who say a third crash is going to drag us all back: the Chinese Economy.  Below is an article written by the BBC’s Robert Peston.  When you read it, it is hard to disagree with him that all is not well in China.
Chinese economy: 3rd crash?
Unless you are an aficionado of the great moments of Chinese Communist history, you probably won't have heard of Wuhan (it is the site of Chairman Mao's legendary swim across the Yangtze).  But perhaps more than any other Chinese city, it tells the story of how China's remarkable three decades of modernisation and enrichment, its economic miracle, is apparently drawing to a close, and why there is a serious risk of a calamitous crash.  In Wuhan I interviewed a mayor, Tang Liangzhi, whose funds and power would make London's mayor, Boris Johnson, feel sick with envy. He is spending £200bn over five years on a redevelopment plan whose aim is to make Wuhan - which already has a population of 10 million - into a world mega city and a serious challenger to Shanghai as China's second city.  The rate of infrastructure spending in Wuhan alone is comparable to the UK's entire expenditure on renewing and improving the fabric of the country. In this single city, hundreds of apartment blocks, ring roads, bridges, railways, a complete subway system and a second international airport are all being constructed.  The middle of town is being demolished to create a high tech commercial centre. It will include a £3bn skyscraper that will be more than 600m high (roughly double the height of London's Shard) and either the second or third tallest in the world (I met executives of the state owned developers, Greenland, who were coy about precisely how tall it would finally be).  And, of course, the point of my visit to Wuhan was to tell a broader story. Over the past few years, China has built a new skyscraper every five days, more than 30 airports, metros in 25 cities, the three longest bridges in the world, more than 6,000 miles of high speed railway lines, 26,000 miles of motorway, and both commercial and residential property developments on a mind-boggling scale.
Third wave
Now there are two ways of looking at a remaking of the landscape that would have daunted Egypt's pharaohs and the Romans. It is, of course, a necessary modernisation of a rapidly urbanising country. But it is also symptomatic of an unbalanced economy whose recent sources of growth are not sustainable.  Perhaps the big point of the film I have made, to be screened on Tuesday (How China Fooled the World, BBC2, 9pm) is that the economic slowdown evident in China, coupled with recent manifestations of tension in its financial markets, can be seen as the third wave of the global financial crisis which began in 2007-08 (the first wave was the Wall Street and City debacle of 2007-08; the second was the eurozone crisis).  Why do I say that?  Well in the autumn of 2008, after the collapse of Lehman, there was a sudden and dramatic shrinkage of world trade. And that was catastrophic for China, whose growth was largely generated by exporting to the rich West all that stuff we craved. When our economies went bust, we stopped buying - and almost overnight, factories turned off the power, all over China.  I visited China at the time and witnessed mobs of poor migrant workers packing all their possessions, including infants, on their backs and heading back to their villages. It was alarming for the government, and threatened to smash the implicit contract between the ruling Communist Party and Chinese people - namely, that they give up their democratic rights in order to become richer.  So with encouragement from the US government (we interviewed the then US Treasury Secretary, Hank Paulson), the Chinese government unleashed a stimulus programme of mammoth scale: £400bn of direct government spending, and an instruction to the state-owned banks to "open their wallets" and lend as if there were no tomorrow.  Which, in one sense, worked. While the economies of much of the rich West and Japan stagnated, boom times returned to China - growth accelerated back to the remarkable 10% annual rate that the country had enjoyed for 30 years.  But the sources of growth changed in an important way, and would always have a limited life.
Toxic investment
There are two ways of seeing this.  First, even before the great stimulus, China was investing at a faster rate than almost any big country in history. Before the crash, investment was the equivalent of about 40% of GDP, around three times the rate in most developed countries and significantly greater even than what Japan invested during its development phase - which preceded its bust of the early 1990s.  After the crash, thanks to the stimulus and the unleashing of all that construction, investment surged to an unprecedented 50% of GDP, where it has more or less stayed.  Here is the thing: when a big economy is investing at that pace to generate wealth and jobs, it is a racing certainty that much of it will never generate an economic return, that the investment is way beyond what rational decision-making would have produced.  That is why in China, there are vast residential developments and even a whole city where the lights are never on and why there are gleaming motorways barely tickled by traffic.  But what makes much of the spending and investment toxic is the way it was financed: there has been an explosion of lending. China's debts as a share of GDP have been rising at a very rapid rate of around 15% of GDP, or national output, annually and have increased since 2008 from around 125% of GDP to 200%.  The analyst Charlene Chu, late of Fitch, gave a resonant synoptic description of this credit binge:  "Most people are aware we've had a credit boom in China but they don't know the scale. At the beginning of all of this in 2008, the Chinese banking sector was roughly $10 trillion in size. Right now it's in the order of $24 to $25 trillion.  "That incremental increase of $14 to $15 trillion is the equivalent of the entire size of the US commercial banking sector, which took more than a century to build. So that means China will have replicated the entire US system in the span of half a decade."
Wuhan in Winter.  Or is it Bournemouth?
Anyone living in the rich West does not need a lecture on the perils of a financial system that creates too much credit too quickly. And in China's case, as was dangerously true in ours, a good deal of the debt is hidden, in specially created, opaque and largely financial institutions which we've come to call "shadow" banks.  There are no exceptions to the lessons of financial history: lending at that rate leads to debtors unable to meet their obligations, and to large losses for creditors; the question is not whether this will happen but when, and on what scale.  Which is why we've seen a couple of episodes of stress and tension in China's banking markets over the past nine months, as a possible augury of worse to come.
Slowing growth
More broadly, for the economy as a whole, when growth is generated over a longish period by debt-fuelled investment or spending, there can be one of two outcomes.  If the boom is deflated early enough and in a controlled way, and measures are taken to reconstruct the economy so that growth can be generated in a sustainable way, the consequence would be an economic slowdown, but disaster would be averted.  But if lending continues at breakneck pace, then a crash becomes inevitable.  So what will happen to China's economic miracle?  Well, the Chinese government has announced economic reforms, which - in theory - would over a period of years rebalance the economy away from debt-fuelled investment towards consumption by Chinese people.  Charles Liu, a prominent Chinese investor, with close links to the government in Beijing, explained to me how far China's growth rate is likely to fall from the current 7-8%:  "I think China could do very well if the quality of the growth is transformed to higher value add." He said. "You're really looking at 4% is fine."  But as yet the reforms are at a very early stage of implementation, and the lending boom goes on. What is more, the current building splurge so enriches many thousands of communist officials, from a system of institutionalised kickbacks, that there are concerns about the ability of the central government to force the changes through.   Also, the social and political consequences of Charles Liu's 4% growth could be profound: it is unclear whether that is a fast enough rate to satisfy the people's hunger for jobs and higher living standards, whether it is fast enough to prevent widespread protest and unrest.  And what if the lending and investing bonanza can't be staunched? Then we would be looking at the kind of crash that would shake not just China, but the globe.  The biggest story of my career has been the rise and rise of China. Hungry, fast-growing China has shaped our lives, sometimes but not always to our benefit.  It boosted our living standards, by selling us all those material things we simply had to have, cheaper and cheaper. But its exporters killed many of our manufacturers. And the financial surpluses it generated translated into our dangerous deficits, the secular and risky rise of indebtedness in much of the West.  Also its appetite has led to huge increases in the price we all pay for food, for energy, for commodities. What's more, China's influence in Asia and Africa has profoundly shifted the global balance of power.  So would an economically weakened China be good for us in the West? Well, it wouldn't necessarily be all bad.
But a China suddenly incapable of providing the rising living standards its people now see as their destiny would be less confident, less stable, and - perhaps for the world - more dangerous.
Robert Peston, BBC Business News Editor, February 2014.
And, as ever, I am going to end this month’s blog with a quote:
“L’art de l’imposition consiste à plumer l’oie pour obtenir le plus possible de plumes avec le moins possible de cris”  Jean-Baptiste Colbert
“The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least possible amount of hissing”

Colbert was the French Finance Minister under Louis XIV in the 17th century just prior to the French Revolution. Generally regarded as hard-working and brilliant, even he could not raise money fast enough to satisfy the King’s extreme extravagance.  Some things don’t change that much.  Different system, same problem?
Colbert born Reims 1619 died Paris 1683

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