My Lords, our sub-committee was well chaired by my noble friend Lord Teverson, who introduced the report clearly. First, I should like to express my thanks to Kathryn Colvin, our admirable clerk, and all those who helped us to prepare that report. It was a very big job, which was well done. I was one of the sub-committee members fortunate enough to go to China. We went 25 years after my last visit, during which I had watched on Chinese television the signing of the Hong Kong agreement. The fact that my noble and learned friend Lord Howe of Aberavon, present at that ceremony and playing a central role, has been able to contribute to this debate, and give a very personal account of involvement with a changing China over more than half a century, has been very welcome and is a good example of the unique quality of this House.
The transformation of China during the 25 years since I was there has been remarkable. On my previous visit, we travelled to the old city of Beijing from a very simple government guest house along a bumpy, unlit road, which was hardly wide enough for two vehicles to pass, to a city where there were few cars but thousands of bicycles. Beijing, Guangzhou and, I believe, the even more spectacular Shanghai, which we did not visit on this occasion, have taken their places among the world's great modern cities. The bicycles have given way to a vast number of motor vehicles which choke the huge highways that have obliterated the old buildings. Perhaps even more significant than the construction programmes is that people's lives are better than they were. They have improved in terms of disposable income and economic and job choices, and with those improvements have come greater freedoms.
It was not just the scale of the development taking place that struck me so forcefully on this visit, but the changing character of the political leaders of modern China. We had meetings with men I can best describe as old fashioned commissars. They were not very productive meetings because our attempts to intervene with questions seldom generated helpful responses. On the other hand, we had meetings with two senior vice-Ministers, Liu Jieyi and Zhang Zhijun, who were the kind of men one would expect to find holding with great distinction senior positions in government, business or academia around the world: informed, perceptive and intellectually of the highest calibre. They were prepared to give us shrewd personal judgments and observations while they also clearly set out their Government's official position. We met a number of people from the universities and think tanks who impressed us in a similar way. With men and women of this kind increasingly taking leading roles in China, I find it hard to believe that the country will not undergo fundamental changes quite quickly.
Having said that, there are some issues about which even the most creative and flexibly minded Chinese are unbending. In the report we describe them as China's "lines in the sand". First, China will not accept any questioning of its territorial integrity, whether over Tibet, Hong Kong or Taiwan. There are signs that both Taiwan and China are feeling their way towards better relations within the One China concept, and my noble friend Lord Inglewood had some wise words to say on that topic and how it might, in the future, be the way through for Tibet as well.
The second immovable line in the sand is China's need for development and economic growth. The Chinese Communist Party depends for its legitimacy on guaranteeing prosperity for its citizens. No other policy area will take precedence over the need for continual growth and all EU policy has to recognise this immovable fact. Because of China's need for the natural resources that it does not possess, it will continue to extend its supply contracts and involvement in Africa and other places where its needs can be met. That will have implications for Europe.
Chinese attitudes to government and democracy have a good deal more in common with imperial administration developed over the millennia than to communism as it has been generally practised. As one witness, Dr Steve Tsang, put it, the party,
"has imposed what amounts to a social contract ... the Party delivers stability, order, rapid growth and general improvement to the living conditions of the people in return for its continued dominance".
Despite the achievement of amazing levels of growth and the prosperity of the coastal areas, we were repeatedly reminded that China sees itself as a developing nation with a high proportion of its vast population still with some of the lowest incomes per head in the world.
The EU is China's largest trading partner. That fact provides a central reason for each wanting to understand and have good relations with the other. The noble Lord, Lord Mandelson, told us that the EU has huge leverage because Europe provides the market destination for a vast quantity of Chinese exports, and keeping Europe's markets open to those exports is fundamental to China's economic and political strategy. It was, however, pretty clear from his evidence that, as my noble friend Lord Teverson pointed out, the leverage has not been exercised very effectively. While the UK and the other European nations will have their own policies and compete strongly with each other commercially, it is entirely in the interests of all that the EU should act as one on trade conflicts covered by the WTO, and on the need for China to open its markets more widely and to respond positively to European concerns about intellectual property rights and commercial law. To speak with one voice and to be mutually supportive is equally desirable over human rights, international development, climate change, and in sensitive areas such as the treatment of the Dalai Lama.
It is equally true that strong European backing for British efforts in Hong Kong is important if the promised implementation of the Basic Law and moves to wider democracy there are to be achieved. Hong Kong is a hugely important conduit for foreign investment into China and the EU needs to reinforce its diplomatic efforts in the Hong Kong SAR.
Events have moved on since we prepared our report. The euro is under threat, which must alarm the Chinese, and the economic recovery from the banking crisis is far from secure. If some have had doubts about the ability of China to maintain its phenomenal rates of growth in these conditions, events have proved them wrong. While the Chinese authorities are finding it necessary to contain inflationary pressures, the chief executive of HSBC in China says that the financial crisis has only made the country stronger, with its exporters becoming leaner and more efficient. There has been huge investment in new plants and infrastructure and manufacturing is being moved inland to where housing and wage costs are much lower than in the coastal belt. This ability to move to these huge regions where wages are low means that China is likely to maintain its competitive edge for many years to come.
There has been an unfortunate tendency by some in the EU to lecture China. We are much more likely to make progress, even on sensitive issues such as human rights, by finding those areas in our relations where it will be in China's national interest to change. Nowhere is this truer than on climate change. On re-reading our conclusions on this topic, I doubt that we got the balance quite right. Certainly we must enter the next round of negotiations as a player but I do not believe it is wise to set an example on cuts in isolation. While I differ with quite a lot of the analysis made by my noble friend Lord Lawson of Blaby, I share his view that to impose huge burdens on our own industry which none of our competitors will follow is not the sensible way to proceed. Like my noble friend Lord Jenkin of Roding in speaking on the gracious Speech, I think we need to find a way forward that is politically more attractive and, I would add, economically less masochistic.
In the Chinese context, that means tough negotiations in which our contribution is realistic and is made as others make theirs and not in advance in the vague hope that they will follow. We need to exploit the fact that while China needs to continue growing, it faces grave threats from climate change. It is threatened with acute shortages of water in some regions and the threat of floods in others. Pollution from its coal-fired power plants is smothering Guangzhou and Hong Kong. Natural disasters when they occur in China tend to be even more devastating than in other countries.
Those are some of the reasons why China may choose to move further than the pessimists believe, and there are positive reasons as well. China, I am sure, wishes to be a massive player in the developing industry in low-carbon technology. There is real scope for Europe and China to co-operate in this vital area, despite fears about transferring technology without better licensing. The successful development of carbon capture technology is hugely important for both Europe and China, and particularly important for this country. The lack of urgency or drive in taking forward the joint carbon capture and storage project represents a shocking failure of EU policy.
I shall make three other brief points. First, as already referred to by my noble friend Lord Teverson, the formal exchanges on human rights are more ritualistic than effective, but we found that real progress was being made in different parts of China, with lower profile rule-of-law and civil-society projects. Here we are working with the grain in areas which are entirely in China's own interests.
Secondly, I draw attention to paragraphs 146 and 147 of our report about the caution that needs to be exercised in sharing some technologies with China and the need for close co-operation with the United States and NATO on the subject of cyber technology, in particular, and the possible need to take strong countermeasures if our interests are threatened.
Thirdly, it is important that we continue to encourage far more of our own citizens to obtain real knowledge of all aspects of modern China, including, of course, its language. My noble friend Lord Sassoon, in a notable maiden speech winding up yesterday's debate on UK competitiveness, commented that it is easy to be complacent about the language question. I am sure that he was right. Those vice-Ministers to whom I referred knew and understood our culture and institutions so much better than most European politicians know or understand theirs; perhaps that was one reason why I found them so impressive.