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 Chinas 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 todays 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 Chinas entry
into WTO, thus clearing a major hurdle in the way of
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 Chinas 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.
Chinas 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 Chinas 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 worlds
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 Peoples
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 Africas
support for Chinas early accession to WTO.
No doubt Chinas 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, Chinas 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 Chinas 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 Chinas
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 Chinas 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 latters
accession to WTO, for example the US and EU, they have
focused on concessions from China in the following two
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
As South Africas 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.