Transcript Chinese Soft Power: a window for development? - The North

Chinese Soft Power:
A window for development?
Daniel Poon, Researcher, NSI
“China and the World after the 18th NCCPC”
Raoul Dandurand Chair of Strategic and Diplomatic Studies
Montréal, Québec, February 21-22 2013
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Presentation Outline
• Understanding the Beijing Consensus (BJC): Three perspectives
• What’s unorthodox about China’s model of development?
• China’s rise: a window for development?
Burning Question: A transferable model? (to other developing
countries)
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Introduction
Two broad approaches to economic
reform
‘Shock Therapy’, Washington
Consensus (WHC)
Gradualism and pragmatism,
Beijing Consensus (BJC)
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Introduction
Put Another Way
Milton Friedman:
“To cut the tail off the mouse, don’t do it inch-by-inch. To reduce the
pain, the whole tail should be cut off at once.”
Governor of Sichuan Province (1993):
“My dear professor, our mouse has so many tails, we do not know
which one to cut first.”
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Understanding the BJC
Three Perspectives
Formerly a central banker with Bank Negara Malaysia and the Hong
Kong Monetary Authority, Andrew Sheng argues that to thoroughly
understand an issue, one needs to look at it from at least three
levels:
• From ‘30,000 feet’ up in order to understand the context and
relativity of issues;
• Then zoom down to ‘ground level’ to dig up the details;
• But then slowly rise to ‘3,000 feet’ to get a much clearer
macro-institutional perspective of the scale of the matter at hand.
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Understanding the BJC
From ‘30,000 feet’
Middle-Income Trap, Selected Countries, 1975-2010
Source: World Development Indicators
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Understanding the BJC
From ‘Ground Level’
Joshua Cooper Ramo (2004)
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Innovation-based development combining tech fixes with institutional innovations;
Economic performance not only measured by GDP growth, sustainability and equality also top
priorities;
Self-determination: globalization on China’s own terms, south-south soft power through
economic heft, balance US security-related capabilities.
Justin Lin (2008)
China’s incremental and experimental strategies for economic reform and pragmatic and gradual
liberalization have been unique and unorthodox. This approach has been piecemeal, partial,
incremental and often experimental. It has not been guided by a well-founded theory or
followed a pre-determined blueprint.
John Williamson (2012)
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Incremental reform, innovation, and experimentation
Export-led growth (and accumulation of large volume of foreign currency
reserves)
Authoritarianism.
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Understanding the BJC
From ‘3,000 feet’ – Macro-Institutional
Perspective
El-Erian and Spence (2008)
More accurate account of China’s approach to reform has been
described as a form of “model uncertainty”, in which:
• Leaders treat policy advice from advanced economy models with
great caution, which instils a form of pragmatism in weighing
risks,
• Leads policy-makers to take gradual and experimental steps in
areas such as the timing and sequencing of opening up the
current and capital accounts, as well as in proceeding with
export diversification.
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China Model: Unorthodox?
BJC at ‘3,000’ feet
China’s broad strategic approach to development follows a wellworn path taken by most developed countries:
• Like the East Asian tigers before it, China has violated “practically
every rule in the guidebook.” (Rodrik 2001)
• For example, “A notable feature of Asian-style globalization is that
it has had a two-track nature: many import-competing activities
have continued to receive support while new, export-oriented
activities were spawned.” (McMillan and Rodrik 2011)
• “Today’s China is the leading bearer of the mercantilist torch.”
(Rodrik 2013)
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China Model: Unorthodox?
Re-Visiting
the Impossible Trinity
Chinese policy-makers have operated away from the ‘hard
corners’ of the trinity, previously held to be best practice advice.
• Orthodox configuration: open capital flows, floating exchange rate,
independent monetary policy (inflation targeting)
• Unorthodox configuration: degrees of capital account management,
crawling peg exchange rate, degrees of monetary policy independence.
• As per “model uncertainty”, this configuration shields the
economy from volatile capital flows, while retaining greater
degrees of interest and exchange rate independence to steer the
economy.
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Chinn-Ito Capital Account Openness Index
China Model: Unorthodox?
Sequencing Capital Account Opening
Three Country Experiences, 1970-2009
(0 = Closed, 1 = Open)
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China
Bolivia
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China Model: Unorthodox?
Investment-led Growth (1)
Source: Lardy 2006
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China Model: Unorthodox?
Investment-led Growth (2)
The single area in which Chinese economic policy has diverged most consistently
from the advice given to China by the IMF or the WB has been in the area of
investment.
Economists repeatedly warned the Chinese government that it was investing
too much in the aggregate, and investing in inefficient or perhaps unnecessary
projects that would turn out to have low rates of return.
State-owned financial institutions were identified as the institutions facilitating
frivolous and wasteful investments.
The Chinese government, in practice, has consistently ignored these
recommendations. … Yet China’s incredible growth in the 2000 decade has
retrospectively validated this high investment policy. (Naughton 2010)
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China Model: Unorthodox?
Sectoral Industrial Policies: Renewable Energy
Source: Dewey & LeBoeuf LLP (2010)
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A window for development?
A Different Partner? Trade
Source: Financial Times and Standard Bank.
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A window for development?
A Different Partner? Investment/Loans
Source: Financial Times.
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A window for development?
A Different Partner? Policy Approaches
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China and other emerging economies do not insist on policy conditionality relating
to what constitutes sound economic policy norms and practices. Instead, these
countries generally engage in non-policy conditionality – such as tied-aid.
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Anecdotally: China willing to invest in ‘un-economic’ projects. Ex: 2010 agreement
to spend $23bn to build oil refineries and other infrastructure in Nigeria as part of
China’s efforts to secure 6bn barrels of crude oil reserves. Nigeria, Africa’s leading
energy producer, imports nearly all of its refined fuel, domestically subsidized at a
cost of $4bn, equal to about the government’s entire capital spending budget.
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Free trade agreements (FTAs): China’s bilateral FTAs generally focus more on
WTO’s “old trade agenda” of market access. This is in contrast to the “new trade
agenda” which is focused on deregulation, liberalization of services, investment,
and stronger protection of intellectual property rights. (Wise 2012)
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Not benevolence. China’s engagement abroad is an externalization of its own
modernization experience of the past three decades (focus on investment in
productive capacities, infrastructure, SEZs, role of state) = limited window.
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A window for development?
A Different Partner? One Point of View
Ngozi Okonjo-Iweala, Finance Minister of Nigeria (2006)
“China knows what it means to be poor, and has evolved a
successful wealth creation formula that it is willing to share with
African countries. … China provides an alternative viewpoint, a
fresh approach that diversifies and enriches the spectrum of Africa’s
interlocutors. For that reason, China should be left alone to forge its
unique partnership with African countries and the West must simply
learn to compete.”
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The North-South Institute thanks the Canadian International
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grant to NSI.
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