“Downside risks and vulnerabilities have risen, against the backdrop of volatile capital flows, a large drop of commodity prices, escalated geopolitical tensions,” reads the communiqué of the Group of 20 (G20) finance ministers and central bank governors meeting in Shanghai, underlining the daunting challenges facing the world economy.
Indeed, the global economy is undergoing hard times. No country can stay unscathed when economies are increasingly intertwined in the era of globalisation.
According to recent data from Statistics SA, the growth rate of South African gross domestic product (GDP) fell to 0.6 percent in the fourth quarter of 2015 and overall growth fell from 1.5 percent to 1.3 percent. This year the growth is expected to further drop to less than 1 percent due to various unfavourable factors.
Despite such circumstances, we still have some good news – the economic ties between China and South Africa have been strengthened rather than undermined against headwinds.
More and more Chinese enterprises are seeking opportunities in South Africa. There are about 140 medium and large size Chinese companies in South Africa now, having invested more than $13 billion (R199bn) and created a total of 30 000 jobs.
Even in the past two years, Chinese direct investment to South Africa has kept on expanding. The assembly plant of China First Automotive Works (FAW) in Coega Industrial Park, the home appliance factory of Hisense Group, and the cement production line invested by Hebei Jidong Development Group, among others, have offered much-needed jobs for local people.
Meanwhile, most of the Chinese enterprises actively shoulder corporate social responsibility by providing training to local unskilled workers and donating to charities and green groups.
The two governments have also strengthened co-operation on human resource development. Last year China gave training to more than 400 artisans, technicians and managers for South Africa.
What’s more exciting is that Chinese President Xi Jinping’s state visit to South Africa in December has added more impetus to bilateral economic co-operation.
More than 20 agreements worth billions of dollars were signed at the Union Buildings, including a dozen co-operation agreements achieved by enterprises from both countries in the areas of finance, energy, automobiles, infrastructure and so on.
Although it is obvious China-South Africa economic co-operation enjoys a bright future, the speculations and doubts never stop emerging. For example, recently I often hear the rhetoric of “collapsing Chinese economy”, which misinterprets the Chinese economy’s real situation.
Undoubtedly, China’s growth is slower when compared with the past. However, against the world economic difficulties, it is by no means a small achievement to realise a growth rate of 6.9 percent on the basis of more than $10 trillion GDP, especially given the world’s average growth of only slightly more than 3 percent.
For decades, China has been one of the strongest engines of world economic development. In 2015 China added more than 25 percent to global growth and its demand for global products is still significant.
Last year China remained the world’s second-largest import country. The volume of commodities China imported has kept growing. During the same period, China’s direct investment to the rest of world has further expanded to $127.6bn, an increase of 10 percent on a year-on-year basis.
Recent volatility of yuan renminbi and fluctuations in the Chinese stock market have also caused concern of some analysts and become the focus of media.
To understand the issue, the point is that the fundamentals of China’s economy remain strong and Chinese policymakers still have plenty of policy tools to address the downward pressure, if at all.
China’s currency depreciation is mainly due to reforms to the yuan exchange rate formation mechanism. China has no intention to boost exports and obtain competitive advantages by devaluing its currency, neither does the yuan have any foundation of further depreciation.
Last year, the Chinese trade surplus reached almost $600bn and China still has $3.3 trillion in foreign reserves. Furthermore, with the yuan being put into the special drawing rights basket by the International Monetary Fund last year, the market is expected to enlarge its demand, which will further contribute to the stability of the currency.
The fluctuations of China’s stock market, together with similar scenes in bourses of other countries, reflect the unclear and generally pessimistic prospects of the world economy. The long-term stability could be seen from the fact that the Shanghai composite index always stayed around 3 000 points at the end of 2013, 2014 and 2015. It is true that China’s stock market is still a developing and relatively immature market and has its own problems to be addressed. But with value only accounting for roughly 60 percent of China’s total GDP, it will not significantly harm the whole real economy.
Looking ahead, the strongest driving force of China’s economic growth will be the ‘reform dividends’ from the annual sessions of Chinese National People’s Congress and Chinese People’s Political Consultative Conference currently being held in Beijing. The 13th Five-year Plan and the supply-side reform, along with other comprehensive reform measures, aimed at achieving innovative, co-ordinated, green, open and shared development, will be discussed and implemented in broad spectrum. All of these will add vitality to China’s economy.
China has both the courage and ability to break the old development pattern and transform to an innovation-driven and consumption-driven economy.
South Africa is also exploring new growth areas and making its economy more sustainable and inclusive. Reforms are never easy.
For the two economies, which are both in crucial and difficult transition, the only way out lies in sharing experience and deepening practical co-operation in areas such as industrialisation, agriculture, infrastructure and trade.
Let us work together hand in hand to achieve our goals.