THE RISE OF CHINA AND THE CHALLENGE TO DEVELOPMENT STRATEGY IN SSA Raphael Kaplinsky, Dept of Policy and Practice, The Open University, UK
Mar 28, 2015
THE RISE OF CHINA AND THE CHALLENGE TO DEVELOPMENT STRATEGY IN SSARaphael Kaplinsky,
Dept of Policy and Practice,
The Open University,
UK
Qiaotou
• In a remote area of China• First commercial workshop making buttons
established in 1980 • Now 700 factories, making 15bn buttons and 200m
metres of zips• 1,300 button shops selling 1,400 varieties of buttons• 60% of global button production and most of China’s
zip production (80% of world production)
Guardian, 25th May 2005
China’s growth is not unique..
Growth of exports
0123456
1 6 11 16 21 26 31 36 41Years from beginning of export surge
Lo
g o
f e
xp
ort
gro
wth
China (1989-2003) Japan (1960-2003) Korea (1963-2003)
GDP (constant prices)
1.5
2
2.5
3
3.5
1 6 11 16 21 26 31 36 41
Years from beginning of growth surge
Lo
g o
f G
DP
gro
wth
China (1989-2003) Japan (1960-2003)
Korea (1963-2003)
Share of Global Population
0
5
10
15
20
25
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004
China India J apan Korea, Rep.
Special Issue World Development, Vol. 36, No. 2,
February 2008
http://asiandrivers.open.ac.uk/
Vectors Direct Indirect
Trade
Complementary
Competitive
Production and FDI
Direct Indirect
Complementary
Competitive
Finance
Direct Indirect
Complementary
Competitive
Governance
Direct Indirect
Complementary
Competitive
Migration
Direct Indirect
Complementary
Competitive
A taxonomy for assessing the impact of Asian Drivers on other economies
Vectors Direct Indirect
Trade
Complementary
Competitive
Production and FDI
Direct Indirect
Complementary
Competitive
Finance
Direct Indirect
Complementary
Competitive
Governance
Direct Indirect
Complementary
Competitive
Migration
Direct Indirect
Complementary
Competitive
The impacts may be competitive or complementary
Vectors Direct Indirect
Trade
Complementary
Competitive
Production and FDI
Direct Indirect
Complementary
Competitive
Finance
Direct Indirect
Complementary
Competitive
Governance
Direct Indirect
Complementary
Competitive
Migration
Direct Indirect
Complementary
Competitive
And they may be direct or indirect
Vectors Direct Indirect
Trade
Complementary
Competitive
Production and FDI
Direct Indirect
Complementary
Competitive
Finance
Direct Indirect
Complementary
Competitive
Governance
Direct Indirect
Complementary
Competitive
Migration
Direct Indirect
Complementary
Competitive
We know much more about the direct impacts
Vectors Direct Indirect
Trade
Complementary
Competitive
Production and FDI
Direct Indirect
Complementary
Competitive
Finance
Direct Indirect
Complementary
Competitive
Governance
Direct Indirect
Complementary
Competitive
Migration
Direct Indirect
Complementary
Competitive
From the rich country perspective, we tend to focus on the competitive effects
Vectors Direct Indirect
Trade
Complementary
Competitive
Production and FDI
Direct Indirect
Complementary
Competitive
Finance
Direct Indirect
Complementary
Competitive
Governance
Direct Indirect
Complementary
Competitive
Migration
Direct Indirect
Complementary
Competitive
But in SSA, the complementary impacts are often much more visible
The drive to industrialisation
• Close association between incomes and industrialisation
• The terms of trade favour manufactures
Commodities-manufactures terms of trade
The drive to industrialisation
• Close association between incomes and industrialisation
• The terms of trade favour manufactures• Manufactures are (relative to agriculture) income
elastic and price inelastic• Synthetic substitutes for natural products• Manufacturing embodies rents – agriculture does
not• Manufacturing can be labour intensive – primary
commodities are very capital intensive
The orthodoxy
Manufacturing exports are key:
• Competitive effects
• Scale effects
• Learning effects
Share of manufacturing value added
Share of the world
Share of developing countries
1985 1998 1985 1998
East Asia China South Asia Latin America and Caribbean Sub-Saharan Africa Middle East, North Africa, Turkey
4.11.40.86.71.01.5
13.97.01.85.20.82.4
29.210.25.9
46.97.1
10.8
57.729.37.3
21.83.49.8
World Manufacturing Export Price, 1986-2000
-10
-5
0
5
10
15
20
25
An
nu
al
pri
ce
ch
an
ge
(%
)
IMF, World Economic Outlook Database
EU Imports from China
1st Q 2005/1st Q 2004 China Market Share in EU-25 Imports
Volumes % Price % 1 Q 2004 % 1 Q 2005 %
T-shirts 164 -26 7 17
Pullovers 534 -47 6 38
Men’s trousers 413 -16 6 35
Blouses 186 -24 6 22
Women’s coats 184 -18 6 10
Bras 139 -15 30 49
Socks and pantyhose
63 -22 30 54
Linen and ramie yarns
51 1 27 45
Linen fabrics 257 1 10 45
Source: Euratex data as reported by Nathan Associates
Caught between a rock and a hard place
0
10
20
30
40
50
60
70L
ow
in
co
me
Ch
ina
Lo
we
r-m
idd
le
Up
pe
r-m
idd
le
Hig
h-i
nc
om
e
Lo
w i
nc
om
e
Ch
ina
Lo
we
r-m
idd
le i
nc
om
e
Up
pe
r-m
idd
le-i
nc
om
e
Hig
h-i
nc
om
e
Lo
w i
nc
om
e
Ch
ina
Lo
we
r-m
idd
le i
nc
om
e
Up
pe
r-m
idd
le-i
nc
om
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Hig
h i
nc
om
e
Lo
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nc
om
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Ch
ina
Lo
we
r-m
idd
le i
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Up
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r-m
idd
le-i
nc
om
e
Hig
h-i
nc
om
e
Resource basedmanufactures
Low technology Medium technology High technology
% o
f s
ec
tors
Percentage of sectors with negative price trends, 1988/9-2000/2001 by technological intensity and country-grouping
Actual and projected global share of China’s consumption of base metals
0%
5%
10%
15%
20%
25%
30%
1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010
% o
f to
tal
Copper Alum inium Zinc Nickel Steel Iron Ore (Trade)
Source: Macquarie Mining
China's Share of Global Demand
8%
10%
12%
14%
16%
18%
20%
22%
24%
26%
28%
1995
1996
1997
1998
1999
2000
2001
2002
2003
% o
f to
tal W
orl
d
SteelNickelCopperAluminium
China's Share of Total World Growth
95%99% 100%
76%
68%73%
67%
51%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Steel Nickel Copper Aluminium
% s
har
e
2000-2003
1995-2003
Source: Macquarie Mining
Enormous demand potentialKgs/capita GDP per capita
($US1995)Aluminium Copper Steel
Japan19551975
0.610.5
1.27.4
80599
5,55921,869
Korea19751995
1.015.0
1.38.1
84827
2,89110,841
China1990199920022003
0.72.33.34.0
0.61.22.02.4
59108160200
342756933
1,103
The agricultural sector, 2007-2016(OECD/FAO, 2007)
• Biofuels raise grain prices
• Raised demand in China for:
–Beef
–Pigmeat
–Milk powder
–Oilseeds for cattle
“…structural changes such as increased feedstock demand for biofuel production, and the reduction of surpluses due to past policy reforms, may keep [agricultural product] prices above historic equilibrium levels during the next 10 years….
Winners are: Brazil (sugar, oilseeds, meat) Argentina (cereals and dairy products) Russia/Ukraine (coarse grains) East and south east Asia (rice, veg oils, poultry)
SSA’s Recent Experience with growth, industrialisation and exports
Annual growth rates 1998-2005 (%)
World SSA China India
GDP growth 2.9 3.7 8.9 6.4
Agricultural value added 2.3 3.6 3.5 2.4
Industrial value added 2.2 3.6 9.9 6.2
Manufacturing, value added 2.5 2.5 NA 6.1
Services value added 2.9 3.7 9.6 8.3
1995 2000 2004
Africa 12.1 12.3 12.1
China 34.7 36.7 39
India 16.3 15.7 15.0
Developing (excl China) 19.2 20 20.4
WORLD 19.8 20.1 19.9
Share of Manufacturing in GDP
SSA: Growth of merchandise trade, 1998-2004 (%)
Exports Imports
World 8.8 9.0
SSA 12.5 8.1
China 21.4 26.5
India 13.8 14.5
Composition of SSA exports2005
Oil/Gas as % of Total 47%
Manufactures as % of Total 21%
Broad and narrow manufactures
Narrow manufactures are total manufactures minus
–diamonds
–precious stones
–re-exports
–oil and gas by-products
–uranium
1995 2000 2005
“Broad Manufactures" 6,039 6,838 12,453
“Narrow Manufactures” 2,668 3,435 4,641
Narrow as % total 44 50 37
SSA Manufactured exports excl SA ($mn)
1995 2000 2005
Apparel 41 48 50
Textiles 8 5 3
Share of SSA (excl SA) manufactured exports (%)
Value of SSA and China C+T exports to US, 2004/2006
AGOA -26 85
Kenya -5 113
Lesotho -15 171
Madagascar -26 108
Mauritius -48 104
SA -53 89
Swazi -24 136
Technological Intensity of SSA’s trade: Share of exports comprising different categories of products, 2005 (%).
World (excl. China, India) China Intra-SSA
Primary Commodities 67 81 17
Resource Based 16 15 35
Low Technology 4 1 13
Medium Technology 9 2 23
High Technology 1 0.1 5
Number of countries accounting for 90% of SSA Exports (excl SA)
0
5
10
15
20
25
Agricultural Materials Ore and Metals Fuels
Share of SSA fuel exports
0%
10%
20%
30%
40%
50%
Nigeria Angola EquatorialGuinea
Congo, Rep. Sudan
Share of SSA exporters of ores and minerals (excl SA)
0%
10%
20%
30%
Mozambique Zambia Guinea Mauritania Congo, Dem.Rep.
Share of SSA agricultural exports excl SA
0%
10%
20%
30%
Cote d'Ivoire Kenya Ghana Cameroon Nigeria
SSA EXPORTS
SSA IMPORTS
CHINA IMPORTS
CHINAEXPORTS
SSA GAIN
SSA GAINSSA LOSS
SSA LOSS
Clothingfootwear
Hard commodities
Clothingfootwear
Oil All SSA
SA, Lesotho, Swaziland,
Madagascar,Kenya, Mauritius
Most SSA
Oil exporters, Zambia, SA, DRC, Botswana, Ghana, Gabon, etc
So what?
• A complex picture with nuanced impacts and opportunities
• Imbalances in the global economy
• We don’t know the spread effects
• How long will the terms of trade reversal last?
Regarding precious stones and hard commodities
• Descent into conflict?
• The economic management of mineral rents
– stability
– over time
• Impact on other sectors (“Dutch Disease”)
• Adverse distributional effects
• But this is a small gorup of countries
Regarding soft commodities
• How to take maximum advantage, and speedily
• How to maximise positive distributional impact by including small scale producers
• Also addressing niche sectors
Regarding manufactures
• Manufacturing is the source of capability-growth and employment
• But the Washington Consensus circumscribes trade and industrial policies,
• So:
–How to protect producers in the local market?
–How to maintain access to external markets–How to sustain industrial policies
Conclusions
• Indirect impacts are more important direct ones
• A problem for the future as well as the present
• Relevance to the rest of the world?
• Open playing field? – tilted against whom?
• What attraction does globalisation hold for SSA?