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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
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)
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.