Industry transfer to Africa good for all

Updated: 2015-01-20 07:55

By Justin Yifu Lin(China Daily USA)

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The core of the "One Belt and One Road" initiative, the creation of a Silk Road Economic Belt and 21st Century Maritime Silk Road, is infrastructure construction. China should also include Africa in the initiative and encourage the transfer of its labor-intensive industries to Africa.

This strategy would provide developing countries with a development boost and benefit China as well. Chinese enterprises must improve their quality, and the government can set up a foreign development cooperation department to coordinate the works of relevant ministries.

In 2009, the developed countries needed structural reform to recover from the financial crisis. But the reforms met considerable political resistance, as they would reduce consumption and expand unemployment. Conventional solutions, such as depreciating the currency and implementing an assistance plan, were of no use in overcoming that crisis. Therefore, increased investment on infrastructure construction by both developed and developing countries was the best option for not only boosting the growth of the investor countries, but also stimulating the exports of the other countries.

Developed countries' infrastructure needs renovation and improvement, and developing countries' infrastructure is mostly poor. It is more advisable for China to invest its foreign exchange reserves, which have mainly been spent on buying government bonds, on infrastructure construction. The returns will be higher.

At the G20 summit in Seoul in 2010, helping developing countries' infrastructure construction was listed as the first consensus of the meeting. China's "One Belt and One Road" initiative can now set a good example for the world.

The strategy is good for the stabilization and development of the world economy and China, as it has a large overcapacity in construction materials. The strategy can also improve the return ratio of China's huge foreign exchange reserves, promote export growth and make good use of the resources of developing countries.

Africa is of vital importance for China's foreign investment and economic transformation. China has a large-scale labor-intensive industry to relocate to new places, because the rise in labor costs is weakening its industry's comparative advantage. Such industry transfer has happened several times in the past century. But the transfer from China is on a much larger scale. China has about 124 million people working in manufacturing industries, 12 times that of Japan when Japan sought to move its industries to foreign countries in the 1980s. Only Africa has the space and labor to receive such a large scale industry. Africa has 1 billion people and a large number of surplus young laborers in the countryside, whose wages are only 10 percent to 20 percent of their counterparts in China.

The "One Belt and One Road" strategy's core task in Africa should be industrial relocation, and infrastructure construction in the other regions. The transfer of labor intensive industries can become a new way of development cooperation, which is complementary with infrastructure construction. The two can become supporting points for China's going-out program.

After World War II, developed countries set up many multilateral and bilateral development agencies, such as the United States Agency for International Development, the World Bank and the United Nations Development Program. But these agencies have not helped developing countries realize decisive development. Many developing economies have been caught in the middle-income trap, or even a low-income trap. Since the war, only Singapore and South Korea have become high-income countries out of 200 developing countries and regions.

The developed countries have finished the phase of labor-intensive industry and infrastructure construction. They can only transfuse "blood" to developing countries, rather than helping them form the mechanism for making such blood. A "One Belt, One Road and One Continent" strategy can help developing countries break the bottleneck of their development by introducing a "blood-making" mechanism to help them develop on their own.

The strategy has its challenges. In general, China's enterprises are not well prepared for going global. The Chinese authorities introduced the going-global strategy in 2001. But many enterprises have not been able to adapt to the political, financial, legal and social environments of foreign countries and regions. The government needs to provide more services to help the localization of Chinese enterprises.

Industry transfer to Africa good for all

(China Daily USA 01/20/2015 page12)