Over the past three decades, consumers have grown used to seeing the “Made in China” label adorning their less expensive purchases. Once China opened its economy to international trade and investment in the 1980s, it did not take long for it to wrest domination of the lower-end manufacturing sector from its East Asian neighbors and flood the world’s high streets with cheap goods.
Low wages were at the heart of China’s success. The majority of the population lived on less than a dollar a day, so businesses had no need to pay high salaries. Combined with high productivity, this enabled them to undercut manufacturers in more advanced economies.
As China has grown wealthier and wages have increased, however, this advantage is eroding. Higher wages render Chinese producers less competitive in low-value, labour-intensive manufacturing, but they are unlikely to want to relinquish control over the lucrative cheap goods market. Higher technology products contain many low technology components and China will need a supply of such inputs as its economy becomes more sophisticated. To whom will it turn to fill its shoes?
Many in Africa are suspicious of China’s growing interest in the continent. Lamido Sanusi, the former governor of Nigeria’s Central Bank has complained that by buying primary commodities from Africa and selling it manufactured goods China is helping to “de-industrialise” the continent. South Africa’s Trade and Industry Minister Rob Davies has suggested that Chinese imports are “replacing products that could be made in South Africa.”
It is possible, however, that China is taking a longer view, and that a major motivation for expanding its African interests is to partner with the continent to build up its low-end manufacturing base.
China does not have to look far to find a precedent for this. Japan once performed China’s role in supplying the world with cheap manufactured products. Eventually some of its East Asian neighbours learned how to make these products themselves and Japanese firms began to outsource labour-intensive manufacturing to Taiwan, Hong Kong and South Korea, where wage demands were lower. As this “flying geese” pattern of development unfurled, these new East Asian tigers climbed up the value chain, leaving the production of cheap goods to Indonesia, Thailand, Malaysia and China itself.
Like Japan before them, South Korea and others assisted the development of this next group of tiger economies. They began by concentrating their overseas investments in mining and energy to fuel their own manufacturing sectors, only later expanding their portfolio to speed their neighbours’ industrialisation.
By reducing labour costs and improving productivity, China’s similar investments in Africa could pave the way for Chinese firms to relocate production there. China’s initial focus has been on mining and energy, but as wages have risen at home, it has invested heavily in African infrastructure and begun to help develop the continent’s human capital. China has built roads and railways, upgraded ports and airports, expanded telecommunications networks, and implemented multi-country solar and hydropower projects. It has provided capacity building support to regional trade bodies. And it has launched scholarship programmes to take young Africans to China for vocational training. Discussing his plans for an education programme to show African university students how his country developed, the Chinese ambassador to Mozambique recently told the writer Howard French that, ‘We have two aims, to show Mozambicans that they can have big goals – not just to feed themselves, but also to sell what they produce overseas.’
Last year the Chinese Premier Li Keqiang told the African Union that China was planning to move a number of labour-intensive industries to Africa. Justin Lin, an advisor to the Chinese government, has predicted that China will have to export eighty million jobs as its competitiveness in low-end manufacturing weakens, and argued that Africa is the ideal destination for many of these jobs.
Eighty million jobs will not solve all of Africa’s problems, but low-end manufacturing can perform a vital employment-creating function and lay the groundwork for a move higher up the industrial value chain. Even if this is not the motivation for its interest in Africa now, China has little choice. Far more than aid, it is jobs that Africa needs. As Chinese wages continue to increase, it is jobs that Africa will get.