Breathing Fire into SA – China Trade


South African – Chinese trade increased by a massive 77 percent last year when compared to 2010, according to official statistics. And it should remain strong this year – the Chinese Year of the Dragon – despite the economic woes facing Europe and other countries.

China has enjoyed rapid growth which has seen foreign delegations and business flock to the mainland in search of ties – including South Africa which was invited to join the BRICS (the acronym coined by Goldman Sachs banker Jim O’Neill in search for the next “big thing”).

But growth is unlikely to be as fast as in the past this year. “We should no longer be obsessed with the speed of growth,” said Lu Zhongyuan, deputy director of the Development Research Center of the State Council, or China’s cabinet. He predicts the expansion of China’s GDP will decelerate to around 8.5 percent in 2012.

This is echoed by Standard Bank economist Jeremy Stevens who believes it could be a more realistic 8 percent. Standard Bank has strong ties with the Chinese and is 20 percent owned by the Industrial and Commercial Bank of China.

Stevens’ belief is that, in terms of growth internally in China, some firms in the country will be in “lockdown mode” this year with cash preservation being the key. The country will also focus more on consumption growth as export markets continue to suffer from the economic woes of Europe.

In the past year, President Jacob Zuma has also worked strategically to build the relationship with China and argued persuasively for Africa’s inclusion in the BRICS group through South Africa’s membership.

He has already paid a state visit to China. Overall, South Africa continues to serve as the primary engine for Africa and remains China’s largest commercial partner on the continent.

This is also paying dividends in terms of inbound tourism. According to SA Tourism, the number of arrivals from China to South Africa in the first nine months of 2011 increased by 18.1 percent – a significant increase and one that is expected to increase again with the introduction of a direct Johannesburg- Beijing flight by the national airline. That figure, however, includes arrivals from Hong Kong.

China-Africa trade in general is estimated to have increased from $125bn in 2010, to $155bn in 2011, according to Senior Analyst Standard Bank Research Simon Freemantle. And he points out that only growth in China’s trade with Latin America is comparable to that with Africa.

In the bank’s research, it is estimated that South Africa’s exports of goods to China will grow even faster than imports this year.

Freemantle points out that South Africa’s biggest export to China last year seems to have been ZAR notes which is why South Africa will actually be the largest African exporter to China in 2011.

Standard Bank’s research shows that Chinese companies continue to allocate resources (both capital and people) to grow their presence in South Africa. At the start of last year, just seven countries in the world had greater official Chinese Fixed Direct Investment (FDI) than South Africa and, considering the large commodity-related investments in 2011, FDI surged once again.

South Africa and China, he believes, have rightly prioritised bilateral ties, but commercial tentacles reach far deeper. Numerous meetings took place last year as individuals searched for areas of collaboration.

However, looking ahead, the quality and substance of bilateral interaction will become more important, defining success.

South African mineral resources will remain important to China for some time to come, Freemantle believes.

In addition, South Africa offers Chinese-produced and -owned brands a market as well as a launch-pad into Africa and South Africa offers plenty of investment alternatives with strong future cash flows as well as being an important political ally.

Freemantle decries the notion that China is intent on land grabs in Africa or colonisation. He points to research undertaken by Deborah Brautigam , a professor based in Washington DC. This notion believes Freemantle, has mainly been advanced in the West. China has though, tied foreign aid to commercial advantage, he points out.

“China doesn’t dangle promises of schools, hospitals, etc. – the proposals about what infrastructure to finance with the loan are made by the borrower”, Brautigam points out.

As for future investment in South Africa, Freemantle believes that both automobile and ICT sectors could be the most attractive. And perhaps investment in special economic zones, as recently outlined in the draft Special Economic Zones Bill, and manufacturing hubs could also provide opportunities.

The upcoming FOCAC meeting, the official forum between the People’s Republic of China and the states in Africa could also unveil future development aid as well as Chinese investment in the continent.

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