Lifting All Boats
Why China's great leap is good for the world's poor.
China’s economic juggernaut has forced the world to make room. For rich nations, it’s just a matter of adjusting their economic strategies. But how is China’s rise affecting poorer countries? Governments in Asia, Latin America, and Central and Eastern Europe watch the Chinese export machine and worry about keeping their manufacturing jobs at home. The anxiety is understandable, but a closer look suggests that China’s success will help, not hurt, most developing countries. The power of its economy — and the power of its example — will advance the fight against poverty.
Today, China has a lock on a large portion of the export market in North America, Europe, and elsewhere — markets that poor countries covet. This situation would spell trouble for many, but for the fact that China has also become one of the developing world’s best customers. Forty-five percent of China’s $400 billion in annual imports comes from developing countries, and these imports rose by $55 billion in 2003. Indeed, China runs a trade deficit with the developing world. Chinese demand for basic commodities (produced primarily in poorer countries) is so strong that it has pushed up prices for food staples and industrial raw materials such as aluminum, steel, copper, cotton, and rubber. For the millions of farmers around the world who depend on revenue from these products, the global price boom has come at just the right time, reversing decades of slumping prices.
China has also become the center of a virtuous regional trade cycle that benefits Asia’s developing countries. True, China sucks up vast quantities of raw materials, but four fifths of its imports are now manufactured goods, including office machines, telecom equipment, and electrical machinery. Neighboring countries are feeding the trade boom by exporting components and machine parts to China for final assembly. Korea and Taiwan have benefited the most, but the Philippines, Thailand, and Indonesia saw their annual exports to China shoot up by roughly 30 percent last year. Other regional production networks are developing, notably in automobiles and garments, so the gains from this trade will probably endure even if one sector lags.
China’s economic impact is powerful. But so too is its example. The country has become a showcase of what open markets can achieve. It is reinvigorating the debate on how trade can reduce global poverty. China already has a large agricultural sector relatively undistorted by the types of subsidies and tariffs found in the United States or Europe. Its free-trade credentials will only grow as it complies with increasingly stringent World Trade Organization (WTO) commitments. Global quotas on textiles and clothing, for example, disappeared on Jan. 1, 2005. If economic liberalization allowed China to post 9 percent growth over three decades and lift 300 million people from poverty during that time, then surely other countries can make significant gains by knocking down barriers.
The standard excuses for poor development performance — an uneven global playing field and exploitation by foreign investors — lose credibility when set against China’s record. And there are signs that the lesson is taking hold. China’s example was likely an important catalyst in India’s reforms and growth surge during the last decade. Latin American countries are starting to take notice: Chile and China are contemplating a free trade agreement, and Mexico and Brazil are sending high-level trade and investment missions to China. As China engages in free trade agreements with neighboring countries, Southeast Asia is likely to benefit even more.
During its communist heyday, Beijing often championed the cause of the developing world, at least in its rhetoric. Now, as a large, successful trader, China is in a far better position to put meaning behind its message, shaping the rules in the WTO and other international bodies to address development concerns. China is already active in the Group of 20, a forum in which rich countries and the largest developing countries exchange views. In many cases, China’s interests coincide with those of other developing countries, many of which look to China for support. For example, China wants to promote freer global trade in agriculture, a key concern of poorer countries. China might also add its voice to the chorus of developing countries that seek safeguards for their service sectors.
Of course, China’s rise does come at a cost for some. Those poor countries that rely on commodity imports take a hit as China’s demand pushes up prices. China is such an efficient producer of garments that it will likely dominate textile markets, now that the global system of quotas has disappeared. That scenario will hurt garment workers in such countries as Bangladesh and Cambodia, whose jobs and wages depend on protected markets. Maquiladora industries in Central America that export to the United States under preferential agreements are already exiting the market, fearing the coming competition with China. Similarly, the advantages conveyed to some of the world’s poorest countries through free-market access agreements with the United States and Europe will decline, as global trade barriers come down and efficient producers such as China begin to compete. Still, the benefits of China’s economic rise, and of a more liberal and fairer global trading system, outweigh the costs.
Decades ago, Japan, Germany, and South Korea showed the world how to develop with a strategy based on exporting manufactured goods. China’s rise may offer an equally compelling example of how open economies can spur rapid growth. For the developing world, it’s something to emulate, not fear.