The Scottish Government

CBI Scotland - China Seminar

SPEECH BY FIRST MINISTER RT HON JACK MCCONNELL MSP

CBI CHINA CHALLENGE CONFERENCE

RADISSON HOTEL, EDINBURGH

FEBRUARY 19, 2007

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This morning, I want to talk briefly about three things:

Firstly, I want to talk to you about the opportunities that I believe China offers to a country like Scotland and what we can do together to make the most of those opportunities.

Secondly, I want to describe the economic journey Scotland has taken in recent years - and how our current international trade with China and other countries fits with our longer-term ambitions for our economy.

And, thirdly, I want to talk to you about what I believe should be Scotland's broader priorities for the future, specifically how the Scottish government can help prepare all Scots for the global challenges of the future.

China

When I first became First Minister in 2001, economic debate seemed to focus on how bad globalisation was for Scotland.

Lower value manufacturing jobs, while having provided welcome respite during the 1990's, were moving east. Firstly to Eastern Europe, and increasingly to Asia too.

Around that time, there were those like Jim McColl, who came to me to describe the scale of opportunity that existed for Scotland in the newly industrialising countries - and in China in particular.

Even then, the scale of progress in China was overwhelming. But, the fact that the rate of progress has continued, is now a global phenomenon.

• Since 2001, China has contributed more to global economic growth than all the G7 countries put together
• China manufactures around 80% of the world's consumer electronics and half the world's computers
• And now, overtaking the USA, China consumes more steel, coal, meat and grain than any country in the world

This progress, however stunning it is, will not stop with high volume, mass production manufacturing. For those of us in mature economies, we have to understand that the developing countries are developing in every way.

China is upskilling. There were 4.1 million new Chinese graduates in 2006 - and China is expected to become the world's second largest investor in research and development soon.

The movement of high volume jobs from the west to the east was only a first step. China is - and will be - much more than just the manufacturing powerhouse of the world.

It is becoming, a smart and sophisticated knowledge based consumer economy too. Indeed, 22 million new Chinese middle-class consumers are being created every year, creating new markets and new business opportunities.

This provides a once in a generation opportunity for a country like Scotland.

Of course, there is an issue of scale and perspective in all of this. Scotland is a small country on the North West periphery of Europe. Scotland represents less that ½ percent of China's population, and culturally we are very different.

But there is a way to approach an opportunity like China. Our size means we can work together, and we can focus our efforts.

The powers of devolution give us the opportunity to take a lead on behalf of Scotland.

So our starting point was to be strategic. The overall aim has to be economic, but there are wider societal benefits for closer global relationships too.

We've put in place a ten year plan, setting out our objectives to strengthen our engagement with China in the years to 2010.

Our China Strategy isn't just about drumming up business for gain over the short term.

It's about helping us strengthen our foothold in China - and creating a firm foundation for Scottish businesses to succeed over the long term.

It's about raising the profile and understanding of Scotland in China - and about establishing and deepening links and partnerships between our universities, our research institutions, our schools and our businesses too.

This will good for business. But just as importantly, it will open a window to the world for young Scots, broadening and deepening their experiences and understanding of different peoples.

It is because of these opportunities that I, Tom McCabe and the Deputy First Minister have all been to China in the last two years to develop relationships at the highest political levels.

We have a partnership agreement with the Chinese Education Ministry; we have opened up Scotland to the millions of potential Chinese tourists, and we have promoted Scottish companies who are building their base there.

And the co-operation agreement that we signed last year with Shangdong province - China's second largest regional economy - signals the intent on both sides. There is a lot in this for Scotland - but the Chinese can see benefit in the relationship too.

That agreement will deliver real benefits for both Scotland and Shandong in areas from science to culture, from trade to tourism and from education to the environment.

As part of that, we will hold a week long event in Shandong this October, showcasing how much modern Scotland has to offer to a population of more than 90 million people.

Elsewhere, we've doubled the number of Scottish Development International staff in China and created the post of Scottish First Secretary in the Beijing Embassy.

Business regulations in China demand partnerships rather than mergers. Partnerships and joint ventures are increasingly the modern way of doing business - and they demand a lot of effort in relationship building . Something that Scots are known to be good at.

That focus on partnership has been at the heart of the success of the Scottish businesses thriving in China today - from businesses like Clyde Blowers, Howden and Caledonian Alloys to major finance companies like RBS and Standard Life.

They have succeeded by working with Chinese partners in joint ventures and partnerships, exchanging their expertise and know-how for access to the Chinese market and to the connections and networks needed for success.

Even in the last few years, the benefits of that are clear to see:

• Overall exports from Scotland to China have doubled since 2002
• And in 2005, Scotch whisky exports to China alone soared 86 per cent
• The 200 new Scottish jobs and £100 million investment announced by Diageo last week demonstrates the impact that a buoyant export market to China can have for Scotland's economy

But - despite these successes - the extent of our engagement is still far lower than we want it to be.

If the second term of the Scottish Parliament saw the establishment of high level political and institutional relationships between Scotland and China, the third term has to be about going further.

We need more young Scots learning Mandarin, more Chinese students studying for Scottish degrees, more companies seizing the opportunities, and more partnerships to encourage the massive Chinese tourist market to visit Scotland.

To put in another way. The door is open for Scotland - now we need to walk through it.

Scotland's economic journey

China is the most spectacular example of growth in the global economy, and a signal of the opportunities that are now there for Scottish companies.

But the domestic economic context in which we approach our China project matters too.

The Scottish economy has had its own industrial transition over the past 30 years - from heavy industry, to electronics, and now to new fast growing sectors.

Our financial sector continues to go from strength to strength. The tourism industry sees double digit growth in overseas visitors. And we have seen growth, too, in emerging and niche areas like medical sciences, stem-cells, infomatics and wave and tidal energy.

These transitions have been seismic changes in their own right - and, I think they are a sign of how both how the private sector and the labour market have adapted and responded over a relatively short period.

At the same time, the powers of devolution have allowed us to invest in infrastructure; in skills and raised our efforts in promote Scottish products across the world.

We have invested as never before in universities and colleges - and put record investment too into public transport.

And the results are beginning to stack up:

• Last weeks jobs figures, showed that the Scottish employment rate is higher that the rest of the UK, better than every Euro zone country - and every country in the G8. In other words, at over 76 per cent employment, we are closer to full employment than almost anywhere in the developed world
• Our economic growth is now strong and picking up pace
• And, as the latest Economic Progress Report shows, productivity is improving - and, the drivers of our long-term productivity and adaptability are improving too

Future challenges

So, on all these fronts, we have made good progress over the last few years.

But, some important challenges still remain.

Scotland, like other small countries, is vulnerable to shocks and shifts across the global economy.

At the same time, the emergence of new competitors and of challenges from new directions - be it China, Brazil, India or from our more traditional competitors in the US and the EU - means that change is everywhere and it is constant.

Given this international context, Scotland has a choice.

Either we can participate in the global economy or we can retreat.

There are some who speak grandly about the opportunities of the global economy, and of the need for Scotland to participate. And in the same breadth, they talk about protectionism and erecting barriers to global transactions.

The truth is that either you believe in an open economy or you don't. There is no hybrid on offer here. We can't expect to get access to the benefits of globalisation, if we don't compete openly and honestly.

And more specifically, there is also a choice in the direction of our devolved Scottish government. I believe more strongly than ever, that we are moving in the right direction for these challenges. Current trends in employment, population, investment and living standards tell us that.

The third term of the Scottish Parliament should be about speeding up the pace in that direction, not about changing direction with all the uncertainty and risk involved in years of constitutional change.

Domestically, to make sure our people get the best from globalisation, we must now do three things. Scotland must be able keep moving, innovating and adapting to change.

We must to reach out to those who are currently economically inactive, and those in danger of becoming inactive. And re engage them.

And most importantly, the way in which we will do all these things, and prepare for whatever the future may bring, is increase the skills and knowledge of the entire population.

Education- Scotland's strategy for the future

Scotland's strategy for the future lies in continuous, high quality learning.

It is learning, and the ability for our workforce to adapt, that will give us a vital competitive edge in future.

However, let me be clear - this can't just mean more of the same.

It means that we will need to develop a new model of learning for the 21st century.

Scottish youngsters are already giving us a taste of what lies ahead.

In their own homes, and in schools up and down the country, they are accessing and using knowledge in a different way to previous generations of young Scots.

Where those previous generations got their knowledge from what was essentially a single source, today's youngsters are using technology to gather knowledge from a multitude of different sources.

In future, I believe that we will see much more of this dispersal of learning - in schools, workplaces and in communities.

And, with that, we will need to give more and more Scots the skills that they need to access, understand and communicate a greater variety of knowledge.

This means that we will need to start thinking very differently, about how we can open up learning opportunities for everyone.

And we need to act now - to retrain and reskill older workers, to ensure all youngsters are in education, training or full time volunteering, to deliver quality vocational options for younger teenagers, and to deliver globally useful subjects like languages and science at a younger age.

Conclusion

Scotland's economic success is something we can now be proud of.

I believe that success is a direct result of being part of the UK - the fifth largest economy in the world - enabling us to compete on a truly international stage.

For a small country like Scotland, we stand a greater chance of meeting the challenges of globalisation by being part of the UK than we do on our own.

After all, in our interconnected world it is when we work together that we can really deliver results.

I'm convinced that we can meet our ambitions for Scotland - a growing economy based on flexibility and learning and on the talents and aspirations of our people.

I'm determined that the Scottish government will continue to provide Scottish business with the tools you need for economic success, in China and in other high growth markets that are starting to emerge worldwide.

I want us to have a shared perspective, a positive perspective, thinking about what we can - rather than what we cannot achieve.

I want the Scottish government to continue to make a difference.

I'm sure we can achieve the higher sustainable growth we all want to see - and we will be a better nation for it.