China’s march into Africa, unfair trade practices

Chinese companies have increasingly taken over the route by engaging in unfair trading practices.

Last week, a friend who previously operated a successful transport business along the Harare-Beira corridor shared concerns about the state of the sector. He explained that Chinese companies have increasingly taken over the route by engaging in unfair trading practices. 

Specifically, they are entering markets traditionally dominated by local businesses, charging at below cost prices to eliminate competition, later raising prices when local businesses have exited due to uneconomic pricing. 

When I inquired whether he was part of a transport association that could lobby for support, he admitted he was not. This lack of collective organisation appears to have made it easier for foreign players to penetrate and dominate sectors once thriving for local entrepreneurs.

Over the past two decades, Chinese investment and enterprises have become prominent across Africa. Zimbabwe has not been spared. While foreign direct investment (FDI) can bring infrastructure, technology and employment, a troubling pattern has emerged: Chinese companies often engage in unfair trading practices, threatening the survival of African businesses and distorting markets. 

These practices, which include market dumping, tax evasion, resource exploitation and labour issues, undermine economic sovereignty and hinder Africa’s pursuit of sustainable development. This instalment examines specific examples from various African countries, explores the broader implications and underscores the urgent need for policy measures and international cooperation to establish a more equitable trade environment.

The footprint: Opportunities, hurdles

Chinese companies have established a significant presence in mining, construction, agriculture, retail, property and manufacturing across Africa. Countries such as Zambia, Angola, Ethiopia, Nigeria and Zimbabwe have seen Chinese companies dominating, often leveraging state support to gain competitive advantage. However, this dominance has disadvantaged local entrepreneurs and communities. In Zimbabwe, Chinese retailers and wholesalers have been accused of flooding markets with cheap imports, often subsidised by the Chinese government. 

These discounted goods, ranging from electronics to clothing, undercut local producers and traders, leading to the collapse of indigenous businesses. Similarly, in Nigeria, Chinese manufacturers have been accused of dumping cheap textiles, shuttering local textile industries.

Tax evasion, profit repatriation

A significant concern across Africa is that Chinese companies deliberately sidestep tax obligations. The majority are unbanked, meaning proceeds from their operations are not circulating in African economies. It also brings into sharp focus the issue of whether they are FDI investors or all the money they are using to trade are from proceeds of local operations. 

In Zambia’s copper mining sector, Chinese companies have been linked to tax disputes, with allegations of underreporting revenues and profits. Profits generated in Africa are frequently repatriated to China through complex financial arrangements, depriving host governments of vital revenue needed for development projects. This profit transfer weakens the fiscal capacity of governments to fund healthcare, education and infrastructure.

Limited financial flows

Chinese firms tend to operate with minimal engagement with local financial institutions. Instead, they often transfer funds directly from Chinese accounts or through offshore entities, limiting the growth of local banking sectors and reducing the circulation of capital within African economies. For instance, in Ethiopia’s construction sector, allegations are that Chinese companies finance their operations through Chinese banks, by-passing local financial systems.

Exploitation, environmental issues

In resource-rich nations such as Angola and the Democratic Republic of Congo, Chinese companies have been implicated in environmental degradation and resource exploitation that benefits China more than local populations. The same is happening in Zimbabwe. The Great Dyke in Mutorashanga is being flattened as they recklessly mine chrome, whose composition includes other minerals. In Angola, Chinese companies involved in oil extraction have faced criticism for weak environmental standards and inadequate benefit-sharing with local communities.

Labour practices, employment

While Chinese companies create jobs, their preference is to import Chinese workers into Africa and pay low wages, adhering to minimal labour standards. In Zambia’s mining and construction sectors, Chinese companies have been accused of employing mostly Chinese nationals, limiting employment opportunities for local citizens and perpetuating economic inequalities.

Impact on economic landscape

The cumulative effect of these unfair practices is profound and includes but is not restricted to the following:

Market displacement and business closure: Local businesses struggle to compete with subsidised imports and dumping practices, leading to closures and job losses. For example, in Ethiopia, local textile producers have been unable to withstand the influx of Chinese clothing and fabrics, resulting in factory closures and unemployment;

Erosion of economic sovereignty: When foreign companies dominate critical sectors, such as mining, manufacturing and retail, governments find it difficult to regulate or impose policies that favour national interests. In Nigeria, Chinese investments in infrastructure have raised concerns about reliance on external companies and limited local participation;

Loss of revenue and development funding: Tax evasion and profit repatriation deprive governments of essential revenue. In Zimbabwe, disputes over tax payments by Chinese companies have hindered government efforts to fund social programmes;

Environmental and social challenges: Exploitation of natural resources often causes environmental harm and social dislocation, affecting local communities’ livelihoods. Across Zimbabwe, signs of environment degradation are evident. There are allegations of political interference in favour of the Chinese as nothing impactful gets done; and

Allegations of corruption: Throughout Africa, there are allegations that the Chinese bribe all and sundry from the judiciary to anyone who will facilitate them operating above the law.

Some specific examples from Africa

Ethiopia: Chinese construction firms have been instrumental in building major infrastructure, including roads and industrial parks. However, concerns have arisen over low wages for local workers, limited technology transfer and the marginalisation of local contractors; and

South Africa: Chinese retail giants such as Alibaba and local small traders are finding themselves in a harsh competitive landscape, with cheap imports flooding markets. Local manufacturers complain about unfair competition due to dumping practices.

Policy, international action

Tackling these unfair trade practices requires a comprehensive approach:

Strengthening regulatory frameworks: African governments should enforce trade, tax, and environmental laws more robustly. This includes requiring Chinese companies to pay required taxes, adhere to local labour standards and respect environmental regulations;

Supporting local enterprises: Developing sector-specific associations, providing access to affordable finance and fostering innovation can help indigenous businesses compete more effectively. For instance, supporting small-scale artisans and manufacturers can build economic resilience;

Negotiating fair investment agreements: African nations need to craft investment treaties that include enforceable clauses on fair competition, local employment, technology transfer and environmental standards;

Enhancing transparency and accountability: Implementing systems for monitoring compliance and increasing public awareness helps holding foreign companies accountable; and

International cooperation: Regional bodies such as the African Union and international institutions, such as the World Trade Organisation, ought to play roles in mediating disputes, setting standards and promoting fair trade practices.

Overcoming challenges to reform

Despite these measures, obstacles remain prevalent. Power imbalances between African governments and Chinese companies, often backed by the Chinese state, impede enforcement. 

Corruption and weak institutions further complicate efforts. Diplomatic engagement is crucial to balance economic cooperation with the need for fair practices.

Conclusion

Building a more equitable trade environment in Africa: The presence of Chinese companies across Africa offers opportunities for economic growth, but unchecked unfair trading practices threaten to undermine local industries, erode sovereignty and perpetuate inequalities. 

Addressing these challenges requires coordinated policy responses, strengthened regulatory frameworks, and active engagement with international partners. African countries must assert greater control over their economies by protecting local industries where there is economic merit to do so, promote indigenous entrepreneurship and ensure that foreign investments contribute genuinely to sustainable development and in a manner that can be quantified.

In the end, fostering a fair and transparent trade environment is essential for Africa’s long-term prosperity. By implementing proactive measures and holding foreign companies accountable, African nations will create a more balanced and inclusive economic landscape, one where local businesses thrive, natural resources are managed responsibly and development benefits all citizens. 

Ultimately, the challenge is not just to curb unfair practices but to create an equitable, sustainable and mutually beneficial global trading system that respects the rights and development aspirations of all nations, especially those still striving for economic parity.

Ndoro-Mukombachoto is a former academic and banker. She has consulted widely in strategy, entrepreneurship, and private sector development for organisations in Zimbabwe, the sub-region and overseas. As a writer and entrepreneur with interests in property, hospitality and manufacturing, she continues in strategy consulting, also sharing through her podcast 

 

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