China’s Development Trajectory: A Strategic Opening for Industrial Policy in the South

A revival in South-South economic relations has raised the possibility of a shift in global power with profound implications for economic progress and poverty reduction in the developing world. This discussion paper delves behind the headline numbers to examine the underlying factors driving South- South relations and areas of strategic developmental cooperation. For now, South-South economic flows are being driven by China and its ability to deploy an unorthodox growth model that tilts the economy in favour of investment, which is crucial to its ambitious climb up the industrial value chain. Five key sectors (food, fertilizer, cement, steel and machinery) outlined by Arthur Lewis are used to assess China’s economic trajectory, which clearly remains a work in progress, but shows signs of indigenous technological capabilities taking root – particularly in medium technology capital goods industries. The gap between China’s industrial ambitions and its current capabilities provides a strategic opening for other developing countries to bargain for enhanced opportunities for domestic investment, learning, technical change and structural transformation. At the same time, China’s “real-time” formulation and practice of industrial policy processes are a source of inspiration for other developing countries searching for an alternative growth path. In a post-crisis setting, such demonstrations act as a useful template for re-thinking development priorities and to gradually begin re-casting economic policies within a national framework more conducive to catch-up and self-sustaining growth..