Chinese Competition and the Restructuring of South Africa Manufacturing

The dramatic re-emergency of China as a global economic power was highlighted when it overtook Germany as the world's largest exporter in 2009. The global recession and the resulting economic slowdown in the OECD countries, coupled with continued rapid growth in China has made the latter an even more important engine for global growth and it is now poised to overtake Japan as the second largest economy in the world after the United States This makes it particularly important to understand the impacts that China's growth is having on other emerging economies.

The growth of China and its increased integration with the global economy has created both opportunities and challenges for countries around the world. Over the past 5 years a great deal of attention has been paid to the growing involvement of China in Africa, both within Africa itself and in Europe and the United States. While many African governments has welcomed the growing Chinese interest in the region, many in the North have expressed concern over the economic and political implications of thse closer ties.

The case of China's impact on South Africa is of particular interest since it is Africa's largest and most developed economy. It has the most advanced manufacturing sector in Africa and it is China's second most important trading partner in the region, after Angola and the largest importer of Chinese goods in Africa (Raine, 2009, Table 1). Whereas in other Sub-Saharan African countries, the focus of attention has mainly been on exports of primary products to China and the flows of Chinease aid and investment which are often closely tied to each other, the impacts in South Africa are more complex. In 2004 Moeletsi Mbeki (brother of President Mbeki) wrote "China is both a tantalising opportunity and a terrifying threat to South Africa" (quoted in Haidu, 2006, p.457). Many of the perceived threats, as well as some of the opportunities for South Africa arise in the manufacturing sector which is the focus of the project.

There are two main channels through which China is affecting South African manufacturing. The first is through the rapid increase in bii-lateral trade with China. The project will consider the effec these trade flows on South African manufacturing industries and particularly on the extent to which Chinese imports have substitute for imports from other countries, or have displaced local producers. It will also consider the types of goods that are being imported from and exported to China in terms both of their end use (capital goods, parts and components, final consumer goods) and technology level. Second, it will analyse competition between Chinese and South African goods in South Africa's principal export markets, the EU, USA and SSA. Again the study will look at the industries and types of products most affected by Chinese competition.

In addition to identifying the industries most at risk from Chinese competition, the study will then analyse the impacts that China has had on a number of key indicators of industrial permformace, focussing particuarly on productivity, prices, employment and wages. The study will provide a clearer picture of the impacts of Chinese compeition on South African manufacturing, helping policy-makers identify the industries most affected and those which have benefitted from access to low-cost Chinese products. It will also for the first time provide an estimate of the overall employmetn impacts associated with imports from China.