CHINA COUNTRY BRIEFING

Reference no: 14/3/2/18/2

Enquiries: Seabelo Molepolle

Extension: 43078

Division: ITED

Table of Contents

Section 1. Summary of bilateral issues

  1. Background
  1. SA-China Partnership for Growth and Development
  1. Contract Signing Ceremony
  1. Trade and Investment link

4.1Trade

4.2Investment

Section 2: China Country Briefing

  1. Economic Overview
  1. Bilateral Trade between SA and China
  1. Inward Investment
  1. Review of Bilateral Economic Relations
  1. Details of Issues of Interest to South Africa

SUMMARY OF BILATERAL ISSUES

1. Background

During April 2000, the Chinese President Jiang Zemin paid a State Visit to South Africa. During this visit, the Heads of State signed the Pretoria Declaration on the Partnership between the People's Republic of China and the Republic of South Africa, emphasizing the strategic importance of the diplomatic relationship.

A Bi-National Commission (BNC) was established in 2002 and has become the key vehicle for facilitating cooperation between the two countries. The third session of the BNC was held in Beijing in September 2007. During this BNC a number of critical decisions were reached for intensifying cooperation in the following areas that complement South Africa’s 10 priorities in the Medium Term Strategic Framework:

  • Foreign relations – which led to the establishment of a Strategic Dialogue in January 2008
  • Economics and trade – including a focus on addressing imbalances in the structure of trade to create sustainable and a mutually beneficial trade between the two countries
  • Education – to assist South Africa with its capacity development initiatives
  • Poverty alleviation – by providing assistance through training, the use of appropriate technology, rural development and employment creation
  • Environmental affairs – finalization of the MOU on co-operation in the field of environment, the need to cooperate on marine protection
  • Health - together with the Chinese State Administration on Traditional Medicine (SATCM) prioritized cooperation in the area of Traditional medicine
  • Agriculture - implementation of cooperation agreements in Agriculture development and trade. It was acknowledged that progress has been made in aquaculture capacity building in South Africa and that an increase has been recorded in the movement of agricultural products between the two countries
  • Water - the two sides also agreed on the prioritization of capacity building in the fields of rural water supply, training, fire prevention, protection
  • Public Service and Administration - Collaboration would focus on Capacity Building Initiatives, Human Resources Development and Management, Public Sector Reform, exchange visits of experts, seminars, documents and international exposure for middle managers undergoing the accelerated development programme.

For almost all the national priorities listed above, there are specific bilateral agreements, which are at various levels of implementation. The next step will be to intensify their implementation and where there has been poor progress, and find ways to address these. The ideal platforms for addressing these are the forthcoming Strategic Dialogue, 4th Session of the Bi-National Commission to be hosted by South Africa and the State Visit to China in 2010.

  1. Bilateral Mechanism for Trade and Investment Cooperation

South Africa and China cooperate extensively and regularly on trade and investment issues through the Joint Economic and Trade Committee (JETC). A JETC (Ministerial level of Trade and industry) is a sectoral Committee of the SA-China Bi-National Commission (BNC) established at Presidential level in 2002. The BNC/JETC has met on three occasions.

The focus areas of cooperation between two sides under the JETC includes amongst others the following:

  • Advancing the Partnership for Growth and Development (PGD);
  • Encouraging South African and Chinese enterprises to cooperate and explore mutually beneficial commercial opportunities;
  • Identifying joint projects that may be supported by financing arrangements including concessional loans, preferential export buyer’s credit and the China-Africa Development Fund,
  • Cooperation in human resources development to support South Africa,
  • Coordination in support of NEPAD and FOCAC.

In 2006, South Africa and China concluded a Memorandum of Understanding (MoU) on Promoting Bilateral Trade and Economic Co-operation. The MoU included an annexure limiting imports of 31 categories of clothing and textile products from China through a quota system. The aim of the import restrictions was to allow a window of opportunity for industry to restructure and become globally competitive. While the Annexure terminated in December 2008, a commitment to promote broader cooperation under MoU remains in force. This MoU encourages China to provide special assistance to South Africa in respect of training, exchange of information, skills development in the textile and apparel industry.

3.Trade and Investment Links

3.1Trade

Total trade between South Africa and Chinahas experienced an upward trajectory since 1998 to 2009: from R5,2 billion to R120 billion. During recession period (2008-2009) trade between the two countries grew by 2 percent. According to South African data, the trade balance has favoured China since 2001. From 2001 to 2008, the trade surplus in China’s favour increased from R5 billion to R46, 6 billion, but decreased to R22 billion in 2009. The Chinese authorities have disputed these figures and have consistently argued that bilateral trade is balanced. It appears the discrepancy lies largely in recording indirect trade, particularly gold, while South Africa records Hong Kong as the destination for gold exports while the final destination may indeed be China. China records gold imports via Hong Kong as imports from South Africa. However, both sides do acknowledge their differences in the calculation of statistics and have agreed to establish the Joint Working Group on Trade Statistics to investigate the discrepancies. Thus far, the dti has forwarded a Terms of Reference to the Chinese Embassy in SA for their consideration.

At the end of 2009, China became SA’s 1st largest export partner followed by the US, Japan, Germany and UK, and also the first import trading partner in the Asian region, surpassing Japan, India and Hong Kong. During the same period, China became our 1st import partner in the world, followed by Germany and also our number one import partner in Asia.

South Africa exports a narrow range of mineral and resource-intensive products to China: metals, minerals and other commodities. By contrast, South Africa imports a widening range to higher value-added products from China, including clothing, data processing machines, printing machinery, bulldozers and motor vehicles.

3.2Investment

Investment in South Africa from China is in excess of R37 billion since 2003 following an announcement of the strategic partnership deal between Standard Bank and the Industrial and Commercial Bank of China Limited (ICBC). The ICBC purchased 20 percent stake in Standard Bank for R43 billion (US$ 5.64 billion) in 2008. Analysis shows that Chinese investments have been focused mainly in metals (around R3.8 billion or US$ 440 millions), followed by chemicals, food and tobacco, consumer electronics, automotives and communications.

Other investments by Chinese companies in South Africa are in the mining sector (mainly chrome), with five projects in total, and electronic goods assembly. Overall, according to TRADEINVEST SA, South Africa ranks second in China’s mining investment in Africa, behind the DRC (six projects), and ahead of Zambia (five) and Zimbabwe (four).

South Africa has a significant investment presence in China including SAB-Miller, Khumba Resources, Anglo-American, Naspers, AngloGold Ashanti, Sasol, First National Bank. In value terms, these investments are estimated at between US$600 and US$800 million.

4. Issues of interest for South Africa

4.1 SA-China Partnership for Growth and Development (PGD)

This PGD process began in 2007 following the discussion by the Presidents of both countries where an agreement was reached to address the structure of trade currently in favour of China. This process aim to construct an economic relationship intended amongst other things, to balance trade and increase investment flows between the two countries in a sustainable manner.

Our work on the PGD has been anchored around market access for South Africa’s value added export to China, mineral beneficiation as well as infrastructure facilitation and development.

To date, the PGD process has not yielded positive results since 2007. We have made little progress with China on the PGD under each of the pillars, whereby the most important one was Market Access for value added products.

During February 2010,the dti paid a working visit to China, accompanying the Minister of International Relations and Cooperation, Ms. Nkoana Mashabane to prepare for a State Visit. During the visit a proposal was made by South Africa to elevate the current Bilateral Partnership Agreement to a Comprehensive Strategic Partnership Agreement (CSPA) envisaged to be concluded and signed by both Heads of State. It was also proposed that the PGD will be folded into the broader CSPA. However, it is not clear how the PGD would be folded; but thus far, the dti is in the process of compiling inputs to be incorporated in the CSPA. These inputs are drawn from the agreed PGD elements, namely the beneficiation of raw materials and minerals, infrastructure support and development, and trade promotion and investment facilitation.

We are expected to work closely with DIRCO in this regard, and we will ensure that the objectives of the PGD remain valid.

4.2SA-China Economic & Trade Cooperation Forum

The SA-China Economic and Trade Cooperation Forum was held in Pretoria, March 2010. The Chinese Government invited 23 companies to be part of the contract signing ceremony at the event. Procurement contracts between companies from both countries amounted to US$311 million (or R2,3 billion) were signed. Products involved in these contracts were predominantly primary products[1] and raw materials except wine.

This was similar to an event which took place in April 2007 in South Africa, where contracts to the value of US$ 143 million (R1,1 billion) was also signed in presence of the then Deputy Minister of Trade and Industry, Dr. Rob Davies. However, we are of the view that China continues to procure raw materials from SA and clearly this type of missions is contrary to our efforts to address the current structure of trade, which is a concern for South Africa.

This will however be addressed in the CSPA where we will require the Chinese Government to support South Africa’s industrial policy initiatives of which one of it is the export of value added goods and products.

For more details on the summary of the issues above, kindly refer to the country briefing

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[1]Mohair, SA fishmeal, wine, wool, granite blocks, frozen fish, wood pulp, cobalt copper, lobsters and abalone, fruit, chrome ore.