Growth model

African nations must study China's experience before pressing on, experts say

That the Chinese like spending money has come to be regarded as something of a phenomenon around the world. Flocks of Chinese tourists now come on holiday, including to Africa, and they can be seen buying luxury goods in the boutiques of upmarket shopping malls in Johannesburg and elsewhere.

The reality in their own country is quite different. Consumption as a share of GDP in China was just 48 percent last year, compared to around 65 to 75 percent in European countries and the United States. Household consumption (excluding government consumption) was even less at around 36 percent.

The Chinese government wants a major shift in the economy from economic growth being driven by investment in infrastructure to one more led by consumption. It is intent on putting in place a whole raft of policies to make that transition, some of which are expected to be unveiled in November at a top Party conclave.

Among economists there appear to be few dissenters as to the direction of travel China needs to take.

It came as a surprise therefore that not just any economist but one of China's most prominent is questioning the need for this transition.

Justin Yifu Lin, former chief economist at the World Bank, has warned that China risks a potential disaster if it makes a a dash for consumption.

"Those who advocate that China's economy should rely on consumption are, in fact, pushing the country to a crisis. I've never seen any country that falls into crisis because of over-investment," he says.

His intervention has prompted a renewed debate about China's economic model but may also have implications for policymakers in Africa, where a similar re-evaluation is taking place as to how important consumption is in the economic mix.

Zhu Tian, professor of economics at the China Europe International Business School in Shanghai, insists, however, the former World Bank vice-president has made an important contribution to the debate about consumption.

"In economic theory there is actually no such thing as consumption-driven growth. No serious academic would ever use the term and you can't find it in any text book," he says.

"In theory, low consumption is not a bad but a good thing. When the IMF and the World Bank refer to African and Latin American countries, they all talk about the need for sustained investment growth.

"Most of sub-Saharan Africa is poor not because they don't know how to consume but because they don't have the production capacity, both human and physical."

Harry Verhoeven, a researcher in the department of politics and international relations at Oxford University and convener of the China-Africa Network there, believes the weakness in many African countries is that consumption is the preserve of the wealthy.

He says this is a result of political elites living off the rent from foreign multinationals in return for oil and commodities exploitation rights.

"You don't need to develop productive enterprises because you don't need the tax from them. The money gets channeled into real estate and consumption, particularly of foreign goods."

Verhoeven says the crossroads in terms of consumption and investment that China now faces is very different from that in Africa and it remains largely about agricultural reform, which Deng Xiaoping carried out 30 years ago.

"One of the main barriers to African development remains poor productivity of African agriculture in terms of output per acre."

Donna H. J. Kwok, Greater China economist for HSBC in Hong Kong, believes China is very much at the stage, however, where it does need to make these choices.

She says it would be a big risk if China were to retain its current model without adopting measures to encourage consumption.

"The risks posed to China's long-term economic health if no measures are adopted to push the country toward a more consumption driven model, far outweigh the risks posed by the actual adoption of such measures," she says.