Our China who art in heaven, hallowed be thy growth rate

UPDATE 4: thanks to all the critics on this post, too bad I couldnt get Chinese censoring technology to work:) UPDATE 3: 9:30am Sat 10/9: links to Nobel Peace Prize and Charter '08

UPDATE 2: 1:30pm. New Yorker writer Evan Osnos generously replies to my criticisms (see end of post)

SCOREBOAD UPDATE 10 AM 10/8: understanding key to China's future development: Nobel Committee 1, New Yorker 0; Liu Xiaobo 1, Justin Lin, 0.

A writer in the New Yorker has an article fawning all over China’s rulers and Chinese economist Justin Lin (currently the Chief Economist of the World Bank).

I’m saddened to see my favorite magazine publish an article seemingly in search of every possible fallacy about growth, the main one being that if you have a high growth rate, then the current autocrats and their economist advisors must be Gods.

(Sorry to be so harsh.  Can you tell that this time I am really annoyed to see so much gushing over a Party that kills, beats, and imprisons any Chinese citizens who are not quite as enthusiastic about their own government as a New Yorker writer? And recommends this approach to other countries?)

Let’s review the logic and evidence.

1. See previous post on the myth of the benevolent autocrat. (To be fair to the New Yorker writer,  he mentions briefly at the very end of the article Dani Rodrik’s similar argument. But it comes as across as a CYA after the long hagiography.)
2. Rapid growth episodes never last indefinitely, so forget all the nonsense about projecting today’s growth rate forward till China overtakes Japan, the US, God, etc.
3. Especially considering (2), Growth is not a reliable indicator of performance, income levels are what matters:
   1. China’s per capita income is currently 13 percent of the US level.
   2. Remember growth is the CHANGE in income. A change is made up of two elements:
      1. The extent to which things are good now.
      2. The extent to which things were totally f’d up before.
         1. China performs really well on this second part of the CHANGE equation. Not even mentioning previous authoritarian emperors and political chaos, it had from 1949 to 1976 a totalitarian psycho in power responsible for the deaths of millions, the Great Leap Famine Forward, the Cultural Revolution.
   3. So compared to the official “complete wacko destructive” standard set by Mao, today’s citizens are free-er, but still not very free.
   4. Did I mention that I am really annoyed?

So another way of stating China’s rapid growth recipe would be something like the following:

Have a succession of crazy autocrats, political chaos, and war savagely repress one of history’s most inventive peoples, along with not allowing one of the most successful trading diasporas in history to operate in China proper.  Then have things calm down a bit and have somewhat less crazy rulers allow more of the people’s energy and creativity to burst out. Presto, the change from EXTREME NEGATIVE to LESS NEGATIVE is called a “growth rate,” and it will be high. Now accept worship from around the world.

UPDATE 1:30PM New Yorker writer Evan Osnos has a generous response to this critique:

Dear Bill, Thanks for the twitter headsup to your post. I agree with your "logic/evidence" on China's growth model. I also agree with you on the myth/fallacy that it's a guaranteed (or democratic) path. I think we'll have to disagree on whether this piece about Lin and his ideas is an endorsement of him - - or an effort to explain the background of an unfamiliar name in an influential job and why he got there. The story also relies on the critiques from Yang Xiaokai, Yawei Liu, Yao Yang, Wu Jinglian, and Dani Rodrik, but only one of those five was referenced in your post. Fair enough: I suspect you found the overall mix to be unpersuasive. As I said, I agree with much of your take on the overall approach to growth. Best, Evan

UPDATE 3: New York Times on Nobel Peace Prize for Liu Xiabo.

The English translation of Charter '08 that Liu Xiabo signed along with 300 other Chinese intellectuals.

The coming end to China's rapid growth

China's remarkable growth rate is unlikely to last. No country in history has managed to grow nearly so fast for so long. "China is defying the law of gravity at the moment," says New York University economist William Easterly, who has tracked economic development for decades. "But that doesn't mean that gravity is wrong."

…

From 1900 to 2000, NYU's Mr. Easterly says, per-capita growth of all countries ranged between 1% to 3% a year. Nearly all the nations on the high end so far, he says, are democratic capitalist countries — and the additional growth over long periods of time made them rich.

"When we make too much of growth spurts," he says, "it like making too much of a basketball player who has a hot hand."

From last week’s Wall Street Journal.

And here is some more substance (possibly spurious) to rationalize why China's growth will slow down, for those of you unhappy with impersonal statistical tendencies.

Was the poverty of Africa determined in 1000 BC?

The usual development conversation about determinants of per capita income revolves around modern choices of institutions or economic policies. But what if history is the main determinant of development today? A paper by Diego Comin, Erick Gong, and myself was just published in the American Economic Journal: Macroeconomics. We collected crude but informative data on the state of technology in various parts of the world in 1000 BC, 0 AD, and 1500 AD.

1500 AD technology is a particularly powerful predictor of per capita income today. 78 percent of the difference in income today between sub-Saharan Africa and Western Europe is explained by technology differences that already existed in 1500 AD – even BEFORE the slave trade and colonialism.

Moreover, these technological differences had already appeared by 1000 BC. The state of technology in 1000 BC has a strong correlation with technology 2500 years later, in 1500 AD.

Why do technological differences persist for so long? The ability to invent new technologies is much greater when you have more advanced technology already. James Watt had acquired a lot of tech experience in the mining industry which he used to invent the steam engine. Other people with the ability to make steel could then slap his steam engine on a vehicle running along steel rails and give us railroads.

Past technology alters probabilities of future success, but does not completely determine it. The most famous counter-example: China was historically technologically advanced and did NOT have the industrial revolution.

A large role for history is still likely to sit uncomfortably with modern development practitioners, because you can’t change your history. But we have to face the world as it is, not as we would like it to be: deal with it. Perhaps when you acknowledge the importance of your own history, you are then more likely to transcend it.

The Asian Man's Burden? China worried about prospects of Europe

According to the FT, China's Investment Corporation is "very concerned" about threats of further instability in the Eurozone. Considering also China's big new role in aid to Africa, is it time to start wondering whether both World Bank and IMF should be moved to Beijing?

Not that I am willing to join the China-worship cult, but I DO love historical ironies that deflate pretensions of the White Man as Savior.

Can the West learn from China in Africa?

Deborah Brautigam, Associate Professor in American University’s International Development Program, is author of the book The Dragon’s Gift: The Real Story of China in Africa (see our review here), and a new blog which digs into current China in Africa issues reported in the press. She recently spoke at NYU and answered a few of our questions. Q:  It’s my reading of your book that you think Western donors could learn something from the way China behaves in Africa. What are the strengths of the Chinese way? Are there specific strategies or programs that the West should pay attention to?

A: As a donor, China's way has several advantages. Take the way they operate. They rarely "poach" skilled staff from African ministries to work in their own offices. The focus on turnkey infrastructure projects is far simpler and doesn't overstretch the weak capacity of many African governments faced with multiple meetings, quarterly reports, workshops, and so on. Their experts don't cost much. In addition, their emphasis on local ownership is genuine, even if it leads to projects like a new government office building, a sports stadium, or a conference center. They understand something very fundamental about state-building -- something that Pierre L'Enfant understood in 1791 when he teamed up with George Washington in newly independent America:  new states need to build buildings and dignity, not simply strive to end poverty.

But the Chinese also funded university scholarships, roads, bridges, mini-hydropower, and irrigation, for decades -- when other donors had moved away from most of these sectors. And like Japan, they see nothing wrong with using subsidies to help foster investment by their own companies; this is seen as beneficial to both sides. From the 1970s to the early 1990s, Southeast Asia's "miracle" was underwritten not only by good policies, but by Japanese investment, and Japanese aid was a partner in this. These investments boosted manufacturing prowess, attracting Japanese firms to go offshore. China's engagement in Africa could have similar results in at least a handful of countries with receptive leadership. The Chinese avoid local embezzlement and corruption by very rarely transferring any cash to African governments. There is almost no budget support, no adjustment or policy loans. Aid is disbursed directly to Chinese companies who do the projects. The resource-backed infrastructure loans work the same way. Of course those companies themselves might give kickbacks, as we've seen in Namibia.

Q: How about vice versa? Does China need to learn from the West?

A: Beijing's stubborn refusal to be transparent about official aid and other flows of development finance has created headaches for the Chinese that could have been avoided, in some cases simply by publishing information already being collected in China. The OECD members could teach China something here. The West and Japan are also far more sensitive to social and cultural differences and power relations -- resettlement issues, land tenure rights, women's role in production. In general, the Chinese -- like the World Bank decades ago -- simply depend on local governments to sort these things out. That's one of the downsides of genuine local ownership. China also needs a Foreign Corrupt Practices Act to provide a framework for moving against corruption and kickbacks overseas.

Q:  Is Chinese aid more effective than Western aid? Do we have enough information to answer this question?

A: More effective at what? To answer this question we really have to know: what is the real purpose of aid?  If we simply "follow the money" from the US, for example, we can see that national security (including resource security) and diplomacy appear to be far more important than reducing poverty or fostering growth. That said, our understanding of the impact of Chinese aid on development is very, very weak and highly anecdotal. There simply is no data. Until recently, Chinese aid was quite modest and had only local impact. It's still not very extensive. I suspect, as with Western aid, that it will be more effective in conditions/countries with more developmental elites: Mauritius as opposed to Mauritania, for example. On the other hand, Chinese business engagement is already having a tremendous impact. Huawei and ZTE are transforming the cellular telephone landscape across Africa, for example. But this is not aid.

Q:  China has been heavily criticized for its close relationship to the government in Sudan. Do you think the Western perception of Chinese motives in Sudan is accurate? What kind of role do you see China playing in Sudan?

A: Al-Bashir is widely (and correctly) reviled for his role in trying to crush a rebellion in Darfur using extremely brutal force. Chinese aid to Sudan is relatively small, but their engagement (in a joint venture with Sudan) in oil provides the bulk of the revenues that allow al-Bashir to finance the war, and they have plenty of business. As the New York Times recently reported, in the north, Sudan's economy is booming. The Chinese have also blocked and/or watered down Security Council resolutions on Darfur, allowing their focus on sovereignty (and their concern about oil supplies) to trump the newer norm of the "responsibility to protect". Chinese arms continue to flow into the country (probably legally: Sudan is under a UN arms embargo, but it is a limited one). Sudan also has its own arms factories (built by the Chinese) which makes it hard to tell where arms actually originate. All of these provide ample fodder for the critique of China's role.

But several things are not widely reported.

• First, China's role in Sudan has changed over the past several years. They were crucial in getting Khartoum to accept a joint UN/African Union peacekeeping force (one, by the way, authorized by the UN, but not funded as generously as originally pledged). They allowed al-Bashir's case to be sent to the International Criminal Court for prosecution for war crimes (as Security Council members, they could have vetoed this). And as noted both by President Bush's special envoy, Andrew Natsios, and President Obama's special envoy, Scott Gration, Beijing is now working together with the US government and other major powers in developing joint strategies to bring the Sudanese government and the rebels to the negotiating table. As China-watcher Erica Downs put it, the West and China are now coordinating their "good cop" and "bad cop" roles in trying to end the crisis.
• Second, there is no doubt that Beijing could have moved much sooner, and much more effectively, to become part of the solution. But they never held all the keys to solving the Darfur tragedy. In making a tactical decision to focus on China as the lynch pin to solving Darfur's crisis, and using the 2008 Olympics as the pressure point, activists let the other major powers off the hook. To end the violence, Darfur needs a peace agreement, and that requires all the parties to participate in negotiations. The West has not yet been able to get all the major rebel groups to show up to start talking.

China in Africa myths and realities

In recent years, journalists and pundits in the West have looked on China’s economic engagement with Africa, including foreign aid, with growing alarm. An NYT op-ed a few years ago called China a “rogue donor,“ giving aid that is “nondemocratic in origin and nontransparent in practice, and its effect is typically to stifle real progress while hurting ordinary citizens.” Other negative stories about China in Africa include China abetting genocide in Darfur by supplying arms in exchange for Sudanese oil; propping up corrupt government in Zimbabwe; swooping in to undo the anti-corruption work of the IMF or the World Bank in Angola or Nigeria with offers of no-strings-attached loans; and generally ignoring environmental, safety and labor standards on projects in Africa.

So the idea that China’s aid to Africa could be in any possible way better, more credible, or more effective than Western aid to Africa may be a hard sell. But Deborah Brautigam, author of the new book The Dragon’s Gift: The Real Story of China in Africa, argues that focusing only on the China threat makes us blind to the real opportunities Chinese engagement offers for African development.

Part of the problem, says Brautigam, is that there is very little information about what China is really doing in Africa, and in this vacuum, “myths sprang up and were rapidly accepted as facts.” Brautigam fills this void and dispels, or at least complicates, some commonly held beliefs about China in Africa.

In other areas she finds evidence to back up criticism of China’s Africa policies, but argues that we should not see China’s stance towards Africa as static; it is evolving and can sometimes be influenced by international pressure. Throughout, some of Brautigam's best insights come from asking "compared to what?":  The book seeks to compare Chinese aid to Western aid as it really is, not as we wish it were.

A few examples of China myths and partial truths:

1) China targets aid to African states with abundant natural resources and bad governments

Actually, China gives money to almost every single country in Sub-Saharan Africa, excluding only those that don’t acknowledge the One China policy. There is little evidence that China gives more aid to countries with more natural resources or specifically targets countries with worse governance. China is not alone in its interest in natural resources in Africa, and natural resources are not the primary motivating factor for Chinese aid: like all donors, US definitely included, China is motivated to give aid by a mix of political, commercial, and social/ideological factors.

2) The Chinese don’t hire Africans to work on their projects

This depends on how long a company has been working in Africa, and how easy it is to find appropriate local labor. Ultimately, it also depends on African governments themselves, who have the power to dictate what proportion of project staff must be local (as Angola and the DRC have done). Brautigam also points to the stark contrast in standard of living between Chinese workers and managers in Africa, who tend to live in extremely simple conditions, and Western advisors, who more typically live in expensive housing or hotels. While Western experts may be fewer, they cost their projects a lot more.

3) China outbids other companies by flouting social and environmental standards

This one’s true but evolving…Brautigam portrays China as “on a steep learning curve,” struggling with environmental and corporate social responsibility issues at home and abroad. She gives some evidence that China and Chinese companies are becoming increasingly sensitive to international perception on these issues and may be inching towards international standards.

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This Wednesday (February 10) NYU’s Development Research Institute and the Wagner School are co-hosting a lunchtime seminar and book launch event with Professor Brautigam. Click here for more information and to RSVP.

UPDATE: This event has been cancelled due to inclement weather and will be rescheduled. People who have already RSVP'd will receive an email when a new time is confirmed.