The rise of the Asian Drivers and the implications of Development Strategy

Raphael Kaplinsky

Development Policy and Practice,

The Open University

China’s growth is not unique..

Growth of exports

0123456

1 6 11 16 21 26 31 36 41Years from beginning of export surge

Lo

g o

f e

xp

ort

gro

wth

China (1989-2003) Japan (1960-2003) Korea (1963-2003)

GDP (constant prices)

1.5

2

2.5

3

3.5

1 6 11 16 21 26 31 36 41

Years from beginning of growth surge

Lo

g o

f G

DP

gro

wth

China (1989-2003) Japan (1960-2003)

Korea (1963-2003)

Share of Global Population

0

5

10

15

20

25

1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004

China India J apan Korea, Rep.

Vectors Direct Indirect

Trade

Complementary

Competitive

Production and FDI

Direct Indirect

Complementary

Competitive

Finance

Direct Indirect

Complementary

Competitive

Governance

Direct Indirect

Complementary

Competitive

Migration

Direct Indirect

Complementary

Competitive

And they may be direct or indirect

The drive to industrialisation

• Close association between incomes and industrialisation

• The terms of trade favour manufactures

UNIDO World Industrial Development Report 2009

Commodities-manufactures terms of trade

The drive to industrialisation

• Close association between incomes and industrialisation

• The terms of trade favour manufactures• Manufactures are (relative to agriculture) income

elastic and price inelastic• Synthetic substitutes for natural products• Manufacturing embodies rents – agriculture does

not• Manufacturing can be labour intensive – primary

commodities are very capital intensive

The orthodoxy

Manufacturing exports are key:

• Competitive effects

• Scale effects

• Learning effects

Distribution of MVA

   

Share of the World

 Share of

developing countries

By Income 1985 1995 2005 1985 1995 2005

S. and E. Asia 4.1 12.9 19.7 29.2 59.5 69.4

of which: China 1.4 5.1 9.8 10.2 23.6 34.7

Latin America 6.7 6.9 6.4 46.9 31.5 22.6

Sub-Saharan Africa 1.0 0.3 0.3 7.1 1.3 1.0

World Manufacturing Export Price, 1986-2000

-10

-5

0

5

10

15

20

25

An

nu

al

pri

ce

ch

an

ge

(%

)

IMF, World Economic Outlook Database

EU Imports from China

1st Q 2005/1st Q 2004 China Market Share in EU-25 Imports

Volumes % Price % 1 Q 2004 % 1 Q 2005 %

T-shirts 164 -26 7 17

Pullovers 534 -47 6 38

Men’s trousers 413 -16 6 35

Blouses 186 -24 6 22

Women’s coats 184 -18 6 10

Bras 139 -15 30 49

Socks and pantyhose

63 -22 30 54

Linen and ramie yarns

51 1 27 45

Linen fabrics 257 1 10 45

Source: Euratex data as reported by Nathan Associates

% of sectors with negative price trends, 1988/9-2000/2001

25.629.7

18.3 17.2

8.5

0

5

10

15

20

25

30

35

Low income China Lower-middleincome

Upper-middle-income

High income

% o

f se

cto

rs

Commodity Price Movements 1960-2008

0

50

100

150

200

250

300

350

1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008

Source: UNCTAD All Commodity Price Index, 2000=100

The Rise in Commodity Prices

Early 2003

Mid 2008

% Change

Food 100 269 169

Ores & Metals 89 392 340

Oil 90 470 422

All 100 300 200

UNCTAD Commodity Price Index 2003-08. (2000=100)

0

50

100

150

200

250

300

350

400

450

500

2003 2004 2005 2006 2007 2008

All Minerals & Metals Oil Food

Actual and projected global share of China’s consumption of base metals

0%

5%

10%

15%

20%

25%

30%

1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010

% o

f to

tal

Copper Alum inium Zinc Nickel Steel Iron Ore (Trade)

Source: Macquarie Mining

China's Share of Global Demand

8%

10%

12%

14%

16%

18%

20%

22%

24%

26%

28%

1995

1996

1997

1998

1999

2000

2001

2002

2003

% o

f to

tal W

orl

d

SteelNickelCopperAluminium

China's Share of Total World Growth

95%99% 100%

76%

68%73%

67%

51%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Steel Nickel Copper Aluminium

% s

har

e

2000-2003

1995-2003

Source: Macquarie Mining

China’s demand for agricultural commodities

• 20% world population, 7% arable land• Biofuels• Industrial inputs• 22% global rubber consumption (2006)• Imports 27mt cotton vs 7mt domestic production(2008)• Pork, other meat and animal feeds• Switch domestically from grains to fruit and vegetables

“…structural changes such as increased feedstock demand for biofuel production, and the reduction of surpluses due to past policy reforms, may keep [agricultural product] prices above historic equilibrium levels during the next 10 years….

Winners are: Brazil (sugar, oilseeds, meat) Argentina (cereals and dairy products) Russia/Ukraine (coarse grains) East and south east Asia (rice, veg oils, poultry)

Global outlook for the agricultural sector, 2007-2016 (OECD/FAO, 2007)

The Impact on Africa

Manufacturing for the domestic market

• SMEs in Ethiopian shoe industry

–28% bankrupt

–32% downsize

• SA Clothing and textiles

–Employment fell from 119,000 in 2004 to 87,000 in 2005

• Zambia’s Mulungushi mill

–Closure in 2007 with

What happens when Africa exports the same products as China to the USA? (2004-2006)

Exports from Value of Country’s exports

Value of China’s exports

AGOA -26 85

Kenya -5 113

Lesotho -15 171

Madagascar -26 108

Mauritius -48 104

SA -53 89

Swazi -24 136

Number of countries accounting for 90% of SSA Exports (excl SA)

0

5

10

15

20

25

Agricultural Materials Ore and Metals Fuels

SSA EXPORTS

SSA IMPORTS

CHINA IMPORTS

CHINAEXPORTS

SSA GAIN

SSA GAINSSA LOSS

SSA LOSS

Clothingfootwear

Hard commodities

Clothingfootwear

Oil All SSA

SA, Lesotho, Swaziland,

Madagascar,Kenya, Mauritius

Most SSA

Oil exporters, Zambia, SA, DRC, Botswana, Ghana, Gabon, etc

Slow Down in Global GrowthGDP Growth (% Change)

Source: IMF WEO January 2009

-4

-2

0

2

4

6

8

10

1970 1975 1980 1985 1990 1995 2000 2005 2010

Advanced Econ. Emerging & Developing Econ. World

The Fall of Commodity Prices

Mid 2008

End 2008

% Change

Food 269 184 -32

Ores & Metals 392 207 -47

Oil 470 147 -69

All 300 185 -38

UNCTAD Commodity Price Index 2003-08. (2000=100)

0

50

100

150

200

250

300

350

400

450

500

Jun2

008

Jul20

08

Aug20

08

Sep20

08

Oct2

008

Nov20

08

Dec20

08

All Food Minerals & Metals Oil

What’s in a Price Movement?Commodity Boom: A peak that is much higher than previous peaks.

The Cycle: Short Term, 2-4 years; a peak/trough to peak/trough

measurement.

The Super Cycle: Medium Term, 6-10 years; a prolonged trend rise over a

decade.

The Structural Break:Long Term; a long-run change in relative prices.

Commodities-manufactures terms of trade: What does the future hold?

2015 2030