China is SA's biggest market

A spending spree by China kept the South African economy from sinking even deeper into recession last year.

A breakdown of foreign trade figures, by country, shows that the Asian giant bought more than R41 billion worth of South African exports between January and October - the latest available figures on the SA Revenue Service (Sars) website.

This was up more than 31 percent on the same period in the previous year, while exports to the US, UK, Japan and Germany shrank more than 40 percent in the period. As a result, China leapt from its position as South Africa's fifth most important export destination in 2008 to first place last year.

China this week introduced curbs on bank lending that could moderate its domestic consumption. However, last month its exports jumped nearly 18 percent year on year. If the trend continues, the Eastern powerhouse will need more raw materials to process for export to the rest of the world.

Martyn Davies, the chief executive of consultancy Frontier Advisory, said China's economy, worth an estimated $4.3 trillion (R31.9 trillion) last year, represented 8 percent of combined global gross domestic product (GDP) and he predicted it could surpass the US economy within fifteen years.

Davies said there had been "political tensions" around South Africa's trade deficit with China. And to remedy the situation the Chinese government "is actively buying more from South Africa".

According to Sars, the deficit fell to R18bn from R36bn in 2008.

South Africa imported R59bn worth of goods from China in the first 10 months of last year, of which nearly R26bn was on machinery and electrical equipment.

South Africa's biggest export to China was R26.7bn worth of mineral products, followed by R9.3bn worth of base metals.

Taku Fundira, a researcher at the Trade Law Centre for Southern Africa, said these exports consisted almost entirely of raw materials to feed China's booming industries.

He said China offered other opportunities to South African producers who can identify sectors in which they could prove competitive - including information and communications technology as well as fruit and wine. Trade analysts agree there is scope to diversify exports to China but exporters will face challenges, including competition from Chinese producers, problems around intellectual property rights and barriers to trade - despite the government's commitment to reduce them.

On the positive side, the Chinese government is encouraging its domestic consumption. Davies said in 2007 consumption in the US was 72 percent of GDP while in China it was only 36 percent. "As the balance is redressed, Chinese consumers will become a major driver of global growth."

This situation creates opportunities that are already being pursued by South African companies in the market for luxury goods, according to Davies. And he said at the other end of the value chain there was scope for South Africa's agricultural sector, because of China's pursuit of food security.

"We have a highly developed agricultural sector - one of the few globally that is not subsidised by the government."

Peter Draper, the trade programme head at the SA Institute of International Affairs, said China's government was increasingly concerned about the shortage of fertile land.

But he warned vested interests in that country nevertheless opposed food imports.