Chinese investors target virgin markets: FT SERIES: CHINA GOES SHOPPING

ANDREW CHILD and DAVID WHITE – Financial Times

Published March 15, 2005 – Copyright The Financial Times
FIRST MOVER ADVANTAGE: David White and Andrew Child describe the appeal of fledgling markets to risk-takers
The red Chinese lanterns decking the entrance to Sierra Leone’s biggest hotel are a sign of the times.
At the height of the West African country’s decade of destructive civil war, the state-owned Bintumani Hotel on the outskirts of the capital, Freetown, was occupied and then trashed by rebel soldiers.
After three years of peace, the building, renovated and run by the Beijing Urban Construction Group, now stands as a symbol of a different kind of occupation.
Many of its clients, like its managers, are Chinese – executives beating a path to one of the world’s more remote investment destinations.
The spread of Chinese business influence, visible across West Africa, is all the more conspicuous in Sierra Leone, where other foreign investors are rare.
After pulling out while the fighting was going on, Chinese interests are back with an increased presence.
Apart from fishing and textiles, Chinese companies are involved in a project to start tractor assembly later this year, a contract to revive the country’s only sugar factory and an ambitious Dollars 266m (Euros 205m, Pounds 140m) plan for an ocean-front tourism complex.
“The only ones who are coming and investing at this stage are the Chinese,” notes a United Nations official in Freetown. “Everybody else is staying away.”
In the capital’s ravaged eastern sector, the National Workshop – a former works yard for Sierra Leone’s long defunct railways and more recently a camp for displaced persons – has been transformed into a light manufacturing zone under a joint venture between the two countries.
According to Kadi Sesay, Sierra Leone’s trade and industry minister, all 10 companies that have begun operating there in recent months are Chinese, producing such necessities as spring mattresses, roofing tiles and hair lotions.
Other Chinese companies are booked to come in a few weeks for the inauguration of the zone, she says. One is already planning to produce pharmaceuticals, potentially for export to other countries in the region.
All this goes hand-in-hand with official Chinese aid. A freshly painted road sign in Freetown announces the existence of a Chinese chamber of commerce, but it actually leads to a back gate of the Chinese embassy.
Beijing has been active in supplying equipment and rebuilding and repairing key facilities, including Freetown’s largest edifice, the Youyi building (“Friendship” in Chinese), which houses most ministry offices.
Chinese officials say the backing is in recognition of the country’s diplomatic support for the People’s Republic at the UN, going back more than 30 years.
But the new wave of business investment goes far beyond traditional influence-building. “There’s a wind of change in terms of (China’s) general economic outlook,” says Momodu Koroma, Sierra Leone’s foreign minister, “and they’re looking for opportunities wherever they are.”
Western representatives put forward a variety of possible explanations for this Chinese enthusiasm. Some see a strategy for placing cheap manufactured goods on African markets, pre-empting local producers, and for gaining access to potential offshore oil reserves in a drive to secure worldwide energy sources.
Others believe Chinese companies aim to build a platform for exports to Europe or the US, making use of privileged trade terms. One Freetown-based diplomat suggests the Chinese influx could signal longer-term plans for settlements in Africa, a continent three times the size of China with two thirds of the population.
“It’s almost like China’s new dimension,” Chris Jasabe, head of Sierre Leone’s investment office, says.
The Chinese, he adds, have been “very cunning”, not just at identifying fledgling markets but also at squeezing maximum benefits from getting in first. The authorities are trying to put a stop to special concessions such as duty waivers on imported raw materials, which Chinese businesses have fought hard for.
“The early bird catches the worm,” comments Zhao Zhongqui, China’s economic and commercial counsellor in Freetown. He suggests the confidence shown by Chinese companies reflects a close understanding of the issues in developing economies, based on China’s own recent experience. But it is also evidence of a new risk-taking spirit.
At the Bintumani Hotel Yang Zhao, general manager, puts it simply: “Chinese believe high risk can bring high benefit.” Tomorrow: corporate strategy

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