Lessons drawn from China

In the modern era of globalisation, no country has grown and developed at a faster pace than China.

Prosper Chitambara

The Chinese economy has greatly increased at a steady rate of close to 10% since the economic reforms began in 1978 under Den Xiaoping.
This very impressive economic growth has brought in its wake an unprecedented reduction in the incidence and extent of poverty.

This paper seeks to examine the Chinese reforms, as well as coming up with recommendations for Africa in general and Zimbabwe in particular, which has adopted a “Look East” orientation.

The Chinese reform is very relevant for Africa and Zimbabwe in that prior to the reforms China was pursuing more or less the same reforms being pursued by most African countries.

So the question becomes, what lessons can be drawn for Zimbabwe and Africa? The successful growth performance of China has dramatically transformed China’s economic structure. The proportion of the labour force engaged in agriculture dropped from 71% in 1978 to less than 50% by 2005.

The integration of China into the world economy though stupendous has been strategic and cautious: gross trade (exports plus imports) rose from 10 % of GNP in 1978 to more than 40% by 2005, and direct foreign investments was more than US$400 billion in 2014 compared to US$2 billion in 1983.

Human development indicators, including life expectancy, literacy, infant mortality, per capita income, and the incidence of poverty, all show a dramatic improvement, in line with the rapid economic growth. The Chinese called their reform strategy “Gai Ge Kai Feng” — meaning “change the system, open the door.”

“Change the system” entails altering incentives and ownership, that is, shifting the economy from near total ownership to one in which private enterprise is dominant. “Open the door” involves liberalising trade and direct investment. China’s rapid growth performance presents various paradoxes that have become the subject of heated debate within the economics profession.

Why is it that a country that espouses socialist practice is among the fastest growing countries in the world, when virtually all other socialist economies have collapsed? While there is little disagreement about the role of market reforms in spurring China’s rapid growth, there is strong dispute about the character of those reforms.

Have they been gradual or rapid? Has the gradualism been a source of success, or a hindrance? Are the non-market aspects of China’s economy, such as the large state ownership that persists till today, a source of potential destabilisation in the years? What lessons, if any, does China’s experience offer for other countries in the transition from central planning to a market economy?

The first important lesson to be learnt is that development is an endogenous (internal) process. No matter the odds stacked against any country whether internally and/or externally induced any country can develop. No country or international organisation has the responsibility or obligation of developing another country. Development has to be initiated and sustained internally by the nationals of that country.

No country the world over has successfully developed without taking a firm responsibility over its development course. China and the rest of the Asian tigers have developed without a single cent from the International Financial Institutions (IFIs).

They have successfully leveraged domestic resources to fund their own development. Economic history is also littered with countries that have successfully developed in spite of sanctions. This is particularly relevant for Zimbabwe where our political leadership blames “Western-induced sanctions” for our lack of development.

Countries such as Cuba, South Africa, Iran, Rhodesia, China and Russia have successfully implemented sanctions-busting development strategies at some point in time during their development processes. Both China and the US were once colonised and yet they have soldered on to become the two biggest economic superpowers in the world right now.

The second lesson is that what works in one country may not necessarily work in another country. Different countries have different social, economic, political and cultural contexts. Development is based on diagnosing the key binding constraints affecting development in a country and then dealing with those identified binding constraints in sequential, incremental and progressive manner. Different countries have different binding constraints.

Hence, a one-size-fits-all development strategy is unlikely to work, what is needed is a different-strokes-for-different-folks approach that takes into account the idiosyncrasies and particularities of each country.

This explains why Structural Adjustment Programmes (SAPs) have been a flop in many countries. China’s economy has been defined as a “social market economy” and does not fit into any one system. Rather, it takes various parts of other systems and combined them to create a system that best serves its national interests.

Development is about defending and promoting your own national interests. In development there are no permanent friends but only permanent interests.

The third lesson is that for growth to be sustainable it must be pro-poor and inclusive. What this means is that it is not just the quantum of growth that matters but more importantly the quality of that growth. For a long time, growth in Africa though high, has been skewed.

In fact, the UNDP has identified five typologies of these skewed growth patterns prevalent in African economies namely: jobless growth; ruthless growth; rootless growth; futureless growth and voiceless growth.

In particular, jobs are very important for development as they provide a useful link between growth and development. More often than not the only resource that poor people have is their own labour and so jobs help to lift poor people out of the bondage of extreme poverty and deprivation.

Economic growth in China has been highly pro-poor for example between 1981 and 2004 China went from more than two-thirds of the population living on less than US$1 to fewer than one person in 10 living in poverty. More than 500 million Chinese have been delivered from the demon of poverty between 1981 and 2004.

A cross-country analysis of the growth impact of poverty comparing China, India and Brazil found that China’s economic growth reduced poverty at a rate 50% higher than that of Brazil and much higher relative to poverty reduction in India. Sadly this has not been the case in Africa. In many African countries while economic growth has increased poverty and inequality have also risen.

The forth lesson is that while Foreign Direct Investment (FDI) can play a positive role in development as shown by China there is need to invest in the host country factors such infrastructure, institutions and financial development.

These host country factors or absorptive factors help the host countries to effectively absorb and benefit from the spillovers from FDI. In China, starting from 1978, the Chinese government has invested heavily in both physical and social infrastructure. They have also developed strong institutions. All these factors have helped the Chinese economy to absorb the spillovers and positive externalities from FDI.

This has not been the case in many African economies. In fact FDI in most African economies has helped to fuel enclave economies. FDI in Africa has also worsened the current account deficit through massive profit repatriations as well as displacing and crowding out domestic investment. So while FDI is very crucial we should invest in the local conditions that allow our economies to absorb all the potential benefits from FDI.

Another useful lesson from China is that State Owned Enterprises (SOEs) have the potential to play a significant role in development. In China they have not gone for whole sale privatisation like we have done in Africa.

They have however transformed their SOEs into autonomous and profit-oriented institutions with pro-market regulations and corporate governance mechanisms.

As a result more than 60 Chinese SOEs are in the Fortune Top 500 Global companies in the world presently. As of 2014 SOEs in China contribute more than a third of fiscal revenues.

Unfortunately in many African countries SOEs have been a major drain to the fiscus. There is however, scope and potential for transforming and reforming these key institutions into strong drivers of development in Africa. Another important lesson is that we should not despise small to medium enterprises.

In China the emergence of Township and Village Enterprises which were nurtured and supported by the State also contributed significantly to development.

Trade openness is also important but it has to be done in a strategic and controlled manner. Wholesale trade liberalisation will only result in de-industrialisation. China only became a member of the World Trade Organisation in December 2001.

Capital account liberalisation also needs to be treated very cautiously. Countries that have been hasty in liberalising their capital accounts completely have been vulnerable to financial shocks and crisis. Because China has maintained restrictions on its capital account this has helped the Chinese economy to weather the impact of the global financial crisis more successfully than most developed countries. When the Chinese have decided what to do, they go all out to accomplish it.

This is a trait that African nations can learn from. One way of achieving this is by improving the quality of our bureaucracy. In China the government not only recruits the top students from universities for public service but also offers auspicious and competitive salaries and working conditions to motivate them to deliver.

Prosper Chitambara is an Economist with the Labour & Economic Development & Research Institute of Zimbabwe (Ledriz) and a PhD candidate (Economics) at the University of the Witwatersrand.

These articles are coordinated by Lovemore Kadenge, president of the Zimbabwe Economics Society. Email kadenge.zes@gmail.com, cell +263 772 382 852

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