Global financial crisis effects in SA & China & counter measures: input by People's Republic of China Financial & Economic Affairs Committee

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Finance Standing Committee

08 October 2012
Chairperson: Mr T Mufamadi (ANC)
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Meeting Summary

The Standing Committee on Finance welcomed the Chairperson and Members of the Financial and Economic Affairs Committee of the 11th National People's Congress of the People's Republic of China. Members sought to learn from China's experience, as it was evident that China had engaged robustly with the global economic crisis. The Chairperson gave, from his own perspective, a synopsis of how the global economic crisis had impacted on South Africa. He said South Africa had realised very soon that there was a long-term pattern of trade shifts. It noted a shift in trade from Europe and the USA to China in terms of trade, particularly in commodities in the mineral complex. South Africa's exports of manufactured goods to the USA and to the European Union remained depressed up to now. However, one of the great lessons learned from this recession was that South Africa was an integral part of the African continent not only in geography but also in terms of trade, and therefore the growth in Africa offered South Africa new opportunities. However, South Africa had experienced budget deficits, which were still widening with impacts on South Africa's ability to borrow and on the cost of its borrowing. The credit rating agency Moody's had recently downgraded South Africa. This would necessarily impact on all sectors of South Africa's economy, including banks. Some reasons cited for the downgrading were that South Africa's growth was not reaching the levels expected to deal with unemployment. South Africa was also experiencing serious challenges in the labour market in terms of labour-employer relationships. This had a serious effect on South Africa's revenue earnings from the mineral complex.

The Chairperson of China's Financial and Economic Affairs Committee briefed Members on China's response to the crisis and its economic performance this year. To minimise the impact of the crisis and to sustain stable and relatively fast economic and social development, China's government had undertaken large scale increases in government spending with reductions in taxation and cancellation or suspension of administrative fees on around 100 items; interest rates had been reduced; there was a large scale plan to adjust or rejuvenate the country's industries; China had strengthened its scientific and technological upgrading to enhance its capacity for indigenous innovation; and China had allocated more public resources to such areas as education, medical, public health, and social security. The coverage of medical insurance had exceeded 90%. Also the coverage of social insurance had been increased. At the same time every means had been tried to expand employment. As a result China had maintained a relatively fast and stable social and economic development. However, beginning from the latter half of last year, China had also felt the impacts of the financial crisis. There were some external causes. One of the largest constraints was that, as a result of the crisis there was a lack of external demand. Therefore the increase in exports was less than expected. The spending power of the general public was not strong enough. Also China's enterprises faced a reduced capacity and ability to invest. The central government was taking active measures to address these situations. All the countries of the world should work together to consolidate the recovery of the world economy, coordinate their policies and macro-economic policies, should especially reform the international economic order, should actively promote the liberation and facilitation of global trade and investment, and oppose trade protectionism in all forms. There should be enhanced cooperation in international economic supervision to avoid developing countries bearing the burden of the poor performance of developed economies. All the countries of the world should fourthly actively change the pattern of economic growth in order to achieve sustainable development and green development.


Members noted that South Africa's relationship within the Brazil, Russia, India, China, and South Africa (BRICS) group gave an opportunity to continue to engage and find common ground, solutions and interventions to resolve or ameliorate the crisis as one moved towards stabilisation of the world economy. Members of both Committees had a responsibility to future generations. Members asked how China addressed the employment of graduates, noted that China’s growth rate, although reduced to about 7%, was still double that of South Africa’s, asked how China saw the role of state-owned enterprises in driving growth and in striking the right balance between them and the private sector, how China viewed the recent labour unrest in South Africa and how it might affect foreign investment into the country, what the role of business was in China in terms of job creation, how the Chinese government dealt with the scourge of corruption, asked about recent progress in bilateral agreements, noted the huge importance of the agreement between the Development Bank of Southern Africa and the Chinese Development Bank as it related especially to the local government sphere and under-resourced municipalities, and were very pleased that China wanted to promote global trade and investment,


The Chairperson of China's Financial and Economic Affairs Committee replied that China had special incentives and preferential policies for the employment of those graduates. State-owned enterprises had played a very fundamental role and enabled a stable and a relatively fast economic growth. South Africa's labour conflicts would surely affect sustainability and have some impacts on attracting foreign investment. China's government sought to protect the fundamental rights of the workers and increase their income in line with the development of the economy. China had a proactive approach to job creation and with the development of the economy would surely create more jobs. The government had preferential policies for the disadvantaged groups and had enhanced training. The government gave a strong push to the development of the private sector so that there would be more jobs. More than 30% of employment was now in the private sector. In recent years, China was witnessing very rapid development of the tourist and service industries. All these industries could create more jobs than the traditional industries. Corruption was punished severely. Currently, South Africa was China's largest trading partner in Africa. There was great potential to strengthen further trade and economic cooperation. There could be expansion in such fields as agriculture, manufacturing, infrastructure, construction, new energy, and tourism. This would help to create more jobs and would facilitate relatively fast and stable economic development. Also it would help address the negative impacts of the international financial crisis. The Standing Committee on Finance was invited to visit China.

Meeting report

Introduction
The Chairperson welcomed the Hon. Shi Xiushi, Chairperson, and Members of the Financial and Economic Affairs Committee of the 11th National People's Congress of the People's Republic of China, and Mr Liang Shugen, the Consul-General: People's Republic of China, in Cape Town.

The Chairperson introduced Members of the Finance Standing Committee. Mr Shi introduced Members of the Financial and Economic Affairs Committee. Ms Yi Xing, Interpreter to the delegation, translated into Chinese and English.

Global financial crisis effects and counter measures: South Africa
The Chairperson said the Committee sought to learn from the People's Republic of China's experience, as, from a distance, it was evident that the People's Republic had engaged robustly with the global economic crisis. The delegation was comprised of Members highly experienced in different sectors of the economic field and in government. This was something unique.

The Chairperson gave, from his own perspective, a synopsis of how the global economic crisis had impacted on South Africa. The crisis had begun in 2008. At that time, the South African economy was performing very well, but at the same time it was beginning to slow down on account of South Africa's own challenges, including shortage of electricity. South Africa began to feel the effects of the global economic crisis in 2009 in particular, when its economy began to contract. That was as a result of global trade volumes that declined, particularly from Europe and the United States of America (USA).

At that time the world trade volume collapsed by 18%. This impacted on South Africa's export capabilities and performance. South Africa realised very soon that there was a long-term pattern of trade shifts. South Africa noted a shift in trade from Europe and the USA to China in terms of trade, particularly in commodities in the mineral complex. South Africa's exports of manufactured goods to the USA and to the European Union (EU) remained depressed up to now. However, one of the great lessons learned from this recession was that South Africa was an integral part of the African continent not only in terms of geography but also in terms of trade, and therefore the growth in Africa offered South Africa new opportunities.

Because of the counter-cyclical policy stance that South Africa had adopted on macro-economic issues, South Africa managed to hold on through public sector spending, in particular in infrastructure. However, South Africa had experienced budget deficits, which were still, at the moment, widening. This impacted on South Africa's ability to borrow and on the cost of its borrowing. He predicted that the primary balance, which was the borrowing now into the future, would be borrowing to service the debt that South Africa already had. This was a very challenging problem that South Africa would experience, unless the economic situation turned around.

The credit rating agency Moody's had recently downgraded South Africa. This downgrading would necessarily impact on all sectors of South Africa's economy, including banks. Some of the reasons cited were that South Africa's growth was not reaching the levels expected to deal with unemployment, in particular with youth unemployment. South Africa was also experiencing serious challenges in the labour market in terms of labour-employer relationships. This had a serious effect on South Africa's revenue earnings from the mineral complex.

Global financial crisis effects and counter measures: People's Republic of China
Mr Shi thanked the Chairperson for sharing his observations on South Africa's response to the global economic crisis. He briefed Members on the People's Republic's response to the crisis and its economic performance this year. He hoped that his introduction would bring more wisdom from the South African side.

The international financial crisis that broke out in 2008 brought unexpected impacts to the People's Republic's economic performance. To minimise the impact of the crisis and to sustain the stable and relatively fast economic and social development of China, the government of the People's Republic had undertaken the following:

(1)
Large scale increases in government spending and reductions in taxation.
- An investment plan over two years to have an additional four trillion investment, among which 1.8 trillion Yuan was from the central government: this investment was mainly in infrastructure construction, economic restructuring and the improvement of people's livelihood.
- As for reduction in taxation, it was around 550 billion Yuan.
- There had been a reform announced of the value added tax (VAT).
- Administrative fees on around 100 items had been cancelled or suspended.
(2) F
or banks interest rates had been reduced, and many times the required deposit level of the banking sector had been adjusted.
(3) T
here had been announced a large-scale plan to adjust or rejuvenate the country's industries.
- The state council had produced seven or eight general plans to adjust or rejuvenate the following industries including: the chemical industries, the equipment manufacturing industries, the metal industries, and the service industries, so that the international financial crisis had tripled the readjustment of the People's Republic's economic structure.
(4) T
he People's Republic had strengthened its scientific or technological upgrading and scientific and technological innovation, so that it had enhanced its capacity for indigenous innovation.
(5) The People's Republic had allocated more public resources to such areas as education, medical, public health, and social security. For example, it had formulated the medium and the long-term educational plan of the People's Republic. The investment in education should form 4% of the gross domestic product (GDP). At the same time there had been introduced a comprehensive reform of the medical and public health sector. For the government at different levels, in the following three years it had increased investment by 850 billion Yuan. Currently in many parts of the People's Republic there was a pilot project of a new type of pension system. The coverage of medical insurance had exceeded 90%. Also by a large scale the coverage of social insurance had been increased. At the same time every means had been tried to expand employment. For the recent years China had maintained the register of rural and urban unemployment rate at around 4.5%.

As a result of the above-mentioned measures, China had maintained a relatively fast and stable social and economic development after the start of the global economic crisis in 2008.

However, all the measures taken by different governments around the world had not reduced the impact of the international financial crisis; therefore, beginning from the latter half of last year, China had also felt the impacts of the financial crisis.

Therefore for the first half of this year, the economic growth rate of China had reduced by a large scale compared with the same period last year. It had reduced by 1.8%. This was the first time in many years that China's economic growth rate had been lower than 8%.

Although the State Council had taken new counter measures, it seemed that the impact of the international financial crisis was persisting for a long time.


There were some external causes. The acute impacts of the international financial crisis were still spreading. The economic growth rate of major economies around the world was lower than expected. The European debt crisis was still spreading. Instabilities and uncertainties were still present. The world economic recovery would be ever more difficult than expected.

From internal factors there were more constraints on China's expanding its demand. One of the largest constraints was that, as a result of the crisis there was a lack of external demand. Therefore the increase in exports was less than expected. The spending power of the general public was not strong enough. Also China's enterprises were facing many difficulties in their economic operations, and they had a decreased will to invest, and a reduced capacity and ability to invest. Of course, China's economic structure was less than perfect and the country faced an arduous task to achieve economic restructuring.

The central government of China had attached great importance to these new problems and situations, and was taking active measures to address these situations.

As to suggestions for a sustainable global economic recovery, he shared with the Committee the following: all countries of the world should
Firstly, work together to consolidate the recovery of the world economy.
- Coordinate their policies, guidance and directions.
- Coordinate their macro-economic policies by taking into consideration the general picture.
- Especially reform the international economic order by taking forceful action.
Secondly, actively promote the liberation and facilitation of global trade and investment. There should be opposition to trade protectionism in all forms.
Thirdly, actively promote the reform of international economic systems and enhance cooperation in international economic supervision to avoid the situation that, when a developed country performed badly, it was the developing countries which bore the brunt of remedial measures.
  Fourthly, actively change the pattern of economic growth in order to achieve sustainable development and green development.

Discussion
The Chairperson thanked Mr Shi for his intuitive briefing which had touched on key important points. The road to recovery would be hard and instability would continue to be a feature for quite some time particularly in the global markets. In response it was necessary to coordinate macro-economic policies and coordinate interactions so as to create a new economic order, as the old would not necessarily yield positive results. Trade liberalisation was very important, particularly by the developing world. South Africa's relationship within the Brazil, Russia, India, China, and South Africa (BRICS) group gave an opportunity to continue to engage and find common ground, solutions and interventions to resolve or ameliorate the crisis as one moved towards stabilisation of the world economy. Members of both Committees had a responsibility to future generations.

Mr Shi agreed with the Chairperson.
 
Ms J Tshabalala (ANC) thanked the delegation.

She asked for the delegation’s views on unemployment, in particular youth unemployment, especially given South Africa’s high rate of unemployment, and asked how China addressed the employment of graduates, in particular, placing them in suitable employment.

She asked why the delegation was composed only of men.

Mr T Harris (DA) thanked Mr Shi for his excellent overview.


He noted that China’s growth rate, although reduced to about 7%, was still double that of South Africa’s. Moreover, South Africa’s growth rate was less than half that of countries like Malaysia and Indonesia. What exactly had China done in lowering taxes and administrative fees? This was something that South Africa definitely had not done in its response to the global financial crisis.

Secondly, how did China see the role of state-owned enterprises in driving growth and in striking the right balance between them and the private sector?

Thirdly, he would value the delegation’s opinion on the recent labour unrest in South Africa, and how it might affect foreign investment into the country.

Dr Z Luyenge (ANC) asked what the role of business was in China in terms of job creation. Did China envisage its government providing more job opportunities than business?


Secondly, how did the Chinese government deal with the scourge of corruption? This was a critical issue affecting the South African economy.

Mr D Ross (DA) commented on the current status of South Africa’s infrastructure spending as a percentage of the gross domestic product (GDP). This increased South Africa’s borrowing requirements. Servicing the debt would be a challenge. He was very pleased that China wanted to promote global trade and investment,

He commented on the importance of the bilateral agreements between South Africa and China and asked about recent progress.

He asked about the agreement between the Development Bank of Southern Africa and the Chinese Development Bank. This was hugely important, especially in the local government sphere and in the case of under-resourced municipalities. He sought the delegation’s views on these issues.

Responses
Mr Shi responded holistically.

On the employment of college graduates, in the past, China had a plan to allocate those graduates from colleges. However, now that China was a socialist market economy, those graduates were expected to be responsible to find employment by themselves. At the same time, the higher education authorities had special incentives and preferential policies towards the employment of those graduates. In recent years, more than 70% of the college graduates were able to find jobs after graduation.

As to why there was no lady member of the delegation, this was because the lady members of the committee had not proposed that they should join the delegation. However, the National People's Congress paid close attention to its lady delegates, and its composition included a certain percentage of lady members.

As for the role of the state-owned enterprises, according to the People's Republic of China's constitution, there was provision that the state-owned economy was the largest part of the economy, but China had all kinds of economic sectors. So in China's economic development, its state-owned enterprises had played a very fundamental role, and had produced large revenues and many job opportunities so that it had enabled a stable and a relatively fast economic growth.

China had received reports of the labour conflicts here in South Africa. Labour conflicts would surely affect the sustainability and would surely have some impacts on attracting foreign investment.

China had certain incidents in this regard, but the government had been actively resolving all these issues. The starting point in resolving these issues was to protect the fundamental rights of the labourers. China had its law of labour and labour contracts, so that, by using legislation, the government could protect the labourers' interests and rights, so that they could have secure jobs and increase in their income with the development of the economy.

China had a proactive approach to job creation. With the development of the economy, China would surely create more jobs.

As for those special groups of people who might face difficulties in finding a job, the government had some preferential policies, for example, the disadvantaged groups. Also, the government had enhanced the training of the people, so that they had more skills in finding jobs. At the same time, the government gave a strong push to the development of the private sector so that there would be more jobs. More than 30% of employment was now in the private sector.

In recent years, China was witnessing very rapid development of the tourist and service industries. All these industries could create more jobs than the traditional industries.

There was only one way to give a severe punishment to those engaged in corruption. No matter how high the rank of the offender, severe punishment was given. A certain mayor and member of the political bureau of the central committee of the Communist Party of China had been engaged in some cases of corruption and currently had been expelled from the Communist Party of China and had been referred to the judicial authorities for further investigation.

On the trade and economic cooperation between China and South Africa, it was fair to say that South Africa was a major economy with rich mineral resources. South Africa had a relatively perfect market economic system and higher education and a high scientific and technological level.

There was a very good political relationship between China and South Africa. Currently, South Africa was China's largest trading partner in Africa. China was also South Africa's largest trading partner, largest exporter and largest 'resources of exports'. It was fair to say that China currently enjoyed relatively good trade and economic cooperation on a firm foundation.

The delegation had had discussions in Johannesburg with representatives of Chinese enterprises in South Africa. All these Chinese enterprises in South Africa expressed the feeling that for the past few years South Africa's and China's trade and economic cooperation had been very good and had laid the foundations for further trade and economic cooperation. There was great potential to strengthen further trade and economic cooperation. Also more could be done in expanding the scope of business cooperation. On the basis of consolidating current business cooperation, there could be expansion in such fields as agriculture, manufacturing, infrastructure, construction, new energy, and tourism. This would help to create more jobs and would facilitate a relatively fast and stable economic development. Also it would help address the negative impacts of the international financial crisis.

He thanked everyone.

The Chairperson thanked Mr Shi and his team. He would have welcomed questions from the delegation, and much more detailed exploration and discussion, but 'Rome was not built in one day' and time was not on one's side. However, this meeting had laid a very firm foundation and basis and a reason to make a follow-up on the issues raised. It would be necessary to find a way through the Speaker's Office after the Committee's own deliberations on how to strengthen the relationship between South Africa and China. There was already a long history of working together at a party-to-party level and also at a government-to-government level.

There were many similarities in terms of how the Chinese revolution evolved with South Africa's own battles for liberation.

He thanked members of the delegation, the Committee, and those responsible for making arrangements for the delegation. Hopefully there would be a very fruitful engagement and study tour which would yield results. Much had been learned from Mr Shi's presentation. Given the challenges that China also faced, including unemployment issues, and a slowing growth rate that was beginning to be experienced, South Africa and China would continue to learn by each other's example, while taking collaborative efforts forward to enhance bilateral relationships at the level of country to country.

Mr Shi, as one of the vice-chairpersons of the regular parliamentary exchange mechanisms between China and South Africa and as the chairperson of the Financial and Economic Committee of the National People's Congress of the People's Republic of China, invited the Chairperson and Members of the Standing Committee on Finance to visit China. In Beijing he had met only with a delegation from the National Council of Provinces (NCOP) but not with any delegation from this Committee. He thanked the Chairperson for the arrangements and warm reception for the delegation.

The meeting was adjourned.

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