Economic latecomer confronted with curses
By Yang Li (China Business Weekly)
Updated: 2004-05-08 09:42

China is becoming a growing economic power globally, but it is also facing the challenges inherent in being relatively a latecomer to the world stage.

This position - the so-called "curse of the latecomer" - has wide implications in areas such as tight energy and raw material supplies, growing environmental pressures and intellectual property rights charges, said Bao Yueyang, chief editor of the China Economic Times.

Originally a term in economics, "the curse of the latecomer?means it is difficult for a late-developing country to copy the institutional and political systems of a developed country.

Lin Yifu, a noted economist at Peking University's China Centre for Economic Research, said that developing countries ?such as China ?commonly lack sufficient capital to make high-cost, high-end technologies. A better strategy for them is to develop industries where they have comparative advantages. But these are commonly labour-intensive industries. Developing countries can absorb the technologies and experience of developed countries to avoid mistakes and high costs.

So far, China's high-speed development is a shining example of the advantages that a latecomer has.

In the past 20 years, China's annual gross domestic product (GDP) has maintained a growth rate of more than 9 per cent, the highest in the world over that time. Last year, China's GDP grew 9.1 per cent to 11.67 trillion yuan (US$1.41 trillion), and its per capita GDP exceeded US$1,000.

Yet, the economic boom is not hiding challenges that are becoming more and more serious.

"Many of them are related to China's status as a latecomer,?Bao said.

In recent years, China has faced a growing strain on supplies of electricity, coal, oil, and many raw materials such as iron ore.

It is normal for a fast-developing country to face these problems. The position is that China is a latecomer in the established and relatively balanced global energy and raw materials market. Its rapidly growing demand has pushed world energy prices up and aroused worldwide concern, Bao said.

A typical case is soybean. In 2003, China's importation of soybeans grew by 82 per cent to 20.74 million tons worth US$4.8 billion. Growing imports of this commodity to China pushed prices 20 per cent higher.

China's deteriorating environment?the result of developing industries such as paper-making where there is a high amount of pollution ?is arousing international anxiety and pressure.

In addition, China has to deal with increasing complaints of intellectual property rights violations.

"It is mainly because Chinese manufacturers are copying foreign technologies ?at times illegally, which is viewed as a serious challenge to the vested interests of players in developed countries,?Bao said.

Yang Xiaokai, an economist with Monash University, Melbourne, Australia, said that many developing countries?negligence in absorbing time-tested institutional standards and political systems when adapting to advanced technologies ?a typical symptom of the "curse of the latecomer??may eventually curb or even reverse economic growth. Stagnation in Latin America, the Asian financial crisis, and Japan's economic recession in the 1990s are examples of the trend.

The reason for that is, without systematic reform, fast economic and technological growth in late-developing countries might enable a small group of elites to easily monopolize social wealth, says Yang.

The elite group, due to its monopoly of wealth and political power, lacks innovative entrepreneurship and resists systematic reforms that might hurt their vested interests.

Yang said that parts of China's State-owned sector had similar problems.

But Yao Yang, an economist at Peking University, disagrees.

"The economic progress of China in the past 20 years has been accompanied by tremendous changes to the system. Now, many township enterprises have clear ownership and State monopoly has been decreasing significantly,?Yao told China Business Weekly.

It is true that China has few kernel technologies and often faces accusations of intellectual property piracy. But this does not impede the attraction of China for huge foreign investment because its advantage in cheap labour will continue for at least half a century, Yao said.

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