Trade and investment relations between South Africa and China have developed at a rapid pace since the commencement of diplomatic relations in 1998, with numerous high-level visits between the two, all aimed at strengthening relations between the regional powerhouses.

With Africa’s wealth of natural resources, China’s economic attention is by no means wholly focused on South Africa, though the latter’s relationship with China is said to be one of the closest between African countries and the world’s fastest growing economy, premised on South Africa’s relatively developed industrial and commercial base and the strength of the South African state. A number of forums have been established to manage this relationship, such as the China-South Africa Bi-National Commission.

In September 2007, at the third meeting of the commission, it was agreed that cooperation on human resources, agriculture, poverty eradication, minerals and energy and public administration would be increased; and that the China-Africa Development Fund (CADF), with an initial purse of US$1-billion, would be used to encourage companies to promote trade and investment. CADF’s first investment plan was launched in February 2008 with US$90-million targeted at four projects in power, construction materials and mining on the continent. Recently China and South Africa have commenced what is called a ‘strategic dialogue’.

China sees its investments in South Africa as strategic – investments in the ‘preferred country’ on the ‘preferred continent’ . China also sees South Africa as the gateway to investing on the rest of the continent – and South Africa is the only nation in Africa that has a manufacturing and service base that is anything near the scale required to engage the Chinese market. However, until recently China’s  primary interest in Africa has focused on the continent’s natural resources that China needs to keep up its massive growth (11.4% in 2007, though down to 9.3% in the first half of 2008) – oil from Sudan, Chad, Nigeria, the Republic of Congo and Angola; and metals (largely) from Ghana, Gabon, the Democratic Republic of Congo, Zambia, and South Africa.

China’s trade with Africa, first quarter 2008 – top 3 trading partners, with values in US$-bn

Region	Total trade	Exports	Imports	Total % change y/y	Exports % change y/y	Imports % change y/y
Africa	23.98	10.07	13.92	72.3	45.0	99.5
Angola	6.22	0.51	5.71	150.1	126.2	152.5
South Africa	3.85	1.87	1.98	34.9	33.5	36.3
Sudan	2.12	0.45	1.68	105.7	49.4	128.7

(Source: Chinese Ministry of Commerce)

China’s trade with Africa – 1995-2007

While this graph shows that Africa as a whole has had a slight trade surplus with China, resource exports from a few resource-rich countries, such Angola and Sudan, offset the trade deficit that the rest of Africa has with China.

According to the Stellenbosch-based Trade Law Centre, citing the 2008 World Trade Atlas:

• The value of trade between China and Africa increased by an average 24% between 1995 and 2007, with total trade (imports and exports) of approximately US$74-billion in 2007
• Imports into China from Africa increased by 27% from 1995 to 2007 while Chinese exports to Africa rose by 23%
• Angola (19%); South Africa (19%); Sudan (8%); Egypt (6%) and Nigeria (6%) were the biggest African trading partners for China, accounting for 58% of all African trade with China in 2007. Their cumulative trade increased by 25% between 1995 and 2007
• The top China imports from Africa in 2007 were mineral products (80%); base metals (4%); precious stones and metals (4%); wood products (2%); and parts for motor vehicles (2%)
• The top China exports to Africa in 2007 were textiles and clothing (13%); machinery (9%); transport equipment (7%); base metals (2%) and footwear (2%)

In the main, Africa is still primarily a market for low-cost Chinese manufactured goods. However, China is willingly to fund infrastructure development in Africa (it is the largest investor in infrastructure on the continent) in return for access to mineral deposits, particularly oil and steel (it is the largest consumer of these on the continent), and has recently begun to market higher value-added goods, such as vehicles and household appliances (e .g. ‘white goods’ and electronic equipment) on the continent, as well as being a source of ‘soft’ loans to African governments.

Recent Chinese investments in Africa include the agri-industries, electricity, road construction, textiles, tourism and telecommunications. As former vice foreign minister Ji Peiding remarked in May this year: ‘China-Africa cooperation creates conditions to transform our resources and technological advantages into development advantages, which is what win-win cooperation is all about’.

For a comprehensive look at the various investments made between China and South Africa over the last ten years click here.

Trade

China overtook Germany as South Africa’s largest import market in the first quarter of 2008 and is South Africa’s fifth largest export market. South Africa accounts for around a fifth of China-Africa trade. China wants to increase this total trade to US$100-billion by 2010, and wants to increase oil and gas imports from Africa by 35-40% in the next five to ten years.

Trade between China and South Africa has been increasing at a rate of 20-30% per year over the last 12 years, as China has steadily beginning more important to the South African economy.

Bilateral economic relations between South Africa and China, 1996-2007 – Values in billions of rands

< td>8.8

Year	Exports	Imports	Total	Balance
1996	0.8	2.4	3.2	-1.6
1997	0.9	3.2	4.1	-2.3
1998	0.9	4.3	5.2	-3.4
1999	1.7	5.0	6.7	-3.3
2000	2.4	6.9	9.3	-4.5
2001	3.8	9.1	12.9	-5.3
2002	4.7	14.3	19.0	-9.5
2003	6.7	16.6	23.3	-9.9
2004	6.6	23.0	29.6	-16.4
2005	31.5	40.2	-22.7
2006	14.2	46.7	60.7	-32.7
2007	23.7	49.1	72.9	-25.4

(Source : www.thedti.gov.za)

According to Reuters, for the first half of 2008, South African exports to China totalled around R31-billion, while imports from China amounted to about R35-billion. As shown in the table above, South African exports are increasing in value (and volume) at a more rapid pace than imports from China. While equity is not likely to be reached in the medium term, the countries’ governments, if not the traders themselves, are clearly aware that the field requires levelling. This will go some way to alleviate the still considerable trade imbalance between the two countries.

For a comprehensive breakdown of trade by sector between South Africa and China click here.

Concerns and opportunities

A number of challenging issues have arisen in the course of the growth of trade between South Africa and China. One is the differential effect of this trade on various local industries, e.g. textiles and agriculture. As noted above, the South African agricultural sector is on the up as a result of exports to China, while local textiles producers are struggling to make ends meet even though a quota was imposed on low-cost Chinese exports to South Africa to protect the local industry.

Secondly, South Africa’s trade deficit with China has grown considerably as trade has progressed. This was particularly evident at the end of 2006, though it decreased somewhat in 2007 and looked healthier in the first half of 2008. Both governments have recognised the challenges involved in rectifying this situation – as deputy minister of trade and industry Rob Davies notes, a more equal trade balance will involve South Africa increasing exports of higher value-added products.

The Chinese Ministry of Commerce’s (Mofcom’s) 2007 Market Access Report mentions a number of concerns relating to trade with South Africa. These include :

• South Africa using antidumping and countervailing investigations as trade remedies, which Mofcom feels discourages Chinese enterprises from maintaining and expanding export of certain products to South Africa. However, Mofcom acknowledges that increased cooperation and communication between the governments and respective bilateral trade bodies involved has led to ‘fruitful consultations’ which has achieved ‘encouraging results’ on these matters.
• South Africa’s complex and ‘relatively high import tariffs’ on certain products to support the development of its own industries, e.g. sweet products, mutton, milk and maize
  • Approval and licensing for certain imports, such as waste products, which ‘adversely affects their normal export’ to South Africa.
• Changes to compulsory standards, which adversely affect export of Chinese mechanical and electrical products by placing higher safety requirements on these products.
• Stringent provisions by the South African government on packaging classification for agricultural products which add to the operating costs of foreign enterprises.
• Required certification of cement products, which add to market access costs and ‘adversely affect’ normal trade.
• Sanitary measures, such as import control of agricultural and poultry products, and the prohibition on importing radiation-processed meat into South Africa, as well as the ban on most bird and related products (to prevent bird flu outbreaks in the country).
• That the principle of fairness and transparency is ‘not always strictly enforced’ in the process of government procurement in South Africa, to the detriment of foreign companies.
• That the 2001 Broad-based Black Economic Empowerment Act, which restricts foreign ownership of firms to less than 75%, may, as a compulsary index, restrict the operations of foreign companies and foreign investment in South Africa.

These are matters that suggest further dialogue is necessary, and require a deeper understanding on the issues at stake at each end of Africa and Asia. Rather than occupying a priori defensive positions, the consultations that have been stepped up in pace in the course of this year indicate that the two sides are ready to continue to try to solve problems as they arise.

Local beneficiation of South Africa’s natural resources is an example of where the trading partners have to reach the beginnings of an agreement of how to proceed. Through the Chinese government has reservations about South Africa’s policy of decreasing levels of export of raw chromium and the increased export of ferrochrome, while China needs the steel, South Africa has the chrome mines. Concord involves linking trade ever more closely to investment and development, a process that both China and South Africa are consciously undergoing. South Africa has the mines – and it needs both skills development and industrial development. Not being able to outsmart China at producing a niftier, cheaper DVD player, it should aim to structure its niches, its strengths and its competitive advantages so that the best possible benefit is derived from them.

Given the extent of concentrated interaction at the diplomatic level between the two countries, it is likely that some of these issues will be resolved at the level of government departments and commissions – both China and South Africa stand to gain too much by continuing amicable relationship for either to let potential animosities get in the way of trade and development. The strategic dialogue between the two is an ongoing process that, handled correctly, will serve each well. They’ll no doubt be talking about it at the Shanghai Expo at the end of the year.