JUNE 29, 2019 CHINA’S FOREIGN POLICY ON PERU: BLESSING OR A CURSE? A CASE STUDY ON HOW A RESOURCE-RICH DEVELOPING COUNTRY DEALT ECONOMICALLY WITH THE RISE OF CHINA RUUD VAN DER KANT LEIDEN UNIVERSITY Supervisor: Prof. Dr. E. Amann CONTENTS Contents .......................................................................................................................................... 0 Abstract ........................................................................................................................................... 1 Introduction ..................................................................................................................................... 2 Theory .............................................................................................................................................. 3 4.1 Economic imperialism ............................................................................................................. 3 4.2 Theories of economic development ........................................................................................ 4 4.2.1 A classical model of development ................................................................................... 4 4.2.2 World-Systems theory ..................................................................................................... 5 China as an imperialist power ......................................................................................................... 8 Case study: China’s increased relations with Peru ....................................................................... 10 6.1 Trade and FDI ........................................................................................................................ 10 6.2 GDP ........................................................................................................................................ 15 6.3 Industrialization .................................................................................................................... 16 6.3.1 Terms of trade ............................................................................................................... 19 6.4 Poverty and inequality .......................................................................................................... 20 Concluding chapter........................................................................................................................ 23 7.1 Conclusion ............................................................................................................................. 23 7.2 What goes beyond this study ................................................................................................ 24 References ..................................................................................................................................... 25 ABSTRACT Since China’s Go Global Policy became operational in 2002, it started many new relations with resource-rich developing countries. This paper has as a goal to build on literature about Chinese foreign policy towards resource-rich developing countries, and whether it may be defined as economic imperialist. The bilateral relationship with Peru is taken as a case study, as the country is endowed with mainly copper. Economic figures and statistics reveal that Peru has economically benefited enormously from increased trade and FDI, in terms of GDP growth and poverty reduction. However, the benefits for Peru are stagnating because the basis for industrialization is not present, and does not get developed through the relationship with China. Increase of economic ties by developing countries with China can be beneficial, but do not improve the long-term prospects for reaching the core in the World- System. INTRODUCTION The rise of China in the international scene has been called an ‘economic miracle’. Since its economic reforms in 1978, the country has achieved average growth numbers of over 9% (Yuan & Yu, 2014). At this moment, China has the second biggest economy worldwide, and it is projected to take over the United States soon. This has been the result of state-guided policies that led to incredible industrialization, turning China into the ‘factory of the world’. Not only rich classes have benefited from this growth, because according to the World Bank, more than 500 million people have been lifted out of extreme poverty. Whereas in 1981 88% of the Chinese population had to live from less than US$1.90 a day, in 2012 only 6.5% lived below this standard. When considering the international consequences for this economic miracle, we can identify two major milestones in China’s foreign policy. In 1978, president Deng introduced the Open Door Policy, by creating special economic zones that opened up for foreign investment. Then in 1999, the Go Global Policy was initiated, to promote Chinese investors to exploit opportunities abroad. After being accepted for the World Trade Organization at the end of 2001, China finally implemented the Go Global Policy in 2003, which meant the start of incredible foreign activity in the form of trade and FDI. Through the Open Door Policy China achieved to become the manufacturing capital of the world. This meant that its demand for raw materials skyrocketed, and that economic relations with resource-endowed countries had to be strengthened to assure itself of enough supplies, like oil, metals and other minerals. One of the countries that China increased its ties with is Peru, mainly because of the vast amount of copper reserves that the big country had in its ground. Until 2000, Peru was considered the second poorest Latin American country after the socialist Bolivia (World Bank, 2018). In the beginning of the 21st century, Peru started to develop rapidly, and by now the World Bank regards it as an upper-middle income country. It seems to be no coincidence that the two developments described in the previous paragraphs run almost parallel. China’s role in a resource-rich country like Peru is clearly present, but can be regarded as dubious. Especially in developing countries, their role is not undebated, as the capitalist system allows them to freely do business all over the world (Martinez, 2018). This study wants to identify the consequences that increased relations of China with developing countries since the implementation of its Go Global Policy has had for the development of these countries. Therefore, we have defined the main research question as follows: - To what extent can we characterize increased Sino-Peruvian relations since 2003 as a type of economic imperialism? To answer this question, we need to answer the following two sub-questions: - How can we characterize China’s foreign policy towards resource-rich developing countries since China’s Go Global Policy in 2003? - In what way provides the increased relationship between Peru and China opportunities or threats to the long-term economic growth of Peru? In the next chapter, we introduce two theories that guide this study. First, a theory of economic imperialism is discussed to find out what economic imperialism consists of. After that, we discuss a theory that has to do with the other side of the Peru-China relationship. We discuss World-Systems Theory in order to better understand the position of developing countries in the contemporary capitalist world-system. Chapter 4 will globally discuss how Chinese activity in developing countries all around the world since its opening up has been received, to answer the first sub-question. Thereafter we turn to the case of Peru, so we can go deeper into details, and answer the second sub-question. Based on both quantitative and qualitative data we sketch an image of how the relationship between the two countries has increased (by measuring development of trade and FDI), and what the consequences are for Peru (by measuring the development of GDP, industrialization, poverty and inequality). THEORY This part will discuss two theories. First, we will treat economic imperialism as a theoretical framework to place China’s actions towards developing countries, which is Peru in this case. Consequently, we will discuss a theory of economic development as a theory frame in which we can place the current situation and prospects of Peru towards the world economy. 4.1 ECONOMIC IMPERIALISM The concept of economic imperialism, or capitalist imperialism, was opted by Lenin in 1917 in his book ‘Imperialism, the Highest Stage of Capitalism (Lenin, 1939). Like the title of the book says, he regarded imperialism from an economic perspective, basing his work mainly on the theories of Marx’ Das Kapital. Lenin argues that imperialism is the highest state of capitalism, where capitalism has reached the state of a monopoly; ‘If it were necessary to give the briefest possible definition of imperialism, we should have to say that imperialism is the monopoly stage of capitalism’ (Chapter 7, P.1). Lenin observed that small-scale industry was forced out by competition of large-scale industry, leading to the inevitable situation where production is concentrated more and more until in practice a monopoly exists. More elaborate than the previous definition given of economic imperialism, Lenin defines five basic features of the concept: ‘(1) the concentration of production and capital has developed to such a high stage that it has created monopolies which play a decisive role in economic life; (2) the merging of bank capital with industrial capital, and the creation, on the