China and NigeriaWill Harford

United States

Technology Japan/Korea

Manufacturing China

Chinese exports of low cost manufactured goods

Chinese exports of low cost manufactured goods

• Our goal is to understand the economic relationship between China and Nigeria in an attempt to confirm that the relationship:

• History of this relationship• Examples of this relationship.• Similarities between this partnership and the partnership between the US

and China.

The US economy required a change

• The US, as a consequence of the LA Riot’s required an alternative supply of low cost goods resulting in happier US consumers.• 52 Deaths, 2,500 injuries, at least $446million to $1bn USD in property damage.• Deployment of 10,000 California National Guard Soldiers and more than 3,500

US soldiers and Marines.• 12,111 arrests

• Protecting US jobs was no longer a requirement.• In 1982, demand existed in the US for production that would lower the

consumer cost for basic items.• This demand did not involve high technology

Starting with the US and China

• China’s large labour allowed them to respond to the demand from cheap manufactured goods in the US. • In 1992, China was not considered an HPAE• GDP $422.7 billion• Population of 1,165,000,000• GDP per Capita $362.81

• In 2014, China has the second largest GDP in the world• GDP $9.469 trillion• Population of 1,357,380,000• GDP per Capita $6,959

So rather than choice we must look at:• As a strong demand for cheap manufactured goods developed in the

US, they needed the supply.• East Asian economies, recognized as HPAE’s, such as Japan, Korea and

Taiwan have been providing goods to the US for some time.

[United States]

[Japan]

[Taiwan & Korea]

{Assembly Lines}

{Industry} {Industrial Technology}

{Scientific Technology}

?

China in 1992

• Solow Growth Model: Y=f(K,L,T)• China had large, underutilized

labour force• Limited capital• Limited Technology

China in 2014

• Solow Growth Model: Y=f(K,L,T)• China had large, better utilised

labour force• Large capital• Development of disruptive

technologies

…and China: starting with human capital• ‘China's educational horizons are expanding. Ten years ago the MBA

was virtually unknown but by 2004 there were 47,000 MBAs, trained at 62 MBA schools. Many people also apply for international professional qualifications, such as EMBA and MPA; close to 10,000 MPA students are enrolled in 47 schools of higher learning, including Peking University and Tsinghua University.’• Limited information is available detailing Chinese education when

contrasted with other countries.• Human Capital developed is different to other East Asian human

capital

China’s Social Capital

• Limited publicized conflict within the country suggesting a high level of harmony.• How can we tell : Confucian ethics promoted by Xi Haung promoting

the short text written by Li Yuxiu (around 1661-1722) titled, Di Zi Gui• Xi Jinping recommended the text that promotes absolute compliance

with leaders.• The World’s Most Popular Leader: China’s President Xi

At least that’s what they say….

• Mao Zedong denounced Confucianism• Hong Kong dissent• After Deadly Riots, Ethnic Tensions Heat Up in Urumqi• China Xinjiang riots toll 'rises to 35'• A dangerous year: Economic

conditions and social media are making protests more common in China—at a delicate time for the country’s rulers• Up to 21 dead, doctor says, as anti-China riots spread in Vietnam

Is China Approaching convergence?

• Yes, why because growth is slowing, resources are diminishing and China is simply catching up.• GDP=F(K,L); Capital grows with economy and Labour is expected to

slow.• Gowth Models• Labour is expected to level out shortly, however there are numerous

countries supplying labour to china.• Capital is available because of the limited growth in

Now China needed the change

• The paper ‘When Fast Growing Economies Slow Down: International Evidence and Implications for China’ suggest’s China’s growth will begin to slow in 2015. http://www.nber.org/papers/w16919.pdf• China must advance to the next growth curve. So how do they do it?• They must increase their Total Factor Productivity or TFP.• As we approach convergence, China must consider methods to raise their TFP

as well as consider new methods that will allow them to continue on the existing curve.• Today, China now has reached the point where they must either accept

convergence or jump to a new curve with continued growth as a result. • Like the US in 1992 China has a Demand, but what for?

China’s growing Demand: Labour

• Labour• China’s working age population fell by 2.44 million to 919.54 million in 2013,

marking the second consecutive year of decline, the National Bureau of Statistics (NBS) reported.• It noted that the number of migrant workers (living outside their home

province) increased by 3.4% last year. • the income of migrant workers rose by 21.2% in 2012

• China’s labour force

China’s growing Demand: Demand!

• China is constantly searching for new markets that demonstrate a demand for goods/services that it can supply.• China's new tech rules play to local firms' strengths

China’s growing Demand: Natural Resources• China’s access to Natural Resources is large for many items except

oil.• As of 2010 China consumed 455 million tons oil of which over 200

million tons were imported. China's oil demand is expected to increase by 6% in 2011 according to PetroChina.[17] In 2013 the pace of China's economic growth exceeded the domestic oil capacity and floods damaged the nation's oil fields in the middle of the year. Consequently, China imported oil to compensate for the supply reduction and surpassed the US in September 2013 to become the world's largest importer of oil.[18] http://en.wikipedia.org/wiki/Petroleum_industry_in_China

So, like the US in ‘92, China have the demand….• The countries GDP can be increased with a larger workforce, greater

access to Oil or they could just increase their Productivity.• How can China increase their TFP?• We must consider Endogenous Growth Theories. Japan and Korea

demonstrated high growth levels with the following factors of TFP.• Human Capital

• Education• Social Capital

• Harmony, Law & Order, Lack of Corruption• Government Policies

• Industrial Policy, Export Promotion

Remember the riots in the US in 1992.• Riots throughout China prompt the need for alternatives for social• The Chinese government must lower costs for its population.

http://www.cnbc.com/id/101918928

http://m.bbc.com/news/world-asia-china-26414016

http://www.forbes.com/sites/joelkotkin/2014/10/13/the-unrest-in-hong-kong-and-chinas-bigger-urban-crisis/

China’s search for its new ‘partner’.

• To supply its demand for labour, fulfil its demand for natural resources and to introduce the products/services it provides to new markets!

Sure China’s involved in trade with lots of African nations.

Angola Nigeria South AfricaLow Cost Natural Resources (Oil)

2 1 3

Low Cost Labour Yes Yes Yes, close to China’s.

New Market (pop) 21.47m 173.6m 52.98m

GDP/Capita (USD) 2003 2013

Angola 920.10 5,783.37

Nigeria 510.42 3,005.51

South Africa 3,624.94 6,617.91

Africa

Nigeria South Africa Angola

Oil Reserves 37.2 billion barrels 0.15 billion barrels 10.5 billion barrels

Literacy Rate 68.00 86.40 67.40

GDP/Capital $2,500 $10,700 $8,200

Corruption 27 43 19

• Large Supply of Natural Resources.• Low cost manual labour.• Requirement to work.

A closer look at Nigeria

• Nigeria has the seventh largest population in the world.• Largest population in sub-saharan Africa; 173.6m, almost 20% of Africa’s

population.• 50.4% Islam, 48.2% Christianity of which 74% are Protestant and 25% are

Catholic• According to a BBC world service poll, Nigeria is the most pro-Chinese country

in the world with 85% of the population recognizing China’s influence as positive.• Member of OPEC• strong growth between 2003 and 2010 – averaging 7.6%• Oil accounts for close to 90% of exports

Nigeria: Some numbers

http://data.worldbank.org/country/nigeria

Nigeria

• Remittances represented 6.7% of GDP in 2007• Export more than 2.2m barrels/day• Brain Drain – estimated 21,000 Nigerian doctors, in the US• 100-188 million cubic feet of natural gas (largest in the world)• 32-36bn barrels oils

Nigerian Education

• Nigeria appears to be increasing its human capital• The education system is divided into Kindergarten, primary

education, secondary education and tertiary education• Attendence rate for secondard education is 29%• 68% of the population is illiterate (75% of men and 60% of women).• Female Literacy is less than 35% in Northern Nigeria and more than

90% in areas surrounding the southern delta.

Nigeria – Social Capital

• Nigeria ranks 54th with respect to the human poverty index (HPI) - making it the 20th poorest country in the world. • It is also ranked 30th in gender related development index

(GDI) while occupying 40th position from below in its human development index (HD1).

Nigeria and Neo-Confucianism: Frugality• By 2004, the savings rate for Nigeria stood at 6.4

percent (Chinese savings rate is greater than 50%)• GDP/Capita was $792 in 2009 according to Mthembu-

Salter, Gregory. (2011). • GDP/Capita is increasing at an increasing rate.• According to the WorldBank, Nigeria’s Gini rating was in

the 4th quintile between 1995-1999.

What Drives Private Saving in Nigeria

Nigeria and Neo-Confucianism: Hard Work• 76.3% of the Nigerian Labour Force is employed.• Unemployment rate is 8.5%• Hard to find accurate means of measurement.

YOUTH AND LABOUR MARKET OUTCOMES IN NIGERIA: EVIDENCE FROM NATIONAL LABOUR MARKET SURVEY

Nigeria and Neo-Confucianism: Social Harmony• Strict division between the north and the south• Boko Haram, want to implement Sharia Law across Nigeria.• Over 250 sub-ethnicities, speaking over 500 different languages

Boko Haram crisis: How have Nigeria's militants become so strong?

Conflict in the Niger Delta

Boko Haram insurgency

Nigeria and Neo-Confucianism: Leadership• Obasanjo left power in 1979 and Shehu Shagari became

President until 1983• Shehu Shagari was deposed by Major-General Muhammadu

buhari until he was toppled two year later.• Major-General Ibrahim Babangida then held power until it was

seized in 1993 by defence minister, Sani Abacha.• Sani Abacha remained in power until his death in 1998

(apparently in company of two prostitutes).• 2007: The first ever transfer of power between two civilians in

Nigeria’s post independence history. (although the results were not endorsed by the EU or the US)

Nigeria and Neo-Confucianism: Leadership• Dr. Oby Ezekwesili while speaking at the 42nd

convocation ceremony of the University of Nigeria Nsukka (UNN) stated that $45 billion in foreign reserves and $22 billion in the Excess Crude Account were unaccounted for by the Yar’Adua-Jonathan administration• According to the Corruption Perception Index(CPI),

Nigeria ranked 136/175 with a CPI of 27/100 in 2014.http://www.transparency.org/cpi2014/results

http://www.transparency.org/cpi2014/in_detail

China/Nigeria: Why is the relationship strong?• China’s relationship is strong with other African nations, so why is the

relationship with Nigeria stronger?• Nigeria is OPEC’s largest member in Africa (in terms of exports) and

seventh worldwide. It produces 2.05 million barrels of oil per day. It’s total refining 445000 barrels per day.• Low cost of business, high corruption.• High level of Protestantism surrounding the Niger delta

Flying Bird ModelUS

Japan

Korea

China

Nigeria

What does Nigeria get?

• A well known fact is that Nigerian military have benefited from China’s technical assistance form of military training and even supply of military hardware. • Health personnel and different categories of patients patronizing

public health providers are the main beneficiaries of technical assistance offered by China mainly in the roll-back malaria programme. • Nigerian academia have also benefited from the cooperation

arrangement between Nigeria and China especially in the area of exchange programs and promotion of the different culture.

So why the strong relationship between Nigeria and China?• Is it really that strong?• Is it bi-directional?• Can Nigeria be considered Confucian?• Carlos Leite suggested that increasing human capital will allow Nigeria

to move from its reliance of Natural Resources (40% GDP!)• This would increase Nigeria’s bargaining resources, increase

China’s cost in terms of the benefits they receive.• China would search for another government to deal with!

The future…

Is the partnership based on expected growth?

Looking back at the United States

• 1982: La Riots• The US required lower costs in order to maintain order.• They used China manufacturing

Ethical Standards

• Neo Confucian/Protestant• Weber concluded that growth in the US was due to the protestant work ethic

and limited consumption (leading to high savings and high investment).

• Short text written by Li Yuxiu (around 1661-1722) titled, Di Zi Gui• Mao Zedong denounced Confucianism• Xi Jinping recommended the text that promotes absolute compliance

with leaders.

China and the US

China and Nigeria

Similarities between China and US

EconomicsIn 2014, China has the second largest GDP in the world.

GDP $9.469 trillionPopulation of 1,357,380,000GDP per Capita $6,959

In 2014, Nigeria is Africa’s largest economy

GDP $594.257 billionPopulation of 174,507,539GDP per Capita $3,416

Nigeria/China Agreements

Agreement on Trade, Investment Promotion and Protection 2001Agreement for the avoidance of double Taxation and Prevention of Fiscal Evasion with respect to Tax and Income

2002

Agreement on Consular Affairs 2002Agreement on Cooperation on Strengthening Management of narcotic Drugs, Psychotropic Substances and diversion of Precursor Chemical

2002

Agreement on Tourist Cooperation Strategic Partnership Agreement 2005

A memorandum of Understanding on Investment Cooperation between the Federal Ministry of Commerce of Nigeria and Ministry of Commerce of India

2006

Economic Cooperation Agreement between Nigeria and Xinguang International Group of China

2006

Harrod Domar Model

• Is China approaching convergence?

Harrod Domar Model

• What are the options?• =

• Growth Rate = =

Series NameSeries Code Country Name

Country Code

2000 [YR2000]

2001 [YR2001]

2002 [YR2002]

2003 [YR2003]

2004 [YR2004]

2005 [YR2005]

2006 [YR2006]

2007 [YR2007]

2008 [YR2008]

2009 [YR2009]

2010 [YR2010]

2011 [YR2011]

2012 [YR2012]

GDP growth (annual %)

NY.GDP.MKTP.KD.ZG China CHN 8.431279499 8.300317601 9.082068 10.0253788 10.0850399 11.3100352 12.6765342 14.162395 9.6346682 9.2141989 10.44698904 9.29988522 7.6525531

GDP growth (annual %)

NY.GDP.MKTP.KD.ZG Japan JPN 2.257495302 0.355461715 0.289548451 1.685111722 2.360730113 1.302728144 1.692904245 2.192186233 -1.041636034 -5.526976489 4.652030154 -0.452724839 1.753689775

GDP growth (annual %)

NY.GDP.MKTP.KD.ZG Korea, Rep. KOR 8.831278205 4.525319497 7.432433614 2.933207053 4.899851507 3.92368744 5.176133982 5.463406088 2.829214457 0.707518483 6.496785169 3.681704667 2.292382426

GDP growth (annual %)

NY.GDP.MKTP.KD.ZG Nigeria NGA 5.318093381 4.411065196 3.784648183 10.35418456 33.73577503 3.444666813 8.210964859 6.828398348 6.270263697 6.934416004 7.839739477 4.887386611 4.279277314

GDP growth (annual %)

NY.GDP.MKTP.KD.ZG United States USA 4.08870065 0.976984508 1.787117896 2.808058592 3.787530594 3.345802561 2.665862239 1.773286468 -0.259669506 -2.803624217 2.527679174 1.602018543 2.317374291

Does China conform to Neo-Confucianism ethical standards?

’The philosophy can be characterized as humanistic and rationalistic, with the belief that the universe could be understood through human

reason, and that it was up to humanity to create a harmonious relationship between the universe and the individual’

• The limited effect of political discomfort on trade between east asain countries could be replicated around the world in an attempt to understand the relationship between neo-Confucian culture and non-neo-Confucian culture.• I would suggest that non-neo-Confucian culture trade would see a

greater effect as a result of negative press. This difference would be minor.• Measure relationship between African Nations and China• Trade=GDP+CPI+Natural Resources+

• http://www.oecd.org/countries/nigeria/49814032.pdf• OECD: Provides an overview of the economic relationship between

China and Nigeria. Published in November 2011.