China “zero tariffs” need a deeper dive

While there has been much excitement around the “Zero-Tariff” policy on South African goods heading into China, this optimism should be tempered. 

This is the view of researchers Dr. Davies Tsikayi and Jana de Kluiver from Africa International Advisors who have recently released a new paper entitled: “The Limits of China’s Zero Tariff Policy: Structural Reforms needed to realise South Africa-China Trade Potential”

The researchers noted: 

“China’s zero-tariff policy remains meaningful in diplomatic and strategic terms, particularly as a signal of openness in a more fragmented global trade environment. Its economic effect, however, is mediated by the structure of production on the exporting side. Where input costs, financing conditions, and industrial capacity limit the range of viable activities, access improvements translate into only marginal changes in trade outcomes.

The broader implication is that the trajectory of the South Africa–China trade relationship will be determined less by the terms of access to external markets and more by the conditions under which production takes place domestically and regionally. Until those conditions shift, the composition of trade is likely to remain largely unchanged.”

Key findings of the research included: 

• China’s zero-tariff policy increases South Africa’s exports to China by approximately $5.3 million annually (0.19% of the relevant SA–China trade base), with an upper bound below $40 million even under favourable assumptions
  
• 97.1% of the estimated gain is trade diversion, meaning the policy largely shifts China’s sourcing across suppliers rather than expanding total import demand
  
• The manganese case shows that export-oriented beneficiation remains unviable under current South African cost structures, even with zero tariffs on processed exports to China – an issue which speaks to the core of South Africa’s deindustrialisation challenge
  

Manganese Sector Case Study

In analysing the Zero-Tariff policy, the researchers looked closely at Manganese to highlight a structural issue that South Africa continues to face. South Africa holds 37% of global manganese reserves yet exports the ore in its raw form because smelting is uneconomical under the current industrial electricity tariff.

While there has been some progress made on the subject of electricity tariffs and preferential pricing, the modeling from the Africa International Advisors team suggests that this alone will not be enough to deliver economic returns for South Africa. 

This was a view echoed by Business Leadership South Africa (BLSA) CEO Busiswe Mavuso in her recent weekly commentary. 

The researchers note: 

“The zero-tariff policy on downstream products does not resolve the manganese paradox because the constraint is not market access but production economics. Electricity tariff reform may be necessary, but it is not sufficient. At current price levels, the investment case for beneficiation remains negative even under materially lower power tariffs. The investment gap is therefore a domestic industrial policy problem rather than a trade concession problem.”

Recommendations: 

The Africa International Advisors team have made the following recommendations to ensure greater economic benefit for South African businesses looking to take advantage of enhanced market access through the China “Zero Tariff” policies. 

1. Rebalance the domestic cost structure in the energy-intensive industry, as current input costs prevent beneficiation and limit the export response to improved market access

2. Strengthen the investment environment for capital-intensive industry, as financing

 constraints limit the translation of economic viability into realised export growth

3. Build regional scale and production networks through AfCFTA, to expand the overall

capacity for sustained export growth to China

4. Deepen industrial capacity in intermediate processing and manufacturing, to enable a supply response to tariff changes rather than continued reliance on raw commodity exports

5. Improve effective market access beyond tariffs, recognising that regulatory and commercial barriers constrain expansion in sectors with the largest nominal tariff gains

You can download the full research paper here. 

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The evolution of the SA-China trade corridor remains one of South Africa’s most vital economic narratives. However, research only tells half the story. To ensure our coverage remains relevant and impactful, we want to hear from the exporters, importers, and strategists within our network. What are the success stories that aren’t being told, and what are the systemic challenges keeping you up at night? 
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