South African diplomats frequently talk of the importance of the country’s relationships with the developing world.

But over the past two years, this orientation has begun to acquire real economic substance: nowhere more so than with China, the biggest developing economy of them all.

Chinese sales of manufactured goods, ranging from textiles to telecommunications equipment, has led to a steady expansion in exports, while its hunger for South Africa’s raw materials such as coal and iron ore has driven trade to new heights.

In 2009, China leapfrogged Germany, the US, the UK and Japan to become South Africa’s biggest trading partner.

China’s investment has been slower. At times, the October 2007 decision by the Industrial and Commercial Bank of China to invest $5.5bn in a 20 per cent stake in Standard Bank has seemed like something of an outlier. When the Chinese economy slowed in 2008, state companies that might have expanded abroad took stock.

However, in recent months China has begun to expand again. In March 2009, the China Africa Development Fund – a quasi-sovereign vehicle set up by the China Development Bank to invest in African opportunities – set up a Johannesburg office.

This year the fund has made the first of its investments. Last month, the fund teamed up with Jidong Development, China’s second largest cement maker, to acquire a majority stake in a new R1.65bn ($2.4m) cement plant based in Limpopo province.

As part of the deal, which represented Jidong’s first venture outside China, the two Chinese partners ploughed R382.5m into the development, with about R450m coming in loans from Chinese banks.

Two South African partners – Continental Cement and Wiphold, a black women’s empowerment group, also took equity stakes, with NedBank, a subsidiary of the Old Mutual insurance concern, providing additional finance.

A few weeks later, the fund supported a $877m equity and debt deal in South Africa’s platinum sector, the second biggest Chinese investment in Africa outside the energy industry.

Jinchuan, a state-owned mining company from the far west of China, acquired for $227m a 51 per cent stake in Wesizwe, a South African junior mining company and announced its intention to pump a further $650m in project finance in order to develop the flagship Frischgewaagd-Ledig project, near Rustenburg, west of Pretoria. The deals neatly encapsulate two related aspects of the Chinese thrust into South Africa.

On the one hand, China is keen to secure supplies of strategic raw materials, such as platinum, a metal whose main industrial use is as a coating for catalytic converters. The investment also gives China its first direct access to metal that is also heavily used by local jewellery manufacturers.

According to Martyn Davies, chief executive of Frontier Advisory, a Johannesburg company that advised Wesizwe, the structure of the world’s platinum market makes it particularly valuable. Since the bulk of international output is bought and sold as part of long-term contracts, only about 10 per cent of the metal is available on the open market. “This is a very significant strategic play,” says Mr Davies.

On the other hand, the cement deal highlights Chinese commercial interest in Africa’s expanding domestic markets, particularly in regional infrastructure.

Chen Ying, vice-president of Jidong, says his company is excited by South Africa’s growth potential and believes the market for cement will grow quickly over the next few years.

Per capita consumption is barely a quarter of that in China and the developed world and has been depressed by the economic slowdown last year, but Mr Chen says a revival in the housing market and continued public investment in infrastructure will sustain expansion. “We are not worried. Africa is like China was 10 years ago. But maybe in 10 years this will be growing faster than China is now,” he says.

Investment links are by no means all one way. A number of South African companies made significant commitments in the Chinese market, while others are doing business with the Chinese as they expand into the rest of Africa.

SAB Miller is the second biggest brewer in mainland China, while Naspers, the media and internet group, which generates the bulk of its cash from pay TV businesses in Africa, owns a 35 per cent stake in China’s biggest internet messaging company, the Hong Kong-listed Tencent.

Mr Davies says South Africa’s interest in the rest of the continent and other emerging markets paves the way for broader co-operation with Chinese business.

Banks such as Standard or First Rand, which last year signed a strategic co-operation deal with the Construction Bank of China, are well placed to help finance Chinese investment.

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