Chinese development

Doing business in China

Beginning this month and continuing through November, The Atlantic will be running a series of clips from the DVD series "Doing Business in China" - a three year project headed in part by James Fallows. The clips will offer footage from factory floors, peasant villages, CCP headquarters, and the offices of foreign firms which have learned to be financially successful in the Middle Kingdom. The idea is to present the "real China," beyond the hype and the noise. It appears to be a most interesting project, and certainly worthy of your attention.


The following is the project's introductory video:

Why has China grown faster than India? And what (if anything) does this mean for Africa?

Chris Blattman and Bill Easterly address the issue. See here, here and here for a great discussion.


While I find myself nodding in agreement with much of what both experts have to say, I hesitate slightly when discussion turns to a near-comparison between growth in China and Africa. While neither scholar seems to be suggesting that China's path to growth can inform a similar phenomenon in Africa - or otherwise delving into very nuanced discussion of the similarities and differences between the process in both regions - I nevertheless feel inclined to caution against any such analogies. There are, of course, lessons which various African countries can learn from China - particularly as regards agricultural policies - but there are many constraints which hinder a direct, general analysis.


Martin Ravallion of the World Bank's Development Research Group has compiled a brilliant presentation highlighting precisely these constraints. Foremost among them:

  • Africa's higher levels of income inequality. At the time of China's economic reform, inequality was lower in China (a Gini index well under 30%) than found in all but a couple countries in sub-Saharan Africa today
  • The continent's high dependency rates
  • Africa's low population density, which impacts on matters such as technological innovation and the cost of supplying certain forms of basic infrastructure
  • Africa's weaker state institutions (Blattman's point about differing political climes, etc.)

Of course drawing any comparisons between China and Africa is also somewhat ridiculous, as we're dealing with one country and an entire continent. While this is quite an obvious point to make, you would be surprised at how many people conflate the two.


In short, there are many factors which preclude one from deducing too much about growth in Africa based on how it was played out in China. From my reading, both Easterly and Blattman appear on the brink of such an analysis, but quite wisely never take the plunge. It is precisely for this reason that theirs proves a truly worthwhile debate. Do read it.

Chinese agricultural techniques and African development: a hope for better things to come

China has been having a bit of a rough go here on China in Africa this week. First it's found to be de-industrializing other developing nations, then peddling fake drugs in Africa, its media outlets producing questionable maps, and today victimizing African labourers. Not at all a very rosy picture! There is good news, however: a report commissioned by the African Agricultural Technology Foundation (AATF) and prepared by my colleagues at the Centre for Chinese Studies at the University of Stellenbosch, finds that the very technologies employed in China's agricultural boom might be appropriate - and indeed highly beneficial - in the African context.


The report - "The Relevance of Chinese Agricultural Technologies for African Smallholder Farmers: Agricultural Technology Research in China" - finds that of particular benefit are water-saving technologies and soil-related techniques such as tilage and planting methods. Evidently, small-scale African farmers face similar challenges as do their Chinese counterparts, and there is much in the way of technology and knowledge exchange that might benefit the former. According to the report, Chinese experts are especially focused on seed and rice technologies, particularly in Benin, Cameroon, Congo, Ethiopia, Liberia, Mozambique, Rwanda, South Africa, Sudan, Tanzania, Togo, Uganda, Zambia and Zimbabwe. Rapid advances in seed technology and new plant varieties have been a major factor in China's crop production increases, and it is believed that similar advancements may facilitate an agricultural boom across Africa.


In Mozambique, a 52 hectare agricultural demonstration centre is planned west of Maputo, at Boane. According to the report, crops will be planted this year to test whether the Mozambican climate is suited for various varieties of seeds, including maize, rice, vegetables and fruit. In Kampala, Uganda, Chinese contractors are building an aquaculture demonstration centre. The centre is envisaged to generate knowledge for fish farmers, fishers and researchers in the country.


The agricultural sector employs approximately 65% of Africa's population, and is the largest private sector on the continent. Poor agricultural planning, weak land tenure policies, and a low capacity to adapt to changing circumstances and markets have, however, generally hindered the sector from becoming a productive, profitable business. While the Chinese are incapable of ameliorating all these troubles, they may do well to provide the relevant technologies to farmers and place Africa's agricultural sector back on track to success. Fingers crossed.

Has China de-industrialized other developing countries?

Via VoxEU Jorg Mayer and Adrian Wood say 'yes':

A common concern is that China’s opening to trade has de-industrialised other developing countries. Their labour-intensive manufacturing has been hit by Chinese competition in their home markets – a complaint often heard in Africa and Latin America – and in export markets, while their primary exports have been pulled up by Chinese demand. This mixture of effects is worrying because industrialisation is vital for development, manufacturing provides jobs, and the ownership of natural resources is often highly unequal – so the net impact of China could be both slower growth and greater inequality in the rest of the developing world.


Standard trade theory is consistent with these concerns. The impact of China on other countries can be interpreted in a Heckscher-Ohlin model as occurring through a shift in world average factor endowments. The comparative advantage of a country depends on its endowments not in isolation but relative to the endowments of all other countries involved in trade. This comparator group was altered by China’s emergence from near-autarky, because of its size and distinctive endowment structure, and hence so was the comparative advantage of other countries.


More specifically, China’s opening to trade effectively lowered the world average land/labour ratio and increased the share of workers with a basic education in the world labour force. The relative endowments of other countries were thus shifted in the opposite directions, which tended to move their comparative advantage away from labour-intensive manufacturing, which requires many workers with a basic education but little land. The corresponding increase in comparative advantage for developing countries was in primary production, which uses a lot of land relative to labour.

Mayer and Wood present data depicting average changes in ratios of labor-intensive manufacturing in primary production in the 1980s and 1990s, and the differences between these decades, for output and two sets of export data. From this data it appears that the bulk of China's impact was concentrated in the 1990s. Figures from Kenya, Mauritius and South Africa further show negative differences between output and export ratios, which is consistent with the expected impact of China proffered by standard trade theory.

IMF finds Asia's growth projections better than anywhere else

The IMF has recently revised April's World Economic Outlook growth projections for 2009 and 2010. The revised summaries for emerging and developing economies are as follows:

  • Growth projections in emerging Asia have been revised upward to 5.5 percent in 2009 and 7.0 percent in 2010. The upgrade owes to improved prospects in China and India, in part reflecting substantial macroeconomic stimulus; and a faster-than-expected turnaround in capital flows. However, the recent acceleration in growth is likely to peter out unless there is a recovery in advanced economies.
  • Growth projections for Latin America have been lowered by 1.1 percentage points in 2009, primarily because production has been hit much harder by the global trade slowdown than initially expected. However, the region is benefiting from rising commodity prices, and growth projections have been revised up by 0.7 percentage points in 2010.
  • The growth projections for central and eastern Europe and the Commonwealth of Independent States (CIS) have been revised downward by 1.3 and 0.7 percentage points in 2009 and upward by 0.2 and 0.8 percentage points in 2010, respectively. Developments differ appreciably across countries but many have been badly affected by the global financial crisis, with capital flows reversed and commodity exports sharply contracted, although the recent recovery of commodity prices is forecast to raise demand in key CIS economies.
  • Growth projections for emerging Africa and the Middle East have been revised downward by 0.3 and 0.5 percentage points in 2009, respectively, while those for 2010 are broadly unchanged. Both regions have been more negatively affected by the drop in global trade than previously expected, with Middle Eastern oil exporters using their financial reserves to prop up domestic demand.

China's growth projection has been revised upwards by 1%, with the country expected to register 8.5% growth in 2010.


[HT: Duncan Green]

Chinese development assistance, conditional aid, and a huge question mark

After a time away from blogging I have finally found my way back to it, admittedly slightly intimidated by the blinking cursor before me and the seemingly insurmountable amount of news, stories and random quips I've been unable to comment on.  I can never quite sort out whether the moment to do so has passed... ah, well. Nevermind: the Yale conference was a great success, as was my time spent traveling through the Northeast. Regardless, it's great to be back.

Among the first stories that caught my eye (one of many, to be sure), is a piece by Paul Collier in last week's Guardian on aid programmes. The reason it caught my eye is that it left me somewhat confused. Collier notes that the world's largest aid programme has been Chinese assistance to the U.S. Its outcome, he further observes, gives credence to the claim of conditional aid:
Chinese aid to America was provided in NGO-approved form: the US government has been free to use the money in any way it chose. But unconditional aid can be perilous: on occasion it is important for donors to ensure that money is spent not as the government prefers, but in a way that would be in the best interests of the society. Chinese aid to the US has been like EU aid to Chad, but on the grand scale: China paid for Iraq.
A seemingly valid point, though it appears that Collier may be slightly confused between a loan and foreign aid, leading him to proffer a rather muddled argument. Indeed, the Chinese purchase of U.S. bonds is not really "aid" by any definition of the term. If we're concerned with the larger global imbalances, then a much better analysis is that by Martin Wolf in the FT. If not, then I'm not sure that Collier is saying anything that hasn't already been said before, only now attempting to do so with China as his main focus (jumping on the bandwagon, perhaps?). Am I missing something?

U.S.-China cooperation on energy and climate change

Among the many topics Secretary of State Clinton hopes to discuss during her upcoming trip to China (the last leg of her current Asia tour) is U.S.-China cooperation on climate change. A rather timely topic given that China is now the world's largest emitter of greenhouse gases, and has considerable clout in determining the likely direction of global attempts to deal with the issue.

That said, there arise many questions over what U.S-China cooperation in this respect might actually look like. What are the particulars? Luckily for all those who ponder such things, a scientific task force run jointly by the Asia Society's Center on U.S-China Relations and the Pew Center on Global Climate Change has worked to compile specific recommendations. The press release can be found here; an overview here; and the PDF of the report in English here. 

Organic in China

Earlier this week I posted on a fantastic story in the WSJ's China Journal about organic pig farming in China (I know: it sounds ridiculous, but work with me on this one). While I may have chuckled slightly at the venture, it appears that it's actually part and parcel of a blossoming organic food industry that's taking off across the country. 

Jordan Calinoff in GlobalPost writes: 
Without much fanfare, China has in recent years revolutionized organic farming. Between 2000 and 2006, China jumped from 45th position to second worldwide in the amount of land under organic management. In 2006 alone, China added a staggering 12 percent to the world’s organically farmed land.
Who would have thought? If the trend continues, it may potentially lead to cheaper organic produce worldwide (hooray!), and may likewise have far-reaching social consequences inside China. Most obviously, it may be the first among many steps in the improvement of food safety (and goodness knows how badly that is needed), and may also go some way in alleviating the burden of unemployment faced by the country's migrant workers:
As millions of unemployed migrant factory workers stream back to the countryside in search of work, the increased revenue from organic food — it sells at twice the price of conventional produce — could help ease that labor transition.
The industry does, of course, have some hurdles to overcome (think: government regulation, authenticity of allegedly 'organic' produce, farming woes more generally), but appears to be the next 'it' thing among the country's younger generation. 


(On the topic of organic goodness, do you know who owns Trader Joe's? You really do learn something new everyday!)

Hey buddy, can you spare another yuan?: More on microfinance in China

Last Friday I found myself mulling over the prospects for microfinance in China, citing especially the promising work of an organization called Wokai, which engages in on-the-ground microfinance projects there, particularly in Inner Mongolia. Shortly after posting these reflections, I received a message from Wokai's Marketing Director who, after a lovely brief introduction, writes the following: 
[...] To answer your question about how well microfinance can work in China, I'd like to refer you to this recent article from China International Business magazine: http://www.cibmagazine.com.cn/Features/Economy.asp?id=782&giant_steps.html  On an individual level, microfinance in China has increased incomes and improved the status of women.  However, its impact on a national scale has been limited by legal regulations.
The article she cites is actually quite brilliant, and goes a long way in addressing the regulatory and legal hurdles faced by the microfinance industry in China (indeed, the logic underpinning my hesitation to wholly embrace the potential success of this industry).  While the Chinese government granted official status to microcredit and microfinance companies in 2008, this has seemingly done little to ameliorate the challenges faced by microfinance NGOs (sneaky, sneaky), who must now transform themselves into regulated financial institutions. Microfinance in China is permitted to operate, then - and by the look of things, succeed - so long as it falls under the auspices of the state. 

Particularly prominent in China are "village banks,"  which provide individuals with microcredit loans and other microfinance services. While it's too early to gauge the actual effectiveness of these institutions, the prospects do appear promising. To answer my own question, then, it would appear that microfinance might actually work quite well in China; that is, of course, so long as the industry has a cooperative state by its side.

Hey buddy, can you spare a yuan?

Is microfinance en route to becoming China's next big thing? Does it make sense for China? Does it make sense in these difficult economic times? All important questions worthy of further investigation. 

Over the last few years, lending in China has gotten marginally better and, among other things, China has loosened up a bit in terms of allowing foreign entities to engage in microfinancing. In October 2008, New York-based Citigroup announced the opening of two micro-credit firms in China's Hubei province after regulators approved its application. London headquartered HSBC and Standard Chartered also entered the Chinese microfinance sector last year. According to a piece in Ethical Corporation, all is indeed hunky-dory in the world of Asian microfinance, broadly speaking:
Despite the trouble in global financial markets, investors continue to put money into Asian microfinance. A $40m fund aimed at financing start-ups in microfinance was launched in October by the India-based Institute for Financial Management & Research Trust, supported by a group of investors including India’s Icici Bank. In May, ASA International of Bangladesh, ranked number one on the Forbes list of top 50 microfinance institutions, raised $125m in funding – the largest ever by a microfinance institution – through private equity firm Catalyst Microfinance Investors. 

Abhijit Ray, vice-president at microfinance consulting firm Unitus, in India, says: “Large and well-managed microfinance institutions have not been affected much by the credit crisis.”
In China specifically, an organization called Wokai seems to be making great strides. What makes Wokai particularly interesting is that it has set up an internet interface between the lenders (people like you and me) and the borrowers (generally entrepreneurs in rural China). So, for example, there's a herdswoman in Chifeng, Inner Mongolia, who is seeking $600 for cattle feed, and a butcher also seeking $600 to expand her inventory. Both have received some funding towards their goals, but still require more. For more on Wokai, see "Empowering the impoverished with Wokai."

I've always been a fan of microfinance, and it indeed appears to be working (see here and here). Given especially the global economic slowdown and the rising unemployment among China's migrant workers, this may be the perfect opportunity for microfinance agencies to significantly impact the lives of many Chinese. Yet a part of me remains skeptical: how well can microfinance actually work in China?

Income inequality and education in China

According to a report released by PREM entitled Rising Income Inequality in China: A Race to the Top, income inequality in China has increased at rapid rates in the past two decades, as noted in Figure 1:

At the same time, strong growth has meant that all income groups have seen pretty substantial economic gains. Authors Luo and Zhu explain:

The dynamics of divergence across these sub-national areas have taken the form of a "race to the top"—meaning that all segments of the population, including the poor with low education in lagging inland rural areas, have experienced gains in average income

Moreover: 

for all eight provinces, rural poverty headcount more than halved from 50.1% in 1989 to 22.4% in 2004; urban poverty headcount fell by a-third from 19.0% in 1989 to 13.5% in 2004

Coupled with these phenomena, however, is an even more interesting one: as income inequality has grown in China, the distribution of capital in the form of education has actually decreased. In other words, access to education has become highly concentrated in wealthier coastal and urban areas and is a fundamental factor underlying the surge in income inequality. Indeed, the increase in returns to education often initially leads to an increase in inequality. As David Dollar observes, however, such changes will ultimately tend to reduce inequality if equality of opportunity, especially equality in access to education, can be achieved over time. 

Long story short: poverty reduction occurs not only when a country opens its economy to the world, but also when it is able to support a sound education system and an educated populace.

China’s gender imbalance

In Monday's Vox column Esther Duflo observes that the ramifications of China's One Child policy are steadily beginning to be felt

Among 16-25 year olds today, there are nearly 110 boys for every 100 girls. Boys are having trouble getting married. And young men, particularly single ones, have more behavioural problems and commit more crimes than young women … Since 1998, the number of crimes has risen 13% per year on average. Seventy percent of criminals arrested are between 16 and 25 years old, and 90% are male

Concerns a that such a demographic imbalance may result in violence, economic crisis, an imminent rise of prostitution, and kidnapping are also beginning to surface. Unfortunately, it could take some fifteen years before this imbalance rights itself, likely more given that the CCP intends to continue the policy for at least another decade, with few modifications.

An opening up in China?

Over the weekend Howard French had a piece in the New York Times in which he argued that, despite appearances to the contrary, China is gradually opening up. Rights have expanded - albeit ever so slightly - government oppression has weakened, and, despite the fact that judges don't have the power to rule independently, the number of lawyers has increased. Pursuant to my previous post, it even appears that China has eased internet restrictions for foreign journalists in the run-up to the Olympics.

There is no denying that the China of today is not the China of yesterday. This holds for a variety of indicators. Yet, the foremost question as regards such extensions of liberty is to what extent they are truly genuine. Are Chinese citizens enjoying 'more' liberties because the CCP has finally decided to rectify its flawed ways, or is this but another instrumental move to further the government's agenda? Arguments exist on both sides of the equation. 

On the topic of rights, I was saddened to hear that Aleksandr Solzhenitsyn passed away this weekend. China could certainly use someone like him.

Postmodernism comes to China…-ish.

The image of the new China Central Television building (below) built especially for the 2008 Olympics was yesterday's most e-mailed image on Yahoo. 

The building, constructed by the Dutch architectural firms OMA and Arup, clearly breaks with the more traditionalist towers which point towards the sky. Here, instead, one has a continuous loop of horizontal and vertical sections that create their own space and, in a curious yet powerful way, create a distinct sense of energy; one can almost feel the electric currents surging through the building. 

Such a construction would, indeed, be an architectural accomplishment anywhere, but the fact that it has occurred in Beijing is particularly significant. As with all forms of postmodernist architecture, the new CCTV building poses challenges to the limits of modernism and, in turn, to those who hold to the notion of an under-developed China. As noted by a recent article in Vanity Fair, the entire Olympic construction project appears one big attempt to say to the industrialized world: "Whatever you can do, we can do better." And fair enough. 

Beyond it's architectural splendor, the fascinating thing about this seeming wave of postmodernism in China (if one can even go so far to call it that), lies in its connection to politics. There's no denying that architecture has always been inseparable from politics in a broad sense. No less than, say, the Egyptian pyramids, Europe's great Gothic cathedrals were conceived as expressions of power. Similarly, both Albert Speer's grandiose design for Hitler's Berlin and 1960's efforts to bring social improvement through public housing were politically inspired. 

The recent surge of what I like to call "can-do" architecture in China likewise signals the rise of a powerful China - it's impact on African politics and it's relations with the US are enough to make this point clear. Yet within China itself, there appear to be minimal changes; many citizens are actually worse off than in years past. This contrast between the image of a rising China and that of a country struggling to resolve its own domestic problems raises a plethora of questions over whether Chinese politics will be able to match its architecture. As the saying goes, you can talk the talk, but can you walk the walk?