Rebalancing the Chinese economic relationship
Last month the Inter-American Development Bank (IDB)published a paper ‘Chinese rise in the Caribbean – What does it mean forCaribbean Stakeholders?’. Although, in its conclusions, it said little morethan a number of Caribbean commentators have observed previously, it isimportant for three reasons.
Firstly, it disaggregates the Caribbean from the more usualapproach whereby multilateral institutions write or speak about China in thecontext of the Americas, as if Latin America and the Caribbean were somecoherent entity; secondly, the research-based study focusses on the economicbenefits that might accrue from a more strategic approach; and thirdly, itencourages the region to be foreword looking about what it wants out of itslong term relationship with Beijing.
The paper’s two authors make the point from the Caribbean’sperspective, that while China potentially represents a new export destination,an alternative source of capital, and a new source of tourists, the region mustdo more to take advantage of such opportunities. They observe that while theCaribbean’s relationship with China – an IDB member since 2009 – may appear tobe symbiotic, nations in the region should be taking steps to ensure greaterreciprocal benefit.
They also suggest that the Caribbean needs to determine howto respond if Chinese interest in the Caribbean region lessens as a result ofBeijing restructuring its economic policy to accommodate slowing, but stillremarkable, five to seven per cent annual GDP growth; its increasinglyconsumption rather than investment-driven domestic economy; and its growingemphasis on exporting higher value manufactured goods and technology.
Such changes, the paper suggests, will require Caribbeannations to make themselves more competitive and globally attractive throughundertaking the structural reforms necessary to become a manufacturingplatform, a logistical hub, and a premier tourist destination for higher-incomeChinese.
The report’s findings parallel other recent commentariesfrom hemispheric and multilateral bodies.
These suggest that China’s present, often starklyasymmetric economic relationship with the countries of the Latin American andCaribbean region, needs to change. They argue that what is required is a newapproach that is developmentally more equitable, and which supports the closerintegration of the countries of the region into the global supply chain throughthe transfer of technology, and by adding local value.
Achieving such an outcome for the Caribbean in theimmediate future is likely to be challenging. This is because cash-strappedCaribbean governments caught in short electoral cycles may find it difficult toargue for long-term local value-added or market access against a background ofChinese investments that promise employment, foreign exchange and tourismtaxes.
The matter is made complicated as typically, suchinvestment arrangements involve state to state facilitation, state orquasi-state Chinese entities, loans to Chinese private-sector entities fromstate-linked banks, and sometimes limited competition. In addition, there areoften associated side deals with Caribbean government’s offering for exampleland, tax breaks, duty waivers, citizenship, or other longer term arrangementslikely in total to lessen the overall value of local content or the ultimatelocal return.
Put another way the short term benefits for governments areclear, they offer a means to spur growth and increase public sector revenues,but they provide little incentive to develop new initiatives of the kind theIDB and others envisage.
This is not meant in any way to downplay the importance ofChinese investments, but to observe that their complexity not only makes theirfull long term domestic economic benefits far from easy to quantify, but alsopotentially acts as a constraint on developing a more equitable long-termeconomic relationship.
Irrespective, Chinese investment in the region iscontinuing to grow.
On July 19 the Jamaican government announced that theAlpart alumina refinery in Jamaica had been sold by the Russian industrialgiant, Rusal for US$299m to the Chinese state owned entity the Jiuquan Iron andSteel Company (JISCo). The company is expected to make a first phase investmentof around US$220m to enhance production and reduce costs in November and plansto invest another US$1.5bn to establish an industrial zone co-located with thealumina facility.
The acquisition, which will make JISCo one of the top 10producers of aluminium in China, follows other signs that China, with cautiousJamaican government support, sees the country becoming a hemispheric Chineseenterprise hub. The approach involves first supporting the upgrading of thecountry’s infrastructure and then making use of its strategic location, deepsea facilities and workforce to competitively assemble, tranship and access theUS, Latin American and other markets.
Another quite different development was announced by the StLucia Government on July 29 when it signed with a Hong Kong related company aUS$2.6bn agreement to build what has been described as ‘the country’s firstinternational standard integrated tourism development’. This involves theconstruction of a resort to be known as Pearl of the Caribbean on a 700-acresite to the south of the island, related to St Lucia’s recently introducedCitizenship by Investment programme. Unusually the principal investor, who hasan existing commercial horse breeding industry in Ordos in Inner Mongolia,reportedly sees opportunity in the region arising out of China’s rapidlygrowing equine industry that is linked closely to racing and gambling. Thedevelopment, which also includes a free trade zone, is expected to appeal toChinese, South East Asian and Russian investors and visitors.
It follows other Chinese related tourism mega-projects inthe region, such as the still-to-open US$3.5bn Baha Mar resort in the Bahamasand the planned US$1bn resort development on and around Guiana Island offAntigua.
These and other developments suggest that China’s much tobe valued economic engagement with the region may eventually supplant the oncepervasive economic role of traditional partners.
The IDB report is of significance as it demonstrates theneed for greater economic balance in future in the region’s relationship withChina.
It and other commentaries imply that if the Caribbean is toretain its much prized independence, it will be important in the longer termthat Chinese investment is balanced by the development of an indigenous andvibrant export-oriented Caribbean private sector with some form of preferentialaccess to the vast Chinese market, plus Chinese provision for developmentprogrammes for Caribbean goods and services.
Without such support, there is a danger that China’s risecould pose a longer term threat to Caribbean economic sovereignty andindigenous enterprise.
David Jessop is a consultant to the Caribbean Council andcan be contacted at [email protected]
Previous columns be found at www.caribbean-council.org
August 19th, 2016