Conflict leads to state-building? The curious case of Kenya
Much of the over-hyped China rhetoric emanating from Washington is disregarding a crucial element of the story: China's strong import levels
Chinese and Indian defense planning, compared
Zambian views on Chinese firms from Zambian Trade Minister, Felix Mutati
Hello (!), and thanks very much for being so patient while I transitioned back to an Oxonian existence. I'm nearly all settled and on something resembling a routine, which is quite exciting. Research productivity is still a matter to be tackled, but I'm getting there... slowly, slowly.
News while I was away? - Lots, really! Below is a little collection of stories which caught my attention when I finally sat down to catch-up on the world's goings-on. These are but several among many, to be sure:
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:
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.
The China-Africa Development Fund, which was founded by state-owned lender China Development Bank Corp., plans to raise $2 billion by November to help expand business links between Africa and China, CDB Vice Governor Li Jiping said.
[...] In an interview on the sidelines of the Australia-China Bilateral Investment Seminar, Mr. Li said the China-Africa Development Fund will raise the money for expansion from Chinese financial institutions, including insurers.
The fund, established in 2007 with an initial $1 billion investment by CDB, had said it aims to eventually increase its total assets for investment to $5 billion. Australia is also a part of CDB's global strategy, Mr. Li said.
I confess: I'm an addict. I can scarcely get through a day without a cup of coffee. Or two. Sometimes even three. Every morning I make my way to the local coffee shop for my fix. In Oxford, Cafe Nero in Blackwells Bookshop is my cafe of choice. I always opt for a window seat so that I might watch the world go by on Broad as I sip my Americano and peruse the day's news. In Evanston, I found a home in Peet's; the wonderful aroma of coffee brewing hits your nose the moment you open the door. Most recently I discovered the Hungarian Pastry Shop in New York City and am longing to go back. What better way to pass a morning than with a delectable croissant, a perfect cup of coffee and a view on St. John the Divine?
Given my addiction, I can't help but comment on all the coffee related news that I've been stumbling upon recently. Last week I blogged that Starbucks is opening an office in Rwanda, with the hopes of collaborating with local farmers as a way of helping them overcome poverty, and of developing a potentially lucrative export market. According to Appfrica, Africa's first chain coffee factory opened in Uganda just yesterday. The factory is owned by Uganda's Good African Coffee company, which controls a value chain that begins with Ugandan farmers and continues all the way to supermarket shelves. The company has promised 50% of the profits to growers, their families and communities, and further offers training to farmers to help improve the quality and sale value of their crop. What a great initiative to promote local entrepreneurship.
China's coffee market is likewise heating up, with Costa Coffee, 85c and Dunkin Donuts now on the scene. Before, China's coffee market was dominated entirely by Starbucks (and its knock-off, SPR), which is now beginning to lose its grip. Presumably Starbucks is losing its grip in other markets as well, which is why the company has begun an intensive rebranding campaign, and is even considering adding alcohol to its menu. Because the one thing missing in this world is place where you can get free wifi, a bran muffin and a Stroh's.
But who knows: with Tim Horton's now aggressively entering the American market and 85c beginning to dominate in China, a bottle of Stroh's with your latte and muffin may be the perfect marketing pitch. Personally, though, I'd just opt for an Irish coffee. Extra strong, if you please.
While this blog is mostly devoted to issues surrounding the Sino-African partnership, one must not forget that China is similarly active in other regions of the world, most recently Latin America. China's strategies in Latin America seem to differ little from those employed in Africa, with 'oil-for-infrastructure' deals, tech investments, extensive bilateral trade agreements, and the influx of cheap Chinese goods as the wooing tactics of choice. Trade between China and Latin America soared from $10 billion in 2000 to $140 billion in 2008.
As is true of Africa, Beijing's main interest in Latin America is the guaranteeing of access to the region's raw materials - oil, soybeans, copper, iron ore, etc. - to fuel its continued rapid growth. Yet as is also true in Africa, China's ambitions are also grandly geopolitical. According to Tyler Bridges:
China is beefing up its embassies throughout Latin America, opening Confucian centers to expand Chinese culture, sending high-level trade delegations throughout the region and opening the door for ordinary Chinese to visit Machu Picchu, Rio, and other tourism hot spots.
Aiping Yuan came to Rio de Janeiro from Beijing in 1997 on a lark, fell in love with the city, and decided to stay. She studied Portuguese, and when Brazilian President Luiz Inácio Lula da Silva made his first visit to China in 2004, she opened a small school in Rio to teach Mandarin.
She began with six students and today has 300, including senior executives at Petrobras, the country's biggest oil company, and Vale do Rio Doce, the biggest mineral producer. Both have growing business with China.
"Chinese is the language of the future for Brazil," Yuan said with a big smile.
Chinese will be the language of more than just Brazil if Beijing's leaders have anything to do with it. As Bridges aptly observes, China is buying zinc from Peru, copper from Chile, and iron ore from Brazil. It's shipping equipment to Brazil, buses to Cuba, clothes to Mexico and cars to Peru. Chinese tech giants Huawei and ZTE are likewise grabbing business from established telecom suppliers across the continent, most prominently in Argentina, Chile and Colombia. Yet while China seemingly has a Latin America strategy (or perhaps a 'developing world' strategy more generally; it's hard to tell), Latin America doesn't appear to have a China strategy.
Writing in his excellent blog, Tom Pellman cites David Shambaugh who notes:
Latin America is acting toward China's expansion in the world in a reactive, disorganized or ad hoc fashion. When I asked Itamaraty (Brazil's foreign ministry) about its strategy on China, I got blank stares. There is no strategy.
Such a lack of strategy indubitably works to the detriment of Latin American states - as it does African nations which similarly lack much in the way of a policy of engagement with the eager Chinese - who stand to gain from Chinese investment. In Latin America, as much as in Africa, there are many benefits to be accrued from recent Chinese interest. Yet without a plan of action, it seems that China will walk away as the sole beneficiary when all is said and done.
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:
China's growth projection has been revised upwards by 1%, with the country expected to register 8.5% growth in 2010.
"The continent must not be like a beautiful fruit tree by the wayside. Every passer-by plucks a share and the fruit tree seems to forget that it could one day grow old.." Words of caution to Africans as both Russian and American leaders make trips to the continent
African leaders have denounced the ICC and refuse to extradite Sudan's president Omar al-Bashir, while others attempt to decipher what, exactly, this means
Niall Ferguson and James Fallows discuss the influence of China on the U.S. economy at the Aspen Ideas Festival
Win in China: a great documentary on the rise of entrepreneurship in China
Recent speculation over China's alleged disengagement from Africa (see earlier posts here and here, for instance) could not be further from the truth. While pundits continue to tout China's withdrawal from the continent in light of growing (global) economic troubles, the data seemingly suggests quite a different reality.
A report released yesterday by South Africa's Standard Bank (download pdf here) lends much credence to this claim. Among the report's key findings:
With respect to the DRC deal which initially lead some to raise red flags over China's withdrawal, the report notes the following:
Chinese firms are also taking the opportunity to re-price several of their commodity-based investments in Africa in order to ensure that valuations reflect current realities rather than those in place during the height of the commodities boom in 2007, when many of the investments were initiated. This prudent recalculation has been perceived in the DRC and Gabon as a cooling off of interest from relevant Chinese investors, where in truth it is a calculated strategy by Beijing to leverage its competitive advantage in still being able to engage commercially to negotiate more favourable terms.
I hate to say 'I told you so,' but I told you so. Rather than retreating, China is merely shifting its strategy in the continent in response to ever-changing economic realities. If nothing else, the Chinese are exceptionally quick on their feet. With that said:
Any discussion on the sustainability of bilateral ties is deficient without a realisation that a withdrawal of China from Africa presents only one side of a complex picture. It is not in Africa's interests, particularly in today's liquidity starved international environment, to see China withdraw from Africa. Neither [...] is it in China's interests to do so.
"I think the trip that I am about to embark on... is one of the most important I am going on to defend a new economic order and a new commercial policy in the world," Lula told reporters before leaving Brazil.Roberto Jaguaribe, a Brazilian foreign ministry official, said last week the trip represented a "reorganisation of the international scene" in which the top emerging economies were playing a bigger role in world affairs.
The total value of Chinese exports fell 22.6 per cent from a year earlier in April to $91.9bn, a faster rate of decline than the 17.1 per cent year-on-year drop in March, which many analysts and officials took as a sign that external demand for Chinese goods was starting to recover.
Retail sales have held up much better in China this year than in other big economies, growing at a real 15.9 per cent in Marchyear-on-year. But more important than the overall trend is the composition of the retail spending.The most robust consumer spending figures are coming from inland and lower-tier cities rather than from the traditional growth powerhouses clustered around the Yangtze and Pearl river deltas. A China Confidential survey assessing consumer spending intentions among an estimated 64m middle and upper income households in 189 cities in March showed a much higher propensity to spend in lower-tier cities.Overall, 51 per cent of respondents in 15 second-tier cities said they planned to increase spending this year from last – a full 9 percentage points more than the number from the first tier. In 170 third-tier cities, 49 per cent of respondents said they would boost their spending this year.
Every country has benefited from China’s integration into the world economy in the past decade. Since 2000, China has accounted for a third of global economic growth. Chinese goods are now exported all over the globe — making it the world’s second largest exporter. And this is not a zero-sum game. We all benefit; 60 per cent of Chinese exports are produced by enterprises financed by other countries.But I believe Britain is uniquely placed to benefit. The UK is the largest European investor in China. Some 6,000 British-invested projects there span the country in a number of sectors: Vodafone in telecommunications, BP in energy, AstraZeneca for pharmaceuticals, HSBC and Standard Chartered in financial services, to name a few.And the UK is the second top European destination for Chinese inward investment. Nearly 400 companies have set up in our country, and more than 60 are listed on our stock exchanges. They offer high-skilled jobs in engineering, telecoms and financial services.... The meeting between our countries today is about seizing these opportunities. But we meet against the background of the greatest global financial crisis for generations. Every country has been affected. And every country is working to get through this. So our first goal must be to agree the action needed to support growth. Both our governments have put more money into the economy now, when it is needed. China’s huge fiscal stimulus will benefit us all.
can you continue to combine command politics with market economics? Or, to frame it more positively: can you achieve a controlled, step-by-step evolution of this political system into one that is more responsive, transparent, accountable and therefore durable?
But what if he's asked the wrong question? What if the burning question for China is, for example, demographics? It's the fastest aging society in the world. It will indeed grow old before it gets rich. Or what if the question is environmental? I don't need to go into details here, you know how bad it is. Or social? China's crime problem is serious and getting worse. There's a nationwide shortage of trust. Or health-related? AIDS continues to grow; there's avian flu. Or economic? Yes, China has done miraculously so far. But exports are down significantly. Can they weather this Western-induced crisis?There is a triumphalism coming from Beijing that Garton Ash's piece notes. The recent attack on the dollar; the obnoxious musings of Vice President and Anointed Successor Xi Junping while he was in Mexico. Some of the bluster is justified. But some of it also masks a deep insecurity about what's next for China. We need to remember that what we often think are the big questions for that great country aren't the right ones at all.
First, as Xinhua reports, the Argentines can essentially use the RMB as extra cash to pay for imports. But one might note that, since the Yuan is not a convertible currency, the money can only be used to purchase goods from -- you guessed it -- China, potentially giving a boost the Dragon's ailing export sector.
The other reason for the swap seems more strategic, especially in conjunction with other currency trades that China has very quietly signed with Malaysia, Hong Kong, South Korea, Belarus, and Indonesia over the past three months. As the Financial Times puts it:
Economists...see Beijing's currency swap deals as pieces in a jigsaw designed to promote wider international use of the renminbi, starting with making it more acceptable for trade and aiming at establishing it as a reserve currency in Asia, something that would also enhance China's political clout."
Argentina’s central bank president, Martin Redrado, was quick to point out that the deal is a contingency plan; the country doesn’t need it at the moment. And, another asterisk behind the deal:
“The fact that China represents such a small share of Argentina’s total trade (less than 12 percent) suggests limited impact on FX, but is an important political gimmick at this time (convertibility will remain an issue),” RBS wrote in a research note issued on Tuesday.Gimmick or no, Zhou proved that even in an international setting like the IDB summit, China will look for ways to extend its reach (and currency priorities).
The New York Times ran a story last week touting the steady decline of Chinese investment across the African continent:
As global commodity prices have plummeted and several of China's African partners have stumbled deeper into chaos, China has backed away from some of its riskiest and most aggressive plans, looking for the same guarantees that Western companies have long sought for their investments: economic and political stability.
Though I've touched on this issue before, it appears that it is one worth returning to. While the economic crisis has, indeed, adversely affected Chinese exports and subsequently many key African sectors, this does not spell doom for the continent anymore than it signals a mass withdrawal of Chinese investments, as the NYTimes appears to suggest.
The most recent issue of Africa-Asia Confidential does an especially brilliant job of driving this point home:
Anecdotal evidence suggests that some firms could be trying to shift unwanted goods to new markets in Africa. That might mean more choice and lower prices for African consumers. 'We don't see so many African traders coming in as before but demand for Chinese corporations is extraordinary. We see so many Chinese merchants and small companies sending people to Africa, many for the first time,' said Lily Tang, China Manager for Kenya Airways, which flies from Guangzhou to the continent.
Indeed, while some Chinese companies might be fleeing, the general trend is seemingly one of firm restructuring. China is continuing to invest in natural resource sectors across the continent, with projects picking up now that the weather is improving. Small-scale entrepreneurs are likewise continuing to pursue independent ventures in states across the region, peddling cheap goods in African markets. Though we may be witnessing a slowdown in such trends, it is hardly the end of 'China in Africa,' as such.
An additional point worth mentioning, one initially observed by Africa Works, is that the NYTimes story is based solely on the country of Guinea:
a country that has little going for it economically or socially. In more robust countries such as Kenya, Ghana and Zambia, Chinese investment is part of a mix of foreign capital. With growing cities, many African countries represent a rare opportunity to take advantage of new consumer demand.
It will, of course, be curious to observe how things unfold as the economic crisis progresses, but for the time being there really is no need for dramatic tales of complete Chinese withdrawal. Really.
[Photo credit: NYTimes]
Congresswoman Michelle Bachmann is clueless about the dollar’s role as the world’s reserve currency. In fact, it seems she’s clueless about what a reserve currency is. That’s why, in reaction to China’s SDR proposal, she’s introducing legislation to “bar the dollar from being replaced by any foreign currency.” And apparently a lot of people are similarly confused and need a quick explanation of the difference between legal tender and currency reserves.
If Rep. Bachmann’s office needs some assistance with international economics, I’d be happy to provide some advice over the phone at a reasonable price.
Having had my fair share of economic discussions with Jonathan, I can readily vouch for his expertise.
Having had their fair share of international gaffes in recent weeks, too (see here and here, for instance), I would urge U.S. politicians to do engage in greater background research before making future pronouncements (pertaining to anything, really) or attempting gestures of goodwill. Unfortunately, things in this department do not appear especially promising: standing in front of the Basilica of Our Lady of Guadalupe, which was "miraculously imprinted by Mary on the tilma, or cloak, or Juan Diego in 1531," Hilary Clinton on her recent trip to Mexico turned to the priest who was showing her the Basilica and asked, "Who painted it?"
Quite frankly I don't know how anyone is to take the U.S. seriously if such blunders continue to be made. Of course such slips of the tongue occur frequently in the wonderful world that is international relations, but one would hope that politicians in the world's superpower would be sufficiently knowledgeable on what really are commonplace matters. Even I understand the difference between legal tender and currency reserves, and I will be the first to admit that economics is not my forte.
While on the surface such slips may not appear to be a big deal, they do go a long way in discrediting the United States in the global arena, and are likewise utilized by leaders in countries who are interested in asserting their superiority over (or equality to) the U.S. in doing precisely that. China is no exception.
[HT: Andrew Sullivan]
In the ocean immediately beyond the city are a few islands of particular interest to China:
- Japan: the old rival, whose rapid modernisation preceded China’s, but now eclipsed and reduced to a few harmless islands.
- Taiwan: similarly superseded by China’s massive economic progress, but still relevant as the rival claimant to be China’s ‘legitimate’ government. Even more repulsive to mainland China is a competing strand of current Taiwanese politics, striving for ‘independence’ and thus eschewing the ‘One China’ policy still officially espoused by both the communist mainland and nationalist Taiwan.
- Hong Kong: the former British crown colony that was handed back to China in 1997 and which has been allowed a degree of autonomy unthinkable elsewhere in China (e.g. Tibet) under an agreement often referred to as ‘One Country, Two Systems’, whereby Hong Kong was allowed to retain its capitalist system and its civil liberties, including inchoate democratic institutions.
- Spratly Islands: a sprawling archipelago of over 600 islets, atols and reefs in the South China Sea, between Vietnam and the Philippines, with barely 5 square kilometers of dry land between them. Because of their strategic location, the Spratlys, or parts of them, are claimed and partly occupied by China, Taiwan, Vietnam, the Philippines and Malaysia - and as such are a flashpoint waiting to happen.
Across a narrow representation of the Pacific Ocean lies the continent apparently most on China’s mind - America. And especially, apart from a tiny slice labelled Canada and a small appendage being dug up for minerals called South America, the United States. The US is a crumbling empire, with the Statue of Liberty clutching a begging bowl and holding up a sign saying: Please give generously. Next to some shacks is a sign saying Foreclosure Sale (a reference to the house repossessions that are symptomatic of the credit crunch which triggered the present economic recession). Wall Street is a fault almost splitting the US in two.
Europe is much smaller and more irrelevant than America, in the ocean beyond it. All that distinguishes it are Prada and Hermes, two brands of luxury fashion accessories, and presumably very popular with the wealthy Chinese elite - suggesting that Europe is only interesting to China as a glorified shopping mall.
Next to Europe is Africa, equally distant from China, but at least decked out with some of the implements of industry, referring to the large investments China is making in Africa, benefiting the poorest continent with new infrastructure and providing China with access to much-needed raw materials for its burgeoning industry.