China’s set of mutually reinforcing reforms could help achieve high quality growth, including a more progressive tax system, investments in human capital and stronger social safety nets to reduce income inequality. Structural reforms, such as enhancing market access, including in relatively closed service sectors, would also help increase competition, encourage innovation, and boost productivity growth
By Miyelani Mkhabela, Chief Economist at Antswisa Transaction Advisory and Facilitator for Economics and Economic Development at the OR Tambo School of Leadership
The relationship between the People’s Republic of China and South Africa must be strengthened more through trade relations and direct continuous cooperation.
The United States and China are the two largest economies globally in both nominal and Purchasing Power Parity (PPP) methods. US is at the top in nominal Gross Domestic Product, whereas China is at the top in GDP PPP since 2017 after overtaking the US. In line with projections by the International Monetary Fund (IMF), in 2021 United States was leading by $6,033 billion or 1.36 times on an exchange rate basis. The economy of China is Int. $3,982 billion or 1.18x of the US on purchasing power parity basis, above the United States. According to estimates by World Bank, China’s GDP was approximately 11% of the US in 1960, but in 2019 it is 67%. China has increased it’s GDP by 56% in comparison with the United States and China has capacity to surpass the United States within the next two years or before 2025.
The character and influence of China has changed in the global economy. South Africa must start looking at China with similar eyewear that we use when we evaluate the relationship with other nations. We must do so to primarily evaluate macroeconomics, trade and investment contributions from China.
China must consider a fresh tier for South Africa as a manufacturing base for a percentage of the products exported to Africa. As a global leading economy, China must have foreign direct investment in South Africa and reduce focusing on raw material imports. China must invest in the local market. South Africa has township and rural communities that can build China’s smart factories to add on the light and heavy manufacturing industry.
South Africa’s motor car exports quadrupled since 2007 as a result of change in economic planning. China finished goods exports to South Africa can be reduced through local production in collaboration with Chinese firms. China needs to reflect and review their trade agreement with South Africa, as other leading nations are also reviewing their positions.
The Africa Material Resources Outlook by Antswisa Macroeconomics, Trade and Investment (MTI) Research Practice portrayed that Sub Saharan Africa Services industry has increased from 2010 to 2020, with Industry and Manufacturing industries going down the same period and agriculture has shown strength. Though it is not enough to solve the complexities of food Security in Africa. South African GDP has declined from $375.3 Billions in 2010 to $351.4 in 2019. Agriculture remain the same at 2010 and 2019 recording a 2 percent of GDP. This industry has declined from 27% of GDP in 2010 to 26% of GDP in 2019. Manufacturing declined from 13% in 2010 to 12% in 2019 and services increased from 61.0% in 2010 to 61.2% in 2019.
The global financial crisis and Covid-19 pandemic forces South Africa to change it’s strategy and prioritizes local material production. We have enough Special Economic Zones that we need investors to participate in and should welcome Chinese smart factories to produce in South Africa. There must be a balance of political history and our economic future plans and all our international partners must follow our current strategy.
Foreign Direct Investment (FDI) in South Africa narrowed sharply to ZAR 22.7 billion in the fourth quarter of 2021 from ZAR 557.9 billion in the previous quarter. South Africa recorded foreign direct investment inflows of ZAR 604.3 billion in 2021, a big jump from inflows of ZAR 50.4 billion in 2020. The FDI share of China I South Africa is very small.
China’s focus is on importing raw materials and export to South Africa processed products. Chinese exports to South Africa was US$15.24 Billion during 2020, according to the United Nations COMTRADE database on international trade. China export to South Africa can be planned to be 25 percent FDI which can also boost the African Continental Free Trade Area Agreement trade for South Africa.
The international balance of forces and the continuous changes to our strategy and tactics must remain solid to the priorities to our national political and economic ties with China. Trade relations and agreements can be prioritized in the context of us living in a globalized market environment.
The trade composition between China and South Africa is currently based on export of raw materials while South Africa imports finished goods, which put the South African economy at a disadvantage in relation to balancing our exports and imports. In November 2021 China exported $1.91 Billion and imported $3.08 Billion from South Africa, resulting in a negative trade balance of $1.17 Billion. Between November 2020 and November 2021 the exports of China have increased by $396 Million (26.1%) from $1.52 Billion to $1.91 Billion, while imports increased by $1.02 Billion (49.7%) from $2.06 Billion to $3.08 Billion.
The trade imbalances are not sustainable for the South African economy as we under invoice our raw materials that leave the country unprocessed. South Africa consequently misses an opportunity to create local jobs by having countries like China, United States and European Union investing in our Industrial Development Zones or Special Economic Zones to reduce unnecessary imports of the quantity and value of manufactured goods coming from China. The structure of our economy has changed since we introduced the Industrial Policy Action Plan and China must adapt to our master plan in all sector strategy, predominantly on Agroprocessing and Manufacturing industries.
South Africa must first add value to raw materials and that will need the Department of Trade and Industry and Department of International Relations to commence revised strategy position that will prioritize local material production. China understand that, as it is the same strategy they used to the United States and European Union and New Britain.
Local material production will add value in lower prices and reduce reliance on the importation of finished goods as that will continue causing unemployment in South Africa. Blind political relations are the one’s causing problems in South Africa and after 28 years of democracy, our country hasn’t developed a solid International trade relations that will protect the local economy, South African companies and our people’s dignity. South Africa needs to restructure the economy and reduce unemployment and inequality.
The new China GDP forecast/estimate is 4.4 percent growth, down from a cut in January to 4.8%, versus the IMF’s expectations in October for 5.6% growth in 2022. China recorded a 5 percent unemployment in May 2021 and only 13% youth unemployment. Based on Antswisa Macroeconomics, Trade and Investment Research forecast for 2025, the risks to China’s economic outlook are broadly balanced with adaptability to green economy or sustainability, that will reduce South African coal exports to China. As China’s recovery consolidates, macroeconomic policies are expected to shift from accommodative to more neutral settings. The pace of policy normalization, however, should continue to be data-dependent and calibrated to the strength of the recovery in China and the rest of the world.
China’s set of mutually reinforcing reforms could help achieve high quality growth, including a more progressive tax system, investments in human capital and stronger social safety nets to reduce income inequality. Structural reforms, such as enhancing market access, including in relatively closed service sectors, would also help increase competition, encourage innovation, and boost productivity growth. These are expected from China to boost other BRICS nations like South Africa, to be competitive and move from efficiency driven economies to innovative and sophisticated economies, as that will build domestic resilience and economic development.
Chinese historical challenges have deep similarities with the South African situation and China must be highly mindful when it trade with South Africa and the rest of Africa markets. The trade agreement and trade prioritizations at the Africa Continental Free Trade Area Agreement (AfCFTA) will have the character of Africa that needs to produce locally as our continental and domestic industrialisation and digital transformation strategy.
As distinct social classes, the Chinese bourgeoisie and proletariat are new-born and never existed before in Chinese history. They have evolved into new social classes from the womb of feudal society. They are twins born of China’s old (feudal) society, at once linked to each other and antagonistic to each other. The change of the Chinese trade posture is characterized by their evolving nature and while South Africa and Africa remain too indigenous and cultural, we must evolve through our education and master the globalization system to benefit our people. Globalization agreements or policies must favour regionalization or continentalism.
Great relations between China and South Africa lies in assisting to defeat imperialist powers who still monopolize South African banking, mining and manufacturing sectors. South African proletarians celebrated 100 years of the privatized South African Reserve Bank, 28 years in democracy, 110 years of the ANC and 100 years of the South African Communist Party. As a matter of primary concern, The South African Banking Industry must be transformed and the Reserve Bank must be nationalized, to lead the transformation of other sectors of the country.
The Department of Trade and Industry and Competition Commission must further assist in market clarity to benefit the working class as they remain oppressed and also dismantle and uproot the network powers that have been established across all sectors and value chains. The open market system with no hidden or secrets hands will facilitate a new generation of local producers, as trade imports are not going to grow the economy now and in the future. That demands South Africa to develop foundations of self-sufficient natural economy and transition to a classless society or closer to a classless society. South African inequality can be reduced through re-visiting all our trade agreements and prioritize South Africa, while we remain politically tied with socialists internationally.
South Africa’s main tasks are to implement the Second Phase of the National Democratic Revolution that’s more radical and which manages the trade and industrialization strategy in manner that delivers special economic zones, as that will create more metro municipalities in South Africa and reduce poverty and unemployment.