In this edition, we cover topics ranging from inequality in China to a new study on Chinese firms in African labour markets; from debt sustainability to the US-China trade war; as well as an exciting event on the Belt and Road coming up here at ODI.
Inequality trends in China
Economists Thomas Piketty, Li Yang, and Gabriel Zucman have used a brand new dataset in a recent study to look into China’s inequality trends since its 1978 economic reform, with two interesting findings.
First, the share of public property in China is estimated to have declined from 70% in 1978 to 30% in 2015, although it has now stabilised. This could remain a long-lasting feature of the Chinese economy, the authors hypothesise, setting China apart from European countries where the share of public property is now close to zero.
Second – and unsurprisingly – the authors find that income inequality has risen considerably since 1978. If in the late 1970s, China was almost as equal as the most egalitarian Nordic states, income inequality levels have soared since 2015 and are now nearing those of the United States.
Chinese firms and employment dynamics in sub-Saharan Africa
Moving away from China and into Africa, I wanted to highlight an interesting project led by Professor Carlos Oya of SOAS University of London. Industrial Development, Construction and Employment in Africa (IDCEA) is the first of its kind. It provides a large-scale comparative analysis on the effects that local African, Chinese, and other foreign firms have on employment dynamics in Africa. IDCEA found that Chinese firms have very high workforce localisation rates – meaning, they hire high numbers of African workers.
It also highlighted that despite significant variation in workers’ salaries, wages in Chinese firms were broadly similar to those paid by other foreign firms.
The research has also been discussed in this blog by Irene Yuan Sun, challenging the idea that Chinese firms are ‘exceptional’, or substantially different from companies from other countries.
Debt sustainability and beyond
I wanted to avoid talking about debt, at least for one issue of this round-up. But unfortunately (or fortunately) I have come across some thought-provoking pieces about debt sustainability which I felt I needed to include.
The first is on the new Debt Sustainability Framework (DSF) for Belt and Road countries published by the Chinese Ministry of Finance.
Scott Morris and Mark Plant point out that this framework mirrors the joint World Bank/International Monetary Fund DSF very closely, and raise compelling questions about the use of the Chinese DSF in practice.
The way this DSF shapes decisions about loans and financing will be influenced by whether the framework is used to merely inform – or rather, to guide – decisions, and by the assumptions regarding the macroeconomic variables plugged in its models.
The second is a bold piece by Elijah Kimani, in which the author argues that African countries could take China’s financial support and use it to develop, like European countries did after the First World War when they borrowed heavily from the US and the UK. And if some African countries failed to repay their loans, this would not be the end of the world. Nor would this not be a big deal for China, Kimani argues, given that China’s lending to Africa is tiny compared to its overall lending. Some food for thought.
Two pieces from ODI
Finally, I’d like to share two bonus entries from ODI. The first is a blog written by my colleague, Sherillyn Raga, on the US-China trade war. While the effects of the trade war on the Chinese and American economies are widely debated, little has been said about its impact on developing countries, both in terms of trade and monetary channels.
In terms of trade, developing countries could have the opportunity to fill the gap left by Chinese exports to the US. But, they may also face competition by Chinese products dumped in their markets at lower prices.
Effects could also manifest through monetary channels, affecting countries holding dollar-denominated debt, and making Chinese exports more competitive through a weaker renminbi.
The second entry is an event on Financing the Future of the Belt and Road in Africa that will take place here at ODI on 20 September. We have an exciting line-up, including H.E. the Ethiopian Ambassador to the UK; Professor Deborah Brautigam, Director of the China-Africa Research Initiative; Jinny Yan, Chief China Economist of ICBC Standard Bank; and myself. Sign up via the link if you would like to attend.
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