Converging Interests

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The leaders of South Africa and China had much to discuss when they met on June 21, with their interests on the African continent becoming increasingly intertwined.

The leaders signed 14 bilateral agreements covering trade and economic co-operation in sectors such as agriculture, the arts and culture, health and finance, as well as minerals and energy.

President Thabo Mbeki also secured an agreement from Chinese Premier Wen Jiabao that China would restrict exports of textiles to South Africa. The deal, part of a package to place limits on 31 product categories of exports to South Africa, is set to run until the end of 2008.

Though the exact details of the agreement have not been finalised, the deal is expected to bring a measure of relief to the South African textile sector. Earlier this year, China's agreement with the EU that caps exports increases to 8% per year, was cited by the Chinese ambassador in Pretoria, Liu Guijin. However, he also said that the terms of the agreement with South Africa to cap textile imports would not necessarily be the same.

Mbeki was under considerable pressure from the Congress of South African Trade Unions (COSATU) to score some concessions on the importation of inexpensive Chinese clothes and textiles. This was a particularly sensitive issue for Mbeki, with analysts estimating that the two industries have lost around 10% of their workforce in the last 12 months. Combined, the two industries account for 4% of South Africa's industrial output and employ around 150,000 workers.

Three factors have conspired against manufacturers of clothing and textiles in South Africa. The ending of the Multi-Fibre Agreement (MFA) between the EU and China, which restricted exports of Chinese textiles to the euro zone, has squeezed South African exporters out of some of their traditional markets. At the same time, a rise in the value of the rand ($0.13) - largely attributed to Chinese demand for traditional South African commodities like gold and platinum - has made South African exports more expensive. Finally, and most damaging of all, the South African market is now flooded with low-priced Chinese imports, undercutting South African manufacturers on their home soil.

There are also other factors that have contributed to the decline of the two industries, such as a failure by many companies to invest in capital equipment or training, but China, for many, remains a popular scapegoat.

The visit by the Chinese premier marks eight years of bilateral relations between the two countries, during which time South Africa has become China's largest trading partner on the continent, accounting for 20% of Chinese trade in Africa. His visit has also come at a time when diplomatic relations between South Africa and China are as warm as they have ever been, with increasing co-operation between Beijing and Pretoria within the G-77 group of nations.

During his visit, Wen gave hearty support for Mbeki's leadership position in the development of Sub-Saharan Africa and his New Partnership for Africa's Development (NEPAD). Away from the cameras, however, there was some serious bargaining to be done, with South Africa seeking greater protection for manufacturers and Wen seeking greater access to the continent's raw materials needed to fuel the Asian giant's relentless economic expansion.

Mbeki had been looking at way to reduce South Africa's burgeoning trade deficit with China. Although exports to China now represent 3% of the country's total overseas sales, Chinese imports have burgeoned to become 9% of South Africa's incoming trade, a trend that seems set to continue with an increase of 37% between 2004 and 2005 alone.

Meanwhile, the Chinese premier also met with Pat Davies, the chairman of the South African energy group Sasol, during his visit. China is currently searching for alternative sources of energy and, as the fifth-largest coal producer in the world, it is extremely interested in the coal to oil technologies that have been developed by Sasol.

The results came soon after, with Sasol signing deals with both the Shenhua Corporation and Shenhua Ningxia Coal Ltd to conduct feasibility studies into setting up two refineries in China with a capacity of 80,000 bpd.

The bilateral agreement reached on energy also includes plans to co-operate on the joint development of nuclear reactors and could see the exchange of personnel between South Africa and China. There were, reportedly, also discussions over the mining of uranium.

Ties between the countries are set to strengthen in the coming months as China looks to increase its influence across the continent and secure access to resources. With South Africa also seeking energy sources, the economic and political stability of Africa, specifically countries such as Angola, the Democratic Republic of Congo and Sudan, are in the interests of both countries.

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