The Growth Connections Between China and the Global South: A Review and a Refocus

As late as 1984, half of China’s exports consisted of raw materials, including oil, coal, food and livestock. After 47 years of reform and opening, China has transformed itself from an agrarian economy into a manufacturing powerhouse.

With the country’s expanding development finance and deepening economic engagement with the Global South, it has come to the right time to assess how effective China’s engagement has been in advancing the development of the Global South.

A new policy brief by Zheng Zhai and Yan Wang reviews recent analyses on the effectiveness of China’s development finance and offers policy recommendations to strengthen its impact.

Main findings:

• The brief finds unequivocal evidence of a positive and statistically significant relationship between China’s overseas economic activities and economic growth in the Global South countries.
• These effects are associated with unique features of China’s development cooperation, including a demand-driven approach, infrastructure investments aimed at alleviating development bottlenecks and a focus on sectors in host countries with revealed comparative advantages.
• While there is little doubt about China’s positive contribution to growth, recent literature indicates that China’s development finance does not necessarily induce structural transformation in recipient countries.
  • Concerns include industrial carbon emissions and effects on host countries’ production and manufacturing labor markets.

Looking forward, global development finance should go beyond traditional aid and continue to promote growth but refocus on structural transformation using an integrated value chain approach. China has the capacity and technologies and should further support green transformation in the Global South by facilitating green technology dissemination, expanding imports and promoting industrial relocation.

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