The effect of China’s mercantilism on other developing countries

September 11, 2010

Rodrik asks whether China’s mercantilism policies and its undervalued currency, the renminbi, has a positive or negative effect on other developing countries.

Arvind Subramanian from the Peterson Institute takes the negative position, arguing it makes the goods of other developing countries less competitive on international markets.

Helmut Reisen from the OECD takes the positive position, because the growth of many poorer countries are (increasingly) dependent on China’s growth.

Rodrik argues for the former, but focuses on the type of growth the two positions imply.  The latter sees growth in the provision of primary materials to China, which does the value-adding and final export to international markets.  The former encourages other developing countries to re-structure away from primary goods to higher productive activities, such as manufacturing and service provision.

I think it’s probably difficult to generalise to all other developing countries.  Some countries would have a tougher time re-structuring their economies.  For example, some African countries that export primary materials to China would surely struggle to re-structure their economies; whereas countries like Indonesia would surely benefit from doing more value-adding in country rather than becoming increasingly reliant on primary exports to China?

Here’s the link to the article:

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