UNIVERSITY of East Anglia research that concluded competition from China has led to the loss of 77,000 South African factory jobs and $900m in trade with the rest of Africa over the past decade will not come as a surprise to local industrialists or trade unions.
The toll in terms of factory closures and job losses in sectors such as footwear and clothing and textiles has been well documented, and the ructions continue. A big shake-out looms in the clothing manufacturing sector if it, its unions and the government cannot agree on reforms to the archaic bargaining council and minimum wage system soon.
According to East Anglia’s Prof Rhys Jenkins, China has a 46% share of the South African footwear market from virtually nothing before, and now supplies about a third of the electronic goods bought by domestic consumers.
And this does not reflect the indirect effect of China’s dramatic entry onto the world trade stage following its acceptance as a member of the World Trade Organisation (WTO) in 2001. Factory owners across the local manufacturing sector have had little choice but to shift to more capital-intensive, technology-driven means of production and phase out labour-intensive product lines, at the expense of employment levels.
This trend was to a large extent inevitable, and South Africa and other African countries were by no means alone in feeling the negative economic and social effects of China’s rise as an economic power. Another way of looking at the phenomenon is to see the period after the industrial revolution and before the awakening of the Chinese dragon as a stroke of good fortune for the rest of the world, a window of opportunity it could not afford to waste. Certainly, the Chinese communist era, when ideological barriers protected the West from Chinese competition, resulted in a great leap backward for the Chinese people.
But now China is very much part of the global economy, and there is no choice but to embrace it, take advantage of the benefits it brings, mitigate the downside where possible and — above all — become more competitive.
Unfortunately, South Africa’s track record when it comes to China reveals that it has fallen short in all of these areas, apart from the first. We have certainly embraced China, a position that came naturally to the African National Congress (ANC)-led government due to its history as a liberation movement that received considerable financial, logistical, ideological and moral support from the communist bloc during the Cold War. Russia may have been the ANC’s real soulmate during the struggle years, but the party certainly shares China’s antipathy towards western imperialism and is clearly relishing the opportunity to reduce South Africa’s economic dependence on the old colonial powers.
The result has been an uncritical fraternal relationship with China that has not served South Africa well. Unlike many western countries, which recognised the threat China posed to their economies even as they acceded to its acceptance into the WTO, despite misgivings over the fairness of the terms of trade on offer, South Africa failed to see the writing on the wall. Rather than make use of clauses in the WTO charter for countries that fear suddenly opening their markets to imports could cause irreparable harm, we actually reduced import tariffs more rapidly than our international obligations demanded. The effect has been devastating.
Contrast that with the government’s overtly hostile response to Walmart’s multibillion-rand investment in the country through its merger with Massmart. Suddenly the viability of South Africa’s manufacturing base is of utmost concern and the threat of cheap imports is at the top of the agenda. That is not to say the government should not have asked for assurances that domestic suppliers would have a fair shake at staying on Walmart’s shelves after the changeover, and be given the opportunity to access the US giant’s global supply chain, but it is hard to avoid the conclusion that emotion and ideology-driven dislike of "big capital" has played a role in the government’s approach.
It is instructive that whereas South Africa has been quite vocal in its complaints over the effects the US’s ultra-loose monetary policy, and especially quantitative easing, have had on international capital flows and emerging market currency exchange rates, it has never had much to say about China’s long-standing policy of deliberately keeping the renminbi weak to enhance its competitiveness.
To be fair, the executive’s approach to China has evolved, presumably prompted by the Congress of South African Trade Unions’s complaints over the social and economic price South Africa has paid for its complacency. Considerable effort and resources have now been put into supporting the clothing manufacturing industry in particular, in its efforts to modernise, find niche markets and compete internationally. There was also a belated attempt to erect barriers to hold back the deluge of cheap — some would allege dumped — Chinese clothing.
This took the form of temporary import quotas imposed with the agreement of the Chinese government, which although widely circumvented did grant struggling firms some respite. Unfortunately, that respite came at the expense of consumers, who have inevitably seen the price of clothing increase.
President Jacob Zuma has also spoken out in recent months about the "unsustainable" nature of Africa’s trade with China, which is still characterised by the transfer of low-value commodities in one direction and high value-added manufactured products in the other. If this represents a new way of thinking, it is as welcome as it is overdue.
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