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China trade imbalance dangerous: PM

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Globalisation could “go into reverse”, harming economies around the world, unless China acts to correct dangerous trade imbalances, Prime Minister David Cameron has warned.

On the eve of a G20 summit at which Beijing will face pressure to allow faster appreciation of its yuan currency, Mr Cameron warned that the massive surpluses created by China’s export success had created “a dangerous tidal wave of money” sweeping around the world.

His warning came in a speech to students at Peking University in which he also risked infuriating the Communist authorities by extolling the virtues of political democracy and a free press and saying he hoped China would develop towards “a greater political opening”.

Mr Cameron accepted that Britain’s society was “not perfect” and insisted he was not trying to lecture the Chinese or claim a position of “moral superiority”.

But he said Britain’s democratic traditions “make our government better and our country stronger”, adding: “The rise in economic freedom in China in recent years has been hugely beneficial to China and to the world. I hope that in time this will lead to a greater political opening, because I am convinced that the best guarantor of prosperity and stability is for economic and political progress to go in step together.”

Mr Cameron said he wanted “to make the positive case for the world to see China’s rise as an opportunity, not a threat”. But he said if Europe’s openness to China is to be maintained, it must be clear that “China is open to Europe” and he said China can take a leading role now on dealing with economic problems as the world emerges from recession.

At a time of slow growth and high unemployment in many nations, there was a danger of states turning to protectionist measures which could damage the recovery, he warned.

“Globalisation – the force which has been so powerful in driving development and bringing huge numbers into the world economy – could go into reverse,” said Mr Cameron. “If we follow that path, we will all lose out. The West would lose for sure, but so would China.”

And in an apparent reference to the low valuation of the yuan, which has helped China’s exports and allowed it to build up massive reserves of foreign currency, Mr Cameron said: “The truth is that some countries with current account surpluses have been saving too much while others like mine with deficits have been saving too little. And the result has been a dangerous tidal wave of money going from one side of the globe to another. We need a more balanced pattern of global demand and supply, a more balanced pattern of global saving and investment.”

It was also necessary for China to make moves to encourage domestic consumption, such as investing in healthcare and welfare, so that its growing middle classes do not feel obliged to save their money for a rainy day but can instead buy the luxury goods and services which Western nations want to export, he suggested.

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