A More A gile China Engagement Strategy

　　2014 marks the celebration of South Africayear in China， bringing with it the opportunity toexamine the relationship’s economic impact and howthis can evolve going forward. Since establishingdiplomatic ties with the People’s Republic of China(PRC) a decade and a half ago， South Africa has beenwell-served by this relationship mostly through highglobal commodities prices， largely driven by Chinesedemand. This has generated export earnings，employment opportunities and made the countrya more attractive destination for global investment(prior to 2012).

　　Growing at an average of 30 percent per annum，merchandise trade between South Africa and Chinasince 1998 increased more than 40-fold to reachabout $60 billion in 2012. South Africa is China’slargest trade partner in Africa despite not being an oilproducer. Conversely， China became South Africa’slargest trade partner by the end of 2009.

　　South Africa has also been among the top countriesfor Chinese outbound foreign direct investment(FDI) in Africa. Companies such as Sinosteel andHisense had already entered South Africa prior to1998. Huawei has made great inroads into South Africaand the region. The investment of the Industrialand Commercial Bank of China into Standard Bank，and Star TV’s purchase of Top TV are just some of thedeals that bolstered Chinese FDI to South Africa.These span from financial services， mining，electronics and technology to autos，wine， property development and renewableenergy.

　　South African firms have also takenadvantage of opportunities in China. Atthe forefront of this have been large companiessuch as SABMiller， Naspers， Bidvest，Sasol and Discovery to name a few. Naspersand SABMiller’s investments are paying off.

　　Their revenue growth is largely fuelled bytheir Chinese operations in light of expandingpurchasing power in China.

　　Increasing commercial ties have gone handin-hand with greater tourism. More than 132，000Chinese tourists traveled to South Africa in 2012， up50 percent from 2011 and a threefold increase from2009， making it the largest tourism destination inSub-Saharan Africa for Chinese tourists. With Chinathe fastest growing source of outbound travelers inthe world， and South Africa’s fourth largest sourcemarket， this sector is poised for further naturalgrowth potential as economic relations magnify.

　　While the springboard that South Africa can be forChinese companies looking at the region is well defined，strategies to showcase the opportunities thatthe Chinese market from an export and investmentperspective holds for South African companies andthe added value of South African companies to theChinese market need to be further expanded upon.

　　In recent months， activities commemorating 15years of diplomatic ties have included South Africancompanies attending three expos in Beijing， Shanghaiand Xiamen to showcase their products， services andexpertise as part of the Department of Trade & Industry’sefforts to promote various sectors into China.

　　But particular attempts to diversify SouthAfrica’s narrow export profile to China havebeen gradual at best. Although bilateraltrade has rapidly expanded， the structure ofSouth Africa’s exports has not.

　　In addition， while export diversificationis being promoted， import competitionhas been met by a protectionist stance inSouth Africa. This has included the organizedmanufacturing sector pouring coldwater over a proposed free trade agreementwith China， as well as the 2007-08 quotasthat were imposed on clothing and textileimports from China， seen to be eroding thelesser competitive but labor-intensive SouthAfrican industry.

　　It is time for a maneuvering shift of South Africa’sdirection in its China engagement - one that is morefavorable for South Africa. With high-level politicalexchanges and good relations between both sides，and a bilateral partnership that has been “upgraded”over the years from “partnership” to “comprehensivestrategic partnership，” this relationship shouldbear greater fruits for South Africa， particularly withmounting pressures to address the socio-economicills of the country. This will require a more creativeand agile China engagement strategy.

　　Part of this engagement strategy will need toinclude integrating highly competitive sectors whereSouth Africa has a comparative advantage intoChina’s growing middle class. The financial servicessector is one industry where China has begun to takesteps toward greater liberalization， and where “SAInc.” should position itself more aggressively.

　　On the tradable goods side， economic forcesunderway in China - namely rising wages that placeincreasing competitive pressures on the low-endmanufacturing segment， and mounting domesticdemand as living standards improve - will provide opportunitiesfor value-added sectors outside China asprice advantages erode， supporting the off-shoring ofmature industries.

　　South Africa should make a concerted effort tosecure a portion of these opportunities in order toremake its trade and investment relationship withChina. Integrating into global as well as regional valuechains， receiving higher exports earnings， creatingemployment opportunities and producing morevalue-added activities should be key to this strategy.Part of the solution will need to be a more collaborativeapproach between South Africa’s publicand private sectors in order to contest with emergingcompetition in this space from other African andAsian countries that are agile and capable of pursuingsimilar approaches. South Africa will need to lookat how to creatively leverage its comprehensivestrategic partnership going forward， by creating anenabling and competitive business environment forlocal and foreign companies alike to take advantageof these opportunities.