The South African Institute of International Affairs “South Africa’s window on the world” China and Southern Africa: A Balanced Scorecard? Peter Draper Research Fellow Development through Trade Project

The South African Institute of International Affairs “South Africa’s window on the world” OVERVIEW 1.Contrasting fortunes 2.Positive entries 3.Negative entries 4.Assessment

The South African Institute of International Affairs “South Africa’s window on the world” 1. Contrasting fortunes A.China i.Rapidly rising, modernising global power ii.Spectacular growth and poverty reduction iii.Expanding global footprint B.Southern Africa i.Marginalized from global economy ii.Mired in poverty and chronic socio- political problems

The South African Institute of International Affairs “South Africa’s window on the world” 2.Positive entries A.The “minerals-manufactures” nexus i.Basic comparative advantage story ii.Positive terms of trade effect (commodity prices) iii.This should assist with debt management iv.And underpin fragile balance of payments v.But for how long will this endure? vi.And what about possible “Dutch disease” effects? vii.And how will resource rents be managed? B.Agriculture exports i.This is a key area of relatively unexploited comparative advantage in Africa ii.The sector’s development is constrained by OECD subsidies and domestic supply-side issues iii.But China is a net food importer and this is likely to continue iv.Opportunities for investment and export C.Services exports and investment: confined to SA?

The South African Institute of International Affairs “South Africa’s window on the world” 3. Negative entries A.Cheap manufactured imports i.Displace domestic production? ii.And exports to third markets? iii.Implications for labour-absorbing growth paths? B.Regional industrial trajectory? i.Condemned to primary products supplier status? ii.But African economies are not competitive in manufactures iii.Cheap imports are good for poor consumers iv.Some countries have got rich from their resource base v.And the potential of agriculture needs to be unlocked C.Balance of payments i.Rapidly growing cheap imports implies balance of payments pressure ii.But offset by resource exports iii.Bilateral trade deficits are not problems in themselves – it is the overall balance of payments that matters iv.And the source of the deficit is of most importance

The South African Institute of International Affairs “South Africa’s window on the world” 4. Assessment A.China’s rise poses a number of challenges B.But correctly managed the opportunities should outweigh the threats C.This raises the troubling governance question: i.Managing resource rents in the interests of the country rather than elites ii.Building supply-side capacities iii.Investing in institutions to provide more effective governance of trade and investment iv.Negotiating with China from a stronger, better- informed platform v.And directing Chinese expansion into areas of national interest