China – South Africa Relations: Part 3 Rebalancing and Competition across Africa

SA Graph

This is part 3 – click here for part 1 and part 2.

President Zuma proscribed a “rebalancing” of the trade relationship and the Chinese President Hu also recognised the South African defined imbalances and announced a promise to train 30,000 African workers and extend scholarships to African students to go to China. Thanks to South Africa’s political pressure the Chinese government had agreed to promote 10 “set aside products” including, plastics, steels, auto parts and agri-products, but this seems more like a symbolic effort to appease the South African government, and is unlikely to have much impact.
Perhaps where China and South Africa also lie in direct competition are exports to the rest of the African continent, both South Africa and China have stepped up investment and to that region, and there is a great deal of similarity in what the two countries are exporting, namely machinery, transport equipment, chemicals and metals. South Africa can produce rhetoric and pressure China into token initiatives to help boost South African exports, but the country’s private sector and government has to ensure its key manufacturing and service sectors are able to compete with or complement

Chinese companies

The University of East Anglia report used a constant market share study to find that South African exports to 10 countries in Sub Saharan Africa would have been almost 10% higher were there no Chinese competition. South African exports suffered the most in Tanzania and Angola where the rate was 20% and did best in the neighbouring countries, like Zimbabwe that are in the SADC free trade zone. So while China provides clear and tough competition in the region, South African exports benefits from the rise in commodity prices which have driven economic growth across Sub Saharan Africa, which has been driven by Chinese demand.

In 2007, the Industrial and Commercial Bank of China (ICBC) took a 20% stake in Standard Bank, worth USD5.5 billion which was the biggest foreign investment deal in South African history. Standard Bank is an African institution, with interests in 17 countries across the continent. Standard Bank can bring their African expertise to the table, while ICBC bring their financial firepower as by some measures they are the biggest bank in the world.
While western banks have ventured into Africa, they typically dip their toes into the water in Lagos and Johannesburg. Standard Bank has its roots in the continent and has a base of local contacts and experience across Sub Saharan Africa. As Africa’s industries and infrastructure needs grow so will its requirements for financial products and capital, which is good news for banks and financial institutions.

This deal could be the sign of the future, South African companies able to offer Chinese companies services and expertise, as opposed to trying to compete in the low end manufacturing sector. Whatever the future of the South African manufacturing and service sectors, it is sure to be intertwined with the political relationship between the two countries.

Dalai Lama Dilemma

In 2009 the Dalai Lama requested a visa so as to attend the birthday of his friend Archbishop Desmond Tutu, and give a lecture as part of the celebrations in Cape Town. He had been refused a visa to enter South Africa two years beforehand when he was due to attend a Nobel laureate’s conference, and this time it was no different. The South African government delayed making a decision on the visa until it was too late, in effect denying the Tibetan leader freedom to travel to the party, prompting a furious response from Desmond Tutu, who compared the ANC government to the Apartheid regime.

Although the Government denied it had any hand in the granting of a visa, the issue raised the question of whether the Chinese put pressure on the South African government, based on its position as the country’s biggest trade partner. More likely Beijing did not have to apply any pressure, knowing South African government would not risk giving the Buddhist leader a visa given it would have damaging diplomatic repercussions.
The two countries have seen their interests align on international positions. Both China and South Africa are strong advocates of non-intervention, which became an issue during the Libyan civil war over 2011 and 2012. France and the UK eventually intervened and South Africa took the Chinese line urging non-interference in the conflict (although this message was occasionally mixed). However espousal of a non-interference policy is not limited to China, many others such as Russia and most African states also champion this doctrine.

Europe or Asia?

There is a strain in South African foreign policy that veers towards South – South cooperation and the desire to develop new or competing poles of power, hence the strong emphasis on joining the BRICS club. But at the same time the country continues to have strong links with Europe and the US, whose combined trade, investment and political links still easily outweighs China’s influence. This duality of foreign policy is perhaps a reflection of the nature of South African society and its economy at once modern and industrialised, but also informal and poverty stricken.
All Diplomatic Roads lead to Beijing

The relations between South Africa and China cannot just be measured in terms of trade figures and FDI measures or even the number of presidential visits and delegations, but a more fundamental shift in the perception of power and the conviction that the future lies with China and Asia. At present, European trade easily outweighs these new markets, but while the rise in trade between these fast growing economies continues to out speed Western countries there is a gravitational pull towards what are thought of as the powers of the future, a belief that all diplomatic roads lead to Beijing.

China is not the only emerging power which has an interest in South Africa. India and Brazil have also developed close relations, organising the IBSA trilateral dialogue. The three countries set up the agreement to strengthen South-South co-operation and their negotiating position at the WTO. The IBSA three are world’s biggest emerging economy democracies and there is a notion of solidarity arising from this fact. The countries have worked together on development projects and diplomatic initiatives such their desired expansion of the permanent UN Security Council. The three countries have seen the trade links between them rapidly rise over the last decade, but are still dwarfed by the size of their trade with China and the Western world.

South African relations with China can also be contrasted with its western counterparts the EU and US. While South Africa has always been an exceptional country in the eyes of Europeans, thanks to its position as foremost economic and military power in Africa. There has been a perception that African countries are aid recipients, either associated with poverty or war. The Chinese by contrast had a less paternalist approach and viewed Africa as an opportunity for business and to gain political allies. On one hand South Africa feels increasing intimacy with China thanks to its commodity exports. Despite Zuma’s criticisms, the country is not going to stop selling the commodities to China, but at the same time fretting over its exposure to this new power and the extent to which Chinese exports are crowding out other industries.



Categories: China - Africa, China Goes Global, Kula Ring Trade Blog

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  1. China – South Africa Relations: Strategic Partnership or Neo-Colonial? Part 1 | Frontier Market Strategy
  2. China – South Africa Relations: Is China responsible for a decline in South African manufacturing? | Frontier Market Strategy

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