Author Archives: Xiangming Chen

About Xiangming Chen

Xiangming Chen is the founding Dean and Director of the Center for Urban and Global Studies and Paul E. Raether Distinguished Professor of Global Urban Studies and Sociology at Trinity College in Hartford, Connecticut, and a Distinguished Guest Professor at Fudan University in Shanghai. He has published extensively on urbanization in and globalization of the PRC.

China’s Key Cities: From Local Places to Global Players

China projects a huge and continually growing profile and impact on the world stage. Much of this Chinese influence globally is often anchored to and channeled out by its key cities. Shanghai towers over all these cities in what it stands and functions for China, as the country’s financial and trade centre, largest port (also the world’s top container port), and gateway to China’s huge domestic market. As such, Shanghai gets a lot of attention from the global business community, especially when its stock market tumbled recently and sent shock waves around the world.

Besides Shanghai, a variety of other cities have become more important for China, and the world economy, for that matter. A number of these cities are well known for their significant historic and contemporary economic and cultural roles such as Guangzhou and Xi’an. Other cities have risen from unknown origins to prominent economic centres like Shenzhen. There are also some much less known cities that have grown into new regional hubs with strong global connections. You most likely have not heard about them, names like Ruili and Yiwu.

In this article I take a new look at China’s key cities by focusing on two of their salient features. These cities are drivers of China’s local and regional economic growth. They also serve as bridges to link China’s varied local economies to regional and global markets. I examine both roles in how they play out in similar ways across four very different cities in scale and other dimensions: Shanghai, Chongqing, Yiwu, and Ruili (see their locations on Map 1).


Map1

Map 1: The Location of Four Key Cities in China: Shanghai, Chongqing, Yiwu and Ruili

Shanghai: Leading Nationally and Bridging Globally and Regionally

Shanghai’s transformation has been heavily studied over the past two decades. Yet here is another interesting way to look at how Shanghai itself has changed in leading China’s economic growth and global integration. Compared to all major cities in China, Shanghai has undergone the most striking and sustained shift from manufacturing to services (see Figure 1).

Figure 1: Shares of Agriculture, Industry and Service in Shanghai’s GDP

Figure 1: Shares of Agriculture, Industry and Service in Shanghai’s GDP

During the first half of the 1984-2014 period, Shanghai was more of a manufacturing centre as it was built up to be during the centrally planned era from 1949 to the early 1980s. The second half from the late 1990s saw Shanghai move steadily towards a service economy. This trend not only puts Shanghai’s economic transition ahead of all other manufacturing-oriented cities in China but also places Shanghai on a similar pathway like other global cities as important service hubs.

Shanghai is indeed on track to resemble the economic profile of global cities like New York and London (see Figure 2). As Shanghai’s service sector as a share of GDP has surpassed manufacturing, its high-end or producer services like finance, insurance and real estate (FIRE) have grown faster than low-end services like retails. This shift reflects the faster and greater concentration of international banks in Shanghai, mostly in the Pudong financial district. More than half of the foreign-owned banks and their branches operating in China are registered in Shanghai. The assets of foreign banks in Shanghai accounts for 47.3% of the foreign banks’ total assets in China. Shanghai’s banking dominance today brings back its heyday in the early 1930s when it ranked the world’s third banking centre, only behind New York and London and ahead of Hong Kong and Tokyo.

Figure 2: Shares of Low vs. High-end Services in Shanghai

Figure 2: Shares of Low vs. High-end Services in Shanghai

As Shanghai marches (back) to its historic global city status, it has also been leading and driving the China’s major manufacturing cities in developing stronger services. At the same time, Shanghai plays a growing part in bridging the global economy with the Yangtze River Delta (YRD) region of which it has been the unquestionable hub (Figure 31). With the shedding of manufacturing functions to second-tier YRD cities like Suzhou, with subcontracting ties to even smaller cities, Shanghai has strengthened its position as the regional core by adding more critical and high-value-added functions such as corporate headquarters and R&D centres. By October 2014, Shanghai secured 484 regional headquarters of multinational corporations, of which 24 were Asia-Pacific headquarters, 295 investment companies, and 379 R&D centres.2

Besides being China’s premier international city, Shanghai continues to lead China’s major cities in transitioning towards a service-oriented and advanced local economy. This has also paralleled Shanghai’s stronger role in connecting and integrating the YRD region with the global economy, driving forward one of the world’s largest and most powerful regional economies.

Chongqing: Shanghai of the West

About 2,400 kilometers up the Yangtze River from Shanghai in western China is the city of Chongqing (Map 1). With over 30 million people in its sprawling administrative boundary, Chongqing may be “the largest city in the world that few people know about.” Chongqing drew some global attention in 2012 when Bo Xilai, the then Party secretary of Chongqing Municipality, was sacked and then imprisoned for what the central government labeled as corruption and other criminal activities.

If we take a much longer historical perspective, Chongqing has always loomed large among China’s major cities, even relative to Shanghai. Chongqing had a small concession zone as an inland treaty port after 1891, with a little similarity to Shanghai’s dominant treaty port status after the first Opium War in 1842. But Chongqing was hindered by its position as a mountain city close to the headwaters of Yangtze and languished as a distant backwater.

Chongqing was never cosmopolitan until the outbreak of the war of resisting Japan in 1937 and when the Nationalist government moved its capital to Chongqing in 1938. Being China’s political centre then in the first half of the 1940s propelled Chongqing to the largest financial, aviation and even cultural/fashion centre in interior China, second only to Shanghai.

Chongqing after 1949 was down and up. The uptick phase began during the Cultural Revolution. Concerned about a potential Soviet attack, the central government designated Chongqing as the core of the “Third Front” for hosting the relocated heavy industries from the coast. This turned Chongqing into a “Little Shanghai” that would lead the nation in developing defense-related machinery and ship-building industries. Chongqing ended up receiving 122 enterprises in these industries from Shanghai with a large pool of human talent in engineering and technical professions. In spite or because of this external transfer of resources, Chongqing neglected local advantages as the natural and potentially autonomous hub for the upper Yangtze region in achieving a more balanced development of housing, infrastructure and amenities of city life.

Chongqing got a big boost in 1997 when it was elevated to the fourth central government municipality besides Beijing, Shanghai and Tianjin. It would now cover 82,403 square kilometers and encompass a population of over 30 million. This designation brought about a great deal more autonomy by making it function as a province, and one of the most important ones at that, and thus setting it onto the most remarkable phase of growth and change in its long history.

Starting in 1997, the central government would give Chongqing $240 million as low-interest loans per year for the Three Gorges Dam-affected region, $80 million for building new housing for displaced residents, and refund $85 million from import taxes to Chongqing for Dam-related projects. In addition, Chongqing was allowed to lower enterprise tax for new foreign investment projects from 33% to 24%, or even to 15% if these projects were located in its economic and technological development zones.

The launch of China’s “Go West Campaign” in 2000 moved Chongqing up another notch to finally become the undisputed economic hub for the upper Yangtze region, or the “dragon’s tail” relative to Shanghai as the “dragon’s head” for the YRD. To live up to this ambitious goal, Chongqing unveiled the “One Circle and Two Wings” (see Map 2) master plan in 2007. It would accelerate the pace and spread of urbanisation and economic development from the enlarging urban core into the two largely rural subregions. It called for converting about 10 million rural residents of Chongqing Municipality to urban dwellers by around 20203, through the building up of several secondary cities like Wanzhou.

Map 2: Chongqing’s “One Circle and Two Wings” Development Plan Source: Chongqing Municipal Planning Bureau.

Map 2: Chongqing’s “One Circle and Two Wings” Development Plan
Source: Chongqing Municipal Planning Bureau.

By building up the municipal and transport infrastructure in and around these secondary cities, the municipal government can scale them up and out so they are capable of accommodating more rural people and also pushing some development impulses deeper into the distant and poorer areas of Chongqing’s sprawling regional hinterland. If successful, this strategy will replicate a similar regional bridging role as Shanghai.

Like Shanghai’s global connective functions but from a less advantaged interior position, Chongqing launched the 11,179-kilometer Trans-Eurasia Railway from southwestern China to Duisburg, Germany, through Kazakhstan, Russia, Belarus and Poland in 2011. In 2005, Chongqing also opened seven new international flights to Paris, Vancouver, Los Angeles, Sidney, Melbourne, New Delhi and Mumbai, even though they all connect through Shanghai. As labour and land costs in coastal cities like Shanghai have gone up, Chongqing has benefited by attracting more foreign investors and domestic producers to move inland. Having set up Asia’s largest laptop factory in Chongqing, US computer giant Hewlett Packard has already shipped more than four million notebook computers to Europe by the Chongqing-Duisburg railroad. This was part of the $2.5 billion worth of goods China has shipped on this route since 2011.4

 Yiwu: Relatively Small Yet Very Global

As the megacities of Shanghai and Chongqing continue to garner global attention, little remains known about China’s much smaller cities, although more of them have begun to play similar roles in driving local and regional growth and in fostering beneficial global connections. I start with the story of Yiwu. Few people outside of China have heard about Yiwu and how it has become one of the most globalised cities in China today.

A small rural town of Zhejiang province in the late 1970s and located from 300 kilometers from Shanghai, Yiwu was an early beneficiary of China’s initial wave of decentralisation and economic reform. With a lot of local autonomy, the local government steered local market and global economic forces in jump-starting rapid urban growth through careful planning and flexible policies. Instead of building many factories in spatially distinctive industrial districts like Shenzhen and other coastal cities, Yiwu chose a commercial route and charted a new path to globalise its own local economy.

From the very outset, the local government focused on promoting spatially centralised and specialised markets and vending booths for small merchandise such as handicraft items and hand tools. These commodities found home at thousands of booths amassed in the International Trade Mart (Yiwu Market) located in a huge mall-like structure of 4.7 million square meters built by the local government (see Figure 4). In 1982 there were only 705 booths in this trade centre. Fast forward to 2004 the number of booths shot up to 42,000, which are estimated to reach roughly 65,000 in 2014.

1243754184052

Figure 4: Yiwu’s market has an area of 2.6 million square meters, accommodates 58,000 booths, selling over 400,000 plus goods. Source: http://101.69.178.21/purchaserservice/detail/43511.html

These booths display and sell 300,000 different kinds of merchandise goods in specialised markets for glass gifts, wooden gifts, pencils, office supplies, jewelry, toys, radios, earphones, socks, clothes, etc. Some refer to Yiwu as “The Socks City” because it supplies an enormous amount of socks to the world. In addition, 600 factories around Yiwu make about 60% of the world’s Christmas decorations.6

As small commodity booths grew in numbers and density, they attracted hundreds of thousands Chinese and international buyers and traders. The increase in commercial transactions spurred the expansion of small factories around the region surrounding Yiwu. These factories process and assemble more small merchandise to be sold at and exported from the city’s central mart. This trade-manufacturing relationship, on a much smaller scale, bears some resemblance to the dominant trading and marketing specialisation of Shanghai with backward manufacturing ties to the YRD regional economy (see Figure 3).

The regional integration of Yiwu as a globally connected small merchandise hub has fueled the ten-fold growth of the city’s population from 1990 to around one million today. Among the long-term local residents are approximately 10,000 foreign businessmen from 85 countries working for over 3,000 foreign trading companies. This has earned Yiwu the moniker as “the largest commodity wholesale market in the world” with a market index that is widely regarded as a barometer of prices and performance.

The recent installment of the Yiwu-Madrid Railroad further highlights Yiwu’s extensive global economic reach. Covering 13,500 kilometers, this railroad goes through eight different countries as the world’s longest. It begins from Yiwu through central China, joins the Trans-Eurasia Railway at Kazakhstan, continues on from Germany to France, and finally reaches Madrid. The train takes just three weeks to complete a journey that would take up to six weeks by sea. It is also more environmentally friendly than road transport, which would produce 114 tonnes of CO2 to shift the same volume of cargo, compared with only 44 tonnes produced by the train – a 62% reduction.7 This new rail line expands Yiwu’s global trade in small merchandise by making it easy to export its goods all over Asia and Europe.

Ruili: From a Small Border Town to a Major Gateway to Southeast Asia

The last city takes us back from the coastal region to the southwest, but all the way to the border city of Ruili in Yunnan province (Map 1). A sleepy town on the border with Myanmar through the 1980s, Ruili has since grown into a key city for driving lagged economic development in its border region and bridging the latter with the neighbouring Southeast Asian economies. In this process Ruili has acted a little like Shanghai, albeit on a much smaller scale, and in similar ways as Yiwu but with a smaller scope of local marketing.

The collapse of the Burmese Communist Party at the end of the 1980s was key to opening up border trade between China and Myanmar. The city of Ruili created the Jiagao Border Economic Development Zone in 1991 to facilitate trade with Muse on the Myanmar side. At Ruili’s border trade market, hundreds of petty traders and dealers from Myanmar, Bangladesh, India, Nepal, Pakistan and Thailand selling cotton, jade, bracelets, ivory items and aquatic products. The market however is dominated by Chinese and Myanmar jade traders who converge from local and other places in their respective countries to make jade the central focus of Ruili’s lively border trade.

Ruili’s importance rose much beyond a border market in June 2010 when the city became more regionally linked to China’s strategic plan to develop its vast western region. During 2012-2013, the central and local governments began to execute the “Implementation Scheme of Ruili Experimental Zone” and the “Master Plan of Ruili Experimental Zone” in order to build Ruili up to a regional hub. The Master Plan included 238 projects such as industrial parks and trading centres, which would boost Ruili as a gathering place and gateway for economic activities and flows with the neighbouring Southeast Asian economies including a new oil/gas pipeline from western Myanmar into Yunnan.8

The new infrastructure investment strengthened Ruili’s role as an increasingly open land port. In December 2013, the Ruili Experimental Zone began issuing border passes for cross-border travel, which has facilitated the growth of cross-border tourism, especially Chinese tourists visiting Myanmar. The Experimental Zone also became a testing area for foreign current exchange making Ruili the first city in China to trade Myanmar’s currency of Kyat, and also the first county-level city in Yunnan province to establish a currency exchange centre. As of June 2015, Ruili completed hundreds of business deals amounting to over $160 million.9 The cumulative economic opportunities have raised Ruili’s population from around 10,000 in 1990 to over 150,000 today including temporary migrants.

Parallel to the cross-border economic boom has been the flow of illegal or illicit activities into and through Ruili. This is not surprising considering that the China-Myanmar border zone is infamous for gambling, commercial sex, drugs, and arms trafficking. Official figures show that Ruili has 7,700 people with HIV – the second-highest prevalence incidence rate in China behind a city in Sichuan province – and 53% of the sufferers come from Myanmar.10 Of the approximately 40,000 people from Myanmar entering and leaving Ruili, more than 200 are estimated to be prostitutes, 1.6% of whom may be infected with HIV. There are also around 30,000 people from Myanmar, many of them belonging to the persecuted minority group of Rohingya, living in Ruili, adding to the challenge of local governance. As part of a broader effort to deal with drugs and prostitution and thus maintain social stability, the local government has set up clinics for Myanmese citizens who are infected with HIV or who are drug addicts in Ruili including the provision of methadone treatment (see Figure 5).

Compared to Shanghai, Chongqing and Yiwu, the frontier city of Ruili bordering the less developed economy of Myanmar faces a different balance of opportunities and challenges. These however reflect the transformation of Ruili from a local place to a global city of sort.

Figure3

Figure 3: Regionalised Global-Local Production and Value Chains Into, Through, and Out of Shanghai and the Yangtze River Delta (YRD) Region Source: See Note 1.

A multinational company owns brand names, sets product specifications, subcontracts manufacturing and controls wholesale channels and retail markets. Shanghai (central hub of the YRD) contributes land, some capital, skilled labour, some production equipment, and management expertise; provides some producer services such as accounting, insurance, legal services, custom clearance, shipping logistics and increasingly R&D talent and outputs. Suzhou, Kunshan, and Jiaxing (secondary cities in the YRD) contribute medium-cost land and labour, intermediate inputs, manufacturing expertise, and also finished products to be moved (back) to Shanghai for exports.Wujiang, Qidu and Jiangcun (third-tier cities, fourth-tier towns, fifth-tier villages in the YRD) contribute lowest-cost land and labour, some raw processed materials, and ships parts and components to secondary cities for further assembling or manufacturing.

International Implications

Despite their huge differences in history and population size, these four cities have become both the driving force and bridging agents for their rapid growth, gradual regional integration and increasing global influence. They are no longer local places that they once were, although Shanghai has been global for a much longer time. They show us why they are key cities for China today and in the future. More importantly, these four cities point two critical international implications.

First, to understand what is going on across China and its extensive global impact, we need to understand China’s key cities much better. These cities not only continue to drive and sustain China’s geographically uneven growth but also play a key role in regional integration by creating more varied and largely beneficial global connections. We can no longer only focus on the megacities of Shanghai and Chongqing, although their massive scale and economic power will continue to matter a lot more to China’s and global economy than Yiwu and Ruili. The latter cities, and many more like them, will become more important over time as they catch up in development and help bring forth the lagging regions and generate more global integration.

 

1

Figure 5: Drug Users from Myanmar Collect Doses of Methadone from a Clinic in Ruili, Yunnan Province, China Source: Photo by Jiang Dong, China Daily, July 10, 2014, p. 7.

Relative to the much larger and more diversified cities like Shanghai and Chongqing, cities such as Yiwu and Ruili face the more difficult choice of how to sustain their growth and play their respective regional or global roles. The narrowly specialised economy makes Yiwu vulnerable to the price volatility in the global economy. Yet diversification beyond Yiwu’s distinctive and entrenched strength is unlikely. The border location may lock Ruili into a developmental path built on border trade unless the city can maximise its gateway position to create wider economic ties with Southeast Asia. These uncertain and contingent conditions will continue to challenge the outside world to better understand these cities.

This article was first published here and is reposted with permission of the author.

References

*I express my gratitude to Yu Xue in Shanghai for her assistance in gathering the most up-to-date data in Figures 1 and 2. This article also draws from some of my collaborative work with former and current students at Trinity College, and research partners in the United States and Shanghai.

1. This figure was adapted from Figure 4 in Xiangming Chen, 2007. “A Tale of Two Regions in China: Rapid Economic Development and Slow Industrial Upgrading in the Pearl River and the Yangtze River Deltas.” International Journal of Comparative Sociology 48 (2-3): 167-201.

2. Ren, Yuan, Jiaming Sun and Jing Gan. 2015. “Shanghai: The Rise and Future of China’s Premier Global City,” Chapter in Research Handbook on Asian Cities, edited by Xiangming Chen, Sarah Moser and Ratoola Kundu (Edward Elgar Publishing, forthcoming).

3. Chen, Xiangming. 2014. “Steering, Speeding, Scaling: China’s Model of Urban Growth and Its Implications for Cities of the Global South.” Pp. 155-172 in The Routledge Handbook on Cities of the Global South, edited by Susan Parnell and Sophie Oldfield. London and New York: Routledge.

4. Chen, Xiangming and Julia Mardeusz. 2015. “China and Europe: Reconnecting Across a New Silk Road,” The European Financial Review (February-March): 5-12.

5. Figure 11.1 in Xiangming Chen, Anthony Orum and Krista Paulsen. 2012.Introduction to Cities: How Place and Space Shape Human Experience. Oxford: Wiley-Blackwell.

6. Burchill, Billy. 2015. “The Diverse Effects of Globalization: Yiwu, China and Hartford, CT.” A senior thesis for the Urban Studies Program, Trinity College, Hartford, Connecticut.

7. Same as Note 6 above.

8. See Chen, Xiangming and Curtis Stone. 2013. “China and Southeast Asia: Unbalanced Development in the Greater Mekong Subregion.” The European Financial Review (August): 7-11.

9. Chen, Xiangming and Curtis Stone, “Relocating the City in Transborder Spaces: Relative Urbanity, Catch-up Development, and Contested Governance in the China-Southeast Asia Borderland.” Chapter under preparation for The SAGE Handbook of Urban Sociology: New Approaches to the Twenty-first Century City, edited by Ricky Burdett and Suzanne Hall (Sage Publishers, forthcoming).

10. Shan Juan. 2014. “Clinic on frontier of AIDS care,” China Daily, July 10, p. 7; extracted from http://usa.chinadaily.com.cn/epaper/2014-07/10/content_17709424.htm.

Leave a Comment

Filed under China, Economic development, Regional Relations, SLIDER, Yunnan Province

China & Europe: Reconnecting Across a New Silk Road

chen 1

Since 2013, economic and trade relations between China and Europe have grown significantly. In this article, the authors look beyond conventional economic indicators, like trade, and political issues, like human rights, instead focusing on transport infrastructure, real estate and tourism to show that a new page is unfolding in the history of China-Europe relations.

China and Europe have been closely linked since the Opium Wars, but the relative economic positions and power have reversed. Nothing illustrates this more symbolically than a stroll along the Bund in Shanghai: the low rise and old European-style buildings on the West side of the Huangpu River are dwarfed and eclipsed by the sparkling skyscrapers in Pudong on the east bank. The built environment of Shanghai, with its historic European-style buildings and modern China-built skyscrapers, is a physical manifestation of the reconfigured dynamic between China and Europe.

Since 2013, China’s connections with Europe have expanded since developing its official policy of building a westward economic corridor — a new Silk Road — along its ancient route. Most recently, in December 2014, China agreed with Hungary, Serbia, and Macedonia to build a rail link between Budapest and Belgrade, which will be financed by Chinese companies and completed by 2017. This rail line will then be connected to the Macedonian capital of Skopje and the Greek port city of Piraeus where COSCO, the Chinese shipping giant, operates two piers for container units. While the linked land-sea project will strengthen cross-border transport between Central and Southeastern Europe by reducing train travel times between Budapest and Belgrade from eight to three hours, it really is designed to enlarge and accelerate the movement of goods between China and Europe.

Having grown fivefold since 2003, trade between China and Europe reached $559 billion in 2013, solidifying the EU as China’s largest trading partner for the past 10 years. While the EU has invested more in China than the latter’s direct investment in the former, a US consulting company expects the EU to attract $250-500 billion more Chinese direct investment by 2020.1 A scenario likely to occur in the next few years is that China will invest more in Europe, instead of vice versa. This will be another telling sign that fortune and power are shifting in China’s favour.

These developments are not isolated and random. They represent a new structure of interactions between the older European economies and a rising Chinese power. We can understand this structure well by examining its conventional macroeconomic dimensions of bilateral trade and investment. In this essay, however, we make better sense of the new China-Europe relationship through a set of less used lenses: transport infrastructure, real estate, and tourism. They offer new insights into areas where China exerts a large and heavy footprint in Europe, via official channels and from the ground up.

 

Transport Infrastructure and Connectivity

In thinking about China and Europe today, transport infrastructure does not usually come to mind due to the long distance between them and Europe’s own well connected transport networks. Having built the world’s longest highway, railway, and more bridges and buildings than any other country over the past two decades, China has been constructing an extensive transport and municipal infrastructure within its Asian neighbours and far-flung African cities.2 More recently, China has also turned to Europe in strengthening their long-distance transport connections, aiming to improve the overland movement of traded goods. Less expected is China’s new foray into the domestic infrastructure sector of a few European countries. Both moves make infrastructure a major avenue for China to forge direct physical connections to Europe.

The most important connection thus far is the Trans-Eurasia railroad from the city of Chongqing in southwestern China to Duisburg, Germany. Launched into operation in 2011 by a joint venture with Germany, China, Kazakhstan, and Russia, the 11,179-kilometre rail line snakes through six countries including Belarus and Poland (see Figure 1). China is the largest beneficiary of this freight-focused rail network, having already shipped $2.5 billion worth of goods on this route to Europe since 2011. As labour and land costs in coastal cities like Shanghai and Shenzhen have gone up, the Chinese government has been pushing and inducing foreign investors and domestic producers to move inland through its “Go West” policy. Interior megacities like Chongqing and Chengdu have been booming as major destinations for large new manufacturing projects. Having set up what would be Asia’s largest laptop factory in Chongqing, US computer giant Hewlett Packard has already shipped more than four million notebook computers to Europe by the Chongqing-Duisburg rail since 2011.

chen 2 chian-map

 

 

As manufacturing becomes more concentrated in Chongqing and Chengdu, it will reap more savings from reduced transport costs. About 60% of the material inputs for laptops and 30% of the finished laptops depend on rail transport. Bringing them in and out by sea is very expensive and time-consuming. It requires a long train ride to Shanghai or Hong Kong from where container units are shipped to Europe. In the other direction, growing demands in interior China for European foods and cars can also benefit from a greater use of the Chongqing-Duisburg rail connection. It typically takes 2-3 months for a customer in Chengdu to receive the delivery of a European car by sea as it has to come through the port city of Tianjin. This wait can be reduced to 25 days if the car is transported by train from Europe to Chengdu.3

While this overland rail route can yield major economic benefits for China and Europe, its greater potential won’t be realised without policies for overcoming existing barriers. The Chinese government has recently approved the status of an international land port for Chengdu and Chongqing. This allows the direct and full import of European meats and cars to fill the train cars going back to China that would otherwise only be partially filled after carrying full loads of exported electronic products to the European markets. A fully loaded train has recently brought car parts from Germany to a Ford plant in Chongqing using the Trans-Eurasia railroad.

Another obstacle is that Chinese and European railways use different gauges than Russia and its former satellite states. So far the Chongqing to Duisburg route has met this standardisation challenge by transferring to cars with new gauges at relevant border crossings to meet varied national track requirements. It will need to adapt to other differences in technologies, signalling systems, and gauges that add costs to coordination across several countries.4 However, the existing and potential benefits for China and the other countries along this rail route will motivate them to co-operate in overcoming the remaining hurdles. So far it is China that has been moving at full speed. It has already sent a total of 239 (100 during the first seven months of 2014) trains carrying container units to Europe, including a train from the city of Zhengzhou in the central province of Henan bound for Hamburg.5

As China’s rail transport connections to Europe multiply, China has also launched an infrastructure build-up within Europe with an initial focus on the geographically closer and economically weaker Central and Eastern Europe. In December 2014, China and Serbia inaugurated the first ever bridge in Europe across the Danube River financed and built by China. Named after Mihajlo Pupin, a renowned Serbian scientist, the 1,500-metre bridge connects the southern industrial district of Zemun with the northern residential area of Borca in Belgrade, cutting the travel time across the Danube from more than one hour to just 10 minutes. China has also landed the contracts for the Stanari Thermal Power Plant in Bosnia (up to $1.7 billion) and the Bar-Boljare motorway in Montenegro with a link to Serbia ($984 million).6 Infrastructure projects of this scale have been very rare in these countries for more than 20 years, given the bad economic conditions in Croatia, Serbia, and Bosnia-Herzegovina, with nearly 1.5 million unemployed, due to the post-Yugoslavian political instability, ethnic conflicts, and natural disasters like flooding. China’s major efforts to finance and upgrade the outdated transport and municipal infrastructure in these countries opens up a new era of China’s local presence and influence in Europe.

 

Going After European Property

As China is making inroads into Europe’s infrastructure sector, the real estate sector cannot be far behind as an investment target. Southern European countries like Italy and Portugal, which have been adversely affected by the financial crisis, are seen as especially good opportunities for Chinese investors, as the property prices there are lower than in other European countries, like the United Kingdom and France, that have managed to weather the crisis better. Homes in southern Europe are also attractive compared with those of China as 300,000 euros buys a 200 square metre villa facing the sea. That amount only buys an apartment of 68 square metres in central Shanghai7 where property prices have been artificially inflated due to years of speculative supply and persistently strong demand.

Besides their low property prices, countries such as Cyprus, Portugal, and Greece are offering resident permits to property buyers who are not already residents of the European Union. This appeals to Chinese investors who have the capital to buy the properties but not the residency or citizenship benefits to use them within Europe. In exchange for a minimum amount of investment in property in a European country (amounts vary depending on the country, but the starting price is generally upwards of 250,000 euros), the investor may be granted a visa that allows him or her to live and travel within the Schengen Area, which consists of 26 European countries. A recent trend among Chinese investors is to buy a property in Southern Europe and then secure permanent residency there once their visas have been approved. A reporter from Bloomberg observed that “most (Chinese investors) are getting homes for personal use or to send their children to schools there.”8 By July 2014, Chinese citizens had received 282 of the 1,880 “golden visas” or permanent residencies granted by the Spanish government to those who bought local property.9 Since October 2013, the Portuguese immigration office has approved 1,681 property purchase applications, 1,429 of them from China, about 85% of the total.10

Besides property value and permanent residency, the measure of the Chinese yuan (RMB) against the euro is another important consideration, and one that has contributed to the rise of Chinese investment in European property. The euro depreciated approximately 17% against the yuan from 2010 to July 2014. Chinese investors bought 3.05 billion euros’ worth of European property in 2013, an increase from the 978 million euros spent in 2012. The Financial Times found that Chinese direct investment in Europe tripled in just two years (2010-2012), from 9 billion euros to 27 billion euros.11

 

chen 3 comp-pic-copy

The large volume of this investment in European property reflects a major shift in China’s overall outbound investment, from securing natural resources in developing countries to acquiring brands, technology, and other assets in developed countries. A major Chinese real estate developer has recently committed $1.6 billion to convert the derelict Royal Albert Dock in London into a global trading hub. Intended to attract Chinese companies as tenants, this project is planned for 4.5 million square feet of office space to be developed in phases through 2020. London’s Mayor Boris Johnson has strongly endorsed this project for its prospect of generating about $10 billion for the national and local economies. He has lauded the project’s potential ability to turn what was once one of “the throbbing arteries of UK trade and commerce” into “a world-class international business district.”12

In June 2014, Wang Jianlin, one of China’s largest real estate investors and richest men, bought the 25-story Edificio España in Madrid, a landmark Franco-era building that was also Spain’s tallest, for 265 million euros or $340 million. Sitting empty since the Spanish real estate market’s collapse in 2008, the building will be renovated to include luxury apartments and a hotel as part of a larger-scale neighbourhood regeneration.13

The scope of Chinese investment in European property represents a powerful combination of China’s surplus corporate and private capital that can affect the urban landscape in European cities. Its long-term impact, however, will depend on the pace and volume of its outflow from China, and its geographical concentration and spread within Europe.

 

Big-Spending Chinese Tourists

As a relatively small but growing number of wealthy Chinese investors put their money into European real estate, a much larger number of middle and upper middle class tourists from China are coming to Europe to buy a lot of luxury goods. China’s rapid economic growth has created a huge number of middle and upper middle class consumers with insatiable desire and startling purchasing power. In 2013, Chinese citizens made approximately 100 million overseas trips and spent over $100 billion on their trips, mostly on luxury goods, overtaking the United States and Germany as the world’s number one tourist spending nation. Today nearly one-third of the world’s personal luxury goods are bought by Chinese consumers.

In 2014, Europe accounted for 3.5% of overseas travel destinations for Chinese citizens; this was the second most popular regional destination after Asia, which accounted for 70.4% of overseas tourism. Visa applications to enter the Schengen Area from China accounted for approximately 1.5 million of the total applications in 2013, ranking China third overall, behind Russia and Ukraine.14 In its 2014 report, hotels.com observed that “European destinations are the most popular amongst Chinese travellers in terms of places they wish to visit in the next 12 months.” By surveying the number of rooms and the length of stay in hotels booked through its website, hotels.com placed France, the United Kingdom, and Italy in the top ten destinations for Chinese travellers in 2013 as all three countries experienced growth in the amount of tourism from China.15The German National Tourist Board recently showed Germany, France, Italy, and Switzerland as the top four European destinations for Chinese tourists.

While many Chinese tourists in Europe are interested in seeing sites of historical interest and established landmarks like the Eiffel Tower and Venice’s Grand Canal, they are there for a much more passionate interest: shopping, especially for brand-name and luxury goods. Paris is the most popular destination for this shopping spree. It is where Chinese tourists head to the Louis Vuitton shops in much larger numbers than to the Louvre. As early as 2009, Chinese tourists overtook Russians as the highest spending visitors to France. Wealthy Chinese tourists also head south to the wine country of Bordeaux where they snap up expensive wine, paying as much as $800 for a bottle.16 They bring the wine back to China where it can be displayed and then drunk as a prized possession; red wine has become increasingly popular at dinner parties, replacing beer and traditional Chinese liquor.

McKinsey’s survey of Chinese luxury consumers in 2012 found that “Europe is growing in appeal among Chinese luxury consumers, with about one-fifth of them reporting this year that their most recent overseas purchases occurred in a European city. That is more than double the European share two years ago.”17 A study by the European Travel Commission estimated that Chinese tourists reserve more than a third of their trip budgets for shopping. To be able to do so, they compromise on eating and sleeping. A survey in 2006 found that Chinese travellers in Europe had eaten “European food” only once, and 10% not at all. Many in tour groups arranged by Chinese travel agencies would stay in cheaper hotels and eat instant noodles, even though they could afford luxurious hotels and lavish meals.18 The average Chinese tourist spends around $5,000 during a European trip, more than any other country. This is not surprising when one often sees groups of Chinese tourists getting dropped off at expensive stores and coming out with their suitcases full of brand name clothes, handbags, and cosmetics.

There are several reasons for Chinese tourists to buy luxury goods heavily in Europe. Besides the obvious factor of their rising affluence, Chinese tourists pay less for luxury consumption in Europe than in China. Taxes on certain items and tariffs on imported goods increase the price of luxury goods produced elsewhere and sold in China. According to The Economist, taxes and tariffs can increase prices in China to 50% more than a shopper would pay elsewhere. For example, a Louis Vuitton handbag costs 30% more in Beijing than in Paris.19 The purchase of luxury goods while travelling in Europe connotes the high income and status of the consumer. A study published by the University of Pennsylvania’s Wharton Business School found that “travelling has become part of the luxury lifestyle in China and is considered a status symbol: there is greater cachet in being able to say you purchased your bag at the place of origin in Paris rather than a branch in Tianjin.”20 Chinese consumers also perceive a higher quality and a greater variety of luxury goods if bought in the places of origin. In addition, while the appreciation of the Chinese yuan against the euro has helped, Chinese tourists have benefited from a greater ease in getting European visas.

European countries have made getting visas easier for Chinese tourists. Recent initiatives include changes in the visa process for tourists wishing to visit the Schengen area. Visa applications can be submitted up to six months in advance instead of three, allowing people to plan their trips earlier, and travel medical insurance is no longer required. The time it takes to process applications from China has been reduced. When Chinese Premier Li Keqiang visited Germany in October 2014, the two sides agreed to reduce the visa application process from between three and five working days to 48 hours for Chinese tourists. The French embassy in China also shortened its visa processing time for Chinese visitors to 48 hours and simplified the application documents. Italy has already cut its visa approval for Chinese tourists to 36 hours. The United Kingdom has recently introduced the 24-hour Super Priority Visa service in Beijing, Shanghai, and Guangzhou. With 12 visa application centres across China now, the United Kingdom issued more than 320,000 visas to Chinese tourists during January-August 2014, the highest number ever.21 This competitive rush of European countries to simplify and speed up visa applications for high spending Chinese tourists will help boost their sluggish economies.

 

Money and More

The sum of Chinese investment and spending in Europe’s infrastructure, real estate, and tourism sectors amounts to a huge influx of money that reflects the changed economic positions of China and Europe and their long-distance connections. Many may see this as the relative decline of Europe and the continuing rise of China that implies a reversal of power and fortune. But there is both change and continuity to the new China-Europe relationship that makes it more complex than a one-way flow of surplus Chinese money. In 2013, the EU invested $6.5 billion in China, up 21.9% from 2012, which doubled China’s $3.6 billion in the other direction, an increase of only 6.2%. While this sustains the earlier pattern of bilateral investment, individual European countries have taken more differentiated economic approaches in dealing with China. Through the agreement between the Bank of England and the People’s Bank of China to clear and settle Chinese currency in London, the British government has gone ahead of most other European countries in making London the leading hub for trade with China. By the end of 2013, China’s cumulative investment in the United Kingdom reached $32 billion, far exceeding the $18 billion the other way around.22 Not to be left behind, Switzerland’s central bank joined its Chinese counterpart in January 2015, making Zurich Europe’s newest hub for trading the Chinese currency (RMB). As the China-Europe economic relationship becomes stronger, it has become more varied and specific to individual countries.

chen 4
The uneven penetration of China’s economic influence has begun to generate a sort of cultural backlash, which is illustrated by a recent cartoon that made the cover of Fluide Glacial, a French monthly comic book (see Figure 2). Despite an underlying negative headline of “Yellow Peril: What if it is too late?” the restaurant window shows a harmless sign: “Chinese spoken here.” But the joke is a man bearing the words “I am hungry” sitting at the door of a restaurant that advertises steamed Chinese dumplings with a French twist: the addition of béarnaise sauce. Adding to the insult is a Frenchman pulling a rickshaw that carries a Chinese man in traditional high-class clothing with a blonde European woman. The humour aside, this cartoon reveals an unfavourable view of China, or at least its economic wealth in Paris and in Europe. It immediately drew a harsh response from The Global Times, a Chinese daily with close links to the government, saying that the French magazine possibly attempted to gain attention by following Charlie Hebdo whose Paris offices were savagely attacked by Islamist gunmen on January 7, 2015.

This media episode matters little to the massive scope of China-Europe interactions. When we look beyond conventional economic indicators like trade and political issues like human rights as in this article, we see a new page unfolding in the history of China-Europe relations. While it features continued bilateral official policies that have led to new infrastructure deals, bottom-up activities in real estate investment and tourism have become more prominent. With the Trans-Eurasia railroad already in operation and millions of Chinese tourists moving around Europe, China’s ancient dream of connecting to Europe via Central Asia along the old Silk Road has come true. Yet the new Silk Road envisioned by China for the 21st century is just beginning to take shape. Its full opportunities for both China and Europe are yet to come.

This article was written by Xiangming Chen and Julia Mardeusz and originally published here in the European Financial Review on February 10, 2015.

About the Authors


Xiangming Chen
is the Dean and Director of the Center for Urban and Global Studies and Paul E. Raether Distinguished Professor of Global Urban Studies and Sociology at Trinity College, Connecticut, and a distinguished guest professor at Fudan University, Shanghai. He has published extensively on urbanisation and globalisation with a focus on China and Asia. His many books include Shanghai Rising: State Power and Local Transformations in a Global Megacity (University of Minnesota Press, 2009; Chinese Edition, 2009).

Julia Mardeusz is currently a junior at Trinity College, Connecticut, majoring in Public Policy and Law. Her interests include American public policy and European politics and policy. She has been a student researcher at the Center for Urban and Global Studies at Trinity College since 2013 and studied in Paris during fall 2014.

 

References

1. Reported by The People’s Daily, June 23, 2014, p. 4.

2. See Xiangming Chen and Curtis Stone, “China and Southeast Asia: Unbalanced Development in the Greater Mekong Subregion”, The European Financial Review (August 2013). pp. 7-11; Xiangming Chen and Garth Myers, “China and Africa: The Crucial Urban Connection”, The European Financial Review (December 2013). pp. 89-93.

3. “European meats are transported directly to Chengdu”, The People’s Daily, April 26, 2014, p. 6.

4. “’Silk Road’ railways link Europe and Asia”, The Gateway, CNN News, June 27, 2013; accessed from http://edition.cnn.com/2013/06/27/business/silk-railroad-trading-network/.

5. “The 100th China-Europe train this year has departed”, The People’s Daily, August 2, 2014, p. 1.

6. “Li forges new link in Serbian relations”, The China Daily, December 19, 2014, p. 1.

7. Henrique Almeida, “Needy EU nations woo Chinese home buyers to ease slump,” Bloomberg News; accessed from http://www.bloomberg.com/news/2013-08-21/needy-eu-nations-woo-chinese-home-buyers-to-ease-slump.html.

8. See note 7.

9. “Sale of a landmark skyscraper puts Spain on the map of Chinese investors”, The New York Times, September 23, 2014, p. B3.

10. Fu Yao, “A place in the sun”, NewsChina, February 2015, pp. 34-37.

11. Jamil Anderlini, “Chinese investors surged into the EU at height of debt crisis,” The Financial Times, October 6, 2014; access from http://www.ft.com/intl/cms/s/2/53b7a268-44a6-11e4-ab0c-00144feabdc0.html#axzz3NduHcZzt.

12. “Chinese developer envisions a future for abandoned London docks,” The New York Times, Business Section, February 19, 2014, pp. B1, B6.

13. See note 9.

14. National Tourism Administration of the People’s Republic of China, “European Countries Fight for Chinese Tourists”, accessed from http://en.cnta.gov.cn/html/2014-7/2014-7-3-9-57-70413.html.

15. Hotels.com, “Chinese international travel monitor 2014”, p. 21; accessed from http://press.hotels.com/content/themes/CITM/assets/pdf/CITM_UK_PDF_2014.pdf.

16. “A new grant tour”, The Economist, December 10, 2010, p. 114.

17. Atsmon, Yuval, Diane Ducarme, Max Magni, and Cathy Wu, Luxury Without Borders: China’s vNew Class of Shoppers Take on the World. The McKinsey Chinese Luxury Consumer Survey, McKinsey Insight China, December 2012; accessed from https://solutions.mckinsey.com/insightschina/.

18. See note 14.

19. “China’s addiction to luxury goods”, The Economist, April 29, 2014; accessed from http://www.economist.com/blogs/economist-explains/2014/04/economist-explains-17.

20. Knowledge@Wharton Blog, “Louis Vuitton and the traveling Chinese consumer”, Knowledge@Wharton, January 3, 2012; accessed from http://knowledge.wharton.upenn.edu/article/louis-vuitton-and-the-traveling-chinese-consumer/.

21. “European countries compete for Chinese tourists”, The China Daily, Travel Section, December 20-21, 2014, p. 19.22. Reported in The People’s Daily, June 20, 2014, p. 4.

2 Comments

Filed under China, Current Events, Economic development, Foreign policy, SLIDER

A Different Global Power: Understanding China’s Rise in the Developing World

China-s-meat-majors-focus-on-convenience-as-incomes-rise_strict_xxl

By Xiangming Chen and Ivan Su

China is now the largest trading nation in the world with strong ties to Africa, Latin and America and the Middle East. This once impoverished and isolated nation has lifted several hundred millions of its own people out of poverty and is now reshaping the developing world. This article looks at China’s involvement in four developing regions to assess China’s influence as a rising global power.

The China where the first author grew up through college in the early 1980s was the largest and one of the poorest developing countries. The China where the second author left to attend high school in the United States was about to pass Japan to become the world’s second largest economy, in 2010. Over the past three decades, China has lifted over 500 million of its people out of poverty. Globally, China has just surpassed the United States to become the largest trading nation in the world and is expected to soon overtake the latter as the world’s largest economy (in terms of purchasing power parity or PPP). More importantly regarding the focus of this essay, China is now the largest trader and investor in Africa, with its footprints spreading and seeping into all corners of the developing world.

How did the once impoverished and isolated “Third World” country become a powerful force in shaping a new developing world in the 21st century? What are the positive vs. negative consequences of China’s inroads into developing countries by exporting its urbanism to Africa, for example? These questions highlight China’s global impact that matters a great deal to the everyday life of millions of poor people in developing countries. In this essay, following China’s global footprints in four developing regions, we offer a broad comparison of both the different and consistent economic impacts of China within and across these regions.1 Figure 1 shows China’s investment in energy and infrastructure in the four regions, while Figure 2 breaks China’s investment into four specific sectors of one major country in each of the four regions. Guided by these comparative data and focusing on four developing regions, we present a broad picture of China’s widespread but mixed role in developing countries, thus offering a preliminary assessment of whether China’s influence as a rising global power may differ from the traditional or established Western powers in how they approach the developing world.

 

China in Asia: Exerting Neighboring Influences

Back in the last decades of the 20th century, the drivers and role models for development in Asia and beyond were the “Four Tigers”: Hong Kong, Singapore, South Korea, and Taiwan. The onset of the 21st century began to position China toward the epicentre of the Asian economy, with its influence spreading across the continent through more trade, outward investment, and other outgoing initiatives such as cross-border infrastructure development.

In Southeast Asia, China has been trying to integrate with the Greater Mekong Subregion (GMS), which consists of China’s Yunnan Province, Guangxi Autonomous Region, Cambodia, Laos, Myanmar, Thailand and Vietnam. “China’s trade with each of the GMS countries has grown since 1990, most rapidly since 2000.”2 In addition to increasing trade, China exerts strong influence on the GMS through various development projects. In Myanmar, China has reached a $20 billion agreement to construct an 800-kilometre rail link between Myanmar’s Chinese border and its western coast.3 In addition to investing in infrastructure, China is also helping its neighbors to generate energy. Since 2005, China has invested over $87 billion in the energy sector across Asia, and about one quarter of these investments went to Malaysia. In 2010, an $11 billion energy deal signed between China’s State Grid Corporation and Malaysia Development Company included four hydroelectric mega-dams that are capable of generating up to 28,000 megawatts of power, an aluminum-smelting plant, exploitation of coal mines containing 1.5 billion metric tons of coal, and a 40 billion-cubic-feet natural gas development project. “With Malaysia reeling from an exodus of capital over the past two years, the projects have strong support at the state and federal levels. Officials hope the plan will attract foreign investment to the region.”4

China’s investment in Asia is not limited to Southeast Asia, as countries in South and Central Asia have also been affected by China’s direct investment. In 2013, China established a strong foothold in South Asia when it took over the upgrading and operation of Pakistan’s Gwadar Port from Singapore. The Gwadar project serves China’s “Go West” policy while allowing Pakistan to “look east.” China is building a road from Gwadar all the way north to Kashgar, the westernmost large city in Xinjiang. At the same time, Pakistan and China have also planned to connect the port via the Indus Highway, which will provide China with a land-based supply of oil from Central Asia. Given Gwadar’s geographical location, Gwadar cuts China’s distance from the Persian Gulf, from which China gets 60% of its oil, by thousands of kilometres.5

Compared to the other energy projects sponsored by China, the Central Asian vector of China’s energy policy has become more important due to the region’s abundance of oil and natural gas. While China sees Kazakhstan’s energy supply a key to its “Go West” program, Kazakhstan has used Sino-Kazakh cooperation to balance against Russia’s influence in its energy sector. China is also constructing a 1,800-kilometre natural gas pipeline from one of the world’s largest natural gas exporter, Turkmenistan, which benefits from doubling its energy supply to China and circumventing its biggest competitor – Russia. Beijing wins by securing new gas supplies and thus enlarging its already hefty investment in energy projects in Asia (see Figure 1).

 

infograph-1

 

China in Africa: Reaching Maximum Impact

Through increasing trade and investment, China’s growing presence has reshaped the landscape in Africa. While negligible two decades ago, China-Africa trade reached $200 billion in 2013, which makes China Africa’s largest trading partner today. With only limited investment in Africa before the 2000s, China’s cumulative investment in Africa exceeded $150 billion by the beginning of 2014. Of these investments, close to $100 billion has gone into energy and infrastructure projects.6

China’s unprecedented economic growth requires an increasing amount of oil to sustain it. In 2012, close to one-third of China’s total oil imports came from Africa, and China is looking to expand its energy presence in Africa. Nigeria has received the most Chinese direct investment over the past decade. While many Western energy firms are reluctant, China reached a $10 billion hydrocarbon deal with Nigeria at the beginning of 2014 (see Photo 1). In addition to exploiting crude oil and natural gas, China has been involved in constructing an additional refinery in Baro, Nigeria.7 Although critics have attributed China’s heavy footprint in Africa’s energy sector to its energy and resource demand back home, evidence suggests otherwise. China Africa Sunlight Energy Ltd. recently invested $2.1 billion in developing a 2,100-megawatt plant to help ease electricity shortages in Zimbabwe, which is only capable of generating 1,320 megawatts against a demand of 2,200 megawatts of electricity. “China Africa Sunlight Energy is looking at the possibility of pumping gas to the port city of Beira in neighbouring Mozambique, using an idle pipeline that the National Oil Co. of Zimbabwe once used to bring fuel into the country.”8 This power plant is expected to produce 300 megawatts by mid-2015, and the number is looking to double by the end of the year. While much of the media attention has focused on China’s investment in Africa’s energy sector, China is reshaping Africa’s landscape through large-scale infrastructure development.

photo1

Photo 1: Drilling Oil in Nigeria

Since 2005, China has invested more in Africa’s infrastructure than in any other part of the developing world. More than $44 billion has been spent to build roads, airports, and housing that are essential to the continent’s economic development. In Angola, China is helping the country’s reconstruction effort after the devastating civil war. One of China’s major investments in Angola is the rebuilding of the Benguela Railway, “an 840-mile transcontinental railway that links the Atlantic port of Lobito in Angola with rail networks in the Democratic Republic of Congo and Zambia. The project is expected to cost $300 million, and it will provide a much-needed cheap outlet for Congolese and Zambia copper, tin and coltan.”9 In Nigeria, China is helping to build Africa’s largest free trade zone in its commercial capital, Lagos. “A total of 16,500 hectares of land bordered by the Atlantic Ocean and the Lagos and Lekki lagoons has been earmarked for the whole free zone, which will include a deep-water sea port and a new international airport in close proximity.”10 The Lekki Free Trade Zone is aiming to cut down the country’s reliance on imports, and it will cost $5 billion to complete the first phrase of the project, which will cover 3,000 hectares of land. The construction will also include roads, power plants, and water plants. This evidence reinforces China’s substantial investment in building Africa’s infrastructure relative to the energy sector in comparison with the other developing regions (see Figure 2)

 

infograph-2_1

However, concerns arise on whether Africa is too dependent on China as results of “high commodity prices and investment inflows.”11 With China-Africa trade looking to hit $280 billion by 2015, some worry that African economies depend too much on China. Some urge African countries to diversify their economies and decrease their dependence on China. There are also calls for China to focus more on human rights and community engagement. As such a dominant investor in some African countries including those with an authoritarian government like Zimbabwe, China struggles to balance between the return on its huge investment, helping local development and living up to international norms of engagement.

 

China in Latin America: Extending the Reach

Ever since the 1960s, China has been providing limited development assistance to a small number of Latin American countries such as Chile. Fast-forward to the 21st century, China has considerably expanded its economic ties with Latin America through greater trade and more diverse investment.

“Trade between China and Latin American countries has grown exponentially over the past decade. Although Sino-Latin American trade continues to remain a relatively small share of their respective global trade, growth has exceeded many expectations. From 2000 to 2009, annual trade between China and Latin American countries grew more than 1,200%, from $10 billion to $130 billion, according to the United Nations statistics.”12 In 2012, Latin America accounted for 13% of China’s total outbound investment – about $11.4 billion, a significant increase from the $120 million of 2004.

Like in Asia and Africa, China has favored the energy sector in Latin America (see Figure 1), targeting Venezuela for its oil and Brazil for its hydropower. Of China’s $100 billion investment in Latin America since 2005, more than half has been energy and infrastructure related. In 2010, China’s State Grid announced a $1 billion buyout of seven Brazilian power transmission companies. Two years later, in 2012, China’s State Grid was chosen by the Brazilian government to build a $440 million power-transmission project. And at the end of 2013, China’s State Grid led a group to win the rights building a $21 billion hydropower plant in Brazil. Set to become the world’s third-largest hydropower plant and take around 46 months to complete, it will also create a 2,092 km hydropower transmission line and two energy converter stations that will be able to take energy from the State of Pará, along the Xingu River in the Amazon Basin, to Brazil’s Southeast region, with a planned capacity of 11,233 megawatts. Brazil’s economic acceleration in the past decade led to a surge in the country’s energy demand. Given Brazil’s geographical endowment, as much as 80% of its total energy comes from hydropower generation.13 With power generation operating close to the limit, Brazil is urgently constructing more power plants using the Amazon’s abundant hydro resources and transmitting it to its Southeast region, especially Rio de Janeiro where much more energy is needed in light of the upcoming World Cup and Summer Olympics in 2016. To do so, Brazil has turned to China for its expertise and experience in building long-distance power transmission towers or the so-called electricity pylons (see Photo 2).

 

Photo 2: High on an Electricity Pylon in Eastern China  Source: China Daily/Reuters

Photo 2: High on an Electricity Pylon in Eastern China Source: China Daily/Reuters

Besides its growing economic presence in Latin America, China has made some cultural inroads as well. Since 2012, China has opened 32 new Confucius Institutes all over Latin America, a Chinese foreign ministry deputy announced. Hotels in the region have begun to prepare for the increasing number of Chinese tourists by making the menus available in Mandarin.14 This confirms the larger trend of more Chinese tourists going to developing countries beyond Asia and advanced economies in North America and Western Europe, making China the world’s number one tourist-sending nation in 2013 with approximately 100 million overseas trips.

 

China in the Middle East: Reviving the Silk Road

Tracing what China is doing in the conventionally defined developing world has taken us to Asia, Africa and Latin America. Yet given China’s huge demand for external energy, we are not surprised at all to see China’s growing presence in the Middle East, whose energy sector ranks second behind Asia in absorbing Chinese investment (see Figure 1).

Despite China’s massive efforts to secure energy from Asia and Africa, as well as from Venezuela in Latin America, its dependency on Middle Eastern oil has risen over time. The Middle East is currently the largest exporter of crude oil to China. The share of oil imported by China from the Middle East was 48% in 1990, 49% in 2005, and 51% in 2011. It is expected that China’s crude oil imports from the Middle East will reach 70% by 2020 and continue to grow until 2035, according to the International Energy Agency. Saudi Arabia is China’s largest energy supplier with about one million barrels per day, accounting for 20% of China’s crude oil imports. Iran, another big oil supplier, contributes about 10% to China’s overall oil imports as well (see Figure 2). China has maintained a friendly relationship with both Saudi Arabia and Iran. A number of top Chinese leaders including Hu Jintao and the current president Xi Jinping have visited Saudi Arabia. And China has been dragging its feet on the UN sanctions against Iran.15 These diplomatic postures toward the Middle East conform to China’s pragmatic economic policies and interests in other energy- and commodity-rich regions such as Africa and Latin America.

But China’s interest in the Middle East does not stop with oil. “As with other regions, China has rapidly expanded its economic ties with the Middle East through trade. From 2005 to 2009, China’s total trade volume with the Middle East rose 87%, to $100 billion and reached approximately $222 billion in 2012, according to China’s official statistics. This surge pushed China to surpass the United States as the top destination for the Middle East’s exports in 2010. China’s exports to the Middle East are primarily low-cost household goods that benefit the average Middle East consumer. An example is growing numbers of Egyptians being able to afford inexpensive Chinese cars. Also, residents in the Gaza Strip suffering from the Israeli blockade depend on cheap Chinese goods in their daily lives.”16

As many African countries have done, some Middle Eastern governments have brought Chinese contractors in to work on major infrastructure projects. Egypt has also partnered with China to develop its Suez special economic zone, a development strategy that China had used itself and promoted in Africa and the least developed parts of Southeast Asia like Laos. While China has diversified its investment in the Middle East, it is much more concentrated in the energy sector than in infrastructure (Figure 1). This further establishes China’s significant dependency on the Middle East for energy resources, namely oil. However, once we factor in the non-oil related Chinese economic activities, China’s footprint in the Middle East becomes somewhat similar to the large scope of China’s economic influence in the other three developing regions, especially in several major countries where China has moved beyond energy into infrastructure and commodities (see Figures 1 and 2). In this sense, the Middle East still marks the old destination for China’s new effort to revive the ancient Silk Road through Central Asia.

 

China’s Ambitious and Uncertain Role

Judging by a sampling of evidence across the four developing regions, we characterize China’s role as very ambitious and yet uncertain. The ambitious aspect is increasingly fueled by China’s abundant surplus capital in both private and public hands that may have a stronger effect on the urban landscape and transport infrastructure of developing countries than on its quest for the latter’s energy and commodities.

On the bank of the Mekong River in Cambodia’s capital city Phnom Penh, the $700 million Diamond Island Riviera, a joint venture mixed-used development project involving a Chinese company, includes three 33-story condominium towers, a shopping mall, a hospital, an international school and two pedestrian shopping streets with signs in Mandarin. Before its scheduled completion in 2017, Chinese buyers, especially Shanghainese, are already buying the condos in cash as investment properties.17

It is again in Africa where the transport infrastructure is the poorest in the developing world that China is scaling up its investment most aggressively. On his recent four-country tour of Africa, Chinese Premier Li Keqiang committed to set aside $2 billion for an African Development Fund and promised his support for a high-speed rail network connecting African capitals. As a start, China Railway Construction Corporation made a $13.1 billion deal to build an 860-mile high-speed railway in Nigeria that would employ more than 4,000 workers during construction, and 5,000 more afterward.18 Claiming no-strings-attached, China’s ambitious effort can deviate from the precedent of Western colonial powers who had built highly limited transport infrastructure for shipping out their craved commodities from Africa. Yes it is uncertain that the Chinese will succeed where the earlier powers largely failed.

As further evidence on its ambition to build the developing world’s urban and transport infrastructure, China is funding and building Nicaragua’s lifelong dream in having its own canal since the 19th century, when it rivaled Panama for control of the waterway. In August 2013, President Daniel Ortega announced that a $40 billion contract had been signed with a Hong Kong-based Chinese company that would design a route and start construction in December 2014 and manage the canal for 50 years. Estimated to cost as much as $60 billion, an infrastructure project of this massive scale is very uncertain in terms of returning investment to China. Yet China might not be looking for a quick return on investment, but to control a trade route independent from U.S.-managed Panama.19

The uncertain aspect of China’s strong role has also run into trouble in the Middle East. Despite China’s political advantage in taking a somewhat neutral position regarding Iran under West-imposed sanctions in order to continue buying its oil, Iran’s Ministry of Oil has recently removed China from the project to develop the South Azadegan oilfield because of long delays. This puts China’s non-political or no-strings-attached approach to dealing with developing countries, especially those with an authoritarian domestic system and a precarious international status, to test or at risk.

While ambitious and already far-reaching and powerful, China’s role in reshaping the developing world will only grow and remain uncertain over time. It highlights the ongoing debate about whether China merely exploits commodity and energy resources in developing countries as the old West or truly promotes national and local development through its overseas infrastructure construction and other positive means as a new global power. This debate will not be settled for a long time as we continue to scrutinize China’s powerful role in shaping the developing world during the 21st century.

 

About the Authors

Xiangming Chen is the founding Dean and Director of the Center for Urban and Global Studies and Paul E. Raether Distinguished Professor of Global Urban Studies and Sociology at Trinity College, Connecticut, and a distinguished guest professor at Fudan University, Shanghai. He has published extensively on urbanization and globalization with a focus on China and Asia. His several books include Shanghai Rising: State Power and Local Transformations in a Global Megacity (University of Minnesota Press, 2009; Chinese Edition, 2009).

Ivan Su is currently a third-year student at Trinity College, Connecticut, majoring in Public Policy and Law and Urban Studies. His interests are situated at the intersection of city planning, city economic development, and legal studies. He speaks fluent Mandarin and Cantonese, and  carried out a field research project in the southern Chinese city of Guangzhou in summer 2014. He has been a student researcher at the Center for Urban and Global Studies at Trinity College since 2012.

References

  1. For this culminating article, we have drawn heavily from the series of articles on China and the developing world that has appeared in this magazine since the February 2013 issue. See Kayla Chen and Xiangming Chen, “China and Latin America: Connected and Competing”,The European Financial Review(February 2013): 56-58; Fakhmiddin Fazilov and Xiangming Chen, “China and Central Asia: A Significant New Energy Nexus”, The European Financial Review (April 2013): 38-43; Xiangming Chen and Curtis Stone, “China and Southeast Asia: Unbalanced Development in the Greater Mekong Subregion”, The European Financial Review (August 2013): 7-11; Xiangming Chen and Garth Myers, “China and Africa: The Crucial Urban Connection”, The European Financial Review(December 2013): 89-93; Abbᾱs Varij Kᾱzemi and Xiangming Chen, “China and the Middle East: More Than Oil”, The European Financial Review(February 2014): 40-44; and Xiangming Chen, Pallavi Banerjee, Gaurav Toor, and Ned Downie, “China and South Asia: Contention and Cooperation Between Giant Neighbours”, The European Financial Review(April 2014): 10-16.
  2. Xiangming Chen and Curtis Stone, ‘China and Southeast Asia: Unbalanced Development in the Greater Mekong Subregion’,The European Financial Review(August 2013): 7-11.
  3. Ibid.
  4. ‘Malaysia and China agree to $11 billion deal to build mines, dams in Borneo’; accessed from http://news.mongabay.com/2010/0112-sarawak.html.
  5. Xiangming Chen, Pallavi Banerjee, Gaurav Toor and Ned Downie, ‘China and South Asia: Contention and Cooperation Between Giant Neighbours’,The European Financial Review(April 2014): 10-16.
  6. Xiangming Chen and Garth Myers, ‘China and Africa: The Crucial Urban Connection’,The European Financial Review(December 2013): 89-93.
  7. John C.K. Daly, ‘China’s bold $10 Billion investment in Nigerian hydrocarbons’; accessed from http://thediplomat.com/2014/01/chinas-bold-10-billion-investment-in-nigerian-hydrocarbons.
  8. Godfrey Marawanyika, ‘China Africa Sunlight to invest $2.1 Billion in Zimbabwe Power’; accessed from http://www.bloomberg.com/news/2013-09-03/china-africa-sunlight-to-invest-2-1-billion-in-zimbabwe-power.html.
  9. Michail Vafeiadis, ‘China buying out Africa: Top five destinations of Chinese money’; accessed from http://www.csmonitor.com/World/2012/0301/China-buying-out-Africa-Top-5-destinations-of-Chinese-money.
  10. ‘Nigeria embarks on vast free trade zone with China’; accessed from http://www.reuters.com/article/2010/09/01/nigeria-china-idUSLDE67U24K20100901.
  11. Accessed from http://www.ibtimes.com/imf-worries-chinese-slowdown-could-damage-sub-saharan-economies-1576706?ft=3aj78&utm_content=xiangming.chen@trincoll.edu&utm_medium=Apr_27_2014_0401_194973&utm_source=TailoredMail&utm_term=China+Economic+Slowdown+Impacts+Reach+To+Africa&utm_campaign=Apr_27_2014_0401.
  12. Kayla Chen and Xiangming Chen, ‘China and Latin America: Connected and Competing’,The European Financial Review(February 2013): 56-58.
  13. Ze Jin, ‘China’s 21 billion investment in Brazil’s hydropower’; accessed from http://wallstreetcn.com/node/75689.
  14. ‘China’s influence in Latin America is increasing’; accessed from http://www.dw.de/chinas-influence-in-latin-america-is-increasing/a-17156409.
  15. Ibid.
  16. Ibid.
  17. Chris Horton, ‘Giant development in Cambodia hinges on Chinese buyers’,The New York Times,May 6, 2014; accessed from http://www.nytimes.com/2014/05/07/realestate/commercial/giant-development-in-cambodia-hinges-on-chinese-buyers.html?_r=1.
  18. Kathleen Caulderwood, ‘Chinese Premier Li Keqiang vows to help build a railway through Africa ‘with no strings attached’,International Business Times,May 6, 2014; accessed from http://www.ibtimes.com/chinese-premier-li-keqiang-vows-help-build-railway-through-africa-no-strings-attached-al+African+Railway+No+Longer+A+Pipe+Dream&utm_campaign=May_09_2014_0700.
  19. Patricia Rey Mallén, ‘Is the partnership between China and Latin America paying off’?International Business Times, May 8, 2014; accessed from http://www.ibtimes.com/partnership-between-china-latin-america-paying-off?

 

Leave a Comment

Filed under ASEAN, China, Current Events, Economic development, Energy, Foreign policy, GMS, Governance, SLIDER, USA, Yunnan Province

China and South Asia: Contention and Cooperation Between Giant Neighbors

Are China and India allies or enemies in the South Asian economy? Well, it seems they are both; working together in healthy and profitable partnerships while maintaining armies in the contested China-India borders. This article explains the paradoxical nature of the China-India relationship and its impact and implications for the smaller countries in South Asia and neighboring Southeast Asia.

The rise of China and India over the last two or three decades continues to make global news headlines. Competition between these two global powers in economic, political and diplomatic domains has garnered scholarly and media attention. Yet we know much less about China’s growing ties and contention with India that are also spreading across the South Asia subcontinent and beyond. As China-India trade has grown, India in 2006 opened the historical trade route, Nathula Pass, which had remained closed for almost 50 years as a result of a border war with China in 1962. Today in the presence of several persistently disputed border zones in South Asia (see Map 1), China is beginning to build dams on the rivers in the Tibetan Plateau, including the upper Brahmaputra (yarlung tsangpo or Yarlung River), which could impact populations living downstream in India and Bangladesh (see Map 1). China has taken over the construction of Gwadar Port in the Pakistani province of Baluchistan, on the Arabian Sea. China has also begun building the Gwadar road corridor all the way north to Xinjiang. Continue reading

Leave a Comment

Filed under China, Economic development, Energy, Foreign policy, GMS, Mekong River, Myanmar/Burma, Regional Relations, SLIDER, Uncategorized, Yunnan Province

China & Southeast Asia: Unbalanced Development in the Greater Mekong Subregion

By Xiangming Chen and Curtis Stone

Integrating with Southeast Asia is a key component of China’s multi-pronged regionalisation around its borders as its global rise continues. Below, Xiangming Chen and Curtis Stone consider the ambition of China’s ‘Go Southwest’ strategy to extend its economic interests and influence into Southeast Asia, and explore how China’s regional assertion reinforces the larger trend of new spatial configurations in light of increasing globalisation. The authors show how simultaneous globalisation and regionalisation unleashes a dual process of de-bordering and re-bordering where the traditional barrier role of borders is yielding more to that of bridges, as small, marginal, and remote border cities and towns become larger centers of trade and tourism. This article examines China’s effort to engage Southeast Asia and many of China’s footprints within and beyond the cities of the Greater Mekong Subregion (GMS). Inter-country and intra-regional trade provides the starting point for examining the extent of economic integration in the GMS, and also its unbalanced development.

Going Southwest

In a coffee shop in central Vientiane on a hot summer day in 2012, two young Chinese businessmen from northwestern China, sipping ice-cold Latte, talked about the prospect of a new venture to explore copper in the mountains of northern Laos: ‘If we make $100 and they [Laotians] get $5, they should be happy’. On the outskirts of Yunnan’s capital city of Kunming, China’s fourth largest airport behind Beijing, Shanghai, and Guangzhou (also the world’s fifth largest airport in occupied area), Changshui International Airport, which is expected to have flown 38 million passengers by 2020 and 65 million by 2040, was opened with much fanfare in June 2012. While seemingly disparate, this pair of anecdotes reveals the ambition of China’s ‘Go Southwest’ strategy to extend its economic interests and influence into Southeast Asia.

Integrating with Southeast Asia is a key component of China’s multi-pronged regionalisation around its borders as its global rise continues. China’s regional assertion reinforces a larger trend of new spatial configuration as an inherent part of increasing globalisation driven by China. This simultaneous globalisation and regionalisation unleashes a dual process of de-bordering and re-bordering where the traditional barrier role of borders is yielding more to that of bridges (Chen). As a result, once small, marginal, and remote border cities and towns have become larger and lively centers of trade, tourism, and other flows. China’s effort to engage Southeast Asia leaves many striking footprints within and beyond the cities of the Asian Development Bank (ADB) facilitated Greater Mekong Subregion (GMS), which was launched in 1992 and consists of China’s Yunnan Province (with the later addition of Guangxi Zhuang Auto-nomous Region), Cambodia, Laos, Myanmar, Thailand, and Vietnam.

Trade with the GMS Countries

Inter-country and intra-regional trade provides the starting point for examining the extent of economic integration in the GMS as well as its unbalanced development. China’s trade with each of the GMS countries has grown since 1990, most rapidly since 2000 (see Figure 1). Given the size of their economies, Thailand, followed by Vietnam, led the smaller GMS countries in trade with China. However, the total volume of China-Myanmar trade rose by $5.9 billion from 2001 to 2011, while China-Laos trade increased by $1.2 billion (Figure 1). Much of China’s growing trade with Myanmar and Laos occurred through cooperation across international boundaries. The role of Yunnan and its capital city of Kunming in China-GMS trade cannot be understated. Yunnan’s GDP skyrocketed from $33 billion in 2000 to $160 billion in 2012, and the province aims to double that to $320 billion by 2017 through even stronger cross-border economic and trade ties. Kunming acts as the origin and core of economic activities that reach into the bordering countries of Laos, Myanmar, Vietnam, and beyond.

Table

Continue reading

1 Comment

Filed under ASEAN, Cambodia, China, Current Events, Economic development, Energy, Foreign policy, GMS, Governance, Mekong River, Myanmar/Burma, Regional Relations, Thailand, Uncategorized, Vietnam, water

Plugin by Social Author Bio