As a result of its tremendous economic growth over the last few decades, China is now investing and trading heavily with other developing countries. Many analysts see Chinese investment as a viable alternative to the aid or loans provided Western institutions in return for policies that favor their interests. However, the structure of this aid is controversial, and other analysts believe that it might be forcing the deindustrialization of these countries.
Developing countries have tried to support their local industries by adopting various policies such as import substitution, industrialization, and export-oriented growth. However, China has increasingly been demanding large amounts of metals and agricultural raw material. These demands have driven up the prices of commodities and given incentives to commodities exporters in developing countries to expand. As the profits in mining and agriculture have increased, the developmentalist efforts of many developing countries are now failing as they have found it easier to profit from China's surging demand in these sectors.
One example of such policy took place in Brazil between 1990 and 2005, where the land used for soybean cultivation doubled to cater for the Chinese demand, which makes up 42.7 percent of the market. This rapid expansion induced grave environmental danger to the Amazon forest, as Brazilian soybean farmers have expanded their land to continue meeting Chinese demand. Similarly, in other Latin American countries, copper-mining industry exports have increased by 237.5 percent between 2000 and 2006, with most of it originating from efforts to sell more products to China. The same has also happened in African countries, where the demand is for either oil or metal ores.
China’s low-cost manufacturing has also heightened the pressure on local industries in these emerging markets. For example, the devaluation of the Yuan by 33 percent in 1994 ushered in the low-cost manufacturing in China. This was a final blow to the manufacturing sector of China’s Southeast Asian neighbors, who were already suffering from loose lending and appreciating currencies. This paved the way for the subsequent Asian financial crisis.
It remains to be seen what effect these Chinese policies will have on the long-term development of these countries. However, they must take concrete steps now to save themselves from reaching a point where they will have to completely rely on their natural resources.