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Can China become the world’s most entrepreneurial economy?

Can China become the world’s most entrepreneurial economy?

After decades of the fastest economic growth in the world, China’s economy has started to slow down. This is perhaps inevitable, given an average annual growth rate of around 10% was sustained for almost thirty years following the economic reforms introduced by Deng Xiaoping in the late 1970s.



But one area where China continues to develop is in the number of private enterprises being started. China simplified the process for registering businesses in February 2014, and since then there has been a huge leap in the number of new registrations. According to the State Administration for Industry and Commerce, there were 3.65m new registrations in 2014, an increase of 46% on 2013.



These private businesses have driven China’s economic growth in recent decades, and their future prospects play an important role in the country’s continued transition to becoming the world’s largest economy.



A growing private sector

Before the recent jump in business registrations, China had already transitioned from having a mostly state sector economy to a private sector one. By 2012, the State Administration for Industry and Commerce, which registers new businesses across China, reported that there were more than 50m active registered private businesses, 40m of which were smaller “household enterprises. This is a huge shift from 1978 – the year economic reforms began – when there were only 140,000 registered private businesses, generating less than 1% of economic activity.



The private sector now accounts for at least three-quarters of the Chinese economy, and possibly more. Private businesses create 90% of new jobs and are the major employer in many parts of China.



Meanwhile, as the private sector has grown, the state sector has shrunk. In China’s cities, where most people now live, China’s national statistics show that jobs in state-owned enterprises have dropped from over 70% of total employment in 1990 to 25% in 2012.



What is striking about this transformation is that it has been recent. The private sector only really took off in the early 2000s, following widespread privatisation of smaller state-owned enterprises and collectively-owned rural township and village enterprises. In the 1980s and much of the 1990s, private entrepreneurs found it easier to register as collective (that is, state-owned) enterprises than private businesses, discouraging open entrepreneurship.



The role of government

The emergence of private businesses as the driver of China’s economic growth over the past ten years has been one of the most important structural changes in the country since the start of the current reform period. It constitutes a fundamental restructuring of the economy’s ownership away from the state and into private hands. This is a major shift that removes one of the core tenets of the Chinese communist party – that the state owns the means of production.



However, a move from state to private ownership does not mean that the government, and party, have become side players in China’s economy. The state continues to play an important role, in shaping markets, supporting state-owned enterprises and in creating the wider conditions within which businesses grow.



Many private enterprises, especially those traded on China’s own stock markets in Shanghai and Shenzhen, are actually controlled by the state through shareholdings and informal means of maintaining influence. Within this context, the Chinese state and Communist Party continue to prefer and support state-owned enterprises, offering them market opportunities, finance, political support and sponsorship that is not available to private entrepreneurs.



Continuing growth

Continued private sector development will determine China’s future economic growth. In order to enable this, the Chinese government should encourage private sector development in the following six ways:



  • Create the right macroeconomic conditions. The Chinese government can continue to create the wider conditions for economic growth. For example the right monetary policy and continued investment in infrastructure will create opportunities for entrepreneurs to grow their businesses. Ensuring continued stimulation of the economy, and opening up markets to more and more transparent competition will particularly help the private sector to grow.


  • Put the private sector first. The government can ensure that some of this wider macroeconomic development is targeted specifically at the private sector. For example, more contracts for major projects could be awarded to private rather than state-owned enterprises, and government procurement could be opened up more to the private sector. There is a need to loosen the close relationship between the state and the large enterprises it owns and gives preference to.


  • Support as well as sponsor entrepreneurs. The state can give more targeted support to the private sector, both directly to enable growth and indirectly through policy and regulation that is friendly to private businesses. There is also a role for the state to actively and publicly sponsor entrepreneurship, advocating for start-ups and private ownership as a valuable and positive career option.


  • Protect property. The state can reinforce protection of private property, more actively enforcing the 2007 national Property Law. In particular, upholding private property rights in the courts, and finding mechanisms to help entrepreneurs clarify and register their rights would be a positive step. In addition, and as part of the current anti-corruption campaign, more could be done to prevent expropriation from private enterprises by officials.


  • Invest in new and growing businesses. Most new jobs and wealth are created by a small group of fast-growing new ventures that scale up soon after start-up. More and better funds could be made available to private entrepreneurs running these types of business. China’s state banks continue to prefer state enterprises and to be less competitive when lending to the private sector. A strong investment system focused on private enterprises would also inject much-needed capital that would stimulate business growth.


  • Support and fund innovation in the private sector. Developing a stronger national infrastructure for innovation that closely involves private enterprises would create a more competitive economy. Much of China’s research and development is funded in state-owned enterprises and government ministries. Opening this up to private businesses, and finding ways to fund private enterprises would create a much more innovative economy.



This Article was originally published in The Conversation and is reproduced here with the permission of the authur Andrew Atherton.

Books: China, the Future of Travel

Books: China, the Future of Travel

How will the future development of tourism from China affect you?



Within only a few short years, Europe and the rest of the Western world have seen a marked shift in how Chinese experience travel. This is having a major effect on the way which destinations must market themselves to Chinese visitors. Since 2004, Chinese tourists have been playing catch up with the rest of the world in record speed. These days, the talk is of a rising consumer group consisting of self-made millionaires, and senior executives working for multinational corporations. The wealthy elite are not just men, and not just middle-aged. High-flying career women and female entrepreneurs as well as the 20-something children of senior Communist Party officials comprise this niche market for luxury travel and consumer goods. Some of the niche travel categories to emerge out of this are: spiritual journeys (to Tibet, Bhutan, Nepal and India); adventure travel (hiking, climbing, self drive safaris, skiing); cultural travel or a combination of activities. Within China itself the shift in how people travel created a boom in the construction of luxury hotels, both large chains and small boutique offerings. There has also been a massive growth in the budget hotel sector, with local and international chains scrambling to find locations in China’s booming cities. Rural retreats are opening up to offer relaxing therapies to busy business people. The trend towards more individual choices in travel is apparent in the larger cities.



Looking ahead, it is plain to see that the old clichés about Chinese tourists no longer hold true. The sheer size and complexity of the market means that there is demand for almost any type of travel service, provided the seller knows where to look. Chinese who can afford luxury are educated and well traveled. Broadly speaking, they would prefer to be treated the same as clients from other countries while still enjoying special amenities and services afforded especially to Chinese customers.



Current Trends

Fast forward to 2015 and what has changed is that now the constant online chatter through mobile instant chat apps has been accepted as integral to doing business and China is leading the world in connectivity and use of mobile smart phones.



13 years ago, the challenge was convincing travel agents to offer individual travel services, not just group tour packages; since agents were used to collecting commissions from wholesalers for each person that they booked on a group tour. China began to allow its citizens to travel abroad for leisure in the early 90s through a policy known as ADS (Approved Destination Status), which was meant to control the outflow of tourism and link it to a growth in inbound tourism through bilateral tourism agreements. In fact outbound tourism has grown much faster, but from a smaller base, while inbound tourism to China has slowed down due to various factors including pollution, brand image and lackluster marketing initiatives.



Regarding individual travel, only when travel agents saw the ease and speed with which such bookings can be made online and the handsome profit margin on these orders, did they begin to shift towards independent travel. During the three years I spent living and working in China, we connected more than 5,000 travel agents to the online booking system and saw online bookings grow 600 percent. During that time, Ctrip grew to become the dominant online player and led a wave of companies offering online travel service focused on the domestic travel market.



There is no question that a new generation of Chinese travelers has embraced the Internet for their travel research and booking needs. While the share of travel transactions conducted online is still low compared to Western economies, online travel is growing at twice the pace of all travel. The leading OTAs in China are spending big to attract new customers through building loyalty and focusing on brand recognition.



Within only a few years, Europe has seen a shift in how the Chinese travel that is affecting the way in which destinations must market themselves. When Europe joined the ADS agreement in 2003, the Chinese arrived in large, organized group tours that covered 10 or more countries in less than 14 days. Their daily schedule started at 6am and ended late at night, spending most of their time on board a coach and never more than one night in the same place. After the long period in which businessmen traveled in small groups, the first ADS tours consisted of a mixed demographic and included visits to the most famous landmarks in Europe. Tourists saved on accommodation and food in order to have spare cash to spend on shopping. The reason retailers love Chinese customers is that when they travel they feel obliged to buy gifts for their relatives, friends and co-workers. Often what they buy must be unique to the place where they buy it, as another testament to their travel (apart from the ubiquitous pictures).



From 2004 until today, this trend has rapidly changed as Chinese catch up with the rest of the world in record speed. These days, the talk is of a rising consumer group consisting of self-made millionaires, and senior executives working for multinational corporations. The wealthy elite are not just men, and not just middle-aged. High-flying career women and female entrepreneurs as well as the 20-something children of senior Communist Party officials comprise this niche market for luxury travel and consumer goods. Some of the niche travel categories to emerge out of this are spiritual journeys (to Tibet, Bhutan, Nepal and India); adventure travel (hiking, climbing, self drive safaris, skiing); cultural travel or a combination of activities. Within China itself the shift in how people travel created a boom in the construction of luxury hotels, both belonging to large chains and small boutique offerings. There has also been a massive growth in the budget hotel sector, with local and international chains scrambling to find locations in China’s booming cities. Rural retreats are opening up to offer relaxing therapies to busy business people. The trend towards more individual choices in travel is apparent in the larger cities.



The Outlook

Looking ahead, it is plain to see that the old clichés about Chinese tourists no longer hold true. The sheer size and complexity of the market means that there is demand for almost any type of travel service, provided the seller knows where to look. Chinese who can afford luxury are educated and well traveled. Broadly speaking, they would prefer to be treated the same as clients from other countries while still enjoying special amenities and services afforded especially to Chinese customers. The newly updated and expanded China Travel Handbook 2015 launched today is intended to help set into context the media hype and excitement across the industry, and provide deeper insights about this market to people working in the tourism, hospitality and retail sectors. Articles and reports about Chinese tourists can be found everywhere, and I’ve first written about the vast potential of the market in 2005. This book contains interviews and case studies from industry insiders that have many years of experience working in, and with the Chinese outbound tourism market. Each brings their own perspective to form a rounded picture of the opportunities and challenges.






A recognized expert in China tourism and hospitality, ‘China, the Future of Travel’ author Roy Graff founded ChinaContact as a market entry consultancy in 2005 and published the very first edition of the book that same year. The book is available for purchase here: with a 10% discount using the promotional code: chinabrain10

China Scholar’s end of days forecast...

China Scholar’s end of days forecast dismissed but demands attention

A growing army of prognosticators forecasting a Chinese hard landing and the collapse of Communist rule has an unlikely, but distinguished, new recruit: David Shambaugh.


His Thesis may well prove inaccurate but at least some of the symptoms he identifies as contributing to the regime’s ultimate collapse are real and they are eroding faith in the new leadership’s appetite and ability to make the difficult changes need to ensure sustainable development in the years ahead.



David Shambaugh is among the most sober-minded of experts on modern China and respected in both the U.S., where he teaches at George Washington University, and in Beijing, where he has been feted by the government.


Shambaugh’s reputation as one of the more insightful China analysts is why his gloom-laced op-ed in the Wall Street Journal, which predicts a crisis and the end of Communist Party rule in China, has created such a splash.


Critics have been quick to pounce, arguing that the symptoms of China’s collapse identified by Shambaugh have waxed and waned for years and arguing that he underestimates the Governments ability to survive. But Shambaugh’s analysis demands attention in this climate of growing concern about the health and stability of the Chinese economy, as well as the direction of the country under the rule of President Xi Jinping.


His is a risky prognostication – if nothing else, it’s hard to see how this won’t upset influential people in Beijing – but one that can’t be dismissed out of hand.


One of the five fault-lines that Shambaugh says will bring about the end of party rule is the economy, and specifically the leadership’s failure to institute the ambitious package of reforms adopted during the Third Plenum in November 2013.


Premier Li Keqiang said in his 2015 work report last week his government is targeting economic growth of around 7% this year, confirming a widely-anticipated embrace of a slower pace of activity as part of the economy’s “new normal”.


That was the key takeaway from a report which otherwise resorted to the usual list of reform pledges. These reforms, which include capital account opening, interest rate liberalization, a clean up of local government finances and an opening up of industry to private funding, lie at the heart of the Chinese government’s commitment to secure the economy, and the country’s, future.


The Government has opened a free trade zone in Shanghai intended as a laboratory for capital account opening. It has also allowed limited direct trade in equities between the Shanghai and Hong Kong stock markets. The Ministry of Finance has begun sifting through submissions of debt holdings reported by local governments to decide just how much it intends to take onto the central government balance sheet while more provinces are expected to be allowed to sell bonds directly to the market this year. The managers of big state firms have seen their pay slashed while at least token efforts have been made to open state industry to outside investors.


The problem is that this progress has been stuttered so far – Shambaugh says vested interests are successfully blocking implementation -- and the leadership has done a poor job in articulating just how it intends to put its lofty reform goals into practice.


Some officials and advisors believe the government’s targets for this year are too ambitious, while progress on reform has been too limited. The Government was able to muddle through the post-global financial crisis years but the new leadership came to office determined not to repeat the sins of the past, but to remake China and secure its economic future.


The lowering of the economic growth target signals Beijing’s commitment to that process, as well as its acknowledgement that the days of freewheeling growth are behind. Premier Li says China doesn’t need to grow as quickly as it did in the past, and that a burgeoning services sector can provide the jobs needed to allow for a slower pace of expansion.


But his work report was a disappointment to those expecting a more aggressive pace of change. The target for the fiscal deficit this year was increased, but only to 2.3% from last year’s 2.1%. Even with funding carried over from 2014, this points to ongoing fiscal conservatism, with banks continuing to play an outsized role in funding the investment needed to deliver headline growth rates.


In the meantime, Chinese debt levels are continuing to rise and a slowing economy is putting ever greater pressure on the financial system. China's debt load has quadrupled since 2007 and now stands at 282% of GDP. It is on track to hit Spain's 400% in three years, according to the latest unofficial estimates.


Betting against the Communist Party has been a losing game so far. This year marks the 14th anniversary of the publication of ‘The Coming Collapse of China’, a study which has been mocked for the surety of its prediction of the end of the regime. Its author, the lawyer Gordon Chang, continues to insist that China’s hollow, debt-ridden banking system will eventually drag the regime down.


Shambaugh’s previous study was about the Communist Party’s ability to adapt and survive – research which highlights the risk of making bold predictions about the end of days. That said, the new Chinese leadership has successfully outlined China’s problems and the need to fix them. But a leap of faith is still required to see just how the party intends to break with the past and successfully rebalance the economy.


Free Trade Agreements, a force for chang...

Free Trade Agreements, a force for change.

As part of it`s continued efforts to reduce the dominance of the US dollar for International trading and increase its own export growth, China is to increase the pace of its free trade negotiations in 2015.



China will launch Free Trade agreement (FTA) negotiations with Israel and initiate FTA feasibility studies with Colombia, India, Nigeria, Nepal, Maldives and the South Pacific island nations. FTA`s help companies to both diversify their business` and increase their exposure to global markets as well reducing basic cost of goods due to the removal of tariffs: the New Zealand dairy industry is reported to have achieved a fivefold growth as a result of the China-New Zealand FTA.



Currently standing at some 2.32 trillion USD (2014) the slowdown in export growth in China is seen as a clear risk to the stability of the economy in 2015. With the deterioration of international consumption, low global employment rates and rapidly increasing competition from Asia: China has realized it must complete a restructuring to its manufacturing base. Key to stabilizing this slowdown is increasing the number of FTA`s, pushing the Chinese currency to play a bigger role in foreign trade, developing new trading routes in neighboring regions, and exporting more value added products onto the global market.



FTAs are also of significance to its foreign policy. While strengthening economic ties with its trade partners, China is able to maintain friendly and cooperative relations with many countries. Most FTAs include provisions calling for dialogue and cooperation among the trade pact parties.



Currently China has FTA`s will the following countries: Chile, New Zealand, Pakistan, Singapore, Peru, Costa Rica, Iceland, Switzerland,


Negotiations have concluded with: Australia (expected to be signed in May 2015) and South Korea


Info Graphic Source:


FTA`s currently under negotiation with: The Gulf Cooperation Council, Norway, Sri Lanka


And is undertaking feasibility studies with: India, Colombia, Israel, Moldova, Nigeria, Nepal, Maldives and the South Pacific Island Countries.



A further force for change is the rapid growth of the 12 member Trans Pacific Partnership, dominated by the USD and US financial policy: seen by China as restricting its exports due to currency issues.



In order to protect the value of the RMB China must encourage more use of its currency in international trade, swap arrangements between central banks, bank deposits and bond trades. The aim being, implementation of currency settlement agreements, effectively promoting more currency exchanges between different markets to stimulate export and reduce foreign governments dependence on the USD.


China is now demonstrating a greater determination to engage in a higher level of liberalization of trade and integration with its trade partners. FTAs are bolstering China’s status within global production networks and integrating it within the global hub.


Sri Lanka, China and India: rivalry...

Sri Lanka, China and India: rivalry in the Indian Ocean.

For smaller Asian countries it is no surprise that China has emerged in the last decade as an essential trading partner, Sri Lanka is no exception: becoming it’s largest foreign finance partner in 2010, overtaking India and Japan, and as its third largest trading partner (bilateral trade was $3.62 billion in 2013). For China, Sri Lanka is a crucial gateway port providing it with a foothold near sea lanes in the Indian Ocean and entry into what India considers its sphere of influence. The longer term aim being to access and secure crucial oil exports from Iran and the Middle East. 



Utilizing development loans of nearly 5bn USD from China over the last 5 years Sri lanka has heavily invested in numerous infrastructure projects to boost its rapidly growing services sector: China is currently financing more than 85 percent of the Hambantota Development Zone, to be completed over the next decade. This will include an international container port, a bunkering system, an oil refinery and other facilities. Simultaneously the development of the Pakistani port of Gwadar which is to be run exclusively by China, provides an indication of Beijing fast growing influence in the Indian Ocean.


China’s influence is now firmly embedded in Sri Lanka — economically as well as geopolitically: the docking in Colombo last year of a Chinese submarine certainly would have raised a few eyebrows in Delhi and forced India into a re-assessment of its relationship with Sri Lanka. However the new Government of President Maithripala Sirisena might just take a step back to re-asses it`s continued love of Chinese financing.


Current Chinese invested development projects:

$1.5 billion port project in the southern coastal town of Hambantota being built by China Communications Construction Co.Ltd. It has the potential of being developed as the deepest and largest harbour in the world, with a location just half an hour off the world s busiest sea-lane which is used by 100 - 200 ships a day.

Sri Lanka`s 2nd International airport in Mattala has facilitated numerous direct flights between China and other Asian cities.

The Colombo Lotus Tower, being built by CEIEC and funded by Exim Bank of China, which will be the tallest tower in South Asia.

The $1.2 billion Lakvijaya coal power plant in the northwestern town of Norochcholai being constructed by China National Machinery and Equipment Import and Export Corporation (CMEC), with a planned ultimate capacity of 900 megawatts. Once on-line it is estimated electricity costs will fall from the current RS/11 to RS/5.

China and Chinese firms are actively participating in development of Sri Lanaka's highways and expressways, mostly funded by Exim Bank of China and built by China Metallurgical Group Corporation.

(Colombo International deep water Container Terminal, completed in 2013 by China Merchants Holdings International).



The question now is how far the new Sirisena government will be willing or even able to go in addressing concerns about Chinas influence in Sri Lanka that he was vocal about prior to the elections. Whilst the growth of China`s influence may well slow, the new government must also see that nurturing equal relations with all regional powers and in particular India, is in its best interests. The country still needs significant development loans to continue its infrastructure development and attain its 7.4% growth target for 2014. However further loans from China, at rates far above those from the Asian Development Bank or countries like Japan, seem to be off the agenda for now. Interest payments now currently amount to 75% of GDP according to Moody`s, creating a significant debt servicing burden.


China is actively pursuing mutually beneficial relationships throughout Asia and supporting these with infrastructure, loans and joint ventures. With a FTA (free trade agreement) due to be signed into force later this year, Sri Lanka will continue to benefit from its relationship with Beijing, however a reassessment of the long term benefits and costs is certainly underway. It is now very much up to India to turn the political change in Colombo to it`s advantage.


The PPP Dragon, China at No.1

The PPP Dragon, China at No.1

Once the most prosperous nation on earth, the recent report from the International Monetary Fund suggests that we are witnessing a return to this status quo, with China’s purchasing power parity (PPP) adjusted GDP estimated for the year at $17.6 trillion, compared to $17.4 trillion from the US.


Economists have been forecasting for some time that China will become the world’s biggest economy on a GDP basis by mid century. The new PPP calculations do provide fodder for those predicting a Chinese century.



However, in China, there’s none of the triumphalism that might be expected from receiving such an accolade, and the muted response is telling. China may welcome the power, but it doesn’t want the responsibility of leading global discussions on pressing issues such as climate change or international financial regulation.


As far as the Communist Party of China is concerned, there’s more than enough to be doing at home without having to take the reins on fixing and managing the global system, as the U.S. has done, and Britain did before.


But the estimates again highlight the flaws of measuring economic size based on purchasing power parities. Economists argue that PPP measurements, which are designed to estimate prices in a given country regardless of exchange rates, are an inaccurate gauge of economic size, owing in part to problems with measuring prices from country to country and the infrequency with which they are measured. China adds a further level to the problems of calculating PPP figures by centrally controlling exchange rates to keep them artificially low, thus altering the accuracy of PPP figures.


A critical flaw in new report is its failure to include per capita calculations. China’s population of 1.3bn is over three times the size of America’s, thus China has a gross GDP greater than America’s, but its per capita GDP remains level with that of Albania. The Chinese government relies on per capita statistics to measure its economy, acknowledging that Chinese economic development is far from world-beating.


Indeed, China’s per capita GDP was just over $6,000 in 2012, according to World Bank statistics, nearly double the 2009 level and less than Asian peers such as Malaysia but well below the $51,749 of the U.S. In fact, China’s leaders worry that the economy is more likely headed in Malaysia’s direction than to become a direct challenger of the U.S. for global dominance.



Malaysia is often cited as one of a number of countries believed to have fallen into the “middle income trap”, when the dividends of an early push for industrialization fade and income levels languish below developed country rates.


As wages have surged and its population begins to age, China’s leadership is acutely aware of this risk. The “Decision” document which followed last November’s 3rd plenum is an ambitious blueprint for reform which is effectively designed to avoid this trap through deregulation and integrating China more fully with the global economy.


Even as the World Bank report has reinforced preconceptions about China’s supremacy and the end of American dominance, the Chinese economy has slowed sharply towards 7% from as much as 15% during the last decade, as its base becomes larger and as environmental and resource constraints bite.


A growing number of China speculators see growth continuing to slow this decade towards the low single digits, as an increasing share of economic resources are channelled towards servicing debt.


While China’s economic growth may be slowing, its national debt stands at just 24% of GDP, compared to the US national debt of 74% of GDP in June 2014. While China’s debt is growing, its credit situation remains far better than that of the US. This is another important factor for consideration when assessing economic success, and one that falls convincingly in China’s favour.


The Communist Party has long known that it must be careful not to overdo its economic triumphalism, given how much of the Communist Party’s legitimacy hangs on its ability to consistently raise standards of living amongst China’s populace. China remains very inward looking.


China’s economic rise, coupled with the humbling of the western economies after the global financial crisis, has seen a shift in how Beijing projects its power. It’s perhaps understandable that China’s leadership appears less interested and willing to countenance calls from the west on how to run its economy and its foreign policy. China’s development is incomplete by a wide margin, and that provides strict limits to its global assertiveness.


But China’s senior leadership believes that urbanization will continue to spur economic activity. China’s urbanization rate is now at around 53% -- in 2012, more Chinese people lived in urban areas than in rural for the first time in its history – and the government sees that rising to 60% by 2020 and towards U.S. levels at around 70% some time in the decades after.


Those goals envision nearly 240 million people moving into urban areas, or at least, living in upgraded rural areas, some time before the end of the next decade. With growth slowing and economic risks rising, urbanizing 240 million over the next decade or so promises to be considerably more difficult than the previous 240 million.


Faced with that considerable challenge, it’s unsurprising that Beijing is unwilling to believe the hype related to the latest PPP GDP figures, or to assume the role of a super economy.


Looking to history, the path of the US in becoming a global economic superpower has some comparable features to China’s current state. Despite nominally becoming the world’s largest economy at the end of the 19th century, the US maintained an insular, inward-facing path until the end of the Second World War. It was then that it used its economic advantage to assume the role of a global superpower through financing much of Europe’s post-war reconstruction. It would appear that China remains in this transition period. With each year it claims another accolade of its economic supremacy, but is as yet reluctant to take on a more political role.


The next decade will prove crucial in determining China’s future path. Will economic growth flounder or will we see the much hyped century of Chinese hegemony begin? Will China forge a divide between economic dominance and political supremacy, or will we see a new world order with China calling the shots of both economic and political power?


Left behind women.

Left behind women.

Much has been reported on the plight of  workers migrating in droves to make a better living in the cities, but little attention has been given to the wives they leave behind. According to the All China Womens’ Federation, there are up to 50 million of these ‘left behind women’ in rural China.The impact of this rural exodus reaches every corner of these women’s lives, from their daily workload to their role in the family structure.


Photo Credit:

Perhaps the most immediate effect of this exodus is the increased burden of domestic and farm work on the women left behind. The Harvard Asia Pacific review suggests that 60% of rural farm work is now done by women, compared to 40% in Africa and just 20% in the Americas (FAO 2011). Once the preserve of men, left behind women have to undertake tough manual labour to maintain their village lands. Additionally, women are still responsible for their traditional domestic duties, so are left with a double burden of farm work and domestic chores. Older generations are also involved, as much of the burden of childcare traditionally falls upon grandparents, as younger women are occupied working in the fields. It is this support from family members and the wider community that can change alleviate the double burden of left over women and help them gain independence.


The increased responsibility of left behind women has also led to increased independence and social standing in rural communities. With their husbands away, women take over as head of the household, making decisions independently and managing the household. Interestingly, left behind women who assume the leadership of the household are promoted to the same social position of male heads of households, a positive indicator for gender equality. The increased independence can be seen to empower rural women to further pursue positions of authority on a wider scale. According to Xinhua news agency, 2092 villages in Heilongjian prefecture alone are now governed by women. This is made all the more remarkable by the continued popularity of Confucianism and the strict patriarchal order it condones.


This empowerment seems to have also emerged in the commercial sector, with increasing numbers of rural women participating in commercial enterprises such as local textile and domestic businesses. Rural women are turning to township enterprises to supplement their income, with the state and charities offering loans to support them. According to China Daily, Yongren County alone has provided a total of 20.41 million yuan in preferential loans to left-behind women  since 2009  . Not only are women entering commercial workplace, but they are become entrepreneurs and business leaders. In the provinces of Jiangsu, Guangdong, Anhui, Fujian and Henan there are 2000-3000 female directors of township enterprises, Xinhua reports. The case of Li Jiyan of Yongren country illustrates well how women are changing their own lives through township enterprises. Li started her own embroidery business in 2009 after her husband left for the city and has not looked back since. Her annual production revenue is now more than 3 million yuan.


"Before I started my own business, my income was 2,000 to 3,000 yuan per year. Now I make 150,000 to 160,000 yuan a year," Li said, adding that all of the left-behind women in her village have joined her association to embroider. With the average annual rural income remaining at about 5000 yuan (Chinese National bureau of statistics), this kind of situation is far from widespread. However, more and more women are entering businesses: it is currently estimated about  65% of workers in textile and domestic enterprises are women.


However, a significant hurdle still to overcome is that of educational equality. Despite the increased empowerment of women, and an increase in the number of household led by women, there remains a significant gender gap in schooling. According to one study by Hannum and Park, among a group of 400 Junior High school aged children, girls were 39% more likely to have left school than boys. However, compared to 20 years ago this gender inequality is now both less pronounced and also only appears when children are older and at a later stage of their education. Thus it would appear that although the migration of men to the cities has had a positive impact on the independence of some rural women, it has yet to significantly permeate into the realm of education.


Photo Credit:

While the number of success stories in undoubtedly increasing, the situation of left behind women is still a double edged sword – they have an increased double burden but also benefit from increased independence and empowerment. While the rural lifestyle may be attractive to some, the bright lights of the big city are still a huge draw. The promise of a more independent life away from home, and a vastly increased salary potential still draws huge numbers of young women to China’s urban metropolises in pursuit of a better life.


While it perhaps too early to come to a definite conclusion, especially given the vastly different experiences of left behind women in different situations it would appear that there is a steadily increasing number of independently minded rural women. As long as they have sufficient support from their family and the community, it would seem that women are starting to embrace the responsibility and economic opportunities left by the absence of their husbands. This will undoubtedly continue in the future as more and more Chinese women are empowered to strive for independence and success of their own.

Corruption and Fox hunting under Xi...

Corruption and Fox hunting under Xi.

Now entering its second year, China`s anti-corruption drive is truly making progress and raising a few eyebrows internationally in both its depth and continued commitment to removing both the culture and perception of corruption in the country.


According to the Transparency International 2013 Global Corruption Perception Index (CPI), China is currently ranked 80 out of 177 countries, below South Africa and Brazil. Furthermore, out of the 28 economic powers included in the 2011 Bribe Payers Index Report, China ranked 27th, above only Russia. These figures paint a damning picture of the state of corruption in China, one which Xi is undoubtedly looking to change under his premiership. The long term aim of his anti-corruption drive is to reduce the level of Chinese corruption more in line with that of the country’s main economic rivals, namely the US in 19th place on the CPI.


China will establish a new anti-graft body to further strengthen its efforts to rout out corrupt officials. The plan for a new anti-graft agency was put forward by the Party committee of the Supreme People's Procuratorate (SPP). A vice-ministerial level, full-time member of the procuratorial committee will hold a concurrent post as head of the new anti-graft agency. This  new agency will further the work of the Central Committee for Discipline Inspection (CCDI), a secretive agency that leads the investigation of corrupt officials.


The numbers of investigations are impressive: in the first half of 2014, prosecutors investigated more than 25,000 individuals on suspicion of corruption, according to statistics released by the Supreme People's Procuratorate in July. Companies and public service groups supervised by the Communist Party of China and government departments will now face a new round of top-level disciplinary inspections amid China's anti-corruption drive.


The anti-corruption drive has not just been based at home. It has moved into the international sphere with the CCDI Operation Fox Hunt extended to arrest corrupt officials who have fled abroad. During the recent APEC meetings, Western governments were approached by Beijing to help find such officials and to recover money that has been spirited abroad to relatives. On 17th November, Xinhua news agency reported that during the 4 months of Operation Fox Hunt, the number of suspected fugitives arrested as part of the operation stands 288.


The effects of the anti-corruption drive are beginning to be felt both in China and abroad. With Chinese officials changing their past lavish spending habits due to fears of being tainted with accusations of corruption, Chinese government bank deposits have increased by a yearly average of almost 30% since early 2013, according to the BBC. However, this is taking a toll on China’s already slowing economy, causing an estimated reduction in growth of 0.6% this year: entire restaurant empires were built on a foundation of lavish spending by government officials hosting and toasting one another. It was exactly this sort of conspicuous consumption that Xi Jinping has correctly perceived as highlighting the disparity in wealth between the ruling class and China's working people.



Furthermore, the desperate scramble of officials to send their ill-gotten gains overseas has seen a rise in the already high levels of capital outflow from China. Indeed, the US-based non-profit group Global Financial Integrity estimates illegal cash out- flows from China amounted to some $2.83tn between 2005 and 2012. While this undoubtedly demonstrates the high cost of corruption, the level of legal cash outflows from China is also rising, with businesses and wealthy individuals investing their wealth overseas for fear of becoming embroiled in a corruption scandal. The Financial Times reports that during October within the period of a week, Anbang purchased the Waldorf Astoria in New York for $1.9b and Belgian insurance company Fidea. This is far from the only example, with some even predicting that this capital outflow will dwarf the gains from the anti-corruption drive.


The predicted losses to the Chinese economy reveal a great deal about the nature of the anti-corruption drive, in that it appears to be a genuine attempt to change the culture of the Communist Party, whatever the economic consequences. That said, there is always more to it than meets the eye. Since his assumption of the premiership, commentators have closely followed Xi’s grip on the party, highlighting instances where the anti-corruption drive may have been used as a disguise for the elimination of his rivals. Indeed, several of the main challengers to Xi’s rule, such as Bo Xilai and Zhou Yongkang were purged during the early stages of his premiership. However, the duration and depth of the campaign suggest that it goes beyond an attempt to consolidate Xi’s grip on the party, and is indeed a genuine attempt to clean up Chinese officialdom. Indeed, despite predictions of severe economic consequences, Xi has persevered and even furthered the campaign. According to China Daily, in the last 2 months alone 9 senior figures in the party have been subject to corruption allegations. These figures were:


11/17 Yu Yanshan, 49, head of the NEA's development and planning division

11/13 Feng Lixiang, former secretary of the Communist Party of China committee of the City of Datong, Shanxi province

11/06 Li Changgen, 57, a senior official of the Henan High People’s Court

11/06 Li Jiangong, the head of Bureau of Land and Resources in north China's Shanxi Province

11/05 Cao Jianliao, former deputy mayor of Guangzhou, Guangdong province

09/05 Liang Guoying The executive vice mayor of Dongguan city in Guangdong province

09/04 Bai Yun, head of the United Front Work Department of Shanxi Provincial Committee of the Communist Party of China (CPC)

09/02 Ren Runhou, vice governor of north China's Shanxi Province

09/02 Tan Xiwei, a former senior legislator in Chongqing Municipality

Source China Daily Aug-Nov 2015


Xi’s anti-corruption drive has already seen many prominent figures fall, and is likely to see many more in the coming months. The long term impact of the campaign is uncertain, but it is clear that Xi’s motives go beyond just consolidating his rule; all appearances indicate a genuine effort to end the archetypal problem of Chinese corruption.


Alibaba leading the way Internationall...

Alibaba leading the way Internationally.

September the 19th marked a milestone in China’s Internet history, the day the Hangzhou based e-commerce giant Alibaba (NYSE: BABA), raised more than $25 billion in the largest IPO in history. Founder, Jack Ma, became China’s richest individual with an estimated net worth of $21.8 billion and the 17 other partners who invested in the company 15 years ago have made significant gains. As China’s internet economy grows we can expect more Ma`s to grab our attention.



Alibaba is the last of the big three Chinese Internet giants to IPO, but arguably has the most diverse collection of businesses with: Taobao, Tmall, Aliexpress and Aliyun amongst others. Its flagship C2C portal Taobao, features nearly a billion products and was one of the 20 most-visited websites globally in 2103. The complimentary Tmall is also a C2C platform but focusing on both domestic and global brand sales. Alipay is a third-party online payment platform with no transaction fees. It also provides an escrow service


Economist’s estimates internet related businesses will add between 0.5% and 1% of GDP growth to China’s economy every year till 2025. As the country re balances its economy away from real estate and manufacturing towards the domestic consumer the IT sector is flourishing: helped by the rapid growth of smart phones and a comprehensive nationwide communications network just currently expanding onto a 4G platform.



Recruitment is a vital area for new IT companies where attitudes are changing. Gone are the days when the brightest looked to the SEO`s to provide a stable career path. New graduates want to be part of companies such as Alibaba, Baidu and Tencent where they attract new talent not only with their flexible, youthful corporate culture but with the allure of stock options: just ask the 20,000 Alibaba employees who are eligible for shares.


The question now for companies such as Alibaba is whether, with their new found global exposure and deep pockets to match, they will continue to look toward the Chinese consumer to provide growth or if they will start to take tentative steps to becoming global companies where they remain marginalised.  Traditionally Chinese IT companies have localised international ideas for the domestic market and performed well against International competitors, however it’s a whole new game outside of China. Their success is possible, but the process of becoming an established global business requires both strong institutional support as well as an internationalised corporate culture.


Of all China’s internet companies Alibaba stands the best chance. With its dominant domestic market position: not only limited to online retail but also in online payment processing and cloud services it has a diverse infrastructure and knowledge base. It must be on the prowl for acquisitions in Silicon Valley to bring it an international edge to its possible expansion plans. As its first foray internationally the company is currently in talks with India’s Snapdeal.

Chinese-Russian cooperation in the econo...

Chinese-Russian cooperation in the economic sphere: old friends new partners.

Its tough to keep up with geo-political posturing in the modern world; however it’s clear that Asia is the new epicenter of Great power alliances. Recent months have seen: India and Japan draw closer politically, China court India with promises of much needed infrastructure investment, greater Russian Chinese economic cooperation. It is Russia however that is on the precipice of uncertaintanty of whether it is really an Asian power and whether it wishes to once again seek a strategic alliance with China in Asia.



President Putin’s state visit in May, amidst the Ukrainian crisis and the well-documented decline in Russia-West relations, might well have significant implications for the creation of a new world order, whilst not about the creation of a military-political bloc (which neither side have interests in re-kindling), it is seen as a response to the Western policy of attempting to contain both Russia and China.


Russia is embarking on a strategy of developing the Russian Far East by increasing its economic integration within East Asia. Russia’s goals in Asia include: the promotion of multipolarity (limiting the influence of the United States but also managing China’s rise), developing beneficial economic relations, having a visible presence in all major Asian institutions and minimizing the adverse impact of regional disputes.


Economically the relationship is fraught with difficulties. While China has now become Russia’s main trading partner, their bilateral trade was less than $100 billion in 2013, much lower than that between China and its major Western partners. Diversification is the key for Russia, limiting its exposure to any one block in terms of natural resources and opening new trade routes into Asia.  One such resource is Natural Gas where procurement from Russia is likely to reduce the so-called Asian gas premium and lower the market price for many Asian economies, this deal now appears to have come to fruition in the form of a 30-year, $400 billion deal between CNPC and Gazprom.



Of significance to the Gazprom deal is the relatively low price agreed for delivery: Russia’s is seeking ways to counter the feeling that Siberia is simply becoming China’s raw material backyard and the contract provides for the development of major infrastructure in Siberia.


Whilst Chinese officials make a show of treating their Russian counterparts as representatives of an equal great power, a status they deny India and Japan: in China’s “Silk Road” strategy, there is a growing tendency toward Chinese influence in the post-Soviet arena amongst the Central Asian Republics. This causes a dilemma for Moscow as to reconciling this influence with Putin’s strategic vision of Eurasian integration, whilst maintaining power parity with China.


With the convergence of their models of government and their national ideologies, Russian and Chinese leaders increasingly share a common conceptual framework that is distrustful of popular democracy and of unconstrained free market economics. Internationally they reinforce each other’s legitimacy and in the long term will inevitably draw closer both economically and politically. 


Pictorial: Treatment of ALS in China...

Pictorial: Treatment of ALS in China.

ALS awareness has recently been brought to people`s attention with the ice bucket challenge, globally raising an unprecedented 75 million USD for research into the disease. A specialized Chinese research and clinical application team at the Neurorestoratology center at Jingdong Zhongmei Hospital, headed by Professor Hongyun Huang, has been pioneering controversial treatments of central neural system diseases for the last decade: carrying out cell-based neuro-restorative therapies for spinal cord injury (SCI), motor neuron diseases (MNDs), amyotrophic lateral sclerosis (ALS), cerebral palsy (CP) and multiple sclerosis (MS). Currently on their 2nd generation of neuro-restoration therapy, a multi-cell, multi-route treatment, Professor Huang has successfully treated thousands of patient: whilst promising no cure, he has brought greater levels of mobility and quality of life to sufferers.


The type of cells used vary according to the disorder but include: olfactory unsheathing cells, neural progenitor cells, Schwann cells, umbilical cord stromal cells, autologous bone marrow mesenchymal cells and autologous nasal olfactory cells. Which are delivered to the patient via brain and spinal cord injections, intrathecal implant by cervical puncture, thoracic puncture, lumbar puncture, cisterna magna puncture and intravascular injection.


The treatment, whilst yet to be proven by western scientific standards and explained fully by Professor Huang himself, still speak for themselves, overturning decades of convention that chronic spinal injury can never be treated.


Over a period of a few months Patricia Calvo followed a selection of Professor Huang`s patients as they received the treatments and saw the realities of being given back mobility that had eluded them for years.


For more on ALS please visit the ALS Association website.

Beijing, Jingdong Zhongmei Hospital.

All Images © Patricia Calvo




















It`s trade that fosters good neighbours...

It`s trade that fosters good neighbours not confrontation.

Over at least the past 25 years, the case for investing in China came with little in the way of political strings attached. That could now be changing.


Years of relative calm have suddenly given way to rising tensions all along China’s maritime borders. Friction is also growing between Beijing and Hong Kong, where the Central Government is taking on democracy activists ahead of the 2017 election of the territory’s chief executive. This is all occurring against a backdrop of a slowing economy as the debt-fuelled, investment- driven growth model which sustained GDP rates for the past 20 years runs out of steam.


The threat of a hard economic landing had always been the key concern about China. Investors now must weigh up the risks associated with a more assertive Chinese foreign policy, as well as a dramatic hardening of official attitudes on the mainland.
It’s not enough to blame this sudden shift on the appointment of Xi Jinping as head of the Communist Party at the end of 2012. A globally more assertive China is the product of a confluence of factors, including the country’s own historical experience and surging economic growth. Changes in the international order - not least the perceived decline of the west following the global financial crisis - have also helped change Beijing’s thinking.


Chinese scholars blame the U.S. for upsetting the regional status quo after President Barack Obama’s “pivot to Asia,” starting in 2011. U.S. attention had been dominated by the “War on Terror” for the previous decade, and the Obama White House’s attempt to refocus on Asia was seen in Beijing as an effort to contain a rising China. Obama denied that this was U.S. strategy throughout his high-profile visit to the region at the end of 2011. The president’s visits to the countries on China’s periphery, including historical rival Japan, were intended to send the message that the U.S. remains committed to keeping the peace in East Asia.


If they were also intended to send a message to Beijing to back down from its various territorial disputes in the region, then Obama’s trip was a failure.


If the nationalists hogging internet message boards and composing editorials for the Global Times newspaper had their way, conflict in the Pacific would begin tomorrow. The increase in the official Chinese military budget has exceeded official GDP growth rates for years, though analysts believe the People’s Liberation Army still isn’t ready to adequately project power beyond China’s borders.


That hasn’t stopped long-simmering territorial disputes between China and its neighbors from deteriorating into open bickering. China and Vietnam are trading accusations about incidents of vessels ramming each other in the South China Sea, while the Japanese and US air forces complain of Chinese jets buzzing their planes in the skies above the East China Sea. China’s neighbours accuse Beijing of throwing its weight around, refusing to accept arbitration and risking open conflict.


This shift in perceptions about China can’t all be blamed on Xi Jinping, but his appointment to lead the country has brought with it a notable hardening in China’s foreign and domestic policy forgetting the adage that it`s trade that fosters good neighbours and not confrontation.


The optimistic view is that China, now the world’s second biggest economy and on track to be the largest by the middle of the decade, is attempting to redraw the lines of a post-World War II settlement that it wasn’t given a say in the first time around. An alternative view is that a newly assertive People’s Liberation Army, bolstered by China’s economic rise, with the civilian government in tow and cheered on by nationalist voices, is looking to settle historical scores in a dangerous game which risks open conflict.


It’s too early to say with any certainty what Xi Jinping intends, though it’s clear that his vision for China includes a more assertive stance overseas and less political dissent at home.


Xi’s domestic policy has so far been marked by a sweeping anti-corruption campaign, which has surprised both for its length and breadth. It’s not just corrupt officials and military officers who have suffered. Political activists, lawyers and journalists have been swept up in the campaign. Simultaneously terrorist attacks tied to Uyghur separatist groups have resulted in a more visible security presence on the streets of many cities.


This increase in political tensions hasn’t had much impact yet from an investment point of view. For now, business executives in China see the country’s deteriorating relations with its neighbours as an unwanted distraction. Meanwhile, the anti-corruption crackdown has only served to expose the dangers of basing a China business model on the practice of gift-giving, as some luxury brands have discovered to their cost.


Businesses operating here would rather focus on long-standing gripes about market access, unfavorable treatment and an opaque and arbitrary regulatory framework. But the investment case for China becomes harder to make as the onshore market cools without any corresponding improvement in the operating environment.


It used to be a given that the Communist Party would not threaten its economic development by challenging Asia’s long-standing balance of power. The Communist Party intends to bring China’s urbanization rate up to around 75% from the current 52% over the coming years, and that process requires a still-intense focus on domestic policy and avoidance of territorial entanglements.


But that view has been shaken in recent months by increasingly violent clashes between China and its various neighbours. The anniversary of the centenary of the start of the First World War has resulted in more than a few comparisons between modern China and Kaiser Wilhelm’s disastrous attempt to push Germany up the rankings of the Great Powers. If China could only resolve it`s identity crisis and become so much more than simply an enviable development model, it would find a more receptive Asia to its leadership ambitions and remove uncertainty about where the region is headed.


A direct policy response to Sino-African...

A direct policy response to Sino-African relations or a genuine new chapter in the U.S-Africa relations?

It is fair to assert that it has taken America decades to realise the true potentials of an emerging Africa, and that she is only doing so on the heels of growing Chinese influence on the continent. This assertion has led many experts to believe that the well-publicised upcoming US-Africa summit in August is another opportunity for the US to re-strategize and come up with policies that will counter and contain the growing Chinese presence and influence on the continent. Truth be told; there’s growing concern within the corridors of power in most western nations notably; France and the United States that, giving the speed at which China is penetrating Africa, China could soon start enjoying the level of political influence in Africa that was historically held by France and the United States. With this in mind, both countries have had to go back to the drawing board and drastically redesign their African policies, with each one of them emerging with different strategies and policy options to contain the Chinese expansion and grip on the continent. The forthcoming US-Africa summit could be seen as yet another opportunity to re-engage with Africa. However, for this to yield any fruits, many looming questions must be sincerely scrutinised and answered.



Is America stepping in late? Can the Americans match the Chinese success in curbing and nurturing Africa at the same time? Can they move in with full packages like the Chinese do? Have they got the extra money to spend like China? Can the Americans establish relationships based on friendship and mutual understanding rather than the tutor-student relationship that is being perceived by many Africans? Can the Americans compromise on their values for democracy and human rights in favour of a “cordial and friendly relationship”? What of the non-interference policy being advocated and practised by China? A well-known and highly adorable sweetener in the Sino-African relations has no match, especially with proponents and advocates of democracy and the respect of Human rights. With a capitalist system in place, how will America create and bank role state owned corporations to take on big and visible projects in Africa in return for natural resources?


To be able to answer the above questions, one will need a full understanding of the foundations on which these relationships with Africa are established and how they have evolved over time.


It is evident that China’s huge and expanding presence and success in Africa is not by chance or luck. It has been a well thought and worked out strategy in the making for many years. A Chinese foreign minister Li Zhaoxing once stated that “today’s Sino-Africa relationship is viewed by both sides as deep-rooted and forged in years of mutual support “. Well, that is the Chinese narrative, and what they do not also tell the world is that it is an unbalanced relationship in which one out-powers the other in everything, leaving the weaker with little or no bargaining power or a better alternative.


Early foreign policy reforms embarked on in the early 90s by the Chinese government regarding Africa can be credited for the country’s success on the continent. As early on as 1995, the commerce ministry, on orders from the Chinese state council was instructed to reform its Africa policies, prioritising any link between aid and trade.  Creating the Forum on China–Africa Cooperation (FOCAC) in 2000 was a clear indication that there was a true commitment within the highest level of Chinese government to foster bilateral trade and relations with Africa. The cornerstone of this commitment was the Chinese believe in the continent and willingness to take risk while the rest of the world’s investment community watched from a safety distance. Note, FOCAC was launched in October 2000; five months after the US congress had approved the African Growth and Opportunity Act (AGOA).


Via partnership programs with host countries, the Chinese government has help fund multimillion dollar projects across the continent, most in infrastructure ranging from road construction, power plants to rail ways. To many Africans, this is the kind of investment and development aid the continent has been yearning for and not development aid in the form of wheat and flour or digging wells. Even if the oil and other natural resources are being siphoned to China, they are at least leaving behind visible investments. 



So far Africa seems quite comfortable with that relationship with China, but not to the satisfaction of the US, who sees China’s presence in Africa as being exploitative and on many occasions has had to voice these concerns openly. In 2012, Hillary Clinton, the then US secretary of state while on an African tour warned Africans against unnamed “outsiders” coming to “extract the wealth of Africa for themselves, leaving nothing or very little behind.” It was obvious who the unnamed outsider was. China feeling guilty, quickly responded by accusing the United States of seeking to sow discord between China and Africa while keen to reap benefits for itself from the booming continent. It is indeed a battle between two elephants.


America and other proponents of democracy believe China has no plans to halt its expansion on the continent even when democracy and humans rights are at risk. But fairly speaking, if one was to do a survey in many African countries on what they will choose between visible development and democracy, we all can guess the outcome. Very few will want to compromise any development initiative or project (even with known long term exploitative objectives) for democracy. That is not to say democracy does not have its place.  Both should go hand in hand. America seems trapped in a dilemma, given that on one hand they do over emphasised democracy; while on the hand continue to support some autocratic and in some cases military regimes on the continent. These mixed messages have not been doing America any good.


The African Growth and Opportunity Act (AGOA) approved by the US congress and passed into law in 2000 was a golden opportunity for the United States to re-engage Africa and take over the front seat in piloting the continent’s growth. However, the lack of commitment and the limitations with AGOA explains why 14 years down the line; the US is still trying to catch up. First and foremost AGOA which granted preferential duty-free and largely quota-free access to the U.S. market for some 1,800 products from 41 sub-Saharan African countries was a bold and a major step taken by the US to engage with Africa on the trade front, however the details of the program lacked the ingredients required to enhance and kick start growth on the continent.  Secondly AGOA highly publicised as a program aimed at encouraging exports from Africa, failed woefully in encouraging new product lines being exploited and exported to America. There was hardly any investment in infrastructures to boost new productivity, whether be it in the garment industry or basket weaving.


The program ended up only facilitating exports in products that would have been exported with or without AGOA. For example, 2008 figures show that African countries exported over $66 billion worth of products to the United States, an increase of almost 30% from 2007. But more than $62 billion, or 94%, came from oil and gas and minerals, products that would have been exported with or without trade preferences. Similar in 2013, oil and petroleum products accounted for over 80% of the exports to the United States from African countries. Hopefully, the shortcomings of the AGOA program that is expected to come to an end in 2015 will be used as a yard stick and learning curve for future engagements with Africa.  America had the opportunity in Africa, but lost it to China.


Another bone of contention between the US-Africa relationship is the perception held by many Africans with regards to the Washington consensus. For close to three decades today, the market fundamentalism or neoliberalism (Washington consensus) being implemented by the World Bank, and her sister institution the International Monetary Fund has had very little noticeable impact in developing the African continent and alleviating poverty via economic growth. It is again fair to assert that both institutions failed to jump start the continent’s economy. Many [1]studies have concluded that the strings and conditions attached to most development aid under the Washington Consensus were dampening rather than encouraging economic growth on the African continent. Even still in cases where lesser strings and conditions were attached, the implementation mechanism of policies designed in Washington had very little impact, since they often failed to directly address the problems and challenges facing the struggling masses.


The Washington consensus on a grand scale agreed and encouraged developing countries to export more of their natural resources including cash crops to international markets, so as to raise funds for servicing debts. Countries implementing the Washington Consensus (structural adjustment and stabilisation programs) were often forced to cut spending on vital sectors such as health, education and development so as to meet up with debt repayment plans.


This left many impoverished African countries with no glimpse of hope to ever industrialise and diversify their economies.


Many impoverished countries were often encouraged to concentrate on the production of cash crops similar to other developing countries, which obviously resulted to a surplus in the market and hence leading to a drastic fall in prices on those products and commodities, this to the benefit of the richer and developed nations. Fairly speaking, the Washington Consensus, from its inception was never designed to enhance development, economic growth and fully alleviate poverty in the developing countries. In a real world, it was/is a well-crafted debt creation and collection tool. The only thing the Washington Consensus succeeded in doing was widening the gap between the rich and poor, and creating new oligarchs in countries that were implementing privatisation programs.


Twisting the arms of developing countries to carry out recommended structural reforms at the expense of key functions of the state was never going to be growth enhancing. This may be explains why for over a quarter of a century, the World Bank and the IMF despite spending a chunk of cash, have failed to deliver tangible results in Africa.


Contrary to these conditional and strings development aid, the Chinese aid comes with no strings or conditions attached to it. However encoded within the aid packages are pseudo long term exploitative objectives whose adverse impacts are often too blur to see. The perception being portrait by China is that, they have agreed to deal with African countries as partners in development rather than the master-servant relationship practiced by the western nations in Africa. As per the Chinese narrative, it is a give and take kind of relationship.


The coming of the Chinese with their new model, aka the Chinese full package (Money, Technical expertise and protection from international sanctions) changed the balance. The complete package, from the sound of it is always too good to not tempt many African leaders, especially those with murky human right records.  But the big question is, to what extend can these countries rely on China for protection in the event of a unilateral action, say from one of the super powers? For now, and lessons from recent events have shown that the probability of China stepping in and preventing a military action with the use of  counter force is close to, if not zero per cent. In that full package, their guaranteed protection ends at blocking UN Security Council resolutions against countries in which their interest is at stake. But as soon as the Security Council is by passed, China has proven not to have the guts to stand in the way. Sadly in some instances, they have quickly switched sides to get closer to the winning group so as to secure their interest when the new group takes over.



Possible policy options if the US-Africa summit fails to achieve its goals


If the summit fails to achieve its defined goals, the US will be left with no option but to concentrate on hotspots where there are conflicts, since it is evident that China often shies away from mingling in internal conflicts. With its military strength, which is also its biggest asset and export, the US will stand to benefit by increasing the exportation of this asset to countries rich in natural resources.


One way to achieve this will be to promote and expand the war on terrorism, so as to militarily engage those countries.


To a lesser extent, encourage espionage to foment new conflicts on the continent, so to have a reason for intervention in favour of a regime that will be pro-American.


Form new alliances and strengthen existing ones with other disgruntled stakeholders such as France who are losing grounds on the continent, for a joint resistance against the Chinese expansion on the continent.


What America should do


It is not yet too late. There is still a void in the industrialisation sector across Africa and the US has another chance to fill that gap. If the Americans will want to remain relevant in Africa for a foreseeable future, then they will have to deviate or shift their strategy from the heavy military oriented interest to a rather economic interest.


Cut down its military assistance to the continent and redirect the resources to visible growth enhancing infrastructure projects.  It is pointless to carry on providing military assistance and training regimes that in most cases are the very ones creating the greatest problems. Not cutting down on this will imply that, the US will carry on expanding its military presence on the continent via the Africa Command Centre (AFRICOM), while China on the other hand will carry on expanding its economic presence. It is obvious which one will pay off in the long term.


Rather than embarked on exaggerating the security risk of the continent and scaring off potential American investors, the US should promote and encourage investors to move into the continent and invest in the continents’ infrastructure, so as to turn Africa into the new factory of the World. There is enough cheap and available labour to run that new factory. Infrastructure should be built to take on the production that is currently being outsourced to Asia, in particular China. It will be beneficial for America to have an alternative, and hence reduce the heavy reliance on China who is at the same time a real rival.


With over 200 million people aged between 15 and 24 (the youth bracket), Africa has the youngest population in the world, an asset which the US can exploit for its consumer based economy.   With that youth population size, it is evident that cheap and sustainable labour can be sourced from the continent.



After this summit, Obama should multiply the number of trade visits to Africa during his remaining years in the Whitehouse, taking along with him large delegations of potential investors. The era of the “BIG America” perception is fading out, so it will be a miscalculation to seat back and send low level government officials on behalf of the president and expect much in return from the African head of states. Taking the lead and championing such trips will delineate a new level of commitment and readiness to do business. A Long term commitment to invest in key sectors of the economies will be key to the success of this summit.


The US must stop leaning on the risk factor in Africa, because others are taking the risk and succeeding. One of the reasons why security is an issue is because of the huge youth unemployment. Dangerous sects and extremist are exploiting this high rate of unemployment to their benefit.  A case in hand is the dangerous extremist sect Boko Haram originating from North Nigeria. The shrinking of the major garment in industry in that part of the country left many youth unemployed and hence vulnerable to Boko Haram recruiters. Therefore seating back and relying on a military response is not an option.


From a Pan Africanist perspective


Africa has a lot to offer and has complete packages as well, which are; expanding markets, cheap labour, and natural resources. They deserve the full attention and respect from their counterparts.It is obvious today that the opportunities in Africa and its potentials far outweigh any challenges the continent might be facing. Now the fastest growing continent in the world with growth estimated at 7 to 10 per cent and home to 7 of the 10 fastest growing economies in the world; Africa really has a lot to offer. The continent must stop portraying itself as a victim and the weakest link during negotiations. To carry on wearing the victims’ hat at the negotiation table is self-defeating.


The continent has what it takes to be in control now and to define the rules of the game on the continent. External actors should not be the ones setting the rules of the game being played on the continent.  Despite all the odds and criticism, the coming of the Chinese gave the continent an alternative and a backup to cut loose of the conditionality regime that had governed the continent for many years. It has repositioned Africa and given the continent some leverage over its bargaining power. However, China should not be blindly embraced. Africa must plan now for the long term and its leaders must be conscious of the fact that whatever arrangements they make today, their impacts will determine the future of the continent. Externalising our economic growth and surrendering it to external actors to design and control the pace of that growth is not healthy for the continent and that format is not sustainable.


Africa has one more chance in its history to correct the errors of the past by clinging on these new opportunities, exploiting them to its benefit and get the continent ready for the next wave. Though there is so much interest on the continent and somewhat inflated speculations about its growth potentials, the continent is at a cross road and any policy blunder now will be very costly for its’ future.  The purported adoration for the continent will not carry on forever so it must act wisely.  If it squanders these opportunities then it will have but itself to blame.


Addressing the high rate of youth unemployment on the continent should be given a priority. Reducing youth unemployment will tackle a majority of the security problems while at the same time creating a consumer base, which will in turn guarantee a sustainable economic growth.


And finally the need to boost intra-regional trade within Africa and speed up the process towards a single trading union is more important now than ever before.


This article was originally published in the African Policy Forum and is reproduced here with the permission of the author. Eric Acha is a policy analyst and the Executive Director of the Africa Policy Forum.


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