China e as Regioes Em Desenvolvimento

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Journal of Developing Societies

DOI: 10.1177/0169796X07023003022007; 23; 305Journal of Developing Societies

Alex E. Fernndez Jilberto and Barbara HogenboomDeveloping Regions Facing China in a Neoliberalized World

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306 Journal of Developing Societies 23, 3 (2007): 305339

and third country on this list achieved no more than 1.8 per cent (theUnited States) and 1.1 per cent (Korea). Its annual growth of real grossdomestic product (GDP) from 1980 to 2000 was even more spectacularwith an average of 10 per cent. Over this period developing countries onaverage only grew 3 per cent, and the average growth of the rest of Asiawas 4.5 per cent (UNCTAD, 2005b, 2004, 2003, 2002b).

The rapid growth of the biggest developing country in the world is cur-rently a key economic and political issue. Chinas high rate of economicexpansion is based on a development model that combines a modern-ization of state-led economic organization and regulation with a gradual,controlled neoliberalization in which foreign transnational companies(TNCs) play a central role. China thus developed a successful model of mixing public and private roles and investment in order to achieve growththrough economic integration in the world market. The governmentfostered industrial export policies, including tax reforms, currency de-valuations and duty free imports, resulting in high productivity gains,especially in the export oriented regions in the southern provinces thatcould attract investment from Hong Kong and Taiwan (Houweling,

2004). Apart from the gures of its domestic product and trade, it is the1.3 billion population of the Peoples Republic of China (PRC) thatreects its current importance and its potential to become one of theleading economies of the world. Such an economic position is of courseto translate into much greater political power, affecting all other countriesas well as its international relations at the regional and global level. In theindustrialized countries China is considered as the decisive factor in theprocess of deterritorialization of global production, which in the United

States caused a loss of 15 million jobs in the industrial sector between1995 and 2002 (Si Zoubir, 2004). In 2005, the United States trade decitwith China moved beyond $200 billion, the largest trade decit of theUnited States with any country.

While the effects of Chinas rapid economic expansion can be seenaround the world, analyses of these effects tend to focus on the implicationsfor industrialized countries while neglecting the changing situation fordeveloping countries. To Asia, Africa, Latin America, the Middle East,and Central and Eastern Europe, however, the effects are likely to be asfar reaching, or even more so (see Table 1). On the one hand, being trans-formed into the so-called factory to the world, Chinas production in-cludes a wide spectrum of products, many of which previously formed an

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Journal of Developing Societies 23, 3 (2007): 305339

307Fernndez Jilberto and Hogenboom:Developing Regions Facing China

important part of the semi-industrial exports of other developing coun-tries. The abundance of cheap labour in China is causing competition withthese countries for Western export markets, and also for FDI by TNCs.Particularly for developing countries that have tried to attract foreigninvestment to the same sectors as China, this competition harms their newexport strategies, such as in the clothing sector. On the other hand, Chinesecompanies have started to become a source of FDI in several developingcountries.

Table 1.Several indicators for China, Sub-Saharan Africa, Latin America

and the Caribbean, and the United States, 2004

China SSA LAC US

Population (millions) 1,296 726 546 294GDP/cap. ($) 1,500 601 3,576 41,440FDI ($ billions) 62 20 69 121Export ($ billions) 593 232 276 819Import ($ billions) 561 212 237 1,526

Sources: CEPAL (2005), WTO (2005) and World Bank (2006).1

More importantly, with its industrialization and growth China is turn-ing into an important market for primary products. Chinas growing needfor natural resources forms a major opportunity for other developingcountries; the Chinese are willing to invest large amounts in sectors likeoil and minerals (example: iron ore, copper, nickel), whereas its contri-bution to the expanding global demand has driven up the prices of theseand other primary commodities (for example, natural rubber, wood and soy

beans). These changes in the terms of trade are especially positive for themany developing countries depending on the export of one or a few of these commodities.

The expansion of China has already brought about important changesfor developing regions, and they are likely to be extrapolated in theyears to come. With the continuation of Chinas average annual growthof almost 10 per cent over the last 25 years (implying its economy hasbecome nine times larger in only one generation), in the year 2020 aGDP of $14 billion would be reached, which is 32 times its GDP of 1980(UNCTAD, 2002a). Also considering the so-called synergies of GreaterChina (China, Hong Kong, Macau, Taiwan and also Singapore), the effectson the global economy are even greater due to Hong Kongs harbor and



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commercial potency, Taiwans technological potential (for example: itbeing the worlds largest producer of notebooks), and Singapore as acentre of high technology and qualied services. In 2003, of the 25 largestnon-nancial TNCs from developing countries (ranked by foreign assets),ve were from Hong Kong, another ve from Singapore, three from Chinaand one from Taiwan (UNCTAD, 2005a: 7).

The rapid growth of China and some other (emerging) economies inthe East and the South is creating a new global economic outlook for de-veloping countries. In the UNCTAD this is qualied as the new geographyof trade, shaped by three interlinked trends: the increasing share of

developing countries in world trade; South-South trade (commoditiesand manufactures) and economic cooperation reaching a critical mass;and the changing context of North-South interdependence and terms of engagement. Within this new context, as a new growth pole in the worldeconomy China has a major impact on developing regions: the most im-portant reason for the rapid growth of South-South trade is that outputgrowth in some large developing countries, particularly China, has beenmuch faster that in the developed countries the growth dynamics inChina and other Asian economies have positive effects, but they are alsoposing, new challenges for many countries (UNCTAD, 2005b: iiiv).

In international politics China has recently come to represent itself moreprominently, stressing its position as a developing country and seekingnew South-South alliances. In Africa, Latin America and the Middle East,China has strengthened its strategic economic relations by establishingcooperation forums and business councils, in order to secure its access toprimary goods and consolidate its export markets. It has started to play amore visible role since its membership of the World Trade Organization

(WTO) in 2001, such as its aligning with countries like India, Brazil andRussia in the G20. The G20 caused the failure of the WTOs Cancun sum-mit of 2003, forcing industrialized countries to take developing countriesinterests more seriously.

This article on Chinas global economic expansion and the effects ondeveloping countries and transition economies serves as an introductionto the two special issues of Journal of Developing Societies(JDS) on theChina effect on developing regions (numbers 3 and 4 of volume 23)with case studies on Africa (by Piet Konings), Indonesia (by J. ThomasLindblad), the Middle East (by Gouda Abdel-Khalek and KarimaKorayem), Russia (by Andr Mommen), and Latin America (by us). In thiscontribution we start with some facts and gures that illuminate what is



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meant with the global expansion of China. This is followed by an overviewof the twentieth century economic development of China, including theintroduction of market socialism, the process of Chinas neoliberalizationand the ongoing political cohesion of its state-party system. Only then canwe analyze the role of China in Asia and Chinas South-South policies. Byway of conclusion we discuss the meaning of the new South-South rela-tions in the context of contemporary globalization.

China is Going Global

Over the past few years, the world has become aware of the importanceof Chinas ongoing expansion. China has become a central place for pro-duction, investment, import and export, which are all heavily tied up toChinas role as the factory to the world. Between 1980 and 2003, Chinasshare in world trade increased more than ve-fold: its exports rose from0.9 to 5.8 per cent and its imports from 1.0 to 5.4 per cent (UNCTAD,2005b: 133). And this trend is ongoing. The effects on the global system canbe compared to those of the English industrial revolution in the secondhalf of the nineteenth century, the development of the West of the UnitedStates at the end of that century, and Japans industrialization after WorldWar II (Morrison and Brown-Humes, 2005). As analyzed in the otherarticles in these special issues, the China effect on developing regionsand countries, and on the sectors and actors within them, varies widely.Here we briey review the main trends of Chinas economic expansionthat have a global impact: its growing import of commodities, the increaseof Chinese exports, its success in attracting FDI, and China in its new roleas foreign investor.

With its rapid economic growth and expanding export production, Chinahas become a major consumer of natural resources and commodities, manyof which originate from other developing countries. China has becomethe worlds largest importer of several important commodities, such asiron ore. In 2004 China consumed 40 per cent of the worlds coal, 25 percent of the nickel, and 14 per cent of the aluminium. This massive Chinesedemand has contributed to rising commodity prices, as the steep increaseof metal prices since 2004 shows. In 2005, the International MonetaryFund (IMF) metal price index rose by 26 per cent (another 7 per centincrease was expected for 2006). With energy prices rising 39 per cent,this contributed to an overall 29 per cent increase (in dollar terms) of the IMF commodities and energy prices index in 2005. This process is



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evidently benecial to the exporting developing countries, as they hadsuffered from years of low world prices and related worsening terms of trade. The metal price level in 2006, for instance, is about twice as high asthe average price level of the 1980s and 1990s (IMF, 2006: 5463).

The Chinese contribution to rising world demand and prices of oiland other hydrocarbons deserves special attention. Internationally, it isthe second largest consumer of energy, only after the United States (seeFigure 1). This is partly because of its enormous economic activity, butalso a result of the notorious lack of energy efciency in the productionprocesses that take place in China. Only two decades ago the largest oilexporter of East Asia, China is nowadays importing massive amounts of oil. Since 2003, China is the worlds second largest oil importing countryand responsible for 31 per cent of the global growth of oil demand. Afterthe Middle East, Africa has become an important source for its oil im-port. While the former accounts for 45 per cent of the oil imported byChina, 29 per cent comes from Africa (Zweig and Jianhai, 2005). Due tothe economic and political importance of energy, this development is of major concern in industrialized countries. To developing countries with

large reserves of hydrocarbons, on the contrary, Chinese demand and in-vestment, and rising world market energy prices have been an economic

Figure 1.Oil consumption by countries and regions, 2004 (percentages)

Source: World Bank (2005).



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blessing. Politically, however, Chinas rise and the resultant shifting globalpower relations have also given occasion to complex new negotiations,as the case-studies on the Middle East and on Russia show (in Journal of Developing Societies , vol. 23, no. 4).

Next to its imports of fuels, minerals and metals, China imports largequantities of manufactures and agricultural products from developingcountries. Much of this South-South trade seems to be concentrated inEast Asia, but the gures are somewhat misleading since they include thelarge trade ows between China and Hong Kong (China), which functionsas Chinas transhipment port. In reality, large quantities of agricultural

raw materials and food for the Chinese market arrive from other partsof the world, such as soy from Latin America. Similarly, as part of East-Asian production sharing, manufactures from these countries arrive inHong Kong for further assembling or manufacturing in China. The so-called triangular trade involves China importing intermediate productsfrom more advanced economies such as Japan and South Korea. With thecheaper labour of Chinese workers these inputs are then further assembledinto products that are exported to the United States and Europe. As aresult, in 2004 China replaced the United States as Japans main tradepartner (UNCTAD, 2005b: 13041).Chinas massive imports are closely related to the remarkable growthof export production in China, and to the attraction of enormous ows of FDI. A large share of these imports serves as input for the factory to theworld. From 1985 to 2000 the value of Chinese exports increased from$26 billion to $249 billion. Together with high levels of public investment,FDI (implying the entry and expansion of transnational companies) inChina has been crucial for the growth and modernization of exports.2From1985 to 2000, FDI inows rose from $2 billion to $41 billion, and in 2004FDI to China was $61 billion. Thereby China is not only the biggest de-veloping country recipient of FDI, but also ranks third globally, after theUnited States and the United Kingdom with $96 billion and $80 billionrespectively.

Transnational Companies (TNCs) have played a key role in the expandingChinese production for the world market and even more so in the changingcomposition of Chinese exports. In the period from 1985 to 2000 the shareof primary products and resource-based manufactures decreased from 49to 12 per cent, whereas the share of high technology products rose from 3to 22 per cent. The share of TNCs in Chinese exports rose from 9 to 50 percent between 1989 and 2001 and the exports by these companies are for90 per cent manufactured goods such as machinery and equipment. There



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is also a large FDI component in technology intensive products: 91 percent in electronic circuits; 85 per cent in automatic data-processingmachines; and 96 per cent in mobile phones (all in 2000). Apart from USand European companies, in China there are a large number of TNCsoriginating from Asia, mainly South Korea, Japan, Hong Kong, Taiwanand Singapore (UNCTAD, 2002b: 16166; 2005a: 23). For other developingcountries China is thus a competitor in export manufacturing, whichincludes competition in FDI (see Figure 2) as well as export markets. InLatin America, as elsewhere, the issue of Chinas expansion is also about,the future spaces open for the development of industrial exports in aliberalized world in which PRC is pre-empting many markets for productsthat developing countries can export (Lall and Weiss, 2004: 23).

Figure 2.Regional distribution of net FDI inows in Africa, Asia,

Latin America and China, 19902004 (in billions of US dollars)

Source: CEPAL (2005).Note: * annual averages.

While China is a big shark in the sea of foreign capital, many developingcountries are proting from the fact that Chinese investments abroadhave grown substantially, reaching $11 billion in 2004. Chinas FDI indeveloping countries is primarily driven by its growing demand for naturalresources. Of the top 50 non-nancial TNCs from developing countries in2004, seven were Chinese: CITIC Group (no. 5), China Ocean ShippingCo. (no. 8), China State Construction Engineering Corporation (no. 19),



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China National Petroleum Corporation (no. 24), Sinochem Corporation(no. 28), TCL Corporation (no. 44) and China National Offshore Oil Cor-poration (no. 47). This is a noticeable change compared to the list for 1993that did not contain a single Chinese company (UNCTAD, 2006: 283; 1995:3031). Only CITIC is majority-owned by the Chinese state, but most of the other Chinese TNCs are also controlled by the state. Their rise is theresult of the governments determination to create Chinas own globalchampions, which are internationally competitive while operating understate control (The Economist , 2005: 67).

Taken together, for developing countries Chinas success in the

globalized markets has several faces. With regard to merchandise trade,China has denitely won the race against other countries of the South;while China increased its share of world exports from 0.9 to 5.8 per centbetween 1980 and 2003, Latin Americas share decreased from 5.5 to5.0 per cent, and Africas share fell dramatically from 5.9 to 2.4 per cent.Chinas imports, however, have equally risen and China has becomethe leading importing country in South-South trade (UNCTAD, 2005b:133, 141). For developing countries that depend on the export of a smallnumber of commodities, this diversication of export markets, the risingworld market prices, and Chinese investments have all been economicallybenecial. Conversely, developing countries that compete with China inexport manufacturing have seen trade and investment being negativelyaffected by Chinas success. In addition, cheap Chinese imports have beenhurting local manufacturing companies that produced for the internalmarket, especially small- and medium-sized companies.

Market Socialism and Anti-hegemonism

The economic miracle of market socialism has been the result of thestructural transformations that started in 1978 under Deng Xiaopingat the time that China was economically devastated by the cultural revolu-tion (196676) of Mao Zedong (Falkenheim, 1989). The repudiation of the cultural revolution was turned into an ideological and politicalinstru-ment to justify and legitimate the following 30 years of neoliberalrestructuring. Criticism of the process of economic reform of the state-party has been labelled as counter-revolutionary regression that impedesthe modernization and the globalization of Chinas economy. During thetumultuous 1970s, Deng Xiaoping systematically criticized the centralisteconomic policies of Mao that had caused low productivity in the industrial



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and agricultural sectors. Therefore Deng was punished with politicalre-education as dictated by the leaders of the cultural revolution. Hewas exiled to the province of Jiangxi where he worked in a factory andas caretaker of a school, yet without being expelled from the party. Hispolitical re-education permitted him to be reincorporated in the partyin 1973. In 1976, after the death of Prime Minister Zhou Enlai, the Gangof Four headed by the wife of Mao prevented him from replacing Zhou,but the political and economic chaos and the death of Mao that sameyear allowed the bureaucracy of the armed forces to eliminate the Gangof Four and the red guards that had lead the cultural revolution. This

facilitated the complete political rehabilitation of Deng Xiaoping, whoagain took up both the posts of Vice-Prime Minister and Vice-Presidentof the Central Military Commission, and started to gradually weaken therole of Maos successor, Hua Goufeng.

In his new position of power, Deng Xiaoping initiated the process of the four modernizations and this modernization of education and science,industry, agriculture, and defence opened the way for implementing mar-ket socialism. Foreign investment was to play an important role in thecreation of the socialist market economy. In 1980, four special economiczones were designated along the Chinese coast, involving special incen-tives to foreign investors, such as duty exemptions, tax breaks and exiblelabour regulation. Domestic companies were encouraged to link up withTNCs, and infrastructure and the legal framework were improved. Theresults were enormous, with high investment and growth rates. As theGDP growth of these zones was as high as 35 per cent per year, from1984 onwards many more zones were opened up to FDI (World Bank,2005: 167).

The aim was to achieve economic liberalization that would contribute tothe preservation of the power of the state, of the party and of the politicalregime of the state-party. For Deng, neoliberalization was compatible withChinas political regime in which the state-party forms the political arenafor civil society and for the Chinese economic actors. The successes of hisforeign policy were not only the re-establishing of relations with Russiaand the other republics of the ex-USSR, and the conservation of strategicrelations with the United States, but in particular the negotiations withthe United Kingdom about Hong Kong that resulted in the transfer of Hong Kongs sovereignity to the PRC in 1997. Under the banner of onecountry, two systems, Hong Kong (like Macau) has since then been aspecial administrative region of China. Previously, during Richard Nixons



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visit to China in 1972, with the signing of the Shanghai Communiqu theUnited States had already recognized that Taiwan territorially belongs toChina (Lasater, 2000). With the return of Deng Xiaoping to the politicalarena, China decided in the late 1970s to subordinate its internationalpolicy to the strategy of opening up to the global market and to abandonits Third World policies that had been initiated with the foundation of thePeoples Republic in 1949.

In the 1950s, China had initially sought to diminish its internationaldiplomatic isolation since its participation in the Korea war (195153) byimproving diplomatic and political relations with the new independent

states and with the anti-colonial movements for national liberation andindependence in the old European colonies in Asia and Africa. Alongthese lines China participated in the Conference of Bandung in 1955.At that time this was a very important international meeting for theparticipating countries and their representatives, among who was ZhouEnlai for China. The Conference of Bandung signalized the major globalrebellion of African and Asian forces against European colonialism duringthe Cold War. When considering the population that was represented,this conference was of even greater importance than the Conference of Versailles in 1919 or of Yalta in 1945 (Lacouture, 2005). In the 1950s, Chinahad followed a policy of conciliation as expressed in the afrmation of Zhou Enlai that the revolution cannot be exported, but in the 1960sthis approach changed signicantly due to Chinas repudiation of the de-Stalinization process in the Soviet Union (initiated in 1956) and later onChinas disapproval of thedtente or policy of peaceful coexistence of Russias President Khrushchev. The Soviet support to India in the warwith China in 1962 fed the Chinese-Soviet tensions and accentuated

the fear that peaceful coexistence would bring harm to the Chineserevolution, especially Chinas nuclear military development.With the cultural revolution, Chinas Third World policy assumed an

extremely ideological nature, promoting military and logistic support fora large part of the liberation movements that strived towards nationalindependence and an end to colonialism and imperialist domination inAsia, Africa and Latin America. This Chinese policy competed with theideological inuence of the USSR in these continents and supported theconcept of the peoples war, according to which the peasants of the ThirdWorld had to unite into revolutionary sectors and participate in theguerrilla wars against capitalist, colonial and imperialist oppression(Chen, 1972). Because of this approach China maintained a position of



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distance towards the Organization of Non-Aligned Countries, even thoughthis organization permitted developing countries to implement theirinternational demands in favour of independent economic development,freedom from colonialism and non-alignment in the Soviet-US conict.A similar attitude was held by China towards the Group of 77 that wasthe basis of the United Nations Conference on Trade and Development(UNCTAD) and strived for the creation of the New International Eco-nomic Order (NIEO).

The Chinese criticism against the Soviets revisionism and social im-perialism facilitated a rapprochement to the United States. In the context

of the Cold War, the Sino-Soviet polemic was Chinas main instrumentto slowly achieve a political and economic understanding favourable toBeijing. This instrumental conception of international politics and globalcapitalism had two direct consequences for Chinas foreign policy. First, theadoption of a pro-Western policy softened the ideological hostility towardsimperialism in the Chinese Communist Party. The party abandoned theLeninist conceptualization of global capitalism in favour of a new denitionbased on the idea of a struggle against international hegemonism, whichobviously included the USSR. The implementation of this new strategyagainst hegemonism contributed to Beijings abandoning of some of itsallies in the Third World, and to a gradual reduction of its developmentassistance and political and nancial support for anti-colonial and nationalliberation movements. Second, its international opening was overall dir-ected towards the United States, which permitted China to overcome itslag in economic and technological development. In return, the regimeof Deng Xiaoping was willing to coexist with American hegemonismin South-East Asia (in virtue of which the United States could continue

its arms sales to Taiwan). Meanwhile, in domestic politics and within theChinese Communist Party, Deng Xiaoping sought for consensus betweenthe members of the partys bureaucracy to replace Maos ideological ex-tremism based on class struggle by economic pragmatism. Economicdevelopment was central to Dengs pragmatic approach: the practice isthe only criterion of the truth and development represents the ultimatetruth (Falkenheim, 1989: 57).

Chinas Neoliberalization

What started as a gradual global move from socialist to capitalist economicmeasures in the late 1970s, resulted in neoliberal reforms of various cap-italist models. In this development China resembled the processes of



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economic restructuring in numerous other developing countries. As wehave argued elsewhere, the global spreading of neoliberal ideology andpolicies during the last two decades of the twentieth century gave wayto fundamental changes of national economies, governance and politicsaround the world. The triumph of capitalism that went with the end of theCold War was largely captured by the neoliberal current, resulting in thereform of various capitalist models. This does not imply that the diversityof regional and national economic models has been fully erased, since na-tional programmes of neoliberalization have been partly shaped by his-torical circumstances (economic, political, social) and existing policies. Yet

imbued with neoliberal thought, both capitalist and socialist regimes havegradually taken the shape of neoliberal regimes, largely irrespective of thetype of party or coalition in government (Demmers, Fernndez Jilbertoand Hogenboom, 2004: 16).

Chinas economic reforms of the rst phase (197884) accentuated therestructuring of agriculture in order to increase this sectors prices and pro-ductivity, stimulate consumption, develop local industries, and introducemarket mechanisms so as to reduce the inequalities between the rural andurban regions. Starting in 1984 a second phase began, which has beenconsidered as decisive in the implementation of Chinas market economy.Characterized by the decentralization of economic policies and the re-distribution of income, resources traditionally belonging to the state weretransferred to the market and the private sector. The reform of state com-panies, which became more independent in their operations, was the mainobjective at the beginning of this second phase. Transfers between com-panies as well as mergers and bankruptcies radically changed the pro-duction relations and gave room for the rise of the private sector, in theeconomy. In this context, the regulation of labour relations is no longer partof the absolute control of the state. As the Chinese state renounced itstraditional monopolies in the industrial and commercial sector, it slowlycommenced to govern according to policies of structural adjustmentsimilar to those known in Third World countries in the 1980s (FernndezJilberto and Mommen, 1996).

The second phase of economic reforms that started in 1984 was the struc-tural reaction to the ination crisis, the economic chaos and the social in-

stability that reigned in China in the early 1980s as a result of previouseconomic policies (Lin and Zhu, 2001). The debate then centred aroundthe dilemma of either radically reforming the property system and privat-izing public enterprises, or implementing structural adjustment policies



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accompanied by a partial liberalization of the system of xed prices. Thelatter option triumphed and was turned into the double price system (ordual-track pricing system) in which monetary policies became the maininstrument to inuence currency rates, while its xed prices system waspartially liberalized to improve the competitiveness of exports (Mckinnon,1995). This new price system implied that the prices of capital goods werexed by the Plan of the centralized economy, while the prices of consumergoods were established by the market. However, the system became animportant source of corruption of state ofcials (Hui, 2002), as has alsohappened with some of the other policies of partial liberalization. In add-

ition, economic inequalities deepened between social groups functioningin the planned sector of xed prices and those working in the deregulatedsector of the economy. In 1988, the Chinese government announced thetermination of this pricing system and the acceleration of economic de-regulation (Li, 1997).

The signing by China in December 2001 of the protocols for entry intothe WTO consolidated its policies of economic liberalization. For thispurpose, in the preceding decennium China had signicantly reduced itsimport barriers and economic protection. The average level of importtaxes was gradually reduced from 43 per cent in 1992 to 17 per cent in 2002(Lemoine, 2002). These reductions have been accompanied by the parallelapplication of selective protectionism with more rights of importation,licences and quota regimes in the sectors considered as strategic. Quotasand licences for industrial imports have been lowered, and only limitedquotas have been maintained for the import of agricultural products. Theservice sector has also been opened, in a limited manner, to foreign invest-ment. In the transport sector the limitations to the participation of foreign

capital are to be eliminated, while transnational enterprises are to be author-ized to participate in wholesale and retail trade and to commercialize localor imported products. To stimulate exports, import rights have been lib-eralized for all products destined for subsequent re-exportation and for theindustrial sectors of assembly. The deregulation of imports has been aimedat enhancing the industrial export sector that is concentrated in the coastalarea and that dynamizes Chinas foreign trade through internationalbusiness operations based on sub-contracts with transnational enterprisesand assembly industries (Lemoine, 1999).

The general opening of Chinas internal market and the enhancementof its export sector along the coast since 1980, authorizing and scally



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favouring FDI, has been extremely successful. These foreign investmentshave been channelled towards the sector of export industries and thesectors of import substitution such as cars and telecom materials, althoughin the latter sector TNCs are not allowed to control more than half of totalcapital (DeWoskin, 2001). The nancial sector is also submitted to furtherliberalization of operations in local currency, yet with some limitations.As a result of the improvements in its investment climate, between 1980and 2000 private investment as a share of GDP almost doubled in China(World Bank, 2005: 2).

While entry into the WTO allows China to benet from the status of most favoured nation (which is regularly granted to the member coun-tries), for other developing countries this implies more competition withcheap Chinese products (see Figure 3). For example, countries like Malaysia,Thailand, Poland, Hungary, Turkey and Argentina have been forced toreduce their import tariffs on products like textiles and leather, which isharming their national industries. Moreover, since 2005 China benets

Figure 3.Shares of developing countries manufactures, 1990s

Sources: ILO (2004), UNCTAD (2002a).



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the ex-USSR and Eastern Europe, the key to Chinas stability is in estab-lishing neoliberal economic restructuring without reform or opening of the political regime, and monetary policy was important in this process(Cabane and Tchistiakova, 2002). The implementation of neoliberalpolicies in China is largely the result of the economic intervention andpolitical decisions of the state. The acceleration and deepening of Chinasneoliberalism as of 1989 has been possible because of the combinationof direct intervention of the state in the process of economic reform, andthis political stability. Although the economic reforms and privatizationshave created a strata of private entrepreneurs, they do not possess pol-itical initiative or the capacity to initiate social or economic action inde-pendent from the state. While the economic growth and political cohesionthat have accompanied Chinas neoliberalization may revive academicdebates about the models of economic opening up of developing countries,or the difference with the ex-USSR and Eastern Europe, it is remarkablethat there has not been a collapse of Chinas political regime (Lin, 2001).Despite the Tiananmen protests of 1989, China has shown a stability of thestate-partys power stemming from its capacity to ideologically renovate

itself by and through substituting the model of a centrally planned economywith neoliberal policies. The state-party has thus eliminated the necessityof partial political liberalization as was faced by the neoliberal dictator-ships of Latin America after the economic restructuring of the 1980s, asa result of which authoritarian neoliberalism was replaced by populistneoliberalism (Demmers, Fernndez Jilberto and Hogenboom, 2001).

The social protests of 1989 and especially those of the TiananmenSquare were considered in the West as the rst symptom of the inadequacy

of the market economy and the political regime of the state-party, and assuch, as the start of a political crisis with unforeseeable consequences. Inreality, however, the protests opened the possibility of relegitimizing thehegemony of the state-party as a starting point for further acceleration of the neoliberal reforms, which culminated in Chinas membership of theWTO in 2001. The failed attempts for political opening by the studentsprotest movements that represented vast social sectors and resulted inthe bloody repression of Tiananmen in 1989 have been explained by theincapacity of this movement to comprehend the real nature of the Chinesestate. Contrary to the Maoist state that maintained its coercive functionof central planning and that legitimized social inequalities as a temporarystage in Chinas development while holding social equalitarianism as



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the hegemonic ideology, the neoliberal Chinese state preserves these in-equalities in virtue of the legitimacy of income inequality as an importanttool for Chinas internationalized private sector, and thus a fundamentalsource of economic development. The protest movement of 1989 was so-cially more broad and subtle than simply denouncing the monopolistsocialism of the state. The movement had demands that implied the estab-lishing of arenovated socialism with social protection by the state ratherthan an anti-socialist and pro-liberal democracy agenda. Social equality anddemocratization were primarily to be achieved through the better accessto consumption goods for broad sectors of the population (Hui, 2002).

The view in the West of these social protests as being a neoliberal,democratic demand against tyranny and for political liberty ignoredthe complexity of the new scenario of social and political relations thatChinas neoliberal transformations have caused with the creation of amarket economy and the effects of decentralization and the privatizationof wealth (Huang, Woo and Duncan, 1999). The protestors criticized theabsence of mechanisms of democratic control on the conscation of na-tional resources by the state or transnational private capital, which was

legalized by new legal arrangements. This criticism is thus directed at theestablishing of the new reformist Chinese capital that directly depends onthe old political order and on the rise of new economic group, such as theKanghua Company and the Sitong Company, which strengthen the oldpolitical order. Since Tiananmen, social protests have noticeably reducedand the neoliberal discourse of the Chinese regime has consolidated itshegemony, while being accompanied by more reforms to consolidate themarket economy (Hu, Song and Zhang, 2005). Shortly after the Tiananmen

Square protests, the Chinese government implemented a reform of the sys-tem of xed prices and accelerated economic reforms in the south of coun-try. In the 1990s, these reforms have aggravated the problems that causesocial discontent, in particular the urban employment crisis following fromattempts to improve the productivity and to control the accelerated growththat threatened to heat the economy. Between 1995 and 1999, the numberof salaried workers in the urban industrial sector decreased from 66 to44 million, while employment in the privatized state enterprises decreasedfrom 113 million to 86 million (CEPII, 2001). This reduction of industrialemployment in the period coincided with the massive privatization of thestate-owned enterprises, especially the rural entrepreneurial ventures knownas township enterprises (see Figure 4).



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Figure 4.Ownership of township enterprises in China, 19852002 (percentages)

Source: IDB (2004).

It is difcult to predict what ongoing neoliberalization will do to em-ployment in China. The deepened globalization of the Chinese economyis strengthening its specialization in those industrial sectors in which itpossesses major competitiveness and comparative advantages. These sec-tors are intensive in the use of manual labour, and correspond to the patternof international competitiveness of the majority of developing countries,such as textiles. In this sector China has demonstrated that its commercialexpansion was successful in the production of both intermediary articles(bres and fabrics) and terminated articles (cloths). This will form an

important source for a reduction of unemployment in China, and accord-ing to estimations China may come to occupy 40 per cent of the globaltextiles market. Additionally, in this capital and technologically intensiveindustrial sector, its competition with foreign products can benet fromthe immense potential of its national market. At the same time, partlyas a result of the exigencies of structural adjustment of the WTO, Chinaseconomic liberalization may aggravate unemployment, which ofciallyis 3.5 per cent but, in reality, might be around 10 per cent or more. Inthe agricultural sector alone, which employs 340 million people, at least10 million jobs could be lost due to the sectors restructuring (Hui, 2002).And due to the population growth in 10 years there will be an extra130 million Chinese people competing for jobs in agriculture or industry



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(Yao, 2000). In sum, from a labour perspective, Chinas transition to amarket economy does not differ substantially from the models appliedin other developing countries or transition economies: unemployment,precarious labour and informal employment are structural componentsof economic neoliberalization.

Chinas Role in Asia

In its strategy nding economic associations, China is inspired by models of open regionalism (Carl, 2001; Fernndez Jilberto and Hogenboom, 1997).

This can be witnessed in its creation of regional business forums forAfrica, the Arab World and Latin America, which will be discussed furtheralong, and in its participation in institutions like the Pacic EconomicCooperation Council (Daz Vzquez, 2003). Yet its main regionalizationstep has been the Free Trade Agreement of China and the Associationof Southeast Asian Nations (ASEAN), consisting of 10 countries. Theagreement that came into effect on 20 July 2005 will in 2010 result in afully operational free trade zone. This zone encompasses 1.8 billion people,a combined GDP of $2 trillion, and total trade of $1.2 trillion. Two otherregional initiatives are linked to ASEAN: the East Asian Community,consisting of the ASEAN with China, Japan and South Korea (alsoknown as ASEAN Plus Three); and the East Asia Summit (EAS), whichincludes all the former countries plus India, Australia and New Zealand.These two initiatives are forums for cooperation in which, among severalother things, free trade is discussed. However, the plans for East-Asianfree trade (of the ASEAN Plus Three) and for pan-Asian free trade (bythe EAS) are competing and still to be decided on. It is nevertheless of

interest that China and India have approached one another and are tryingto settle border conicts in order to improve their bilateral relations. Thetwo countries, jointly representing one-third of the worlds population,announced in April 2005 a strategic partnership for peace and economiccooperation. Lately, bilateral trade between India and China has beenrapidly increasing, with as much as 79 per cent in 2004, and China mightsoon become Indias largest trade partner by switching places with theUnited States.

In addition, China actively participates in the Asia-Pacic EconomicCooperation (APEC) that integrates 21 countries with 2.5 billion inhab-itants along the Pacic.3 The APEC members jointly represent almost60 per cent of the worlds GDP and 50 per cent of international trade. In the



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rst 10 years of its existence it has even generated 70 per cent of globaleconomic growth. APECs objective is to liberalize the markets of thegroups most developed countries by the year 2010, and to achieve in 2020the complete liberalization of the APEC economies (Matus, 2004).

The strategy of open regionalism as implemented by China is to con-struct a regional and global political economy that reduces its dependencyof the North American market, to generate more control over its vulner-ability to global nancial crises, and moreover to transform Asia into azone of mediation between the United States and China. With this lastmatter China also aims at weakening Japan. It disputes the regional he-

gemony of Japan based on an economic regionalization that has led tosuperficial industrialization instead of profound modernization of the economies of South-East Asia. The regional China Effect differsbetween the most developed countries like Japan, South Korea, Taiwanand Singapore, and the less developed countries like Malaysia, Thailand,Vietnam and Indonesia (Carl, 2001). While Chinas share of global manu-factured exports rose from 2.2 per cent in 1994 to 5.3 per cent in 2003, thecombined share of Indonesia, Malaysia, the Philippines, Singapore andThailand remained stable at 4.4 per cent (Shameen and Balfour, 2005: 25).In the case of Indonesia, there are new challenges for national industrial-ization policies due to Chinese export competition (see Lindblads articlein this special issue).

The changing balance of regional power in East Asia is broadly linkedto the consequences of the end of the Cold War, to Chinas economic re-structuring, and particularly, to the politics of Ronald Reagan towardsJapan. With the Plaza Accords of 1985 the United States forced Japanto revalue the yen with 50 per cent in order to stimulate US exports to

the region and to reduce Japans industrial competitiveness in the NorthAmerican market. This gave way to the relocalization of exports and in-vestments of Japanese manufacturing industry to Southeast and East Asia,thereby strengthening the economic regionalization. Shortly before thePlaza Accords came into effect, the United States absorbed one-third of the Japanese exports, but only a few years later (at the beginning of the1990s) Japanese exports to the United States had fallen to 27 per cent, whileinterregional Asian trade had increased from 32 to 44 per cent, and in 1995even moved beyond 50 per cent (Golub, 2003). The Plaza Accords thusstrengthened the competitiveness of the Chinese economy in the region byreorganizing the regional division of labour in East Asia around the manu-facturing capacity of Japan. This unintended outcome contributed to Asias



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growing economic success at the global market, and eroded its singlemarket dependence with respect to the United States that had existed be-tween 1950 and 1980. The irony for the United States was that its attemptsto regionalize the Asian economy with Japan as a pivot, has turned out tofavour the regionalization of the Chinese economy (Pottier, 2003).

In the late 1990s, it was the East-Asian nancial crisis of 199798 thatbrought about new views on global relations and changes in Asian rela-tions. The severity of the crisis came to many as a surprise and a shock.The next shock was that the international support was weak and mis-guided. The IMF imposed policy conditions that were not suited to the

specicities of Asias nancial problems and insufcient to stabilizethe markets. Meanwhile, the United States was unwilling to nanciallysupport the Asian countries in crisis, which sharply contrasted with theimmediate support of the United States Treasury to its neighbour andNAFTA-partner Mexico during the Peso crisis in 1995. Added to this wasthe frustration of many Asians that it had been United States-led IMFconditions for liberalization of the nancial policies of Asian governmentsthat eased the outow of capital and thereby deepened the crisis (cf. Jomo,1998). All together, this encouraged regional Asian cooperation. Japanproposed the creation of an Asian Monetary Fund (AMF) that would allowfor regional nancial cooperation and policy coordination, and that couldprovide nancial liquidity necessary to confront currency crises in the re-gion. However, the objection of the United States, the European Union andthe IMF prevented its realization. The United States opposition stemmedfrom the fear that such a fund would create an autonomous monetarysystem for Asia that would be a rival to the IMF and would deprive theUnited States of one of its main instruments of global hegemony, which

has effectively helped to impose the opening of numerous developingcountries and transition economies to the global economy, and therebyto United States capital.

In 2000, China, Japan, South Korea and the ASEAN countries revivedthe idea of the AMF, with the Chiang Mai Initiative (CMI). This Initiativeinvolves a regional scheme for nancial cooperation involving a systemof swap arrangements. Although some bilateral swap arrangementshave been established between several of the 13 countries, including aJapan-China arrangement, the CMI is moving ahead quite slowly. Onereason for this is the competition between China and Japan as the re-gions leading countries (Park and Wang, 2003). Although the Japaneseeconomy has started to grow again, in the regional power balance Japan



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is gradually losing its dominant position. In addition, the United Stateshas been pushing Japan and China further apart, and Tokyo has becomemore reluctant to cooperate in regional structures that would exclude theUnited States (Wang, 2005).

Chinas South-South Policies

The rapidly changing economic position of China is affecting its globalpolicies too. While the East-Asian nancial crisis of 199798 gravelyaffected many developing economies in and outside Asia, to China it mani-

fested for the rst time the issue of its economic security and its possiblefragility when facing a global nancial crisis. As a result China intensiedits strategy of globalizing and regionalizing its economy as expressed inits entry into the WTO and its active policies to negotiate free trade agree-ments, such as those with Japan and South Korea. During the Asian crisis,however, the only gesture of Chinese good will towards developing coun-tries and especially to Latin America was the decision not to devalue itscurrency, which would have deteriorated the competitiveness of theseeconomies vis--vis China even more. In reality, this gesture was as instru-mental as the rest of Chinas international policies since Deng Xiaoping,intended to serve future negotiations on global and bilateral trade as wellas Chinas access to Third World sources of energy.

China has become more active and vocal in South-South and globalpolitics, especially since its acceptance as member of the WTO in 2001.Two years after entering the WTO, China joined the G20 of developingcountries that pushed for more fairness in the opening of markets. Al-though Chinas role has been less visible than that of countries like Brazil

and India, their joint efforts led to the failure of the WTOs Cancun summitin 2003. Through the G77 (ofcially labelled Group of 77 plus China orG77 and China), China supports initiatives for the Global South suchas the new geography of trade. This concept was proposed by leadersof developing countries at the UNCTAD session in 2004 in Sao Pauloto increase South-South trade by means of a reduction of tariffs amongdeveloping countries and to start a third round of the Global System of Trade Preferences among Developing Countries (GSTP).

China has also become a promoter of South-South cooperation. Ac-cording to vice-minister of Commerce Wei Jianguo, it is a corner stone of the Chinese foreign policy.4 Since July 2004, China has a partnership withUNDP in the South-South Cooperation project, in which China replaced



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Japan as key donor (from 1999 to 2004). Interestingly, this project, amongother things, stimulates private enterprises to take the lead in South-Southcooperation. Yiping Zhou, director of UNDPs Special Unit for South-South Cooperation states that special emphasis should be on buildinginclusive public-private partnership and triangular cooperation, and thatthere is a need for a more aggressive and innovative nancing strategyfor SSC, including private sector funding.5

This new attitude on South-South cooperation is an example of thegeneral trend of a profound de-Maoization of Chinas political, economicand development assistance relations. Since the late 1970s, Chinas needfor natural resources and commodities has given way to an acceleratedde-ideologization of its links to developing countries. After China beganto open its economy, and in the 1980s prepared its joining of the WorldBank and the IMF, it started to establish friendly relations with countriesregardless of their social systems or ideologies. Relations with developingcountries became largely based on mutual economic benet, as shownin the shift away from grants and interest-free loans to joint venturesand trade.

Since the beginning of the twenty-rst century, Chinas trade-not-aidpolicy has been further expanded. A system of intensied economic South-South relations with a large dose of pragmatism has been implementedat the bilateral and multilateral level. China has been promoting South-South trade, partly through active regional business policies. Apart fromits intensied Asian relations, China has intensied its cooperation withAfrica, the Arab World and Latin America. It has institutionalized theserelations through new councils and forums something quite different

from its support for liberation movements in the 1960s. The centralobjective of Chinas current policy is securing its access to the naturalresources and commodities that are necessary to maintain the dynamismof its economy, while offering its internal market as export destinationto developing countries. This principle of complementarity is appliedin Chinas strategy of establishing economic cooperation and free tradeassociations. Part of it is performed by the participation of Chinese con-glomerates in developing regions, based on traditional principles of trans-national enterprises yet with a more pronounced role of the state in theirtransnationalization process.

While a model of South-South relations that enhances the globalizationof its economy has replaced Chinas Third Worldism, China is not



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following the Western agenda of free markets and democracy in itsinternational relations. First, Chinese state (controlled) companies andpublic-private partnerships are central to Chinas agenda for internationaldevelopment. As access to foreign resources is vital for Chinas continuedeconomic growth (and social and political stability), many new explorationand supply agreements on energy and other commodities have been signedby state-controlled Chinese companies and foreign states. According toZweig and Jianghai (2005), China is courting the governments of thesestates aggressively, and building goodwill by trade relations, aid, forgivingnational debt and helping to build infrastructure. Second, in this process

there are no political questions asked since China considers nationalsovereignty as crucial. Due to this lack of political conditions, China issupporting several countries with authoritarian regimes that do not re-ceive Western governmental support, particularly in Africa.

Though not following the line of strictly free markets, Chinas inter-national approach is not socialist either; its new South-South relationsrather reveal that China is hardly interested in politics or civil society. Inthe words of Deputy Foreign Minister Zhou Wenzhong, business is busi-ness. We try to separate politics from business (in Zweig and Jianhai,2005: 32). While this seems true for the local politics of countries withwhich China is doing business, there is always one crucial political stringattached: support for its One China Policy, implying no recognition of Taiwan. For instance, between 2004 and 2006, Senegal, Liberia and Chadended their diplomatic relations with Taiwan in order to deepen relationswith China.

Peacefulness is stressed in the Chinese policy documents for bilateraland multilateral development relations with Africa, Latin America, Asia

and the Arab World. They all refer to peaceful development, peace anddevelopment, and the Five Principles of Peaceful Coexistence as afoundation of Chinas international relations since the 1980s. China standsfor a new security concept that features mutual trust, mutual benet,equality and cooperation. China refuses to join any military allianceor engage in any arms race. China does not seek spheres of inuencenor sets up military bases overseas, according to Zhijun Zhang, DeputyMinister of the International Department of China. In conclusion, Chinas

peaceful development is a blessing not only to China, but also to the worldas a whole. A stable, open and prosperous China marching on the roadof peaceful development will make still greater contributions to peace,stability and common development of the world.6 Yet with its rise as a



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global power, it is hard to imagine this peacefulness to last forever. Chinaspeaceful rise as superpower (Bijian, 2005) would be a historic anomaly,and its economic potential and needs are sooner or later to interfere withthe interests of other countries. In the meantime, based on its approach tonational sovereignty, China is supplying arms to many countries, includingto those ones banned by Western countries because of human rights abuses.Many countries and organizations, including Amnesty International, haveheavily criticized this intransparent Chinese practice.

In Africa, Chinas aid-for-oil policy resembles the tradition of trade-and-aid deals by industrialized countries, but contrary to the Africapolicies of the European Union and the United States, China is not posingpolicy conditions (see also Konings article on Africa in this issue). Basedon its principle of non-interference in domestic affairs, China does notdemand macroeconomic reforms, good governance (more transparencyand less corruption), or respect for human rights. In 2004, China provideda $2 billion credit to Nigeria and Angola for building ofces and repairingrailways with Chinese contracts. While the IMF berated Angola for cor-rupt oil deals, the country exported 25 per cent of its oil to China, in return

for which it received Chinese loans and aid, including funds for Chinesecompanies to construct rail-roads, bridges, schools, hospitals and a ber-optic network. In Zimbabwe, China became the largest investor (par-ticularly to secure access to platinum for its automobile industry) afterPresident Mugabes policies made Western countries turn away. Whilethere was great social unrest over Mugabes destruction of shantytownsin 2005, China supplied Mugabe with ghter jets and troop carriers (worthabout $240 million) in exchange for gold and tobacco. Similarly, China

agreed to sell ghter jets to Nigeria (worth $251 million) nanced byChinas Exim Bank (Pan, 2006; Walt, 2006).The economic activities of the worlds largest developing country with

the worlds poorest region have been rapidly growing, and in the 1990sChina-Africa trade increased 700 per cent. In 2000, the China-Africa Forumstarted a new period of trade cooperation and investment, resulting in adoubling of trade from 2000 to 2003, and again from 2003 to 2005, whentrade amounted to $32 billion. Much of this increase was due to the grow-ing Chinese import of oil from countries like Sudan, and of copper (Zambia),diamonds (Sierra Leone), Cobalt (Congo), and timber. About 900 Chinesecompanies have come to invest in Africa, amounting to $900 million in 2004,or 6 per cent of Africas total inward FDI. With Chinese demand among



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other things pushing up oil prices and exports, in 2005 Africa reached theremarkably high GDP growth rate of 5.2 per cent (UNCTAD, 2005a).

The government of China is very active in its relations with Africa andin the past few years Chinese ofcials regularly visit the region. In 2005,the China-Africa Business Council (CABC) was launched with a secretariatin Beijing and ofces in the six participating African countries: Cameroon,Ghana, Mozambique, Nigeria, Tanzania and Kenya. This business councilis a public-private partnership involving the UNDP, the Chinese govern-ment and the China Society for Promotion for the Guangcai Programme:a link between Chinese Communist Party and the Chinese private sector.

In January of 2006, Foreign Minister Li Zhaoxing visited Cape Verde,Senegal, Mali, Liberia, Nigeria, Libya, and oil and gas deals were signedbetween Nigeria and the Chinese state-controlled CNOOC for a valueof $2.3 billion. In November of 2006, Beijing hosted the largest everChina-Africa summit with 48 African leaders to discuss plans to furtherextend trade and investment. On this occasion China promised to triple itsdevelopment assistance to Africa, and agreements where signed for almost$2 billion new Chinese investments in the region. Apart from serving eco-nomic interests, its new Africa policy provides China with important alliesin the United Nations, such as Nigeria, Sudan and Zimbabwe.

With the Middle East, China has intensied relations on a similar basisof mutual benet and with energy as key interest (see also Abdel-Khalekand Korayems article in JDS , vol. 23, no. 4). In September 2004, ChineseForeign Minister Li Zhaoxing visited Cairo, where the Ministers confer-ence of the Arab League took place. On this occasion, two agreementson the Sino-Arab Cooperation Forum were signed: the China-Arab Co-operation Forum and the Framework Agreement between China and

the Gulf Cooperation Council, including negotiations for a free tradezone (Bajpaee, 2006). In December 2005 China and the OPEC launchedan energy dialogue. Particularly the ties with Saudi Arabia have beenstrengthened, as China is now its major client, importing over 20 million tonsof Saudi Arabian oil in 2005. On 23 January 2006, an agreement on energycooperation was signed when the Saudi King Abdullah bin Abdul Azizcame to China on his rst visit outside the Arab world (Qin Jize, 2006). Iranis important as a provider of natural gas to China; in 2005 Iran-China tradevalued $9.5 billion. The two countries signed gas and oil deals (for 30 and25 years respectively) estimated between $70 and $100 billion, in exchangefor a 50 per cent stake for China in the development of Irans Yahavaranoil eld. Both China and Arab countries have capacities and interest to



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invest abroad, especially in the energy sector. For instance, in 2005, Kuwaitagreed to invest in a project of petrochemical and renery infrastructurein the province of Guangdong while in 2006, Saudi Arabias AramcoOverseas Co agreed to invest $750 million in a petrochemical complexin Fujian Province, which is to process 8 million tons of Saudi crude oil(Pant, 2006).

Chinas relations with other regions and developing countries have alsobeen strengthened. Trade between China and Latin America quintupledfrom 1999 to 2004, amounting to almost $40 billion in 2004, when Chinainvested $1.4 billion in this region (see our forthcoming article on Latin

America in the following special issue). As for Africa and for the Arab coun-tries, China set up a Cooperation Forum for Latin America. In November2004, President Hu visited Latin America with a trade mission and shortlyafterwards vice-president Zen Qinghong came to the region to sign tradeand oil agreements with Venezuela. While Chinese initiatives towardsmost transition economies in Eastern and Central Europe have beenlimited, with Russia a strategic partnership has been established for which,again, energy trade and investment was the main motive (see Mommensarticle in the following special issue).

South-South Relations and Globalized Markets

In the 1980s and 1990s, a reduced role of the state in the economy andthe transformation of the private sector into the predominant motorfor economic development were the main elements of internationalpolicy prescriptions for low-income countries. This became known asthe Washington Consensus, because it was a view shared and effectively

applied by US government agencies as well as the IMF and the WorldBank (all based in Washington, DC). These institutions were at that timevery suspicious of an active role of the state in economic processes, andespecially of state-owned and state-controlled companies. In 1997, the IMFclaimed that, [a]mong many developing countries, the direct involvementof the state in economic activity is large and wide-spread . Often state-owned enterprises are operated inefciently, and despite the monopolystatus they tend either to make low prots or to run persistent and largelosses that burden government budgets (IMF, 1997: 8588). Meanwhilethe World Bank stated that, in all too many countries [p]rivate initiativeis still held hostage to a legacy of antagonistic relations with the state. Rigidregulations inhibit private initiative. And state enterprises dominate



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economic terrain that could more fruitfully be given over to competitivemarkets (1997: 61). In Africa, Latin America, Central and Eastern Europeand Asia these nancial institutions stimulated privatization and otherliberalization policies that involved a transfer of economic power fromthe public sector to the private sector. These policies have broughtabout an economic concentration in very large and increasingly trans-national private companies, usually structured as conglomerates or eco-nomic groups. This tendency, however, has generally not been as positiveas the Washington Consensus claimed it would be, and has in some casesclearly been negative to economic and social development in developing

countries and transition economies (Fernndez Jilberto and Hogenboom,2007).Even though the rise of China and the new South-South relations have

come about in the context of neoliberalization, such negative effects of a smaller state and economic concentration in conglomerates implicateimportant criticism of the dominant neoliberal approach to achievingeconomic development in developing regions. The economic success storyof China, as well as its rise as a political protagonist of the new South-South agenda, are the results of what seems to be a paradoxical process,which occurred during the last quarter of the twentieth century. Contraryto the situation of the third quarter of the twentieth century, when Chinaseconomic and political development was very different from most of theThird World, starting in the late 1970s China went through several phasesof profound policy restructuring that resembled the economic liberal-ization that was taking place in practically all developing countries. How-ever, despite this convergence Chinas development was not aimed atachieving a free market and a small state, as was generally happening in

developing regions, in particular in Latin America and Africa.The apparent paradox, then, is that economic liberalization has beenas central to Chinas miraculous growth as the strong state and its activeeconomic role. Yet Chinas success is consistent with ndings on capitalaccumulation regimes and economic growth of other developing countries.These ndings raise serious questions about the strategies adopted in anumber of developing countries for activating a dynamic process of capitalaccumulation and growth through a combination of increased FDI andreduced public investment and policy intervention (UNCTAD, 2003: 84).In this respect, and irrespective of the many differences, Chinas suc-cessful strategy of insertion into the world economy is bearing someresemblance to the development models of other East Asian countries



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with an economically proactive state. By the end of the 1990s, the Asiannancial crisis blurred, rather unjustly, the remarkable development of several emerging economies in South-East Asia (Demmers, FernndezJilberto and Hogenboom, 2004: 2728), but Chinas rise again shows de-veloping countries that there are viable alternatives to the WashingtonConsensus.

Apart from setting an example for alternative development strategies,Chinas recent global economic inuence is encouraging such alternativesfor developing countries in several ways. By joining the G20 in the WTOnegotiations, China has been of great support in advancing the interests of developing regions in global politics and the world market. Meanwhile, asa new export market and an emerging source of foreign investment, thereis a positive China effect in this area too. Increasing growth in developingcountries that are beneting from exports to China and rising worldmarket prices diminish these countries dependency on international -nancial institutions and their policies. And countries that receive Chineseinvestments or development assistance nd that there are no economicpolicy conditions attached. On the other hand, Chinas global agenda has

a clear and purely economic goal, and it has been its economic and notpolitical liberalization within a neoliberalizing global system that haspaved the way for Chinas remarkable rise.

NOTES

1. Some of the China data are from the World Banks China Data Prole, basedon itsWorld Development Indicators database of April 2006 [Accessed 16 May2006 (http://devdata.worldbank.org).]

2. The rising FDI gures do not imply that it was mainly foreign private invest-ment that nanced Chinas growth. In contrast, an important explanatoryfactor for Chinas high level of gross capital formation since 1970 of more than30 per cent of GDP higher than in the rest of Asia, and Latin America andAfrica is that in the 1980s and 1990s, China had a signicantly higher levelof public investment as a share of GDP. While public investment in China ac-counted for 15 to 20 per cent, the average in all developing countries was 10 percent in 1981 and decreased from then onwards (UNCTAD, 2003: 66, 75).

3. The APEC countries are Australia, Brunei, Canada, Chile, China, United States,Philippines, Hong Kong, Indonesia, Japan, Malaysia, Mexico, New Zealand,Papua New Guinea, Peru, Russian Republic, Singapore, South Korea, Taiwan,Thailand and Vietnam.



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4. Beijing, 6 July 2004, UNDP and Chinese Government meeting to launch anew UNDP project on SSC of which China is the key donor.

5. Speech at the 11th session on Economic Cooperation among DevelopingCountries, Havana, 21 March 2005.

6. In a speech at the 42nd Munich Conference on Security Policy, 5 February2006 (http://www.securityconference.de).

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