China-Taiwan issue trumps Caribbean co-operation

China may still be classified as a “developing” country because of its per capita income, but that is as far as the description is pertinent. In almost every other way China is in the league of developed nations.

The World Bank gives China’s per capita income in 2012 as US$6 091. By comparison, with the exception of Haiti (US$771), Guyana (US$3 584), Belize (US$4 577) and Jamaica (US$5 472), the per capita incomes of Caribbean Community (CARICOM) countries are greater than China’s.  Even so, it is difficult to regard China as a “developing” country in the common understanding of that term.

China continues to define itself as “developing” because of its need for diplomatic support from developing countries for the issues that are important to it in the international community. These are Tibet, human rights, Taiwan and reform of the global economic institutions that would give China a stronger standing.

Over the last three decades, the infrastructure of a great portion of China has been upgraded.  Its major sea ports and airports are far superior to those in many industrialised nations, and while the latter are crumbling and in need of major rebuilding, China’s new infrastructure has been constructed for the future. Further, China’s internal transportation system – its highways, railways and bullet trains are modern and futuristic. Above all else, the Chinese people remain disciplined, hardworking and thrifty, contributing immensely to China’s global competitiveness and to the healthy finances of the Chinese government. Chinese savings at the end of June this year stood at US$16.3 trillion.

China is already a magnet for financial services and Information Technology (IT) businesses.  The government has now announced plans to fully connect China to the Internet in two years’ time with urban and rural broadband speeds reaching 20 megabytes per second (Mbps) and 4Mbps respectively. Consequently, the value of IT businesses is expected to increase by US$2 trillion.

China is the world’s second largest economy after the United States. Even with the slowing down of its economic growth from a ten per cent average over the last two decades to a projected 7.5 per cent this year, China is expected to become the world’s largest consumer market within the next five years according to a Standard and Poor’s report.

A further indication of the wealth in China is a report by Forbes Magazine in March which puts China as the home of the second largest number of billionaires (122) after the US (442). The China Daily also reports that the number of millionaires in China this year is 1.05 million.

This is not to suggest that all of China has been modernised and is free of poverty. The Western area of China lags behind the development of the East. But this, too, is changing. Since 2000, the Chinese government has embarked on a programme to develop the West covering more than half of the country’s land and almost a third of its population.
It has now decided to introduce “differentiated” policies for the region that will include huge spending on infrastructure.

The government has announced that it will move “labour-intensive and environmentally friendly industries from the coastal region to the West”. Already, three Western cities have grown faster than their wealthier counterparts in the East.

Trading potential

All of this is to say that China is a strong economy whose growth may have slowed, but it has slowed to a rate that every other nation fervently wishes it had. China will continue to grow and it will remain an economic powerhouse. With US$3.4 trillion in foreign reserves, China also has an interest in investing in projects around the world that would not only give it multi-national companies but also a wider and diversified portfolio for a return on its money.

Apart from the mineral and forestry resources that China wants, Caribbean businesses cannot take advantage of the Chinese market. Access to affordable capital, costs of transportation, insurance, labelling in Chinese and marketing are beyond the capacity of the relatively small companies in the region. Of course, opportunities that are available for companies to integrate their production to penetrate the Chinese market (and others) are not even being considered.

Absent the capacity of the private sector in many Caribbean countries to export to the Chinese market, China will continue to enjoy a huge balance of payments surplus with CARICOM countries. China had a balance of trade surplus with the 15-nation Caribbean Community (CARICOM) countries of US$3 billion in 2012 according to China’s trade figures. Only Jamaica, Guyana and Trinidad and Tobago, which have resources such as forestry and minerals that China wants, could reasonably expect to export meaningfully to China. But, on present form, their exports will hardly compensate for the imports from China that now flood their markets leaving them with balance of payments deficits in 2012 of US$755.4 million, US$173.4 million and US$172.5 million respectively.

And since the balance of trade surplus in China’s favour is not likely to be reduced in any significant way, the sum of US$3 billion, which President Xi announced last June would be made available to Caribbean countries as concessionary loans, is simply not enough compensation. China will undoubtedly enjoy another trade surplus of US$3 billion this year and the next.

In this context, Caribbean countries should develop a strategy for their economic relations with China that would secure aid for trade, concessionary loans for national infrastructure projects and pan-Caribbean projects that would benefit countries nationally and regionally. The strategy should also pursue investment by Chinese companies in financial services, tourism facilities and manufacturing – not necessarily for the Chinese market – with such investment financed by the China Development Bank and the China Export-Import Bank on soft terms and conditions.

But, Taiwan remains the fly in this ointment. In August, in the wake of China’s President Xi’s visit with 9 CARICOM leaders in June, Taiwan’s President Ma Ying-jeou toured four of the five CARICOM countries with which diplomatic links continue. He has pledged ongoing economic assistance to each of them, and they have all pledged loyalty to Taiwan.

This suggests that CARICOM should now accept that regional co-operation has been trumped by division on the China-Taiwan issue, and the nine independent countries with links to China should proceed to formalise an economic partnership agreement with China outside of the CARICOM Treaty but with the concurrence of the five member states tied to Taiwan. The alternative is the present beggar-thy-neighbour practices from which the Caribbean is not a winner.

(The writer is a Consultant, Senior Research Fellow at London University and former Caribbean diplomat. Responses and previous commentaries: www.sirronaldsanders.com)