VZCZCXRO4438
PP RUEHDU RUEHJO RUEHMR
DE RUEHSA #2654/01 1800946
ZNR UUUUU ZZH
P 290946Z JUN 06
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC PRIORITY 4225
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHBJ/AMEMBASSY BEIJING 0602
UNCLAS SECTION 01 OF 02 PRETORIA 002654
SIPDIS
SENSITIVE
SIPDIS
DEPT FOR EB/TPP/ABT, AF/EPS, AF/S
COMMERCE FOR ITA/OTEXA/MD'ANDREA
COMMERCE ALSO FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND
DEPT PASS USTR FOR PCOLEMAN AND AHEYLIGER
E.O. 12958: N/A
TAGS: ETRD ECON KTEX SF CH
SUBJECT: SOUTH AFRICA SIGNS TEXTILE, NUCLEAR ENERGY AND COAL FUEL
AGREEMENTS WITH CHINA
REF: PRETORIA 678
1. (U) Summary. Leading a delegation of government officials and
business leaders, Chinese Premier Wen Jiabao visited South Africa
June 21-22, 2006. The Chinese visit was part of a seven-country
tour of Africa intended to strengthen China's diplomatic ties,
ensure robust trade, and secure its access to a variety of natural
resources from the continent. Jiabao and South African President
Thabo Mbeki initialed a textile MoU, containing import limitations
on 31 textile and apparel categories until 2008. Jiabao also
witnessed agreements between several Chinese companies and Sasol to
investigate building at least 2 coal-to-liquid fuel plants. In
addition, China and South Africa signed a pact to cooperate on
peaceful uses of nuclear technology. With details sketchy, it is
difficult to judge the value of the new agreements. Septel covers
political aspects of the visit. End summary.
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STRATEGIC PARTNERSHIP SOUGHT
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2. (U) On June 21 2006, South Africa and China initialed a
Memorandum of Understanding (MoU) to promote trade and economic
co-operation. This MoU forms part of a package of agreements signed
to strengthen the "strategic partnership" between the two countries
and provides for technical assistance, investment and trade
promotion, and customs cooperation. Other agreements cover a
variety of fields including agriculture, health, defense,
transportation, arts and culture, and cooperation in science and
technology.
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CHINA AGREES TO LIMIT TEXTILE IMPORTS
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3. (U) The textile MOU includes import limitations on 31 apparel and
textile product categories until the end of 2008. The South African
Department of Trade and Industry (DTI) could not provide concrete
detail regarding the specific product categories identified. The
DTI said in a statement that more detail on the agreement will only
be made available once it comes into force, and that legal
procedures still needed to be completed.
4. (U) As reported reftel, the South African clothing and textile
sector has experienced severe pressures partly as a result of rising
imports from China. Imports currently account for 30 percent of the
South African clothing and textiles market. Of this, China supplies
more than three-fourths of the clothing and less than one-fourth of
the textiles. The following table shows China's share of the South
African 2005 import market for apparel and textiles.
Chinese Import Market Share
South African Market
% of total
imports
Apparel:
Volume: 386 million units 87%
Value: $560 million* 74%
Textiles:
Volume: 74,368 ton 22%
Value: $248 million* 24%
Source: The Textile Federation of South Africa (Texfed) for the
period January 2005 to December 2005.
*Note: Assuming a rand/dollar exchange rate of 6.35.
5. (U) Chinese Premier Wen Jiabao expressed his willingness to
restrict textile exports and enhance South Africa's own capacity in
textile production. The Premier stated that China would be willing
to cap its textile exports to South Africa at two-thirds its current
level through 2008, though precise export limits for each of the 100
product lines covered by the textile agreement would be decided
through bilateral negotiations over the next several months.
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TEXTILE UNIONS WELCOME MOU; BUSINESS AWAITS DETAILS
--------------------------------------------- ------
6. (U) Reactions to the announced import limitations were mixed.
The South African Clothing and Textile workers Union hailed the MOU
PRETORIA 00002654 002 OF 002
as a chance to rebuild the local clothing and textile industry and
to restore the 63,000 jobs lost in the industry during the past
three years. Industry representatives welcomed the agreement but
nevertheless felt that the real value could only be judged when more
detail becomes available. An independent consultant described it as
"too little to late". However, Deputy President Phumzile
Mlambo-Ngcuka welcomed the understanding reached on textile trade,
describing it as a unique deal proving the Chinese willingness to
walk the extra mile.
7. (U) If the terms are as sweeping as those pledged by the Chinese
delegation last week, industry representatives state that they will
invest in both new factory technology and in training for workers to
regain a competitive edge in delivery speed, defect rates, inventory
holdings, and production flexibility. A South African textile
worker earns, on average, 3.5 times the wage of her Indian
counterpart and 57 percent more than a comparable Chinese worker,
according to data supplied by the Financial Mail. The decline of
the industry since the mid-1990s can be attributed to slow adoption
to modern technology, the relatively strong rand in recent years,
small target markets, and the expiration of the Multi-Fiber
Agreement as well as increased foreign competition.
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NUCLEAR COOPERATION
-------------------
8. (U) China and South Africa also signed a pact to cooperate on
peaceful uses of nuclear technology. Key cooperative areas include
the mining and supply of uranium ore; sharing power reactor
operations techniques and components for use in the Koeburg Power
Station; joint development of nuclear reactors, with possible
cooperation in the Pebble Bed Modular Reactor Program (PBMR); and
exchange of personnel in the nuclear field.
9. (SBU) With electricity demands growing to challenging levels,
especially in the Western Cape Province, the South African
Government is supporting ambitious plans to bulk up the power grid,
including adding another conventional nuclear power station and
several pebble-powered nuclear generators to the power grid. The
combination of increasing electricity demands and the push to
support PBMR development have led to a renewed South African drive
for international cooperation in the nuclear field. In addition to
the China agreement, South Africa is negotiating agreements with
Argentine, South Korea and Turkey.
--------------------------------------------- ---
JOINT STUDIES FOR NEW COAL-TO-LIQUID FUEL PLANTS
--------------------------------------------- ---
11. (U) During the visit, South Africa chemical and fuel giant SASOL
signed deals with Shenhua Ningxia Coal and with a consortium led by
Shenhua Corporation to investigate the feasibility of coal-to-liquid
(CTL) plants in China. Both feasibility studies are based on the
concept of 80,000 barrel-per-day (bpd) plants run using Sasol's
proprietary Fisher-Tropsch technology. Sasol expects to produce
53,000 bpd of diesel, 24,000 bpd naphtha and 6,000 bpd of liquefied
petroleum gas according to data supplied by the company. Both of
China's $5 billion plants could be operational by 2012. Running at
full capacity, they would reduce Chinese oil imports by 15 percent.
While China enjoys abundant coal reserves, it presently imports 40
percent of its oil and is the world's second-largest oil importer.
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COMMENT
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12. (SBU) With details sketchy, it is difficult to determine whether
the new agreements are advantageous to both sides. At best, a
textile agreement will buy time for marginal firms to rebuild and
become more competitive, but it is certainly no panacea. The more
likely long-term outcome is that those marginal firms will continue
their downward slide. On the energy front, China gains access to
South African technology and uranium reserves, while South Africa
hopes to gain assistance in alleviating the ongoing power shortages
in the Western Cape. Time will tell whether South Africa has made a
good bargain with the Chinese. TEITELBAUM