City's Africa success story has been a long time in the making

As China reinforces its trade and other economic ties with Africa, and as political trust continues to grow between the two, intangible changes are taking place. An increasing number of Africans now see China as a land of promise and fortune, a consensus that holds particularly strong sway in business circles.

The city of Yiwu, in Zhejiang province, has become the bridgehead of China-Africa trade, more than 50,000 Africans traveling there to do business every year.

Each year 50 million Africans undergo the process of urbanization, and the number of consumer groups in each country is expanding. Africa is a vast market for Yiwu. There are 360 African-related trade bodies in the city, and more than 1,700 African business people have links with them. Products exported from Yiwu's markets to Africa are mainly textiles and daily necessities. The city's light-industry products are especially popular in Africa, and have established a competitive advantage for several reasons.

After decades of development, Yiwu has a complete manufacturing industry chain through which local manufacturers can get the basic support for raw materials, equipment, finance and logistics, greatly reducing production costs, and optimizing the industrial layout and allocation of resources for light-industrial production in the city.

Yiwu brings together thousands of local small and medium-sized enterprises, and price competition among them is fierce, which further reduces prices. African businesses can choose according to their own needs among a variety of prices, and then ship them back to Africa using Yiwu's logistics and maritime services. This also greatly improves price transparency and impartiality in the Yiwu market.

Consequently there are huge cost advantages for Chinese products coming onto the African market. As many African countries have yet to establish their own light-industrial production system, most of their light-industrial products need to be imported from Asia, Europe and the United States. This means high import tariffs, which are passed on to consumers in Africa. The relationship between supply and demand is unfair.

The domestic price of Chinese light-industry products is usually one seventh of that of similar products in Africa, such as combs, slippers, utensils, mosquito coils and small household appliances. Bar freight, customs duties and other costs, the Sino-African trade still has larger profit margins, this being the main reason why African business people have explored the Yiwu market in recent years.

It is worth noting that Yiwu's products had a big cost advantage even in the 1980s but were unable to gain a foothold in Africa. So why did Yiwu's goods flood into the continent in the late 1990s? The competitive advantage of Yiwu's industrial clusters in the distribution sector must be taken into account.

Inside traditional Chinese industrial clusters, there was a professional commodities market, a physical market, where a cluster of small and medium-sized manufacturers and traders from outside gathered. But the mode was put on hold until the 1990s, when Yiwu business people gradually restored this network mode.

The local government further promoted it in Yiwu with a stable product distribution system. Yiwu's coastal geography combined with its efficient distribution system and price advantage eventually attracted the attention of business people from Africa and the Middle East.

So the popularity of Yiwu's light-industrial products in Africa can be regarded as the international extension of the professional market system. Many Chinese business people with traditional network sales experience go to Africa, taking advantage of the local market sales.

The Yiwu professional market itself is continuously improving its degree of internationalization, attracting many African business people.

With many Chinese business people travelling to Africa, African business people traveling to China are a force to be reckoned with. In the early years these people were mainly active in the Canton Fair, but in recent years many have gone straight to Yiwu looking for opportunities.

More than 40 percent of Yiwu's manufacturing enterprises now focus on trade with Africa. And more offices related to Africa are being set up. There was just one in 2000, but 32 were set up in 2011 alone. This shows that more African traders are focusing on the long-term stable trade with China.

African society in Yiwu is also opening up, and African business people in the city enjoy the same treatment as Chinese citizens. The improving social services and living conditions in Yiwu have also helped attract more Africans. Yiwu has a passenger and freight railway system to reach most Chinese hub cities and many international airlines. Africans set up offices in Yiwu, and Yiwu-Africa trade links continue to be simplified, thereby narrowing the distance between Yiwu and African markets.

The author is professor of economics and vice-president of Chengdu University, who specializes in China-Africa trade and investment. The views do not necessarily reflect those of China Daily.

(China Daily 01/25/2013 page7)