Infatuated by China

Johannesburg - South Africa's rulers have never entirely trusted capitalists and markets, which explains their fixation with China's economic model.

Deputy President Kgalema Motlanthe finished a trip to China on Friday by praising how it had mobilised state-owned enterprises (SOEs) to construct a global power. Pretoria should learn from Beijing's example, he added.

"Markets on their own cannot lead such fundamental change," said Motlanthe, regarded as a leading candidate to be the next president.

"The state has to play a leading role in reshaping the economy so that it is better able to meet the needs of our people, particularly the working class, as well as the urban and the rural poor."

Beijing says its SOEs generate about 90% of all jobs, and South Africa has tried to embrace the Chinese model by using its state firms as a motor to create employment in a country that suffers from chronic joblessness and mass poverty.

President Jacob Zuma's new growth path policy views SOEs, state spending and government direction as the best ways to create 5 million jobs over the next decade.

Economists say South Africa would be better served averting its gaze from China and instead loosening its labour laws, cutting red tape, fixing a broken education system and using targeted tax cuts to help essential industries grow.

But South African policymakers, many raised in the Labour movement and well versed in Marx, have grown frustrated with Western economic models and do not believe the private sector is strong enough to reduce the 25% unemployment rate or nearly 50%  poverty rate.

"South African government policymakers, some of whom may have an ideological mistrust of 'the market', are all too ready to embrace a new model that supposedly offers a new way, one that places the state as the driving force of growth," said Martyn Davies, CEO of Frontier Advisory and an expert on African-Chinese economic relations.

"It is risky to simplify China's experience and call it a 'model' ready for application elsewhere. China's greatest economic success has been the creation of a vibrant private sector that accounts for two-thirds of its GDP (gross domestic product)."

South Africa also cannot embrace some aspects of the Chinese model that have made it so effective, including cut-rate prices for labour, harsh conditions on factory floors and diverting capital to world class manufacturing.

The country relies heavily on foreign capital to prop up its economy, whereas Beijing needs far less and can therefore play by a different set of rules.

The Chinese model also has its limitations because its economy is devouring capital at an ever-growing rate, thereby capping job growth, reducing labour's share of the pie and depressing household  consumption.

Political poison pill

China is South Africa's largest trading partner. A measure of its power is shown by Pretoria's reluctance to grant a visa to the Tibetan spiritual leader the Dalai Lama - whom Beijing accuses of being a separatist - despite pleas to let him in by Nobel Peace Prize laureate Desmond Tutu.

A major constraint South Africa faces in job creation is the close relationship between the ANC and its alliance partner Cosatu. Their bond was forged in the struggle to end apartheid and resulted in a raft of union-friendly laws.

The labour laws make it costly for employers to hire. They have also driven up labour costs, with the average South African factory worker earning about six times more than their Chinese counterpart despite being far less efficient.

China ranks 13th in the world in terms of the ratio of pay to productivity of its workers while South Africa ranks near the bottom at 130th, according to the World Economic Forum's Global Competitiveness Report.

Cutting wages for entry level workers to near Chinese levels could absorb the masses of jobless and increase competitiveness but it would be political suicide for the ANC, which would alienate its mighty vote-generating ally.

Providing more funds for South Africa's SOEs would be an unwise investment, given their history of losses, management blunders and wasteful spending.

There is also little money available, with more than 40% of tax revenues already going to pay for state employees, and more hires are in the pipeline as part of the government's job plans.

"China's starting point was very different and growth coincided with liberalisation of that economy. It didn't happen the other way around," said Razia Khan, head of Africa research at Standard Chartered.