CHINAS DEVELOPMENT AND POVERTY REDUCTION EXPERIENCES: LESSONS FOR CAMBODIA AND IMPLICATIONS FOR CHINAS ODA AND

DIRECT INVESTMENT
Presented at An Asian-wide Workshop on Social Inclusiveness in Asias Middle Income Countries (MICs)
13 September 2011, Jakarta, Indonesia

Prepared and Presented Mr. Vathana ROTH by: Research Associate Cambodia Development Resource Institute (CDRI)

CONTENTS
Analytical

Framework: Inclusive Growth

Analytics Overview: Main Macro Indicators of China and Cambodia A Look at Chinas Development and Poverty Reduction Experiences Lessons: Growth-oriented Poverty Reduction Lessons: Poverty Reduction Targeting Implications for Chinas ODA and Direct Investment in Cambodia

ANALYTICAL FRAMEWORK
Sustained and Inclusive Growth

Firms

Individuals
Income redistribution

Raising the pace and enlarging the size of economy through investment and productive employment opportunity

Broad-based Economic Growth

Poverty reduction

The role of state

Equality of opportunity

Structural reform

Economic diversification

Business competitivenes 3 s

Source: authors summary from various views

OVERVIEW: MAIN ECONOMIC INDICATORS

China
GDP Growth (annual %) (2000-2009) GDP per capita ($ PPP) (2009) Gross saving (% of GDP) (1993-2009) Poverty rate at national poverty line 2007 Poverty rate at intl. poverty line (USD2/day) Gini Index Human Development Index (HDI) 2010 Expenditures for R&D (% of GDP) 2000-08 Researcher in R&D (per million people) 2000-08 Cereal yields (kg/ha) 2009 Tractor (per ha) 2008 Fertiliser (kg/ha) 2008 Paved roads (% of total road, 2000-08) 10.9 6890 44 7% 51.1% (2002) 42% (2005) 0.663(89) 1.44 1071 5460 277.1 468.0 53.5

Cambodia
9.0 1820 13 30% 68.2% (2004) 43.1% (2007) 0.494 (124) 0.05 17 2947 11.8 22.7 6.3 113
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Electric power consumption (kWh per capita, 2455 2008) Sources: World Bank Open Data 2011; WDI 2011; Dollar 2008; UNDP

MAIN FEATURES OF CHINESE REFORMS

AND DEVELOPMENT
Gai Ge Kai Feng, Change the system, open the door (Dollar 2008) Trade liberalization and Export enhancement Industrial diversification and competitiveness Development of quality infrastructure that connects urban and rural areas Continuous attention to agriculture and rural development The role of state in providing basic public goods and capable institutions for coordination work Strong and committed poverty reduction agency

CHINAS DEVELOPMENT MODEL

Chinas reform pyramid Firing from the bottom

Services

Manufacture

Agriculture
Source: Gulati and Fan 2007 cited in Fan et al. 2010
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SECTORAL SHARE OF GDP IN CHINA AND CAMBODIA 1993-2009

China
Industry, 47%

Cambodia
Agriculture, 39%

Services, 38% Agriculture, 15%

Services, 40%
Industry, 21%

Source: World Bank Open Data 2011

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EMPLOYMENT SHARE OF GDP IN CHINA AND CAMBODIA 1993-2008

China
Agriculture, 53% Services, 23.1% Services, 34.3% Industry, 13% Source: ADB Key Indicators 2010 Industry, 6.5%

Cambodia
Agriculture, 70.3%

In Cambodia, agriculture continues to play an important role in the overall economy: job creation and income source for majority of rural households.

INDUSTRIALISATION
Output Growth, annual % change

Note: Chinas data are from 1990-2009 while those of Cambodia are from 19902008 Source: ADB 2010

In Cambodia, industrial diversification and competitiveness should be the two key areas of further reform for a more viable private sector development.

AGRICULTURE AND RURAL DEVELOPMENT

Agriculture

sector remains crucial for poverty reduction in China. Chinas government expenditure for agriculture = about 9% a year of total national expenditure. Spending was made to support agriculture production, capital construction, science and technology promotion funds, rural relief funds, and others. China is moving from labour-intensive and family-based agriculture with traditional techniques capital and commercial- based, through increased output and capital formation.

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AGRICULTURE AND RURAL DEVELOPMENT (CONT.)

Constraints

for Cambodian smallholder agriculture: low productivity, insufficient irrigation system, poor rural infrastructure, lack of research and development, difficult access to finance and limited access to market information. government expenditure for economic services (agriculture, industry, and services) = 8.6% (1994-2009); compared to defence (34.8%) and general public services (15.4%).

Cambodias

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THE ROLE OF STATE

Two underlying roles that a 21st century government should ensure are (Evans 2010): capacity to provide basic public goods such as education, health, and infrastructure (road, bridge, school) and strong and able institutions for facilitation and coordination work. Chinas government expenditure =14.7% to GDP, compared to 6.6% per annum to GDP in Cambodia. The current border conflict with Thailand will further increase governments budget to cover military expenses which means even less money for social and economic development activities. Corruption remains an important issue demanding immediate and serious solutions.

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LESSONS: GROWTH-ORIENTED POVERTY

REDUCTION
Agriculture continues to play a significant role in the overall economy (i.e. job creation and income source for majority of rural households). Enhancement of agricultural and food exports can be beneficial to overall macro-economic growth and help reduce income inequality. In the short and medium terms, removing these constraints in agriculture should be the number one priority for the Cambodian government. It will not only help Cambodia diversify its economy but also contribute to poverty reduction and reduced inequality.

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LESSONS: POVERTY REDUCTION TARGETING

Cambodia should strengthen its poverty reduction agency, the Council for Agriculture and Rural Development (CARD) being the inter-ministry coordinator on poverty reduction programmes. CARD can be made a more specialised national poverty reduction agency and key staff members should be continuously trained rather than largely relying on external consultants. More resources should be allocated to building rural physical infrastructures (roads, bridges, land improvement, and irrigation) to allow poor households greater and easier access to markets for their income-generating activities.

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CONSTRAINTS
Human capital improvement remains an important issue for Cambodia Mismatch of required skills since many young graduates are being trained Cambodia is also lagging behind in the field of research and development The number of researchers is very low with only 17 researchers per million people compared to 1071 in China Cambodia also faces resource constraints due partly to corruption, insufficient revenue collection mechanism, weak institutional arrangement and governance.

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CHINAS ROLE IN CAMBODIAS DEVELOPMENT

Chinas accumulated ODA disbursement 20062010 was USD455.9 million = 11% of total disbursement, third after Japan (15%) and ADB (12%). Majority of Chinas ODA (76%) goes to infrastructure building, community and social welfare services (12.7%) and government and administration (7.1%). Between 2000 and first half of 2011, China was the top investor having 232 business investment projects, mainly in garments (125 projects), followed by South Korea. Chinas investment in hydropower dams and Source: CDCs Aid Effectiveness Report 2010; CDCs Database 2011 mineral resources have also increased.

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PRIORITY HYDROPOWER PROJECTS BY CHINESE FIRMS IN CAMBODIA

Project Installed Capacity (MW) 24 36 13 180 or 193 13 467 or 3,300 260 125 or 235 120 32 110 80 222 207 Annual Energy Production (GWh/yr.) 120 187 76 558 70 2800 or 14,870 1358 656 668 211 426 588 1174 1065 Expected year of commission 2010 2010 2008 2010 2006 2016 2015 2015 2015 2015 2010 2012 2018 2018 Status

Battambang I Battambang II Battambang III Kamchay Kirirom III Sambour Stung Cheay Areng (Lower) Stung Russey Chrum (Middle) Stung Russey Chrum (Upper) Stung Russey Chrum Stung Atay Stung Tatay Lower Sre Pok II Lower Sesan II

Unknown Unknown Unknown Construct Feasibility Study Feasibility Study Feasibility Study Feasibility Study Unknown Unknown Feasibility Study Construct Pre Feasibility Study PreFeasibility Study

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Source: Middleton & Sam 2008

FURTHER COOPERATION
More support through training staff and civil servants who work for poverty reduction institutions. Collaborate in research and exchange programmes aimed at providing further strategies and plans for poverty reduction. Continue the current expenditure of Chinese ODA on transportation and infrastructure and Chinese investors should expand their interests in agrobusiness. Consider transferring technological and managerial know-how to Cambodian counterparts. Commit to implement international standards in projects to ensure cooperation for long-term growth.

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REFERENCES

Chinas National Bureau of Statistics (1996), Statistical Yearbook (China: Beijing) Chinas National Bureau of Statistics (2010), Statistical Yearbook (China: Beijing) Council for the Development of Cambodia (2010), Aid Effectiveness Report and Database, (Phnom Penh: CDC) Dollar, David (2008), Lessons from China for Africa, World Bank Policy Research Working Paper No. 4531 Guimbert, Stephane (2010), Cambodia 1998-2008: An Episode of Rapid Growth, World Bank Policy Research Working Paper No. 5271, (Washington DC: World Bank)
Ianchovichina, Elena & Susanna Lundstrom (2009) What is Inclusive Growth? PREMD, http://siteresources.worldbank.org/INTDEBTDEPT/Resources/4689801218567884549/WhatIsInclusiveGrowth20081230.pdf (accessed August 2011) Kobayashi, Shintaro, Katsuhiro Saito, Hajime Tanji, Wenfeng Huang & Minoru Tada (2008), Economic Structure of Cambodia and Strategies for Pro-Poor Growth: Results from a Computable General Equilibrium Analysis, 19 Studies in Regional Science, 38(1), pp. 137-154 Middleton, Carl & Sam Chanthy (2008), Cambodias Hydropower Development and Chinas Involvement (Phnom Penh: RCC)

REFERENCES (CONT.)

Montalvo, Jose, G. & Martin Ravallion (2010), The pattern of growth and poverty reduction in China, Journal of Comparative Economics, 38, pp. 2-16 National Institute of Statistics (2008), Statistical Yearbook 2008 (Phnom Penh: MOP) Ravallion, Martin (2009), Are There Lessons for Africa from Chinas Success Against Poverty? World Development, 37(2), pp. 303-313 United Nations Development Programme (2010a), The Real Wealth of Nations: Pathways to Human Development, Human Development Report (New York: UNDP) World Bank (2009), Poverty Profile and Trend in Cambodia: Findings from the 2007 CSES (Phnom Penh: World Bank) World Bank (2010a), Doing Business 2011: Making a difference for entrepreneurs, http://www.doingbusiness.org/reports/globalreports/doing-business-2011 (accessed May 2011) World Bank (2010b), Worldwide Governance Indicators, http://info.worldbank.org/governance/wgi/index.asp (accessed June 2011) World Bank (2011), World Bank Open Data, http://databank.worldbank.org/ddp/home.do?Step=2&id=4&DisplayAggre gation=N&Sdmx upported=Y&CNO=2&SET_BRANDING=YES (accessed May 2011) World Bank (2011), World Development Indicators (Washington DC:

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THANKS FOR YOUR ATTENTIVE LISTENING!

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