Building capacity to help Africa trade better

Revisiting the South African-China trading relationship

Trade Reports

Revisiting the South African-China trading relationship

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A feature of South African imports in recent years has been the increasing penetration of the market by China and the dominance of this market in sectors where China actively competes. This was vividly illustrated during 2006 when quotas were placed on the importation of Chinese textiles and clothing to protect a domestic section that seems unable to compete even behind significant tariff protection. Conversely, the reported South African exports to China (of mostly ores, steel and fuels) are lower, leading to a trade deficit with China of some $4.8 billion during 2006. This must be tempered, however, by the strong suggestion that exports are massively underreported when Chinese trade data is considered. This data shows a lesser deficit of $1.7 billion – still high, but more manageable.

This paper undertakes a computer simulation (using the Global Trade Analysis Project (GTAP) model) of a possible free trade agreement (FTA) where all the tariffs between Southern African Customs Union (SACU) and China are reduced to zero. This is a standard GTAP model, using the latest database information and a standard set of closure assumptions except in the case of the unskilled labour market. For this market, a closure is used whereby adjustments are made as a function of the unemployment rate in the individual country.

In South Africa, with its extremely high unemployment rate, this is a crucial closure assumption as some alternative closure assumptions show. In contrast with earlier tralac work, this model does not incorporate any non-tariff barrier reductions in the Chinese market, and this reduces the gains to South Africa by nearly half (but increases Chinese gains).

Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.


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