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Take advantage of China

Aug 02 2012 07:47
Geoffrey Chapman

SINCE I was going to discuss China in any case this week, I was happy to find an editorial in another publication on the same topic last week.

However, I was surprised to find that this particular editorial states that South Africa's trade relationship with China is "net positive".

Unless I read the data incorrectly, South Africa has a trade deficit with China. The data shows that between January 2010 and December 2011, South Africa only had a trade surplus with China for five out of the 24 months.

In addition, the data to May of this year shows that South Africa has an overwhelming trade deficit with China of just under R10bn and, in fact, only has a trade surplus in four of the 22 sections under which we trade with China.

This is certainly not a "net positive" trade relationship.

The editorial does, however, acknowledge that Africa wants to push its trade with China up the value chain and this is where I agree.

China is very much in our crosshairs and yet I am certain that few people are aware that on July 18th, the Chinese issued two notifications concerning technical regulations of cotton.

The first notification specifies the quality requirements, classification criteria, test methods, inspection rules, inspection certificates, packages and marks, storage and transportation requirements, etc for saw-ginned upland cotton.

The second notification specifies the same, except for roller-ginned upland cotton. I imagine this is quite a leap for most readers, so please bear with me.

The cotton industry and the exportation thereof provides work and money for thousands of households in South Africa – one study showed that 710 000 were employed in the cotton industry between April to June 2009.

In 2011, for example, South African exports of cotton generated over R100m, 36% of which came from the exportation of cotton to China.

China then uses the cotton to manufacture clothes, among other things, and then re-exports the cotton to South Africa in the form of clothing.

Since finished products are more valuable than raw or semi-finished products, South Africa loses while China gains.

Making this situation worse is that over the last five years, China is playing a more and more dominant role in South Africa's exportation of cotton (see Figure 1).

In order for us to turn this around and stimulate one of our key sectors - clothing, textiles, footwear and leather - the Chinese themselves have provided the solution.

In the past week, the Chinese have offered $20bn in loans to Africa to be used for infrastructure development, manufacturing and the developing of small businesses.

Not that one size fits all, but I believe South Africa can take advantage of the $20bn offer through establishing African value chains that are export-driven.

South Africa, along with the rest of Africa, already produces and exports large amounts of cotton to China annually so all we need to do, using the Chinese money, is develop our infrastructure and manufacturing sectors.

Once this has been done, we can export not only raw cotton but clothing as well.

This is but one sector in which South Africa can turn an annual trade deficit into an annual trade surplus, through capitalising on the available opportunities. If more sectors like this can be identified and acted on, we might even become a net exporter.

This is, of course, a long-term objective and something South Africa will need to focus on if it is to become a reality.

In the short to  medium term, however, we should focus on reliable and stable export growth.

 - Fin24

* Geoffrey Chapman is a guest columnist and trade policy expert at the SABS.

Figure 1: China's share of South Africa’s cotton exports

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geoffrey chapman  |  africa  |  sa economy



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