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TRADE: RSA vs CHINA
Presentation by: Seabelo Molepolle, Deputy
Director, Asia Bilateral, ITED
Tshiphiri Ramakokovhu, Director, Statistics &
Modeling, ERPC
Part 1: Review of Bilateral Relations
• Background
• Structure of Engagement
1. Bilateral level (Bi-National Commission and its committees)
2. Multilateral level (FOCAC, G20, WTO, and G77)
2.1 South-South Relations (BRICS)
Bilateral Trade Relations
• Implementation of the trade aspects of the Comprehensive Strategic
Partnership Agreement (CSPA)
• Concern: Structure of Trade
• Measures undertaken to address the structure of trade (Top 10 product
list i.e. Agro-processing, chemicals, plastics, steel, aluminium,
automotive, capital equipment, manufacturing, electro-chemical, paper
and pulp)
• List of minerals for beneficiation
• The work on the bilateral trade statistical analysis
Bilateral Investment Relations
• China’s investment in South Africa is negligible
• Measures undertaken to address this concern (Top 10 projects i.e.
mining and beneficiation, renewable energy & energy, BRICS Trade
& Development Risk Pool, automotive, infrastructure, oil and gas,
ICT, Transnet Capital Projects, Transport, and agro-processing)
• Chinese investment in SA (mining, machinery, financial, appliances
and ICT)
• South Africa’s investment in China estimated between US$ 600m and
US$800m (Breweries, mining, ICT, energy, financial)
Areas of cooperation
• Clothing and Textile (MoU on Promoting Bilateral Trade
and Economic Cooperation)
• Special Economic Zones (SEZs) / Export Processing
Zones (EPZs)
• Infrastructure development
Part 2: Introduction
• China is South Africa’s largest trading partner, making up
over 14% of all merchandise imports and almost 12% of
all product exports excluding gold.
• Comparative advantages exist between South Africa and
China, and thus form the basis of trade between the two
countries.
• South Africa has a comparative advantage in various
primary sector commodities (metal ores, gold and coal for
example) whereas China has a comparative advantage in
various secondary sector commodities (textiles and certain
foodstuffs for example.)
Introduction
• Trade between South Africa and China theoretically allows
each country to focus on those products and industries
where it can optimally combine its factors of production.
Such specialisation should result in consumers being able
to buy more of a product at a higher quality, increasing
prosperity for the average citizen of both countries.
• The mechanism through which this happens has been
discussed throughout the trade literatures but is usually
said to occur through higher economies of scale and
through movement along the learning curve.
Introduction
• The literature has also identified various costs to trade.
• One of those is the adjustment costs of employment from an industry
that does not have a comparative advantage with the trading country to
an industry that does.
• A common example of such an effect can be viewed within the South
Africa textiles industry, which suffered severely after trade
liberalisation and international exposure.
• Adjustments as one of the costs of international trade; wherein labour
and capital that were previously employed in protected industries need
to be moved to industries where a country has comparative advantages.
• This results in temporary decreases in employment as capital
equipment is abandoned or recycled (which takes time) and as labour
is re-skilled.
Current Trade Situation
2009 (Rm)
Agriculture, forestry & fishing
2010 (Rm)
2011 (Rm)
-27 205
-37 131
-58 915
Agriculture and hunting
800
97
499
Forestry and logging
-28 038
-37 334
-59 665
Fishing, operation of fish farms
33
106
250
30 488
43 149
71 533
389
3 569
9 504
Mining
Mining of coal and lignite
Mining of gold and uranium ore1
-
-
-
Mining of metal ores
30 082
39 559
61 849
Other mining and quarrying
17
20
180
Current Trade Situation
Manufacturing (Rm)
Food, beverages and tobacco products
-52 100
-65 338
-102 821
-3 131
-5 778
-11 785
-47 745
-59 459
-90 312
526
295
1 038
Fuel, petroleum, chemical and rubber
products
Other non-metallic mineral products
-12 834
-11 311
-14 265
3
23
-18
Metal products, machinery and household
appliances
Electrical machinery and apparatus
10 077
9 111
10 567
39
105
53
Electronic, sound/vision, medical & other
appliances
Transport equipment
35
68
43
84
383
286
847
1 224
1 572
Textiles, clothing and leather goods
Wood and wood products
Furniture and other items NEC and recycling
Total Trade Balance
-48 817
-59 320
-90 204
Impact of external Trade on South African
Economy
• Using a Social Accounting Matrix, it is possible to derive
potential multipliers, per sector.
• Assuming that exports to China are purely external
demand – one can see the impact of exports to China on
each sector by ‘shocking’ that sector with a R1 million
change and considering the output labour and GDP
multipliers.
• The following table depicts the impact of a R1 million
external increase in demand for each of the listed
commodities.
Employment and Value Added for a R1 mil increase in Demand:
Major Export Commodities to China
Employment
(ppl)
Value Added (R mil)
Commodity Direct Indirect Induced
Total
Direct Indirect Induced Total
Coal
0.53
0.33
0.55
1.41
0.78
1.47
2.72
4.97
Gold
0.78
0.13
0.96
1.88
2.71
0.61
4.74
8.06
Other
Mining
0.42
0.23
0.39
1.04
0.84
1.03
1.94
3.80
Basic Iron
and Steel
0.11
0.36
0.36
0.83
0.59
1.96
1.76
4.32
Employment and Value Added for a R1 mil increase in Demand:
Major Export Commodities to China
• We estimate that for each additional R1 million demand
for South African coal, an approximate R1.41 million of
value is added to the local economy (including the effects
of additional induced demand in other sectors.)
• This increased demand leads to an approximate 4.97 new
jobs created in the economy.
• The other values can be read in a similar fashion, with
increased demand for gold clearly creating the biggest
potential spin off in terms of employment created and
value added.
Employment and Value Added for a R1 mil increase in Demand:
Major Imports Commodities From China
Employment
Value Added (R mil)
(ppl)
Commodity Direct Indirect Induced Total Direct Indirect Induced Total
Agricultur
0.33
0.42
0.60 1.34 4.21
2.25
2.94
e
9.40
0.11
0.39
0.41 0.91 1.75
2.54
2.00
Textiles
6.29
0.09
0.29
0.29 0.67 0.74
1.78
1.44
Footwear
3.96
Petroleum
0.12
0.45
0.43 1.00 0.31
2.45
2.10
& Chem.
4.86
Employment and Value Added for a R1 mil increase in Demand:
Major Import Commodities from China
• We estimate that for each additional R1 million demand
for South African Agriculture, an approximate R1.34
million of value is added to the local economy (including
the effects of additional induced demand in other sectors.)
• This increased demand leads to an approximate 9.4 new
jobs created in the economy.
Impact of external Trade on South African
Economy
• Lets make a tenuous assumption that should South
Africa stop importing such commodities from
China; all excess demand would be automatically
met with a stimulus to local production.
• Be fully aware that this assumption ignores the
important effect of price, and also the effects
import substitution from countries other than
China.
Impact of external Trade on South African Economy
• Using these simple straight line multipliers to analyse the
trade relationship between South Africa and China, one
might be tempted to conclude that South Africa is losing
out a potential 400 000 jobs in the agriculture, textiles and
other manufacturing sectors – but is benefitting from an
additional 180 000 jobs, mostly in the mining and primary
sectors.
• Applying similar straight line multipliers to value added,
one may be tempted to conclude that South Africa
currently gains about R33 billion in Gross Value Added.
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THANK YOU