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Cablegate: South African Minister Says China Trade Should

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RR RUEHDU RUEHJO
DE RUEHSA #2542/01 3440627
ZNR UUUUU ZZH
R 100627Z DEC 09
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 0575
INFO RUEHBJ/AMEMBASSY BEIJING 1055
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RUEHDU/AMCONSUL DURBAN 1482
RUEHJO/AMCONSUL JOHANNESBURG 9771

UNCLAS SECTION 01 OF 03 PRETORIA 002542

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: PREL PGOV SF
SUBJECT: SOUTH AFRICAN MINISTER SAYS CHINA TRADE SHOULD
BETTER SERVE AFRICA

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Summary
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1. (U) In a forum on China-Africa economic relations, SAG
Minister for Economic Development Ebrahim Patel said trade
with China must be aligned to the SAG's domestic priorities,
especially job creation and economic diversification into
higher-value manufactured goods. China is now South Africa's
largest trading partner, with bilateral flows risen to US$107
billion, but the structure of that trade remains skewed with
raw materials flowing east and finished goods coming back.
To achieve more balanced exchanges, South Africa would press
China for greater market access, capital investment, African
enterprise development, and joint-venture partnerships. Lest
commodities-based trade with China perpetuate colonial-era
imbalances between Africa and the West, Ebrahim urged African
nations to get tougher in pushing for their own self-interest
in foreign trade relations. End Summary.

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Foreign Ties Must Meet National Needs
-------------------------------------

2. (U) At a November 23-24 forum entitled "The New Coupling
Between China and Africa" at Johannesburg's Gordon Institute
of Business Science (GIBS), South African Minister for
Economic Development Ebrahim Patel stressed that trade and
investment with China must be aligned to the SAG's domestic
priorities, toward improving the welfare of its people.
President Zuma, he said, was firmly focused on reducing
unemployment afflicting a fourth to a third of the
population. The global economic crisis had brought major
setbacks, not just in demand for minerals but also for
industrial output. Manufacturing, said Patel, had fallen to
2004 levels, causing the loss of a million jobs or seven
percent of the workforce. What was needed now was structural
adjustment, putting South Africa on a more "labor absorbing
growth path" -- a goal which relations with China must be
leveraged to meet.

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Trade Booming, but Structurally Skewed
--------------------------------------

3. (U) The People's Republic of China (PRC) is now South
Africa's largest trading partner, but the structure of that
trade remains imbalanced with raw materials flowing east and
manufactured goods coming back. Patel said bilateral trade
had grown exponentially from an estimated four billion
dollars in 1996, to $50 billion in 2006, and $107 billion in
2008. South Africa is the continent's largest market for PRC
exports (with a 17 percent share of African purchases), and
it is the second largest (after Angola) source of PRC imports
from Africa (16 percent). Across Africa, the top products
sent to China were oil, iron, manganese, cobalt, copper,
wood, chrome, and ferroalloys -- all raw commodities. The
main products sent back were cell phone handsets, cotton
textiles, trucks, computers, bulldozers, motorbikes, shoes,
synthetic textiles, tires, and ships -- all finished goods.
South Africa's lists echoed those of the continent. With all
the manufacturing done in China, current trade patterns are
at odds with Patel's goal of maximizing jobs at home.

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PRC Building Ties to Secure Commodities
---------------------------------------

4. (U) China's need for African raw materials was prompting
it to pursue direct bilateral relations with source nations,
said Patel, bypassing traditional commodity channels in New
York and London. He said China favorably compared its own
QYork and London. He said China favorably compared its own
industrialization to that of western countries: all have had
the same resource needs, but what the U.K. took through
colonial conquest and the U.S. obtained through hegemonic
influence in the Americas the PRC was negotiating by trade.
(In a later impromptu remark, Patel said explicitly that in
building a relationship with China the SAG wanted to avoid
replicating the colonial imbalance between Africa and
Europe.) Patel noted that the SAG's relations with the PRC
government were deepening, including via bilateral
commissions launched in 2002 and a more recent joint economic
and trade committee. (Note: these are the same structures
the SAG has established this year with the USG.) Three areas
of focus were market access (into the PRC), mineral
beneficiation (ore treatment), and infrastructure development.


PRETORIA 00002542 002 OF 003


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SAG Spin on PRC "Eight Commitments"
-----------------------------------

5. (U) At the Forum on China-Africa Cooperation (FOCAC)'s
latest summit held earlier in the month at Sharm El Sheik,
Chinese Premier Wen Jiabao conveyed eight PRC commitments to
Africa. This list covered areas of cooperation such as
climate change and clean energy, science and technology,
financing including loans to small / medium sized enterprises
(SMEs), access to Chinese markets for African products,
agriculture, medicine and health, human resources and
education, and cultural exchange. With these promises as a
platform, said Patel, his goals were to achieve a more
balanced structure of trade, greater African development,
creation of higher-value domestic jobs, and diversification
of the South African economy. Reshuffling Wen's list,
Patel's own priorities were:

- Access for African products into China, especially for
value-added manufactured goods;

- Foreign direct investment by Chinese firms into Africa,
with diversification from mere mineral extraction to new
industries like consumer goods manufacturing;

- Growth of African enterprises, through access to capital,
economies of scale (via wider markets), and product
differentiation;

- Joint ventures tapping South Africa's existing technology
base and China's financing;

- Climate change and clean energy creating "green" jobs and
export products;

- Agriculture, building on productivity advances to expand
into food processing industries;

- Technical cooperation, from harmonization of import-export
statistics to customs collaboration on criminal
irregularities such as under-invoicing.

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Africa Must Serve Its Own Interests
-----------------------------------

6. (U) In unscripted responses during Q&A, Patel was candid
about Africa's need to stand up for its own interests, and to
make greater demands of its trading partners. "When China
opened up, it did so based on its own benefits, with a
hard-nosed focus on the best sectors for its own interest.
Africa has not been so focused." Africa, said Patel, must
insist on more balanced benefits in its exchanges, breaking
colonial molds: "The old supply chain model in which some
countries supply raw materials and others have ingenuity is
outdated. Now even mineral-rich countries must diversify"
into value-added industry. "Africa needs to be tougher in
its own interests. Even good friends must argue from time to
time... The failure to be more hard-headed is prematurely
stunting the relationship."

7. (U) When an executive of steel company Sinosteel asserted
that Chinese firms were being blocked for contracts by U.S.
and EU competitors, Patel gave assurances that there was
"space in our economy" to accomodate all foreign partners.
While South Africa's historical economic ties were with
Europe and America, there was great interest in expanding
relations with Asia and Latin America in the years ahead.
There were two reasons for this: firstly, the large
developing economies like Brazil, Russia, India, and China
(BRIC) were the future; and secondly, Africa had not in the
past wholly benefited from its relations with Europe and the
West. Diplomatically, Patel assured the audience that South
Africa wanted to continue its positive links to the U.S. and
EU but was equally eager to welcome newcomers like China.

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Comment
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8. (SBU) Patel,s strategy makes complete sense from South
Q8. (SBU) Patel,s strategy makes complete sense from South
Africa,s point of view, but trying to shift manufacturing
jobs here will be an uphill battle. South African labor
costs are higher than China,s, and China has a jobs deficit
of its own to fill. In most product areas China has the
greater bargaining power: if South Africa insists on
investment in return for its minerals, China could switch to

PRETORIA 00002542 003 OF 003


other less demanding suppliers on the continent. GIBS
executive Martyn Davies argued that Africa and China,s
coupling is two-way -- with African growth dependent on
Chinese demand, but PRC growth now also dependent on African
supply. African countries can only exploit China,s
dependency for their own advantage, however, if they do not
let the PRC play them off against each other. End comment.
GIPS

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