Exploring the opportunities in deepening economic relations with China

Sunday, October 14, 2018

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Jamaica's economic relations with China beyond mere trade started way back in 1976 when China provided a loan of US$64 million to establish a cotton polyester plant in Old Harbour. That project soon collapsed and not much other than trade occurred for the next 30 years.

In 2006, China provided US$30 million in concessionary loan financing for the supply of pipes to the National Water Commission. In the ensuing years, China has provided additional loans of more than US$300 million to finance a range of projects, including the Trelawny stadium, Montego Bay Convention Centre, major road improvement projects across the island, and housing schemes in St Ann and St Elizabeth.

This has resulted in a major shift in the make-up of our bilateral creditors. At the end of March 2006, the United States, to which we owed just under US$300 million, was our major source of bilateral loans (excluding those related to the deferred financing arrangements with Venezuela under the PetroCaribe agreement that have since been discounted and traded). Loans disbursed and due to China at that time amounted to only US$20 million.

As at March 2014, outstanding loans from the United States had declined to less than US$50 million, while those from China had risen to just under US$200 million, making it our leading source of bilateral loans. The Ministry of Finance no longer includes in the Financial Statements and Revenue Estimates details of our outstanding debts, but the annual Estimates of Expenditure indicate that since then, additional loans of US$160 million have been raised from China. By my calculation, our loan balance due to China would now stand at over US$350 million compared with just over US$40 million to the United States.

In addition, China has provided substantial grant funding for a range of projects including the Sligoville Sports Complex, the Chinese Garden at Hope Gardens, the construction of offices for the Ministry of Foreign Affairs and Foreign Trade in downtown Kingston, the Confucius Institute at The UWI, and a children's hospital in Montego Bay, as well as scholarships that have enabled hundreds of Jamaican students to study in China. It now rivals the United States, which provides grant funding averaging US$7 million per year.

Starting in 2010, China's engagement with Jamaica moved beyond loans and grants to include significant investments in the sugar industry, north-south highway and the Alpart alumina plant amounting to more than US$1.5 billion. This will be boosted by the planned investment of US$3 billion in an industrial park adjacent to Alpart, and Chinese investment in the much talked about logistics hub is still on the table.

Additionally, China is expected to invest significant sums in the construction of hotels, commercial centres and housing projects along the North-South highway as an important means of recouping its investment in the building of the highway. China has now become not just our largest source of bilateral loans but also our largest single source of foreign direct investment.

Much has been written and continues to be debated about the expansion of China's presence and influence across the world, especially in Asia, Africa, Eastern Europe, and Latin America. The Belt and Road Initiative launched by President Xi Jinping in 2013 has already seen Chinese loans and investments of US$340 billion in infrastructure and energy projects in 65 countries. It is expected to reach US$1 trillion by 2023 and US$2 trillion by the 2030s. This level of funding, even at current values, would dwarf into a tiny fraction the Marshall Plan that was launched to rebuild Europe after the devastation of World War II.

An off-shoot of the Belt and Road Initiative that should be of particular interest to Jamaica is the Production Capacity Cooperation agreements that China has entered into with over 30 countries, including some in Latin America. It is important to understand the genesis of this programme both in terms of China's strategic interests and the potential benefit to participating countries.

China has become an economic powerhouse, topping the rest of the world in terms of industrial output. The double-digit annual growth rate it achieved for most of the last 25 years led to a massive expansion in its productive capacity. A simple illustration of this is the fact that in the construction of plants, commercial buildings and supporting infrastructure, China used more cement between 2010 and 2013 than the United States used for all of the 20th century.

China now has huge excess production capacity. It has recognised that double-digit growth is a thing of the past and the “new normal” growth target has been set at 6.5 per cent. It must now find use for this excess capacity.

Included in the Production Capacity Cooperation programme is the plan to relocate some of this excess capacity in terms of equipment, technology and know-how to developing countries that are unable to satisfy their own market demand or take advantage of their proximity to other markets and the preferential trade arrangements they enjoy with other countries. It is supposed to be a win-win arrangement. Many of the countries that have signed on are already seeing improvements in their trade balance, especially with China.

China has committed US$30 billion, one-third of which has already been provided, to support participation in the programme by countries in Latin America and the Caribbean. Jamaica would do well to explore the benefits that it could derive from entering into such an arrangement. Our manufacturing sector has not been able to return to the halcyon days when it accounted for almost 20 per cent of GDP and over 100,000 jobs. It is now around eight per cent of GDP and 70,000 jobs.

I would hope that our local manufacturers would see this as an opportunity for growth that should be embraced rather than as a threat to their own survival.

There are issues that would have to be carefully considered. In my discussions with Chinese officials when I participated in a China-Latin America Think Tank in Beijing two years ago, I was assured that the keyword in this arrangement is partnership, and that China would prefer joint venture arrangements with local manufacturers and investors, especially where existing factory space and trained workers are available. The number of Chinese workers who would accompany the equipment and technology would have to be limited. It would have to be made clear that these investments would enjoy no concessions or incentives that are not available to other manufacturers. These are issues for discussion and agreement.

At a more general level but of great importance is the need to develop public understanding and appreciation of Chinese involvement in our economic efforts. Critics, not only in Jamaica but also in other parts of the world, have raised alarm about what they call the “Chinese invasion”. Some have even made the absurd claim that it is an attempt by China to colonise poor countries, not by force but by the lure of investments, loans and financial assistance. We must make up our minds. We rail against the multilateral agencies because of the conditions they attach to their loans while being suspicious of the Chinese who are prepared to lend us money without any such conditions. We crave more foreign investments to build our economy but look the Chinese up and down to try to find out why they would be so foolish to invest in Jamaica.

We Jamaicans, especially at the worker and management levels, must also recognise that there is much that we can learn from the Chinese. They did not become the world's largest producer and exporter by accident, miracle or natural endowment. Their strategic thinking, work ethic and solution-oriented and purpose-driven approach to getting things done within time and budget are not an alien culture to be eschewed, but critical success factors to be assimilated. This is not an indictment of our workers and managers. It is simply to impress upon them that the global market, with its harsh and unforgiving competitiveness, is not some foreign location far away from us — it is right here at home. Times have changed and we, too, must change or be forever left behind.

There is no doubt that China sees its own long-term economic advantages in the Belt and Road Initiative. As huge as China is, its production capabilities have outgrown its own boundaries and available opportunities and it must find other fields to plough. There is no doubt, either, that China has a political interest in expanding its presence and influence across the world. All major powers do that. The United States has hardly disguised its discomfort at China's growing global penetration, even as its own engagement with developing countries seems set to be scaled down sharply under President Trump. China's investments in major port facilities across the world is of particular concern to the United States because of the influence it will derive over trade routes.

There is nothing in China's outreach to be feared. I can say without reservation that in my dealings with Chinese officials both here and in Beijing while I was in office, I never had reason to doubt their sincerity or to think that they were any less interested in Jamaica's advancement than they were in their own.

They have never interfered in our internal political affairs nor sought to pressure Jamaica in relation to any policy issue whether at the local or international level. They proffer neither a quid nor a quo.

Our engagement with China has yielded many benefits, especially within the last decade. There are considerably more benefits that we can reap.

Bruce Golding is a former prime minister of Jamaica

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