The good, the bad, and the ugly of Chinese investment in SA

The dynamics underlying China’s economy are shifting. As export markets in the European Union and the United States stagnate, China’s reliance on exports is becoming more of a drag than a driver, and Chinese leaders are recognizing the need to refocus on domestic consumption. All of this, of course, spells opportunity for other countries, and South Africa has taken note. Dirk Kotze of the Beijing Axis talks to BizNewz about China’s activities in South Africa, and the potential for South African businesses to take advantage of the growing Chinese market. They are joined by Hein Koegelenberg, a South African businessman in China, who gives an insider’s perspective on that changing market. – FD 

Dirk-Kotze

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ALEC HOGG:  China’s investment in Africa continues to grow with the Asian superpower becoming a major player in many sectors on the continent.  Joining us now to discuss China’s investment here, is Dirk Kotze from Beijing Axis .  As Bernard Swanepoel left, Dirk, he said, “You have the right guy to tell us about what happened at the mining conference”.  There’s quite a lot of interest now, isn’t there, from Chinese investment mining in the country.

DIRK KOTZE:  There has been an interest in investing on the continent for several years, most certainly. Germany still considers South Africa to be a gateway into Africa or a base, as it seems.  There are also quite a few investments that have come off in the past few years: China is becoming more attuned to conditions in Africa.  They don’t approach Africa with a ‘one size fits all’ approach as may have been the case 10/15 years ago.  I’d say that as the volume of investments and interest is increasing, so also is the general astuteness amongst Chinese investors, and that’s good.

ALEC HOGG:  What about WESIZWE?  I saw a little presentation by the local CEO (non-Chinese) – well, maybe he wasn’t the CEO – but certainly the person representing them here.  There was a lot of fuss when they came in.  The Chinese bought this platinum operation, but it doesn’t seem to have done a whole lot since.

DIRK KOTZE:  Well, they are advancing the project.  They are still in the development phase.  They’re looking at starting production in 2018.  I think it has been a fair success.  A lot could have gone wrong, given the situation in the mining industry in South Africa.  They were, in a way, insulated against the labour unrest because they are still in a development phase.  I think that they’re doing quite well on balance, given the fact that we’ve been through a fair bit of turmoil in that part of the country, especially in the last year.

ALEC HOGG:  Generally speaking though: drive around Johannesburg and you’ll see China cities are springing up everywhere.  There’s a big shopping centre at the top of Jan Smuts Avenue, and the same with the South of Johannesburg as well.  Yet, if you would like to get a visa to come to this country from pretty much anywhere else in the world – if you’re a trader, you’re going to struggle.  What’s going on?

DIRK KOTZE:  I think it’s simply a case of supply and demand.  There’s a huge demand locally for cheap manufactured goods.  I think the general mainstream retail companies don’t cater too well to the lower income bracket, and for that reason many Chinese traders have come into the country.

ALEC HOGG:  Legally?

DIRK KOTZE:  I can’t tell you the numbers, but I would assume some of them do overstay their visas.  By and large, if they want to operate above board – in Johannesburg certainly – they have to have some type of permanent residency permit or a visa, etcetera.  More interesting is the trend of local South African people travelling to South China to buy clothes, handbags, and accessories, bring that back and trading that locally.  That’s a very interesting development where you see local street traders: people of a slow income travelling to China and starting a national import/export business.

ALEC HOGG:  Well, we’ve teed up our next guest, Hein Koegelenberg from Leopard’s Leap.  He joins us now from China.  He’s over there.  Hein was on the program a little while ago, telling us about the relationship that he’s done with a Chinese firm and of course, selling Leopard’s Leap wine into China.  Are you making much progress, Hein?

HEIN KOEGELENBERG:  Yes, Alec; obviously I think the whole Chinese market has cooled down a bit from the wine side and expenditure is down in China, especially on the government-related entertainment, but I think it’s down for possibly a short-term period – about 35 percent down.  That’s what the people tell me now, but it will bounce back by next year, I think.

ALEC HOGG:  And you need somewhere else, given what’s happening in our country.  Aaron Motsoaledi the Health Minister was having a full go at your industry yesterday.  We know that last week Pravin Gordhan said “no wine for politicians at the functions in government”.  Is that part of the motivation to try and find export markets?

HEIN KOEGELENBERG:  To find an export market in Europe now is very difficult because of the economic crisis that you find in Europe.  I think there’s too much product available and the problem with too much product is that you don’t achieve your margins and then it’s not viable for us to do a business.  You need to look at profits from where you’re coming.

ALEC HOGG:  This story about not being allowed to advertise inside South Africa: it appears now that, that is going to be fact.  There’s a draft bill, which has been approved by cabinet.  Is that going to affect the industry, Hein?

HEIN KOEGELENBERG:  Sure, it will affect the industry, but we, as the industry must also realise that we have a social responsibility.  There’s a lot of alcohol abuse going on so there’s two sides to the coin here and we, as the industry, must realise it as well.  The fault of the matter is that some people will lose jobs and there’s a lot of money involved.

ALEC HOGG:  That was Hein Koegelenberg.  Our apologies.  The quality of that line just dying towards the end there, but thank you very much for joining us.  He’s in the southernmost island of China, he was telling us before we went on air.  Getting back to Dirk, from a broader perspective, there is criticism now that becoming a member of BRICS has maybe not been a good thing for South Africa.  Would you counter that?

DIRK KOTZE:  I can’t see why it would have been bad.  BRICS, for a start, is not really anything physical or concrete.  It’s only an association of countries that meet now and then.  It’s one of a collection, an alphabet soup of associations and treaties that countries belong to.  There was much activity around that – last year especially – but I think there have been no real obligations on our side towards the other countries.   It’s more a case of feeling out other potential trade partners, trying to balance our relations with the US and Europe with an Asian leg.  On balance, I think there’s not much that could be wrong with that.

ALEC HOGG:  We’ve almost become China-centric in South Africa…certainly from a ruling party.  The Deputy President was there just the other day.  Every member of the cabinet, I understand, has now visited China on a working mission: is that healthy?  Given there are huge differences?  The bureaucracy in China has been going for thousands of years.  Ours is not that sophisticated and so on.

DIRK KOTZE:  Well, it is the world’s second-largest economy so it is relevant to us and China is moving into Africa in a very pronounced way.  I think, during the Mbeki era, we certainly did not move fast enough.  There was a reluctance to engage China.  The Zuma administration has certainly come fully on board to treat Chinese trade relations and other relations with the gravity it deserves.  I think one shouldn’t look at becoming too China-centric.  I think our government has a fairly balanced view across the world.  China-centric…well, maybe trying to develop relations and enhance it and I can’t see much being wrong with that.

ALEC HOGG:  It would have been interesting if the Chinese were dumping poultry products into South Africa, whether we would have had duties, or if the Chinese had not told us the Dalai Lama could not come to Bishop Tutu’s 80th birthday – whether he would have arrived.  We’re listening to them.  They’re telling us what to do in certain regards and we are certainly listening.  That’s something we have to sort out.  Those are bilateral issues.  We have to determine issues of how far sovereignty extends.  In any relationship there’s a bit of give and take.  If the issue of the Dalai Lama or poultry or dumping issues…  In a complex, intricate relationship with your large trading partners, there will always be issues: political, trading, and otherwise that will come up and we’ll just have to learn to deal with that.  In the same way as we have been dealing with difficulties with European countries, with America, and other countries around the world for decades.  Those relations have not been without incident, so I think one should not be too alarmist about difficulties that arise with the Chinese relationship because that’s normal.

ALEC HOGG:  Don’t be alarmist, but don’t be supine either.

DIRK KOTZE:  I totally agree.

ALEC HOGG:  What’s likely to happen in this relationship as we go forward?  You said the Mbeki administration was not exactly proactive, whereas the Zuma administration may have gone the other way.  Are we likely to see these relationships develop further?

DIRK KOTZE:  I think it will settle into a general understanding of what we are willing to give, and willing to receive and the same on the other side.  The Chinese economy is growing at a slower rate than it did 5/10 years ago, so China’s role in the world is also becoming more and more settled.  The world and politicians around the world – over here certainly – are more likely to accept China as a power in the world.  The US certainly, has made it very clear that they welcome China’s rise – at least, it’s peaceful rise.  I think the world is much better geared nowadays in a globalised village, to accepting a fast-growing, large new member that may be a bit more assertive given its in-house power and size, than the world would have been 100 years ago.

ALEC HOGG:  It’s nice to be pals with the new cool kid, which is what we are.

DIRK KOTZE:  Well, we have to shape that relationship to our own advantage.

ALEC HOGG:  How do we do that?

DIRK KOTZE:  We have to be sober-minded and realistic about this.  We should not be hubristic about China.  China is going to be a large power in the future, but they aren’t going to be the only power.  They are going to have difficulties on their development path.  One should not try to latch onto the next big thing in the way that you may try to hitch your fortunes to someone’s wagon.  I think we have to maintain our multi-lateral portfolio in the world.

ALEC HOGG:  Independence…

DIRK KOTZE:  Independence, preserve our own view of the world…

ALEC HOGG:  Are we likely to?  I don’t think anyone would disagree with what you’re saying.  Given the way the political wave is flowing, are we likely to retain that or are we going to become even more China-centric?

DIRK KOTZE:  I think it’s too early to tell.  At the moment, much of what we’re seeing is function of the way that economic winds are blowing in the world.  Europe is not such a great player at the moment.  The US is recovering on the back of huge stimulus and printing of money – so to speak – and China is still powering ahead at 7 percent or more per year.  I think our government would be irresponsible if they did not take that into account in defining our trade relationships.

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