lauantai 24. heinäkuuta 2010

China: The global success story - Could it be repeated?

Since the late 1980s, China has been the fastest-growing nation with an average annual GDP growth rate above 10%. Following the One Country, Two Systems policy, the economies of the former European colonies, Hong Kong and Macao, are separate from the rest of China, and each other. Hong Kong and Macau are free to participate as full members in international organizations, such as the WTO. In 2001, when China's became a WTO member the state role was reduced and firms were made responsible for their own profits and losses[1]. The development of the private sector was allowed and it was permitted to compete with state firms in service sectors, and in infrastructure operations, such as construction. Export growth has been the major catalyst of rapid economic growth. Other sources of growth are

1. State investments in infrastructure and heavy industries

2. Private sector expansion in light industry

China’s GDP is about $3.4 trillion (nominal basis), the third largest in the world after the U.S. and Japan when measured in exchange-rate terms[2]. China’s estimated labor force is about 800 million persons of which one half is working in agriculture, forestry, and fishing. China’s per capita income is over $3,000[3] (nominal)[4]. In 2008 the growth in exports calmed down as the global crisis in export countries reduced demand, e.g. in toy and textile manufacture. 20 million jobs in 67,000 factories were lost[5]. As a response, China expands the public sector to take up the slack caused by the global financial crisis[6]. China is will be the world's leading exporter. China has an acute need for new energy sources. The International Energy Agency estimates that 80% of Chinese oil consumption will be met by imports in 2030, which will increase the country’s vulnerability to external supply disruptions[7]. The world’s refinery capacity is now insufficient for huge growth in the demand of refined products. China tries to activate multinationals to downstream investments in its oil plants in China. The aggressive outward FDI by China, including state-owned enterprises in energy mean that China will be a major global player in the energy markets.[8]

In the 1980s, China permitted FDI inflows for foreign investors with two conditions: export creation and joint venture with Chinese firms. For FDI, China opened special economic zones (SEZs) along the coast[9] and, 14 coastal cities/ 3 coastal regions. They account for 60% of China’s imports and exports[10]. Out of the five busiest ports in the world, three are in China. The majority of China's FDI inflows come from Hong Kong, Macau and Taiwan. In 2005, China received $80 billion FDI inflows. In 2007, China's exports were $1216 billion, imports $954 billion and trade surplus $252 billion. China's foreign exchange reserves the largest in the world, totaled $1.9 trillion in 2008. Outward FDI is a new feature of China’s globalization[11].

China's primary trading partners are Japan, the EU, the U.S., South Korea, Hong Kong, and Russia. About 50% of China's imports come from South-East Asia, and 25% of China's exports go to the same destinations. China’s export to the U.S. is a political issue since according to U.S. statistics China had a trade surplus with the U.S. reached $232.5 billion in 2006 doubling from 1999[13]. The U.S. traders are active partners with China. Wal-Mart, the world’s largest retailer, is China's 7th largest export partner, just ahead of the UK. 80% of China's exports are manufactured goods. The majority of China's imports consist of industrial supplies and capital goods, machinery and high-technology equipments. China’s trade with both India and Russia is $40 billion. China exports apparel, footwear, machinery and electronic goods to Russia and has 750 investment projects involving $1 billion[14]. Russia’s crude oil is transported by rail and electricity exports via Russian electricity grids[15].

China is the world’s leading producer of chemical fertilizers, cement, and steel[16]. Expanding industries are pharmaceuticals, software, semiconductors, electronics, and precision equipment. Industry (mining, manufacturing, construction, and power) contribute 50% of GDP and occupied 1/4 of the workforce. China is the world’s third largest automotive vehicle manufacturer (after the US and Japan), the second largest consumer (after US) and is planned to be the number-one automaker by 2020[17]. The rail sector is monopolized by China Railways[18]. China needs sustainable transport logistics railways and more capacity. The current rail capacity is scare to meet demand for the transport of goods and raw materials such as coal. China possesses a diversified communications system that links all parts of the country by Internet, telephone, telegraph, radio, and television. Exceptional to most of developing countries, China has developed and has an access to advanced technologies that constitute a foundation for development of a modern network.

Most of China's financial institutions and 98% of banking assets are state owned[19]. Hong Kong has been a major source of funds. The chief fiscal controller is the Ministry of Finance. China has a well structured group of financial institutes:

1. People's Bank of China (PBC) is mainly responsible for international trade and overseas transactions
2. Bank of China (BOC) and its branch offices in many countries manages remittances of overseas Chinese
3. China Development Bank (CDB) funds economic development and outward FDI
4. Agricultural Bank of China (ABC) funds the agricultural sector
5. China Construction Bank (CCB) is responsible for capitalizing a portion of overall investment and for providing capital funds for certain industrial and construction firms.
6. The Industrial and Commercial Bank of China (ICBC) conducts commercial transactions and acts as a savings bank for the public. 75% of state bank loans go to state owned enterprises (SOEs)[20] that provide inputs from utilities, raw material, and energy that facilitated private sector to grow and to invest, the foundation of national economy.

China's total energy consumption is projected to be double in 2020-2030 by the IEA. China is the second-largest consumer of primary energy (after the U.S.) and the third-largest energy producer (after the U.S. and Russia). China is well endowed with mineral resources[21], the most important of which is coal. Coal provides almost 80% of China's energy consumption. China is the largest producer and consumer of coal in the world [22]. Petroleum production has remained at the same level since the 1970s. There are large petroleum reserves in the northwest and in the offshore, but half of the country's oil production still comes from the Daqing oilfield in the northeast. China has partially undeveloped, natural gas reserves. China has potential for hydroelectric power production due to its river networks and mountains[23]. China's electricity consumption is expected to grow by 4% a year through 2030, which will require more than $2 trillion in electricity infrastructure investment to meet the demand[24].

China needs natural resources for its huge industrialization programs. China's mineral resources include large reserves of coal and iron ore, plus adequate to abundant supplies of nearly all other industrial minerals. Iron ore imports from Australia and the U.S. have grown during the 2000s as China’s steel production outstripped domestic iron ore production. China has become active in African countries to mine the reserves it requires for economic growth. Global markets of important base metals are out of balance. Africa has large deposits of widely used base metals (iron, copper, nickel and zinc) that China needs. China’s growth in the metal-intensive manufacturing has acted as the stimulus for investments in stainless steel and aluminium industries in the South Africa, exporting about 80% of its metal and mineral production, primarily to China.[25] The acute need for basic metals by China has meant that exporting of these products is profitable, justifying investments in mining.

China uses the far-reaching intervention to discipline its industrial corporations. With the exception of the oil exporters, all the African countries have a trade deficit with China. The Chinese export trade to Africa consists of mostly manufactured goods. Some Chinese products are intermediate inputs for products assembled in Africa and shipped out to third markets or capital goods (machinery and equipment) for African manufacturing sectors. China is the most lead-hungry country that has ambitious plan to expand its car industries and many others. The world nickel production has risen about 60%, but the supply does not meet demand[26]. The most common metals in use are iron, aluminum, copper and zinc. The Hubbert’s Peak[27] in copper and other base metals will be approached in the near future. Africa’s supply of base metals, some precious metals and widely used industrial minerals[28] is critical to many of the industrialized countries, especially to China. Alfter the crisis in the near future, these commodities have again bull markets globally.

In South Africa, exporting sectors are dominated by foreign owners. In the global, strategic competition, all engineering firms need resourceful partners, and so do the host countries/ regions. Multinationals are the most relevant partners. Africa’s governments have not been skillful in contacting, on the contrary. In oil and gas industries, the North Africa has succeeded in their opportunistic contracting policies with multinationals. There are many histories of the unfair contracting between multinationals and Africa’s governments. China has succeeded to get access to modern technologies and international distribution channels through multinationals investing in China. The huge Chinese domestic markets have been the fact why China will strengthen its strategic partnerhips with the South Africa[29]. The Chinese community in South Africa arrived mainly in the 90s is about 100 000 people, the largest in Africa. Through joint ventures, technology transfers and other operations, China opens new prospects for its resource-seeking investments in the South Africa[30].

[1] Wang, Fei-Ling (1998) Institutions and Institutional Change in China: Premodernity and Modernization, New York, Palgrave Macmillan.
[2]China passes Germany in economic rankings". CNN. January 15, 2009.
[3] According to the IMF, China belongs to the lower middle category by world standards.
[4] Fighting Poverty: Findings and Lessons from China’s Success (World Bank). Retrieved August 10, 2006.
[6]Economic Stimulus Plan focused on increasing affordable housing, easing credit restrictions for mortgage and SMEs, lower taxes such as those on real estate sales and commodities, pumping more public investment into infrastructure development, such as the rail network, roads and ports.
[9] Jao, Y.C. (Editor) and Leung, Chi-Kueng (Editor) (1987). China's Special Economic Zones: Policies, Problems and Prospects, OUP China.
[10] China Statistical Yearbook 2007
[11] Alon, Ilan and John McIntyre, eds. (2008) The Globalization of Chinese Enterprises, New York: Palgrave McMillan.
[12] IMF World Economic Outlook Database
[13]IMF World Economic Outlook Database
[14] The Voice of Russia.
[15] Russia is building the Eastern Siberia-Pacific Ocean oil pipeline with a branch to Chinese border. Russia has power grid monopoly and UES is building some of its hydropower stations with a view of future exports to China.
[16] China is the top exporter of steel in the world, In Chinese Factories, Lost Fingers and Low Pay, David Barboza, New York Times. January 5, 2008
[17] In 2007, 9 million automobiles are produced in China.
[18] In late 2007 China became one of the few countries in the world to launch its own indigenously developed high-speed train.
[19] Chui, Becky and Lewis, Mervyn K. (2006) Reforming China's State Owned Enterprises and Banks, London, Edward Elgar Publishing, p. 205.
[20] Chui and Lewis, 2006, p.11.
[21]Creedy, David, Lijie, Wang; Xinquan, Zhou, Haibin, Liu and Campbell, Gary (2006). "Transforming China's coal mines: A case history of the Shuangliu Mine". Natural Resources Forum (Blackwell Publishing) 30 (1): 15–26.
[22] In Search of Clean Energy to Meet China’s Needs. World Bank 2007-12-19.,,contentMDK:21589744~pagePK:34370~piPK:34424~theSitePK:4607,00.html
[23]Most of the total hydroelectric capacity is situated in the southwest of the country. The immense Three Gorges Dam across the Yangtze River was completed in 2006 and will revolutionize electrification and flood control in the area.
[25] An Evaluation of the Developing Economic Relationships between China and South Africa in the Context of Negotiations on a Trade Agreement by Nepeti Nicanor, Simon Roberts and Marian Walker, Accelerated and Shared Growth in South Africa:
Determinants, Constraints and Opportunities, 18 - 20 October 2006.
[26]Russia has 40% of the global resources. Norilsk is the largest global producer of nickel and palladium.
[27]The Hubbert peak theory posits that for any given geographical area, from an individual mineral deposit to the planet as a whole, the rate of mineral production tends to follow a bell-shaped curve. Choosing a particular curve determines a point of maximum production based on discovery rates, production rates and cumulative production. Early in the curve, the production rate increases due to the discovery rate and the addition of infrastructure. Late in the curve (post-peak), production declines due to resource depletion. Deffeyes, Kenneth (2005) Beyond Oil: The View from Hubbert's Peak, Farrar, Straus and Giroux.
[28]Industrial minerals are usually divided into three groups:
Abundant. These are in all geologic environments, used in large amounts, and are relatively cheap, like limestone, clay, sand, gravel, and stones.
Widely available. Large quantities in few geologic environments, global pricing depending on markets, like coal, kaolin, salt, sulfur, talc and magnesite.
Rare. Small quantities, in limited areas, used in small quantities, and high priced, like diamonds, sheet mica, graphite, corundum, and the precious stones.
[29] Negotiations are ongoing for the establishment of a free trade agreement between China and the Southern African Customs Union. China’s leadership in the “Group of 77 plus China” (over 130 developing countries) an instrument for that.
[30]Alden, Chris and Davies, Martyn (2006) A Profile of the Operations of Chinese Multinationals in Africa, South Africa Journal of International Affairs 13, no. 1

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