VZCZCXRO1497
RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHSA #0504/01 0711404
ZNR UUUUU ZZH
R 111404Z MAR 08
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 3768
INFO RUEHZO/AFRICAN UNION COLLECTIVE
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0762
RUEHKO/AMEMBASSY TOKYO 0519

UNCLAS SECTION 01 OF 02 PRETORIA 000504 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EINV ENRG EMIN CH SF
SUBJECT: CHINA'S ENGAGEMENT: A SOUTH AFRICA VIEW 
 
REF: 07 PRETORIA 00569 
 
¶1.  Summary.  According to Stellenbosch University's Centre 
for Chinese Studies Executive Director Martyn Davies, while 
the Western world views Africa as a "development burden", 
China sees Africa as a "commercial opportunity", which has 
focused China's strategy in developing a parallel market for 
energy security and commodities.  China's design is to 
monopolize the entire commodity chain, from mining, 
financing, processing, and shipping to developing new 
exchanges that will eliminate the middle man of the 
Western-dominated metal and mineral exchanges.  In addition 
to this new parallel trading model, China is pursuing a 
coalition investment strategy manifested by targeted special 
economic zones (SEZ).  Davies warns that the SAG needs to 
better engage with China and provide incentives to become a 
SEZ, or risk losing its leading role as the trade gateway to 
Africa.  End Summary. 
 
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DRIVERS BEHIND CHINESE ENGAGEMENT 
--------------------------------- 
 
¶2.  In a February 29 briefing organized by the American 
Chamber of Commerce for its members on the reorientation of 
Africa economic strategic relations, Stellenbosch 
University's Centre for Chinese Studies Executive Director 
Martyn Davies highlighted the drivers behind China's surge of 
interest in Africa's emerging markets.  He noted that while 
the Western world views Africa as a "development burden", 
China sees Africa as a "commercial opportunity", which has 
focused China's strategy in developing a parallel market for 
energy security and commodities.  According to Davies, China 
is excluded from Middle East oil reserves (apart from Iran) 
and is often blocked from open market purchases (like CNOOC's 
bid for Unocal, "vetoed" by the U.S. Congress), leaving 
Africa as the only option.  Strong relations with Africa will 
also enable China to gain a toehold in the global economy and 
counter rising competition from Japan. 
 
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CHINA, INC. 
----------- 
 
¶3.  Davies outlined China's strategy as the new "commercial 
player" on the block.  China intends to create a parallel 
market controlled wholly by the Chinese (or "manipulated" as 
Davies cynically commented.)  China's design is to monopolize 
the entire commodity chain, from mining, financing, 
processing, and shipping to developing new exchanges that 
will eliminate the middle man of the Western-dominated metal 
and mineral exchanges.  Davies warned that the impact of the 
new "China, Inc." will be "trade and commodity market 
disruption" with rising concern from the traditional powers. 
In this regard, Davies disagreed with the recent Brenthurst 
Foundations trilateral Africa-China-US meeting's finding that 
there is no strategic conflict between the U.S. and China in 
Africa. 
 
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SEZS AND COALITION INVESTMENT 
----------------------------- 
 
¶4.  In addition to this new parallel trading model, China is 
pursuing a coalition investment strategy manifested by 
targeted special economic zones (SEZ).  Utilizing the success 
of economic zones in China, coupled with the European model 
of incentive packages, Davies stated that China is 
establishing mining, trading, manufacturing, assembly, and 
logistics hubs throughout Africa.  At the same time, China is 
facilitating cooperation between several industries, such as 
banking, mining and oil, in each economic zone to form a 
coalition investment that can better dominate the market. 
 
¶5.  With an introduction of "if this doesn't scare you," 
Q5.  With an introduction of "if this doesn't scare you," 
Davies unveiled an African map with a transportation corridor 
connecting the Atlantic and Indians Oceans via Tanzania and 
Angola.  Davies explained that current shipping patterns were 
limited to the old North-South corridors established by the 
British and other colony holders.  China is building the 
first East-West corridor that will be a new growth mode for 
Chinese development between the SEZs, and a major competitor 
to South Africa's trade routes. 
 
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IMPACT ON SOUTH AFRICA 
---------------------- 
 
¶6.  South Africa has not been designated as an SEZ despite 
its role as the economic powerhouse and transportation hub 
 
PRETORIA 00000504  002 OF 002 
 
 
for sub-Saharan Africa.  According to Davies, the SAG needs 
to better position itself to attract Chinese interest. 
Davies noted that Finance Minister Trevor Manuel will not 
offer incentives to obtain SEZ status and those incentives 
are necessary from China's perspective.  In addition, South 
African manufacturers have faced stiff competition from 
Chinese imports, resulting in South-South "competition" 
rather than "cooperation."  South Africa also risks 
squandering its position as the gateway to Africa with the 
opening of the East-West corridor. 
 
¶7.  Not only has South Africa failed to embrace China's 
interest in the region, it is wary of China's competitive 
edge and strategic tactics.  As a result, the SAG tends to be 
reactive, not welcoming, to China's presence, resulting in an 
ad hoc approach, such as implementation of the January 
2007-December 2008 textile quota (reftel).  Center for 
Chinese Studies Research Manager Hannah Edinger told Trade 
and Investment Officer South Africa's reticence most likely 
arises from China's insistence on controlling the entire 
supply chain via Chinese-owned companies and its failure to 
localize, i.e., employ South Africans and tap into 
locally-owned suppliers. 
 
¶8.  On a broader scale, Davies stated that China's emergence 
on the African continent has called into question the 
relevance of the Anglo-Saxon capitalist model.  China was 
able to lift 300 million people from poverty to middle class 
in 30 years.  Africa is taking a closer look at whether China 
is a better role model than the traditional IMF-World 
Bank-Brettonwoods system. 
 
-------------------------------- 
SOUTH AFRICA AS CHINA'S GATEWAY? 
-------------------------------- 
 
¶9.  Davies moderated a separate lecture one month earlier on 
January 29, entitled: China's Game: The Emerging Super 
Dragon" by Anglo American Advisor Clem Sunter.  Placing 
China's formidable economy and growth in perspective, Sunter 
noted that China brings on line 100 Gigawatts of new 
electricity capacity per year (2.5 times South Africa's total 
capacity), eliciting inevitable jokes about state electricity 
supplier Eskom's supply woes.  Davies and Sunter 
characterized South Africa as China's gateway to Africa and 
its rich resources, noting the acquisition of a 20 percent 
share in South African Standard Bank by the Industrial and 
Commercial Bank of China earlier this year.  However, they 
noted that South Africa could lose this special relationship 
with China if it cannot assure infrastructure, power, 
services, etc.  They questioned how good China's investment 
ultimately was for Africa given the likelihood that 
undeveloped countries would lack capacity and skill to 
negotiate good deals with China. 
 
¶10.  These observers stress that China is changing the rules 
and considers Africa its continent of choice.  China does not 
ask about human rights and democracy; it just asks are if 
there are resources and locks up an advantageous deal. 
 
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COMMENT 
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¶11.  China's relations with South Africa differ from China's 
relations with the rest of Africa.  China is not attempting 
to invest in the mining and resource sector here.  Instead, 
China is pairing up with large South African companies, such 
as Standard Bank, to gain better access to the rest of 
Africa.  Otherwise, it is just a source of cheap imports that 
threaten local manufacturers. 
BOST