Welcome to the first issue of our China and global development round-up for 2020. This month we talk about the coronavirus outbreak, the China-trade-industrialisation nexus, and China’s role as a development partner.
Vulnerability to the coronavirus epidemic
In these first few months of 2020, the world’s attention has been focussed on the coronavirus outbreak. Most analysis so far has looked at what’s happening in China, for example how the outbreak is exposing the country’s inequality between the rich and the poor, the white-collar workers, and the domestic migrants.
But what about the effects on developing countries, particularly those with close relations to China? The press has already highlighted potential impacts, such as losses for the garment and tourism sectors in Myanmar and soaring prices in Nigeria. This interview with a Beijing-based firm sheds light on the mechanics of some of these issues in trading between China and African countries.
A recent ODI study looks at the vulnerability of low- and middle-income countries to the coronavirus. It assesses the potential impact of the outbreak through economic channels (trade, investment, and movement of people) and countries’ ability to cope with the epidemic. The study identifies Sri Lanka, the Philippines and Viet Nam, followed by Kazakhstan, Kenya, Cambodia and Nepal as most vulnerable economically. If demand from China drops by just 1% as a result of the epidemic, the report estimates a loss of up to $4 and $0.6 billion in goods and tourism exports, respectively.
Should the coronavirus epidemic affect ongoing and planned infrastructure projects, the impact can also be long-term. Most commentaries (such as this blog by Ma Tianjie and Tom Baxter) have already pointed out the risks faced by Chinese companies slowing down their operations due to health and prevention measures, and the non-compliance-related costs they face.
The China-trade-industrialisation nexus
Rising wages in China have prompted discussions about the potential relocation of the country’s manufacturing to regions with lower labour costs, generating hopes for industry-led development in Africa. A discussion paper published by the German Development Institute (DIE) explores this question in reference to the textile and garment sector. Can African countries become major clothing exporters, filling the space vacated by China?
The study argues that the massive relocation of clothing production capacities to Africa is not yet happening, but there is a window of opportunity. The success of this relocation boils down to whether wage cost advantages in Africa will be translated into productivity gains, and hence lower unit costs, especially in comparison with Asian countries. It is interesting to read the DIE’s paper in conjunction with this study by ODI and the Centre for New Structural Economics at Peking University, based on a survey of 640 light manufacturing firms in China, to understand the companies’ responses to rising costs.
What does this mean in practice? To transform their economies, African countries need to industrialise within the ‘window of opportunity’ they have. I recently wrote a piece reflecting on the China-trade-industrialisation nexus in Uganda. As the government of Uganda encourages African firms to export more agricultural goods to China, I argue that this is not necessarily the best avenue for the Ugandan economy. Uganda needs to diversify its exports beyond primary products, and could leverage inputs and investment from China to do so.
China as a development partner
Three pieces struck me on this topic. The first one is a discussion paper by Mao Ruipeng for DIE on China’s engagement with the UN. Mao looks at Chinese funding and allocation decisions, which are markedly oriented towards development rather than humanitarian assistance. The paper points out several reasons for China’s growing engagement with the UN Development System, including an evolving perception of foreign aid and interest in promoting the Belt and Road Initiative.
The view of ‘development as a solution’ transpiring in the allocation decisions highlighted by Mao is also discussed in a brief on how China is reshaping global development by Matt Ferchen for the Carnegie Endowment for International Peace. Ferchen argues that “for China, development is not primarily about aid. Instead, Chinese approaches to development are based on the country’s own headlong drive in the post-Mao years to achieve high growth and improve material living standards.” Economic development is seen in China as a way to address all problems, including those concerning countries and security – even though, Ferchen acknowledges, the Chinese government is starting to question this view.
The third resource is a study by Hangwei Li on the China-Africa Development Fund, the first equity fund in China exclusively dedicated to investment in Africa. Through original data on the investment undertaken by this little-known fund, the report provides fascinating insights on its activities. What is captivating about this study are the rare excerpts of interviews with staff of the fund, which do a great job at depicting the incentives and motivations of their work.
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