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

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30

40

50

60

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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?