Chinese economist advises Pakistan to move away from agriculture, why?

Irshad Salim; BE2C2 Report — Professor Justin Yifu Lin, a Counselor at the influential State Council of China, says that Pakistan can achieve double its annual economic growth rate to 10 percent by moving away from being an agriculture-based economy, and dying Chinese industries can become an instrument to achieve this objective.

Sectors where China is losing its competitive advantage can become Pakistan’s latent advantage, the professor said.

The former vice-president of the World Bank and author of 24 books also suggested that light manufacturing industries that have been declared “sunset industries” in China can be relocated to Pakistan.

Pakistan has maintained a decent economic growth rate but it is still relatively poor, professor Lin said, while highlighting flaws of Pakistan’s economic structure and the way forward for the economy of 200 million people.

Lin’s economic development theory gives center stage to the state as investor and facilitator aimed at overcoming externality and coordination challenges during the transformation phase.

China has followed and continues to follow similar strategy as suggested by Lin. This economic reality is crucial for China’s practical economic policy as the country seeks to achieve its goal of a “moderately prosperous society“ by 2020 and a “high income economy” by World Bank standards shortly thereafter.

As one of the world’s two fastest growing major economies’ (India is another) pattern shows, both are being driven by rapidly rising state investment in major sectors, with private investment playing a less significant role.

Professor Zhu Tian from China Europe International Business School points out, referring to National Statistics Bureau data, that from January to June 2016, state-owned fixed-asset investment had grown by almost 24 percent over the same period last year, but private fixed asset investment growth had decelerated to close to 3.0 percent.

India, the other rapidly growing major economy, shows the same pattern as China. The analysis by Pranjul Bhandari, chief India economist of HSBC, in July noted that the year-on-year increase of India’s state investment was 21 percent while private investment actually fell by 1.4 percent.

But the facts of this global economic trend are also crucial for economic theory and analysis including professor Lin’s.

Related article: Pakistan’s Farming Sector Faces Serious Threat From Climate Change

According to the dogmas of “neo-liberalism” and the “Washington Consensus,” private investment is supposed to be “good” while state investment is supposed to be “bad.” The facts show the exact opposite trend is occurring.

Rapidly rising state investment is associated with high economic growth (China and India); over-reliance on private investment is associated with low growth (U.S., EU and Japan).

In 2015 China’s per capita GDP growth was 6.4 percent and India’s 6.3 percent based on World Bank data. And by 2030, China will become numero uno in global economy followed by India in second place and US in third, according to reports.

These are easily the fastest growth rates for any major economies. They also propel the most rapid rates of growth of household and total consumption.

In particular, both China and India are growing far more rapidly than the Western economies — in 2015 the EU’s per capita was only 1.7 percent, the U.S. 1.6 percent, and Japan’s 0.6 percent. Data for 2016 to date show the same pattern of rapid growth in China and India and slow growth in the U.S., EU and Japan.

By suggesting that Pakistan’s economy should be state investment funded practical economic model, Professor Lin’s advice to Pakistan also assumes that agriculture may be a “sunset industry” or that its growth can no longer drive Pakistan’s growth as much as other industries can going forward.

Pakistan’s agriculture has been affected by labor migration to the cities and overseas, climate change and unorganized water usage. Cotton crop suffered mostly in Punjab (Pakistan’s largest province and its food factory) for the last two consecutive years as its output declined up to 40 per cent.

One of the reasons for falling production is shrinking cotton growing areas because of the sugarcane crop and climate change, several reports said.

By 2050, the wheat production is expected to fall by 50 percent in Pakistan as a result of climate change, a study conducted by Islamabad-based Think Tank Jinnah Institute revealed.

“Food and security of 100 million people are at risk by climate change. Women are more vulnerable as 66 percent of them are agriculture workers.”

According to the study, the risks presented by climate change has had a pronounced impact on food production throughout South Asia, not just Pakistan.

An estimated 70 percent of Pakistan’s foreign exchange reserve is catered to by agriculture based activities, and 47 percent of its population is dependent on the sector.

How did climate change affect the region and therefore Pakistan’s agriculture ? Overwhelming air pollution in the region played the major role — starting from Southeast Asia on the Pacific to the west coast of Africa (see pollution map above) on the Atlantic — over several decades.

According to several studies, pollution played a major role to produce effects of climate change in Pakistan and South Asia as a whole, thereby affecting its major economic sector — agriculture, a view held by many experts.

Despite Pakistan being one of the top agricultural countries, about half of the population is food insecure, according to the World Food Program – a view reinforced by Jinnah Institute’s study.

With ever increasing population (almost 190 million now), struggling water resources, decreasing agricultural labor force due to urban and overseas migration, increasing demand for food and cash crops, and the effects of pollution – these are additional burden Pakistan has to incorporate in its socio-economic model going forward. So why re-engineer it. Why not just dump agriculture sector and replace it with China’s “sunset factories” — an observation that world experts has held for sometime now:

China wants to shift its industrial base overseas. The One Belt One Road initiative of which the China Pakistan Economic Corridor is its north-south leg connecting China’s northwest province of Xinjiang (hub of textile and coal factories) to Pakistan’s southwest port of Gwadar on the Arabian sea in Balochistan province.

Recently, a Chinese state media published two back-to-back opinion pieces on OBOR. It stressed China’s initiative was not geopolitics but economics. This is partially right though in the short term — other attributes being equal like China-Pakistan defense, strategic and security alliance.

(Based on reporting in Gulf Today, the Huffington Post, and Jinnah Institute report)

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