The booming Chinese economy is sucking in massive amounts of South African exports as it needs our mineral exports such as coal and iron ore to fuel its economy.
According to the latest data from the General Administration of Customs of China, South African exports to China showed an 83.2% year-on-year (y/y) surge in the first of 2021 to $15.89 billion (about R230bn), while South African imports from China grew by 52.4% y/y to $9.43bn, resulting in a trade surplus in South Africa’s favour of $6.46bn.
China’s economy sustained a steady recovery in the first half of the year, with the production and demand booming, while employment and prices remained stable, the National Bureau of Statistics said. It added, however, there were concerns about the global spread of the pandemic and unbalanced recovery domestically. In the first half, the economy grew by 12.7% y/y, due in part to base effects as it was measured against last year’s coronavirus-triggered slump.
Among sectors, the primary industry rose by 7.8% during the first six months of the year, the secondary industry increased by 14.8%, and the tertiary industry grew by 11.8%. From a South African perspective, the secondary sector is the most important, as that is the sector that sucks in our exports. This is reflected in the strong growth of 15.9% y/y in Chinese industrial production in the first half.
South Africa is not the only beneficiary of a booming Chinese economy, as the total trade value between China and Africa grew by 41.9% y/y to reach $116.89bn in the first half of the year.
Similar to South Africa’s growth rates, China’s imports from Africa grew faster than its exports to Africa, but unlike South Africa, the balance was a surplus in China’s favour. China’s exports to Africa grew by 38.2% y/y to $66.79bn, while China’s imports from Africa increased at a faster pace of 47.1% y/y to US$50.1 billion, resulting in a trade surplus in China’s favour of $16.78bn.
When viewed through the prism of South African data, the foreign trade balance with China was a deficit of R11.6bn in the first five months, which is the latest available data from the South African Revenue Service.
The difference between the Chinese and South African data is the cost of transport. The System of National Accounts states that imports are valued at the landed cost, while exports are “Free on Board”, in other words once they are loaded onto the ship but excluding the cost of transport. Ordinarily, the cost of shipping is a small percentage of the total cost, but this year there has been an extraordinary rise in the cost of shipping a container around the world. This is, in part, due to a shortage of containers as world trade is booming with a 25.3% y/y surge in global trade volumes in April this year, according to the CPB. This is 5.2% higher than April 2019 and has resulted in shipping companies such as Maersk scrambling for containers.
China’s economy boomed this year as it is the world’s factory, churning out products such as masks or exercise equipment for housebound consumers. Demand for its products have not slowed even as the rest of the world economies reopened, so exports surged by 32.2% y/y in June.
The increase caught many economists by surprise, as one of China’s biggest ports was partly closed for most of last month and China’s exports of medical supplies have begun to level off, so the consensus forecast had been for a slowdown to 23% growth from May’s 27.9 % y/y increase.
Port and shipping delays are driving the price tags for Chinese goods even higher in foreign markets such as South Africa. The cost of shipping a 12m cargo container from China to the US has soared from the usual $4 000 to $5 000 per container to a record $18 000 or more this month.
Similar increases are evident in the shipping rates between Chinese ports and South African ports. Shipping rates for containers have continued to rise steeply in the days since Yantian Port reopened last month.
The high shipping costs are widely expected to remain for the rest of this year as stores around the world scramble to restock inventories depleted by stronger than expected demand, as well as starting to prepare for the Christmas shopping season.
* Preuss is an Economist at Forecaster Ecosa.
** The views expressed here are not necessarily those of IOL.