Category Archives: China

Sachs on China’s lessons for the World Bank

Posters decorating Beijing during the China-Africa summit 2007

Jeffrey Sachs depicts a clear and concise picture of why the World Bank has got it all wrong and why China is getting it all right in Africa on the Guardian’s Comment is Free. He is mostly right – structural adjustment programmes have devastated African economies and if anything caused a surge in that very corruption that the World Bank blames as the cause of its failures.

Yet, one thing Jeffrey doesn’t quite explain is why China is acting like a Samaritan in Africa, dispensing sound advice alongside investment in infrastructures. Still, an excellent read, which I am reproducing below.

China’s lessons for the World Bank
As the World Bank clings to its free-market ideology, China is providing more practical help for developing countries.

The China Daily recently ran a front-page story recounting how Paul Wolfowitz used threats and vulgarities to pressure senior World Bank staff. The newspaper noted that Wolfowitz sounded like a character out of the mafia television show The Sopranos. At the same time, while the Wolfowitz scandal unfolded, China was playing host to the Africa Development Bank (ADB), which held its board meeting in Shanghai. This is a vivid metaphor for today’s world: while the World Bank is caught up in corruption and controversy, China skilfully raises its geopolitical profile in the developing world.China’s rising power is, of course, based heavily on its remarkable economic success. The ADB meeting took place in the Pudong district, Shanghai’s most remarkable development site. From largely unused land a generation ago, Pudong has become a booming centre of skyscrapers, luxury hotels, parks, industry, and vast stretches of apartment buildings. Shanghai’s overall economy is currently growing at around 13% per year, thus doubling in size every five or six years. Everywhere there are startups, innovations, and young entrepreneurs hungry for profits.I had the chance to participate in high-level meetings between Chinese and African officials at the ADB meetings. The advice that the African leaders received from their Chinese counterparts was sound, and much more practical than what they typically get from the World Bank.

Chinese officials stressed the crucial role of public investments, especially in agriculture and infrastructure, to lay the basis for private-sector-led growth. In a hungry and poor rural economy, as China was in the 1970s and as most of Africa is today, a key starting point is to raise farm productivity. Peasant farmers need the benefits of fertiliser, irrigation, and high-yield seeds, all of which were a core part of China’s economic takeoff.

Two other critical investments are also needed: roads and electricity, without which there cannot be a modern economy. Farmers might be able to increase their output, but it won’t be able to reach the cities, and the cities won’t be able to provide the countryside with inputs. The officials stressed how the government has taken pains to ensure that the power grid and transportation network reaches every village in China.

Of course, the African leaders were most appreciative of the next message: China is prepared to help Africa in substantial ways in agriculture, roads, power, health, and education. And the African leaders already know that this is not an empty boast. All over Africa, China is financing and constructing basic infrastructure. During the meeting, the Chinese leaders emphasised their readiness to support agricultural research as well. They described new high-yield rice varieties, which they are prepared to share with their African counterparts.

All of this illustrates what is wrong with the World Bank, even aside from Wolfowitz’s failed leadership. Unlike the Chinese, the bank has too often forgotten the most basic lessons of development, preferring to lecture the poor and force them to privatise basic infrastructure, rather than to help the poor to invest in infrastructure and other crucial sectors.

The bank’s failures began in the early 1980s, when, under the ideological sway of President Ronald Reagan and prime minister Margaret Thatcher, it tried to get Africa and other poor regions to cut back or close down government investments and services. For 25 years, the bank tried to get governments out of agriculture, leaving impoverished peasants to fend for themselves. The result has been a disaster in Africa, with farm productivity stagnant for decades. The bank also pushed for privatisation of national health systems, water utilities, and road and power networks, and grossly underfinanced these critical sectors.

This extreme free-market ideology, also called “structural adjustment”, went against the practical lessons of development successes in China and the rest of Asia. Practical development strategy recognises that public investments – in agriculture, health, education, and infrastructure – are necessary complements to private investments. The World Bank has instead wrongly seen such vital public investments as an enemy of private-sector development.

Whenever the bank’s extreme free-market ideology failed, it has blamed the poor for corruption, mismanagement, or lack of initiative. This was Wolfowitz’s approach, too. Instead of focusing the bank’s attention on helping the poorest countries to improve their infrastructure, he launched a crusade against corruption. Ironically, of course, his stance became untenable when his own misdeeds came to light. The bank can regain its relevance only if it becomes practical once again, by returning its focus to financing public investments in priority sectors, just as the Chinese leadership is prepared to do.

The good news is that African governments are getting the message on how to spur economic growth, and are also getting crucial help from China and other partners that are less wedded to extreme free-market ideology than the World Bank. Many African governments at the Shanghai meeting declared their intention to act boldly, by investing in infrastructure, agricultural modernisation, public health, and education.

The Wolfowitz debacle should be a wake-up call to the World Bank: it must no longer be controlled by ideology. If that happens, the bank can still do justice to the bold vision of a world of shared prosperity that prompted its creation after the second world war.

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Chinese troops to Africa

Ornate gable ends of entrance to Chinese army barracks in Longzhou. 

The Washington Post writes about the decision by the Chinese Foreign Ministry to send a military engineering unit to help strengthen the overtaxed African Union peacekeeping force in Darfur:

[extract]

In recent weeks, the Darfur crisis has become particularly sensitive in China because of suggestions in the United States and Europe that people should boycott the 2008 Beijing Olympics to demonstrate opposition to Chinese policies in Sudan. China, which has deep economic and military ties there, has been widely criticized for failing to bring strong pressure on the government to persuade it to accept a large force of U.N. peacekeepers in Darfur.

The ties include large oil purchases and extensive arms sales, which the human rights group Amnesty International charged recently have been continuing despite U.N. calls for an embargo. Jiang, the Foreign Ministry spokeswoman, declined to respond to questions about the Amnesty charges. But she said China’s arms sales to Sudan are strictly controlled, include only conventional weapons and do not violate U.N. regulations.

What implications for a Chinese military presence in Africa?

Africa Frenzy Feeds China Stock Bubble

China & Africa - C Gavin Coates 

An interesting article from the Asia Times online, republished on Dust in My Eyes‘ blog.

Africa Frenzy Feeds China Stock Bubble
Asia Times Online: China Business News
China’s stock bubble can be traced to Angola

Mar 27, 2007

By Zhou Jiangong

SHANGHAI – In recent years, many Chinese enterprises, including listed companies, have flocked to Africa in the hope of “digging up gold” in this “uncultivated continent”. However, some of the huge investment projects may be too good to be true.

Hangxiao Steel Structure, a Shanghai-listed construction company based in Zhejiang province, is being scrutinized by investors and regulatory authorities because of its huge 34.4 billion yuan (US$4.4 billion) contract with the China International Fund (CIF), a Hong Kong company, for a housing-development project called Residents’ Heaven in the southwest African nation of Angola.

Emerging from the shadow of the “Black Tuesday” slump on February 27, China’s stock market is well back on track. Hangxiao Steel, with its African investment project, has poured a little fuel on the flaming market. It says the contract for providing steel construction products and services to Angola for the public-housing project is worth 34.4 billion yuan.

However, before the company made a public announcement on March 13 of the share-price-sensitive information, its shares soared past the 10% ceiling for six days (Chinese law restricts the price of a share from going up or down by more than 10% in a trading day). The stock remained buoyant for another four days before it was suspended from trading on March 16. A couple of big money players bought millions of shares.

Analysts, investors and, eventually, the government watchdog began to doubt the authenticity of Hangxiao Steel’s Angola contract. Indeed, to a small firm like Hangxiao Steel with annual revenue of 3 billion yuan, it sounds too good to be true: according to the contract, the sale of steel construction products is worth 24.8 billion yuan ($3.2 billion) and the company will be paid another 9.6 billion yuan for its construction services in 12 cities in the African country.

Hangxiao Steel, a construction company specializing in steel structures for shopping malls, stadiums, theaters and museums, does not seem to be capable of taking on such a huge project within two years.

The amount of Hangxiao Steel’s contract, 34.4 billion yuan, is equivalent to 4.1% of the gross domestic product of Angola for 2005. But the Chinese Embassy in Angola said it had no knowledge of the Hangxiao deal.

The China Securities Regulatory Commission (CSRC) has ordered the Shanghai Stock Exchange and Zhejiang provincial securities regulatory authority to investigate suspected stock-price manipulation and insider trading. So far the company has denied that its senior executives have bought or sold its stocks.

Rumors are flying about company restructuring, mergers and acquisitions. Even loss-making companies are said to become vehicles to accommodate new assets. Such talk can trigger wild jumps in value. Some market analysts even deliberately spread false information to project rosy profit pictures for those companies whose share prices are dominated by big market players.

Read the full article here.

Africa – March 2007 Round-Up

 Hluhluwe Park, South Africa - C  www.mmuspratt.com

These are the articles, posts and news-items that have caught my eye in relation to Africa over the last month. My main sources are Africa Unchained, Sociolingo, BlogAfricaMy Heart’s in Accra and Timbuktu Chronicles, amongst others…

African Update paints a portrait of the Mugame regime, backed by video evidence, before predicting its demise, while Stephen Chan gives a good analysis of the current situation in Zimbabwe on Open Democracy. A good, informed read, like most of Stephen’s stuff.

Issa G. Shivji, Professor of Law at the University of Dar es Salaam, discusses on Pambazuka News the changing nature of the development discourse in Africa over the last few decades.

Afrol News writes a really interesting article on Ethiopia’s continuing economic boom, which – unlike that of other African economic miracles like Angola or Botswana – is not attributable to oil or natural resources, but to ‘hard work, economic reform and investments in its people and infrastructure’. While IMF officials were quick to state that this ‘mainly comes as a result of implementing economic policies prescribed by the Fund’, the article rightly points out that it’s down to Ethiopia’s willingness to ‘invest in key sectors that empower the poor masses, mainly in education, infrastructure and agriculture’. A good example of this comes via Sociolingo: in the outskirts of Addis, Azmeraw Zeleke is turning burnt-out shells into cylinders used in coffee machines!

Again afrol News discusses the heavy price air-borne African exports are beginning to pay because of Europe’s increasingly populist green policies. Also at stake is the increasingly important tourist industry, at a time when more and more African countries are relying on tourism to earn much needed foreign reserves.

Henry Ekwuruke from TakingITGlobal argues on his blog that ‘funding is not a necessity for invention’. In fact, he says, ‘the need to adequately fund research without unfairly compromising invention and innovation, this is why money is such a complicated component of any scientific and technological development’.

Ethan Zuckerman writes on My Heart’s in Accra about the awe-inspiring talk given at the TED conference by former Nigerian finance minister Dr Ngozi Okonjo-Iweala: Africa, she says, has its fair share of problems, but it’s Open For Business, and the signs of an African Renaissance are beginning to be visible.

Akwe Amosu on Foreign Policy in Focus gives a good and in-depth overview of the China-in-Africa issue, and of the governance issue that lies at its heart.

Sociolingo writes about the 50th anniversary of Ghana’s independence, and reviews the comments and articles that have been generated across the web.

Timbuktu Chronicles reports on the imminent advent of solar-powered cellphones, which promise 20-25 minutes of talk time for a 40 minute charge in the sunshine. This phone could revolutionize the way Africans communicate and do business in an environment with unreliable electricity supplies.

The UNDP published (back in February, in fact) a highly critical policy brief on the impact on the MDGs of privitizing basic utilities in Sub-Saharan Africa (PDF): Privatisation has failed on several counts. Contrary to expectations, private investors have shied away from investing in such utilities in the region. So it has been costly for governments to motivate them to invest. Moreover, the focus of investors on cost recovery has not promoted social objectives, such as reducing poverty and promoting equity. Thus, current realities dictate refocusing on building up the capacity of the public sector. It continues to dominate the provision of water and electricity, and will do so for the foreseeable future. But a dramatic scaling up of both external and domestic resources will be needed to finance more extensive public investment in these sectors.

And finally, Kathleen starts getting excited about the PICTURE Africa project, which aims to learn how ICTs are affecting poverty in East Africa. Nice!

GlobaLab weekly round-up: 24/02/07-02/03/07

A whimsical image of the blogosphere from the edge of the core - via Datamining

This (late) update is a hasty one because over the last 2 weeks the real world is distracting me from the virtual… but this is what I collected from my feeds…

Africa

Middle East & North Africa

Globalisation debate

  • A couple of exchanges on Demos’ Greenhouse about a recent event they hosted with John Ralston Saul, a renowned philosopher, novelist, political penseur, who has provocatively pronounced the “end of globalism“. A quick scan, and it seems this provocative statement could simply be re-phrased as the rejection of neo-liberalism. Had he framed the debate in these terms, it would have sounded less plausible, slightly rehashed and probably less marketable than the grand statement above. But then, we all need to make a living.

ICT and creativity

International Development

  • Suzanne Smith on PSD blog puts an end to years of heated debates about the role of private finance investment in reducing poverty: ‘If you have ever doubted the importance of the finance sector in reducing poverty, a new paper will set your mind at rest. More finance sector development leads to more investment in tractors and fertilizers, leading to more food‘. If only we had more World Bank experts telling us children what’s right and what’s wrong, we’d all sleep better at night…
  • Meantime, always on PSD, new research reveals that privatization in 2005 has hit new records, with ‘transactions concentrated in China, Czech Republic, Hungary, Pakistan, Poland, Romania, Turkey and Ukraine and the top ten deals are largely in banking and telecommunications‘.

Russia

Environment

Corporat Social (ir-)Responsibility

Blog Babble and random weird stuff

GlobaLab weekly round-up: 10/02/07-16/02/07

February Woods (courtesy IL University)

More on the Africa and China debate

  • William Gumede on the Washington Post strikes another point against China in Africa, outlining why its antics are condemning the continent to a further period of underdevelopment…
  • … but receives a good response from Andrew Mwenda, who argues that the debate is misplaced, and calls for more trade to help the continent rise out of poverty. He makes an interesting point on the alleged ‘lack of conditionality’ debate: ‘arguments that Chinese aid is good or bad because it does not have conditionality is misplaced. Conditionality has consistently failed to work. A lot of studies on Africa have demonstrated this. What China is doing in Africa is not changing direction, but offering more of the same’. [both via Africa Unchained]
  • And Paolo de Renzio from ODI jumps into the debate, asking a simple, yet powerful question: ‘Amidst all the noise, however, the most deafening roar is that of China’s silence. Its silence on the vision it has for a different world order. Should the international community engage with China in dialogue at this higher level, rather than focus narrowly on good governance in Africa?’

South Asia

Environment

Russia

Innovation and Technology

The US in the Middle East

Economy and International Development

  • Much to the horror of debt-relief campaigners, the Guardian and the BBC report on a British High Court ruling, which allows British Virgin Islands-based Donegal International to sue Zambia for a $42m repayment for a debt that the African nation owed and which the company purchased at less than $4m (£2m). Oxfam urges campaigners to send an angry message to the company’s CEO.

Europe/EU

  • Edward Lucas lashes out not once, but twice from the Economist’s pages at Poland’s ‘pig-headed’ government led by the Kaczynski twins, depicted as ‘vengeful, paranoid, addicted to crises, divided and mostly incompetent‘. An unusually politically-savvy position for an Economist correspondent to take, given Poland has taken in a record $14.7 billion in foreign investment last year, and the economy is growing at almost 6% a year.
  • Eurozone reviews Germany’s 2.9% GDP growth in 2006, which has allowed the German economy to outgrow the US one in per-capita terms.
  • Clive Matthews/Nosemonkey reports on racial representation in the European Parliament (from a Guardian article stating that of 785 MEPs – representing 492 million people from 27 countries – just 9 are not white) and does an excellent round-up of the major European blogs, from debates on the future of the constitution to the French presidential elections.
  • Mariann Fischer-Boel starts warming up to her new blog-toy, reporting from her recent US trip where she discussed farm subsidies and the future of the WTO Doha negotiations: ‘My discussions in Washington showed that the Farm Bill will be written very much with domestic concerns in mind. DOHA does not seem to be high on the agenda in farm bill discussions. This is a very different approach to ours, where we reform first and then look to lock these reforms into a WTO agreement‘. Is my euro-speak rusty, or is the pot calling the kettle black?
  • And finally, for those of you who are wondering what happened to the oneseat campaign (which collected over 1m signatures to try and stop 200 million euros being spent every year to move the European Parliament between Brussels/Belgium and Strasbourg/France), read Nanne’s entry on trading seats and proposals to try and woo France’s bruised ego on the subject!

Graffiti on China’s Wall?

 

The Observer’s former editor, Will Hutton, continues his global marketing campaign for his latest writing feat, The Writing on the Wall (yes, yet another book about China), with a series of articles for the Globalist, including the End of the American Ideal? and China’s Corruption Challenge. His insights on the subject of China are not new. Back in 2003 he made the following, extraordinary prediction: Mao might be turning in his grave, but his country stands on the brink of a market-driven economic miracle. That’s probably about 10 years after the actual economic miracle had started (Lawrence Summers, while still at the World Bank, was already talking about the rise of China in these terms back in 1992 – for a good overview of China’s growth, I think Yingyi Qian’s How Reform Worked in China [PDF] is a good place to start, although suggestions are more than welcome).

In the article, Will takes inspiration from a recent WTO dispute between the US and China to address the issue of the country’s firm grip on the private sector, which has – amongst other ills – allegedly stymied creativity, reduced accountability and caused a first-order environmental crisis:

China’s problems all stem from this incapacity to let the puppet enterprises off the puppeteers’ strings and provide them with the institutional network that would permit more creative pluralism and endogenous accountability. The lack of such a network is the chief cause of China’s first-order environmental crisis. The pace of desertification has doubled over 20 years, in a country where 25% of the land area is already desert. Air pollution kills 400,000 people a year prematurely. Energy is habitually wasted.

Incidentally, the Worldwatch Institute has recently set up an entire area of research on China, aptly-named ChinaWatch, the only country to receive this treatment (although we all know that the real culprits of environmental challenges like global warming are others), and the one which the Western press seems to increasingly single out when it comes to naming and shaming the bad guys who are not doing enough for the world’s sustainability – possibly because of its growing economical and geopolitical power? Surely not…

But Will’s argument – contained in the book – goes beyond the environment, embracing China’s entire development strategy. His main points are summarized in an Observer Review:

Chinese growth is built on an unsustainable model – impossibly high levels of export growth largely driven by assembling half-completed imported goods, plus state-driven capital accumulation and cheap labour, with very low productivity, little technical innovation and the absence of an appropriate business culture or legal structure

While recognizing the economic, social and environmental challenges that China is facing today, and admitting straight away that I did not read Hutton’s book, I think he lets himself go to some easy generalizations, based on recurrent projections of Western norms onto China’s own path to development. Accusations of corruption, dirty business culture, or rogue relations – apart from hypocritical – are also significantly laden with social constructs about what is and what isn’t appropriate, socially, politically and – more to the point – economically. These are not constructs that China has contributed to shape, so why should it be abiding by the rules they dictate, especially when so many argue that they are there to ensure no one else climbs the development ladder?

On one area, however, comparison with the West is possible: that of scientific innovation and technology. Here, Demos’ recent review of China as the new science superpower takes a rather different perspective from Hutton’s doom and gloom:

The country is at an early stage in the most ambitious programme of research investment since John F Kennedy embarked on the race to the moon… Since 1999, for example, China’s spending on R&D has increased by more than 20 % each year. In 2005, it reached 1.3 % of GDP, up from 0.7 % in 1998. In December 2006, the OECD surprised policy-makers by announcing that China had moved ahead of Japan for the first time, to become the world’s second highest R&D investor after the US.

Judging by this alone, China does not look to me like the decaying industrial bubble about to burst Will Hutton is describing, but rather a country taking cautious steps in a well-managed plan of technological and industrial upgrading, not too dissimilar from the story of the early Asian tigers. Could it be that his – like many others’ – pessimist view of China’s rise to power hides a deeper concern of a Western (especially Anglo-American) world, disturbed by those aspect of globalization it cannot control, and perhaps concerned its grip on the world’s command levers might be slipping in favour of other countries?

Perhaps, instead of being so concerned about China’s rise to power, we should be concerned about the United States’ possible loss of power, since – as history teaches – kings never leave a throne without putting up a bloody fight first.