How China’s Economic Success Contributes to Caribbean Prosperity

In April last year, my wife Monica and I installed a solar photovoltaic generating system at our home in St Joseph, tied to the Barbados Light & Power grid. We sell all the electricity we generate to BL&P, and we buy all the power we need from them, as we always have. At the end of the month we usually have a small balance in our favour. We have power day and night, whether it’s sunny or overcast, and our monthly electricity bill is zero. The price we paid for our system was about the same as the value of our Toyota motor car. In effect, the price of solar PV systems has fallen to a level that if you own a car, you can afford install a system that meets your needs.

That was not the case as recently as 10 years ago. What has made the difference is the entry of Chinese producers of solar PV panels into the international market, which rapidly increased production by several orders of magnitude. As everyone knows, if you produce on a massive scale, the costs of each unit you sell can be lower than for producers that have smaller production capacity. Until Chinese producers entered the market, Germany was the main market for solar PV panels, because the German government, along with some Scandanavian countries, provided generous tax relief and rebates to encourage the purchase of PV panels. With only the relatively small German market to depend on, production facilities were relatively small, and the price for panels was relatively high, putting the cost of a system for domestic use beyond the reach of people like myself. That all changed when the Chinese government made a major commitment to the expansion of solar PV generation as part of China’s push to diversify the Chinese economy away from fossil fuels. This immediately created a vastly expanded demand for PV, because of the enormous size of the Chinese market. That in turn was an incentive for Chinese companies to ramp up production on a massive scale, with the resulting fall in the price of each unit.

Here is an example of a virtuous economic cycle. China makes a decision, mainly in the best interests of their own environment and economy, to produce solar PV panels on a large scale. That reduces the selling prices of panels by so much that, not only do Chinese consumers benefit, but many people in the rest of the world, including Barbados, are now able to afford a system which was previously beyond our means. This is a practical illustration of the benefits of trade between nations, and it also demonstrates how China benefits the Caribbean, along with all other countries in the international trading system, by making more affordable products widely available.

The growth of Chinese industrial capacity has been a worldwide benefit

The most important event in the global economy in the 21st century has been the addition of 400 million Chinese industrial workers to the world’s labour force. That is the implication of China’s industrial revolution. Surprisingly, Western economies did not see the Chinese juggernaut coming. And economists in the West have been slow to recognise the full implications for the world economy, which are evident from the available economic indicators. Without China’s manufacturing output over the last three decades, the world economy would now be very much smaller, with fewer goods and services available to all. That has been of immense benefit to the Chinese workers who produce these goods; they have moved from lives of rural poverty to the security and promise of the middle class. Equally, it has been of great benefit to consumers in China and in the rest of the world, because the goods and services produced have been exported to the rest of the world, as well as consumed in China. The reason China has been so successful at exporting is that they are able to sell products that give better value for money than similar products from other sources. We buy Chinese products because our money goes further when we do. Americans, Europeans and people from other large diversified economies should welcome Chinese exports to their countries for that reason. They can buy local motor cars, cell phones and printing services, but they choose to buy Chinese products instead because that enables them to have a somewhat better lifestyle. Like Germany, Japan and Korea in earlier decades, Chinese products at first had a dubious reputation, but with the maturing of their industrial processes Chinese products can now hold their own on quality with the industrial world.

The concern in the US, Europe and elsewhere about the Chinese trade surplus is entirely misplaced. By importing cheaper Chinese products and services that are nowadays every bit as good as they produce at home, Americans and Europeans are improving their lifestyles. What is more, the money that China earns from its export surplus is mostly invested in the US and Europe, which is an additional potential benefit to these industrial countries. The demise of the “sunset industries” in rich countries, and the attendant loss of jobs, is the result of new technologies and slow growth of labour productivity in these industries, which means that their labour costs are way higher than those in emerging markets which use the same modern technology, but pay much lower wages.