Through pragmatic and effective market oriented reforms, China has been able to lift over 300 million of its people out of poverty in the last 30 years, an economic achievement no other country has accomplished in the past. This was disclosed by Professor Bala Ramasamy, professor of Economics at China Europe International Business School (CEIBS) in an evening of Strategic Conversation on the topic: Enter the Dragon: Policies to Attract Chinese Investment, at the CEIBS Africa Auditorium in Accra, Ghana on Monday 19th May, 2014.
On how China was able to do this, Prof Bala referred to the famous saying of the former Chinese Premier Deng Xiaoping, the architect of Chinese economic reforms, “crossing the river by feeling the stones” to describe the gradual , experimental way reforms were implemented. These reforms according to the professor were aimed at balancing growth??with social??and economic stability. A mix of fiscal, administrative and employment creation policies were introduced??and local government officials were rewarded for delivering on key reform goals: growth, Foreign Direct Investment (FDI), employment and social stability.
Professor Bala further explained that other factors that aided China’s growth??include domestic market integration, removing regional barriers to the movement of goods, labour and capital, and China’s steady integration with the global economy by joining the WTO and the establishment of special economic zones. He further mentioned that favourable external environment with rising inflows of FDI, steady growth in emerging economies, the introduction and spread of ICT all helped accelerate growth in China.
The next challenge for China, the professor stated is escaping what he described as the middle income trap. How to increase the GDP per capita from the middle income status often described as between $5000 – $10,000 USD to higher income status of around $24,000 USD. In the past 60 years only two countries, Japan and South Korea have been able to do that.
According to Prof. Bala global megatrends continue to favour China’s economic growth. The continuous shift of the growth pole from advanced to emerging economies, the expansion of the global middle class, the expansion of the service sector,??continuous technological breakthroughs, and the internationalization of the RMB (the Chinese currency) are all factors that will help China’s economic growth.
Prof Bala however sees growth in China eventually slowing down because of an ageing population causing lower savings and investment, rising labour cost which will erode the comparative advantage in manufacturing China has enjoyed and eventually increase the cost of services. “As growth slows and the GDP growth declines, Chinese trade surplus will decline and capital account will show a rising deficit as Chinese savings flow abroad in search of better returns”, the professor stated.
Analyzing the results of a study of over 140 senior Chinese managers who are decision makers in where their companies invest abroad, he disclosed that South East Asia remains the most preferred location for Chinese investment. The factors that are considered the most important on where to invest by Chinese businesses are the size of the market and the economic growth rate of the country. Zeroing in on factors that policy could have an immediate impact, the study revealed that Chinese companies would like to invest in countries with relatively less corrupt business environment contrary to general belief.
Other factors like the availability of advanced technology, good diplomatic relations with China, the existence of trade agreements with China, attractive tax havens etc are all important considerations to attract Chinese investment.
The lecture was attended by several CEOs from both the private and the public sector, officials of the Chinese embassy in Accra, officials from several African embassies, the Ministry of Trade, Ministry of Foreign Affairs, Ghana Investment Promotion Council, and a number of entrepreneurs from Kenya, Burkina Faso, Nigeria, Cameroon and Liberia.
Source: Ben Ofosu-Appiah