A critical view of the world economy: Growth, distribution and the rise of China

1
A critical view of the world economyGrowth,
distribution and the rise of China

• dott. Francesco Schettino
• University of Rome La Sapienza
• francesco.schettino_at_uniroma1.it
• Marche Polytechnic University
• f.schettino_at_univpm.it
• Rome, 2 may 2007

2
Growth, distribution and the rise of China

• Globalization The Role Of China
• Between Socialism And Capitalism Mode Of
  Production Of Modern China
• Growth, Distribution and Other Socio-Economic
  Indicators
• China Today the Shanghai Cooperation And The
  Interest For Africa and Latin America

3
Globalization the Role Of China (1)

• Principal macro-economic aspects
• Increase of Inward and Outward Foreign Direct
  Investments (Fdi)
• Increase of Inward and Outward Exchange of
  Commodities (Trade)

4
Globalization the Role Of China (2)
5
Globalization the Role Of China (3)
6
Globalization the Role Of China (4)
7
Globalization the Role Of China (5)
8
Globalization the Role Of China (6)

• Why a Socialist Country is becoming the pivot of
  the Capitalist Economy in the Globalization era?
• Is really China a Socialist Country?
• Does it exist a production based on private
  exploitation of workers?

9
Market Socialism 2 factors and 3 principle for
economic reform

• First, reforms were initiated at a stage where
  the traditional Soviet-type economic machine was
  functioning and generating growth (albeit
  inefficiently)
• Second, Chinese government and party maintained
  very firm political power and control, thereby
  avoiding the risk of economic and social changes
  provoking disruptive political consequences. To
  my view, such firmness was decisive in the first
  phase of the reforms, but could be (and is in
  fact being ) relaxed to some extent at present.

10
Key Principle 1Do Not Sell Out, Create An Embryo
Of Competition

• The largest and most important SOEs are not to be
  divested, a fortiori not overnight.
• The first reforms must focus on changing the
  structure of the markets, as there would be no
  use in reforming property rights in commercial
  enterprises if no competitive conditions are
  created in the environment in which they operate
  even if imperfect and partial

11
Key Principle 2Strengthen Incentives and Budget
Constraint

• Once (logically, not necessarily temporarily
  reforms can proceed at the same time in various
  dimensions) some degree of market revitalization
  has been achieved, reforms must strive to
• improve the structure of incentives for managers
  and workers
• harden budget constraints
• increase the degree and effectiveness of market
  competition

12
Key Principle 3 Public Ownership Reform

• Restructure, corporatize, and commercialize SOEs
• Ownership of commercial firms on the part of
  different layers of local governments can also be
  effective, as the limited juridisdiction of such
  governments forces enterprises to compete in the
  larger domestic and international markets, and
  also to adopt hard budget constraints.

13
Market and incentive compatibility

• The overall sustainability of the market
  socialist development path requires necessarily
• a high degree of market compatibility with
  respect to the transformation and circulation of
  commodities
• and of incentive compatibility, with respect to
  the behavioral patterns of the various economic
  agents
• So far, the evolving structure of productive
  enterprises (both industrial and agricultural)
  and of corporate governance in large industrial
  enterprises in particular
• basically consistent with other systemic features
  of the accumulation and investment process
• thereby favoring fast economic development.

14
Accumulations, Efficiency and Technological
Progress

• Technology does not fall from heaven most of it
  must be embodied in new inputs.
• Therefore (unless it takes place in an
  exceptionally inefficient and market incompatible
  framework) a sustained accumulation process is
  per se an important factor conducive to a high
  accumulation rate.
• However, traditional Soviet-style economies
  coupled a high accumulation potential with a low
  degree of market compatibility and a poor
  incentive structure leading to widespread
  inefficiency and waste.

15
Accumulations, Efficiency and Technological
Progress

• The challenge in China ( and other reforming
  socialist economies) is
• to retain the positive features of the
  traditional socialist model, mainly in the fields
  of resources accumulation and income distribution
• while achieving a satisfactory level of
  efficiency in the allocation of resources
• and developing an adequate system of innovation
  conducive to a speedy rate of technical progress.

16
Who Is The Main Agent Of Accumulation?

• Agricultural growth led to increased savings and
  thus a stronger potential for accelerated
  accumulation and industrialization
• In most developing countries the main agents of
  accumulation are the national and foreign
  segments of the bourgeoisie. In some countries
  the national bourgeoisie is strong (India), in
  some others it is weak or non-existent (Africa,
  parts of Latin America)
• In China and Vietnam (even considering the
  growing role of both foreign and domestic private
  capital) such collective agents (classes) are
  substituted by a complex web of public bodies (
  a key feature of market socialism).

17
Technical progress and development of productive
forces

• Since the 1980s, China experience very fast GDP
  growth
• China is by now a technological powerhouse,
  exports many high-tech products and has
  development a powerful ST and NSI
• To a slightly lesser extent and starting from a
  lower base, Vietnam is also modernizing and
  achieving fast technological progress

18
Relative underdevelopment of public services

• Market socialism could allow to
• extend the public control of a large share of the
  surplus to the area of public services and final
  consumption
• minimize superfluous consumption of privileged
  classes
• maximize public and social consumption.
• This potentiality is not presently realized in
  China (and Vietnam)
• Ever-worsening income distribution pattern has
  largely gone out of hand (as officially
  recognized in China)
• Essential public services largely abandoned to
  market forces
• Access to them is based on income and wealth
  instead of being free and universal

19
Social services before market reforms

• Under the socialist centrally-planned economic
  regime, the State strived to provide social
  services free of charge to all the population
• As the resources available for that purpose were
  quite scarce, actual public services supply was
  in fact extremely limited both in quantity and in
  quality
• Nevertheless, basic social/public services
  provision was very egalitarian and, on the whole,
  distinctively superior to that of most countries
  with a similar level of economic development
• As result, China (and Vietnam)s human
  development indicators were also significantly
  better than those of similarly poor countries

20
Severe deterioration of basic social services

• Since the inception of the market-oriented
  economic reform process
• Provision of basic social services seriously
  deteriorated in China
• Lost what was previously their most valuable
  feature, e.g. their egalitarian nature

21
Scarce priority for basic public services

• After recovering from an initial disruption
  caused by transition to new forms of financing,
  basic public services infrastructure has been
  further expanded and strengthened
• Yet, the amount of resources channeled to public
  services has been insufficient
• Moreover, governments in both countries appeared
  until recently to consider public services
  obligations in a very narrow sense
• extremely basic level of universal provision
  which is presently no longer adequate to their
  economic and social development
• Beyond such a minimalistic threshold,
  conversely, there was an alarming tendency to
  leave the satisfaction of ever-increasing needs
  in the domain of social services largely to
  individual funding, market forces, and private
  provision

22
Socio-economic Indicators
23
Poverty
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Public Health Expenditure
25
Nutrition
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Between Socialism And Capitalism

• Worlds capitals are attracted by the chance of
  paying low wages against a high productivity of
  the workers (see slides 5 6)
• China is (quantitavely) going more and more
  through a complete substitution of old social
  based economy to capitalism
• The capability of workers exploitation is the
  pivot of Capitalism it gave the China a central
  role in the actual world economic scenario

27
China Today (and Tomorrow)

• Shanghai Cooperation
• Africa
• Latin America

28
Shanghai Cooperation Organization (SCO)

• Members
• China, Russia, Kazakhstan, Kyrgystan,Tajikistan
  and Uzbekistan.
• Member states cover an area of over 30 million
  km2, or about three fifths of Eurasia, with a
  population of 1.455 billion, about a quarter of
  the world's total
• India is the principal candidate to membership
  (1.2 billion inhabitants)

29
Shanghai Cooperation Organization (SCO)

• Purposes and Principles cooperation in
• Political affairs
• Economy and trade
• Science and technology,
• Culture, education,
• Energy, transportation,
• Environmental protection and other fields
• Working together to maintain regional peace,
  security and stability and promoting the
  creation of a new international political and
  economic order featuring democracy, justice and
  rationality

30
Shanghai Cooperation Organization (SCO)

• Principal consequences
• Creation of a new block, economically independent
  and opposed to U.E. and specially to U.S.
  capitals
• New Order of World Economic Dynamics
• Possible Crisis of U.S. Economy (and of U.S.
  Dollar), because based on Asia Investments,
  specially after the end of USSR.

31
China and Indias rising energy and steel use
Year-on-year growth rates, percent
32
Indias and Chinas shares in world imports of
selected primary commodities
Source UN Comtrade database
33
Rising Africas trade with China and India ...
Source IMF Direction of Trade Statistics
34
... inducing a trade reorientation away from OECD
countries
Source IMF Direction of Trade (DOTS)
35
... inducing a trade reorientation towards the
Asian Drivers
Source IMF Direction of Trade (DOTS)
36
... while not changing the African export mix
Share of China in Angolas Exports 23.2
Chinas share 25
1
1
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... while not changing the African export mix
Share of China in Sudans Exports 41
Chinas share 81
1
1
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China greatly contributes to demand growth for
African commodities
Source Authors own calculations based on ITC
Trademap (UNCTAD)
39
Chinese and Indian FDI in Africa
40
Chinese and Indian FDI in Africa in natural
resources

• Sudan
• CNPC owns 40 of the Greater Nile Petroleum
  Operating Company.
• ONGC is building a 720km pipeline to the Red Sea,
  as well as a stadium.
• Nigeria
• CNOOC acquired a 45 working interest in an
  offshore oil mining licence OML 130 for
  US2.268b cash CNPC invested in the Port
  Harcourt refinery PetroChina is interested in
  the Kaduna refinery.
• ONGC Mittal Energy Ltd (OMEL), the joint venture
  between Oil and Natural Gas Corporation and L. N.
  Mittal Group, will invest US6b in railways, oil
  refining and power in exchange for oil drilling
  rights.
• Gabon
• Sinopec and Unipec have a joint venture with
  Total. PanOcean exploits the Tsiengui on-shore
  basin and is associated with Shell to explore
  Awokou-1
• An Indian consortium signed an exploration and
  production sharing contract in November 2005.

41
Chinese and Indian FDI in Africa the case of
telecommunications

• ZTE, a Chinese vendor, runs a joint venture
  mobile operation in the Republic of Congo with
  the local operator and bought a 51 percent stake
  in Niger Telecommunications when the company was
  privatized.
• Distacom of Hong Kong became the strategic
  investor in Telecom Malagasy (Telma) in
  Madagascar, paying 12.6 million for a 68 percent
  stake and committing 165 million in additional
  investments over five years.
• In August 2005 Mahanagar Telephone Nigam (in
  which the Govt. of India currently holds a 56.25
  stake) launched a wholly owned subsidiary in
  Mauritius, the first competitor to the
  state-owned incumbent

42
Latin America

• Important agreements with each latin-american
  country
• Venezuela availability of oil for 350 millions
  gas 60 mln
• Brazil Sinopec ask for portfolio investments in
  Petrobras
• Investments and trade with all countries