May 20, 2008 —China’s role as an investor and donor in Africa is much scrutinized. While private investment and aid flows from China may benefit Africa’s poor, what might be more significant are the lessons for Africa from China’s success in fighting poverty back home.
While some scholars warn about the dangers of imposing Western institutional practices on Africa, similar risks apply when transplanting ideas from the East. It would be naive to assume that Africa could simply copy specific policies to achieve China’s success.
Africa faces starkly different constraints today than China did when it embarked on its reforms. These include higher income inequality, lower population density and higher dependency rates.
However, there are some important lessons for Africa from China’s experience, says Martin Ravallion, director of the World Bank’s Development Research Group. Not all these lessons are about China’s success. In fact, some relate to trends that Africa should avoid, such as China’s steep rise in inequality.
“China’s success illustrates the generic point that freer markets can serve the interests of poor people,” said Ravallion. “Chinese farmers responded dramatically to market incentives, and African farmers are unlikely to be any different in this respect—but there’s far more behind China’s success than just letting markets do their work.”
In a new policy research working paper, Ravallion says that one of the messages for Africa gleaned from China’s legacy is the need for a sharper focus in the near term on the rural economy and on increasing the productivity of small farmers.
Justin Lin, currently professor and founding director of the China Centre for Economic Research at Peking University, will take over as the World Bank’s Chief Economist in June 2008. Professor Lin did pioneering research on the economic impacts of China’s agrarian reforms. His first field trip will be to Africa, where among other appointments, he will visit agriculture projects in Ethiopia.
The fight against poverty in China and Africa: 1981-2004
Ravallion observes from the best available data that in 1981, two out of three mainland Chinese lived below $1 a day at 1993 international prices. At that time, the same was true of only about 40 percent of the people of Sub-Saharan Africa.
Yet China and Africa went on to achieve very different results in reducing poverty. By 2004, not even one in ten people in China lived in poverty by the same standard, but the share of poor in Sub-Saharan Africa was still 40 percent.
This divergence is even more dramatic in terms of the population count of those living in poverty. In 1981 China’s poor outnumbered Africa’s by almost 4:1, but by 2004, 500 million fewer Chinese lived under a dollar a day than in 1981, while in Africa, the number of poor people rose by 130 million in the same period.
While new poverty estimates (derived from 2005 purchasing power parities) suggest that the absolute number of poor people left in China is greater than we thought, what remains unchanged is the tremendous scale of poverty reduction in the country since 1981, with hundreds of millions having been lifted out of extreme poverty.
While China’s success against poverty has been dramatic, what is less readily apparent today is that 10 percent of its population is still roughly as poor as the poorest 40 percent of Africa’s population. A visitor to the Beijing Olympics would have to travel to land-locked, resource-poor rural areas to find the extreme poverty that still persists in parts of the country.
Since the mid-1980s, China has witnessed a steep rise in inequality, with socially and geographically disparate levels of opportunity. The sharp difference between urban and rural living standards (that the traveler out of Beijing might also note) reflects biases in public resource availability. This contributes to unequal opportunities in health and schooling, depending on where one lives.
It is tempting to assume that exports and the booming manufacturing sector are at the heart of China’s poverty reduction, fuelled by FDI, but the boom in FDI was in the 1990s—after the bulk of China’s poverty reduction. In fact, Ravallion and Chen (2007) find that growth in agriculture over 1981-2004 had about four times the impact on national poverty as growth in manufacturing or services.
“While growth in manufacturing helped reduce poverty in the 1990s by absorbing surplus rural labor, it’s important to note that the “heavy lifting” in reducing poverty took place in the early 1980s, in the wake of China’s rural economic reforms,” said Ravallion.
It is tempting to assume that exports and manufacturing, fueled by the 1990s boom in FDI, are at the heart of China's poverty reduction...
...But much of the "heavy lifting" in reducing poverty in China took place in the early 1980s, in the wake of the country's rural economic reforms
Policy lessons for Africa
African farmers are likely to respond well to market incentives
Freer markets can serve the interests of poor people. When given market incentives, Chinese farmers responded dramatically. There is evidence that African farmers will react no differently and that opening up markets will reduce poverty.
Market-oriented reform must be complemented by strong state institutions. China’s success was founded on strong state institutions that implemented supportive policies and public investments. Africa needs to improve its capacity to implement the required policies.
Policies must avoid doing harm to poor people. Of course, state capacity must be used to implement good policies and drop bad ones. One way of helping poor people is to reduce the explicit and implicit taxes they often face, and to reduce biases against them in public spending policies.
Macroeconomic stability is crucial. China’s experience (as well as that of other developing countries) suggests that avoiding inflationary shocks is good for sustained poverty reduction.
Internal market integration should not be neglected. Although this is not an area in which China made rapid progress (in part due to restrictions on internal migration), internal market integration has played a role in poverty reduction. But Africa faces far greater obstacles than China did, due in part to coordination problems across country borders.
Stronger agriculture must be at the center of any effective path out of poverty --- for this boy in the Kalahari and for millions of others in Africa
The agricultural sector should be given high priority. While China’s high agricultural growth in the 1980s partly reflects an unusual historical event (decollectivization), it also shows that boosting agricultural and rural development is crucial for pro-poor growth, particularly at the early stages, given that small farms can quickly absorb unskilled labor. With Africa’s levels of poverty and relatively abundant supply of land, and with today’s high food prices, an agriculture-based strategy must be at the center of any effective route out of poverty.
China can help Africa build up agricultural research and extension systems. Achieving agricultural growth is not simple and will require investments in agricultural R&D tailored to African (often rain-fed) conditions, and efforts to bring research results to African farmers. China can help Africa build these systems up, as well as offer a market for Africa’s agricultural exports.
Industrialization should not take precedence too rapidly. Impatient governments often try to “jump start” the (mostly urban) industrialization process, often by-passing the pressing needs of their rural poor. Arguably even China may have tried to industrialize too quickly. Here, there are useful lessons for Africa from Vietnam, which maintained a more enduring sectoral emphasis on agriculture and rural development than China.
Rising inequality is not an inevitable outcome of higher growth and less poverty. African observers of China’s success might be tempted to conclude that rising inequality is the inevitable price of lower absolute poverty. However, the outcome varies from one country to the next. China’s periods of the most rapid poverty reduction actually saw falling inequality. When growth comes from relaxing the constraints that poor people face in accessing markets, it can help counter inequality.
“We must not forget that Africa is 48 countries, not one,” concluded Ravallion, “There is no African central government to transmit policy lessons from one place to another, and this is where the international community, including China, can help. ”
Photo credits: Curt Carnemark (The World Bank), Oldens Wang, Icewind78, Pg-images, and Lucian Coman (Dreamstime.com).