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South African Institute of International Affairs (SAIIA)

Engaging Asia’s biggest tiger:
Exploring the contours of a SACU–China trade deal


Philip Alves

South African Institute of International Affairs (SAIIA)

2006

SARPN acknowledges SAIIA as a source of this document: www.saiia.org.za
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Introduction

There is no shortage of impressive statistics and superlatives regarding China’s emergence and integration into the global economy. They all indicate the same thing: that China is a global driver of change. Examples include the following: first, China’s opening represents the single largest set of new commercial opportunities for foreign business in the modern era.1 Second, China is now the world’s second-most popular destination for foreign direct investment (FDI), and holds the world’s third-largest FDI stock.2 Third, China is increasingly a setter of world prices for a range of commodities and manufactures.3 Fourth, the integration of an abundant supply of relatively low-cost workers in China (and India) is drastically altering the global division of labour. Producers of labour-intensive products all over the world have had, and are having, to adjust.4 Finally, the implication of all this is that China has quickened the pace and altered the nature of economic integration, especially in East Asia.5

South Africa’s trade with China has developed rapidly since relations between the two countries were normalised in 1998. But as is the case with many countries, South Africa’s overall export performance does not compare with China’s. Thus, while China has risen from being South Africa’s 16th most important trade partner in 1995 to its 5th in 2004,6 the greatest proportion of the advance has been in South African imports from China. In 1995 China comprised 1.8% and 0.9% of South Africa’s total imports and exports respectively; in 2004 those figures stood at 8.8% and 2.9%. South Africa’s bilateral deficit in goods trade in the same year reached $2.6 billion, over five times greater than the average between 1995–2001, and second only to that recorded in trade with Germany, even though South Africa’s exports to China are growing faster than its exports to most other countries and regions.

There are, therefore, clear opportunities as well as risks involved in opening trade negotiations with China. While the opportunities seem to remain by and large in the realm of potentials, the risks have manifested themselves acutely. A free trade agreement, indeed any trade agreement with China, will almost certainly not find widespread support in SACU countries.7 The South African government is, however, committed to establishing a viable, long-term relationship with China, which would obviously include commercial dimensions. It sees this as a vital strategic foreign policy goal.8 Given the current forecasts of China’s future economic size and political weight, the logic seems irrefutable.9

Many questions therefore require investigation. This report seeks to contribute in two ways. First, the paper presents a balanced assessment of what China means to SACU, to provide the proper context for the potential negotiations. This involves an overview of China’s growth and the trade-related impacts of its global integration; trade and investment between SACU and China and their potential development implications; and political relations, particularly as regards China’s increased presence and influence in Africa. Possible motivations for a trade agreement between SACU and China form a natural subtext to these discussions.

Second, the paper analyses China’s trade strategy and compares it with South Africa’s, with a view to assessing the likely contours of any agreement reached. The US, for example, imposes a clear and rigid set of demands upon potential FTA partners that have clear implications for the nature and content of any subsequent negotiations. Does China behave similarly, or is it more flexible? How should SACU respond?


Footnotes:
  1. Lardy N, Integrating China into the Global Economy. Washington D.C.: The Brookings Institute, 2002, pp. 3–4.
  2. Ibid., p. 4. The US remains, by some margin, the world’s largest recipient of FDI. See also UNCTAD, World Investment Report 2005. New York and Geneva: United Nations, 2005. For an interesting analysis of the impact that China’s rising FDI receipts is having, see Eichengreen B & H Tong, ‘Is China’s FDI coming at the Expense of Other Countries?’ NBER working paper 11335, available at www.nber.org/papers/w11335.
  3. Kaplinsky R, ‘China, Globalisation, and Neo-Liberal Dogma’. Paper presented at Queen Elizabeth House, Oxford, July 2005, p. 16. It forms part of a series of studies conducted by the Institute for Development Studies at the University of Sussex, available at www.ids.ac.uk/ids/global/asiandriversindex.html.
  4. UNCTAD, Trade and Development Report 2002. New York and Geneva: United Nations, 2002, p. 126.
  5. See for example Kobayashi H, ‘The Rise of China and the Transformation of the Asian Economy’, available at www.waseda-coe-cas.jp/paper/20040701_kobayashi_eng.pdf; and Lall S & M Albaladejo, ‘China’s Competitive Performance: A Threat to East Asian Manufactured Exports?’ World Development, 32 (9), 2004, pp. 1441–1466.
  6. China is South Africa’s third most important trade partner if the European Union (EU) is considered a single entity.
  7. See, for example, ‘Trade gap with China is wiping out jobs – Vavi’, Business Day, 3 November 2005, available at www.businessday.co.za/articles/topstories.aspx?ID=BD4A108518, or ‘End Chinese Abuse, urges Clotrade’, Business Report, 27 June 2005, available at http://www.busrep.co.za/index.php?fSectionId=561&fArticleId=2601018. Trade with China in textiles and clothing has received particular attention, particularly from organised labour. See www.cosatu.org.za/news/weekly/20051104.htm#5.
  8. See, for example, ‘Ties with China “more vital than failing textile sector’, Business Day, 20 October 2005, available at www.businessday.co.za/articles/article.aspx?ID=BD4A104181.
  9. Recently, however, South Africa’s Minister of Trade and Industry, Mandisi Mpahlwa, has expressed doubt over the possibility of a Sino–SACU free trade agreement in the short to mid-term. See www.engineeringnews.co.za/eng/news/today/?show=80565.


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