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With
the recently held Fourth Forum on China-Africa Cooperation (FOCAC)
and China's 10 billion dollar pledge for Africa, the pundits
and the media are questioning the relationship.
Nonetheless, the current discussions on Africa-China
relations unsatisfactorily focus mainly on the interests of
China in Africa and China's “unconditional” assistance
extended to undemocratic governments in Africa.
Needless to say, it is important to discuss bilateral trade
agreements, loads extended to Africa by China; the interests
of China in Africa, particularly based on its energy
insecurity; and its role as the big spoiler in African
conflicts. It is also important to criticise the relatively
poor quality of Chinese manufactured products and
infrastructural work in Africa. Deliberations on the issue
of Chinese migrants to Africa and its impact on the local
labour market are also useful.
There
is also a need to study how to improve the transfer of
technology and skills from China to Africa when Chinese
companies take contracts in Africa. Nevertheless, many
Africans are also interested in the lessons Africa can take
from the unconventional development growth China has
registered in the last three decades.
Since
1978, China began a political strategy to build a dynamic
economy in three stages: double its growth of gross domestic
product (GDP) in 10 years to feed the population, redouble
the GDP in 20 years for prosperity, and make China a modern,
global economic power in 70 years. During some excellent
years, China has grown more than 13pc.
Now,
the per capita income has increased fivefold. Compared to
Eastern Europe and Latin American countries, China grew much
faster even as some countries even went into crisis. The
first reason for this is capital asset accumulation through
high domestic savings, followed by the high productivity of
its workforce through training.
Traditionally, the main driving element for economic growth
was capital and free-market forces. Under conventional
thinking in economics, capital - not productivity - is the
driving force for economic growth. However, China's
contribution of an average of four per cent productivity to
its economic growth average was unparalleled in history.
China pioneered a new, unorthodox path of economic growth,
different from the economic development of the Adam Smith
tradition, which believes in the invisible balancing power
of free-market forces.
How did
the Chinese create this matchless productivity? How did
China grow so fast? Can Chinese growth serve as a blueprint
for other countries, in this case African countries?
Broadly
speaking, renowned economists such as Jeffery Sachs and Wing
Woo believe it is possible to copy the development roadmap
of the Chinese economy in other countries, whereas, others,
like Philip Naughton and Ronald McKinnon, think the
opposite.
There
are many things Africans can learn from the Chinese model.
Similarities between the pre-1978 China and many African
countries include a predominantly illiterate agrarian
population with chronic food insecurity and insufficient
clothing, as well as an urgency to meet the demands of
legitimately expected public services in the form of
infrastructure, education and security.
Zuliu
Hu and Mohsin Khan, in their article headlined, "Why Is
China Growing So Fast?" share the view that, indeed, there
are distinct lessons African countries can take from the
Chinese model. They cite China's encouragement of rural
enterprise growth, which moved millions of underemployed
agricultural workers into the industrial sector without
creating an urban crisis. This moved large portions of the
population from farms into factories.
Around
two decades ago, India and China had similar growth in GDP.
In 2007, India's GDP reached 9.7pc, and the average GDP
growth rate for the years of 2005 through 2009 was about
nine per cent. China is on track to meet the growth rate
target of 8.5pc, set by the state for 2009, according to
data released by the World Bank in November 2009. The
outlook for economic growth in 2010 is also very robust,
estimated at 8.7pc.
While
India is growing at an average rate of 6.1pc in 2009, China
is growing at a rate of 8.4pc so far. Even if it is
developing fast, India's GDP growth is lagging behind
China's which has become the third largest economy, next to
the United States and Japan. One of the differences between
India's reforms and China's is that, while India focuses too
much on the forms of institutions, China's reforms centre on
the function of such institutions.
Function delivers more efficiently than form.
The
devolution of power to provinces enhanced incentives. Town
leaders encouraged competition, productivity and innovation.
In China. The state also protected its enterprises while
genuinely encouraging the private sector.
Zuliu
Hu and Mohsin Khan pointed out that Chinese state-directed
reform began with formation of rural enterprises,
investments in manufacturing, and high to mid-level training
to increase productivity. Productivity was accelerated by a
series of unprecedented reforms that were introduced and
directed by the state, and not free-market forces. The core
objective of the economic reforms focused on the economic
base transformation from agriculture to manufacturing.
For a
12pc of reduction in primary industry, 20pc of the manpower
shifted from agriculture to industry. It was mainly done
through higher prices for agricultural products, which moved
many people out of the highly congested agricultural sector.
This is another “Chinese Large March” from the farms to
factories.
Expanding protection and space for private property,
welcoming foreign investment in areas where the Chinese
could not effectively participate, providing tax waivers for
foreign investments, and enhancing job opportunities and
joint ventures improved the Chinese economy globally. While
the price of agricultural products was freed, prices of
other products were in many ways controlled.
The
Growth Diagnostic Tree developed by Ricardo Hausmann,
Dani Rodrik, and Andrés Velasco raises vital questions as to
why growth is constrained in any country.
It
examines whether constraint is due to a high cost of
financing or a lack of returns to private investments on the
one hand versus insufficient domestic savings or restricted
access to foreign savings on the other. It investigates
whether infrastructure is holding back a country. The kind
of exports - whether a country produces "poor" or "rich"
country goods - is also an important element for diagnosis.
These
are binding constraints. Most of them are bottlenecks to
economic progress with the highest degree of distortion, and
the pay-off in enhancing the performance of the economy is
very high if such constraints or distortions are removed.
The higher the return from removing the constraint, the more
binding the constraint must be, and the higher the priority
its reform should have.
There
are several constraints to Chinese and Indian growth, which
African countries can remove.
Low
domestic consumption, a weak service sector, societal
disparities, and regional economic inequalities have been
major constraints in China. China's current-account surplus
is a reflection of an excess of domestic savings, which has
been about 40pc. Excess-savings could easily be removed by
encouraging domestic consumption, through measures like
social security provisions, which encourages people to
spend.
Measures to increase the relative attractiveness of
producing services (non-tradables) over manufacturing
products (tradables) are other reforms needed to remove some
of the constraints. Shifting the composition of growth away
from investment and exports towards consumption would help
address the short-term challenges.
Increasing regional growth disparities and social inequality
can create social disorder and hamper sustained growth,
since access to financing is easier in areas where there is
wealth and assets to serve as collateral.
Income
is high in the coastal areas, and talent attracts talent as
capital attracts capital. Consequently, the rich families
and wealthy areas get richer and wealthier. To
counterbalance this, governments need to enhance access to
financing in areas where there is less collateral available
for banks.
In the
case of India, the following five constraints are the most
binding: bad infrastructure, huge deficits, difficulty in
doing business, low foreign direct investment (FDI) and a
weak financial system. India's economy specialises in
products, such as software, which are exportable without the
need for physical transportation facilities and
infrastructure, including roads and ports. The high cost of
transportation is a disincentive to export-oriented
manufacturing.
India's
electricity supply interruptions cause about an 8.4pc loss
of income for manufacturers, according to a report from the
World Bank. India's infrastructure is ranked 53rd among 75
evaluated countries, and its electricity supply quality is
one of the lowest, according to World Development Indicators
(WDI).
In
India, information technology and business outsourcing in
software and call-centre services have grown faster than the
export of manufactured goods and services. In fact, this
boom seems to be related to their capacity to evade a trap
related to cost-effectiveness. These sectors are
skill-intensive, employing only those with high professional
training. Small and labour-intensive industries are growing
much slower but could have been a source of employment and
growth.
The
main general lesson from Chinese and Indian growth models is
that productivity is a vital contribution where capital is
almost non-existent. Growth, both in China and India, shows
that market-oriented but state-led economic reform can
deliver much needed economic growth to meet the urgent needs
of the public.
Since
the 1978 commencement of reform, China has been,
economically, the fastest growing country in the world. Its
exceptional growth has been characterised by high savings,
high investment, and very low productivity in agriculture,
record-level productivity in manufacturing, and managed
internal migration and urbanisation. Chinese economic
reforms in education, manufacturing and agriculture were not
elitist or selective, but they were also not necessarily
superior in quality.
China's
urgency to meet the demands for infrastructure,
communications technology, and development projects, in
general, should inspire Africa. Its spectacular economic
development came from less politically-oriented, more
economically-focused, state-led reforms. These reforms
focused on effective protection of property, contract
enforcement, and strict government control of prices and
financial institutions. The reforms were gradual but
well-sequenced to remove constraints that would have a
multiplier effect.
"[The
Chinese focused] first on agriculture, then industry, then
foreign trade, [and] now finance," said Dani Rodrik.
Economic growth does not necessarily have to follow the path
of unchecked, invisible free-market forces of the Adam Smith
type. It can rather be led by state policy choices. Also,
economic growth should not necessarily lead to the
marginalisation of the role that the state plays due to its
indispensable contribution to economic growth.
More
specifically, state-led market-friendly incentives,
particularly in agriculture, are the basis for
transformation towards a manufacturing and service economy.
Ultimately, the productivity of workforces can be a more
important factor than capital, particularly in developing
countries where capital is in acute shortage.
The
urgently needed developments of Africa in areas like
infrastructure, healthcare, and education, which have quick
and visible benefits to the population, are supported by the
Chinese development model.
The
bottom line is that traditional Western conditionality is
irrelevant to economic development and, thus, has undermined
the role of the state in the socio-economic life of
countries.
Save
artistic taste, it does not matter if a cat is black or
white, as long as the cat catches mice, as Deng Xiaoping,
one of the three former leaders of China said. In the same
way, it does not matter if the development assistance and
lessons come from the East or West, as long as Africans
benefit and learn from both. |
