Beijing's friendship puts SA in key commercial spot
2008/05/15
By Martyn Davies
Two weeks ago, foreign affairs minister Nkosazana Dlamini-Zuma and trade and industry minister Mandisi Mpahlwa were in China's major cities, Beijing and Shanghai, celebrating the 10th anniversary of diplomatic ties between South Africa and China.
Accompanied by an academic group, the South African government delegation described our relationship with China as a "strategic partnership". But after a decade of relations, is South Africa's relationship with China collaborative or competitive?
Pending changes in our government after next year's national elections may also result in a policy shift towards China.
After 1994, Beijing worked hard to entice South Africa to cut its ties with Taiwan and establish diplomatic relations with the People's Republic of China. Commercial incentives included the order for 30 000 Volkswagens from the Uitenhage factory that ended up as Chinese taxis.
This was a period of courtship. Despite numerous commercial carrots and the ideological affinity between the Chinese government and the ANC, Pretoria recognised the People's Republic as the official representative of the Chinese state only four years into its tenure, and switched from Taipei 10 years ago on January 1. It was a belated recognition of a political and increasingly commercial reality.
China views South Africa as its foremost strategic partner in Africa, as well as a major player in multilateral global politics. Both Pretoria and Beijing have corresponding interests across the continent: conflict resolution and the promotion of a favourable environment for business. A binational commission was formed by both governments in 2004 to elevate the state of our relations.
The burgeoning relationship between South Africa and China is based on a foundation of south-south collaboration. Often merely political rhetoric, the new dynamic of the global political economy is the growing assertion of emerging powers to forge a new dispensation that seeks to challenge traditional institutions and entrenched systems and influence change in favour of the emerging world.
When one engages with Chinese leaders in the political and corporate world, their intent to "change the rules of the global game" - rules by which the global economy is run - is very apparent. From the Chinese government ministries, state-owned policy banks, academics and even ordinary citizens, the nationalistic confidence in society to challenge the west and its dominance and influence in the global political economy is clear.
This has been fuelled further by the recent protests in western capitals against China centred on the Olympic torch relay. These protests are as much about recent events in Tibet as they are symbolic opposition to the values, often misunderstood, of China and its government.
Recent unfortunate comments by a CNN journalist reflect this.
As South Africa seeks to influence positive political and governance change in Africa through vehicles such as the New Partnership for Africa's Development, China's ambitions extend to the global economy and are based as much on political as on commercial agendas.
China's rapidly expanding ties and influence in Africa are calling into question the continent's current growth models - models that are determined by the imposed political and economic structures carried over from the colonial period.
China's impressive developmental successes in recent times definitely offer new thinking around development for the continent. The China model raises difficult questions for proponents of the "western model" involving the role of the state in the economy and its relationship with the private sector; ownership of the banking sector; and a political system based on democratic elections.
This may not be comfortable for many South Africans, whose economy is squarely in the western political-economic camp.
But the change in South Africa's trading and commercial orientation, moving away from traditional and towards emerging markets - in particular China - will exacerbate these tensions.
According to Standard Bank, 60 percent of all global foreign direct investment last year was between emerging markets.
This is contributed to by sovereign wealth funds and aspirant multinationals from these new markets. Much of this investment is, and will increasingly be, between South Africa and China.
The Chinese government has launched the China-Africa Development Fund, a $1 billion (R7.5 billion) venture capital fund (with the potential to expand to $5 billion) with the purpose of financing the entry of Chinese firms into African economies. The fund provides preferential funding with a five- to eight-year exit strategy for the financier, the China Development Bank.
One of the world's largest sovereign wealth funds, the China Investment Corporation, capitalised at $200 billion, will also be tapped for investment in Africa.
South African firms have generally been successful in penetrating the often challenging China market, while a handful of corporates have been "industry shapers" in the Chinese economy and have succeeded due to their long-term commitment.
After entering the market in 1994, Graham Mackay's SABMiller became the largest brewer by volume in China last year; MIH, a unit of Koos Bekker's Naspers, is a leading media player in what is China's most closed sector for foreign firms; and Pat Davies' Sasol could soon become the largest investor in China if it goes ahead with two coal-to-liquid projects.
Exxaro, Kumba Iron Ore, Hollard Insurance, Old Mutual, FirstRand and Standard Bank (headed by Jacko Maree) are all building businesses in China.
South Africa's private sector is the only one in Africa that is able to effectively engage in the Chinese market. This comparative political advantage must be leveraged through the strategic partnership of both countries.
The acquisition in March of 20 percent of Standard Bank by the Industrial and Commercial Bank of China (ICBC) - the world's largest bank by market capitalisation - ushers in a new chapter in Sino-South African relations.
The deal destroys the stereotype of China Inc being interested in Africa's extractive industries and nothing more.
The $5.6 billion investment - the second-largest foreign investment by a Chinese firm to date - reflects the confidence that Chinese business has in South Africa and the continent. Standard Bank now has the opportunity to take the banking lead in Africa-Asia commerce.
On the back of this deal, the ICBC's foray into South Africa will lead to other major Chinese corporations entering the market. It is very likely that JSE-listed firms that possess an African footprint will attract the interest of Chinese investors.
Chinese and South African politicians over the last decade have created an excellent enabling environment for bilateral business flows. But the relationship has moved beyond politics and is now driven by the market. The ICBC-Standard Bank deal will lay the cornerstone of the evolving strategic partnership between the two economies. As China expands its presence in Africa, the interests of China and South Africa will increasingly intersect.
Martyn Davies is the head of the Asia Business Centre at the Gordon Institute of Business Science, the executive director of the Centre for Chinese Studies at Stellenbosch University and the chief executive of Frontier Advisory
Published on the web by Business Report on May 6, 2008.
Two weeks ago, foreign affairs minister Nkosazana Dlamini-Zuma and trade and industry minister Mandisi Mpahlwa were in China's major cities, Beijing and Shanghai, celebrating the 10th anniversary of diplomatic ties between South Africa and China.
Accompanied by an academic group, the South African government delegation described our relationship with China as a "strategic partnership". But after a decade of relations, is South Africa's relationship with China collaborative or competitive?
Pending changes in our government after next year's national elections may also result in a policy shift towards China.
After 1994, Beijing worked hard to entice South Africa to cut its ties with Taiwan and establish diplomatic relations with the People's Republic of China. Commercial incentives included the order for 30 000 Volkswagens from the Uitenhage factory that ended up as Chinese taxis.
This was a period of courtship. Despite numerous commercial carrots and the ideological affinity between the Chinese government and the ANC, Pretoria recognised the People's Republic as the official representative of the Chinese state only four years into its tenure, and switched from Taipei 10 years ago on January 1. It was a belated recognition of a political and increasingly commercial reality.
China views South Africa as its foremost strategic partner in Africa, as well as a major player in multilateral global politics. Both Pretoria and Beijing have corresponding interests across the continent: conflict resolution and the promotion of a favourable environment for business. A binational commission was formed by both governments in 2004 to elevate the state of our relations.
The burgeoning relationship between South Africa and China is based on a foundation of south-south collaboration. Often merely political rhetoric, the new dynamic of the global political economy is the growing assertion of emerging powers to forge a new dispensation that seeks to challenge traditional institutions and entrenched systems and influence change in favour of the emerging world.
When one engages with Chinese leaders in the political and corporate world, their intent to "change the rules of the global game" - rules by which the global economy is run - is very apparent. From the Chinese government ministries, state-owned policy banks, academics and even ordinary citizens, the nationalistic confidence in society to challenge the west and its dominance and influence in the global political economy is clear.
This has been fuelled further by the recent protests in western capitals against China centred on the Olympic torch relay. These protests are as much about recent events in Tibet as they are symbolic opposition to the values, often misunderstood, of China and its government.
Recent unfortunate comments by a CNN journalist reflect this.
As South Africa seeks to influence positive political and governance change in Africa through vehicles such as the New Partnership for Africa's Development, China's ambitions extend to the global economy and are based as much on political as on commercial agendas.
China's rapidly expanding ties and influence in Africa are calling into question the continent's current growth models - models that are determined by the imposed political and economic structures carried over from the colonial period.
China's impressive developmental successes in recent times definitely offer new thinking around development for the continent. The China model raises difficult questions for proponents of the "western model" involving the role of the state in the economy and its relationship with the private sector; ownership of the banking sector; and a political system based on democratic elections.
This may not be comfortable for many South Africans, whose economy is squarely in the western political-economic camp.
But the change in South Africa's trading and commercial orientation, moving away from traditional and towards emerging markets - in particular China - will exacerbate these tensions.
According to Standard Bank, 60 percent of all global foreign direct investment last year was between emerging markets.
This is contributed to by sovereign wealth funds and aspirant multinationals from these new markets. Much of this investment is, and will increasingly be, between South Africa and China.
The Chinese government has launched the China-Africa Development Fund, a $1 billion (R7.5 billion) venture capital fund (with the potential to expand to $5 billion) with the purpose of financing the entry of Chinese firms into African economies. The fund provides preferential funding with a five- to eight-year exit strategy for the financier, the China Development Bank.
One of the world's largest sovereign wealth funds, the China Investment Corporation, capitalised at $200 billion, will also be tapped for investment in Africa.
South African firms have generally been successful in penetrating the often challenging China market, while a handful of corporates have been "industry shapers" in the Chinese economy and have succeeded due to their long-term commitment.
After entering the market in 1994, Graham Mackay's SABMiller became the largest brewer by volume in China last year; MIH, a unit of Koos Bekker's Naspers, is a leading media player in what is China's most closed sector for foreign firms; and Pat Davies' Sasol could soon become the largest investor in China if it goes ahead with two coal-to-liquid projects.
Exxaro, Kumba Iron Ore, Hollard Insurance, Old Mutual, FirstRand and Standard Bank (headed by Jacko Maree) are all building businesses in China.
South Africa's private sector is the only one in Africa that is able to effectively engage in the Chinese market. This comparative political advantage must be leveraged through the strategic partnership of both countries.
The acquisition in March of 20 percent of Standard Bank by the Industrial and Commercial Bank of China (ICBC) - the world's largest bank by market capitalisation - ushers in a new chapter in Sino-South African relations.
The deal destroys the stereotype of China Inc being interested in Africa's extractive industries and nothing more.
The $5.6 billion investment - the second-largest foreign investment by a Chinese firm to date - reflects the confidence that Chinese business has in South Africa and the continent. Standard Bank now has the opportunity to take the banking lead in Africa-Asia commerce.
On the back of this deal, the ICBC's foray into South Africa will lead to other major Chinese corporations entering the market. It is very likely that JSE-listed firms that possess an African footprint will attract the interest of Chinese investors.
Chinese and South African politicians over the last decade have created an excellent enabling environment for bilateral business flows. But the relationship has moved beyond politics and is now driven by the market. The ICBC-Standard Bank deal will lay the cornerstone of the evolving strategic partnership between the two economies. As China expands its presence in Africa, the interests of China and South Africa will increasingly intersect.
Martyn Davies is the head of the Asia Business Centre at the Gordon Institute of Business Science, the executive director of the Centre for Chinese Studies at Stellenbosch University and the chief executive of Frontier Advisory
Published on the web by Business Report on May 6, 2008.