Is China a Developing Country?

Is China a developing country? With all the hype about China's rapid rise, many seem to believe that China is now a "developed" country, like those in North America and Europe, and should follow the same rules as the rich countries. Steven Pearlstein put the case recently in the Washington Post:

As a developing economy, it was entitled to a grace period from the normal rules of global commerce as it transitioned from state control to open markets. But with China's extraordinary success, its grace period has now run its course.

The normal rules would mean things like allowing its currency to float freely, liberalizing trade, or adhering to the rules and regulations developed by the Organization for Economic Development and Cooperation, the club of 30 industrialized countries established in 1960 that has welcomed a handful of formerly "developing" countries since then, including Mexico (1994), Korea (1996) and Poland (1996).

But what makes Pearlstein think that China's extraordinary success has now brought it out of the developing country category?

According to the World Bank, developing countries fall into either "low income" or "low middle income" or "high middle income" categories, when their total national income is divided by their total population to give per capita gross national income (GNI). The most recent data we have on GNI is from the World Bank, for 2008. Country groups (below) were based on the 2008 categories.  

Country Groups

• low income, $975 or less (Mozambique: $380, Zambia: $950)

• lower middle income, $976 - $3,855 (India: $1040, Nigeria: $1170, China: $2940)

• upper middle income, $3,856 - $11,905 (S. Africa: $5820, Malaysia $7250, Mexico: $9990)

• high income, $11,906 or more. (S. Korea: $21,530, USA: $47,930, Norway: $87,340)

According to this, China's extraordinary success has merely brought it to the top of the list of lower middle income countries. Many argue that China's exchange rate is undervalued. If we add 40% to China's GNI, which would bring it to $4116, the per capita figure still remains squarely in the middle income range. Although China is close to upper middle income, it is not anywhere near being a high income country.

Several years ago, Cambridge economist Ha-Joon Chang wrote a prize-winning book with the provocative title Kicking Away the Ladder. Chang's argument is that historically, as today's wealthy countries became rich, they used extensive state intervention. However, after they have climbed up that ladder, they "kick it away" by insisting that developing countries follow free market principles.

Less polemically, given China's still low-middle income economy, it is not surprising that all kinds of standards in China are also still low, even though in labor, environment, and safety, the government is starting to push standards up the ladder. We are starting to see a trickling down of the new rules and rhetoric on standards even in some of China's proposed projects overseas. Advocacy to increase this trickle is a great idea. But keep in mind that China is still a developing country, with standards and policies that reflect this status. It's not Norway, or even South Korea.

China's Africa Land Grab Myths Part II: The (Non-Existent) $5 Billion Fund

Is "China" actively seeking land in Africa to grow food, presumably to ship back to China? This is the assumption behind much of the reporting and blogging on this topic. Yet as I have pointed out in The Dragon's Gift, as well as a September 2009 article in China Quarterly, there is (as of yet) almost no evidence to back this up.
Yesterday I read Howard French's new Atlantic Monthly article on China and Africa: "The Next Empire". It is beautifully written, with Howard's distinctive voice and insight. Yet in saying that "Beijing had earmarked $5 billion for agricultural projects in Africa in 2008, with a focus on the production of rice and other cash crops" I think Howard included one of the urban myths (if we can call it that) about Chinese rural engagement in Africa that circulate around the internet.
The source of this story is almost certainly a 2008 report by a Liberian journalist on the visit of a delegation from the China-Africa Development Fund to Liberia. The journalist reported that China had "earmarked $5 billion" for the production of food and cash crops in Africa. But this was a big mistake.
Stephen Marks took up the Liberian report in a story he posted for Pambazuka in 2008. Marks pointed out what China-Africa watchers already knew: the $5 billion China Africa Development Fund (CADF) is an equity fund for Chinese investment in Africa, in all sectors, announced at the Beijing Forum for African leaders, in November 2006. Since then, CADF has been sending teams to almost every country in Africa, including Liberia, to scout out developmental investment opportunities in manufacturing, power plants, and so on. Very little of CADF's investment has gone to agriculture.
As Howard's article notes, on June 30, 2008, China's Economic Observer published what has become the centerpiece of most stories on China's overseas farming plans. This June 30, 2008 story on policy discussions in China was intriguing (and looks authentic), but as the original notes, the report is very tentative. There is ample evidence about Chinese interest in investing in agriculture in Latin America (soybeans in Brazil) and in Southeast Asia (mainly oil palm). But in Africa, although Chinese investors have been exploring farming opportunities in several countries since 1990 (and investing in some, such as Zambia), hard evidence for large, new Chinese farming ventures or farmer exports just isn't there.
Instead, what we are seeing a lot of is an innovative model that combines aid and Chinese agribusiness. As in Mozambique (the subject of a forthcoming post), this experiment tasks Chinese companies with finding a profitable, income-generating activity that can allow them to sustain demonstration centers, 20 in total in Africa, showcasing new agricultural technologies and providing technical training. Are these centers the leading edge of a new land grab? I don't think so. They're far more likely to be the leading edge of China's new multinational agribusiness companies. This could be worrying for other reasons (what about GMOs? controversial hybrids?). But that's a separate issue.

The List of Zero-tariff Products is Now Here!

The tariff list is finally public. What is this list and why is this important?

In 2003, Chinese leader Wen Jiabao pledged to give tariff free access to an unspecified number of exports from Africa's least developed countries (LDCs). At first, 190 products were covered. In November 2006 (at the Forum on China Africa Cooperation Beijing summit) the Chinese promised to increase this list to 440. But it has been impossible for most people (like me) to get a list. Now Jeremy Stevens and Simon Freemantle at Standard Bank's Economic Research Group have published (courtesy of China's Ministry of Commerce and Beijing Axis) the full list of 454 product lines for which China is giving tariff-free access to African LDCs. (I received it as a pdf file, which I can't find a way to post here, but you should be able to get the list by registering at the Standard Bank site highlighted above.)

At least three-quarters of the products are industrial goods: vehicle spare parts, bicycles, soap, plastic products, leather wallets, cotton fabric and t-shirts, umbrellas, ball-point pens, table lamps, refined copper products, diesel generators, and fish hooks among them. There is a clear correspondence between these items, and China's domestic restructuring plans. As I note in The Dragon's Gift, China's government wants its companies at home to move up the value-chain. Just a few weeks ago Guangdong province announced that it was raising provincial level wages by 20 percent. The products on the list are mainly from entry-level industries that Chinese planners would like to move beyond.

African governments that want to foster manufacturing investment now have a list of products for which they might offer their own incentives. Some Chinese companies will be looking to relocate to Africa in order to export back to China, duty-free. Other Chinese firms in Africa are already producing products like sesame (Senegal) and plastics (Nigeria) and spun cotton/synthetics (Mauritius). Some have Chinese markets in mind. But African companies can equally benefit from strategic targeting of their products to the Chinese market. At the same time, it's clear that a lot of compromise went into this list and not all LDC African manufactured products are eligible. Decaf roasted coffee is on the list, but not regular processed coffee, for example. There are a few other surprise products, including dental fittings, electric alarm clocks, and bow ties.