African traders feel the pinch as China produces fewer cheap products

By Agencies – Global Times Source:Global Times Published: 2017/9/5 18:53:39

Guangzhou less attractive for African traders as manufacturing upgrade reduces profit margin


As commodity and labor prices have risen in recent years, more and more African traders have chosen to move from China to cheaper countries in Southeast Asia

As Chinese companies expand their African operations, African traders have found it harder to make money importing goods from China

An African trader inspects the products he just purchased in a factory in Guangzhou, South China's Guangdong Province. Photo: CFP



It was another slow day in one of the Tianxiu Building's malls, located on Xiaobei Road in Guangzhou's "Little Africa." Many shops have folded in the past year, and the mall is now in a state of disrepair and looks gloomy. The remaining shops are struggling with high rents, declining profits and a lack of customers. Sid, a trader from Mali, is worried about his business prospects.

When he arrived in Guangzhou, South China's Guangdong Province in 2005, Sid witnessed the heyday of the Tianxiu Building and the neighborhood in which it sits, the largest African enclave in China which has been called a hub of "low-end globalization." Back then, hundreds of African traders from dozens of countries flocked to the malls located on the first few floors of the building every day to purchase everything from garments to key rings, from batteries to mobile phones. They would then ship them back to their homelands for sale.

But that is now distant memory. As commodity and labor prices have surged in China in recent years, the Tianxiu Building has lost its luster among African traders. Business in the building is in sharp decline, and more and more African traders have opted to move to cheaper countries in Southeast Asia.

 



Heyday

Adams Bodomo, professor of African Studies at the University of Vienna, wrote in his 2012 book Africans in China that 96 percent of Africans in Guangzhou back then were engaged in business or trade.

For many Africans, the Tianxiu Building, less than three kilometers from Guangzhou's train station, was their starting point. Completed in 1997, the Tianxiu Building consists of three blocks and is home to several shopping malls, low-budget hotels and hundreds of small trading companies. Just a few years ago, it buzzed with hundreds of traders from dozens of African countries who bargained with their calculators and pushed carts loaded high with goods.

It was a gold mine. Research by Michal Lyons, professor of urban studies at London South Bank University, recorded the account of a Nigerian trader who visited Guangzhou once every two months. On each visit, he would buy 25,000 shirts, ship them back to his hometown and sell them for $1.50 each. Each trip to Guangzhou meant an income of $37,500.

Felly, a 38-year-old trader from Congo who started doing business in Guangzhou in 2004, said he first spent $3,000 on television sets and air conditioners, and sold them back home for more than double what he paid for them. "You can earn $50,000 in a month," he told the Time Finance magazine.

Stories like this attracted more and more Africans and soon the area surrounding the Tianxiu Building became known as "Little Africa." Many African traders to China know the saying that "If you haven't been to Tianxiu, you haven't been to China."

As the population of Africans in Guangzhou grew and as most of them lived in the same district, they soon became a conspicuous presence. Many said they suffered discrimination, and rumors spread among Guangzhou residents, some going as far as alleging that there were 500,000 Africans in Guangzhou who "grab resources and commit crimes."

But actually, Africans are far from the biggest foreign community in Guangzhou. According to Guangzhou's Exit and Entry Administration, by October 2014, among the 118,000 foreigners in Guangzhou, only around 30,000 were from Africa. They are outnumbered by foreigners from other Asian countries and Europe.

Relocation

Recent years, however, have seen the African community in Guangzhou shrink as the growing cost of products cuts into their profits.

"African traders had a very high profit margin more than a decade ago as consumers had no idea about prices in China. Even though they charged high prices, African consumers would accept them. But now consumers can find out the prices on the Internet, so it's hard for them to follow the old path," said Liu Yanmei, director of Guangdong Chamber of Commerce in Kenya.  

Liu has lived in Kenya for more than ten years. According to Liu, in most African countries, consumers prefer cheap products to more expensive good-quality ones.

Due to market preferences, African traders liked to resell low-end non-branded products they purchased in China. But as China is shifting its focus from quantity to quality, the country is trying to produce better products and develop the reputation of its brands.

Traders like Sid now find it's harder to purchase products that used to be their mainstays, especially as the country steps up its efforts to fight copycats. Meanwhile, with soaring labor costs, made-in-China products no longer have the price edge they once had. Sid said making money has become harder and harder in recent years.

A lamp that cost 10 yuan ($1.53) in 2005, for example,  now costs as much as 18 yuan. But its retail price in Africa has largely remained unchanged.

Many of Sid's African friends have now relocated to neighboring Asian countries including Vietnam and India. "The quality of the products in those countries is just acceptable, but the prices there are cheaper than in China," he said.

The trajectory of the traders' migration shows the shifting role of low-end manufacturing. Felly is considering a move to another Asian country. He once did research on Vietnam. There, it only costs 800 to 1000 yuan a month to hire a clothing worker.

According to New Fortune magazine, hourly pay for Chinese workers has generally increased by about 12 percent annually for a few years. In China, factory workers usually make around $27.50 a day, while in Indonesia they only make $8.60 and $6.70 in Vietnam. Therefore, African traders are able to purchase cheaper products there.

Also, the article said another reason for their relocation to Southeast Asian countries is that the visa policies in these countries are more relaxed than they are in China.

In recent years, police in Guangzhou have strengthened their efforts to ensure that all African migrants in Guangzhou are on legitimate visas. 

But it's still hard to tell whether relocation can solve the problems facing African traders. Along with their relocation, Chinese companies are "going out" to explore the African continent, as production costs are very low there. In 2014, China's total overseas investment was greater than the foreign investment into China. Amid this wave, opening factories in Africa has become an appealing option for many Chinese companies.

Ethiopia, Zambia, Kenya and Djibouti are the top investment destinations. More than 100 Chinese companies are now applying to open factories in Kenya, according to Liu.

Kenyan trader Feiyi said that during the best years he was able to send out 3,000 to 4,000 containers to his hometown but from April to June this year, he only dispatched 15 containers of products.

Sid said big Chinese factories have been erected in his hometown, manufacturing products which are no different from what he buys in China. His business is bleak. "The quantity of goods I sell is just about 20 percent of what I sold in 2008 ... I don't know how long I can stay in Guangzhou" he said.

Transformation 

The departure of the African traders has also led to the decline of local businesses. From 2006 to 2010, every container that headed for Africa was fully loaded with goods. But since 2010, Chinese suppliers' business has declined by almost a third.

As business continues to worsen in the Tianxiu Building, some have tried to turn things around. Xie Guoping, head of the Tianxiu Building's property management office, said he has considered helping improve the image of the building by redesigning its interior, raising the quality of the products sold in the building, and even creating a few brands.

But this would, inevitably, mean even higher prices. "It will be even more difficult for the African traders to bear," he said.

Liang Yucheng, professor of social sciences and humanities at Guangzhou's Sun Yat-sen University, said the globalization aspect of the Tianxiu Building will eventually disappear, as it transforms into a normal commercial and residential building.

And as the neighborhood was designated as a school district in 2016, a lot of homeowners who had previously rented out their properties to trading companies have returned. "With its golden location, the price for each square meter in the building may soon rise to 50,000 yuan," Xie said.

And it won't be long before the building itself is swallowed by China's real estate boom.


Newspaper headline: Moving up, moving out


Posted in: IN-DEPTH

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