South Africa-China Trade: Balancing Benefits and Consequences
Photo by Chris Johnson on Unsplash
By Mikayla (Miki) Pyke-Sharpe
Since the early stages of South Africa’s post-apartheid government, the country has held a complex economic and political relationship with China. This relationship has increasingly negative connotations, attributed mainly to China leveraging its economic prowess to shift South Africa’s political trajectory–sparked by China compelling the Mandela administration to formally recognise the People’s Republic of China over Taiwan in the 1990s.
Since the 1990s, the relationship between China and South Africa has been, to some extent, mutually advantageous. China benefits from the relationship both politically and economically, as it has expanded access to two of South Africa’s busiest ports, ranked among Africa’s top five. For South Africa, the relationship offers an opportunity for economic growth. However, due to China's higher development status, the inherent imbalance in the economic relationship between South Africa and China leaves the relationship with neocolonialist leanings.
The Chinese government has acknowledged this inherent economic imbalance. During the August 2023 BRICS Summit, China announced plans to donate R167 million in energy materials, lent R500 million to South Africa to assist with their energy crisis, and signed 20 agreements to purchase R41 billion of products from South African firms to assist with job creation in South Africa. Along with these agreements came a pledge to narrow the trade deficit between the two nations by increasing the access South African products have to Chinese markets. Such commitments have connotations of flexing indirect power– mainly, the Chinese government is leveraging economic policies and strategic positioning to reshape its reputation in South Africa as a means to position itself as beneficial to the South African economy and distance itself from its reputation of using extractive and exploitative measures in interactions with developing nations.
This shift in strategy was necessary due to the export variation between the respective countries. By the end of 2023, South African exports to China totalled US$12.48 Billion, with the top three exports being ores, slag and ash, iron and steel, and copper. Meanwhile, Chinese exports to South Africa totalled US$23.65 Billion, with the top three exports being electrical and electronic equipment, machinery, and vehicles. A key disparity stands out when comparing the respective countries' top three exports: South Africa's exports are primarily raw materials, whereas China's exports are mainly finished goods. Many Chinese exports also depend on the raw materials that South Africa supplies. As opposed to investing in the South African market, China is encouraging dependence on items highly susceptible to price shifts.
This trade dynamic is extrapolated by China’s ability to support manufacturing with subsidies– often undercutting the market price. Specifically, local governments in China are using subsidies to sustain manufacturing processes that have made it impossible for producers in South Africa to compete. The consequences of this price undercutting are dire for South Africa. As the nation continues to be dependent on exporting raw materials, it fails to build manufacturing ecosystems at home, leaving the country's economy highly susceptible to supply shocks.
As it stands, China's focus seems to be on securing raw materials from South Africa, as opposed to investing in South Africa's industrial capacity, which increases economic risk in South Africa. South African consumers will continue to rely on affordable Chinese imports, undermining the potential for the growth of local industries that could produce similar, albeit more costly, finished products. Irrespective of the objectives set at the 2023 BRICS summit, the main consequence of the current China and South Africa trade relationship is the latter’s growing dependence on the former. As it stands, China is South Africa's largest trading partner, yet South Africa is not even among China’s top 10 trading partners.
Local manufacturing subsidies in China, undercutting global market prices, are further compounded by China's oversupply in nearly all trade sectors, namely the energy sector and low-end manufactured goods. While local subsidies contribute to oversupply in China, the issue also stems from low domestic consumption caused by pessimism about the economy’s future and the sheer size of the Chinese economy. To defend itself against China's overcapacity in manufacturing, South Africa has introduced import tariffs on Chinese e-commerce brands, such as Shien and Temu. In 2024, the South African tax authority announced that it planned to impose a 45% value-added tax on imported clothing that cost less than R500. Acknowledging its asymmetric trade relationship with China, particularly in e-commerce, where artificially low prices negatively impact the clothing, textiles, footwear, and leather industries, which account for about 14% of manufacturing employment in the country, the South African government is adjusting its economic engagements to protect its economy.
Irrespective of the neo-colonial aspects of this trade relationship, the dynamic between South Africa and China also underscores the complex nature of economic relationships between countries of different development levels, as countries must sacrifice their preexisting economic structures to achieve equal trade with their peers. In other words, China must address its overcapacity if it wants a symmetric trade relationship with South Africa–which, as the world's top exporter, has no incentive to do so. As measured in 2023, 150 countries had a merchandise trade deficit with China, and 43 countries had a trade deficit with China of more than 5% of their GDP.
As such, criticisms of China’s overcapacity are growing. In response, China has defended itself using the economic principle of comparative advantage. However, trade based on comparative advantage is less advantageous for developing nations, as they are unable to diversify their economies, and usually forces them to be overly dependent on raw materials, which are highly susceptible to supply shocks and environmental risks. This, coupled with local subsidies, makes it impossible for developing countries like South Africa to reach their industrial capacity, as they are unable to compete with the low prices that result from such a policy. China’s trade practices, rooted in comparative advantage, have done little to address its low domestic consumption and the trade deficits it has caused within many developing nations. If China were to address its overcapacity and import as much as it exports, roughly 54% of total product manufacturing made in emerging economies would be added to global markets.
Nonetheless, trade relations between South Africa and China have some positive connotations. Solely relying on a one-dimensional portrayal of South Africa being merely dependent on China trade, along with the view that all African nations are inherently the victims of Chinese neo-colonial influence, clouds any positive analysis of economic development in Africa. This is significant given the prominent role that China has played in African economic growth, becoming Sub-Saharan Africa's largest bilateral trading partner over the last 20 years. Such positive analysis is especially prevalent given the debt-trap narrative that clouds China's Belt and Road Initiative, announced in 2013 to connect Asia, Africa, and Europe via land and maritime infrastructure to stimulate economic growth. Since joining the initiative, South Africa has experienced robust domestic growth, including adding 244.5MW of wind power to South Africa's electrical grid between 2015 and 2023, which is especially significant given the country’s energy crisis. However, publicity of the initiative has been clouded by cases like China's financing of Sri Lanka’s Hambantota Port, where China was accused of debt diplomacy after taking a 70% stake in the port following Sri Lanka’s loan default. These incidents highlight possible risks in South Africa’s relationship with China but should be analysed with a more complex lens, acknowledging the benefits while simultaneously creating a plan that balances interdependence and dependent economic growth within the country.
The economic relationship between China and South Africa is both beneficial and problematic, requiring a complex path forward that manages economic prospects and risk management of extractive and exploitative practices. Overall, this must take shape with South Africa continuing to employ protectionist measures, allowing it to interact with China in a more controlled manner–balancing autonomy while avoiding neo-colonialist connotations that have the potential to cloud South Africa’s foreign and economic relations.
Mikayla (Miki) Pyke-Sharpe is a sophomore at New York University studying Global Liberal Studies and economics. She is interested in developmental economics and enjoys playing music and photography in her free time.
