China has achieved rapid economic growth because of its economic structure readjustment and successful transformation from a planned economy to a market economy. Though in the 1990s many other developing countries also undertook economic restructuring like China, many failed. So what are the real reasons for China’s economic success?
From the 1950s, China began implementing an industrial development policy involving many capital-intensive industries. From the 1980s, it adjusted its deve-lopment strategy to focus on the development of labor-intensive industries.
The Chinese Government continued to protect and cultivate enterprises that lacked competitiveness and comparative advantages. China cut back on market access restrictions for private businesses and foreign investment into those with comparative advantage.
China has established industrial parks, improving infrastructure and the business environment to reduce transaction costs. In this process, a gradual capital accumulation and industry upgrade has bolstered the industries’ international competitiveness, and China has started to benefit from its comparative advantages.
China’s experience teaches us that the core of economic growth is to develop one’s own industries with comparative advantages and accumulate capital for the development of a higher level of industrial restructuring. It is very important to ensure the proper use of administrative intervention in the improvement of infrastructures that require substantial resources. In the context of limited resources, developing countries should first develop their industries with comparative advantages in pilot industrial parks, and then across the country.
Opportunities for Africa
Currently, Africa’s economy is based on agriculture and mining, while the manufacturing industry’s share in the GDP is declining. African countries have generally recognized the importance of economic restructuring, but steering the economy away from agriculture toward industry is easier said than done.
Industrial policy guidance plays a critical role in the process of economic restructuring in African countries. There are several aspects to economic restructuring.
First, Africa needs to find industries in advanced countries with similar resources structure. With the accumulation of capital, industries in the more advanced countries that have lost their comparative advantages could be taken over.
Second, after identifying the industries with comparative advantages, African countries must identify constraints, get rid of development hurdles, and help businesses reduce transaction costs, if they find the advantages of the domestic enterprises in these industries haven’t been given full play.
Third, if there are no such enterprises, the countries could consider attracting investment from countries with more mature industries. It means acquiring new techniques for industrial development.
Fourth, if some established businesses discover opportunities in emerging industries, governments should help the development of these enterprises. For example, in the 1980s, some Indian companies discovered the opportunity in information technology outsourcing, and information services became a pillar industry of India with the government’s support.
Fifth, African countries can attract investment through the establishment and development of special economic zones or industrial parks. These would become industry clusters, which can further reduce transaction costs and improve the overall business environment.
Sixth, African governments need to give incentives to pioneer enterprises in comparative advantage industries, such as tax reduction or exemption under certain conditions, helping them do credit investment, or provide preferential policies for better access to foreign exchanges to meet the requirements for importing equipment.
Focusing on light industry
Many African countries are looking to China for industrial transfer opportunities. The first of such industries is the light industry, which is labor-intensive.
Ethiopia has successfully taken over the shoe industry in China. The Chinese footwear industry created about 19 million jobs and yet lost its comparative advantage as wages began to rise. Ethiopia had an independently developed footwear industry but due to its poor infrastructure and business environment, international buyers lacked confidence in the country. They worried about product qua-lity and delivery, which slowed down the development of Ethiopia’s shoe industry. The introduction of Chinese investment has greatly facilitated the rapid growth of Ethiopia’s footwear industry.
Rwanda enjoys similar success. It is focusing on the development of its garment industry. Though developed a short time ago, Rwanda’s garment industry products have international competitiveness because of their low cost.
Each country has its own advantages. It is crucial to find the correct field and change the previous methods. African countries have the ability to promote their industrialization process to achieve rapid growth. It is entirely possible for Africa to repeat the economic miracle that has happened in the rest of the world.