Analyse the Positive and Negative Influences of China Going Out

Assignment Task

Question

Analyse the positive and negative influences of China’s ‘going out’ since the turn of the century on world development. Is it possible to reach a conclusive judgment on the impact overall?

Include graphs of

1) China’s outward FDI from 2000-2021

2) China’s OFDI share in countries (that is countries where it invests the most)

3) China’s merchandise trade (exports and imports to high income economies and low and middle-income economies in one graph)

Tentative Outline

1. Introduction: talk about how China’s growing international trade and FDI (especially outward FDI) have increased. How China has a considerable chunk in the world GDP, and world exports. Why did China go out? 

1. Within the Neoliberal globalization set-up - increasing financialization - in the context of China and the rest of the developing world. How China has a lot of productive investment as compared to others. Financial flows mostly in the form of lending bank loans to other developing countries.

2. Positive influences (China’s FDI for building infrastructure) Take the example of certain countries like Angola, Rwanda. How economic growth and development have increased in the host countries receiving Chinese investments.

3. Overcrowding and undercutting - negative influences (labour-related?)- the impact of China’s going out on the rest of the developing world.

4. Conclusion - Taking into account the overall picture of world development, in so far as there is trend of stagnation in the progress of industrialisation and economic development in developing world outside China. The main cause is the worldwide trend of neoliberal globalisation. Much more negative impact of China’s going out. However, Diverse views - possible or not to have a judgement. The dominant trend is China countervailing influence vis vis neoliberal globalisation.

Shanghai effect (bringing in the Chinese know-how) vs California effect (stringent labour laws?) Whether China has increased or decreased the space for development in the rest of developing world. Has to be seen in the context of neoliberal globalisation- the rising of speculative financial activities - capital on the world scale - to become increasingly associate themselves with productive activities. 

Note -> Use examples of Latin America, Sub-Saharan Africa or Africa in general.? Talk about China’s policies like BRI and its importance in Chinese OFDI.

Has the exports of the developing nations changed because of China? – like in Africa – add this as well. And how things changed within the country as well. Like how their labour practices, manufacturing or domestic enterprises have changed.

Introduction

China’s economic growth has been unprecedented since the turn of the century. With a growth rate of 8.1 per cent in 2021, China has become a ‘model’ for other developing nations for becoming one of the biggest world economies.

China international trade. China’s inward FDI -> exporting low-cost manufactured goods.

China has been the largest recipient and exporter of Foreign Direct Investment over the years.

China OFDI increased since the turn of the century with it peaking in 2016 and then gradually remaining more or less constant.

OFDI was initially dominated by State-owned enterprises.

China’s going out policy was initiated in 1999 to push for investments abroad. China joined the World Trade Organisation in 2001 and since then it has slowly incorporated itself into the world economy.

Reasons for going out

China has a huge amount of foreign exchange reserves [state the number], thus putting upward pressure on the foreign exchange rate of the renminbi, the Chinese currency. Floating the PRC's currency has been highly demanded by the international community. By acquiring assets overseas, the PRC attempts to deflate that demand.

It was also because China joined the WTO in 2001 and to equip domestic firms with experience and be competitive internationally.

China’s systematic impact on world development is therefore crucial to understand since it is one of the world's biggest economies, and its integration into the world market since joining the World Trade Organisation in 2001 has been of a sufficient degree to generate a strong impact on different parts of the developing world. China roughly accounted for 25 per cent of the world total in economic growth between 2000 and 2018. China also accounted for 60 per cent of the growth of industrial output of the developing world and roughly 30 per cent of the world total. Hence, China’s impact cannot be overlooked.

China’s impact on the overall world economy can be assessed in the form of international trade, inward and outward Foreign Direct Investment (FDI), financial flows and varieties of policy initiatives such as the Belt and Road initiative and the formation of Asian Development Bank and Asian Infrastructure Investment Bank.

China’s exports have increased massively since the 1990s with it being the biggest recipient of the FDI just behind the US for several years.

A Chinese phenomenon is the great commodity boom. Because of the massive imports by China of all kinds of primary commodities, minerals and agricultural produce which led to the rich commodity boom and coupled with China’s massive expansion in exports of low-cost manufacturing goods, China was able to become one of the biggest economies.

China’s outward FDI, which was inconsequential at the turn of the century has gained predominance/expanded and even surpassed the inward FDI in 2016.

China has been majorly exporting labour-intensive and capital-intensive manufactures in exchange for importing mostly primary commodities from the rest of the developing world.

Characteristics of China’s going out

OFDI – In terms of direct investments, State-owned enterprises (SOE) have had the majority of the share of OFDI followed by non-state enterprises.

The SOE have come to invest in parts of developing countries that might be seen as too risky. They aimed to build infrastructure, electricity and transportation facilities.

Disadvantages

Impact of China’s ‘going out’ on the rest of the developing world. 

1. Market competition between Chinese manufacturers and the rest of the world (developing and developed) - reinforcing the trend of deindustrialisation

2. Primarisation - Rich commodity boom caused by china’s imports - inducing developing countries to concentrate their resources in the production of commodities rather than investing in industrialisation.

3. Under-cutting : perception that cheap manufactures from China have been the outcome of super exploitation of cheap labour in china . therefore producing cheap manufactures. Hence, forcing the rest of the world to cut back on labour compensation and labour protection to sustain competition from China. 

In view of China’s expansion of international trade and investment in rest of the developing world, there have emerged large number of studies trying to ascertain the impact of China’s going out on the development of the rest of the developing world. Existing literature has studies which are critical of China’s impact. 

• Crowding out : China has been reinforcing the trend of de-industrialisation in the rest of the developing world through the crowding out effect that is China’s manufactures outcompeting and therefore suffocating the manufacturing industry of the other developing countries - entering the domestic markets and exerting high pressure on the domestic industries of the country
• Primarisation: China’s import of primary commodities have pushed up the prices of the commodities and through profit incentive has induced the developing countries to specialise in primary commodity production.

The studies focus on particular country, region or sector and it is necessary to see whether or not the same pattern exists at the systematic level. 

Hence, the trend of de- Industrialisation in rest of the developing world- although it has not been reversed, it has not worsened at any rate since 2000 - if we see it in terms of world shares of manufacturing exports and world shares of manufacturing value-added, between rest of the developing world and China - it has not worsened. 

China has massively out-performed the rest of the developing world. This is the most at the relative sense, China has made quick progress in industrialisation in comparison with rest of the developing world. 

Chinese industrialisation has taken place at the expense of the advanced countries rather than the rest of the developing world. 

In absolute sense, we cannot say with certainty that China has been coercing deindustrialisation in the rest of the developing world. 

• Another thesis developed in the literature is Undercutting - Chinese labour undercutting the working class of the world as a whole - through a process ‘race to the bottom’ - labour cost in China is so low -> leading to Chinese exports being competitive -> exerting heavy pressure on the industries of the rest of the developing world -> forcing them to cut back on the labour cost. The countries have to compete on cutting back their labour costs. 

Productivity growth in China has been exceedingly fast since the turn of the century. It can therefore be said that the export competitiveness of the export manufactures is based on productivity growth rather than rising work intensity/labour exploitation

What has caused the fast productivity growth in China which provides both the foundation for export competitiveness and also the foundation material for the fast growth in the wage rate.? Immediate cause for productivity growth is productive investment -> replacement of the old machines with the new ones, typically higher technology -> 

Dutch disease argument - centered around the problem of incentive - profit-seeking firms will tend to focus on commodity exports rather than to promote industrialisation. (neoclassical theory)

(dependency school theory) - focus on outflow of economic surplus as well as the lack of incentive to invest - before turn of the century, there was a trend of worsening terms of trade of developing countries -> led to the outward flow of savings ie investable surplus from the developing world to the advanced countries. -> undermining developing countries ability to invest in industrialisation. This is no accident. Theory states that this is associated with political economy. 

Brazil was a major exporter of commodity - iron ore to China and receiving huge income - but the income has not been used for industrialisation – 

From POV - Classical political economy - focus is on the creation and distribution of value. We need to see China’s role in the creation of value for the world total and China’s acquisition of the share of the value in order to come out with a more comprehensive picture on China’s impact on the world development. 

Will other developing countries grow at a faster pace of industrialisation had China not ‘gone out’? China driving out manufactures of other countries like India, Brazil, Argentina from the advanced countries and china’s product competing in the home market and competing with domestic manufactures. 

We need to look at broader world context. 

Indices of per-worker real GDP graph - Chinese economic growth and export competitiveness have been mainly based on productivity growth which is per worker real GDP that is labour productivity 

Wage growth far out pacing the productivity growth 

Previous year report says ILO Wage report shows the miserable performance of the developing and developed countries in relation to wage stagnation.

Wage growth has been in a state of stagnation - in both developing and developed 

China - wage growth substantially behind growth of labour productivity. China is the only exception with wage growth exceeding productivity growth. 

What Would Have Happened To The Industrialisation Of The Rest Of The Developing World Should China Had Not “Gone Out”

-> Washington consensus - reforms have been implemented all over the world in a systemic scale in the era of globalisation - general move towards the market - policy reforms - to make capital move around freely to diff industries;sectors/countries for high profit . relocation of polluted countries from advanced to developing countries 

Incorporation of workers that were outside the world market into it. 

So basically talk about how globalisation -> and with the implementation of these reforms -> resulted in the emergence of global labour market -> implication of these reforms??? Allowing capital to move freely across the world to pursue profit leads to financialisation -> rising predominance of speculating financial activities in the world economy -> 

Financialisation (undermines productive investment and hence economic development) has led to displacement of productive investment or crowding out of productive investment -. Leading to undermining the ability to generate profits. Theoretically -> unsustainable but practically it has sustained the cause of incorporation of productive resources at low cost into the system. 

Therefore in this context we can see that China has been a productive economy with a high rate of production and investment – the biggest trading economy and productive investment -> China’s industrial sector bigger than US and japan - and its going out is mainly an expansion of the productive activities in the rest of the developing world. 

Advantages

Chinese construction machines sold in sub-saharan africa typically half of the price of the machine from germany/japan. 

China’s FDI investing in infrastructure, building of roads, railways, electricity, port facilities. Studies show that this kind of investment has an effect known as linkages. That is inducing the development of some related industries in developing countries. For example, in the production of cement, infra requires building materials and hence industries will crop up of this kind. 

China’s FDI - linkages - inducing the formation and development of related industries in the developing countries 

Since 2010, China’s massively re-located industries away from China to other developing countries cos of rising labour costs domestically and trade friction with the advanced countries. 

It is not just labour intensive industries moving to Vietnam, Cambodia and Bangladesh, Ethiopia but also capital-intensive industries. For example, China had the biggest steel industry in the world and caused trade friction with advanced countries and hence relocated the production capacity of steelmaking to countries like South Africa. These activities have the opposite effect of the crowding out effect. 

Dominant trend of world development -> is a process of Neo-liberalistion -> policies - policy doctrine - Washington Consensus - 1. Market liberalisation (liberalisation of foreign trade), privatization

 of public assets services 4. Financial liberalisation in particular external finance that is cross border capital flows. Policies adopted universally by the developing countries under the influenc of advanced countries. 

The structural adjustment programmes of the World Bank and the Stabilization policies of the IMF - Overall objective was to give max freedom to capital for free movement across diff countries in pursuit of higher profit returns and hence focus on liberalization

Pre-condition is to make productive assets tradable in the financial markets with also make the ownership tradeable in the financial markets. To securitise the ownership. 

Financial liberalisation resulting in financialisation of the world economy that is speculative economic activities becoming dominant influences on all kinds of economic activities so much so that the productive investment firms also been heavily involved in speculative activities. 

Eg: New Economy business model -> Instead of investing in research and dev, earnings are gone into speculative activities such as buying back of shares, leading to stagnation of economic growth in the advanced countries

Financialisation theoretically is unsustainable because it crowds out productive investment, it worsens the income distribution. But it was actually sustained for a prolonged period of time because of globalisation- that is absorbed the productive inputs from the rest of the world into the system - like Chinese labour not being able to be incorporated into the world market - workers actually working for the world market multiplied by four times btw 1980 and 2005 as estimated by the IMF. Chinese peasants becoming migrant labourers working in the labour intensive export oriented industries producing for the world market. Labour from the developing world developing a situation called Lewis Model. Labour demand exceeding labour supply - Lewis Model - and the outcome was the stagnation of wage growth. This is the overall picture  Chinese labour serves as a countervailing force against neoliberal financialisation because china wage rate has been been growing fast. 

China’s investment in Africa and LAC

China has established good trade relations with both Africa (esp sub-sahran Africa) and Latin American and Caribbean countries (LAC). We can talk about the railways, hydropower projects, the infrastructure projects. Key Chinese actors in sub-Saharan Africa and LAC are the Chinese state-owned enterprises (SOE) which play a crucial role in both regions in terms of Chinese FDI and construction contracts. SSA has seen more involvement of private Chinese players than the LAC because they view the SSA region as a more profitable venture with more opportunities.

• China has given out huge loans to these regions which are repaid through the sales of commodities essentially oil. Basically, China’s economic involvement in both regions can be analyzed in terms of strategic diplomatic, strategic economic, and commercial interests

Diplomatic Objective

• A key diplomatic obj of China has been to gain recognition of Beijing as the sole legitimate representative of China under the One China Policy. As of 2018, only 1 SSA country, and 9 LAC countries still have diplomatic relations with Taiwan.

Economic Objective

• The most important strategic economic objective for China in both regions is to secure supplies of raw materials (majorly oil from both regions (SSA more important)). This relationship has played a role in reducing china’s dependency on the middle east for oil supply. LAC is an important source of agricultural products for china.
• To expand the market for Chinese exports. This has been more important in LACs than SSA because of the market size. According to WTO, China has made considerable efforts in ensuring that LAC grants it market economy status, however, several LACs haven’t done so.

Commercial Objective

• The commercial interest of Chinese firms have played an important role in the growth of SSA and LACs. As a result of the excess capacity and increased competition in china, a number of Chinese companies have expanded in the SSA because of the perception that there are more opportunities and less competition than in china. (under cutting labour)

Impact of China in SSA and LAC

Economic Impacts

• Both SSA (fuel and minerals) and LAC (fuel, minerals and temperate agricultural products) benefitted from exporting to China.
• SSA benefitted from increased infrastructure built by Chinese firms in the region (notwithstanding complaints about the quality of some Chinese projects). LAC has experienced limited infrastructure
• As a result of the low level of technological development in SSA, SSA has gained more technological transfer from China than LAC, as well as the importation of cheaper Chinese equipment.

Less Beneficial Impacts

• In SSA much of the increase in imports of manufactured goods from China has been at the expense of imports from other countries
• LAC has felt the impacts of Chinese competition more strongly because of its higher level of industrialization,
• For African countries that had no substantial manufacturing sectors before Chinese imports began to grow, the impact of Chinese imports has made it difficult to get domestic production started.

For LACs and African countries that had substantial manufacturing sectors before Chinese imports began to grow, the impact of Chinese imports has led to the displacement of existing producers and job losses.

Social Impacts

• In SSA, there has been complaints about the use of large number of Chinese workers in the region as against the use of local workers. This isn’t the case in LAC because they have stricter work-permit controls.
• Sequel to the above, in SSA, the concern is mainly focused on Chinese workers taking jobs that could be filled by Africans, however in LAC, the focus is much more on imported Chinese goods displacing local manufacturing employment.
• Concerns over low wages and poor working conditions in Chinese firms by both regions
• Environmental impact What does China want in Africa?Resource extraction (rare minerals, oil, LNG) to fulfil domestic & industrial consumption
• Fully employ Chinese labour, akin to Chinese migration for railway construction in 19 ^th century California
• Advantages of backwardness as a testing ground to increase the global relative size of Chinese SOEs: e.g., China State Construction Engineering, 9 ^th largest global company
• Geostrategic interests (Djibouti Port, avoid maritime bottlenecks, etc.).

Conclusion

The question of whether China’s going out policy changed the way developing countries trade? China getting them in debt trap? But China does not enforce nations to accept their investments.

This Arts and Humanities has been solved by our PhD Experts at My Uni Paper.