Institute of Development Studies

Where Western business sees ‘risk’, Chinese entrepreneurs see opportunity

22 May 2009

Chinese entrepreneurs in Africa have an agenda of their own, the pursuit of new market and business opportunities. A pioneering study led by Dr Jing Gu, from the Institute of Development Studies, is exploring the motivations behind the huge upswell of private Chinese investment in sub-Saharan Africa.

Great controversy surrounds Chinese economic activity in Africa because some believe it is centrally organised by the Chinese government to increase its strategic power. But until now the role of Chinese entrepreneurs in small and medium enterprises has been overlooked. The scale of Dr Gu’s research is unprecedented. She and her China based team from the China-Africa Business Council (CABC) and the Chinese Academy of Social Sciences (CASS) have had direct access to private Chinese companies working in Africa, including 100 in-depth interviews with Chinese firms and business associations and officials in both China and Africa. While in absolute terms only four per cent went to Africa in 2006 – compared with 26 per cent to Latin America and 64 per cent to Asia – this is increasing exponentially.

There are now more than 300 Chinese companies operating in Ghana alone and probably at least 2000 in the continent as a whole. Investments are being made in all kinds of sectors in Africa. Chinese firms are springing up all over Africa, working across industries such as textiles, furniture manufacturing, food processing, footwear, fishing, pharmaceuticals, farming and service industries.

‘The biggest motivations for Chinese entrepreneurs to invest in Africa are accessing the local markets, transferring excess capacity from the highly competitive Chinese markets and taking advantage of conditions in Africa – which resemble the Chinese market of the 1980s and 1990s,’ says Dr Jing Gu. ‘It is the similarity of these two types of markets that gives the Chinese private entrepreneur a competitive advantage over his European and American competitors. He is willing to take a long view and endure tough contemporary conditions and relatively low returns in order to be able to entrench himself locally for the long term.’

Chinese entrepreneurs are also willing to accept low profit margins because they see the potential for future growth. As the Chinese saying goes ‘Despite the strong wind and wild waves, the deep water still has fish to be found.’ This activity takes place independently of the Chinese government’s strategy to use Chinese state companies and public capital to develop extractive industries and offer attendant infrastructure to African counties.

The majority of the private firms come from just a few Chinese provinces and coastal regions: primarily Zhejiang, Guangdong, Fujian, Jiangsu and Shandong. Zhejiang ranks first in investment to Africa. However here are many more firms that have not registered their investments. This is precisely a mark of the extent to which this private investment activity is not even closely monitored by the Chinese government (although it conforms to its general “going out” strategy which is to encourage the outflow of Chinese private investment), never mind being itself subordinated to form part of some general Chinese state strategic plan.

The serious policy challenges which Chinese private enterprise poses are directed to the Africans themselves. Gu speaks of ‘the high social and environmental cost’ of high economic growth in China and warns of the dangers of similar patterns in Africa. She warns of the tendency of Chinese firms to network with one another for supplies and the difficulties of integrating with local suppliers and labour because of issues of quality and cost.

African governments approach the problems of interaction with quite strict labour quota laws enforced through immigration controls, but there is also a need to build connections of Chinese private enterprise with African civil society, unions, local governments and chambers of commerce. Chinese embassies and Chambers of commerce are themselves often working at this level to ensure the development of good relations between African communities and Chinese business communities that are in Africa to stay.

Image:  Researchers with a Chinese entrepreneur and their African colleagues

 

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