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Is SA's foreign policy up for sale?

Is SA's foreign policy up for sale?

Author: Ethel Hazelhurst
Publication: Independent Online
Date: October 9, 2011
URL: http://www.iol.co.za/business/business-news/the-china-trade-factor-is-sa-s-foreign-policy-up-for-sale-1.1153207

China needed South Africa more than South Africa needed China, a senior research fellow at the SA Institute of International Affairs Peter Draper said. "I know this is an unconventional view," he said on Friday in the wake of the controversy about the Dalai Lama's cancelled visit to South Africa. "But we could call their bluff."

The Nobel Peace Laureate was unable to get a visa to attend Archbishop Emeritus Desmond Tutu's 80th birthday celebrations last week - a development that drew Tutu's wrath on the ruling ANC.

The government's reluctance to provide a visa is believed to be part of a policy of ingratiating itself with the Chinese government which sees the legendary figure as subversive and a threat to China.

Since 1994, South Africa has been cementing relations with China. Martyn Davies, the chief executive of Frontier Advisory, said in 1998 South Africa recognised China as the official representative of the Chinese state, after previously accepting Taipei in that role.

Davies said this development was followed by "an initial rush of Chinese investment all emanating from the Shanghai municipal government that was designated by Beijing to manage the relationship".

He said most of the investment was small scale and in light industries. They included "over a dozen manufacturing plants, making everything from light bulbs to refrigerators, mostly in KZN".

But, according to Davies "a general lack of local market knowledge, inexperienced management and a vastly different business culture all contributed to the failure of these companies. The market entry failure is still talked about in Chinese business circles and acts to discourage potential Chinese investors."

However, major investments continued. Hannah Edinger, the head of research at Frontier Advisory, said the stock of China's foreign direct investment (FDI) in South Africa reached $4.2 billion (R33.5bn) by the end of last year. FDI flows during the year were $411.17m.

And among the deals announced this year were "the Jinchuan/CADFund investment into Wesizwe, concluded in May, the Metorex bid and the proposed car plant in Harrismith by the China Motor Corporation. Edinger said these three deals alone amounted to about $3bn.

Over the years China's role as a trade partner has ballooned. In 2009, it moved to number one on the list of South Africa's export destinations from fifth place the previous year.

In a country that traditionally runs a large deficit on its current account, neither the exports nor the investments can be lightly dismissed.

The current account deficit - the gap between revenue from exports of goods and services and the import bill - was equal to 3.3 percent of gross domestic product in the second quarter. At its peak in 2008, it was at 7.1 percent. Three percent is generally accepted as a ceiling for a sustainable deficit.

Without strong export flows the current account deficit would be larger. And without investment it would be harder to finance the shortfall - which would seriously inhibit South Africa's ability to grow.

However critics of China's trade relations argue that the rising giant is replicating the behaviour of the original colonising powers in Africa, extracting resources in operations that do little to develop the countries involved. And, in a country where the manufacturing sector has been shrinking over the past two decades, cheaply produced Chinese imports are seen as a threat.

South Africa's exports to China fall largely into two categories: mineral products (worth R36bn in the first seven months of the year) and base metals (worth R6.8bn). The mineral products are mostly "coal in its raw form", according to Taku Fundira, a researcher at the Trade Law Centre for Southern Africa.

In contrast, South Africa imports largely manufactured goods from China.

On balance, it's fair to say that South Africa derives great benefits from its relations with China, particularly at a time when its traditional export market - Europe - is shrinking. What isn't clear is how the trade relations would have been harmed if the Dalai Lama had paid a visit.

Draper argued that China was unlikely to sanction South Africa's exports because of its need for the commodities concerned.

And he questions the government's motivations.

"Since we don't have transparent party funding laws this question has to be asked: Does the Chinese communist party fund the ANC or the SACP?

"If yes, then is our foreign policy for sale?" - Ethel Hazelhurst

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