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ECONOMY Learning from China’s industrial strategy

ECONOMY Learning from China’s industrial strategy

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China is a practical example of how an economy can grow from the ashes of nothingness to an industrial Brobdingnagian.

It is the third largest economy in the world after the United States and the European Union, with an estimated gross domestic product of over $12 trillion.

Its economic strength cuts across various sectors, including manufacturing, technology and infrastructure, which have not only improved its economy but also expanded investments in other emerging countries, including Nigeria.

In 2018 alone, its trade volume into Africa hit a record high of $204 billion, according to the country’s official data.

Chinese President Xi Jinping has also announced $60 billion in loans and other financing at a Beijing conference with African nations, three years after pledging a similar amount.

But China has an age-long history of being one of the poorest countries in the world, with over 200 million of its citizens living in abject poverty.

The World Bank says that more than 850 million Chinese people have been lifted out of extreme poverty due to economic reforms, with poverty rate falling from 88 percent in 1981 to 0.7 percent in 2015.

The country’s spectacular performance became a prominent feature of post-1980s economic reform process that saw its share of global merchandise exports increase from 1.8 percent in 1990s to 3.9 percent in 2000, to about 13.2 per cent in 2017.

In the early 80s, the Chinese government announced an industrialisation policy that would reduce state-owned influence on the production and ownership of goods and services so as to allow private flow of capital across all sectors of its economy.

Prior to the mid-80s, the state sector accounted for about 70 percent of output. However, by 2002, the share in gross industrial output by state-owned and state-holding industries had decreased with the state-run enterprises themselves accounting for 46 percent of China’s industrial output.

As a result of the economic reforms that followed, there was a significant increase in production by private entrepreneurs and foreign investors,

Since the period, the trend away from the agricultural sector toward industrialisation has been dramatic, and is a result of both policy changes and free market mechanisms. During the 1950s and 1960s, heavy industries received most attention and consequently grew twice as rapidly as agriculture. After the reforms of 1978, there was more attention to the agricultural sector as well as a move towards light industries.

The policy of reform and opening-up has given extensive scope to the common development of various economic sectors. Individual and private industrial enterprises and enterprises have mushroomed with investment from outside mainland China.

Domestically, modernisation and economic growth have been the focus of the reformist policies introduced by Deng Xiaoping, and in attempting to achieve this, the leadership has implemented the Four Modernisations Program that lays special emphasis on the fields of agriculture and industry.

Reform of state-owned enterprises has always been the key link of China’s economic restructuring. The Chinese government has made various attempts to solve the problem of chronic extensive losses in this sector and by now almost every state-owned enterprise has adopted the company system. After being transformed into joint stock companies, the economic benefit of the state-owned enterprises increased steadily and their overall strength and quality were remarkably enhanced, gaining continuously in their control, influence and lead in the whole national economy.

The role of free market forces has also been instrumental in altering China’s sectorial make-up. After 1979, the forces of supply and demand meant that consumers could play a greater role in determining which crops would be planted. This had the effect of making more profitable the planting of such crops as fruit, vegetables and tea. As a consequence, however, traditional grain crops have suffered, as farmers prefer to plant the more profitable cash crops.

Increases in light industrial production and more profitable crops brought about by the loosening of market controls were not always enough to satisfy consumer demand, which in turn led to inflation. Rather than increased demand being met with increased supply, the manufacturing sector and economic infrastructure were still too underdeveloped to supply a population of over one billion people with the commodities they wanted or needed. Instead, a ‘dual track’ pricing system arose which promoted arbitrage between official and free-market prices for the same commodities.

It must, however, be pointed out that increased investment into capital construction programs and Township and Village Enterprises (TVEs) was the government’s solution to reviving the economy.

The national economy had been characterised by a large share of industry—standing at 61.2 percent of total GDP in 1990—with a smaller share of 24.4 percent devoted to agriculture and a much smaller service sector constituting only 14.4 percent of GDP. Such a constitution of GDP was a reflection of the Soviet influence of a planned economy since the 1950s. The dominance of the industrial sector in the PRC’s GDP constitution has not always been the case. However, it has been largely through governmental intervention that this evolution took place.

In 2004, of the industrial sector added value created by all state-owned industrial enterprises and non-state industrial enterprises with annual turnover exceeding five million yuan; state-owned and state stock-holding enterprises accounting for 42.4 percent; collectively owning enterprises 5.3 percent, and the rest taken up by other non-public enterprises, including enterprises with investment from outside mainland China, and individual and private enterprises. The result is a dynamic juxtaposition of diversified economic elements.

In 2004, of Chinese enterprises ranking in the world’s top 500, 14 enterprises of China’s mainland were all state-owned. Of China’s own top 500, 74 percent (370) were state-owned and state stock-holding enterprises, with assets of 27, 370 billion yuan and realising profit of 266.3 billion yuan, representing 96.96 percent and 84.09 percent respectively of the top 500 corresponding values. Small and medium-sized enterprises and non-public enterprises have become China’s main job creators. Private enterprises alone provided 50 percent of employment of the entire society.

China paid a particular attention on the business environment and encouraged small businesses, especially export-oriented ones, with funding and incentives. China’s loan prime rate, equivalent to Nigeria’s monetary policy rate, is 4.2 percent as against Nigeria’s 13.5 percent. A number of funds can be borrowed at less than four percent, especially by small businesses.

Cost of production in China is low as energy and infrastructure were prioritised before the industrial journey.

China has gone beyond roads and railways to develop coastal regions and inland areas along major rivers.

Early in the year, China’s top economic planner National Development and Reform Commission (NDRC) approved construction of seven infrastructure projects in energy and water worth $72 billion this year. This is more than twice Nigeria’s 2020 budget. Manufacturing sector of China is driven largely by technological innovation and digitalisation. Nigeria’s infrastructure from roads to bridges and rails are broken and death traps, with businesses incurring high logistics costs. Ports in Apapa and Tin Can in Lagos are congested and containers stay there for days. This does not happen in China. China has 34 major ports and more than 2,000 minor ports. Africa’s largest economy, in contrast, has only two functional but highly congested ports in Lagos, ignoring others in various parts of the country. Experts say no country grows its economy this way.

Nigeria cannot grow its industries without diversifying its energy sources. In 2017, manufacturing companies in Nigeria spent as much as N117.38 billion in fuelling their plants to run daily operations, according to data from the Manufacturers Association of Nigeria (MAN).

China has gone past this, being world’s most successful in renewable energy, producing 728 GW of renewable power.

Up till now, Nigeria is yet to re-start an export expansion grant scheme that will boost export earnings. China does not waste time in identifying genuine exporters and funding them. Analysts want Nigeria to take its economy more seriously. Poverty rate is nearly 50 percent, according to World Poverty Clock, and many citizens cannot buy products made by manufacturers.

“We have been consistently recommending the country to diversify the economy because reliance on oil does not serve very well and that means to continue with structural reforms that would make that possible,” Kristalina Georgieva, managing director of the International

Monetary Fund, said this at the recent World Bank/IMF annual meetings in Washington DC, United States.

“Nigeria matters to the whole of Africa. When Nigeria does well, Africa does well. What we see, however, is that economic recovery remains still too slow to reduce vulnerabilities and most important to reduce poverty in the country,” Georgieva further said.

 

 

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