China's Entry into the World Trade Organisation - Implications for South African Business" Address by Deputy Minister Aziz Pahad, 30 May 2000

Chairperson, honoured speakers and guests

A few years ago when we started the process of establishing diplomatic relations with the PRC we were strongly criticized by some politicians, academics and media for being ideologues threatening the national interests of SA.

Today I am happy to note that when the Department of Foreign Affairs came up with the idea of a conference that would inform the South African public at large, but especially the South African business community, the Trade unions, academics and the media of the importance of China’s imminent accession to the World Trade Organisation (WTO), has been no similar hysterical outbursts.

I would like to express our sincere appreciation to the African-Asian Society for hosting this important conference and for gathering together such an informed array of speakers, both from overseas and South Africa. The Africa-Asian Society has become an important non-governmental organisation for promoting relations between South Africa and Asia, to exchange ideas and to inform and educate the South African public at large about the growing importance of Asia. I would like to encourage embassies and South African and Asian companies to become actively involved in the activities of the Society.

The timing of today’s conference could not have been more appropriate, following shortly after the successful visit of Chinese President Jiang Zemin to South Africa and the announcement by the EU and China that they have reached agreement on a framework for China’s entry into WTO, thus clearing a major hurdle in the way of China’s accession.

After having read reports of the first British expedition to China under Lord Macartney that took place from 1792-1794, the Emperor Napoleon, who had a keen interest in Asia, was purported to have uttered these visionary words: "When China awakens, the world will tremble".

Today, nobody argues anymore that this scenario has indeed become reality. However, the world is not trembling but coming to grips with the tremendous opportunities and challenges opened by China’s awakening. In a short span of mere twenty years, after having moved away from a centrally-planned economy to a market-directed economy based on the vision espoused by Deng Xiaoping and encapsulated by his famous words "it does not matter whether the cat is black or white, it is a good cat as long as it catches the mice", the political and economic ascendancy of China has changed the geopolitical and geo-economic landscape of the world irreversibly. China’s remarkable social and economic process since it embarked on its reform and opening up process is based on its policy " of building socialism with Chinese characteristics", i.e. development suited to Chinese specific conditions.

Most people, today, have at least a rudimentary knowledge of the momentous economic and social achievements of China over the past twenty years.

Suffice for me to point out that the last twenty years saw China’s average annual growth between 7 to 9, 8 percent, with foreign trade expanding from US$ 40 billion in 1980 to in excess of US$ 366 billion in 1999, rendering China the 11th largest trading country in the world. The accumulative total of foreign direct investment (FDI) in China by 1998 was US$300 billion, 60% of all FDI going to developing countries. Placed in a regional perspective, no less than six of the world’s largest export and import economies today are to be found in East and Southeast Asia, namely Japan, China, South Korea, Singapore, Taiwan and Hong Kong. These economies today account for 28 percent of all world trade, roughly the same as that of the US, and their share is likely to be much greater by the year 2010. The Greater China region alone (Mainland/Hong Kong/ Taiwan) accounted for a staggering US$950 billion in foreign trade during 1999.

In the making of foreign policy, no government that has the national interest of its country at heart can ignore the global forces that are in the process of shaping the international political and economic landscape of the 21st Century. The economic ascendancy of China is one of these major forces. Since the advent of the new democratic South Africa, the South African Government has been informed of this reality. This is why South Africa entered into diplomatic relations with the People’s Republic of China in the beginning of 1998 and has ever since been pursuing a strategic relationship with China.

During the first decade of this century, the World Trade Organisation (WTO) will more than any other organisation determine whether the course of international economic development and the development of the international trading system will be one of integration or of fragmentation. In addition, whether the international trading system can be restructured and transformed in such a manner that the developing world would also benefit from the process of globalisation, including the liberalisation of trade that should include increased market access for developing countries, as well as debt write-off. It has been the consistent view of the South African Government that WTO would be incomplete and the voice of the developing world would not be fully heard within the organisation without the full participation of China. In fact, South Africa and China are in agreement that the interests of developing countries should be safeguarded and enhanced within transformed Bretton Woods institutions. This is why President Mbeki, then still Deputy President, as far back as April 1998 expressed South Africa’s support for China’s early accession to WTO.

No doubt China’s entry into WTO will have far-reaching implications for both the Chinese economy and the international trading system. There will be both gains and losses. According to economic analysts, China’s accession to WTO will be "the most significant move in China since the start of economic reforms themselves 20 years ago" and will lead to a fundamental readjustment of the Chinese economy.

In the short term, labour and resource-intensive industries in China will likely be least affected by WTO membership because developed countries have largely moved out of such industries. It is foreseen that China’s electronic industry will gain in importance and that China may even become a major exporter of cars in perhaps the next ten years. Knowledge-based industries in China, such as information technology and the Internet, will most likely also benefit a great deal from WTO membership.

According to analysts, economic sectors in China most likely to suffer from WTO membership, are agriculture and the inefficient state-owned enterprises which will face increased foreign competition. This could lead to the further rolling back of the state sector in China.

Apart from rendering doing business in China more predictable and rules-based (in contrast to relations-based or so-called "guanxi"), WTO accession will turn China into a bigger market for the rest of the world. According to the Institute of International Economics, Chinese imports before accession of US$150 billion for merchandise will increase to US$168,2 billion after accession (+ 18,2 percent), the US$16, 7 billion for services will increase to US$ 19,8 billion (+19,8 percent) and China’s total imports will increase from US$ 166,7 billion to US$ 188 billion, an increase of 21,3 percent. On the other hand, China will also enjoy increased market access in international markets.

As China’s accession to WTO will bring about both advantages and disadvantages for its own economy, the same can be said for the international trading system - including the South African economy. Membership of WTO will no doubt subject the Chinese economy to increased market forces. However, given the resilience of the Chinese people and their ability to adapt to external shocks and difficult conditions, it can be safely assumed that the discipline of the market will bring about a more robust and fierce Chinese competitor in the international trading system as China brings its vast reserve of inexpensive, skilled and productive labour, as well as economies of scale, into play. For countries aiming to develop their manufacturing base, this will have severe competitive implications. South Africa specifically, and Africa in general, would be well-advised to take due cognisance of these realities.

It is interesting to note that in the negotiations of major trading countries with China about the latter’s accession to WTO, for example the US and EU, they have focused on concessions from China in the following two broad areas:

Increased market access for service industries.

Increased market access for agricultural products.

Notwithstanding formidable competition from other countries, South African business is well placed to take advantage of the growing opportunities in the service and agricultural sectors of the Chinese economy. In fact, many South African companies have already positioned themselves. All the major South African companies and banks have either a presence in Hong Kong and/or the Mainland itself, with South African investment in China already reaching the US$ 800 million mark. Since the advent of diplomatic relations in the beginning of 1998, the Department of Foreign Affairs, in conjunction with other Government Departments such as Trade and Industry and Agriculture, has endeavoured through the utilisation of high-level visits between South Africa and China, to increase market access for South African companies and to put agreements in place that would facilitate this. In this regard, South African companies have often make valuable inputs for use during high-level discussions.

The recent establishment of a Binational Commission (BNC) with China during the visit of President Jiang Zemin and the signing of, amongst others, an avoidance of double taxation, shipping and two agricultural agreements, all have had as the objective the facilitation of trade and the opening of market opportunities for South African companies in China, as well as attracting more Chinese investment into South Africa. The total Chinese investments in South Africa is about US$150 million, but there is the need to attract substantially more quality investments from China.

As South Africa’s foreign policy is to a large degree driven by the African Renaissance, it is also the intention of the South African Government to use the upcoming China-Africa Ministerial Cooperation Forum to be held in Beijing in October 2000 to forge a strategic framework between Africa and China that would support the economic development of Africa, and thus in turn the African Renaissance. Such a strategic framework has to be based on the principle of mutual benefit. As yet, the trade relationship between Africa and China has been characterised by a large trade deficit for Africa. China is committed to tackling this. Tremendous opportunities exist for Africa generally and SA specifically.

President Jiang Zemin underscored this during his recent visit when he said "Africa is the biggest developing continent and China the biggest developing country. The similar historical experiences and common tasks have linked us closely together. It is of strategic interest for China and Africa to enhanced consultation, expand common ground, support each and increase cooperation under the banner of south-south cooperation."

He went on to say "both being important developing countries on the Asian and African continents, China and South Africa share the same goals in safeguarding the rights and interests of developing countries and promoting the establishment of a peaceful, stable, just and equitable new international political and economic order. To strengthen the cooperation between us serves the fundamental interests of our two peoples and peace and development of the world."

In conclusion, it is businesses that compete internationally, not governments. Governments can only assist in creating favorable conditions that would allow businesses to compete successfully internationally. Increasingly it is the international tendency for private sector and government to form partnerships to expand business opportunities. In the case of China, this is no exception. If South African business wants to be successful in the Chinese market, there should be a partnership between the South African Government and the private sector. I would thus like to cooperate with Government and our Missions overseas to assist you in expanding your export opportunities.

Thank you.