South Africa

Details

  • Industry: Business Desk, China
  • Type: Business and industry issue
  • Date: 2010/09/03

The KPMG Global China Practice Network

KPMG's China Desk was established to assist clients from South Africa with establishing business relationships in China and vice-versa.

China - South Africa’s friend and brother 

The largest-ever South African business delegation accompanied President Jacob Zuma on a state visit to China, the world’s most populous country and second-largest economy.

Glenn Ho, head of KPMG China desk in South Africa was a member of the delegation that formed part of the China-South Africa Business Forum in Beijing and Shanghai in August 2010.

 

The President reiterated that the relationship between China and South Africa was likened to that of friends and brothers. He also emphasised that there was more in common between the two countries than what separated them.

 

If one considers the following, it can be quite easy to interpret it as such:

 

  • South Africa hosted ‘the best ever’ 2010 FIFA World Cup, while China hosted the very successful 2009 Beijing Olympics.
  • Both are countries of great contrast – a rapidly expanding middle-class and masses of the population still living in grinding poverty.
  • South Africa is admired for its transformation to a peaceful democracy and China for the rapid extraction of 300 million people out of poverty.
  • Each year whether it is Chinese New Year, Christmas, Golden Week or Easter Weekend – many of the workers in their respective cities return to their rural hometowns in both countries.

 

The Beijing Declaration

 

Presidents Zuma and Hu signed the Beijing Declaration, outlining 38 cooperation agreements in the Great Hall of the People in Beijing on 24 August 2010. Earlier that day, Chinese and South African companies signed more than a dozen agreements.

 

They were also aiming for a better balance in trade between the two countries and encouraging trade in manufactured value-added products. While the key agreements refer largely to infrastructure development, our interactions indicate that there is sufficient mutual goodwill to address a number of others that require negotiation between both sides. Some require regulatory harmony between both countries. The common concern for a mutually beneficial developmental approach seems to bode well for a cooperative arrangement between both countries and can only enhance positive perceptions of the outcomes of the August political and economic engagement.
 
China has agreed, for example, “to encourage its enterprises to increase investment in South Africa's manufacturing industry and promote the creation of value-adding activities in close proximity to the source of raw materials.” They have agreed to provide mutual technical support in the areas of the ‘green’ economy, skills development and industrial financing.
 
More than just natural resources

 

South Africa and Africa’s growth in recent years has been driven largely by China’s search for minerals and natural resources to fuel an economy that provided 1% of world output in 1978 and currently provides 8% of world output.

 

However, from the Beijing Declaration it is obvious that South Africa would like to see more beneficiation of its natural resources instead of just exporting them and re-importing the finished goods.

 

China also has the capital to stimulate growth as has been demonstrated by the China Africa Development Fund. Confessional finance would also be a major boost for South Africa and the rest of the continent to improve its much needed infrastructure.

 

More choices for Africa

 

China’s long term view of Africa recognises the potential of nearly 1 billion consumers and a vibrant leading edge economy in the South. This is not dissimilar to Hong Kong and mainland China nearly 30 years ago. China’s interest in Africa has rekindled interest by other major economic powers in the continent that some had written off as ‘hopeless.’

 

South Africa and the rest of the continent also provide a manufacturing location closer to the source of the raw materials and markets for the finished goods. Once China has developed certain brands – organically or by acquisition – it will move up the value chain from being just a producer.

 

How much puff left in the dragon?

 

Some may have predicted a slowing of the double digit growth in China but some factors that may mean a fair amount of ‘puff’ is left in the dragon. This includes a growing base of Chinese consumers, a large number of areas still in need of development and a conscious shift to move up the value-chain.

 

The enabling environment

 

President Zuma’s State Visit to China has set the tone of government’s role in the economy – it has to create the enabling environment in which businesses can survive and thrive. The solid political relationship between South Africa and China has created the ideal opportunity for trade and investment between them to leverage-off the dynamism of both economies.

 

Since the global slowdown, the world has become more uncertain and economic power has shifted. This has also created the opportunity and space for emerging economies to help establish themselves within the new world order. The USA will remain dominant as its economy is still three times larger than the number two economy that is China. However, growth rates of 2-3% per annum versus 7-8% per annum respectively will ensure a gradual closing of that gap over time.