China is now at the centre of a new global industrial economy that is the consequence of what economists in the 1980s began to call ‘globalisation’. It is built on the use of supply chains that produced parts and components for such finished products as automobiles and computers. With rising wages and an aging population, China is now dependent on small-scale manufacturing in the countries in its southern neighborhood.
Cambodia, Malaysia and Vietnam have become important suppliers of parts and components to large industries in China. Countries to its west such as Afghanistan and Pakistan could go the same route if their governments try to create an environment which promotes the development of such small- and medium-scale industries that could join China-dominated industries. The communication network that China is now investing in building in Pakistan and other countries to its west — President Xi Jinping calls it the Belt and Road Initiative — could lay the ground for linking enterprises in places such as Gujranwala and Sialkot with possible locations in the Tribal Belts and creating supply chains. The three countries — China, Afghanistan and Pakistan — working together could develop a programme that would create the skills needed for such enterprises.
It would seem like a wild dream to imagine that new technologies could transform the economies of the tribal belts that Pakistan and Afghanistan share to the point that the people who live there are not attracted to join extremist causes. Most of those who inhabit this geographic space are Pashtuns. Pakistan has a majority of this ethnic group. In this context, I recall a conversation I had with Ashraf Ghani decades ago when, after resigning from the World Bank, he was on his way back to his native Afghanistan. Hamid Karzai, the then President of the country, had persuaded Ghani to leave the Bank and join him in his effort to turn around the country he was now leading.
“You served briefly as Pakistan’s Finance Minister in the late 1990s. Perhaps you could guide me in the areas on which I should focus,” he said. I said he should give a great deal of attention to developing the tribal areas that lie along the Pakistan-Afghanistan border. There are perhaps 20 million Pashtuns living in this space. The two governments should work together to improve the economic situation of the tribal people.
The two international development banks — the World Bank and the Asian Development Bank — which had developed projects to improve the economic well-being of the people in these two areas were focusing on developing agriculture and irrigation in the two belts. That was the wrong approach since these areas’ large mountainous terrain and not many sources of water made it difficult to use agriculture as the base of development. The approach should be to develop new skills in the areas in which the tribal folks had shown aptitude. They did a lot of metal working in the hundreds of gun shops that are in the areas. The two governments should focus on this approach and use China as a partner.
The Chinese were investing heavily in building physical infrastructure in Pakistan. If this approach could be extended to Afghanistan it could turn the economies of these areas and get the people who inhabit them to work in these establishments rather than opt for extremist activities. Ashraf Ghani heard me with great interest but once he landed at the top of the Afghan administration he chose to use military force to suppress discontent. That approach as we saw did not work.
What would it take for the United States and China to use technology as a player in this global game? While China is catching up fast in this important area, the United States still leads in some vital industries. Chin is now the world’s second largest economy but is growing twice as fast as the rate of increase in the United States. In less than two decades it is likely to overtake the United States and become the world’s largest economy. Some experts have identified several sectors which will need attention by the government in the United States not to lose out to the Chinese. Where the United States still has the lead are such emerging fields as quantum computing and artificial intelligence and in sectors such as software and semiconductors. Chinese firms such as Huawei depend on imports of advanced computer chips and software for running them to gain advantage in developments such as 5-G telecommunications. But China has moved ahead in some industries such as smartphones, drones and electric vehicles.
China owes its economic rise to advanced technologies which is the result of a number of factors that include skilled and low-cost workforce although there has been as significant increase in domestic wages in recent years. The Chinese state also plays a significant role in technological development by providing huge subsidies to several industries. It has been willing to finance expensive manufacturing that often yield lower profits. I will take a brief look at a couple of new industries in which China has already become the largest player or is on the way to becoming one.
It is the manufacture of solar panels that China has made the greatest progress. Its share in world sales has increased from only 4 per cent in 2005 to 67 per cent in 2020. China’s dominance of the industry is even greater if we take into account the fact that much of the production happening in Malaysia and Vietnam is controlled by Chinese enterprises.
Another area which is likely to see Chinese dominance is in the manufacture of electric vehicles. American, European, Japanese and Korean enterprises dominated the global market for petrol-powered automobiles, Chinese manufacturers have become important players in the domain. China is now the world’s largest automotive market. California-based Tesla continues to have the largest market share globally among electric vehicles, accounting for 15 per cent of the world total; but SGMW, a joint venture between General Motors and two Chinese manufacturers, has rapidly gained market share and now accounts for 11 percent of the world total.
China is developing supply chains in several fields but for demographic reasons, it is faced with a serious shortage of manpower. It could turn to the more populous Afghanistan and Pakistan to link up with its labour-short enterprises. However, for that to happen the three governments will need to work together to develop a programme for bringing the enterprises in the Tribal Areas into the system of global supply chains. The three countries could begin by setting up education and training centres in the Tribal Belts to prepare indigenous workers to enter these fields.
Published in The Express Tribune, October 4th, 2021.
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