Rebalancing the Chinese economic relationship – By David Jessop

Rebalancing the Chinese economic relationship

David Jessop

David Jessop

Published on August 20, 2016 – By David Jessop

Last month the Inter-American Development Bank (IDB) published a paper ‘Chinese rise in the Caribbean – What does it mean for Caribbean Stakeholders?’. Although, in its conclusions, it said little more than a number of Caribbean commentators have observed previously, it is important for three reasons.

Firstly, it disaggregates the Caribbean from the more usual approach whereby multilateral institutions write or speak about China in the context of the Americas, as if Latin America and the Caribbean were some coherent entity; secondly, the research-based study focuses on the economic benefits that might accrue from a more strategic approach; and thirdly, it encourages the region to be forward looking about what it wants out of its long term relationship with Beijing.    

The paper’s two authors make the point from the Caribbean’s perspective, that while China potentially represents a new export destination, an alternative source of capital, and a new source of tourists, the region must do more to take advantage of such opportunities. They observe that while the Caribbean’s relationship with China – an IDB member since 2009 – may appear to be symbiotic, nations in the region should be taking steps to ensure greater reciprocal benefit.

They also suggest that the Caribbean needs to determine how to respond if Chinese interest in the Caribbean region lessens as a result of Beijing restructuring its economic policy to accommodate slowing, but still remarkable, five to seven percent annual GDP growth; its increasingly consumption rather than investment-driven domestic economy; and its growing emphasis on exporting higher value manufactured goods and technology.

Such changes, the paper suggests, will require Caribbean nations to make themselves more competitive and globally attractive through undertaking the structural reforms necessary to become a manufacturing platform, a logistical hub, and a premier tourist destination for higher-income Chinese.

The report’s findings parallel other recent commentaries from hemispheric and multilateral bodies.

These suggest that China’s present, often starkly asymmetric economic relationship with the countries of the Latin American and Caribbean region, needs to change. They argue that what is required is a new approach that is developmentally more equitable, and which supports the closer integration of the countries of the region into the global supply chain through the transfer of technology, and by adding local value.

Achieving such an outcome for the Caribbean in the immediate future is likely to be challenging. This is because cash-strapped Caribbean governments caught in short electoral cycles may find it difficult to argue for long-term local value-added or market access against a background of Chinese investments that promise employment, foreign exchange and tourism taxes.

The matter is made complicated as typically, such investment arrangements involve state to state facilitation, state or quasi-state Chinese entities, loans to Chinese private-sector entities from state-linked banks, and sometimes limited competition. In addition, there are often associated side deals with Caribbean government’s offering for example land, tax breaks, duty waivers, citizenship, or other longer term arrangements likely in total to lessen the overall value of local content or the ultimate local return.

Put another way the short term benefits for governments are clear, they offer a means to spur growth and increase public sector revenues, but they provide little incentive to develop new initiatives of the kind the IDB and others envisage.

This is not meant in any way to downplay the importance of Chinese investments, but to observe that their complexity not only makes their full long term domestic economic benefits far from easy to quantify, but also potentially acts as a constraint on developing a more equitable long-term economic relationship.

Irrespective, Chinese investment in the region is continuing to grow.

On July 19 the Jamaican government announced that the Alpart alumina refinery in Jamaica had been sold by the Russian industrial giant, Rusal for US$299m to the Chinese state owned entity the Jiuquan Iron and Steel Company (JISCo). The company is expected to make a first phase investment of around US$220m to enhance production and reduce costs in November and plans to invest another US$1.5bn to establish an industrial zone co-located with the alumina facility.

The acquisition, which will make JISCo one of the top ten producers of aluminium in China, follows other signs that China, with cautious Jamaican government support, sees the country becoming a hemispheric Chinese enterprise hub. The approach involves first supporting the upgrading of the country’s infrastructure and then making use of its strategic location, deep sea facilities and workforce to competitively assemble, tranship and access the US, Latin American and other markets.

Another quite different development was announced by the St Lucia government on July 29 when it signed with a Hong Kong related company a US$2.6bn agreement to build what has been described as ‘the country’s first international standard integrated tourism development’. This involves the construction of a resort to be known as Pearl of the Caribbean on a 700-acre site to the south of the island, related to St Lucia’s recently introduced citizenship by investment programme.

Unusually the principal investor, who has an existing commercial horse breeding industry in Ordos in Inner Mongolia, reportedly sees opportunity in the region arising out of China’s rapidly growing equine industry that is linked closely to racing and gambling. The development, which also includes a free trade zone, is expected to appeal to Chinese, South East Asian and Russian investors and visitors.

It follows other Chinese related tourism mega-projects in the region, such as the still-to-open US$3.5bn Baha Mar resort in The Bahamas and the planned US$1bn resort development on and around Guiana Island off Antigua.

These and other developments suggest that China’s much to be valued economic engagement with the region may eventually supplant the once pervasive economic role of traditional partners.

The IDB report is of significance as it demonstrates the need for greater economic balance in future in the region’s relationship with China.

It and other commentaries imply that if the Caribbean is to retain its much prized independence, it will be important in the longer term that Chinese investment is balanced by the development of an indigenous and vibrant export-oriented Caribbean private sector with some form of preferential access to the vast Chinese market, plus Chinese provision for development programmes for Caribbean goods and services.

Without such support, there is a danger that China’s rise could pose a longer term threat to Caribbean economic sovereignty and indigenous enterprise.

David Jessop is a consultant to the Caribbean Council and can be contacted at 
david.jessop@caribbean-council.org. Previous columns can be found atwww.caribbean-council.org

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Comments

  • tulsiedas402sqn@Gmail. com  On August 21, 2016 at 9:20 am

    Mr. David Jessop very good article, let me add my two cents please the British had their time with Colonialism the American had their time with Imperialism Let’s give the Chinese their Chance at Maoism ( if I can coin that name) it was that Chinese Leader who shut Chiha out from the outside world and instructed his people to be capable of feeding, clothing, and be self sufficient. And that make China what it is today a world power their influence is of value.

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