Uplands of promise beckon for Chinese companies

Updated: 2015-07-27 14:13

By Wu Bin(China Daily USA)

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Since China's reform and opening-up began 35 or so years ago, huge changes have taken place in the way the country's companies are run.

Even more alluring is the fact that by setting up factories in Africa, these companies can get around some of the trade barriers that Chinese domestic products face on the continent and gain easy access to the markets of developed countries.

However, in all of this, Chinese companies will inevitably face risks posed by changing investment policies and market access regulations in various African countries, and not every company will be able to afford the costs that these circumstances place on them.

The biggest advantage of building industrial parks in Africa is a reduction in investment risks and costs, so when Chinese companies go global they tend to go in groups and work together. That is an effective way to expand overseas, especially for private companies.

From individual companies investing and building factories overseas on their own, to national policy supporting the construction of industrial parks to build collective strength, the going global strategy has grown in leaps and bounds.

Chinese industrial parks in Africa are no longer limited to providing services to companies in such parks but are willing to attract secondary manufacturing, with trade developers being located in the parks.

At present these parks fall into two categories: economic and trade cooperation zones set up since 2006, and industrial parks for independently self-funded Chinese companies.

The establishment of industrial parks in Africa will significantly contribute to Africa's industrialization. The World Bank says that China-Africa trade has grown 100 fold since 1990, which has opened the door for Chinese enterprises to take advantage of the African market and labor resources.

In many developing countries, particularly in Africa and Southeast Asia, industrial parks have become a successful instrument in supporting competitiveness and promoting export-oriented industries and broader economic reform. China has become the most successful model in using industrial parks to attract foreign investment.

Since 2007 the Chinese government has helped Chinese companies set up six industrial parks in Egypt, Zambia, Nigeria, Ethiopia and Mauritius. Many African governments and international economic think tanks reckon this innovative mechanism has been highly beneficial.

For instance, the Eastern Industry Zone in Ethiopia helps labor-intensive light industry to achieve industrial agglomeration. We are now in a critical period, one in which the global industry value chain is being rebuilt.

Africa provides an ideal industrial setting in which Chinese industry, especially light industry, can come together. China and African countries should seize this golden opportunity to beat their rivals and occupy the uplands of the global value chain.

For Chinese companies, industrialization and urbanization in Africa have created a rare opportunity to go out. With continuous improvement in productivity and in infrastructure, the opportunities for Chinese companies in Africa can only grow.

The orderly transfer of productive capacity not only promotes economic growth in Africa but also gives Chinese industry space to upgrade and transform itself.

It needs to be stressed that China's industrial parks in Africa are just in their infancy. They need time to develop, localize and blend into the local environment. Production has often been disrupted, mainly because different companies are at different stages of internationalization, and some are seriously hampered as a result of poor production and employment methods.

Chinese companies that wish to build or invest in Africa should do thorough research before taking the plunge, and methodically look at areas in which they could invest.

Before setting up shop in a park they need to plan strategically, and the research they do needs to take account not only of investment opportunities, but business regulations and market information as well.

Such planning will enlighten these companies on African national industrial policy and other macro-economic issues, including exchange rates, fiscal and monetary policy and infrastructure planning.

The author is a senior researcher at the Chinese Academy of International Trade and Economic Cooperation in Beijing. The views do not necessarily reflect those of China Daily.

(China Daily USA 07/27/2015 page16)