China Comment

Energy, Environment, and Economy

China and South Africa

China’s total direct investment stock in Africa accounted for only 1% of global foreign direct investment in Africa, as of 2007 according to the US Department of State (Keep in mind though, as an earlier article stated, this number probably does not include Hong Kong assets invested in Africa- the US Government needs to get on the ball about that).  But by other measures, China-Africa cooperation is increasing exponentially.

Bilateral trade between China and Africa rose from $10 billion in 2000 to $70 billion in 2007, making China Africa’s second largest trading partner after the United States. This rise in influence has led to a spate of articles in recent years focusing on China’s interest in Africa. The topic is broad, and would require pages upon pages to properly evaluate.

However, one particularly intriguing aspect of Chinese involvement in Africa that can be focused on are their relations with South Africa- one of Africa’s leading states. In recent years China has benefitted from resource agreements with South Africa and the number of Chinese living in South Africa has risen almost exponentially. So here I examine to what extent China is benefitting from South Africa, and vice versa.

China-South Africa Trade Ties

“Trade between SA and China stood at $9.9bn last year [2006], which represented a 36% increase on the previous year,” according to a Chinese trade minister quoted on AllAfrica.com. In 2007, trade between the two rose to over $11.2 billion.

“South African imports of Chinese products [were] valued at $7.5 billion (R49.1 bn) and South Africa exports to China valued at $3.64 billion (R23.7 bn) in 2007,” according to the Jamestown Foundation.

South Africa “has become China’s main trading partner in Africa over the past few years — its trade with China accounts for more than 5% of total Sino-African trade — and ranked 21st on the list of the Asian giant’s trading partners worldwide.”

Chinese in South Africa

In June, South Africa put its Chinese citizens on an equal footing with its black and Indians by classifying Chinese as “black people,” according to the BBC. This classification allows “ethnic Chinese [to] benefit from government policies aimed at ending white domination in the private sector.” According to Sky Canaves of the WSJ China Journal, however, this will only directly benefit the 10,000-12,000 Chinese who were citizens of South Africa in 1994, and their descendants. If this is true, the declaration will not directly benefit the Chinese who are foreign investors in South Africa, merely the residents.

According to the Jamestown Foundation, South Africa has nearly 300,000 Chinese living there as of 2007. This implies an exceedingly huge post-1994 immigration of at least temporary Chinese to the country.

Chinese Investments in South Africa & South African Investments in China

China’s investments in South Africa are mainly centered around acquisition of resources. Even the ballyhooed purchase of a stake in a South African bank had some link to resource-driven investment.

In November 2007, ICBC Bank of China agreed to purchase a 20% stake in South Africa’s Standard Bank Group. The stake is valued at $5.6 billion and is one of the largest foreign acquisitions ever made by a Chinese company. As a result of the purchase, according to the Economist “ICBC will get access to Standard Bank’s extensive banking network in 18 countries across the continent—not to mention its expertise in commodities.”

According to Keith Campbell of Mining Weekly, “the Chinese companies involved in South African mining are Sinosteel, East Asia Metals Investment (a subsidiary of Sinosteel), Jiuquan Iron & Steel (Jisco), Minmetals and Zijin Mining.” In African nations, China only has more companies (6) active in the Congo. These companies in South Africa account for millions in investment.

According to the World Bank book Africa’s Silk Road, South Africa is the leading African exporter to China of Iron ore  (94.03%), Diamonds (99.27%), Iron or steel coils (100%), Platinum (100%), Aluminum and alloys (99.8%), Acrylic alcohols (100%), Ferro-alloys (99.99%), Copper ores and concentrates (40.67%– Tanzania accounts for 39.74%), and Aluminum and Aluminum alloys (100%). South Africa is second in provision of Copper and copper alloys at (29.25% to Zambia’s 48.36%).  (Percentages in the paragraph were listed as a percent of total African trade to China compared to other African countries’ trade between 2002-2004.)

In February, Sinosteel invested an additional $440 million in investment in its South African Joint venture, Sinosteel South Africa Chromium Industry Co., Ltd. (founded 1996) in which it owns a 60% equity stake.

Sinosteel also has a 50-50% joint venture with Samancor established in 2006 and called Tubaste Chrome. At the time, the JV was valued at $230-million. The JV produces 280,000 to 300,000 tons of chrome a year.

Sinosteel’s subsidiary “East Asia Metals owns 60% of Asa Metals, the other 40% being held by Limpopo Economic Development Enterprise.”

China additionally entered into an agreement with Sasol, the world’s largest maker of coal to oil, to build a coal-to-oil plant. It should be completed by 2014 and produce 80,000 barrels a day.

The investments of the other companies are more thoroughly discussed HERE. In general, it appears that Chinese investments into South Africa are accelerating, but still represent only a small part of China’s foreign investment, and a small percentage South Africa’s foreign market. (40% of trade and billions in investment is accounted for by the EU-which, by use of a crude currency calculation came out to $38 billion US in two-way trade; calculated from a stated $300 billion Rand). This would make China’s two-way trade account for just under 10% of total SA foreign trade.

In 2006, South African companies made over $200 million in investments in China, according to the Jamestown FoundationAccording to China Daily, the amount was $700 million. Leading investor companies included SAB-Miller, Sasol, Anglo-American, and Kumba Resources.

Diplomacy

Both China and South Africa have urged restraint in involvement in Zimbabwe’s electoral chaos, and in dealing with Sudan. This conjunction of aligned views on the international system and beliefs about the supremacy of state sovereignty can bring the two countries closer together. Chris Alden, writing for the Jamestown Foundation, discussed this fact.

Challenges

* The high rate of crime in South Africa can deter many Chinese investors, as both the Jamestown Foundation and a Chinese official, Zhou Yabin, can attest. People’s Daily had a February 2006 article on the rising crime against Chinese nationals.

Crime in South Africa took at least 14 Chinese lives in 2006. In December 2006, overseas Chinese “established a special fund designed to protect their security in the country… The fund will be used to award police, detectives and informers, who make contributions in solving cases.”

* The Jamestown Foundation also believes that if Jacob Zuma eventually succeeds President Thabo Mbeki in South Africa, that China relations might degrade. Zuma is said to listen closely to labor unions which tend to oppose immigrant China labor and China-run businesses. That being said, Zuma is reaching out to China, in June visiting the country. And Zuma has previous experience with China, co-chairing at least one bilateral commission with China’s top leaders in 2004. Concerning Zuma’s apparent interest in China, and China’s willingness to at times cater to the South Africans (Such as when China imposed voluntary textile export restraints) it appears that unless there is massive anti-Chinese backlash among South Africa’s citizenry, Chinese investments will continue to benefit SA, and SA resources will continue to benefit China.

* Other challenges are a possible trade protectionist backlash that could manifest against the Chinese. Planning for a South Africa-China Free-Trade pact agreement might fall through, or indeed it could become too successful and China-South Africa trade might become too unbalanced and threaten South Africa’s indigenous manufacturing industries, textiles, and communications technology.

Conclusion

It appears China-South Africa ties can continue to accelerate, especially given Beijing’s penchant for investing abroad in resources. But it bears remembering that they will have to compete with the US and the EU, which is currently a larger player in South Africa’s economic policy.

* China Daily’s timeline of China-South Africa relations 1998-2003.

* Chris Alden’s excellent article on China-South Africa relations.

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1 July, 2008 Posted by | China and Africa, China Diplomacy | , , , , , , , , , , | 1 Comment

Off the Shelf: China’s Economic Influence

The April 2008 CRS American government report I mentioned before in “China’s Soft Power” dredged up some good statistical data regarding China’s economic reach. However, the CRS analysis fell flat by not including Hong Kong’s FDI in the full calculation of China’s FDI and influence on foreign countries.  

China’s 2007 stock of FDI abroad is either $93.7 billion (according to the CIA), or $73.3 billion (according to the report; CRS, 22) or $292 billion (according to UNCTAD); but if you add Hong Kong there is an additional $534 billion or $769 billion in FDI stocks to be accounted (according to the CIA and UNCTAD respectively), or $43 billion in same-year 2006 FDI flows, according to UNCTAD.

Because Hong Kong’s FDI is omitted, the CRS report understates much of China’s world-wide influence.

Of course, much of Hong Kong’s $534 billion in FDI is reinvested back in the mainland.

Many factors can be evaluated when considering China’s worldwide economic influence. Here, I highlight two main ideas touched on in the report; China’ Foreign Trade, and its FDI.

CHINA TRADE

China’s main trading strengths are with countries bordering it such as Japan, South Korea, Central Asia, ASEAN, and Pacific Island Countries. Its total trade with Pacific Island Countries was $754 million in 2006, compared to $404 million by the United States, $3.7 billion by Australia, $918 million by Japan, and $832 million by the EU-25 countries (CRS, 36).

“[I]n 2007, China’s total trade with ASEAN was 17% larger than total U.S. trade ($200.6 billion versus $171.7 billion). China’s exports to ASEAN in 2007 were 55.6%” greater than United States’ exports to the region, while U.S. imports from ASEAN were 2.6% greater than China’s imports (CRS, 91).

“Based on the fact that China’s imports from ASEAN in 2007 grew by 21.1% (over the previous year), versus 12.4% for the United States, it is likely that China’s imports from ASEAN will be larger than U.S. imports [from the region] in 2008. China ran a $14.1 billion trade deficit with ASEAN, while the U.S. trade deficit totaled $50.6 billion” (CRS, 91).

China’s trade with Japan was $210.7 billion in 2006; Japan’s amount of trade with the US was $213.5. The trend in trade indicates China is probably now Japan’s number one trading partner (CRS, 43). Japan receives 9.5% of China’s exports.

China’s trade was greater that US trade with South Korea in 2006. China-SK had $118.1 billion in bilateral commerce, compared to America’s $76.9 billion in bilateral commerce with the peninsular state (CRS, 44). China’s trade with the country is rapidly accelerating and currently accounts for 4.6% of China’s exports (CRS, 45).

China’s trade with Central Asia was $12 billion in 2006 (CRS, 71), accounting for 1.34% of Chinese export trade (CRS, 72). In 2003, US trade with Central Asia amounted to $1 billion. In 2006, the United States imported $1.3 billion from the 5 Central Asian states and exported around $927 million to them (Data from HERE, HERE, HERE), HERE, and HERE). for a total of around $2.3 billion; dwarfed by China’s trade with the region.

WHERE THE UNITED STATES’ TRADE INFLUENCE REMAINS STRONG

In contrast, the United States still trades more with Latin America and Africa, two regions often identified as places where China might eventually challenge the United States’ trade dominance.

“China’s overall trade with LAC [Latin American Countries] grew to about $70 billion in 2006, representing just 4% of its overall trade. In comparison, U.S. trade with Latin America and the Caribbean amounted to almost $555 billion in 2006” (CRS, 26).

“From 2001–2006, the absolute value of U.S. goods trade with Africa, at $71 billion, was greater than that of Sino-African trade, but Chinese-African trade grew at a much faster rate than U.S.-African trade.” Then again, it had a longer way to rise. “China’s total trade with sub-Saharan Africa rose from $8.92 billion to $45.35 billion in that period, an increase of 409%, as compared to a 152% rise in total U.S.-African trade” (CRS, 119).

WHAT EFFECT DOES CHINA’S RISING TRADE HAVE?

China’s growing influence in trade with its Asian neighbors could lead to future trade embargoes and conflicts such as the 2001 mushroom/automobile trade war between China and Japan. This began when Japan placed a tariff on Chinese leeks and mushrooms. In return, the Chinese imposed oppressively high tariffs on Japanese cars, mobile phones, and air conditioners. The Japanese eventually backed off. It is important to note, however, that the mushroom trade war happened before full Chinese ascension to the WTO. Now that China is part of the WTO (since November 2001) and greater integrated into the world financial system, such trade wars might be less likely to occur.

US-CHINA TRADE & THE TRADE DEFICIT

The United States received, in 2006, 21% of China’s exports (CRS, 45). “In 2007 the United States incurred a merchandise trade deficit of $256 billion with China, $83 billion with Japan, and $13 billion with South Korea (43% of the total U.S. trade deficit of $816 billion) (CRS, 60).

CHINA FDI

As earlier noted; estimates of China’s FDI investments in foreign countries might be incorrect due to non-inclusion of Hong Kong FDI numbers into the CRS report.

From existing data, it appears China’s FDI sent abroad is relatively low.

“From 2002–2006, U.S. FDI flows to ASEAN were $13.7 billion (or 8.0% of total), making the United States ASEAN’s 4th largest source for FDI. Over this period, China’s FDI totaled $2.3 billion or 1.3% of total, making China the 10th overall source of ASEAN’s FDI” (CRS, 95). “The United States remains ASEAN’s 2nd largest trading partner (China ranks 5th) and its 4th largest source of foreign direct investment (China ranks 10th)” (CRS, 102).

“While China’s reported cumulative stock of FDI in [Latin America] amounted to $11.5 billion in 2005, the cumulative stock of U.S. FDI in the region amounted to $366 billion in 2005, and grew to $403 billion by 2006” (CRS, 26).

Considering the difficulties of analysis; rather than getting into a deeper blow-by-blow analysis of China’s FDI around the world, I’ll point out an interesting point.

According to the UN; US and Japan’s year 2005 FDI into China accounted for $95 billion, which is $22 billion more than China’s total 2006 FDI invested everywhere in the world (CRS, 47). Using those numbers, it still appears that foreigners are developing and affecting China more than China is developing and affecting the world.

At least that’s how it is for now, anyway.

CONCLUSION

There’s a lot more to read in the US Government report, from a discussion on Sino-Japanese-Korean relations, to analyses of how the Taiwan issue affects international relations and of China’s energy diplomacy and the SCO (Shanghai Cooperation Organization), to in-depth discussion of international loans and trading and nuanced explanations of where China’s FDI is heading and why.

Despite its flaws, the report is still well worth checking out.

* Also of Interest: UNCTAD’s World Investment Report: 2006

17 June, 2008 Posted by | Book Review, China Diplomacy, China Economy, China Future | , , , , , , , , , , , | Leave a comment