SA 'must improve trade relationship with China'

South Africa must address the "adverse characteristics" in its trading relationship with China and ensure that a relationship of "mutual benefit takes centre stage", said Jorge Maia, the head of research and information at the Industrial Development Corporation (IDC).

While exports to China - SA's leading export destination since early last year - are dominated by a handful of raw materials, Chinese imports play a dominant role in almost all manufacturing subsectors in SA, according to an analysis of SA's trade patterns, which was released by the IDC this week.

Exporters battle to diversify exports to China, partly because that economy has high import duties and other trade barriers.

In the absence of a bilateral agreement, trade between SA and China is ruled by commitments made under the World Trade Organisation system, through which SA has undertaken strenuous obligations to open up its economy.

Maia said that while he did not expect the playing field would be levelled soon, adverse elements of in the trading relationship - phytosanitary issues that hamper agricultural exports to China, for example - were likely to be addressed on a bilateral level.

"That is critical, and that's why it is so important that, in the negotiations that we have from a trading and investment perspective with the Chinese, that mutual benefit really take centre stage," he said.

"As those barriers to trade are alleviated then of course our ability to compete in the Chinese market will rely on price, quality and service delivery."

He said SA already enjoys a competitive advantage with the pricing of certain products, and with minerals such as platinum.

Maia expects wage pressure will mount in China. "Over time you would see a gradual loss of the massive competitiveness that they now have," he said.

There is "strong intergovernmental momentum" to improve relations and reduce barriers to trade between the two countries, even if a free trade agreement was not signed, he added.

Such an agreement would have a devastating effect on SA's ailing clothing and textile industry and talks, which started in 2004, are unlikely to be revived.

"I think China understands quite clearly the importance of SA, not only because of our resources, but also our special positioning within the African continent," says Maia.

"And I think they understand the benefits of that relationship; it's been translated into direct investment. I think the more the Chinese understand the African realities and the expectations that Africa has of China, the more they will want to pursue mutually beneficial arrangements rather than the more one-sided characteristics that we've had up to now."

Despite government plans to beneficiate raw materials and create jobs locally, exports to China are dominated by iron ore, ferro-alloys, chromium ores, manganese ores and coal. Demand has been driven mainly by the phenomenal growth in China's steel industry over the past decade - the country produced almost half the world's steel last year.

SA needs to diversify its "highly concentrated export basket", as well as its export destinations, which are dominated by countries in the region, according to the IDC report.

Raw materials - mainly unwrought platinum, coal briquettes and iron ore - represented almost 40% of total exports in the first semester this year. Exports of intermediate goods (35.2% of the total) consisted largely of aluminium, ferro-alloys and rolled stainless steel.