Dragon On The Savannah: China’s Closer Ties With South Africa

Via The Financial Times, an interesting article on another raft of multi-billion dollar commercial deals between China and an African country.  As the article notes:

“…According to Reuters, China has agreed to $2.5bn in investment projects with South Africa. While details of the investments are sketchy, the move is the latest illustration of China’s ambitions in the continent.

“The move is consistent with China’s interest in Africa,” Charles Robertson, global chief economist at Renaissance Capital, told beyondbrics. “China sees South Africa very much as a beachhead into the rest of Africa.”

Indeed, South Africa, Africa’s largest economy, has become an increasingly important port of call for China. Chinese foreign direct investment in the country hit $2.3bn in 2009 – or 25 per cent of total Chinese FDI in Africa, as the chart from RenCap below shows.

Source: Renaissance Capital

But while China is South Africa’s largest trading partner, the trade is exactly not balanced: South Africa mostly ships out minerals and ships in Chinese manufactured goods. Exports to China reached 84bn rand ($10.5bn) last year, and about half of that was minerals, according to RenCap.

Not surprisingly then, the new investments from China will be centred on “geology and mineral resources” as well as on financial cooperation between the Development Bank of South Africa and China Development Bank.

But according to Kgalema Motlanthe, South Africa’s deputy president, things are different this time around. The deals, he said, are meant to ”strike a healthy balance” in trade volume between the two countries.

“This financial cooperation agreement is between development banks and the specific projects in which they are going to invest, they have to identify these projects,” Motlanthe, who is on a three-day trip China, was quoted by Reuters as saying.

“To that end, the difference is, instead of just exporting these minerals as raw materials, there will be…value add to create jobs on both sides,” he added.

RenCap’s Robertson was sceptical as to whether the deal would really add value for South Africa.

“The Chinese want two things – resources and a market for their products,” he said. “ The only way [for a more balance trade relation] would be for the Chinese to invest in the mines before buying. But the end game will still be the selling of South African resources to China.”

Nonetheless, he sees the deals as a “tremendous positive” for both sides.

“Right now, the West is facing a recession and western companies are cautious about investing. On top of that commodity prices have been falling in recent weeks. So from this perspective, the fact that Chinese are willing to make long term investments in the country is great news,” said Robertson.

China is highly sensitive to accusations that it is plundering African resources and is facing an increasing backlash from Africans over the country’s investment in the continent. In an effort to burnish its image and send a message that China views African countries as equals, last year it invited South Africa to join the Bric group of fast-growing emerging markets.

Chinese Premier Wen Jiabao was at pain on Thursday to stress that China’s relationship with South Africa was one of equal.

According to Xinhua:

Speaking highly of the bilateral cooperation in recent years, Wen said China and South Africa should continue to support and assist each other, improve communication and coordination, and better safeguard the common interests of the two countries and other developing countries.

Wen said China welcomes South African exports to China, and will encourage Chinese companies and financial institutes to participate in South Africa’s infrastructure construction on transportation, energy and communication, and support the two sides to expand cooperation in new energy and renewable energy, manufacturing, green economy and agriculture.

China will also enhance exchanges with South Africa in education, culture and health, the premier said.

What the article failed to mention of course is that the timing of the investments comes as South Africa is debating whether to issue a visa to the Dalai Lama. So don’t be surprised if the answer turns out to be no.

This entry was posted on Tuesday, October 4th, 2011 at 5:25 pm and is filed under China, South Africa.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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