South Africa and China: Forging Africa’s Strategic Partnership

Publication: China Brief Volume: 8 Issue: 13

Ten years of official diplomatic relations between the Peoples Republic of China and the Republic of South Africa have been marked by a multitude of milestones in both countries. From a period of no official ties to limited interaction between the South African and Chinese governments, the relationship has subsequently grown to become one of the closest between African and Asian states. Underpinning the warm ties between the two countries is growing economic engagement, which has put South Africa amongst China’s top three trading partners on the continent. At the same time, the impact of ongoing leadership struggles within the African National Congress, coupled with endemic crime and xenophobia, has produced an undercurrent that is introducing a degree of uncertainty to this nascent partnership.

With the onset of diplomatic relations with China in 1998, South Africa’s foreign policy charted new waters by re-orienting its diplomacy and, increasingly its economy, away from its exclusive focus on Europe and North America. The establishment of the bi-national commission in December 2001, subsequently reinforced through the strategic dialogue process, has ensured that there is systematic government-to-government contact at the deputy president/vice president and ministerial levels, a process that facilitates close cooperation on multiple areas of mutual concern. Since taking up the non-permanent seat on the UN Security Council in 2006, it has become clear that South African positions on matters like Darfur, Zimbabwe and Burma (Myanmar) mirror those of China and are a clear indication of the two governments’ shared outlook on the key features of the international system. Indeed, that Pretoria prioritizes its concerns for sovereignty over that of human rights and democracy suggests that the South Africa’s image as a liberal beacon in Africa is waning and moving ever closer to Beijing’s perspective on these matters. Regarding the reform of international institutions, South Africa and China also share a common view on the need to transform the UN Security Council and the international financial institutions to better reflect developing country interests (though Beijing has been careful not to alienate other African aspirants to a permanent seat in the Security Council by supporting the African Union’s call for a rotating seat).

Military co-operation, though discussed at senior levels by both governments, appears not to have produced the same levels of co-operation as found in the diplomatic and economic spheres. Certainly, the spectacle of joint military exercises with the Indian and Brazilian navies agreed at the last IBSA summit will raise the stakes for those wishing to achieve a closer degree of co-operation between South Africa and China. Moreover, South African weapons producers are by some accounts in competition with their Chinese counterparts for markets in Africa, including Sudan.

These close diplomatic ties have been matched by growing economic engagement. With two way trade rising from $800 million in 1998 to $11.2 billion in October 2007, economic cooperation between the two countries is being realized at ever-increasing rates. Moreover, the once low levels of Chinese investment into South Africa are finally catching up with the high-profile South African investment in China. In particular, Chinese FDI reached new heights with the announcement in November 2007 that the Industrial and Commercial Bank of China would be purchasing a 20 percent stake in Standard Bank worth $5.6 billion. This is complemented by significant South African investment in China, which surpassed $200 million in 2006. Leading the charge are SAB-Miller, which owns 55 breweries in China; Sasol, which has a joint venture with Ningxia and Shenhua CLC to develop coal-to-oil plants in China; and other resource based companies such as Anglo-American and Kumba Resources. With Chinese demand for foodstuffs growing exponentially, the potential for further development of commercial links between South Africa and China exists.

At the same time, the deepening of economic ties with China has raised important questions as to the uneven impact of trade in certain sectors of the South African economy – with locally produced textiles experiencing sharp reductions while exports of South African agricultural products are soaring – and has created challenges for China and South Africa alike. The emphasis of South Africa-China trade has been on the Chinese acquisition of minerals, agricultural goods and related commodities while South Africa absorbs imports of low-end consumer goods. This is, however, changing and we are beginning to see higher value-added products from China such as automobiles and ‘white goods’ entering the local market. To demonstrate its sensitivity toward trade relations the Chinese government agreed to impose unilateral restrictions on its own textile and clothing exports in late 2006, in order to give South Africa’s manufacturers time to retool their operations in anticipation of a re-opening of trade in this sector. Additional frictions exist over the commercial rivalry between South African firms in areas like construction and mobile phones, where Chinese firms have made inroads into parts of Africa which South African business has traditionally seen as their ‘natural’ market.

Moreover, there are a host of other factors complicating the process of deepening bilateral ties. Key amongst these is the politics of succession within the ruling African National Congress (ANC), which has pitted President Thabo Mbeki against his former deputy president, Jacob Zuma. The routing of Mbeki and his supporters at the ANC’s party congress in December 2007 was owed in large part to the Congress of South African Trade Unions (Cosatu) and other disgruntled elements within the ANC. As Cosatu has been at the forefront of the debate regarding the impact of Chinese investment and imports on labor interests, the spectacle of a Zuma presidency – which owes his position to the trade union – is seen with some trepidation in Beijing. Cosatu’s defense of the opposition in neighboring Zimbabwe resulted in the refusal to unload a shipment of Chinese arms in Durban bound for that country in April this year. The situation, which brought on a public round of condemnation by Southern African leaders, could serve as a harbinger of the trade union’s influence on future foreign policy. Furthermore, South Africa has the largest Chinese community – with over 300,000 Chinese in residence, many of whom arrived within the last decade – on the continent, and its high rates of crime are taking a toll on their confidence. Many in the Chinese community believe that they are being specifically targeted by South African criminals and, with the rising tide of xenophobia gripping the country and the failure of the police to stem crime, there is a growing atmosphere of siege that is starting to affect individual entrepreneurs’ investment decisions.

While strong bilateral engagement between South Africa and China are at the heart of the relationship, the two sides recognize that there are considerable opportunities for greater co-operation in the rest of Africa. In this regard, the rolling out of Chinese backed infrastructure across the continent – often characterized in the South African press as an outright loss for South African interests and firms – should be recognized for what it is: an unprecedented step aimed at addressing of a key obstacle to African development. Indeed, given World Bank estimates that Africa has an infrastructure backlog measured at over $32 billion. The Chinese role is one of contributing to addressing this issue and leaves plenty of opportunity for others, especially South Africans, to play a significant role. Evidence from Ethiopia to Angola, where Chinese financed firms have built transport and communication infrastructure, already links these initiatives to increased economic growth in those countries. Moreover, this opening of previous isolated or closed markets benefits not only Chinese economic interests but provides an opportunity for South African (and others) exporters. In this regard, the ICBC-Standard Bank arrangement is a compelling model of Chinese-South African private/public sector co-operation, promising greater collaboration in provisions for financial services across the African continent through Standard Bank’s established presence in 18 countries, in giving the South African bank better access to the Chinese domestic market and providing a new source of capital. According to the Chief Executive Officer of Standard Bank, Jaco Maree, ‘We will try to keep almost all the (Chinese investment) money that we can outside of South Africa because it is earmarked for growth in Africa and growth outside of Africa’ [1].

At the same time, Chinese competitiveness is a phenomenon that is raising concerns not only in certain circles in South Africa but increasingly across the continent as well. While talk of a ‘de-industrialisation’ of Africa is certainly exaggerated, nonetheless there are very real fears that in some areas in Africa’s hard fought gains in manufacturing will fall victim to the Chinese economic juggernaut. Though overall the balance of trade between China and Africa is in rough parity, individual countries like South Africa are experiencing significant trade imbalances with South African imports of Chinese products valued at $7.5 billion (R49.1 bn) and South Africa exports to China valued at $3.64 billion (R23.7 bn) in 2007. The Chinese are well-aware of this problem, as the South African textile case suggests, and have begun to introduce measures such as zero tariff ratings on selected goods from Africa’s poorest countries though there is undoubtedly more that can be done. Other aspects of China’s engagement are raising eyebrows in African capitals as well. In particular, the role of Chinese weapons sales in established arenas of conflict around the continent, highlighted by the Zimbabwean case, are increasingly viewed as problematic by South Africa.

Notwithstanding these issues, it is clear that officials on both sides would like relations between South Africa and China to become the linchpin of a new invigorated form of South-South co-operation. Reflecting this is the decision late last year to deepen bilateral co-operation by establishing a Partnership for Growth and Development whose overarching aim is to forge a more equitable relationship between the two countries. Featuring in this arrangement are talks around gaining long term access to South African resources in exchange for investment and greater market access for value-added and beneficiated products [2]. Even the moribund negotiations around a China-SACU preferential trade agreement is back on the table and likely to be re-opened in the coming year. This multifaceted diplomatic collaboration between China and South Africa, coupled with an increasingly strong economic foundation, is poised to become one of the drivers of growth on the African continent. Realising this aim, against the backdrop of an incoming South African administration and pressure from local interests, is the key challenge for this maturing relationship.

Notes

1. Cited in http://www.businessday.co.za/Articles/TarkArticle.aspx?ID=3066808

2. Deputy Minister of Trade and Industry, Rob Davies, presentation at conference on China and South Africa, 2 May 2008.