The 3rd China-Africa Experience-Sharing Program on

Special Economic Zones and Infrastructure Development

A Briefing Note

Introduction

While economic growth in Sub-Saharan Africa has experienced a resurgence in recent

years (average regional growth was about 6 percent in the five years preceding the crisis,

and net foreign investment to the region more than doubled from $14 billion in 2001 to

$34 billion in 2008), a key challenge/knowledge gap facing many African governments is

the formulation and implementation of effective policies and strategies for development

of infrastructure, as well as for development of a manufacturing sector which is

competitive in international markets. China‟s experiences in these two areas can help to

bridge the gap, especially on the practical experience at the initial stage of its

development of what had worked, what had not worked and why.

In recognition of the growing interest in sharing development experiences between China

and African countries, the World Bank Group and China‟s Ministry of Finance (MoF)

have initiated a very successful high-level China-Africa Experience-Sharing Program,

with initial deliveries in 2008 and 2009. The 2008 and 2009 deliveries were each

attended by about 30 senior government officials (vice minister and director general

levels) from Africa.

The overall objective of this program is to explore ways in which China's economic

and investment policy experiences can inform Africa's efforts to accelerate its economic

and social progress. In particular, this year‟s program focuses on Special Economic

Zones (SEZs) and Infrastructure Development.

This briefing note, prepared by a team at WBI, serves as background reading materials to

be distributed before the workshop, so that discussions will be more relevant and focused.

Session I. Tackling Development Challenges: Linking SEZs and Infrastructure with Growth and Poverty Reduction

This session is intended to set the scene, with a presentation from the World Bank Vice

President for Africa on the continent's recent progress and challenges, and then an

account of the history of China‟s reforms. The session will examine why Special

Economic Zones were chosen as a vehicle for reform experimentations, and how they

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2

became the driving forces for a series of other institutional reforms and for investment in

infrastructure, leading to rapid integration with the global market, employment generation

and improvement in livelihood.

China‟s rapid growth and transformation is attributable to “reforming the system” and

“opening to the outside world”, or Gai Ge Kai Fang (in Chinese) since 1978.

Productivity growth can be ascribed to reforms that followed the logic of learning,

adaptation, and innovation: beginning with the homegrown institutional reforms in

agriculture (the rural household responsibility system (HRS)), followed by

experimentation through Special Economic Zones (SEZs), an expansion of township and

village enterprises (TVEs) and rapid integration with the global economy. The more

complex reforms started relatively late in the process: fiscal reforms (1994), financial

reforms (after 2000), WTO-accession required legal reforms (after 2001), and

restructuring of state banks and enterprises into modern institutions (on-going).

Successful experiments in SEZs led to rapid trade expansion, job creation and growth,

which created pressure for large scale investment in infrastructure in the mid-1990s.

Transport cost in China increased in the first stage of the reform (1978-mid 1990s) as a

result of insufficient transport infrastructure, lack of competition, and backward

institutional arrangements. Large-scale infrastructure investment since the mid-1990s

reduced the congestion and transport time, leading to a reduction of transport costs and

facilitated rapid expansion of international trade (Li Zhigang 2010).

Reforms, investment and opening-up have intertwined and re-enforced each other to

overcome the bottlenecks of growth, and propelled the growth engine over the long term

(Kuijs and Wang 2006) which has benefited a large proportion of population. Using the

new international poverty line of $1.25/day in 2005 PPP, it is estimated that in the 24

years after 1981, over 600 million poor people were lifted out of poverty and the

proportion of the population living in poverty in China fell from 84% to 16% (page 11,

Chen and Ravallion 2008a). In view of some other regions with limit progress on poverty

reduction over the past decades (See figure 1 and 2), it will be interesting to study the

institutions and policies behind the tremendous changes in China, what happened, how it

happened, and whether these experiences are relevant to Africa.

Figure 1: Growth in GDP per capita PPP

1980 - 2005

Source: Dollar (2008)

Figure 2: Poverty rates for China and

Africa 1981-2005 (% living under intl.

poverty line $1.25/day in 2005PPP)

3

Note: China’s data after rural/urban price adjustment

Data source: Chen and Ravallion (2008a, 2008b)

Session 1 objective and focus:

This first session motivates and sets the stage for the rest of the program. It features the

Keynote speech by the Vice President of Africa, World Bank, and followed by a panel

discussion on broad issues such as:

What challenges African countries are facing in economic diversification, growth

and poverty reduction? What have motivated this event?

How did China move in three decades from being a poor agrarian economy to

become the “factory of the world”, and what was the role of SEZs and

infrastructure? What might be relevant to African participants and what not?

What are the potential roles for China to work with African countries in economic

diversification and infrastructure development? [e.g. in learning and capacity

development, or financing (aid and direct investment), and implementation?] And

what China can learn from African countries?

In what way could all development stakeholders /partners work together to

increase development impact? [e.g. The role of South-South learning and

cooperation, and triangular cooperation]

References and suggested readings:

Chen, Shaohua and Martin Ravallion 2008a. “China is poorer than we thought, but no less

successful in the fight against poverty”. World Bank Policy Research Working Paper

4621, May 2008.

Figure 3. Institutional Development: from home-grown to modern institutions

Source: Wang (2007)

4

Chen, Shaohua and Martin Ravallion, 2008b, The Developing World Is Poorer Than We Thought,

But No Less Successful in the Fight against Poverty, World Bank Policy Research

Working Paper 4703

Devarajan, Shanta, 2008, The Impact of Global Financial Market Turmoil on Africa, World Bank

Africa Region Notes

Dollar, David, 2008, Lessons from China for Africa, World Bank Policy Research Working Paper

4531

Fay, Marianne and Michael Toman. 2010. “Infrastructure and Sustainable Development” a paper

presented in Korea-World Bank High Level Conference on Post-Crisis Growth and

Development, June 3-4 2010, Busan, Korea.

Foster, Vivien, William Butterfield, Chuan Chen and Nataliya Pushak. 2008. Building Bridges:

China‟s Growing Roles as Infrastructure Financier for Sub-Saharan Africa. World Bank

and PPIAF.

Foster, Vivien and Cecilia Briceno-Garmendia. 2010. “Africa‟s Infrastructure: A time for

transformation”. A co-publication of the Agency Francaise de Development and the

World Bank.

Karp, Philip. 2009. “Lessons from China for Africa”, speech at the Beijing Forum, July 2009.

Kuijs, Louis and Tao Wang, 2006. “China‟s Pattern of Growth, Moving to Sustainability and

Reducing Inequality”, China and the World Economy, January 2006.

Kuijs, Louis 2010. “China through 2020- A Macroeconomic Scenario”. World Bank China Office

Research Working Paper No. 9.

Li, Zhigang (2010). “Some evidence on the performance of transport infrastructure investment in

China,” presentation given at the conference “The Economics of Infrastructure in a Globalised

World: Issues, Lessons and Future Challenges,” Sydney, 18-19 March, available at

http://cama.anu.edu.au/Infrastructure_Conference.asp.

Lin, Justin Yifu 2007, Development and Transition: Idea, Strategy, and Viability, Marshall

Lectures delivered at Cambridge University

Lin, Justin Yifu, and Yan Wang, 2008, China‟s Integration with the World Development as a

Process of Learning and Industrial Upgrading, World Bank Policy Research Working

Paper 4799

Qian, Yingyi, 2000, The Institutional Foundations of China’s Market Transition. In Annual Bank

Conference on Development Economics 1999, ed. Boris Pleskovic and Joseph Stiglitz,

377–98. Washington, DC: World Bank

Ravallion, Martin 2008, Are There Lessons for Africa from China’s Success against Poverty?

World Bank Policy Research Working Paper 4463

Wang, Yan, 2010. “Development Partnership for Growth and Poverty Reduction, a Synthesis

Report”, for China-DAC Study Group, Working Paper No.7, 2010, IPRCC.

Wang, Yan. 2005, Development as a Process of Learning and Innovation: Lessons from China,

Chapter 3 of the World Bank Publication: Reducing Poverty on a Global Scale --

Learning and Innovating for Development, World Bank, Washington DC

World Bank. 2010. “G20 and Global Development: report prepared by Staff of the World Bank

for G20 Growth Framework and Mutual Assessment Process”, June 26-27, 2010.

5

Session 2. Openness to Trade, Investment and SEZs Development

The opening up of China since the early 1980s – allowing imports of capital, technology,

and management know-how, along with other major policy reforms – has greatly

enhanced China‟s competitiveness and efficiency.1 Within the time frame of a generation,

China has transformed from an agrarian economy into a “factory of the World”. With

gradual price reforms and unilateral trade liberalization that accelerated in the 1990s, the

subsequent growth of manufacturing and trade became more in line with China‟s

comparative advantages. As late as 1984, primary products including crude oil accounted for

50 percent of total exports. After rapid expansion of TVEs, FDI and the private sector

which concentrated in labor intensive sectors, today, 90 percent of China‟s export is in

manufactured products, with one third of it labor intensive. (See figure 4 from Lin and

Wang 2008). Inbound FDI has played an important role in China‟s economic

development and export success. According to the MOFCOM, foreign invested

enterprises account for over half of China‟s export and imports; provide for 30% of

Chinese industrial output, and generate 22% of industrial profits while employing only

10% of labor.

How did China move from being a poor agrarian economy to become the “factory of the

world”? Special Economic Zones (SEZs)2 played a key role –as a testing ground for

economic reforms, for attracting foreign direct investment, for catalyzing industrial

clusters, and for learning new technologies and incubating new management practices.3

When market institutions were not fully in place, China experimented with opening up to

foreign investors in selected coastal cities and in SEZs. In fact SEZs were used to reduce

resistance and opposition to critical reforms and build broad support for reforms through

demonstration and controlled experimentation. Trade led growth fueled the development

of many coastal areas, created more jobs opportunities. Even though their importance has

declined over time, a recent World Bank study estimated that as of 2007, SEZs still

accounted for about 22% of national GDP, about 46% of FDI, and about 60% of exports,

1 Efficiency comes from two sources: first, allocative efficiency improved because the production and

export structure is more in line with China‟s comparative advantage- the private sector can identify the

comparative advantage well- when thousands of people “jumped into the sea of private business” they all

went into labor intensive light manufacturing where prices were liberalized early. And second, technical

efficiency since many foreign invested enterprises brought advanced technologies and products. 2 A special economic zone is defined as a geographically limited area with a single management or

administration and a separate customs area (often duty free), where streamlined business procedures are

applied and where firms physically located with the zone are eligible for certain benefits. Since the first

modern SEZs was established in 1959 in Shannon Airport, Ireland, SEZs have proliferated. By the mid-

1970s, there were at least 79 SEZs in 25 countries. Today, there are over 3000 publicly and privately

operated SEZs located in more than 135 countries. According to recent estimates, SEZs in developing

countries employ some 40 million people directly and 10-77 million indirectly (ILO 2003, FIAS 2008). The

share of SEZs output in the exports of developing countries can be considerable, as in the Madagascar (80

percent), Philippines (78 percent), Bahrain (69 percent), and Morocco (61 percent). (FIAS 2008). 3 Chinese workers and managers learned through joint ventures. Later these workers and managers left the

JV and opened their own businesses. Other firms also tried to learn from FIEs and JVs.

6

and generated in excess of 30 million jobs.4 SEZs have also benefited from the gradually

loosened household registration system and other policies to promote labor mobility.

Massive rural-urban migration (figure 5 and 6) helped rural residents to share some of the

benefits of globalization.

The key experiences of China‟s SEZs and industrial clusters can best be summarized as

gradualism with an experimental approach; a strong commitment; and the active,

pragmatic facilitation of the state. Some of the specific lessons include

the importance of strong commitment and pragmatism from the top leadership;

preferential policies and decentralized decision making power, and profit /revenue

sharing between central gov‟t and localities;

strong ownership, commitment, support and proactive participation of local

governments, especially in the areas of public goods and externalities; public-

private partnerships;

foreign direct investment and investment from the Chinese diasporas;

business value chains and social networks; and continuous technology learning

and upgrading.

African countries adopted SEZ policies relatively late, with most programs being initiated

only in the 1990s. A recent World Bank study found that African zones have confronted

with many challenges, with the exceptions of Mauritius and Kenya, and possibly

Madagascar and Lesotho. In general, African zones show low levels of investment and

exports, and their job creation impacts have been limited. Indeed, African zones are

surprisingly capital intensive compared to the highly labor intensive zones in Asia and

Latin America. However, most of the programs are still in the early stages of

development and some show signs of promise. Despite poor nominal performance, their

relative contributions of SEZs in national investment and exports is in line with global

experiences in SEZs – this points to a bigger competitiveness challenge in the region, and

suggests that the SEZs may not be doing enough to catalyze wider structural change.

(Farole 2010 forthcoming).

Session objective and focus:

Given the Chinese experience and Africa‟s challenges in developing SEZs, the following

will be the key focus of this session:

1) How the special economic zones should be aligned with overall regional/national

development objectives and strategy? How they can be built on the local/national

comparative advantages?

2) The legal, regulatory and institutional framework for the zone development: how

to establish a conducive investment climate in the zones, such as one-stop shop?

This is related to tax, duty, customs, immigration, registration, licensing, etc.

3) The roles of government and private sector in the zone development, including

zone planning, design and operation. How relevant are the Chinese experiences to

Africa context?

4 Zeng, Douglas Zhihua, Building Engines for Growth and Competitiveness in China: Experience with

Special Economic Zones and Industrial Clusters. World Bank. 2010.

7

4) Infrastructure and trade logistics: how the on-site and off-site infrastructure and

the trade logistics are conducted? How the PPP approach is applied, if any?

5) The linkages with local economy: most coastal zones in China are highly FDI

dominant, but they are very nicely linked with the domestic supply chains. How

are they able to achieve this?

6) Social and environmental safeguards: how the Chinese zones minimize the

adverse social and environmental impacts? What lessons can be learned?

7) Knowledge spillovers and learning: what are the effective ways to encourage

knowledge spillovers from FDI to the local developers/firms?

Figure 4. China has been following its Comparative Advantage:

From Raw Materials in the 1980s, to Labor Intensive Manufacturing Products in

the middle 1990s

Composition Change of China's Gross Export (1984-2006)

Food and animals (inc.

beverage and tobacco,

vegetable oils, etc.)

Chemicals and Crude

materials (also inc.

mineral fuels, lubricants,

etc.)

Manufact goods

classified chiefly by

material

Machinery and transport

equipment

Miscellaneous

manufactured articles

Others

0%

20%

40%

60%

80%

100%

1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

Source: UN Comtrade Database (Sep. 2008)

Source: Justin Lin and Yan Wang (2008) based on UN COMTRADE data.

8

References and suggested readings:

AERC, 2005, Collaborative Research Project on African Imperatives in the New World Trade

Order: Report of Dissemination Workshop

AERC, 2008, Foreign Direct Investment in Sub-Saharan Africa: Determinants, Targets, Impact

and Potential, Paper No. BLV_01

Amiti, Mary and Caroline Freund, 2007, China's Export Boom, Finance & Development 44 (3).

Dollar, David, Mary Hallward-Driemeier, Anqing Shi, Scott Wallsten, Shuilin Wang, Lixin Colin

Xu, 2003, Improving the investment climate in China, World Bank/IFC Working Paper

26876

Dupasquier, Chantal and Patrick N. Osakwe, 2005, Foreign Direct Investment in Africa:

Performance, Challenges and Responsibilities. Working Paper No. 21. United Nations

Economic Commission for Africa.

Farole, Thomas. 2010. “Special Economic Zones in Africa: Comparing performance and

learning from global experiences”. DRAFT report, at the World Bank.

FIAS. 2008. Special Economic Zones. A World Bank Group Publication.

Li, Xiaoxi, 2009, Sharing the Experiences of China‟s Special Economic Zones, Partageons les

expériences des zones économiques spéciales, Presentation made at the WBI GDLN

Learning Series on Investment Climate and Balanced Growth, Feb 25, 2009

Lin, Justin Yifu, Fan Cai, and Zhou Li, 1996, The China Miracle: Development Strategy and

Economic Reform. Hong Kong: Chinese University Press

Oyejide, T. Ademola, 2007, African Trade, Investment and Exchange Rate Regimes and

Incentives for Exporting, AERC Paper No. ESWP_09

Rodrik, Dani, 2006, What's So Special About China's Exports, NBER Working Paper No. 11947

Wang, Jici, 2009, Industrial Clustering in China: with Special Reference to Wenzhou Footwear

Cluster, Formation de grappes industrielles en Chine: Cas particulier de la grappe

d‟entreprises de la chaussure de Wenzhou, Presentation made at the WBI GDLN

Learning Series on Investment Climate and Balanced Growth, Feb 25, 2009

Wei, Shangjin, 1993, The open door policy and China's rapid growth: Evidence from city-level

data. NBER Working Paper No. 4602. Cambridge, MA: National Bureau of Economic

Research

World Bank, 1994, China - Foreign trade reform, World Bank East Asia and Pacific Region

Report no. 12914

World Bank, 2007, Global Integration and Technology Transfer, World Bank, Washington DC.

Figure 5. High Urban/rural labor productivity

differential

Source: David Dollar 2008

Figure 6. Rural population is moving to cities

Source: David Dollar 2008

9

World Bank. 2010. Innovation Policy, A Guide for Developing Countries. Conference Edition.

Xie, Wei, 2000, Acquisition of Technological Capability through Special Economic Zones

(SEZs): The Case of Shenzhen SEZ; Industry and Innovation, December 2000, v. 7, iss. 2,

pp. 199-221

Yeung, Yue-man, Joanna Lee, and Gordon Kee, 2009, China‟s Special Economic Zones at 30,

Eurasian Geography and Economics, 2009, 50, No. 2, pp. 222–240.

Zeng, Douglas Zhihua, 2010. Building Engines for Growth and Competitiveness in China:

Experience with Special Economic Zones and Industrial Clusters. World Bank. 2010.

(with four papers commissioned by WBI)

Zeng, Douglas Zhihua, 2008, Knowledge, Technology, and Cluster-Based Growth in Africa:

Findings from 11 Case Studies of Enterprise Clusters in Africa, Chapter 1 of the book

Knowledge, Technology, and Cluster-based Growth in Africa, edited by Douglas Zhihua

Zeng, World Bank, Washington DC.

Zhao, Min and Thomas Farole. 2010. “Partnership Arrangements in China-Singapore (Suzhou)

Industrial Park: Lessons for Africa on Joint Economic Zone Development” Working

paper March 2010.

10

Session 3. Infrastructure Development Strategy and Financing

With 40% of the population living in landlocked countries, Africa has a major deficit in

infrastructure at both the national and regional levels. Only 29 % of households in Africa

are with access to electricity, 31% to improved sanitation facilities and 60% to improved

water sources. In Rural areas, only 33% of rural population have access to all weather

roads, as compared to 49% in other low income countries. (Fay and Toman 2010) Low

population density and the extremely low economic density (GDP per km2) result in high

cost and low profitability of infrastructure investment. To accelerate Africa's growth

performance, its investment needs in infrastructure are twice as much as the region has

historically been investing: According to World Bank estimates, annual infrastructure

needs were estimated at USD 93 billion (of which one third for maintenance). Annual

spending (domestic and foreign, public and private) is now about USD 45 billion and

efficiency gains worth USD 17 billion are available. This leaves an annual funding gap of

USD 31 billion (or 5% of GDP), mainly in the power sector. (World Bank 2010)

It is hoped that China can serve as sources of inspiration, financing and know-how in this

regard. According to China‟s own development experience, infrastructure has played a

major role in China's accelerated development. As growth accelerated after the first stage

of reforms, China in mid 1980s was facing mounting pressure and bottlenecks in

electricity and road transport. After intensive government investment in infrastructure,

the road network expanded by more than 40 percent in the 1990s, water production grew

by more than 50 percent, and power generation exceeded 300 gigawatts, making China

the world's second largest energy producer (Bellier and Zhou 2003).The development of

expressways has been particularly remarkable (figure 8), with the total length increasing

from 147 kilometers in 1988 to over 60,000 kilometers in 2008 (Guo 2009). The rural

highway network also grew considerably. By 2007, the proportion of townships and

villages reached by rural highways increased from 98 percent and 80 percent in 1995 to

99.5 percent and 88.2 percent respectively (Guo 2009). During 1990 to 2006, about

400,000 km of local and township roads were improved (World Bank 2007).

Figure 6: China’s Road Transportation

Source: Guo Xiaobei (2009).

Figure 7: Growth of township roads in

China 1995–2002 (km)

3235 35577

293343

121703 77953

500867

271521

13442

0

100000

200000

300000

400000

500000

600000

Class 2 Roads

Class 3 Roads

Class 4 Roads

off-class Roads

1995 2002

11

Source: Dong and Fan (2004).

The role of fiscal policy and cost recovery: Chinese government‟s proactive fiscal

policy played an important role in infrastructure development. Fiscal decentralization

proceeded in two waves: the first wave started in 1982 when provincial governments

began to retain a share of revenue rather than transferring the full amount to the central

government. This provided strong incentives to promote local GDP growth. The second

wave started in 1994 when tax assignment system was introduced, and further enhanced

incentives for local governments to promote growth by investing in infrastructure. Third,

there is a clear division of labor between the central and local governments on who

finances what, and who has the ownership and responsibility for completing the projects

and for post-completion maintenance. Fourth, another interesting feature is the “cost

recovery” approach that prices infrastructure services at levels sufficient to finance the

capital cost as well as operations and maintenance, which is crucial in sustainably

expanding infrastructure. Rural road improvements were also integrated with major

highway projects, implemented with outside development assistance. China has gained

considerable experience and learned its lessons in building sustainable infrastructure

through commercial approaches and an active private sector participation.

On the other hand, some studies have shown that in the recent years, the efficiency or

rates of return from infrastructure has been declining (Li Zhigang 2010). Although there

are mechanisms to weed out bad projects- including feasibility studies, expert reviews

and approval process, China is not successful in weed out all “white elephant” projects-

we can find them easily. Other studies (i.e. Fan and Chan-Kang 2005) also find China

give too much priority to high-quality roads such as highways and freeways, though the

benefit–cost ratios for lower-quality roads (mostly rural) could be four times higher than

those for high-quality roads.

Session objective and focus:

This table below shows Africa‟s investment needs and funding gap in infrastructure.

Indeed, Africa‟s infrastructure investment needs relative to GDP are particularly large, at

15 percent of GDP. After considering efficiency gains from improvements in soft

infrastructure (such as improvements in governance, regulation and cost recovery, the

region‟s annual funding gap would remain sizable at about 5 percent of GDP, or about

$31 billion.

12

Table 1 Africa‟s Infrastructure Investment Needs and Funding Gaps

This session should be tailored to address the specific issues and challenges in Africa‟s

development, for example, low population density, low economic intensity, and high cost

of delivering infrastructure services. The following questions would be especially

relevant :

1. Given the low population density, how to provide low cost infrastructure in small,

isolated communities? (By comparison with China, most African countries have

small isolated populations with very high infrastructure costs.)

2. How to improve selection of infrastructure projects, i.e. project screening? (What

sort of identification/appraisal does China undertake for its own investment?)

3. How to secure rigorous, efficient management? What sorts of project

management/ supervision skills are needed during the construction phase? How

are managers trained? How is good performance incentivized? What sanctions

are deployed for poor performance? What are the corporate governance

arrangements?

4. How to attract private investment infrastructure? How are deals put together?

What sort of returns do private investors need? What sort of guarantees?

5. How to improve revenue generation? Africa needs a more commercial approach

to setting tariffs, and better collection. How are tariffs set in China? What are the

tools deployed to achieve high levels of revenue collection?

6. How were labor and capital market disciplines developed over time?

7. How to fund rapid development of urban infrastructure in cities? Africa is

urbanizing very rapidly but lacks the financial and technical capacity to develop

the infrastructure needed to make cities function effectively. (China has been

very strategic about using urban land policy to fund infrastructure, for example by

13

cashing in on the increase in land values brought about by infrastructure

investments.)

8. How to maximize development impact of infrastructure through spatial planning?

China has been smart about bundling interventions to create an adequate

infrastructure platform to boost growth in areas of key development importance.

Africa has a political tendency to spread around infrastructure budgets thinly to

provide a little bit for everyone without ever reaching political mass. More

recently, the idea of spatial development and corridor based interventions has

however come into vogue in Africa.

9. How to finance and implement large hydro projects? China is a global leader in

the development of hydro power. Africa has vast untapped hydro potential. Many

of Africa's hydro projects are technically challenging both to implement and

finance. It would be useful to learn from China's experience.

References and suggested readings:

Adenikinju, Adeola, 2005, Analysis of the cost of infrastructure failures in a developing economy:

The case of the electricity sector in Nigeria, AERC Research Paper No. RP_148

Dong, Yan, Hua Fan, 2004, Infrastructure, Growth, and Poverty Reduction in China, Shanghai

Global Poverty Conference Case Study, World Bank Working Paper 30774;

Estache, Antonio, 2006, Africa’s Infrastructure: Challenges and Realizing the Potential for

Profitable Investment in Africa. IMF and Joint Africa Institute. Tunis, Tunisia.

Fan, Shenggen and Connie Chan-Kang, 2005, Road Development, Economic Growth, and

Poverty Reduction in China, IFPRI Research Report 138.

Fay, Marianne and Michael Toman. 2010. “Infrastructure and Sustainable Development” a paper

presented in Korea-World Bank High Level Conference on Post-Crisis Growth and

Development, June 3-4 2010, Busan, Korea.

Foster, Vivien, William Butterfield, Chuan Chen and Nataliya Pushak. 2008. Building Bridges:

China‟s Growing Roles as Infrastructure Financier for Sub-Saharan Africa. World Bank

and PPIAF.

Foster, Vivien and Cecilia Briceno-Garmendia. 2010. “Africa‟s Infrastructure: A time for

transformation”. A co-publication of the Agency Francaise de Development and the

World Bank.

Guo Xiaobei, 2009, Development Experiences of China‟s Transport Infrastructure, Working

paper commissioned by WBI.

Krishnaswamy, Venkataraman and Gary Stuggins, 2007, Closing the Electricity Supply-Demand

Gap, World Bank Energy and Mining Sector Board Discussion Paper, Paper no. 20.

Li, Zhigang (2010). “Some evidence on the performance of transport infrastructure investment in

China,” presentation given at the conference “The Economics of Infrastructure in a Globalised

World: Issues, Lessons and Future Challenges,” Sydney, 18-19 March, available at

http://cama.anu.edu.au/Infrastructure_Conference.asp.

Lin, Shuanglin, 2001, Public Infrastructure Development in China, Comparative Economic

Studies, Summer 2001, v. 43, iss. 2, pp. 83-109

Liu, Zhi, 2005, Planning and Policy Coordination in China‟s Infrastructure Development --A

Background Paper for the EAP Infrastructure Flagship Study

Mbekeani, Kennedy K., 2007, The Role of Infrastructure in Determining Export Competitiveness:

Framework Paper, Supply Response Working Paper No. ESWP_05

14

Ndulu, Benno J., 2006, Infrastructure, Regional Integration and Growth in Sub-Saharan Africa:

Dealing with the Disadvantages of Geography and Sovereign Fragmentation, Journal of

African Economies, Vol. 15, Issue 2, pp. 212-244, 2006

Su,Ming, Quanhou Zhao, 2006, The Fiscal Framework and Urban Infrastructure Finance in

China, World Bank Policy Research Working Paper no. WPS 4051

World Bank. 2010. “G20 and Global Development: report prepared by Staff of the World Bank

for G20 Growth Framework and Mutual Assessment Process”, June 26-27, 2010.

World Bank Africa Region, 2006, Review of Selected Railway Concessions in Sub-Saharan

Africa, World Bank Report No. 36491

World Bank Africa Region, 2007, Addressing Africa‟s Missing Link,

http://go.worldbank.org/Z4G09FUX70

Zhang, Tong, 2009, A Review and Prospect of Fiscal Reforms in China, Working Paper

15

Session IV: Rural Infrastructure, Diversification and Global Value Chains

Most African countries are largely agrarian economies which need economic

diversification, thus, China‟s experience in rural infrastructure and linking farmers with

global value chains are most relevant.

After initial rural reform which focused on incentive systems,5 China has been able to

diversify the rural economy by developing township and village enterprises (TVEs),6

investing in public goods, and connecting farmers to markets through further opening

up to international markets prior to China‟s accession to the WTO. First, China gradually

reduced average tariffs for agricultural products from 42 per cent to 21 per cent in the

period from 1992 to 2001. Furthermore, the country has fully implemented its

commitment in WTO accession and reduced the tariffs from 21 percent to 11 percent in

the period between 2001 and 2005. By the 2000s, domestic prices of most of agricultural

commodities were close to those on the world market. (Guo LI et al 2010)

Second, the government has intensified its investment in public goods, which has been

complemented by co-financing from all levels of the government, public service units

and farmers themselves. Projects in rural roads, hydro power, electrification and

irrigation were financed by central and local governments, civil society, and farmers

themselves (in the forms of voluntary labor and cash). In the period of 1980-2006, the

proportion of self-financing by farmers themselves reached 34% in fixed asset

investment, whereas investment from foreign aid and FDI accounted for less than 4

percent (Yang Qiulin 2010). According to a survey of 9,138 projects (in 2459 sample

villages), 87 percent was investment in public goods such as rural roads, irrigation,

schools, and drinking water. About two thirds of public goods investments were into five

types of projects which were selected and co-financed by villagers (through labor and

matching funds): rural roads 21 percent, schools 14 percent, irrigation 14 percent,

5 The replacement of collective farming with a household-based system, later known as Household

Responsibility System (HRS), started spontaneously in Fengyang County, in Anhui province in late 1978.

Seeking to end their food shortage, peasants had started to implement a policy of contracting collective land

to families where farmers make production decisions and keep all profits after selling a proportion of grains

to the state (Du 2006). First an illegal practice, up to 1980, the HRS was scaled up to 45 percent and to 98

percent in 1983 (Lin and Wang 2008). The most important implication here is that the policies

accommodated the spontaneous actions on the ground. The adoption of the HRS, together with agricultural

product price increases were key elements of the rural reform in 1978-84, which unleashed farmers‟

incentive and led to rapid agricultural productivity growth and poverty reduction. Nearly a half of the total

rural poverty reduction happened in this early stage of reforms (Lin, 1987, 1992, and Ravallion and Chen

2007). 6 As the agricultural sector developed rapidly after 1980, it created a surplus of labour as well of savings

which greatly expanded the opportunities for township and village enterprises (TVEs). They came into

existence under the People‟s Communes system in 1971. Fiscal decentralization started in 1979 provided

incentives for local governments to develop their local economies through supporting TVEs. Employment

in TVEs increased from 28 Million in 1978 to 95 million in 1988 at the peak (SSB 2007). This

development had led to a rising rural incomes and a labour reallocation from agricultural to non-

agricultural sectors. The dynamism of TVEs and other nonstate enterprises exerted a pressure on the SOEs

and triggered the restructuring of the SOEs.

16

drinking water 12 percent, clinics 3 percent, and other public goods 37 percent. (Li Guo

et al 2010)

For example, rural water resources management encompasses both drinking water

and irrigation; both considered the responsibility of the government and requiring

intensive investment. In 2000, 379 million rural people were without safe drinking water

supply. During 2001-2009, after the government‟s investment of about USD$7 billion, an

additional 195 million people were provided with safe drinking water. Secondly,

irrigation is considered the basis for agricultural productivity and poverty reduction.

Between 1979 and 2007, irrigated area was increased by more than 25% (Zhong 2010). A

case study about Water User Association (WUA) shows it is a community based and

participatory approach which empowers farmers to improve farm-level irrigation

management. Started in early 1990s, the Ministry of Water Resources (MoWR) selected

20 large irrigation districts to experiment with WUA, accompanied with water saving

projects. After 2002, MoWR and Ministry of Civil Affairs fully implemented WUA

development in China, with about 200,000 WUAs established at present (Shen Dajun).

Third, develop and support rural clusters and link them with market. In general,

clusters can be characterized as agglomeration and networks of production of strongly

interdependent firms (including specialized suppliers) linked to each other in a value-

adding production chain, service providers, and associated institutions in a particular field.

Agricultural clusters seem to correspond more to the definition by Schmitz (1992) who

defines clusters as geographic and sectoral agglomeration of enterprises. The reason is

that the difficulties of transport and communication in developing countries, especially in

Africa, as well as the prevalence of fairly small clusters makes Schmitz‟s approach better

suited to the discussion of agricultural clusters in developing countries. In the past three

decades, local governments working with farmers and entrepreneurs have developed

many rural clusters that have significantly contributed to the local economic development

and rural poverty reduction. They are not only closely linked with local market but also

with global value chains. Such clusters include fruits, potato and vegetable growing and

processing, meat processing, high value-added crops, herbal tea, textile, toys, etc. In

Africa, there are also many successful agricultural clusters, such as Kenya cut flower,

Ethiopia shoe-making, Uganda fishing, South Africa wine, etc.

Global experience of the past years appears to suggest that there are several major

resource requirements for an agricultural cluster to be successful.

Location: natural endowments, climate, and infrastructure. For the success of

agricultural industries and clusters the location, Natural endowments, such as soil,

climate or access to water resources, are critical. Clusters in a rural location in

developing countries, especially in Africa, face above all the poor or nonexistent

infrastructure (electricity, roads etc). This severely limits the scope for innovation

in production, services, and marketing.

Sufficient knowledge base. A strong academic base seems to be a recurrent

ingredient for success of a cluster. Successful clusters show that they have

universities or other academic institutions and research organizations in their

vicinity which provide basic and also applied research.

Financial and Human Resources. In the emergence of an agricultural cluster,

human resources, in particular on the managerial level, may be provided

17

externally, by for example diaspora community members moving back, or

international companies settling there. Once the cluster forms and grows, however,

a endogenous human resource reservoir must arise. In addition, the availability of

financial resources is also very important.

Market identification by firms. The actual market focus or the linkage to the

global value chain of a cluster will be a critical determinant of its success as well

as act as a major pull factor for innovation and upgrading.

A sufficient number and variety of actors (including one or several leaders or

prime movers). Cluster development and competitiveness hinges upon the

sufficient number of actors of the cluster that extend far beyond the value chain

agents, but include support services such as extension systems, financing

institutions, as well as education and research institutions.

Networks among various types of actors (industry-government, industry-

university, industry-industry, professional networks, and others). Knowledge

networks, a structure of interlinked actors, facilitate further learning in firms and

institutions in the process of innovation.

Institutions (market conditions, regulations, supporting organizations, etc.).

Agricultural clusters do require, even though to a different degree, institutions,

whether public, or private, related to technological transfers, regulations,

standards and grades, as well as technical training.

Session objective and focus:

This session is divided into two panels. The first panel focuses on rural infrastructure

development especially rural water and water user associations. The second panel

concentrated on rural clusters development and how to link farmers with markets. Given

the different situations in China and Africa in rural economic diversification and cluster

development, the following will be the focus of this session:

1) What is the role of government in investing in rural infrastructure such as drinking

water, roads, biogas and irrigation, and in promoting cluster development? Why

clusters in China and Africa are performing so differently in terms of scale and

productivity level?

2) What kinds of institutions are needed to further promote rural diversification and

cluster development in Africa?

3) How to link the local clusters to the FDIs and global value chain? What kind of

investment climate is needed for public-private partnership?

4) What‟s the importance of road and transport infrastructure in supporting rural cluster

development?

Reference and Suggested Readings:

Akamatsu, K. 1962. “A Historical Pattern of Economic Growth in Developing Countries,” in The

Development Economies, Tokyo, Preliminary Issue No. 1, pp. 3-25.

Brautigam, Deborah. 2009. The Dragon's Gift: the real story of China in Africa. Oxford

University Press.

Bräutigam, Deborah A. and Tang Xiaoyang. 2009. “China‟s Engagement in African Agriculture:

„Down to the Countryside‟”. The China Quarterly. 199: 686-706.

18

Centre for Chinese Studies. 2010. “Evaluating China‟s FOCAC Commitments to African and

Mapping the Way Ahead.” A report by the Centre for Chinese Studies Prepared for the

Rockefeller Foundation, January 2010.

Chen, Shaohua and Martin Ravallion. 2008. "The Developing World Is Poorer Than We Thought,

But No Less Successful in the Fight against Poverty". World Bank Policy Research

Working Paper 4703.

Harrison, A., and A. Rodriguez-Clare, 2010. “Trade, Foreign Investment, and Industrial Policy

for Developing Countries,” Handbook of Development Economics, vol. 5, pp. 4039-4213.

Hausmann, R. and D. Rodrik, 2003. “Economic Development as Self-Discovery,” Journal of

Development Economics, 72 (December).

Hausmann,, R., D. Rodrik, and A. Velasco, 2008. “Growth Diagnostics,” in: N. Serra and J.E.

Stiglitz (eds.), The Washington Consensus Reconsidered: Towards a New Global

Governance, New York, Oxford University Press, pp. 324-354.

Jones, Monty. 2010. “African‟s agriculture: Performance and Challenges.” Paper prepared for the

China-DAC Study Group Event on Agriculture, Food Security and Rural Development,

Mali, April 27-28, 2010.

Ju, J., J.Y. Lin, and Y. Wang, 2009. “Endowment Structures, Industrial Dynamics, and Economic

Growth,” Policy Research Working Paper no. 5055, Washington D.C., World Bank,

September.

LGOP (2003), „An Overview of the Development-Oriented Poverty Reduction Program for Rural

China,‟ China Finance and Economics Press, May 2003, Beijing, China

Lin, Justin Yifu. 2010. “New Structural Economics: A Framework for Rethinking Development”.

World Bank Policy Research Working Paper 5197, Washington DC, World Bank.

Lin, Justin Yifu and Celestin Monga. 2010. “Growth Identification and Facilitation: the Role of

the State in the Dynamics of Structural Change”. World Bank Working paper, May 2010.

Meng, Shuchen, Yong Tao, Jiayi Liu, 2004, Rural Water Supply and Sanitation in China-Scaling

Up Services for the Poor, Shanghai Global Poverty Conference Case Study, World Bank

Working Paper no. 30775

OECD. 2010. “Measuring Aid to Agriculture”, April 2010. See

www.oecd.org/dac/stats/agriculture for details.

Ravallion, Martin, and Shaohua Chen. 2007. China‟s (Uneven) Progress against Poverty. Journal

of Development Economics, 82-1: 1-42.

Rodrik, Dani. 2007. One Economics, Many Recipes: Globalization, Institutions, and Economic

Growth. Princeton University Press: New Jersey.

Stiglitz, Joseph E. 1989, “Principal and agent,” in J. Eatwell, M. Milgate and P. Newman (eds.),

The New Palgrave. Allocation, Information and Markets. New York: W. W. Norton

Wang Guoliang (2008), „Strengthen Theory Studies and practice Innovations to Improve Our

Poverty Reduction Work‟, in Fan Xiaojian ed. „„The Current Situation and Policies for

Poverty Reduction‟, China Finance and Economics Press, June 2008, Beijing, China,

pp.28-39.

Wang, Yan, 2010. “Agriculture, Food Security and Rural Development, a Synthesis Report”, for

China-DAC Study Group, Working Paper, IPRCC.

World Bank. 2009. From Poor Areas to Poor People: China’s Evolving Poverty Reduction

Agenda—An assessment of poverty and inequality in China. March 2009.World Bank.

2009. Implementing Agriculture for Development: World Bank Group Agriculture

Action Plan: FY2010-2012. The World Bank, Washington DC. USA.

Xiao, Yunlai, and Nie, Fengying. 2009. “A Report on the Status of China‟s Food Security”. A

book sponsored by FAO, IFAD and WFP. China Agricultural Science and Technology

Press.

Zeng, Douglas Zhihua, 2008, Knowledge, Technology, and Cluster-Based Growth in Africa:

Findings from 11 Case Studies of Enterprise Clusters in Africa, Chapter 1 of the book

19

Knowledge, Technology, and Cluster-based Growth in Africa, edited by Douglas Zhihua

Zeng, World Bank, Washington DC.

20

Session 5. Africa-China Cooperation in Industrial Parks and Infrastructure

China‟s cooperation with Africa is not new, dated back in 1959 in the early days of the

People‟s Republic. What is new, however, is the level and significance of China‟s role in

Africa. There has been a dramatic increase in trade and investment flows between Africa

and China, driven by economic complementarities. Trade between Africa and China rose

from $10 billion in 2000 to $107 billion in 2009, representing a growth rate of 40% per

year. China‟s FDI outflow to Africa also increased rapidly since 2004, amounting to

$5.86 billion in 2009, and more than 1500 Chinese companies have invested in Africa

(figure 8, 9).

In particular, China has been a significant source of financing for investment in

infrastructure. At last year‟s senior leaders meeting of the Forum on China-Africa

Cooperation (FOCAC) in Egypt, China announced a new round of commitments,

including $10 billion in 'concessional' loans and credits over the next three years, further

solidifying its role as a major player in supporting Africa‟s development.

This growing role of China in Africa is part of a broader shift in the global economic and

development landscape, where China, together with other emerging market economies

such as India and Brazil, is leading the way in recovering from the global financial crisis.

The shift from the G8 to the G20 as the pre-eminent forum for global governance issues

reflects the recognition that confronting the global issues needs participation of China,

South Africa and other emerging market economies. These new partners are contributing

not only aid but more importantly are becoming major trading partners and sources of

investment and know-how (Karp 2010).

Several factors contributed to the recent changes in China‟s economic engagement with

Africa:

a) As China‟s domestic production moves up the value chain into higher-technology

and higher valued added industries, a growing number of Chinese companies are

looking into shift some of their lower value-added manufacturing sectors

elsewhere.

b) To help support such shifts, the Chinese central government is supporting the

establishing industrial zones in several countries in Africa, with the hope that the

success of China‟s SEZs can be replicated.;

c) China‟s state financial institutions are instrumental in supporting enterprises

“going abroad” and cementing the new, commerce-based economic ties with

African countries.

d) In addition, there are growing technical and managerial complementarities

between China and Africa, including China‟s capacity to design and implement

21

and manage large infrastructure projects, and Africa‟s huge needs for

infrastructure investments. 7

SEZs and global value chains. In recent years, the globalized marketplace has witnessed

the rise of vertical specialization, or, segmentation of the global value-chain where parts

produced in different countries are assembled in other countries and exported to

anywhere in the world. The prospects for industries in low-income countries to engage in

trade within producer-driven networks would be limited without attracting substantial

FDI by firms that have already been integrated into such networks. Increasingly, Chinese,

Brazilian and Indian firms have acquired these attributes. FDI by firms that are well

placed in the global value chains may help African countries to diversify and become

competitive in the global market.

African Feedback. African officials welcome China‟s intensified engagement in Africa,

especially in the areas of technology transfer. However, some officials, on various

occasions, raised issues related to local employment generation, hoping that Chinese

companies could employ more local firms and workers and help enhance their capacities.

They raised issues regarding the quality of goods and services, labor and environmental

standards and market access. (ACET 2009). In terms of SEZs in Africa, it may be

unrealistic to assume that production cost of goods produced in those zones will

necessarily be lower than those produced in Asia. A policy and regulatory framework

must be in place to encourage firms to transfer technology, provide training and help

build local capacity.

In general, there is much room for improvements through mutual learning and

understanding.

Figure 8 China’s FDI Outflow 1982-2009

(Million USD)

Data source: UNCTAD FDISTAT database 2010

Figure 9. China’s FDI outflow to Africa,

1999-2009 in millions of dollars

Source: UNCTAD, 2007, and http://www.gov.cn

7 How best to build and retain capacity? Case studies have shown that providing opportunities for “self

fulfillment” and promotion through the national systems can provide incentives for talents to stay and

alleviate “ braindrain”. (Y. Wang and C. Wang 2010)

22

Session objective and focus:

A joint panel of Chinese and African participants will explore the "whys", "hows" and

"whats" of China‟s broad cooperation and engagement with Africa, including topics on

1) China‟s current approaches to engaging and investing in Africa‟s industrial zones;

2) What approaches have been applied by other donor agencies and the World Bank

in Africa that may offer lessons for China to consider?

3) What improvements can be made to China‟s investment and engagement in

Africa, so that it can contribute to the employment and income generation in the

local economies, and facilitate the integration of African economies to the global

production network.

4) How to make development assistance and South-South cooperation more

effective?

Reference and Suggested Readings:

ACET (African Center for Economic Transformation) 2009. “Summary of a GDLN Consultation

on China-Africa Development Cooperation”. October 20, 2009.

Brautigam, Deborah. 2009. The Dragon’s Gift: The real story of China in Africa. Oxford

University Press: New York.

Broadman, Harry G. et al. 2007. Africa's Silk Road- China and India's New Economic Frontier,

World Bank, Washington DC.

Chenery, H. B., 1961. “Comparative Advantage and Development Policy,” American Economic

Review, vol. 51, no. 1, 18–51.

Collier, Paul. 2007. The Bottom Billion: Why the Poorest Countries Are Failing and What Can be

Done About It. New York: Oxford University Press.

Collier, Paul. 2009. Wars, Guns, and Votes: Democracy in Dangerous Places. HarperCollins

Publishers.

Davies, Martyn, Hannah Edinger, Nastasya Tay and Sanusha Naidu, 2008, How China delivers

development assistance to Africa, Centre for Chinese Studies, University of Stellenbosch

Downs, Erica S. 2007, The Fact and Fiction of Sino-African Energy Relations, China Security

Vol.3,No.3 Summer 2007

Easterly, William, and Tobias Pfutze, 2008, Where does the money go? Best and worst practices

in foreign aid, Brookings Working Paper

Foster, Vivien, William Butterfield, Chuan Chen and Nataliya Pushak. 2008. Building Bridges:

China‟s Growing Roles as Infrastructure Financier for Sub-Saharan Africa. World Bank

and PPIAF.

Frot, Emmanuel and Javier Satntiso. 2009. “Crushed Aid: Fragmentation in Sectoral Aid,”

Stockholm Institute of Transition Economics (SITE) Working Paper No. 6, 2009.

Geda, Alemayehu, 2006, The Impact of China and India on Africa: Trade, FDI and the African

Manufacturing Sector Issues and Challenges, AERC Asian Driver Working Paper No.

ADWP_03

Gill, Bates, Chin-hao Huang & J. StephenMorrison, 2007, Assessing China's Growing Influence

in Africa, China Security Vol.3, No.3 Summer 2007

Goldsein, Andrea, N. Pinaud, H. Reisen and X. Chen, 2006, The Rise of China and India, What’s

in it for Africa? OECD Publishing

He, Wenping, 2007, The Balancing Act of China's Africa Policy, China Security Vol.3,No.3

Summer 2007

Karp, Philip. 2009. “Lessons from China for Africa”, speech at the Beijing Forum, July 2009.

23

Li, Anshan, 2007, China and Africa: Policies and Challenges, China Security Vol.3,No.3

Summer 2007

Li, Xiaoyun, 2009, China‟s Foreign Aid to Africa, Working Paper. IPRCC website.

Lin, Justin Yifu. 2010. “New Structural Economics”. World Bank Policy Research Working

Paper 5179.

Lu, You Jie and Wang Shou Qing. 2004. Project Management in China (中国的项目管理),

Southeast Asia Construction, Issue Sept/Oct 2004, pp. 158-163

Lum, Thomas, Hannah Fisher, Julissa Gomez-Granger, and Anne Leland, Feb 25, 2009.

“China‟s Foreign Aid Activities in Africa, Latin America, and Southeast Asia,” R40361,

Washington, DC: Congressional Research Service.

Ozawa, Terutomo and Christian Bellak, 2010. „Will China relocate its labor-intensive factories to

Africa, flying geese style?‟ Columbia FDI Perspectives, No. 28, August 17, 2010. Qi, Guoqian, 2007. “China‟s foreign aid: policies, structure, practice, and trends”, paper prepared

for Oxford and Cornell universities‟ conference on „New directions in development

assistance‟, Oxford, 11–12 June 2007.

Tull, Denis M. 2006, China's Engagement in Africa: Scope, Significance and Consequences,

Journal of Modern African Studies 44(3): 459-479.

Wang, Yan, 2010. “Development Partnership for Growth and Poverty Reduction, a Synthesis

Report”, for China-DAC Study Group, Working Paper No.7, 2010, IPRCC.

Woods, Ngaire, 2008, Whose aid? Whose influence? China, emerging donors and the silent

revolution in development assistance, International Affairs 84: 6 (2008)1205–1221

World Bank, 2004, Patterns of Africa-Asia Trade and Investment: Potentials and Ownership,

World Bank, Washington DC

Xue, Lan, 2009, “China‟s Partnership with Africa: Improving Aid Architecture for Policy

Effectiveness,” Working paper presented in a Joint Workshop held in Uganda, 2010.

24

Session 6. Tying Up: What Are the Overall Lessons/Takeaways?

This final session will try to discuss some of the common themes, including leadership

/ownership of reforms, sequencing and implementation issues, stakeholder participation,

experimentation and evaluation in a learning process. In this session, participants will be

invited to provide feedbacks and share their main takeaways from the three-day

workshops and the 4-day field visits, and their thoughts on topics and ways for

continuous experience sharing between Africa and China.

Following are some highlights from previous workshops /field visits that the discussion

can build upon:

Development is a process that is full of uncertainties, and each country has its

own particular political, cultural, and historical background. Because of this

uncertainty and country specificity, development itself must be a process of

experimentation, self-discovery, learning, and innovation. (Hausmann, R. and D.

Rodrik, 2003; Wang 2005, Lin and Wang 2008).

Combine openness to trade and investment with learning by doing, and encourage

experimentation through SEZs. China‟s success involved deep integration with

the global economy to bring new technologies and ideas, take advantage of its

comparative advantages, and improve its own total factor productivity. SEZs

have become the testing ground for structural reforms, which created a good

investment climate to attract FDI and the private sector development. A high

degree of local autonomy in China resulted in competition among hundreds of

cities to create a good investment climate and attract investment (Dollar 2008,

Zeng 2010).

Emphasis on infrastructure and other growth bottlenecks. China was able to

rapidly expand its infrastructure network through co-financing by various levels

of government (and sometimes the private sector), and a “cost recovery” policy

that prices infrastructure services at levels sufficient to finance the capital cost as

well as operations and maintenance. (Foster et al 2010, Dollar 2008) Using

commercial loans rather than grant and forcing local governments to pay back is

another interesting feature exerting disciplines. Although there are a number of

mechanisms /procedures to review and approve projects, China has not been

successful in eliminating “white elephant” projects which has little growth and

poverty impact.

Enhance investment in rural public goods such as rural road, water, electricity,

and irrigation, and link farmers with global /regional value chains. Rural reform

played a key role in China‟s rapid poverty reduction (Ravallion 2008). Later on

large rural-urban migration allowed inland regions to share part of the benefits of

globalization with coastal regions. (Dollar 2008) The government has been

25

investing in rural infrastructure and the private sector /farmers have all

contributed (through labor and co-finance).

Lessons can be learned: China needs to rebalance its pattern of growth, making it

more equitable and sustainable. In part, following many years of price distortion,

China‟s industrial structure is overly capital intensive and highly dependent on

export demand (Kuijs and Wang 2006, World Bank 2007). This is a negative

lesson that African countries should avoid. China has paid a high social and

environmental cost for its rapid growth, which arguably could have been avoided.

This can be seen most clearly in excessive energy consumption and serious

environmental degradation and pollution. A recent World Bank study found that

the health cost of air and water pollution in China amounts to about 4.3 percent of

its GDP. Adding the non-health impacts of pollution, estimated at about 1.5

percent of GDP, brings the total cost of air and water pollution to about 5.8

percent of GDP (World Bank 2007b). Fully recognizing the problem, the

government has been implement a strategy of “people centered” and scientific

approach to growth, in an effort to create a cleaner, greener, and more equitable

and sustainable economy.

China‟s engagement in African is appreciated but it can also be improved. China

needs to learn from and understand the diverse circumstances in the 53 countries

in Africa, just as Africans can also draw some inferences from China. There are

huge challenges and many unanswered questions and there is no “one-size-fits-

all” solution. Based on China‟s own experience with development partners

(including the World Bank) in the past 30 years, two-way learning is crucial to the

effective utilization of international aid in development process. The same spirit

of mutual learning should also apply in China-Africa South-South learning and

cooperation. So the final message is that China, Africa, and the World Bank

should join hands in a partnership to embark on a long journey of discovery.