China’s Race for Resources and What it Means for the World

By

with Dr Dambisa Moyo, International Economist and New York Times Best-Selling Author and Ivan Lewis, MP Bury South, Shadow Secretary of State for International Development

1 – 2pm, Thursday 28th June 2012

Committee Room 10, House of Commons, London, SW1A 0AA

To attend please RSVP to: zachary.ingber@henryjacksonsociety.org

 

In her new book ‘Winner Take All: China’s Race for Resources and What It Means For The World’, Dambisa Moyo analyses the commodity dynamics facing the world over the forthcoming decades and highlights the central role of China in the global competition for finite resources. Commodity scarcity is being brought to the fore at a time when twenty-five military conflicts around the world are the result of competition over raw materials. Contrary to mainstream political discourse, Moyo shows how this phenomenon does not simply concern oil, but hard commodities such as metals and minerals, as well as soft commodities including timber and food. These resources all permeate our everyday lives – without access to them we cannot power our electricity grids, access potable water, or manufacture the technologies on which we all depend.

Holding cash reserves of over $3 trillion, China is doing what other states cannot afford to do, and undertaking a worldwide commodity shopping spree. This venture is backed by an innovative and symbiotic multilateral economic development approach to resource-rich countries, many in Africa and Latin America, to lock up resources for the future development of Chinese industry and infrastructure. Dambisa Moyo has demonstrates where this is happening, who is trading away their commodities, and the geopolitical effects these actions are likely to have in the future, prompting the overarching question: Is large-scale resource conflict inevitable or avoidable?

By kind invitation of Ivan Lewis MP, The Henry Jackson Society is pleased to invite you to a discussion with Dr Dambisa Moyo, international economist and New York Times best-selling author. She will discuss and analyse the developments of commodity scarcity, China’s role in the race for securing commodities and the devastating effects this is having on international security and stability.

TIME: 1 – 2pm

DATE: Thursday 28th June 2012

VENUE: Committee Room 10, House of Commons, London SW1A 0AA

To attend please RSVP to: zachary.ingber@henryjacksonsociety.org

Biography

Dr. Dambisa Moyo is an international economist and New York Times best-selling author of the critically acclaimed ‘How the West Was Lost: Fifty Years of Economic Follow – And the Stark Choices that Lie Ahead’ and ‘Dead Aid: Why Aid is Not Working and How There is a Better Way for Africa’.

Born and raised in Lusaka, Zambia, Dr. Moyo holds a PhD in Economics from St Antony’s College, Oxford University; an MPA from Harvard University’s Kennedy School of Government and an MBA in Finance and BS in Chemistry from American University in Washington DC. She has worked as a Consultant at the World Bank and as an Economist at Goldman Sachs where she worked in debt capital markets and as part of the global macroeconomics team. In 2009, Dr. Moyo was named one of the world’s 100 most influential people by TIME Magazine, and a Young Global Leader by the World Economic Forum.

Additionally, Dr. Moyo serves on the boards of Barclays Bank, SABMiller and Barrick Gold. She has also spoken at organisations including the OECD, World Bank, IMF, Council on Foreign Relations and the American Enterprise Institute. Dr. Moyo contributes regularly to The Economist and Financial Times and has appeared as a guest on CNN, CNBC, Bloomberg, BBC and Fox Business.

 

Transcript:

Ivan Lewis MP: Welcome to the House of Commons, My name is Ivan Lewis, I am the Chairman Secretary of State for International Development, and a Member of Parliament for Bury South and it is my absolute privilege today to welcome Dr Dambisa Moyo. We are honoured to have you here. We are very much looking forward to your presentation.

My job is to say a few words about Dambisa but I think she probably does not need much of an introduction for herself. She is an international economist who specializes in macroeconomics and global affairs. She holds a PhD in economics from the St Andrews College of Oxford University, an MBA from the School of Government, and from the American University in Washington D.C. Dambisa has worked as a consultant to the World Bank and as an economist at Goldman Sachs. She also serves on the boards of Barclays Bank, SAB miller and Baric Gold. As everybody here would be aware, she has written three best-selling books: and I must be clear, I do not endorse every element of that book but…

Dambisa: He does not like the way they have spelled my name!

Lewis:  But it is a very important contribution to the debate. The Second book: How The West Was Lost, Fifty Years of Economic Folly – And the Stark Choices Ahead, and today Dambisa is here to talk to us more specifically about her latest book, Winner Take All, China’s race for Resources and What It Means For the World. My only reflection before I introduce you is that I think in life, and through history, there are people who articulate what I describe as conventional wisdom. There are other people who echo conventional wisdom, and then there are people who challenge conventional wisdom. And if you think about the events of only our recent times: the financial crisis, the Arab Spring. I always joke that having been a Treasury minister and a foreign office minister nobody in the treasury ever warned me about the prospects of the financial crisis, and nobody in the foreign office would have ever warned me about the possibility of an Arab spring. It seems to me that we need more than ever people who are willing to challenge conventional orthodoxies. We don’t have to agree with them. We may agree with some of their analysis but not all of them; but it is incredibly important that we have people who are willing to do that, and I think that Dambisa particularly has an incredible track record at challenging some of those orthodoxies, getting us to think outside the box. And frankly sometimes challenging some of the vested interest of those who are often unwilling to take a step back and look at whether that conventional wisdom is right. So Dambisa, we are delighted to have you here with us this afternoon. Over to you.

Dambisa: Thank you very much for giving me the opportunity to be here and thank you for that very kind introduction. I should say that just on your last comment, I can very much die happy now because I think, and given the conversation that we have today, I hope that it will become quite clear that for me what is really important is for us to set aside the structures that we have gotten used to, around political infrastructure works, around economics, and really start to challenge ourselves, whether it is as individuals, or as academics or as policy makers; challenge ourselves into thinking about how alternative ways, alternative systems work and it is a great opportunity to be able to speak not just generally about some of the challenges that the world faces around commodities, scarcity  but specifically to highlight to you what one country in particular, China, is doing in terms  of the race for resources and what it will actually mean for us as a global economy and hopefully throughout my conversation this afternoon it will become clear to you that many of the orthodoxy that we live in and breath by particularly in the west are things that have been absolutely challenged and that need we to be thinking longer and harder about a world where perhaps the Chinese way of looking at the world could become more dominant over time.

Let me begin by saying a couple of things that are true at this point. Since 2009, so in the aftermath of the financial crisis, we have seen commodity prices increase by 150%. The second data point that I would like people to bear in mind throughout this conversation is that since 1990 there  have been and continue to be approximately 25 wars that are raging around the world, that have their origins in commodities. A lot of what I will be saying is actually much more detailed in the book, so for example the 25 wars and what the respective countries are fighting over is very much detailed in the book. But it is against this backdrop that China has embarked on a very systematic and deliberate approach towards securing a whole range of commodities.

What I would like to do this afternoon is put this Chinese campaign for resources in the context of global demand for commodities but also, to give you a snapshot into global supply of resources and then talk a little bit more about what China is doing. And of course as I do not want to let my reputation down as being controversial, I’ll also spend a bit of time talking about the more controversial aspects of China’s approaches for resources around the world. So I hope that that works for everyone.

Let me start by spending a few minutes talking about what the drivers of demand for commodities are. There are three of them. The first is the population’s growth around the world. There are approximately 7 billion people now on the planet. Demographers expect that there will be 9 billion people by 2015 and as many as 10 billion people by 2100. The reason, unlike people like Thomas Malthus, some of the people who wrote the Club of Rome and limits of growth in the past, about the risks of commodity scarcity; the reason why their work is perhaps separate from mine is that I am writing at the time of this unique period in which we live. It is a unique period because demographers who focus on population growth have articulated that the speed at which the population of the world is growing has never been seen before in pre-history or in history and once it plateau’s out in 2075 we will never see this sort of rapid increase in the world’s population as we are seeing today. It is very important that we understand that this is a very unique dynamic, a very unique aspect that has been putting pressure on commodity resources.

The second key aspect of spurring commodity demand is the fact that we are becoming richer and the population of the world as a whole. 90% of the world’s population lives in the emerging markets and as I am sure many in this room will be aware, the expectation is that by 2025, there will an additional 3 billion people in the world’s middle class, and the majority of them coming from these emerging economies. That is putting a lot of pressure on commodities as people’s livelihood improve, they expect to have improving lives that reflect better quality food, so moving away from wheat and grain and moving towards protein based foods but also more mobile phones. Today out of a population of 7 billion people and there are 5.3 billion mobile phones around the world but that will be increasing even more exponentially as we see increasing wealth across the world.

The third key driver of commodity demand is urbanization. The expectation is that by 2025, we will see a total of 5 billion people living in urban areas. This is a very deliberate approach across many emerging market. I have just been counting the other day, and I have been to 51 countries around the world, but if you talk to policy makers across the emerging world, the very key pillar of their development strategy is to urbanize their population. Today China has about 100 cities that have a million people each. To put that in context the United States has 9 cities with a million people each, and in Europe there are about 18 cities with one million people each. The Chinese have been very explicit about their campaign towards urbanization. By 2025 they plan on having over 200 cities with over a million people each and they expect also to have at that point built out 8 cities with approximately 10 million people each. Again to put this in context, I am from Zambia which has a population of just over 10 million people. I think this is worth bearing in mind as we talk about the political imperatives that the Chinese are facing. My country has a population of 10-12 million people, but we are failing to create sustainable economic growth and reduce poverty in a meaningful way. And here we have China that has over a billion people that is trying to create economic growth, so we should spare a thought to them.

So that is really the demand side: more people on the planet, more wealth on the planet, and more urbanization. All of them feeding through everything from indoor planning, wanting to have cars, wanting to have access to better quality food…

So let me spend a few minutes talking about the other side of the equation which is the supply side. And what I would like to do really quickly is highlight to you where supply is around the world for land (arable land in particular), for water, energy and minerals. Let’s start with land. There are about 13 billion hectares of land around the world. This is about 16 times the size of the United States. However, only 10% of the world’s land is actually arable and therefore suitable to grow crops.  For a country like China, with 1.3 billion people, and I should point out that only 300 million people live on Western standards, a billion people are living in terrible poverty. And think again in terms of our discussion and how this will evolve, it is worth pointing out that there are more poor people in China than there are in Africa, more poor people in India than there are in Africa. So the scale of the problem is enormous. With a population of 1.3 billion people in China, they have 10% arable land. Africa has the most untilled arable land on the planet. And again when I come to give you some examples of what specifically China is doing, it will become clear to you that one of the key factors of the Chinese campaign has been to secure land, not just in Africa, but also in South America and across many other places in the world. So that is the land picture. Let’s turn to water for a minute.

70% of the Earth is water. Less than 1%, about 0.007% of Earth’s water is actually water that we can use, not even only as drinking water, but also as sanitation. Only less than 1% of the Earth’s water is available for us to drink and to use as sanitation. And if you look at some of the graphs that I have put in the book, China and India which is growing by about a million a month. In those two countries, the per capita access to water is below the global average, so serious constraints about water. It has got to such a stage that the US government issued a report this past February. The US national intelligence council wrote a report forecasting that there would be significantly more water wars around the world over the next decades to come. There are numerous water wars and skirmishes already happening. China is trying to reroute the Brahmaputra River out of India. In the book I talk about a number of statements that have come out from both the Chinese and Indian governments talking about the skirmishes that are arising from this attempt to reroute the river, but again people who focus on China, who have travelled to the region would know that there are also a lot of skirmishes with Thailand, Malaysia, Vietnam, as China continues to move water sources and reroute many of the rivers towards the north and dryer areas.

I would like to say just a few words about energy. It is interesting because in the United States and Europe energy has become such a big deal. It is a big deal in the emerging markets as well, but it is actually secondary to water in a lot of places because if you think about it already in many places in the emerging world, India and places across Africa, water is already rationed. People have access to clean, fresh water, even in urban areas, only for a certain amount of time per day. The notion, living in a place like London that you could turn on a tap and get no or dirty water is completely un-thought of and for many reason you can see why there is almost no discussion about water scarcity in these more developed economies. But what we do know is that people get very hot and bothered and that we talk about energy.

Energy, one of the things that surprised me doing research in this book is that we are living today on resources that were discovered back in the 1950-60s. To put it another way, since the 1950s, there have been no new discoveries of energy in fossil fuels. Let me just clarify what I mean by that. Many people say that we have just discovered new oil. But actually it is not a new discovery, and if you speak to anyone who worked in this industry, they would tell you that pretty much all of the energy, we know where it is, the difficulty has been to access these resources and I would love to give you a specific example to illustrate what I mean. A few years ago the Brazilian government made an announcement that they had discovered 123 billion barrels of oil off shore in a place called Tupi. There was euphoria around this announcement and in fact in the city commodity traders saw commodity prices decline on this announcement. What the Brazilian government neglected to mention unfortunately was that, that amount of oil was actually sitting in the sea, under 2 miles of salt and even with the technology that we have today, it is impossible for us to access it. And the minimum estimate it would cost for us to be able to drill through and access that resource is over 500 billion dollars even without the technology being available. So we do know where most of the world’s resource is. In the book, there is a fantastic graph I think which shows the discovery vs. production, the official statistics, and you will see how the discoveries have not only today but forecasted in the future are foretold to decline quite considerably.

Lastly let me say a few words about minerals. When you spend time talking about commodities especially in developed economies, people tend to focus on oil, sometimes water, and food; those three things. But we very often neglect minerals and metals. And yet, this microphone, our mobile phones, our cars, are full of metals and we don’t really think about where it is coming from. There was a study that was done by the US geological society a number of years ago just to put this into perspective, and they looked at the United States, just for one year. They calculated the amount of minerals contained in the mobile phones that just for that year and just for the United States were either lost or retired from use. And the estimates are that the metals contained are equivalent to 50747 jungle jets; enormous amount of metals and minerals are being used. China has adopted a very aggressive approach to both minerals and the energy markets that I have spoken about a minute ago. We are consuming 85 millions of barrels of oil every single day on the planet. The United States consumes the most amount of energy; it is about 20% consumption every day. China with 1.3 billion people consumes about 10%, so just something to think about. If every Chinese person or the average Chinese person tried and lived on American standards we simply could not do it. In the book, there are calculations of what it might look like and just to put another finer point on that, for every thousand people in the United States, there are 800 cars. In China for every thousand people there are 75 cars. So again to the extent that we see these improvements in living standards, we can just imagine the vast sums of metals and oil that will be required.

My last point in regards to minerals in particular is that we in terms of corporation but also in China with her approach is using state capitalism, are having to go much further afield into much more dangerous places in terms of political stability but also very difficult terrain in order to access such commodity as copper or other metals. The Chilean crisis a few years ago in which the Chileans were trapped underground is very emblematic of the accidents that occur around the world very regularly. Numerous people die and the cost, the national per capita cost of building the infrastructure: building mines, building rails, accessing these resources is enormous. In the book I give some examples of that.

So if I have not depressed you enough, I would like to spend a few minutes about what specifically China is doing and how that differs from some of the approaches other countries have adopted. First of all, China is very multilateral in its approach and has been very extensive. It has three key aspects to it. The first aspect is this ideal that symbiosis. So she is going to different places and is befriending, in the book I call it “the axis of the unloved”. So these are regions that have traditionally been ignored by western economies as destinations for investment. Places like Africa, places like Brazil and South America, but also Eastern Europe. This is really important and is a key pillar of their approach because it is not just about China investing capital and taking resources out of it. The investment and trade that china is putting into these regions is desperately needed. Many of these regions, particularly Africa, North Africa and the Middle East have significant pockets of disaffected young people. Africa for example has over 60% of its population under the age of 24. It is over 70% in the Middle East. In countries like Uganda 50% of the population is under the age of 15; so very large pockets of young people that desperately need jobs, investment and trade. Africa with almost a billion people on the continent is less than 2% of world trade. A lot of that is due to the fact that Africa mainly produces primary produce, and as we know western economies continue to impose large subsidy programs in the form of common agricultural policies and the farm subsidy program in the United States which have attempted to lock African produce out, and also that of South America.

The point is here is that the relationship that China is fostering around the world is very symbiotic. They will invest cash and trade into these economies and in return they will gain access to resources. I have an article today in the New York Times which talks a lot about this particularly in respects to Africa. It is called: Beijing’s boom in Africa. It has just come out this morning and has also been translated into mandarin. I am going to give you a few examples of what exactly it is that China is doing. In 2007 the Chinese bought a mountain in Peru, Mount Toromocho . It is half the height of Mount Everest and contains about 2 billion tons of copper. The Chinese have embarked on swaps where they basically give loans and invest money into countries, and in return they gain access to different resources. In Brazil, they have invested and in return have gained access to beef and chicken and in fact China has come from nowhere to be the largest investor and trading partner of Brazil which is just next door to the United States. In Canada just two months ago, the Chinese announced laptops for poor trade. And in fact the Canadian minister also announced this. The Chinese will be giving laptops to Canada and in return will gain pork from Canada.

In Russia and Kazakhstan, they have organized long term swaps. The Chinese are invested capital there and in turn gaining access to Russia’s oil and gas and to uranium from Kazakhstan for the next 25 to 50 years. In Africa, which is one of my favourite stories, the distance from Cape to Cairo is about three times the distance from New York to LA. It is about 9000 miles; huge distance. That whole distance is not tarred. You can drive it but it will take you about 5 weeks, going through 15 countries. As you go past each border, there are massive signs that are generous gifts from the Republic of China.

Numerous examples from Turkey, across Europe, today it is Australia which is the largest recipient of direct investment from China but of course Europe and the United States also receive vast sums of money. I’m running out of time so I am quickly going to run through the other two aspects of Chinese campaign.

The other two are that China is a musing state of capitalism, they have much deeper pockets. The Chinese government is supporting both companies politically but also economically so they allow the Chinese companies to have zero cost capital so people go around saying: “these Chinese, they do not know how to value an asset. A copper mine is supposed to be 100 million dollars and the Chinese pay 500 million dollars.” But it is actually us who are misunderstanding. We ought to ask ourselves: what must be true for the Chinese to be paying so much for these resources?  Part of it is that these are scarce depleting resources, but a key aspect is that China’s utility function is much broader than ours. When we go to invest in a mine we see it as an investment in capital, what the shareholders will get out of it. But the shareholders in the Chinese context to analogy is 1.3 billion population that needs to see improvement in their livelihood and are putting pressure on the government. In fact it is a political imperative to the Chinese government to have to deliver better living standards and economic growth.

The final aspect is this idea that China has become a monopsonist. They keep prices for commodities like copper and coal; people will tell you that China is the biggest influencer of where the prices will go. It is important here to give you another example from a monopsonist. Think of a supermarket that is located in a town or region that has a lot of farmers. There are lots of buyers, one supermarket, and all of the farmers are trying to sell their let’s say tomatoes to the supermarket. The supermarket because it has so much buying power, it will come out and say, we will only pay you 50 pence for the tomatoes. That is the best example of an economic monopsonist.

There are lots of things to talk about but I do not have time to talk about all of them. We should talk about whether this is neo-colonialism, we should talk about liberation, the use of prisoners. So many different aspects, most of it is covered in the book. Let me close by saying that I think what is really the key take of this book is that china’s approach is becoming increasingly multilateral, we particularly in the west have a tendency to take a unilateral approach to secure resources. Looking ahead, not just from me, but from agencies such as the IMF, energy information agency, we expect that commodity prices, certainly oil will be close to 200$ a barrel toward the end of this decade. The expectation is that there will be many more conflicts. In the book I give you a citation from a database that has water wars going back a thousand years but there are a lot of forecast from the us government and from various other establishments international agencies that say that there will be many other water wars. This is a multilateral problem, commodity scarcity is important. Although we are focusing on environment with Copenhagen and Rio, financial regulation with the G20 and also WTO there is no international agency that is focusing on commodity scarcity given higher demands to meet; we need to eat, we need water to survive. This is absolutely essential that we focus on these issues and that basically I hope that this will be a sort of campaign for policy makers to focus much more on this matter. Sorry for rushing through the end but hopefully I did well on time.

Lewis: thank you very much Dambisa. That was excellent; incredibly thought provoking. We have about thirty minutes left. I am going to take three people at a time if I may. Can I please ask you who you are, which organization you represent, and if you want to particularly critical, where you live so we can take your details. This gentleman was first.

Question: Nicolas McKlain

I would like to ask you: do you think that the Chinese tradition of giving more respect for national sovereignty and perhaps less to government transparency is good or bad for Africa and other developing countries?

Question 2: Hubert Morgan, North London

What about land of the commodity> Do you buy sufficient enough that it suffices for locals don’t have enough to grow on, Ethiopia particularly?  But there are of course reports of Chinese brilliant investments as well. There seems to be a two edge sword.

Question 3: [name undecipherable]

You characterized the Chinese approach as [word missing] to negotiation. To what extent is that approach echoed by the western approach to international. To what extent is international aid conditional of getting something back in terms of scarce resources?

Dambisa: Thank you very much for these interesting questions. The first question is around national sovereignty and I think for me one of the things that was quite central in thinking about what the governance and aspects of the political structure, how the two superpose. If we go back to 1948 and the Universal Declaration of Human Rights and that is really where this schism merges between emerging economies and more developed economies. In fact at that time they were not emerging economies, they were still desperately poor economies, but they still had large populations and when the discussions were held around what they should be enshrined as human rights. Surprisingly there was a difference in opinion; western economies tend to focus on human rights being about freedom of speech, aspects of political freedom, democracy and so on. The emerging economies did not think that those should be human rights. To them human rights were having food, having shelter, and having access to clean water, and if you about the way that the world is emerging right now in terms of the debates around emerging economies, and for my sins, one of the things I do is that I help set up the agenda for the G20. It is very interesting hearing the differences, and if you really listen you can really see that the splits still exist. So in regards to national sovereignty, I think as economists, particularly economists trained in western thought, we have got it largely wrong. Why do I say that? As economists we have been trained to believe that a rule of law is a prerequisite, democracy is a prerequisite for economic growth. China has defied those odds over the past 30 years. A lot of us would say that China does not have democracy, and does not have rule of law, and if you at what china has done, move 3 million people out of poverty in 30 years, it took the United Kingdom 134 years to double its per capita income. It took China 12 years to do it. So phenomenal improvements in living standards in such a short amount of time. China will become, according to most forecast, the largest economy in the world by 2020. So this throws all of the things that we economists thought out of the window. And I think that it forces us to think about what actually is important.

I’m going to spend a couple of minutes, just because I am doing a lot of work on this now. I will give you a little bit of a flavour on why it is the case that a country as big as it is, with no democracy, with state capitalism, that has a lot of dead weight loss or inefficiencies, and no economic freedoms; why is it that this economy has been so successful at delivering economic growth in a sustained way and reducing poverty. And more than that, many emerging markets, countries, and politicians are now looking to China and saying: “gosh! You have done something that we desperately need in our countries”. And this comes back to the remarks that we heard during the introduction, that this is where the world is going. We are running a risk that many more countries and policy makers around the world the western model has not worked well the Asian model has not worked for us, but wait a minute, the Chinese have done something that is successful. So maybe democracy is not that important, maybe capitalism as we define it in the West is not that important and I think that we need to talk about that.

Let me just give you these three things that I think are important, and explain why China has been successful. One is the role of government. Government is supposed to do three things: deliver public goods such as infrastructure, education, healthcare, national security… Government is supposed to deliver effective regulation, so punish people that do illegal things. And government is also supposed to create policies that incentivise good investments and good behaviour: investment over consumption, saving over excess debt. The Chinese have been successful at doing that, and so it may well be the case – and by the way I am pro-democracy, I just think we need to look at it organically – and it should be aimed for liberal democracy. People don’t stand around here saying that Russia is a great example of democracy, but technically in western standards, it is democratic in many ways. We do have elections and people do go to vote. But I think that the whole issue around national sovereignty, I personally think that we should respect sovereignty, we should get China more involved in multilateral discussions, in a more friendly way. The most recent incident, I call it ‘kidnapping’, but I was berated for using the word kidnapping , but taking blind activist Chen, creating such a [word undecipherable],  embarrassing the Chinese government like that, (37:25) and then only last week the Chinese government had to have to write a cheque for 40 billion dollars to help bail out Europe suggest to me that we need to take on a little but more of a humble approach and I think that we would actually get a lot more out of the things that matter to us like democracy, and political freedoms, if they were not treated as second class citizens and treated in a very aggressive way. Because China is going to be the largest economy, it is probably a good idea that we have their on our side as opposed to creating disarray. There is a lot more that I can say but I will leave it there.

On the question regarding land… In the African countries but also across South America, you cannot get freehold land, it is still owned by the government and in that way you can only get leasehold. There is a much greater pushback now around land use with the Chinese being there. And of course because a lot of land in Africa tends to be used for subsistence farming, trains are coming in with large cooperatives, large programs, it does cause for a lot of skirmishes (38:28) and a lot of issues around that aspect. The Brazilians have been very aggressive, they will not allow anyone to access the land, increasingly, particularly as they are growing and exporting more. Brazilians actually have the wealth and capability to make their own investments. I think that ultimately, issues around this and this is also regarding the last question regarding international aid. What is it that I think I found so important about aid is that it is about the power of the government and to the extent that we can get government to be incentivised to do the right thing and not abdicate its responsibility, I think that is what we should be aiming for. The problem with the aid system is that it does not have stringent conditionalities, and even though we could sit here and say: “well there is still corruption around the Chinese model”, the fact of the matter is, I think the best way to encapsulate this is to really highlight a story that was given to me by a friend of mine from Sudan. He said: “I drew a bad card. I was born in Sudan. I live under a despot. My choices are twofold: I can live under a despot that takes aid and does not do anything for the economy or I can live under a despot who takes Chinese money; and even if there is corruption there, there still are positive externalities because the Chinese are not there for good will or because they want to win votes back at home. The Chinese are there because they need access to minerals and energy and so they will build roads and infrastructure. The risk, I am afraid for African countries and policy makers around the world is that they need to understand that they are losing assets, and the Chinese are pretty brutal business people in the sense that the day that these assets will have been completely depleted, we should not have any expectations that they will give us a warm hug and continue to give us more money. I believe they will be gone. And so policy makers of those countries should operate and think about what they should do if that eventuality happens. And unfortunately, aid could have effective, and has been effective in the places where it has been given in a short sharp finality intervention and so the Marshall Plan is a good example; it indebted around 20 countries that had aged around 5 years. In that way we saw a short sharp injection of aid that helped the countries get back on their feet. But the problem with aid is that it is viewed as a permanent flow of money that will there for perpetuity and that distorts government behaviour.

Thank you very much.

Question: University of… American organization

My question was the extent to which perhaps china is a state capitalism, we need a bigger role in the state. The role of the state, in china the economy is not driven by the state; it is driven by foreign direct investment. The role of the state in China is in fact a much smaller than in other European countries. What do you make of that argument and also, what do you make of people looking to china as an example, because it cannot be copied in the same way? [not sure what is being said here]

Question 2:

Maybe you have explored this earlier but I was wondering if you had explored any …  To me because china now to work basically for every country over population obviously you would want to buy

Alternative government for example

I just feel like China was caught in the middle of this movement. I was wondering if you had any

[question undecipherable]

 

Question 3:

[question undecipherable]

I may come back to you on that last question as I am not quite sure what you meant by it.

The first question was around China as a model and how it compares with western countries, particularly in Europe that have also got a good knowledge of the state. I think this is a very good point because it does highlight the fact that we should be more nuanced in discussing what it is that government really should be. I have highlighted the three things that I think governments should be doing and if I had to critique European approach to intervention, I would say that it has distorted the third aspect which is the incentives and if you think of where Europe is today, economists tend to be very narrow in our approach. We tend to look at capital, we look at labour, and we look at productivity; those are the three key for economic growth. And if you just look at the policies, and this is what I did in my last book, I was very keen to focus specifically on the policies that had been introduced and how those specific policies have eroded capital labour and productivity. One other thing that sort of goes back to the early introduction and infuriates me, is that you go around main policy makers in western developed economies and they blame china for a lot of things. China is changing the exchange rate; it is because of china that we have a bad manufacturing market and so on. But they actually don’t really focus on the fact that domestic policies are the ones that have actually eroded these three factors of economic growth.

In terms of how the role of the Chinese government is different from the role of western governments and by that I should actually explain that I actually believe in free market in the context of textbooks. I do not believe in free markets in reality because we know that nobody behaves as free marketers. Countries that are die-hard, free market countries, such as Europeans and Americans have massive subsidy programs, and actually I wrote a whole chapter in the book called: “meddling in the markets” so we know that in reality free markets don’t exist. Given that that is the reality of the world, what sort of policy should they embark upon? I would say that they should be embarking upon policies that actually provide public goods, regulate, and incentivise. Is that the case of Western governments? The answer is no. Have they provided public goods? Not to the extent that they should have. Again we have lots of data and the failure to provide decent infrastructure across the United States. They have the engineering society in the US which has given a great deal to the majority of bridges, tunnels, and roads in the United States, and actually say that they need 2 trillion dollars urgently. 2 trillion dollars in the US; the GDP is 15 trillion, so a substantial amount of cash injection required.

Regulation?  I don’t need to spend some time talking about regulation. The financial crisis, the whole discussion there has been about weakness of regulation. Incentives are a big thing. I think China has done incredibly well at incentivising people to work hard, to save their money and to invest. One of the things that we do not seem to really understand, and the reason why everyone is trying to run away from China. Every single year 50 million Chinese people leave as tourist and virtually all of them go back home. We have to understand that for all of our criticisms of what is going on there, there is a very dynamic society. People feel that the incentives are right, there are public goods being provided, and the regular environment is actually a better place. So in terms of answering your question that is the way that I would frame it. I would say that capital productivity is very important. Capital debt deficit here, China in surplus, look at labour: always CD. Talk about standards across pretty much all of the developed economies. Look at how china is performing both in quality and quantity of labour markets; much more improving, as are labour markets of emerging countries in general. Look at productivity here in Britain. Just in Britain between 2000 and 2010, every single sector had a productivity decline. So that is how I would frame it. Government has to do these three things. But I will leave it there.

Alternative to access: yes, there are. It is the military approach. I think that if I understood your question correctly, this has actually been the unilateral approach of using military armament, military encroachment. There have actually been many attempts that western countries have embarked upon to access resources in the past and actually even today. I think that in terms of the other thing that the Chinese are doing really well, they are investing a lot of money, in fact more money than they are spending on military, on alternative forms of energy. Beijing has more solar panels than anywhere else in the world. They are doing really crazy and insane things. I mentioned rerouting rivers, but they are also blowing up clouds, which by the way was America’s technology, but the Chinese have gone along with it. Blowing up clouds to create rain. They are huge on nuclear. In the book, I talk a lot about the nuclear programs that they have embarked upon. China and Saudi Arabia are leaders in desalinisation. So they are really trying a lot of different things, and I think that the way to think about Chinese approach and this also comes back to the question of how much they are paying, are they over paying. But the way that they are paying for all of these commodities, in finance it is called a cheap option. What to them comes down to relatively small amounts of money, to have access to these resources, and sometimes and I give examples of this in the book, cases where they have bought oil wells, producing oil companies, and they just shut them down. They are not actually taking the oil out. So they buy options to many different places around the world and instead, spending their time investing way in supplying commodity resources.

The last thing that I will say on this point which I think is very interesting is a quotation from minister Wu, who is the environmental prime minister in China and he has said very clearly that the biggest priority for China is actually the scarcity of resources and environmental concerns. This is it. Nothing else, and one of the most poignant and thoughtful things that I have heard and found really interesting is that China has two choices as to its political imperatives in regards to resource scarcity and those are: either they have to find an alternative way to supplying commodities and that through strategy of symbiosis and so on, or they have got to convince the population of a new model of thinking about what welfare, and what living standard improvement looks like. In other words, we should not be aspiring to have western standards of living, where you have a plasma screen and two cars and all that. The second thing, which I really admire and I am glad I am not a Chinese official because it does have a very harsh sound is the one child policy and the one thing that I would say about that (I have citations in the book). There are a lot of exemptions to the one child policy in China. So they still do feel a lot of pressure in terms of population growth, although the expectation is that it will be plateauing off quite soon. The median age in China at the moment is about 37. Already we are seeing some of the aging effects of that. But again the one child policy is not as stringent as many people would think reading the papers in the west.

The final question was about the financial crisis. Well I would not necessarily classify China’s campaign with the language that you have used. I think that there are dead-weight losses, and significant inefficiencies in what they are doing, but the reason why I think it is quite clever is if you look at the Chinese portfolio of assets, and government agencies that run the money of over three trillion dollars on foreign exchange reserves that china has. They are seeing from currencies. China is lending substantial amounts using their own currency across south East Asia; there are a lot of examples of that. But they are also lending money to the IMF. So they are diversifying away from the dollar, the sterling and the euro, and one of the biggest things that they have been doing recently is buying a lot of gold. They have been turning their assets into different commodities, you are right, but I think that a lot of the commodities that they are buying as mine assets or as land assets, or as physical assets, are actually part of this diversification. They are parking their money into these resources elsewhere. So I think the diversification is one of the key aspects of financial crisis on China’s behaviour.

Thank you very much, I think we have time for possibly  one more round if we could have short answers and comments and short answers that would be great. Everybody has done really well so far, no comments about the past, just about the future.

Question:

you ask where we come from, North London, but it may be more important to say where we are […]. My son and two granddaughters are Chinese and the question is this: you have described in great detail how China has .. a large portion of its population from poverty to .. right,  now do you think that China actually has a policy in which it has articulated laws say that its convenient to retain a substantial proportion of import to do the kind of work that non … people do. Basically they stick rice and crop. Do you think china has got of a retention in its mind that … there will be a proportion of the population who will by design not have the future of emerging,… comparing to the west. [QUESTION VERY DIFFICULT TO HEAR]

Question 2:

Could you possibly tell us a little bit more about the difference between unilateral and multilateral and also what that might mean for Europe?

Question 3:

First of all the countries with whom China is mostly … with are mostly suffering from corruption. Do you think resources to what extent is China actually trying to stop  [QUESTION UNDECIPHERABLE]

Thank you very much.

Davis: Would it be possible for me to ask two questions quickly. The first question: comparatively to some other people, you are very up on the model the way you describe it, it does sound like there is an overall strategy. Who is directing this? If you say that the Chinese are buying these things, shutting down oil companies and so on, where is that level of strategy coming from? Because one would think that there is some massive political scramble going on given some of the other things that we have seen. So that is one question. The other one: you mention in your talk neo-colonialism. Is it neo-colonialism in your view, and can you say something the merging in the target countries as we are beginning to hear stories about people having second thoughts about their work with the Chinese?

Lewis: can I please as the chair ask a final question. I am interested by everything that you say. I think there is a slight concern that I have that you sort of appear, and I am not sure you mean to do this, to push aside human rights and democracy and to almost say, well get real, there is a much bigger picture here. China are forces for good. You have to understand the context in which China is working. I am not sure whether you are saying that but I am just very interested to know how you think we ought to handle, you talked about being more sensitive, but how should we handle the fact that there are many examples of serious concerns of human rights and democracy, particularly human rights, more so than democracy (which is different).

Dambisa: okay. Thank you so much. The first question: do I think that there is a strategy to lock a proportion of the population into lower income jobs, or lower income counter produce. I have not seen that but I would not satire on saying no. I think that one of the themes that I will keep on picking up on is that the scale of china’s problem, having a billion people. I don’t think we can even understand what that means and by the way when I say that we can’t understand, I mean that no country can understand I mean that no country in the world has ever done what china is trying to do right now. So it may be an issue around sequencing more than it is around the fact that they do not want people to move so in other words, it might be the case that for the next 10 years there is going to be a proportion of the population that has to be locked in this sector of the economy. For example, there were strict movements around the movement of labour, movement within the country we know but it has changed the country. But who knows in 50 years’ time, they may have a different attitude. I have not seen an explicit campaign to see people locked in, I would not be surprised because the chance … they come from a very small country, failing to create economic welfare, look at what is happening in Europe, failing to turn the situation around there, and so what they have ahead of them, I think everything is on the table. So that’s what I would say to that.

Question over there from the Deutsche embassy around unilateral versus multilateral approaches. Well I think the key hall marks of a multilateral approach is much more engagement with host countries. Also by that I mean that there is a political engagement as well as economic engagement. The hall marks have been much more symbiotic so the government in these countries are not necessarily prone to say to the only cash to send. Well if you are going to build a road, or a railway from Tanzania to the coast, you need to build some hospitals and some schools around that as well and that is much more diversified than what I call a unilateral approach which secures resources which I gave an extreme example of which was military incursions. We can talk about whether they were WMDs or not. I think we would all agree that there weren’t any but for many people, now that the literature has come out, it is pretty clear that one of the big motivations was to secure some of the biggest energy fields in that region. And the whole discourse around the Middle East has got a lot of whole marks and elements on energy sufficiency. Russia the reason we do not go out and scream at Russia for a lot of blatant abuses of human rights, democracy, and flaunting the behaviours that come out is because it produces 30 % of the world’s gas, most of which goes into Europeans the European markets. So I think that a unilateral approach has much more of a less systematic, less deliberate, less friendly approach in it. It tends to be much more military and much more shall we say “every nation for itself” in nature. Governments make decision by themselves and without any regards for what the implications might be for the rest of the world.

One last example of what also may be considered more unilateral: the US releasing oil into the markets from the reserves last year is not a coordinated thing, but other countries were aware of it. It was a decision made unilaterally by the United States because the country’s oil prices were quite significant at home. So that is the kind of schism that I was trying to highlight.

Corruption: the evidence actually points, if you look at the transparency of international corruption perception index, which comes out every year from transparency international, the evidence is actually that corruption is on the decline in the regions that china is investing. And I am not trying to create a causality but I will say that I think that it is not the case that it sort of is being stolen, whole sale as we’ve seen with other inflows in other country regions, and I do think that though some extent of corruption does exist, I do not think that it is as widespread or as blatant as it has been previously with other .. seeking behaviour coming from other influences.

Do I think that China is stockpiling just to put a disadvantage to its competitors? Again, I do not know how to stress this much more but I really do not think that the Chinese “give a damn” about anyone else. I really think that they care about delivering economic growth at home. It is their political comparative. They will have people on the streets throwing them out if they do not deliver economic growth. They are not at a place, I can say that they will be number one in 2020 in GDP, today they are number 2 in GDP in the world. They are a hundredth on a per capita income basis. They are a poor country. I think we give them too much credit in some things and perhaps not enough credit in some other things. They just don’t care about anyone else, and I do not say this in a heartless mean way, they are just not interested in what everyone else needs to do. And this really is so important in understanding the extent in which the Chinese government will act to make sure that their GDP does not slip below 6% which is UN number if anyone goes beneath 6% is in very big trouble.

I think they will throw everything, the whole kitchen sink at it. They will print money, hand-out transfers; they will do whatever it will take. There is no way in my mind that the Chinese government would sit around having all of these summits and discussions and see the extent of destruction that is going on in Europe. I just don’t see it. That is my experience of that and I think that the more important question that we should then take away from that backdrop is what are the implications of a country that is poor with a lot of money, that is ready to go out there and do whatever to stave off poverty and keep economic growth going. What might our interactions, how might that be affected? The whole idea of our model of financial markets, of interest rates, of exchange rates is our model. That is not their model. Their model is very limited, very structured in economic growth. I have an example here: financial markets. We know that if the Bank of England decides to cut the interest rates by 25 basis points, there is a significant effect on our life. Most of us have mortgages, most of us have credit cards, and most of us have bank accounts. In China, it means nothing. The 1.3 billion people they have 6% of the population with credit cards. A very small proportion of the population has bank accounts. We should not get overly excited about things that are… And to that regard, I would say that the Chinese are in many ways the whole export net discussion and the discussion around exchange rate was particularly important in global living. The Chinese had deliberately and publically pursued and is pursuing policies of domestic demand, is pursuing more consumption at home and in that sense was not trying to become a self-contained island. I think they hate the fact that they have to depend on other countries for resources. I think that they would love to be more self-reliant

One last quick point, they are very aggressive in commodities. The export bans that they have imposed on rare earths. China produces over 90% of the world’s rare earths. They do post-bans. They have been thrown into law suits with the E.U. and the U.S. through the WTO about these export bans, but they are becoming more stringent, more strident. And even two days ago the Chinese confronted the US and Europe and said, well don’t go and pour all of this on us. You guys have subsidy programs: we’ll get rid of our export bans when you get rid of your subsidies. Don’t hold your breath.

Where is this tragedy coming from? It’s very centralized. There is a great book which you should buy (not my book). It is called: the party by Richard McGregor; A fantastic book which really details the psychology around this country. The fact of the matter is none of us really knows, none of us are Chinese. No foreigners have ever entered the house of chambers. Whenever you hear discussions, they are really commentary, but the way it is structured is that they have seven people and then they have 25 people beneath that who are the key policymakers. But every single minute detail is discussed thought about, and very deliberately executed. And I think that that is really where they separate themselves from the rest of us. They do not have time for talk. They are all about execution. Let’s use commodities as an example. Every bit of business is discussed, and I give examples in the book, from who is going to build the road in the country where they are going, who is going to build the mine, whoever is building the road has to work with the person building the mine who has to work with the person who is building the ships to transport from that country all the way back to China and then refine it and redistribute it. Every single aspect of that chain is detailed at the very high level of policy. It’s something that has never been seen before and probably has a very small window because as I said I do not think foreigners really understand the extent of this. But we do see slippers of this every now and then and the best time to see their actions and how swiftly and precisely they act is during times of crisis. Go and have a read at what they have done during the bird flu, during the financial crisis when it first broke out. You will see that it is one person that comes out very focused and the way that they approach themselves is incredibly well executed. We have spent so many hours debating even on these things that we know could be good for society. Long story short it is very much centralized. And it is strange coming back to this other gentleman’s question about how centralized it is really. It is more about the party; the government is a tool of dispersing the party’s views about how policy should be distributed. The government has almost no power; it is the party that has the power. Get Richard McGregor’s book if you are interested in this.

Next, there was a question of friction with host countries… Is that right? I have written here friction with host countries…

Davis: The African host countries for example and so on…

Dambisa: With host countries, yes there is increasing friction which I think is good because African governments need to be accountable if people. In my own country, in Zambia, there were skirmishes not too long ago. If this government were more accountable, to stand up to, and to defend African workers right, they should be doing that. That is their job. I think that, again, for people that have read my article in the New York Times today, I think that we need more of that than having all of the NGOs or Western journalists pointing fingers at China. It is not China’s responsibility to behave better. China invests in the UK, invests in the US without much ado. It is ultimately the role of the government to behave and to secure the rights of the people at home on balance that there is a dynamic that is emerging around China that is viewed. I think that the richer the countries are, the less loved the Chinese are. If you go to places like India, or across Africa, Chinese are great. If you go to Brazil where you see the income per capita rise, the love is sort of weaning a bit and obviously the US is not exactly… using a political stick to say: “the Chinese are cheating us.”

I will point out one last thing which is the Pew survey in 2007. The Pew Research Institute is an American Institute in 2007 they went to about 10 different African countries, Senegal, Ghana, Zambia… all across the continent, and they asked the Africans: “What do you think of the Chinese, do you like them? Do you hate them? Are they better than the Americans?”

By wide margins, and again, this is in the book and also in the New York Times article, wide margins 97-98% of the African population said: “we love the Chinese, they are improving our living standards, they are investing in our economy, and we prefer them to the Americans.” That is what we should be asking ourselves. I am not saying that it is the perfect linear relationship. Lots of … ultimately we have the African government on board.

The last question was around democracy. Here again I think there is a lot of misinformation around what it is that China is doing. If you speak to people, journalist who are anti-government in China, I recommend that you read articles by a great, fantastic woman; her name is Hu Shuli. I wish that she would be more on western television and write more for the western press. She works for an agency that is called Caixin Media. She is very much, stridently against the Chinese government, very vocal and she will tell you that there have been significant reforms in China around rights of movement and around democracy. On this subject I would recommend a book called: The long walk toward democracy, Americans and foreign affairs by avenging John Thorn. An American who lived in Shandong and Beijing where there is democracy at very low levels. It is pro… upwards. There are improvements. People now can move around in China. This woman Hu Shuli is very vocal, critical, and publically critical. I will tell you and she would tell you herself. A few years ago, she was sent to jail. She says now that every now and then she gets called into a minister’s office, probably like in Britain, gets hold in and is asked: “why did you write this?” But she says that there has been a substance change in the culture of freedoms, the culture of movement, of people. Progress has been made. They are obviously not there yet, but I think from my perspective, you have got to get the economics right. If you get the economics right, you will get the middle class. The middle class is absolutely crucial in holding governments accountable. You cannot have liberal democracies if you do not have people at home capacity to hold government accountable. And this is my biggest indictment to the aid system, which severs the link between the local citizens on the ground and the government because they allow the governments to abdicate their responsibilities and they allow their governments to quart and cater the donors and not to care enough about what is going on on the ground, and I think that ultimately if you can create the economic growth, create this middle class, which would be able to hold the government accountable. And of course, we would ideally like to see political and economic change happening in parallel and I think it would be great, and I think that it is happening in China. I definitely think that the amount of resources that is spent insisting that we see 1.3 billion Chinese go and vote every 5 years… we are wasting our time in doing that. I think it is going to happen organically. Our best efforts in free society is to have them on board, have those discussions in private, and to help the policy makers understand, instead of pointing fingers and wining at them all the time and giving them the dissidence Nobel prize. I think that is it for now. Thank you.

Lewis: the Henry Jackson Society has had a lot of very eminent and distinguished thinkers. But none if I may say so Dambisa, as eminent and distinguished than yourself. A friend of mine in the State Department in Washington described you as an intellectual rock star. And I think that we all saw some of that star quality today. Your writings are not only timely, incisive and persuasive, but in the view of many politicians here in Westminster, they represent also a very serious wakeup call to public policy makers in the western hemisphere. We know you primarily through Dead Aid and How the West was Lost, but it has been our pleasure here today to hear your latest instalment of challenging wisdom in Winner Take All, and we wish you success with that book. Thank you once again for coming and speak to us.

Thank you very much Dambisa, and thank you to the audience for excellent quality questions and discussion and there is much more to speak about and reflect on I think, but thank you all.

HJS



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