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China’s grand plans for Africa a two-way trade

South Africa: China’s Grand Plans for Africa a Two-Way Trade

Business Day (Johannesburg)

December 4, 2006

Jonathan Katzenellenbogen

CHINA has grand plans for Africa. It wants to grow its two-way trade with the continent by two and half times to $100bn in four years.

That could bring with it increasing controversy in Africa as China takes on a raised profile.

Last year China’s two-way trade with the continent was $39,7bn. But with Chinese promises of credits, projects, and the country’s double-digit growth rate likely to be sustained over the medium term, Chinese imports of African oil and minerals are likely to continue to rise rapidly, and trade in general to soar.

What makes the $100bn aim declared by Chinese Premier Wen Jiabao so realistic is that over the five years after 2000, two-way trade between China and Africa quadrupled.

At the Sino-African summit in Beijing last month, Chinese President Hu Jintao came up with a number of initiatives that will have the effect of giving trade an extra push.

China intends to double aid to Africa by 2009; make $3bn in preferential loans and $2bn of preferential buyers’ credits available to Africa over the next three years; create a $5bn development fund to encourage Chinese investors to invest in the continent; and cancel some official debts. It will also establish three to five trade and economic co-operation zones for Chinese investors over the next three years.

At the summit, Hu also said China intended to increase from 190 to more than 440 the number of goods African countries can export duty free into the country. That will benefit Africa, but SA would also like to see zero or reduced tariffs on some of its value-added products.

Where China will distribute the bulk of its largesse is still not clear, but oil and mineral producers stand to receive the most.

Angola has already benefited from a $2bn credit line from China and more has been offered.

Aid, loans, national stadia, and other gifts will make it easier for China to trade, but a higher visibility could also make the Chinese connection a target. The catalyst for protest would not even have to relate directly to China.

Trade with China is likely to become an increasingly politically sensitive issue for a number of countries on the continent. That is because China is essentially buying the continent’s oil and minerals and selling back manufactured goods, a type of relationship redolent of a colonial one and similar to most of Africa’s existing trade relations with Europe and the US.

Over the past two years, China has recorded a deficit in its overall trade with the continent, but that is partly due to Africa supplying 30% of China’s oil imports.

The question of whether Chinese-produced goods exported to Africa are forestalling the chance of Africa entering the world market for manufactured goods is one laden with political issues.

Whether or not the above is valid, the mere perception of it could act as a challenge to China’s longer-term position on the continent. It could also undermine prospects for a free trade pact between SA and China.

While there may be inequality in the relationship, the Chinese economic super-cycle has been of enormous benefit to Africa and it is up to the continent to use the windfalls it has gained from its resources with care. African countries cannot compete in manufacturing with China, but if they create larger internal markets for themselves through free trade areas, there could be longer-term potential.

However much China may be the source of the benefits of globalisation for Africa, it is unlikely to be able to steer clear of controversy.

China now ranks as SA’s second-largest source of imports by value, and the country with which SA has the largest trade deficit. The deficit with China accounts for more than half of SA’s total trade deficit.

After much union pressure, the South African government imposed quotas on imports of Chinese clothing and textiles. That move could easily open the way to protection for other industries, despite the screams of retailers. These are early days in the China-Africa trade saga.