china dev cooperation and patient capital at work · • “patient capital”: those capitals to...
TRANSCRIPT
China’sDevelopmentCooperationandPatient
CapitalatworkDr.YanWANG
GeorgeWashingtonUniversityandPekingUniversity
[email protected]@gwu.edu
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OutlineI. China’sapproachinSouth-SouthCooperation:
combiningtrade,aidandinvestmentII. China’sdevassistanceinhealthIII. ChinautilizesPatientequitycapitaltofinance
InfrastructureandPrivateSectorIV. ProspectofdevelopmentfinanceV. RisksandchallengesDrawingfromourjointbookonGoingBeyondAid:DevCooperationforStructuralTransformation (LinandWang2017)andapieceatProjectSyndicate:Anewapproachforinfrastructurefinance,Lin,Halland andWang:https://www.project-syndicate.org/commentary/attracting-private-infrastructure-investment-by-justin-yifu-lin-et-al-2018-03
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OurNewBook
3CambridgeUniversityPress
I.China’sApproachinSSDC:trade,aidandinvestment
• China combines trade, aid and investment in South-South Dev Cooperation (SSDC)
• China’s aid is not “altruistic”. The government never considers aid as one sided “alms”, but something mutual.
• … “Do what they know best”, following their comparative advantage in providing South-South Dev. Cooperation (SSDC)
• …”Teach fishing rather than giving fish”, following China’s own experience and building 6 Special Econ Zones in Africa.
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China’sODA:small,withhugepotential
5Source: Yan Wang 2011. page 22. Updated by Aidflow using 2014 data, Oct 2015.
II.China’sdevassistanceinhealth1. Startedtoprovideaidanddevcooperationsincethe1950s.2. MedicalandhealthcareisamajorareawhereChinadirectsits
foreignaid.Ø In1963,ChinadispatchedthefirstmedicalteamtoAfrica.Sincethen
Chinasent25,000medicalworkersto70countriesandtreated300millionpatients.
Ø ConstructingmedicalfacilitiesandequipmentØ Brightnesstripactivities:freeeyesurgeriesØ PreventiveandcontrolofinfectiousdiseasesØ CombatingEbolaandotherepidemics(SCIO“whitepapers”2011,2014).
• AccordingtoAiddata.com, totalgrantsinhealthbetween2000-13was5.67billionUSDwith531projectsundertaken(Shajalal etal2017)
3. InAfrica,Chinatargetedgeneralhealth(313projects),combatingmalaria(115projects),andmaternal,neonatalandchildhealth(12projects).
4. Mostfundingwastargetedtowardsinfrastructureandmedicine(304projects)followedbymedicalteams(189projects).ThereisasignificantrelationshipbetweenaidtoAfricaandChineseexporttoAfrica.(Shajalal etal2017) 6
Southernpartnerscan use3ComparativeAdvantages
• Utilizingcomparativeadvantage(CA,atradeconcept)tohelpeachother
• First,Chinahascomparativeadvantagesinbuildinginfrastructure:e.g.hydro-power,highways,andhigh-speedrailways
• Second,Chinahascomparativeadvantage(CA)in45outof97subsectorsintradinggoods
• Third,emergingeconomieshavehighsavingsandPatientCapital,whichcouldbeacompadvantagetobeutilized:(elaboratedbelow)
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1.ChinahasComparativeAdvantageinInfrastructureandScaleEconomy
8Source: International construction cost survey 2013.
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18 1825
3035 37 39 41 43 45
60 61
75 76
0
10
20
30
40
50
60
70
80AverageHourlyLaborCostinConstruction,forSiteforeman,PPP2013
2.DecliningRCAinChina:Labor-intensivesectorshavetorelocate,creatingmillionsofjobselsewhere
9Source:NSD&UNIDO,TechnicalNote2015,page22.YanWangasthemainauthor.
0
1
2
3
4
5
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1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
RCA
year
China:RevealedComparativeAdvantage 1984-2013
85Footwear 26Textilefibres,notmanufacturedintoyarnorfabric
71Machinery,otherthanelectric 89Miscellaneousmanufacturedarticles
84Clothing 73Transportequipment
33Petroleumandpetroleumproducts 32Coal,cokeandbriquettes
III.UtilizingPatientCapital• Whatispatientcapital?• “Patientcapital”:thosecapitalstobeinvestedina
“relationship”inwhichthestakeholder/partneriswillingtotakeastakeinthehostcountry’sdevelopment,aimingforawin-win.Countrieswith“LongTermOrientation”(Hofstede,1990,2010)arewith“patientcapital”.
• Theyareequity-likeinvestorsbutwillingto“sink”moneyintherealsectororunlistedprojectsforalongtime—aslongas10yearsandabove.
• Andtheyarewillingandbetterabletotakerisks.• NetForeignAssetispositivelyandsignificantlyassociated
withLongTermOrientationindex.Ontheotherhand,countrieswithShortTermOrientationandlowsavingsrateswouldseetheirNetForeignAssetpositionsdeterioratingandtheirforeigndebtmounting.(LinandWang2017b) 10
PatientCapital(ultra-longterm)fromChinaandotherEM
11Source:LinandWang2017b.
Patientcapital1:NetsuppliersofFDIOutflowsminusinflows
12Source:LinandWang2017b.CalculatedbasedonUNCTADdata.
-200000
-150000
-100000
-50000
0
50000
100000
150000
200000
NetSuppliersofFDItotheWorld:Outflowsminusinflows,1990-2016
China China,TaiwanProvinceof
Germany Japan Korea,Republicof RussianFederation
UnitedStates
2. ChinautilizesPatientCapital:OutwardFDI(OFDI)fromBRICKS
13Source:UNCTADdata.China’sOFDIreached$183bn in2016surgingup44%.
#1China,183.1(WorldRank#2)
#2RussianFederation,27.3
#2Korea,Republicof,27.3
#4India,5.1#5SouthAfrica,3.4#6Brazil,-12.4
-50.0
0.0
50.0
100.0
150.0
200.0
FDI O
utflow
s (in
billio
ns U
S do
llars)
Outward Foreign Direct Investment Flows (2000-2016)Source: UNCTAD Statistics on FDI
China Russian Federation Korea, Republic of India South Africa Brazil
ChineseFirmsCreatingJobsOverseasHuajian Shoes:AQuickWininEthiopia
• FormerPMMeles Zenawi wenttoChinainMarch2011
• Huajian decidedtomaketheinvestmentinOctober2011andrecruited86localworkerstobetrainedinChina.
• In4months,exportstartedinMarch2012.Huajian becameprofitableinOctober2012.
• Huajian employed3,500workersbytheendof2013.
• SeeMcKinseyJune2017:“MillionsjobshavebeencreatedbyChinesefirmsinAfrica”
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NewcommitmentsbyChina• ChinainitiatestheAIIB,TheNewDevelopmentBankandtheSilk
RoadFund(SRF),andseveralotherfunds• Setupasustainabledevelopmentfundof$2billion atUN• Chinahassetupa$2billionfundforSouth-SouthCooperation.• IntheFOCACmeetinginSouthAfrica,Xicommittedtosupport
Africatransformationby$60billiondollarsinthreeyears,consisting,grants,nointerestloans,concessionalandnon-concessionalloans
• Chinahassetupaindustrialcapacitycooperationfundwitha$2billiondollars
• TheBeltandRoadInitiative(BRI).Howtofinanceit:• WideConsultation(共商）;• JointConstruction（共建）;and• Sharedbenefits（共享）。ItisaplatformforPPPco-
investment 15
NewequityfundsledbyChina
16Source: UNCTAD, Daniel Poon, 2018, “AIIB: Experiments in scaling-up development Finance”.
IV.FutureProspectinDev Financing• ODA(officialdevelopmentaid)willdeclineinrelativeimportanceinthenextdecades;
• ButOOFandOOF-likeloanswillgrow.• MDBsaccountsforonly1%ofglobalinv oninfrastructure(Dollar2016).Theyneedtobetterutilize”patientcapital”
• SettingupmoreMultilateralInvestmentBanks/StrategicInvestmentFunds(SIFs)
• ExpandthedefinitionsofODA,OOF,OOF-likeloans(blended,likeAIIB,CDB,EXIMbank),andOOF-likeinvestments(SilkRoadFund,SIFs,andSWF,pensionfunds,othernewfunds).[patient/equitycapital!]
• UNCTADrecognizestherolesofNationalDevelopmentBanks– anditisaheadofthecurve.IFCnewstudyon“leveraging”trillionsforGreenDev,butfarfromit….
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• ThereisaneedtoexpandthedefinitionsofdevelopmentassistancetoincludeODA,OOF,OOF-likeloans(blended,likeAIIB,CDB,EXIMbank),andOOF-likeinvestments(Equityinvestment,SWF,andSilkRoadFund)– DF1=ODA– DF2=DF1+OOF– DF3=DF2+OOF-likeloans– DF4=DF3+OOF-likeinvestment
18Source: Lin and Wang, 2015.
DefinitionsofDevelopmentAssistance
Expandingthedefinitionsofdevelopmentfinancing
ProjectionofGlobalInvestment2015-2030
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
SHAR
ESOFGLO
BALINVE
STMEN
T,%
TRENDOFGLOBALSHARESOFINVESTMENT
shareofdevelopedcountriesshareofdevelopingcountrieswithoutChinashareofdevelopingcountrieswithChina
Projectionofsavingsrates2015-2030
20
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
difference China developedcountries developingcountries
Moreequitycapital:WhatcanbedonebyMDGsandDFIs
• Toexpandthepoolofequitycapitalavailableforinfrastructureinvestment.E.g.inOctober2017,India’sNationalInvestmentandInfrastructureFund(NIIF)announceda $1billiondeal withaunitoftheAbuDhabiInvestmentAuthority.TheagreementwillhelpIndiafinance criticalinfrastructureupgrades.
• Createmore”FundofFunds”fordevelopment.• MDBsandDFIscanconvertassetsinto“patientequity”bydeployingcapitalthroughwell-performingSIFs.Theycan1)provideloanstohelpgovernmentscapitalizetheirstrategicinvestmentfunds,2)capitalizetheSIFsdirectly,or3)co-investattheprojectlevel.
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Patientcapitalcouldbe60%of…
22Source:calculatedbasedonUNCTAD2017report,p.13.
FDI, 45%
Remittances,28%
ODA, 12%
PortfolioInv,9%
OthinvinclBankLending,6%
CompositionofExternalFinancialFlowstoDevelopingEconomies,$1.4Trillionintotal,2016
Inourview,60%intotalisestimatedas“PatientCapitalFlows”,about$850bn in2016.
V.RiskandIssues/challenges• China’sSScooperationisnottransparentenough,andthereisno“foreignaidlaw”…
• IssuesarisingonRiskandDebtSustainability• IssuesonEnvironmentalandSocialSafeguards• Howtoevaluateyourdevelopmentalimpact(M&E)• Risks:losingstrategicpatience– rushingintoinvestmentdecisions– 失去战略耐心，急功近利
• Chinawillbecomethelargestnetcreditorintheworld.(Dollar2016)Howtodealwith”heavilyindebtedcountries”,andpotentialdefault.Whatrulesandconditionsforrestructuringdebt?
• NewlyestablishedChinaInternationalDevelopmentCooperationBureau. Willitimprovetransparencyandcoordination???5Questionsonitsfunctions......
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Conclusions• MDBsneedto1)combinetrade,aid,andinvestmentlikeChinadoes;and2)UtilizePatientequitycapitalwithlongtermorientation,suitableforenhancingglobalconnectivityforglobalvaluechains.
• TheWBG(IFC)’snewequityfund(InfraVentures)isagoodwayforward–toleverageprivateequityfinance.
• Chinaismovingtoanewmultilateralismwithnewbanksandfunds.Chinaislearningtobecome “aresponsiblestakeholder”inglobalaffairsbysupportingFfD viatheNewDevBankandAIIBandSRF,andmoreSIF/funds
• TheBelt&RoadinitiativeisaplatformforPPPco-investment,willcreateopportunitiesforallcountries, Itisawin-win-winmultilateralinitiative.
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References:• Lin,JustinYifu,NewStructuralEconomics,2010.• Lin,JustinYifu.AgainsttheConsensus:ReflectionsontheGreat
Recession,CambridgeUniversityPress,2013.• LinJustinYifu,Havard Halland andYanWang(March2018)
https://www.project-syndicate.org/commentary/attracting-private-infrastructure-investment-by-justin-yifu-lin-et-al-2018-03
• Lin,JustinYifu andYanWang,2017.GoingBeyondAid:DevCooperationforStructuralTransformation,CambridgeUniversityPress.
• Lin,JustinYifu andYanWang.2017b.“NewStructuralEconomics:PatientCapitalasacomparativeadvantage”,inJournalofInfrastructure,PolicyandDevelopment,Vol.1,No.1.
• http://systems.enpress-publisher.com/index.php/jipd/article/view/28 25