/ 22 March 2013

China and SA cement relationship

China’s President Xi Jinping will meet with President Jacob Zuma ahead of the Brics summit this week.
China’s President Xi Jinping will meet with President Jacob Zuma ahead of the Brics summit this week.

The leader of the second most powerful economy in the world, China's new President Xi Jinping, will go to South Africa on a state visit, ahead of the conference of the Brazil, Russia, India, China and South Africa (Brics) grouping.

Some economists have questioned how South Africa, which is trailing way behind its Brics partners with a significantly smaller economy, has made it into this group.

President Jacob Zuma will hold one-on-one talks in Pretoria with Xi on March 26 before they jet off to the Brics conference in Durban. The two leaders are expected to sign a number of agreements that will have a significant influence on trade co-operation between the two countries.

Department of industrial relations and co-operation spokesperson Clayson Monyela said both sides have agreed to work towards a more equitable trade balance, and a joint working group on trade statistics was established under the binational commission to address the trade imbalance.

Spokesperson for the Chinese embassy in South Africa, Yi Xing, told the Mail & Guardian that South Africa is very important to China, not only as the biggest trading partner China has in Africa, but also because of a 15-year diplomatic relationships. Bilateral trade in the late 1990s amounted to $1.5-billion, but it had increased to $60-billion by 2012.

The pathway to Africa
Experts on China-South Africa trade say that China, which has invested nearly US$10-billion in South Africa over the years, also sees the country as the pathway to Africa.

This is not surprising. Zuma has worked hard in the past year to build up relations between the two countries and lobbied for Africa's inclusion in Brics through South Africa.

It also helps that South Africa has a wealth of minerals and materials to supply China's seemingly insatiable demand. Economists say that financing, particularly for infrastructure projects, would be particularly welcome.

A source involved in the drawing up of the China-South Africa agreements said South Africa's advantage is that it has never approached China for hand-outs, but has always engaged in professional trade agreements – something that has been highly respected by Chinese leadership.

Yi said the Brics conference was viewed as important because Brics co-operation has increased substantially since 2009, and because it is the first conference to be held in Africa and "is expected to have a profound effect on African development and the co-operation between the Brics group and Africa".

Opportunities for emerging markets
It is also widely accepted that China would like to see the group become strong enough to challenge the economic hold of the United States and the European Union, and open the way for more opportunities for emerging markets.

Brics has become a buzz word in the past few years. Learning the five Rs has become all-important in diplomatic and commercial circles. These are the real, the ruble, the rupee, the renminbi and the rand – the currencies of Brazil, Russia, India, China and South Africa.

The focus – as this year's theme, Brics and Africa: Partnership for Development, Integration and Industrialisation, indicates – is not Africa.

According to research by Standard Bank, the Brics nations trade more with Africa than among themselves and it estimates this trade will soar to more than $500-billion by 2015.

But the launch of a number of Brics projects and initiatives at the two-day Durban meeting is expected to begin the process of laying institutional foundations to formalise the commercial and economic interactions of a group of countries that are as often competitors as they are allies, particularly when it comes to engagements with African countries.

No surprises
It is China, not surprisingly, that leads the Brics convergence, according to Standard Bank research analysts Simon Fremantle and Jeremy Stevens, and the Asian juggernaut accounts for 67% of Brics trade with the rest of the world, as well as being a counterparty to 85% of all intra-Brics trade.

Political risk analyst Mzukisi Qobo said it's not surprising that Xi had chosen South Africa for his first state visit, because there is a strong relationship between the ANC and the Chinese Communist Party. However, South Africa's economic relationship with China is weighted in the Asian giant's favour, with China typically buying up South African resources – 60% of this trade is iron ore, according to Qobo – and South Africa importing finished products from China.

But apart from the content of the trade, South Africa also buys more goods from China, creating a current account deficit with the country, said Qobo.

South Africa's government is keenly aware of this imbalance and there is a joint process to address these issues, which includes harmonising trade data and methodologies for its measurement.

"There is a keen interest by both parties to deepen [economic] relations," said Qobo.

Chinese investment
South Africa is looking to attract Chinese investment in manufacturing, agroprocessing, mining and minerals beneficiation. It would also like to promote technology transfer and co-operation particularly on the green energy front. Apart from this, our economic interests when it comes to China are "not strongly defined", said Qobo.

"The specifics at bilateral level are not very clear and there has been some floundering as to how [South Africa] positions itself," he said. "Politically, the relationship is asymmetrical. South Africa defers to China and sees it more as a partner to be mollycoddled and cajoled. [South Africa] does not push too strongly to gain concessions."

A number of projects and processes will be launched at the forum, including those mentioned by Finance Minister Pravin Gordhan in his recent budget speech.

The most widely talked about has been the possible establishment of a Brics development bank, aimed chiefly at co-funding infrastructure in developing regions.

Qobo pointed out that the South African government's shift in emphasis towards this structure being a "Brics-led" development bank is a signal it may be open to other developing market countries that could contribute expertise and draw on its resources.

The structure of the bank is unlikely to be finalised at the Durban meeting and it is more likely to be an "on-paper" launch.

Insurance risk pool
The conference will also look at creating an insurance risk pool, aimed at developing a reinsurance network for the Brics nations to underwrite trade and investment – a market currently dominated by Western companies.

The forum will also see the launch of a Brics business council to facilitate trade and investment between member countries. South Africa's representatives will include the likes of the chief executive of Business Unity South Africa, Nomaxabiso Majokweni, billionaire Patrice Motsepe, and the voice of the Black Business Council, Sandile Zungu.

Like Yi, Qobo believes that the projects signal a coming of age for Brics. He said they will help to formalise economic relations, in what has until now has been more of a "diplomatic club".

This will enable the Brics to speak with greater authority on global economic issues.

Brics countries may share common goals, but there are many areas and issues where they differ.

Their industrial growth strategies compete, often in the same sectors, and all are targeting Africa as a growth avenue.

According to Fremantle and Stevens, despite increasingly robust trade between Brics and the continent, member nations compete more than they collaborate.

Trade with Africa is lucrative and competition is only likely to get fiercer.

Aware of the tension
Their research puts trade between the Brics nations and Africa at $340-billion in 2012 and is expected to rise to more than $500-billion by 2015, 60% of which will be China-Africa trade.

Qobo said there is an awareness of this tension, however, and the countries are likely to be realistic about what can be achieved. China's interaction with Africa is likely to increase, but Qobo said many countries lack clearly defined commercial diplomacy strategies for dealing with China.

Lamido Sanusi, governor of Nigeria's central bank, warned in the Financial Times in early March, that African countries must wake up to the realities of their relationship with China.

China was no longer "a fellow underdeveloped economy" but "a significant contributor to Africa's deindustrialisation and underdevelopment," he wrote. Africa's "romance" with China had to be "replaced by hard-nosed economic thinking", Sanusi said.

These points also apply to South Africa.

It has a wealth of natural resources, which China needs. The country also craves association with South Africa to attain greater legitimacy on issues such as human rights and democracy – areas in which, on the whole, South Africa still retains some political cache, said Qobo.

There is a risk that South Africa's focus on the Brics means it is taking its eyes off exciting developments and opportunities in other developing countries, particularly in Africa, he warned.

Economists interviewed by the M&G said that South Africa must also make sure that it does not tie itself into deals at the Brics meeting that prevent it from taking advantage of other options.

South Africa has a good foundation to capitalise on. In the Brics context, it punches well above its weight when it comes to trading with the rest of the continent, according to Standard Bank. Adjusting for South Africa's relative economic size, it is "by far the most integrated of the Brics in Africa's trade calculus, accounting for 11% of Brics trade with Africa".

"Work with the Brics should be part of a broader emerging markets strategy," said Qobo. Along with African countries, this could include nations such as Indonesia, Turkey, Vietnam, Columbia and Mexico.