South Africa’s official diplomatic ties with the People’s Republic of China (PRC) began on 1 January 1998 following a long period of relations with Taiwan. During the 1970s, the apartheid regime in South Africa, subject to an embargo and isolated internationally, turned towards Taiwan, equally in search of international allies. The ensuing engagement resulted in the influx of capital and investors from Taiwan (benefitting from special incentives), with the latter often setting up factories in proximity of bantustans or homelands, specifically created during the apartheid years as a way to segregate population groups and create basins of cheap labour. If, according to official accounts, the PRC had no diplomatic or trade relations with apartheid South Africa, in reality ties were much more complex. Due to the tensions between Maoist China and the Soviet Union, Beijing provided support to the largely ineffective Pan-Africanist Congress (PAC) from the mid-1960s to the end of the 1980s, as the African National Congress (ANC) was shouldered by the Soviet Union. As detailed in the book Apartheid Guns and Money, evidence from declassified documents shows that Beijing did in fact supply the apartheid military with guns and bombs from at least 1980. The PRC proved to be at ease playing both sides.
With the advent of democracy in 1994 and the subsequent normalisation of diplomatic relations with over 180 countries, the new ANC government debated the salience of maintaining ties with Taiwan. When President Mandela took office, the new government was keen to drop the image of the past while trying to draw closer to countries able to help its development trajectory. Mandela first suggested a dual recognition, which was rejected by Beijing due to its One China Principle. Eventually, South Africa could not avoid establishing official ties with Mainland China, a permanent member of the United Nations Security Council and, at the time, an emerging economic power. During Thabo Mbeki’s time in office (1999–2008), South Africa’s agenda was primarily focused on bringing forth an African renaissance and the launch of the New Partnership for Africa’s Development (NEPAD) in 2001, with the aim of strengthening aid and investments linkages with G8 countries. Relations with the PRC, although friendly, remained somewhat secondary during this period.
The sudden ousting of President Mbeki in 2009 provided an opportunity for Beijing to draw closer to one of the main economic drivers on the African continent. In parallel, the delayed repercussions of the 2008 financial crisis in South Africa and the recognition of the PRC’s ability to weather the negative consequences of the crisis led the new government of Jacob Zuma (2009–18) to develop an interest in learning from China’s developmental state approach. This mutual wish to strengthen cooperation and exchanges led to the elevation of bilateral ties to the level of ‘comprehensive strategic partnership’ during a state visit to China by President Zuma in 2010. At the same time, South Africa’s relationship with the PRC was also reinforced through the country’s membership in other broader international groupings such as the BRICS (that is Brazil, Russia, India, China, and after 2010 also South Africa) or the G20. As a reflection of its political and economic weight (whether regionally or continentally), South Africa not only hosted the sixth ministerial Forum on China-Africa Cooperation (FOCAC) summit in 2015, but also received official visits from both Hu Jintao and Xi Jinping (in 1999 and 2010 respectively), when they were vice-presidents on their first official Africa tours. Since taking office in 2013, President Xi Jinping has visited South Africa three times in 2013, 2015, and 2018, and received Zuma in 2014. His successor Cyril Ramaphosa was received by Xi Jinping in 2018.
While the official relationship between the PRC and South Africa has intensified over the last decade, public diplomacy displays mean little to ordinary South Africans. In reality, the tangibility of the Chinese presence in the country transpires primarily through the numbers and diversity of migrants. Chinese migration to South Africa has been tied to different waves and histories. The earliest dates back to the late nineteenth century and was driven by the gold rush, followed by Taiwanese industrialists in the 1970s, then entrepreneurs from the mainland from the late 1980s onwards, most of whom arrived after the turn of the century. In the absence of official figures, estimates have ranged from 350,000 to 500,000 during the mid-2000s, with a very likely decline in recent years due to a less favourable business environment. Even if trajectories, identities, and engagements with the host society vary, and economic footprints range from corporate capital to private initiatives at different scales, imaginaries of ‘China’ and ‘the Chinese’ are largely associated with wholesale trade. The combination of a dearth in supply and a high demand for large quantities of affordable goods triggered a considerable influx of migrant-entrepreneurs eager to benefit from these economic opportunities and eventually led to the mushrooming of Chinese-run shopping malls, especially in Johannesburg, the country’s economic powerhouse.
South Africa officially joined the Belt and Road Initiative (BRI) during a state visit by Chinese president Xi Jinping in early December 2015, which coincided with the sixth FOCAC summit in Johannesburg. In parallel, both governments agreed to strengthen the joint working group, initially set up in 2014 to implement an action plan covering a range of different economic areas. These included, among others, locomotive procurement, civilian nuclear energy, investment cooperation in industrial parks, trade promotion (especially focused on South African product expos and trade missions), cooperation in black industrialist programmes, financial cooperation, as well as the upgrading of the national electricity transmission and distribution system. While the signed MoU mentions the joint building of the Silk Road Economic Belt and the 21st century Maritime Silk Road, it is difficult to assess which projects fall under the BRI, BRICS, FOCAC, or simply bilateral agreements.
Trade: By 2008, merely ten years after the formal establishment of diplomatic ties, the PRC had already turned into South Africa’s largest import and export partner. In the aftermath of the global financial crisis, imports from main commercial partners, such as Organisation for Economic Co-operation and Development (OECD) members and EU countries dropped significantly. However, South Africa’s trade balance with the PRC runs a deficit. Additionally, while South Africa mainly exports raw materials, especially mineral products and base metals, textiles, precious and semi-precious stones, as well as wood products, imports from China are mainly value-added products such as electrical machinery, clothing and footwear, data processing machines, organic chemicals, iron or steel articles, and motor vehicles. From 2008 to 2018, imports from mainland China have increased from 8.6 billion USD to 16.3 billion USD, compared to 4.3 billion USD to 8.5 billion USD in South African exports in the other direction (data from the China Africa Research Initiative). However, due to the COVID-19 pandemic, bilateral trade between South Africa and China fell by 27.6% in 2020, mirroring a sharp contraction in international trade and investment. The decline in exports to China (which began in 2019) is mainly due to a declining demand for ores and concentrates, possibly due to China’s changing economy. Data from the South African Revenue Service from October 2020 shows that, for the first time in over a decade, China had dropped to the third position (at 8.9%) in terms of exports from South Africa behind Germany (9.1%) and the United States (12.2%). Imports, on the other hand, remained firmly dominated by China (with 19.8%), ahead of Germany (10.1%) and the United States (7%).
Investment: Compared to the exponential growth of bilateral trade, the reality of Chinese investment is very different. Considering the size of South Africa’s economy, direct investment from China was initially very modest. Until 2007, South African companies had even invested more in China than their counterparts had in South Africa, an unusual setup considering predominant trends across the African continent. A number of factors can explain the largely cautious approach adopted by Chinese investors. While South Africa is rich in resources, it is viewed as having reached a mature stage of development, which limits interests in mining from foreign investors. Additionally, the complex regulatory environment, a rigid labour market, the influence of trade and labour unions, as well as the existence of positive discrimination policies (such as Black Economic Empowerment) have affected investor sentiment. Those who have invested in mining operations have largely opted for joint-ventures and brownfield investment. This includes the 243-million-USD purchase made by China Investment Corporation (China’s sovereign wealth fund) of 25% of the Shanduka group (a South African company with investments in energy, mining, telecommunications, and financial services), and the joint 200-million-USD acquisition of 45% of Wesizwe (a publicly listed mining corporation) by the Jinchuan Group, a provincial state-owned Chinese company, and the China-Africa Development Fund.
The largest investment to date occurred in 2008, when the Industrial and Commercial Bank of China (ICBC) purchased a 20% equity stake in Standard Bank for 5.5 billion USD, becoming the bank’s largest shareholder. Over time, the interest of Chinese investors has grown, especially during Zuma’s time in office, when the foreign policy strategy geared towards establishing closer links with Asia. During Zuma’s state visit to China in 2010, South African and Chinese companies signed more than a dozen agreements covering investments in railways, power transmission construction, mining, insurance, telecoms, and nuclear power, including some projects that eventually turned out to be quite controversial, as outlined below. The opening of the China Africa Development Fund’s (CADF) representative office in Johannesburg in 2009 contributed to raising awareness about investment opportunities in the country, specifically by providing support for Chinese companies willing to invest. By the end of 2012, this private equity fund, solely funded by the China Development Bank (CDB), was involved in seven projects in South Africa, five of which were in manufacturing and two in mining, with a total investment of over 400 million USD. In 2013, a consortium led by the Industrial Development Corporation of South Africa Limited and Hebei Iron & Steel Group invested over 600 million USD (partially guaranteed through a loan by the CADF) to acquire the Palabora Mining Company from Rio Tinto.
By 2012, about 25% of Chinese foreign direct investments in Africa had been funnelled into South Africa, followed by 11% into Nigeria and 9% into Zambia. For all that, by 2008 Chinese investments in South Africa only made up 4% (or 3.6 billion USD) of all foreign investment in the country. Between 2003 and 2019, a total of 88 (registered) Chinese companies had invested in South Africa with capital expenditure (stock) evaluated at 6.1 billion USD. Former Chinese ambassador to South Africa Lin Songtian stated that by 2017 existent and planned direct Chinese investments in the country added up to 25 billion USD (ranging from manufacturing, processing, mining, finance, energy, tourism, as well as trade and service sectors). This figure is difficult to verify, not only given the discrepancy between promised and realised projects, but also due to the reality of investments by migrant-entrepreneurs not being fully captured. Nevertheless, anecdotal evidence shows an upturn in interest from Chinese investors in the 2010s. In recent years, the Coega Special Economic Zone (SEZ) in Nelson Mandela Bay has become an attractive investment destination for Chinese investors, with a Chinese firm involved in the manufacturing of solar photovoltaic cells, as well as two vehicle manufacturers, First Automotive Works (FAW) and Beijing Automotive Industry Group (BAIC), opening plants to manufacture cars to be marketed locally and across the continent. Furthermore, Shenzhen Hoi Mor Resources, a Chinese company specialised in mineral beneficiation, has committed to invest 3.8 billion USD to operate the 8,000-hectare Musina Makhado SEZ, situated on the Limpopo River’s southern bank in the province of Limpopo. To be developed over the next years, the project comprises a metallurgical complex (with 1.5 billion USD to be spent on a ferrochrome plant and 1.2 billion USD on a stainless steel smelter) and a logistics hub to produce stainless steel. It has been touted by the South African government as the main driver of foreign direct investment in the country, with the investment figure of 2.6 billion USD in 2017 ballooning to 9.5 billion USD in January 2020, based on pledges by nine Chinese companies. Furthermore, in 2018, ahead of the 10th BRICS summit held in South Africa, Xi also pledged to invest 14.7 billion USD in South Africa, but not many details were released. The proclaimed aim was to help reboot a struggling economy, riddled by a decade of government looting and state corruption under Zuma’s presidency.
Aid and other finance: Although it is one of the most unequal societies, South Africa also remains one of the richest and industrially most advanced countries on the continent. Being classified as a middle-income country, aid has not really been at the forefront of its cooperation with China. A working paper by the Center for Global Development states that, between 2000 and 2011, South Africa received a total of 2.3 billion USD from China in development finance (policy-motivated loans). More recently, in light of a deflated economy and the struggling public sector, Chinese banks in 2018 lent a combined 2.8 billion USD to heavily indebted state-owned enterprises. The South African state power utility Eskom received a loan of 2.5 billion USD from the China Development Bank (CDB) and a loan of 300 million USD was extended by the ICBC to the logistics company Transnet. A few months later, South Africa’s Minister of International Relations and Cooperation claimed that the country had secured a commitment to loan 25 billion USD from the Chinese government, including 15 billion USD pledged in the context of the 2018 FOCAC summit. In April 2019, with the payment of the first tranche by the CDB having failed to materialise, Eskom required an emergency bailout of 355 million USD in order to stop a ruinous debt default. More recently, during the height of the COVID-19 pandemic in mid-2020, the Chinese government donated personal protection equipment (PPE), which was also replicated at a lower scale by Chinese businesses and associations donating PPE and food parcels to disadvantaged areas across South Africa.
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Cover Photo: Johannesburg South Africa. Credit (CC): @mediaclubsouthafrica.