UBUNTU AND GUANXI THE SOUTH AFRICA-CHINA

RELATIONSHIP WITH REFERENCE TO DEVELOPMENT

FINANCE INVESTMENT

475 647 Nicholas Ndlovu

Bachelor of Arts, Law and International Relations (Wits)

Bachelor of Laws (LLB) Candidate

INDEPENDENT RESEARCH ESSAY – LAWS 4042

Commerce, Law and Management Faculty

Oliver Schreiner School of Law

University of the Witwatersrand, Johannesburg

21 September 2015

Supervisor: Dr Herbert Kawadza

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ACKNOWLEDGMENTS

I would like to express my most sincere gratitude and appreciation to my supervisor

Dr Herbert Kawadza for his patience, understanding and pragmatic guidance. The

enhancement of the quality of this academic work would not be possible had it not

been for the advice and insight he imparted. His support, academic experience and

immense knowledge were invaluable at all times of the research process, ideas

formulation and the production of the essay. I could not have asked for a better or

more collegial academic advisor and supervisor for my Independent Research

Essay.

I would like to thank Ashford Nyatsumba of Norton Rose Fulbright for his continued

efforts in assisting me on general topics of investment and regulation on the African

continent and beyond. A greater thank you is for Ashford’s advice on the personal

and professional concerns of a budding legal professional.

I would also like to thank David Ansara of the Loan Market Association (LMA) for

providing me with an opportunity to assist him at the LMA conference on the theme

‘Funding Africa’s growth: the role of Chinese lenders’. That event opened my eyes to

the various perspectives of the possibilities of my research.

In addition, I would like to express my gratitude, love and respect to my academic

sponsors and family friends (and guardian angels), Graeme and Regan Berry for

their precious and continued support of my studies and for granting me the

opportunity to further my studies at the University of the Witwatersrand. You always

inspire me.

I thank my fellow peers and friends for the stimulating discussions and intellectually

challenging discourse that we often find ourselves engaged in.

Lastly, I thank my family and particularly my mother, Sarah, for her continued

support, encouragement and love throughout my life and my educational

development.

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ABSTRACT

Although, scholars, analysts and legal practitioners have had a positive conclusion

regarding China’s might and presence in the African economic development sphere,

there is a need for an analysis from a regulatory and standards compliance angle of

the China-South Africa relationship. To some extent, concern about the presence of

Chinese economic actors in Africa (and South Africa) is acceptable, but relaxed

regulatory frameworks for the purpose of governing certain commercial transactional

interactions between China and African states should be the responsibility of

Africans themselves. The alignment of the two states has yielded good results and

there is a good story to tell regarding China’s engagements in, and with, South

Africa. However, should there be a negotiated harmony of regulatory standards

vacuum, the risks are perilous; thus, leaving both states vulnerable to a decline in

growth. South Africa’s negotiating representatives should have adequate and

sufficient knowledge when they commence with negotiations concerning trade and

investment. A commercial transaction is not the same as an aid donation package,

because in the former instance China is negotiating not out of charity, but for

commercial interest and gain. This analysis will allow a better understanding of the

technical framework entailed in the relationship, encourage improvements, while

recognising the benefits, and may provide insights into achieving win-win outcomes

for both states.

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TABLE OF CONTENTS

I. INTRODUCTION 5-6

II. CHINESE DEVELOPMENT INVESTMENT AND

SOUTH AFRICA

6-17

(a) The Sino-South Africa Good Story 6-7

(b) People's Republic of China 7-9

(c) Corruption in China 9-12

(d) Republic of South Africa 12-13

(e) Corruption in South Africa 13-14

(f) Costs and Risks of Doing Business 14-17

III. REGULATIONS AND COMPLIANCE

STANDARDS

17-22

(a) Policy and Bi-lateral Representation 17-18

(b) Managing Impediments and Expectations 19-21

(c) The Promotion and Protection of Investment Bill

2013

21-22

IV. RECOMMENDATIONS 22-24

V. CONCLUSION 25

VI. BIBLIOGRAPHY 26

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I. INTRODUCTION

The relationship between the Republic of South Africa and the People’s Republic of

China is unique owing to the driving fundamental values of both nations. According

to guanxi1, the Chinese do not engage in genuine business relationships prior to

establishing a friendship based on common personal interests. The term ubuntu2

inspires the assistance of one another under the theme of communal strength and

survival, emphasising co-dependence and a common interest in mutual

development, growth and success. The common trend in the qualities of the

meaning of this South African principle and guanxi are evident. Thus, the South

Africa-Sino commercial and political relationship is contextually appropriate.

The People’s Republic of China enjoys a unique position in the global

economy and plays a vital role in the developmental mechanical make-up of the

global system. The academic and analytical literature has been focused on policy

analysis and recommendation, while being very critical of China’s presence and role

in Africa, particularly Sub-Saharan Africa. South Africa is China’s largest trade

partner in Africa and China is South Africa’s largest trading partner.3 South Africa

has signalled an intention to achieve a more sustainable trade balance, especially

now that the year 2015 has been dubbed the ‘Year of China in South Africa.’4 Recent

Chinese investment has seen a R1 billion investment from automobile manufacturer,

FAW Group Corporation, for the purposes of establishing an assembly plant; the

establishment of a Hisense Electric Corporation Limited factory; and a Jidong

1 Jin Guan ‘Guanxi: The Key to Achieving Success in China’ (2011) 217 Sino-Platonic Papers; Guan’s definition:

“the term refers to connections or relationships between people. Guanxi implies preferential treatment given to the partners in an exchange, in the form of easy access to limited resources, increased access to controlled information, credit grants, and protection from external competitors. Western scholars have looked at guanxi as similar to networking, a form of social capital that has the potential to be converted into economic, political, and symbolic (prestige and status) assets ... the Chinese concept of guanxi is actually different from this, mainly due to the notion of reciprocal obligation and indebtedness. To the Chinese people, guanxi is a system of renqing (favours), in which obligation and indebtedness are manufactured, and in which there is no time limit for repayment. The Chinese always try to return any renqing and expect the other party to do the same when a favour is given … one can look at renqing as the exchange currency for cultivating guanxi. The more renqing one accumulates, the more likely the other party is to reciprocate when solicited later. Hence, renqing can be seen as a yardstick by which one can measure how strong guanxi is between two parties.” 2 Andrew West ‘Ubuntu and Business Ethics: Problems, Perspectives and Prospects’ (2014) 121 Journal of

Business Ethics 47-61. 3 China Customs ‘China Exports to South Africa’ TRADING ECONOMICS, available at

http://www.tradingeconomics.com/china/exports-to-south-africa, accessed on 21 September 2015. 4 Embassy of the People’s Republic of China in the Republic of South Africa ‘China and South Africa Country

Year’ available at http://www.chinese-embassy.org.za/eng/zt/20140508/, accessed on 21 September 2015.

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Development Group and China-Africa Development Fund cement plant to the tune of

R1.8 billion.5

Due to the research findings compiled by the United Nations Economic

Commission on Africa in 2013 and the introduction of the Promotion and Protection

of Investment Bill, this discussion paper seeks to recommend that South Africa

should build a regulatory strategy with ideals based on practical mutual interest and

respect with China. The benefit of this is the promotion of employment growth and

structural transformation. Policy makers have highlighted labour and competition as

concerns as they debate the avoidance of a neo-colonial dependency type of

relationship between the two states.6 This can be resolved by negotiating favourable

trade concessions.

II. CHINESE DEVELOPMENT INVESTMENT AND SOUTH AFRICA

(a) The Sino-South African Good Story

Since 1998, the diplomatic relations between both states have grown immensely.

The relationship has evolved to the level of a comprehensive strategic partnership.7

The two states aim to enforce the Beijing Declaration to the China-South Africa Five-

to Ten-Year Framework on Cooperation.8 The key focus areas of the Declaration are

trade, investment and agriculture – particularly export produce from South Africa –

human resources, capacity development, value addition and the beneficiation of raw

materials.9

In 2009, China became South Africa’s largest trading partner and South Africa

has become China’s largest trading partner in Africa. Between 2008 and 2014, the

value of Chinese trade and investment into South Africa went from R121 billion to

R271 billion.10 Between the years 2003 and 2014, capital expenditure in the Chinese

5 Maite Nkoana-Mashabane ‘Agreements signed on Zuma’s state visit to China cement co-operation and will

bolster investment and growth’ International Relations and Cooperation 15 December 2014 available at http://www.dfa.gov.za/docs/2014/chin1215.html, accessed on 11 April 2015. 6 Luo Jianbo and Zhang Xiaomin ‘Multilateral cooperation in Africa between China and Western countries:

from differences to consensus’ (2011) 37 Review of International Studies 1793-1813; Paul Tiyambe Zeleza ‘Dancing with the Dragon Africa’s Courtship with China’ (2008) 2 The Global South 171-187; Maxi Schoeman ‘China and Africa: Whose Challenge and Whose Opportunity?’ (2008) 43 Afrika Spectrum 403-413.. 7 Nkoana-Mashabane op cit note 5.

8 Ibid.

9 Ibid.

10 Ibid.

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economy, by 11 South Africa corporations, amounted to R51.8 billion; in the same

period, 39 Chinese companies invested R14.7 billion in South Africa.11 There are

Chinese owned and controlled South African entities in addition to those with

considerable Chinese shareholding as there have been ‘parachute’ or ‘lifeboat’ of

buyouts and acquisitions.12 There are numerous global trends of this kind of

behaviour by China.13

(b) People’s Republic of China

In early 2014, 30.5 per cent of the R87.4 billion total of Chinese investments in the

South African economy was in the minerals and metals industry.14 China’s

commitment to collaborating with emerging economies and harnessing the South-

South relationships is evinced by its involvement in the Brazil, Russia, China, South

Africa (BRICS) partnership and the establishment of FOCAC – Forum on China-

Africa Cooperation.15 The New Development Bank (NDB), also dubbed the BRICS

Bank, with headquarters in Shanghai, may possibly have its African regional center

in South Africa.16

Although concerns may be welcome, warranted and accepted, the lack of a

developed and sustainable local regulatory framework will result in insufficient and

imbalanced benefits to South Africa whenever there are commercial transactions

with China.17 It is important to take note that China is ‘not here for charity – they are

11

Ibid. 12

Natasha Odendaal ‘Village buy-out by Chinese suitors given CompCom go-ahead’ Mining Weekly 1 April 2015 available at http://www.miningweekly.com/article/village-buy-out-by-chinese-suitors-given-compcom-go-ahead-2015-04-01, accessed on 27 June 2015. 13

Trudi Makhaya ‘CompCom approves part II of acquisition of Independent Media’ Politicsweb 16 August 2013 available at http://www.politicsweb.co.za/party/compcom-approves-part-ii-of-acquisition-of-indepen, accessed on 27 June 2015; Chinese acquisitions ‘China buys up the world’ The Economist 11 November 2010 available at http://www.economist.com/node/17463473, accessed on 14 September 2015. 14

Ross Harvey ‘Nationalism with Chinese Characteristics: How Does it Affect the Competitiveness of South Africa’s Mining Industry?’ South African Institute of International Affairs Policy Briefing 93 Governance of Africa’s Resources Programme 22 May 2014 available at http://www.saiia.org.za/doc_download/518-nationalism-with-chinese-characteristics-how-does-it-affect-the-competitiveness-of-south-africa-s-mining-industry, accessed on 11 April 2015. 15

Chris Alden & Yu-Shan Wu ‘South Africa and China: The Making of a Partnership’ South African Institute of International Affairs Occasional Paper 199 Global Powers and Africa Programme 27 August 2014 available at http://www.saiia.org.za/doc_download/578-south-africa-and-china-the-making-of-a-partnership, accessed on 9 April 2015. 16

BRIDGES ‘BRICS Countries Launch New Development Bank’ International Centre for Trade and Sustainable Development 17 July 2014 available at http://www.ictsd.org/bridges-news/bridges/news/brics-countries-launch-new-development-bank, accessed on 22 July 2015. 17

Khulekani Magubane & Edith Kamau ‘Ethics institute to probe perceptions about Chinese businesses in Africa’ Business Day Live 26 July 2013 available at

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here for business. [South] Africans need to have that in mind when they are agreeing

to deals with China.’18

China has a large appetite for iron-ore and related materials as these are

necessary for the government’s large-scale industrialization project.19 The state-

owned Hebei Iron and Steel Group, China’s single largest steel producer – which did

not exist before June 2008 – collaborated with the Industrial Development

Corporation in a commercial transaction resulting in the restructuring and purchase

of a 74.5 per cent share in the Palabora Mining Company from the world’s second

largest mining company, Rio Tinto.20 The move by Hebei21 to have a pronounced

presence in the local mining arena signals China’s resilience as it is ‘not constrained

by the rules of foreign security-exchange listings.’22 Following this, the China

Development Bank granted Wesizwe Platinum’s Bakubang project a loan of R6.5

billion to facilitate the Jinchuan Mining Group’s 45 per cent stake purchase in

Wesizwe.23

Chinese companies who collaborate with the Industrial Development

Corporation and other state-backed development finance institutions24 do not have to

contend with the same issues as the ‘rule of law’ private entities do.25 In the absence

of compliance mechanisms envisaged by the rule of law, revenues are at risk of

being mismanaged and unscrupulous opportunists among the politically connected

become ideal business collaborators to Chinese investors. The legal matter involving

the takeover of Pamodzi Gold by Aurora Empowerment Systems, a company led by http://www.bdlive.co.za/africa/africanbusiness/2013/07/26/ethics-institute-to-probe-perceptions-about-chinese-businesses-in-africa, accessed on 11 April 2015. 18

Ibid. 19

SRK News ‘Due Diligence Review On Iron Ore Projects In China’ available at http://www.srk.co.za/en/newsletter/focus-iron-ore/due-diligence-review-iron-ore-projects-china, accessed on 14 September 2015; Jasmine Ng ‘Cheap Australian iron ore feeding China steel glut ‘like a bad virus’ The Sydney Morning Herald 21 August 2015 available at http://www.smh.com.au/business/mining-and-resources/almost-free-australian-iron-ore-blamed-for-china-steel-export-surge-20150820-gj48ig.html, accessed on 14 September 2015.. 20

Chuin-Wei Yap ‘China’s Heibei Iron and Steel to Build Plant in South Africa’ The Wall Street Journal 12 September 2014 available at http://www.wsj.com/articles/chinas-hebei-iron-steel-to-build-plant-in-south-africa-1410497371, accessed on 14 September 2015. 21

Sashnee Moodley ‘Commission gives conditional approval for Heibei, Duferco merger’ Engineering News 11 June 2015 available at http://www.engineeringnews.co.za/article/commission-gives-nod-for-hebei-duferco-merger-2015-06-11, accessed on 27 June 2015. 22

Harvey op cit note 14. 23

Ibid. 24

Joie Ma ‘State-Owned Enterprises: Partners and Competitors’ Foreign Invested Enterprises, Laws & Regulations 1 January 2012 available at http://www.chinabusinessreview.com/state-owned-enterprises-partners-and-competitors/, accessed on 27 June 2015. 25

Harvey op cit note 14.

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Khulubuse Zuma and Zondwa Mandela, is one example.26 Necessary equipment

was sold, other machinery was regarded as scrap, and company resources and

funds were misappropriated. Following this blatant asset stripping, Zuma announced

that Shandong Gold would pay R800 million for a 65 per cent stake in Aurora;

instead, the assets were sold to China Africa Precious Metals for R150 million.27

(c) Corruption in China

Corruption is defined as ‘the use of public office for personal gain.’28 In China, this is

relevant because the state is in itself an economic role-player at a very large scale.

This has immense implications as the capital means of production, the ownership,

control, and use of national resources vests in the state. All activities that have the

potential of yielding profits that may benefit the Chinese economy are dependent on

the roles played by persons who hold public office.29 With the support of the leaders

of the Communist Party of China,30 President Xi Jinping has declared a war against

corruption.

Since 2012, when President Xi began his tenure at the helm of the ruling

party, the Central Commission for Discipline Inspection figures show that 414 000

corrupt individuals have been disciplined by the party, and 201 600 have been

prosecuted.31 Research has shown that countries with emerging economies are

always at a higher risk of facing high levels of corruption as opposed to established

and developed countries.32 This is due to the lax regulatory and legal institutions and

an ineffective national governance mechanism.33 Due to the vastness of the Chinese

territory and the large population, it too faces these systemic risks on a daily basis.

Corruption stifles the growth of the economy and political stability, however, the

26

Engelbrecht N.O and Others v Zuma and Others (25965/2012) [2015] ZAGPPHC 403. 27

Ibid. 28

Yukon Huang ‘The Truth About Chinese Corruption’ The Diplomat 29 May 2015 available at http://thediplomat.com/2015/05/the-truth-about-chinese-corruption/, accessed on 25 July 2015. 29

Ibid. 30

Beina Xu & Eleanor Albert ‘The Chinese Communist Party’ Council on Foreign Relations 17 November 2014 available at http://www.cfr.org/china/chinese-communist-party/p29443, accessed on 5 August 2015. 31

Macabe Keliher & Hsinchao Wu ‘How to Discipline 90 Million People’ The Atlantic 7 April 2015 available at http://www.theatlantic.com/international/archive/2015/04/xi-jinping-china-corruption-political-culture/389787/, accessed on 25 July 2015. 32

Neissan Alessandro ‘Common Goals and Different Commitments: The Role of Emerging Economies in Global Development’ German Development Institute available at http://www.die-gdi.de/uploads/media/DP_26.2013.pdf, accessed 11 April 2015. 33

Ibid.

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efficacy of socio-economic development, strengthened by strong institutions may

diminish the negative impact of corruption on the economy.34

The anti-corruption campaign in China must encompass the laws and

regulations that currently exist in order to build and strengthen institutions through

the three phases of implementation.35 The first phase is at the tail end, with the result

being the arrests and successful prosecutions of Zhou Yongkang (former Minister of

State Security and Police and a retired member of the Politburo Standing

Committee) and Xu Caihou (former high-ranking official in the Military).36 President

Xi has tasked Wang Qishan, Chief of China’s Central Commission for Discipline

Inspection,37 to tackle corruption aggressively. It is often rumoured that government

officials fear engaging in corrupt activity because they fear Wang’s speculative office

and the power it wields.38 Others have joked among the political elite that in China,

an official would opt to face hell than the wrath of Wang.39

President Xi and Wang have made it clear that the force against corruption is

necessary as the second phase of this national campaign entails building institutions

staffed by personnel who deem the cause a necessary priority.40 Citizens are also

encouraged to record acts of corruption and alert Wang’s office with this information.

The idea sought to be created is that there will be no room in the social space for

corruption to hide, that it is a patriotic duty and a social responsibility as a citizen to

be a civil ‘agent’ of the Central Commission for Discipline Inspection.41 This

approach is very popular among various classes and the Chinese youth. However,

more needs to be done and the institutions will need to be accessible all over China

and the efforts will require creativity to ensure that President Xi’s blunt and forthright

warning – ‘do not even think about engaging in corruption’ – is heard, respected and

adhered to.42

34

Huang op cit note 28. 35

Dingding Chen ‘China’s Anti-Corruption Campaign Enters Phase Two’ The Diplomat 2 July 2015 available at http://thediplomat.com/2015/07/chinas-anti-corruption-campaign-enters-phase-two/, accessed on 25 July 2015. 36

Ibid. 37

Xu & Albert op cit note 30. 38

Chen op cit note 35. 39

Ibid. 40

Ibid. 41

Ibid. 42

Ibid.

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The veracious seriousness with which President Xi and his colleagues seek to

curtail corruption is evident in a Communist Party personnel reform policy, following

the eighteenth Party Congress.43 This policy allows for cadres in the party to be

demoted and stripped of titles, ranks and benefits while remaining in lower, public

offices.44 The essence of this reform allows for the reversal of the ranking and

promotion system that career politicians and ambitious officials rely on for rewarding

dedicated hard work in service of the state or the Communist Party.45 This is vital

because in the past an incompetent official would resign from office, keeping their

rank and the benefits such as medical cover or a pension plan, as they would have

had if they remained in office.46 Evidently, President Xi must ensure that opponents

to these reforms as well as corrupt and incompetent officials among the echelons of

the Communist Party are treated the same way because if the top-level cadres are

not disciplined, the efficacy of the reforms sought will never be realised. In 2014,

15 450, a 30 percent increase from the 2013 figure, government employees in

Shanxi (a Chinese province known for its high levels of corruption) were convicted.47

Since the campaign’s slogan is ‘killing tigers’ and ‘swatting flies’, Zhou would be a

tiger, as he is to date the most powerful, and highest ranking, official of the

Communist Party and in China to be convicted, and the large scale prosecutions and

convictions numbered in the thousands amounts to the paltry officials – the flies.

This campaign is not only for a legitimate and law respecting and enforcing

People’s Republic of China, it is meant to do the same within the Communist Party

and its 87.79 million members.48 Like in South Africa, corruption at local government

level is high.49 Moreover, the collusion between business owners and managers with

local government officials ‘to enrich themselves at the expense of the people’ reflects

badly on the ruling party.50 Mass protest and social unrest threaten political

legitimacy and socio-economic cohesion and reform. President Xi’s strong message

to the party and the nation that ‘govern with virtue and keep order through

43

Ibid. 44

Ibid. 45

Ibid. 46

Ibid. 47

Keliher & Wu op cit note 31. 48

Xu & Albert op cit note 30. 49

News24 ‘The A-Z of SA’s Fraud & Corruption Scandals’ 3 April 2014 available at http://www.news24.com/MyNews24/The-A-Z-of-SAs-Fraud-Corruption-Scandals-20140403, accessed on 3 April 2015. 50

Keliher & Wu op cit note 31.

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punishments… those who know the law, first apply it to themselves and then to

others’51 signals a strong intent from the leaders of the world’s second largest

economy and most populous nation to actively tackle corruption.

(d) Republic of South Africa

South Africa continues to seek implementing its own economic objectives by

exploiting the existing bi-lateral relations.52 An emerging economy like South Africa is

an ideal candidate for growth-partnership. Trade and investment opportunities exist,

which requires strategic and pragmatic implementation in practicable ways to ensure

that the benefits to South Africa and South Africans are as fair, sound and even as

those attained by China.

South Africa hopes to make great strides in the fields of science and

technology, and from the development of industrial parks – as encouraged by

China.53 The Department of Trade and Industry (DTI) has had good feedback from

the Chinese in support of the Black Industrialist Program, which seeks to support the

creation and enhancement of a black found, owned, managed and operated

business sector industry.54 China has committed to assisting in the development of

railway parks and the localization of carriage manufacturing.55

Although states like China are more able than most to weather relatively

calamitous global and domestic economic tides, South Africa’s foreign direct

investment (FDI) intake is on the decline, especially from the European Union (EU).56

The past two years has seen a 23 per cent decrease in FDI from Europe.57 In Africa,

China is more favoured than Europe or the United States because it does not seek

to influence domestic policies or intervene in the internal workings of sovereign

51

Ibid. 52

Nkoana-Mashabane op cit note 5. 53

Cyril Ramaphosa ‘Opening remarks by Deputy President Cyril Ramaphosa at the South Africa-China State Owned Enterprises Seminar, Beijing, China’ The Presidency Republic of South Africa 15 July 2015 available at http://www.thepresidency.gov.za/pebble.asp?relid=20110, accessed on 25 July 2015. 54

Jacob Zuma ‘Address by President Zuma during the China-South Africa Business Forum Meeting, on the occasion of the State Visit to the People’s Republic of China, Beijing’ Department of Communications on behalf of the Presidency of the Republic of South Africa 5 December 2014 available at http://www.thepresidency.gov.za/pebble.asp?relid=18593, accessed on 11 April 2015. 55

Ibid. 56

Peter Draper & Azwimpheleli Langalanga ‘Clear signal is needed to keep the investment gateway open’ Business Day Live 10 March 2015 available at http://www.bdlive.co.za/opinion/2015/03/10/clear-signal-is-needed-to-keep-the-investment-gateway-open, accessed on 11 April 2015. 57

Ibid.

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states.58 Chinese money has an impact on domestic productivity, growth and daily

activity. This is because the elite who form policy are in most cases closely

connected to those who determine what the objectives are and how they will be met

using Chinese funding. This is a possible opportunity for corruption and predatory

behaviour to flourish.59

According to Rob Davies, the Minister of the Department of Trade and

Industry, ‘South Africa continues to compare well with other emerging markets.’60

The purpose this comment is meant to achieve is that South Africa remains open for

business and is one of the better locations for foreign direct investment. Research by

the World Trade Institute indicates that in 2013 over 130 transnational corporations

either entered the South African business market or expanded already existing

commercial operations.61

It is clear that the government is gearing up for more investment into the

economy. However, the highlighting of ‘broad yet strong blueprints for dealing with

structural issues’62 are not enough to coax or court confidence. Instead, this leaves a

vacuum that may be exploited immediately by government officials, as is already the

case, and foreign investors who seek to enrich themselves by taking advantage of

the lack of proactive and practicable application of existing institutional frameworks

that South Africa is so revered for.63

(e) Corruption in South Africa

Despite the impressive global data indicating the strengths of South Africa’s stability

and economic performance in recent years, there is an alarming and increasing

trend of fraud and corruption scandals.64 These major scandals are often linked to

58

Domingos Jardo Muekalia ‘Africa and China’s Strategic Partnership’ (2014) 13 African Security Review 7. 59

Douda Cissé ‘Corruption here and there in China and Africa’ Centre for Chinese Studies Sellenbosch University 25 September 2014 available at http://www.ccs.org.za/wp-content/uploads/2014/09/CCS_Commentary_Corruption_DC_2014.pdf, accessed on 24 July 2015. 60

Rob Davies ‘South Africa: the “most open country for FDI in the world”’ SouthAfrica.info 20 January 2015 available at http://www.sanews.gov.za/south-africa/south-africa-most-open-country-foreign-direct-investment-world, accessed on 24 July 2015. 61

Ibid. 62

Ibid. 63

News24 ‘The A-Z of SA’s Fraud & Corruption Scandals’ 3 April 2014 available at http://www.news24.com/MyNews24/The-A-Z-of-SAs-Fraud-Corruption-Scandals-20140403, accessed on 3 April 2015. 64

Naledi Shange ’15 SAPS employees in court for fraud and corruption’ 30 April 2015 available at http://www.news24.com/SouthAfrica/News/15-SAPS-employees-in-court-for-fraud-and-corruption-20150430, accessed on 25 July 2015.

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government officials or individuals who are closely connected to the political elite.

The infamous Arms Deal of 1999 is an example of allowing these certain individuals

to negotiate on behalf and to the detriment of South Africa.65

This trend has not ceased as police officials in the highest ranks, senior

members of the Cabinet, Mayors of municipalities, and other bearers of key public

offices who should be in office to serve and advance the developmental and socio-

economic objectives and goals of the nation are engaged in corrupt and improper

activity.66 This type of behaviour demeans and undermines the respect for the nation

and its institutions.67 It creates the perfect opportunity for predatory negotiation to the

disadvantage of South Africa because corruption will thrive where it finds corruptible

people.68 It reflects badly as it creates a sentiment that Africa is not only seen as a

well of natural resources, but also a pit of corruptible personnel. The total disregard

for the law, together with a lack of transparency, is the single most detrimental

epidemic that South Africa is faced with today. South Africa has effective and

occasionally efficient institutions; these will not be enough to quell the threat brought

to bear by greed.69

There are often vague and broad comments about state plans, but there are

no concrete points that the government is engaged in to spur on growth and

encourage development by effectively and speedily fighting corruption among the

ranks. Although South Africa is open for business, confidence in the efficacy of its

institutions is weakening.

(f) Costs and Risks of Doing Business

The Ethics Institute of South Africa has conducted a survey with the intention of

using the findings as a broader information base for negotiations and engagements

65

News24 op cit note 63. 66

Ibid. 67

Herbert Kawadza ‘Analysis of Financial Services Sector Transparency Through Whistle Blowing: The Case of South Africa and Switzerland’ World Trade Institute of the University of Bern & the Swiss Secretariat for Economic Affairs (SECO) Working Paper 30 October 2014 available at http://www.wti.org/fileadmin/user_upload/wti.org/7_SECO-WTI_Project/Publications/SECO_WORKING_PAPER__REVISITING_FINANCIAL_SERVICES_SECTOR_.pdf, accessed on 11 April 2015. 68

Ibid. 69

Ibid.

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between South Africa and China.70 There have been concerns that China has no

interest in corporate responsibility in South Africa and that Chinese investments tend

to be one-dimensional.71

For years, it has been reported that China is engaged in anti-competitive

behaviour in African markets and one of the ways it does this is through the dumping

of low production cost items in markets that are adequately supplied.72 In some

instances the classification of Chinese export practices have been incorrectly

labelled as dumping.73 The form of price discrimination known as dumping takes

place ‘when an exporting country sells a product at a lower price than it sells the

same product in its domestic market’74 or when products are sold by the exporting

nation below their production cost.75

This differs from a situation where an exporting country sells goods at

economical prices under fair and competitive economic conditions in the importing

country.76 Dominant players in transnational industries tend to engage in dumping

because they want to compete for a finite market through offers of appealing prices

to the consumers, and they wish to obtain a large share of the market in a foreign

jurisdiction thus becoming a monopoly.77 The latter constitutes as predatory dumping

because once the market becomes monopolised the exporting country will attempt to

raise prices.78

70

Deon Rossouw et al ‘Africans’ perception of Chinese Business in Africa: A Survey’ Ethics Institute of South Africa August 2014 available at http://www.ethicsa.org/phocadownloadpap/Research_Reports/AfricanPerceptionSurveyChineseBusinessWEBSITEVERSION.pdf, accessed on 25 July 2015. 71

Sanusha Naidu ‘South Africa’s relations with the People’s Republic of China: mutual opportunities or hidden threats’ in Sakhela Buhlungu et al (ed) State of the Nation: South Africa, 2005-2006 (2005) 457. 72

Rosena Nhlabatsi ‘Cheap Chinese imports in Africa: Implications and remedies’ Consultancy Africa Intelligence 5 March 2014 available at http://www.consultancyafrica.com/index.php?option=com_content&view=article&id=1656:cheap-chinese-imports-in-africa-implications-and-remedies&catid=58:asia-dimension-discussion-papers&Itemid=264, accessed on 24 July 2015. 73

Ibid. 74

World Trade Organization ‘Technical Information on Anti-dumping’ available at https://www.wto.org/english/tratop_e/adp_e/adp_info_e.htm, accessed on 5 August 2015. 75

Ibid. 76

Nhlabatsi op cit note 72. 77

Mark Allix ‘Arcelormittal considers closing some plants’ Business Day Live 23 July 2015 available at http://www.bdlive.co.za/business/industrials/2015/07/23/arcelormittal-considers-closing-some-plants, accessed on 24 July 2015. 78

World Trade Organization op cit note 74.

Page 16 of 32

Chinese imports have contributed to the loss of employment and the

productivity decline in the South African manufacturing sector.79 There is an

International Trade and Administration Commission case which found that China had

undercut its prices by 338 per cent in the Southern African Customs Union; this was

considered a prima facie case of undercutting.80

Investment has two objectives: ‘long-run production’ investments and ‘short-

term’ rent extraction.81 These objectives may be of assistance in assessing three

different types of attitudes under investment conditions. The first is the ‘rule of law’

attitude, which is based on accountability, transparency, compliance with the law,

industry regulation and the prescripts of the Securities Exchange.82 A large number

of the mining companies operating in South Africa are within this bracket. Second is

the ‘opportunists’ who are politically connected persons who have ‘few constraints.’83

This type of attitude in the commercial space defeats and demeans the existence

and purpose of legal institutions. Last and third are the types of entities with ‘a

relatively indiscriminate approach’ to their particular brand of blank ethics (or a

façade thereof) at the onset of a commercial venture – the impressively finance-

backed ‘resource-for-infrastructure’ attitude.84

South Africa’s Competition Act 89 of 1998 and the Companies Act 71 of 2008

have been effective at ‘ensuring that there are competition laws and policies in place

to prevent the abuse of market dominance.’85 Academic research shows that the

failure of negotiators to ensure the protection of local jobs and access to Chinese

markets has resulted in an asymmetrical business relationship between both

states.86 An example of this is the massive loss of jobs in the South African textiles

79

Lawrence Edwards & Rhys Jenkins ‘The Impact of Chinese Import Penetration on the South African Manufacturing Sector’ South Africa Labour and Development Research Unit University of Cape Town Working Paper No. 102 July 2013 available at http://opensaldru.uct.ac.za/bitstream/handle/11090/618/2013_102.pdf?sequence=1, accessed on 5 August 2015. 80

Siyabulela Tsengwe ‘Report No. 438 Increase in the Rate of Customs Duty on Graphite Electrodes’ International Trade Administration Commission of South Africa 7 October 2013 available at http://www.itac.org.za/upload/document_files/20140923020547_Report-no-438.pdf, accessed on 5 August 2015. 81

Harvey op cit note 14. 82

Ibid. 83

Ibid. 84

Ibid. 85

Garth Shelton & Claude Kabemba (eds) Win-Win Partnership? China, Southern Africa and the Extractive Industries 1 ed (2012). 86

Ibid.

Page 17 of 32

industry and the influx of foreign products from Pakistan, Malaysia, Mauritius and

Vietnam.87

According to the rules of free trade in a globalised world economy, trade

imbalances, in a particular industry, generally tend to shift in the favour of a more

competitive economy like China from a less competitive one (South Africa) in the

absence of an equally and efficiently negotiated Free Trade or Economic Partnership

Agreement.88 The government’s policies need to advance in this direction if there is

any hope of increasing exports to China while creating jobs in the local economy.89

II. REGULATIONS AND COMPLIANCE STANDARDS

(a) Policy and Bi-lateral Representation

Economies in Africa are often in need of financial injection to boost growth, create

employment, and facilitate economic development and global or regional

competitiveness.90 The common understanding is that due to the reduced number of

intended investment directed at Africa, whatever investment that does exist will be

welcomed with open arms and without conditions or consideration.91 That is to be

expected in states that are in dire need of capital and face declining confidence. It

would be wise for an African state to have standards or factors to be tested against

when scrutinising the elements of investments from any investing state into the

receiving state.92

When the holder of capital assesses a possible investment opportunity,

assessment of risks is common and expected. Therefore, investment protection will

have a great influence on investor sentiments. The government of South Africa has

87

Ibid. 88

Ron Sandrey and Hans Grinsted Jensen ‘Revisiting the South African-China trading relationship’ Trade Law Centre of Southern Africa Working Paper No. 6 March 2007 available at http://www.tralac.org/images/docs/4246/wp062007-sandrey-revisiting-sa-china-relationship-revised-20071205.pdf , accessed on 11 April 2015. 89

Ibid. 90

United Nations Economic Commission for Africa ‘Africa–BRICS Cooperation: Implications for Growth, Employment and Structural Transformation in Africa’ available at http://www.uneca.org/sites/default/files/publications/africa-brics_cooperation_eng.pdf, accessed on 11 April 2015. 91

Jardo Muekalia op cit note 58. 92

Omar E García-Bolívar ‘Defining an ICSID Investment: Why Economic Development Should be the Core Element’ International Institute for Sustainable Development Investment Treaty News 13 April 2012 available at https://www.iisd.org/itn/2012/04/13/defining-an-icsid-investment-why-economic-development-should-be-the-core-element/, accessed on 12 April 2015.

Page 18 of 32

decided that bilateral investment (promotion and protection) treaties (BIT or BITs)

are to be terminated.93 Instead, the government seeks to use a more central and

generic method or system.

BITs were favoured because of their bespoke, individualistic approach as well

as the certainty they brought to foreign investment protection. However, in order to

afford greater protection, renegotiation opportunities, and cater for a wide range of

interests, a legal framework in the form of a statute was deemed necessary by the

South African government; thus, the need for the Promotion and Protection of

Investment Bill (the Bill).94

South Africa is not the only developing country that is pulling the plug on BITs;

Indonesia, Venezuela, Bolivia and Ecuador have signalled a similar intent.95 The aim

is to ensure that trade and investment conditions may be easily reconsidered as

conditions change for a capital receiving country or for a development finance

providing state.96 97 Interested parties98 99 have raised concerns regarding the Bill,

but in reality, and for practical purposes, emerging economies need to free up their

options to developmental trade investment to avoid having less bargaining power.100

93

Jeffrey Kron & Matthew Clark ‘South Africa’s changing approach to investment protection’ Norton Rose Fulbright International Arbitration Report 2015 – Issue 4 April 2015 available at http://www.nortonrosefulbright.com/files/south-africas-changing-approach-to-investment-protection-127893.pdf, accessed on 11 April 2015. 94

Ibid. 95

Ibid. 96

Pieter Steyn ‘The New Promotion and Protection of Investment Bill – An Assessment of its Implications for Local and Foreign Investors in South Africa’ Werksmans Attorneys available at http://www.werksmans.com/wp-content/uploads/2013/12/Investment-standalone-legal-brief-December.pdf, accessed on 12 April 2015. 97

Peter Draper & Azwimpheleli Langalanga ‘Does the draft investment bill threaten foreign investors’ rights?’ 2 April 2014 available at http://www.saiia.org.za/opinion-analysis/draft-investment-bill-requires-amendment, accessed on 11 April 2015. 98

SAIIA ‘South Africa’s Draft Promotion and Protection of Investment Bill’ A Submission by the South African Institute of International Affairs 1 November 2013 available at http://www.saiia.org.za/doc_download/799-saiia-submission-investment-protection-and-promotion-bill, accessed on 27 June 2015. 99

South African Institute of Race Relations ‘Submission to the DTI regarding the Promotion and Protection of Investment Bill of 2013’ 31 January 2015 available at http://irr.org.za/reports-and-publications/submissions-on-proposed-legislation/submission-to-the-dti-regarding-the-promotion-and-protection-of-investment-bill-of-2013-2013-31-january-2015, accessed on 12 April 2015. 100

Alessandro op cit note 32.

Page 19 of 32

(b) Managing Impediments and Expectations

Among the territorial and internal challenges that African states must endure, sub-

Saharan Africa battles poor infrastructure, bribery and corruption, transportation

infrastructure impediments, no respect for the rule of law, and a lacklustre regulatory

environment.101 These factors contribute to the difficulty of doing business in

southern Africa as the cost of investment begins to exceed the benefits of capital

input and impedes productivity and profitability.102 The long-term investments103

made and the aid package deals provided are clear and undeniable evidence that

the fate of China and that of its regional counterparts rests in the growth and

development of Africa’s emerging and sustained economies.104

The need to get genuine information from the experiences that the Africa-

China relationship impacts upon has been sufficiently met by the Ethics Institute of

South Africa’s survey which focuses on the perceptions held by Africans –

particularly Nigerians, Kenyans and South Africans – in relation to Chinese business

activity on the continent.105

The core points or factors assessed were Chinese business reputation, the

quality of products and services, social responsibility, economic responsibility

(national economic development interest consideration), environmental

protection/responsibility, employment and labour practices, and the working

conditions in Chinese businesses.106 Due to the subject matter of this essay, specific

attention is given to the South African survey responses.

South Africa has more negative than positive feedback about the reputation of

Chinese business activity. This is because a large number of people do not see or

believe that there are personal or communal benefits that accrue to South Africans

from Chinese commercial activity. Evidence of this is the 22.4 per cent of South

Africans’ positive perception compared to Kenya’s 56 per cent positive response to

China’s reputation.107

101

Chris Alden China in Africa: Partner, Competitor or Hegemon? (2007) 71. 102

Fiona Dwinger ‘Africa: Asia’s one-stop shop’ Consultancy Africa Intelligence 26 July 2013 available at http://www.consultancyafrica.com/index.php?option=com_content&view=article&id=598:africa-asias-one-stop-shop&catid=58:asia-dimension-discussion-papers&Itemid=264, accessed on 24 July 2015. 103

Alden op cit note 101. 104

Dwinger op cit note 102. 105

Rossouw et al op cit note 70. 106

Ibid. 107

Ibid.

Page 20 of 32

Although 60 per cent of surveyed South Africans were familiar with at least

three Chinese brands, only 11 per cent consider China to have a good reputation in

their country.108 Moreover, 77 per cent of Kenyans and 46 per cent of Nigerians

surveyed believe that their respective national development goals are impacted

positively by China, but only 29 per cent of South Africans agree.109 Across Africa,

China is not seen as an equal business partner to a particular state, with 65 per cent

of those surveyed responding in the negative to this question.110 This means that the

number of Africans who believe that China and African states are equal partners is at

or near 35 per cent, and in South Africa, this figure is 14 per cent.111

The sentiments concerning products from China in South Africa are not good

either. Only 13.7 per cent think positively about Chinese product quality because

they believe that these products are of lower standards and lower quality.112

However, this can be a good thing as it allows more consumers to access certain

products in various markets, thus 26.4 per cent consider these products to be value

for money.113 Low-income earners are able to afford these products and they benefit

the most from the low costs of Chinese products.

South Africa has a well established and respected engineering and

construction sector. Some of the entities in this field are global competitors. This

explains why only 10.1 per cent of South Africans are pleased with Chinese

infrastructural development projects compared to Nigeria’s 27.1 per cent and

Kenya’s 87.8 per cent.114

Across the spectrum, an average of 8 per cent of South Africans agree that

Chinese businesses are socially responsible. Furthermore, 32 per cent of South

Africans are of the view that Chinese business investments contribute to state

economic development. The sentiments get worse when considering environmental

responsibility – 56.6 per cent do not believe that Chinese businesses in South Africa

are environmentally responsible.115

More survey data from South Africans shows the following:

108

Ibid. 109

Ibid. 110

Ibid. 111

Ibid. 112

Ibid. 113

Ibid. 114

Ibid. 115

Ibid.

Page 21 of 32

5 per cent agree that Chinese businesses have decent working conditions;

9 per cent agree that staff members are treated respectfully;

5 per cent agree that health and safety are considered in the workplace;

6 per cent agree that basic workers’ rights are considered and observed;

36 per cent agree that companies from China employ Chinese.116

Chinese businesses’ employment practices are, without a doubt,

questionable. The survey shows that an alarming majority of South Africans, who

have had engagements with Chinese businesses, believe that these businesses

have a great disregard for the vital considerations of the people. It is evident that

people do not come before profit.

(c) The Promotion and Protection of Investment Bill 2013

There have been good trade and investment relations with countries that do not have

existing BITs with South Africa, such as the United States of America, India and

Japan. These commercial relationships have yielded great results and benefits for

the parties concerned.117 At the moment, monetary or market related thresholds exist

in order to mandate investors to comply with state regulatory procedures through

statutes like the Competition Act and the Companies Act. The legislation applies to

both local and foreign investors, acquirers and traders. Typical kinds of foreign

investments do not have to meet tailored standards set up by the government; the

only standard to observe is the rule of law in South Africa.

According to the Department of Trade and Industry, the Promotion and

Protection of Investment Bill, will usher in a modernized legal framework in South

Africa in cases of foreign direct investment.118 Section 3 of the Bill highlights a public

interest concept, the weighing up of rights and correlative obligations of investors,

and depending on existing laws, treating foreign and local entities equally.119 All of

this will be administered within South Africa and there will be no allowance for extra-

116

Ibid. 117

Steyn op cit note 96. 118

Ibid. 119

Ibid.

Page 22 of 32

judicial institutions to intervene as would be the case in the presence of the BIT

system.120

When looking at an investment, various sentiments collide, as is often the

case when risks are pitted against interests. A vital element should be ‘the aim of

furthering the economic development of the host state.’121 The purpose of

engagement between the two states should not be observed from a generally vague,

typically political point of view, especially by the South African negotiators.122 In

determining whether South Africa’s economic development has been harnessed, the

following factors must be put to the test: public interest, transfer of knowledge,

productivity enhancement, and increased quality of living and working standards and

conditions.123

It is the high standard and quality of the South African legal system that

makes its engagements with Beijing unique in their broad and complex structure.124

Due to the mixed and particularly unpleasant responses to China’s presence in

South Africa, there is a need for policy and legal reforms to regulate Chinese

investment in South Africa in a practicable and creative manner.125 This approach

should not be intended to punish or stifle Chinese commercial interest. Chinese

investment has a limited influence on development contribution because, aside from

inadequate negotiation, law and policy remain open for exploitation through

predatory behaviour.126

IV. RECOMMENDATIONS

China has access to a market and an economy that is wealthy with ‘good

infrastructure, political stability, the absence of civil unrest or religious conflict, [and

is] rich [in] mineral and human resources.’127 The Chinese have complained about

the high levels of crime and ‘restrictive labour laws, poor communications, logistical

120

Ibid. 121

García-Bolívar op cit note 92. 122

Francisco Little ‘A Multifaceted Friendship’ Q&A with President Jacob Zuma Beijing Review Online Exclusive 2 December 2014 available at http://www.bjreview.com.cn/quotes/txt/2014-12/02/content_656206.htm, accessed on 11 April 2015. 123

García-Bolívar op cit note 92. 124

Shelton & Kabemba op cit note 85. 125

Ibid. 126

Harvey op cit note 14. 127

Shelton & Kabemba op cit note 85.

Page 23 of 32

problems, lack of worker skills, low productivity, and language barriers’128 as

impediments to sustainable commercial activity.

Policy and legal regulatory reforms should not be stagnant as the commercial,

labour practices, and environmental protection needs develop and evolve with the

growing developmental demands of the continent and the country.129 Chinese

business and investment pursuits are approached with the consideration of that

country’s own national interests at the core of its rational and pragmatic approach to

South Africa.130 It is the responsibility of South Africans with the decision-making

powers and privileges to improve their own governance as they focus on the

business practices adopted by China in Africa.131

The South African government should enhance the business practices of

state owned entities and address the electricity supply issues as the high costs of

electricity and the lack of adequate electricity supply contributes to high production

and operating costs, in addition to the high costs of labour.132 This contends with the

view of Minister Davies that South Africa is open for business.

A lesson can be drawn from China’s response to corruption within all levels of

government. These mechanisms vary, but the most effective one is the approach

that signals to other members of the Communist Party, government employees, and

the public, that no one is above the law, no one will escape prosecution and no

social, educational, economic or political rank is immune to the aggressive war on,

and reforms against, corruption.133

There is a need to consider a stakeholder benefits system for workers. Such a

scheme would ensure that employees receive sustainable long-term income as

owners in the business and economic sectors.134 This sort of approach would make

Chinese investment more valuable and increase productivity, quality skills training

128

Ibid. 129

Ibid. 130

Qi Zheng ‘China-Africa: An Evolving Relationship but Invariable Principles’ (2014) 3 GREAT Insights 1. 131

Shelton & Kabemba op cit note 86. 132

Petronel Smit ‘Positive outlook for mining in South Africa’ Mining Weekly 6 November 2009 available at http://www.miningweekly.com/article/positive-outlook-for-mining-in-sa-2009-11-06, accessed on 11 April 2015. 133

Huang op cit note 28. 134

Jonas Mosia ‘When is Foreign Direct Investment Beneficial to a Country and When Is It Not? The Case of South Africa’ South African Institute of International Affairs Policy Briefing 44 Economic Diplomacy Programme 23 February 2012 available at http://www.saiia.org.za/doc_download/189-when-is-foreign-direct-investment-beneficial-to-a-country-and-when-is-it-not-the-case-of-south-africa, accessed on 9 April 2015.

Page 24 of 32

and labour capacity.135 This strategy is particularly unique for South Africa owing to

the balance of the population figures in correlation to the economic growth sought.

Although a great deal of risk will have to be assumed by the relevant parties, it is a

necessary risk and valuable lessons may be drawn.

The introduction of screening systems, where the Department of Trade and

Industry has the discretion to deny economic entrance to investments that do not

benefit national interests should be considered. There remains a certain risk concern

when investing in a jurisdiction like South Africa.

The existing bilateral forums and multilateral councils do not serve the

‘ground-level’ South African needs. South Africa should consider a unique

ombudsman or regulatory body set up with the sole purpose of enhancing and

addressing the trade and investment relationship with the People’s Republic of

China. The laws in both countries and their development, together with an

understanding of these jurisdictions will be an important focus for this entity. Insights

on international investment and trade law, while taking national goals for

development and socio-economic objectives into account will be considered when

formulating advice for the purposes of business and government engagements, and

efficient negotiation of transactions.

There are many portals of information and many ways that may be used as

lenses of engagement, however, they are far too vast and broad. Some of these are

in the form of commentaries and policy papers by academics, and legal opinions by

practitioners, but they are not centralized and they are not supported at the highest

level of national government. The skills required for this type of entity are available

from the expertise held by respective university lecturers, legal and professional

firms, existing state institutions and the already existing small and large business

community. A focal point of an entity of this type is that it must be independent of any

political party affiliations that could lead to it being exploited for illicit ends. Merit and

the rule of law should be among the foundational principles of a developmental trade

and investment finance legal centre. An institution of this nature could achieve the

win-win ideals sought while ensuring effective regulation and strengthened

institutions.

135

Ibid.

Page 25 of 32

V. CONCLUSION

There are examples of China’s skill and ability at favourably negotiating its own

interests while South Africa holds onto pseudo-success at achieving its own goals.

There need not be a witch-hunt seeking to purge Chinese businesses when the

ethics of business practice are assessed – especially where the politics of nations

are concerned. South African local institutions, and not the capital providing Chinese,

should bear the responsibility of enforcing good business practices and regulatory

compliance.

Bearing South Africa’s economic goals and objectives in mind, pragmatic

application or implementation of the Promotion and Protection of Investment Bill will

ensure that Chinese entities do not get favourable treatment compared to local

entities in various sectors of the economy.

Regulatory instruments are necessary because bilateral investment treaties

run the risk of interfering with or impeding the practices of national legislation that

would be in place to protect national interests.

The Bill must practicably address matters such as these and policies based

on these standards should be the principles upon which South African negotiators

engage with the Chinese. There is also a great need for diligence and the

understanding to be forthright about the expectations based on the purpose of

investments.

South Africa needs a uniform regulatory and compliance system that

considers the interests of the investing state and entity in relation to the national

interests – which is to attract more foreign direct investment – and the consequences

of these investments at the ground level. The possibility of a definite and exceptional

system of this nature is now realizable, and once the concerns regarding

interpretation and the lacuna causing uncertainty are dealt with, this regime has the

potential of easing the burden carried by development finance institutions in South

Africa.

Word count: 7660

Page 26 of 32

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