Printed money won’t save us. Nor will China. But refugees just might

Migration isn't the threat to Europe most people think it is – it's a huge opportunity. Merryn Somerset Webb talks to Paul Hodges.


A Windrush can be a windfall for economies

When Paul Hodges and I last met, I suspect he was starting to get fed up telling people that Chinese growth was slowing very fast and them not really listening to him. I think he feels better now. People finally "seem to have woken up", says Hodges, the chairman of International eChem. And about time. The stimulus around the word has blown up bubbles everywhere. But in a way these bubbles are really more like hot-air balloons once you've got one off the ground, you've got to "keep blowing more air into it" to keep it afloat. Once you stop doing that which China effectively has the whole thing falls to earth again.

China falls to earth

The bubble was blown as people came to believe the myth that China and India were on the brink of Western standards of living and would hence need plenty of commodities oil, copper, iron ore and so on to fully achieve them. That spell is now broken and that really matters, "because where has all the money come from to finance those expansions? It's come from the West".

China's fall from grace does not mean that China isn't going to grow at all. Of course it is. But it will be more modest than the sugar rush of huge stimulus would have you believe. The government is aiming for long-term development in the rural areas, where average incomes are still $1,500 a year. Increase that by 10%-15% and you might not be creating a market for Bentleys, but you are building a more sustainable economy.

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"I've got a friend in the chemical industry who is selling products into the bedding industry," says Hodges. "Now, everybody is telling us that China is doing very badly indeed and it clearly is, but if you are getting a wage rise of $5 or $10 a month, which is what's happening, one of the first things you'll spend your money on is a good night's sleep. So his sales are actually up 12% this year."

You can see the same thing in the car market. "I wouldn't want to be selling or supplying new cars in China, for all sorts of reasons, but what you can see is that the used-car market is now poised for take off." In the UK, the used-car market is three times the size of the market for new cars. In China (where there haven't been many used cars) it is 50%. As that changes, "the real money in the car market in China in the next four to five years is going to be made in servicing the older cars, in buying and selling new cars and doing it on the internet".

A new engine for the global economy

Given this, I say might it not be a good idea for us all just to open our borders to migrants, be they economic migrants or refugees? You could look at the migrant crisis, its general misery aside, as something of a "windfall", says Hodges. "In the UK we have had migrant influxes before from the West Indies, from Cyprus, from Hungary, Czechoslovakia, Asians from Uganda and so on."

The long-term effects have been positive. That's likely to be the case with the sudden arrival of a well-educated Syrian population too. It's a windfall Hodges thinks a lot of countries really need. Germany and Italy have a median age of 46, 47 much like Japan. That makes it hard for them to grow (older people spend less).

We need a new monetary policy

If central bankers would just try and see this, says Hodges, if they would "talk about this idea that demographics could have an influence on the economy", it might not only bring policy change, but also change the way we see the refugee crisis. We might stop thinking that printing money will solve our problems and realise that people might solve at least some of them.

So, if he were in charge, would he throw open the borders of Europe and be done with it? If only it were so easy, says Hodges. This needs strategy and political leadership, precious little of which Europe is getting right now. But if we can get that right, migration is not the threat to Europe that most people think it is. Rather, it is "an enormous opportunity".

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.