Venturing capitalists

PUBLISHED : Sunday, 05 February, 2012, 12:00am
UPDATED : Sunday, 05 February, 2012, 12:00am


'Business is good in Dubai,' says Fei Zhen Xu, in the back of her Porsche Cayenne, as it roars through the streets of the emirate, weaving around the bases of skyscrapers. The vehicle, driven by an Indian chauffeur, is heading to Fei's place of work, DragonMart, a market three times the size of London's Wembley Stadium and in which she has a shoe store, a handbag shop and a restaurant in one of the venue's busiest corridors.

DragonMart, whose silhouette resembles that of a reptile when seen from above, is the first and biggest wholesale bazaar of its kind in the world, housing 4,000 Chinese-owned businesses that sell Made in China products to the region and beyond. From textiles, jade figurines and synthetic grass, to reproductions of the Koran, furniture and household appliances, all the products on sale here come directly from mainland factories. At the entrance stands a keen-looking dragon embracing a golden Earth. Adjoining the premises, China's Cosco, the world's second-largest shipping company, has 40,000 square metres of space in which to organise its logistics operations.

'Dubai is a great place for business,' Fei says. 'It's easy to get a visa and you pay little tax.'

The trader, whose husband remains in Wenzhou, Zhejiang province, supervising the family's factories, has lived on her own in the Arab emirate since investing here in 2004.

'I arrive at work at 8am and I finish late at night. I don't have any days off. The reason? I find making money fascinating,' she says.

Thanks to businesses such as Fei's, Dubai has become, for traders across the Arab world and Africa, the new Yiwu, the established distribution hub in Zhejiang.

'Iranians, Africans, Iraqis, Arabs ... they all now buy their goods here instead of flying to [China]. It's more convenient in terms of logistics and language,' says Abdulla Lootah, the brains behind DragonMart.

The success of this Dubai state-owned company, which welcomes no less than 200,000 traders a year, is the reason it is being replicated in other parts of the world: Laos, Vietnam, Saudi Arabia and India have already opened similar markets while Iraq, Russia and Jordan are planning projects of their own. Bangkok and Cancun, Mexico, which plans a market that will be more than five times the size of the one in Dubai, will open Made-in-China bazaars this year, according to press reports.

The decrease in customs duties after China's World Trade Organisation (WTO) accession a decade ago, global demand for cheap goods and the enterprising spirit of the Chinese entrepreneur have all helped pave a Silk Road for the 21st century.

The mainland's trade with the rest of the world has jumped more than sixfold, from US$510 billion to US$2.97 trillion, in the decade since it joined the WTO. As the country surpassed Germany as the world's leading exporter, it took its toll on labour-reliant competitors across the planet. This has fuelled tensions among Beijing's trading partners, who accuse China of giving covert subsidies, dumping practices and intellectual property rights violations, among other things. According to the WTO's website, Beijing has faced 23 formal complaints and 594 anti-dumping investigations since its accession.

'China's accession to the WTO has benefited China more than the rest of the world,' says Professor Xu Bin of the China Europe International Business School (Ceibs), in Shanghai. 'The acquisition of 'most favoured nation' status along with the comparative advantage of cheap labour, has had maximum effect.'

The mainland, however, has not been the only beneficiary of its accession: in places such as Africa, poor populations have been able to acquire products that, if they had been made anywhere other than in China, would have been too expensive for them.

China became Africa's primary trading partner last year, with exchanges reaching a value of about US$150 billion, says Liu Guijin, Beijing's special envoy to Africa, in the capital.

In terms of global trade, the future looks even more promising for China, for two main reasons. First, it is believed by scientists that a sea route through the Arctic will be usable in less than a decade, hav- ing been forged by global warning. During the summer months, that would allow Chinese vessels to save one week, or 6,000 kilometres, on a journey to northern Europe while avoiding the busy Malacca Strait and the expense of passing through the Suez Canal. Second, and most importantly, Made in China products are climbing up the value chain while remaining competitively priced. The country is slowly but resolutely moving away from shoes and toy exports, to those of cars, satellites and high-speed trains.

As Beijing pushes its wares into global markets, it can count on the assistance of an army of China-born entrepreneurs, some of whom have been embedded in far-flung corners of the world for decades.

In Maracay, some 110 kilometres west of Caracas, Venezuela's capital, the downtown area is packed with customers rushing in and out of Chinese-owned stores selling textiles, electronics, all sorts of ironmongery and domestic appliances. Most of the shops can be identified - in both Chinese and Spanish - by their owner's name: Fung. There's little sign of local competition. All goods here come from the mainland.

Fung Ximao, from Enping, Guangdong province, was the first of his clan to set foot in the city.

'It was 1947. It took me a whole week to fly over the Pacific, from Hong Kong to Manila and Honolulu, and, from there, to San Francisco, Managua and Caracas. Back then, Venezuela had a population of 3.5 million - today it has 28 million.

'It was the land of opportunity,' says the 82-year-old, in his office, watched over by photographs of him with two Venezuelan presidents. He spent the first years working and sleeping in a small coffee shop before making his fortune from the merchandise he imported from the 'factory of the world'.

'I borrowed money from a friend and opened a store. After a while, I became a wholesaler. I was importing 100 containers per year, as there was no competition. Later on, I diversified my business.'

Like many of his compatriots around the globe, Fung became rich by harnessing a business mentality to Made in China goods and nurturing contacts both in his homeland and his adopted country.

'I've lent a lot of money throughout the years to fellow Chinese who, like me, wanted to kick start a business,' Fung says. 'They have always paid it back. Someone's word is more than enough. In China, your word is like a document,' he says, in fluent Spanish that only occasionally betrays his Cantonese roots.

Chinese entrepreneurs have tried their luck in markets so far-flung that Westerners have never considered exploring them - or, if they have, have failed.

Logistical headaches, corruption and a lack of personal safety have been but obstacles to overcome for men such as Zhang Qi, a Ningbo-born businessman who arrived in the Democratic Republic of Congo in 1986, to manage the production of pots and kitchenware in the African nation for an uncle. Five years later, amid political and social turmoil, Zhang seized an opportunity that put him on the path to success.

In the summer of 1991, a military rebellion ended in a period of extreme violence, anarchy and lawlessness across the country, in which stores were looted and foreigners attacked, robbed and raped.

'I borrowed US$250,000 from a Chinese friend and bought 52 containers. Fifty of them carried three million pairs of shoes, and the other two were clothes and textiles. Everything came from China,' he recalls, over coffee in Kinshasa, Congo's capital.

With shortages of supplies in the market, Zhang started to purchase merchandise directly from factories in Guangdong and arranged his own logistics. A year later he was importing more than a 100 containers per year and had set up a chain of retail stores around the country in partnership with Indian, Lebanese and Portuguese businessmen.

'On top of the retail businesses, I became the main supplier of goods for others. Some factories in China were even producing only for me. Many other Chinese who were residents in DRC soon started to flood the market with Chinese-made products, but I reacted by bringing in other goods with bigger margins,' he says.

Zhang adapted to the hostile environment - successive wars since the 1990s have killed four million people and left swathes of the country and its infrastructure in ruins - and built a huge empire.

'I import 2,000 kinds of product, mostly from China, and my distribution network reaches every corner of the country. I am also involved in other industries - from mining and energy to timber and real estate,' he says.

Zhang's compatriots continue to land in Africa and other places to improve their lives with the help of China's manufactured goods. Many of them face violence, xenophobia and crime, as hard-working and successful Chinese communities are often an easy target for criminals. The threats are particularly acute in Venezuela, where, estimates suggest, there's a Chinese community of about 180,000.

Alfonso Fang, general secretary of the Chinese Association in Caracas, says there are about 10,000 Chinese businesses and companies in the South American nation, mostly related to the Made in China trade or restaurants.

'The Chinese still face much prejudice,' Fang says. 'Because of the assaults, many have gone back home or are thinking of doing so.'

During President Hugo Chavez's 12-year rule, crime has rocketed, with homicides having increased nearly fourfold, from 4,550 in 1999 to more than 16,000 in 2009. Of the 123,091 homicides registered from 1998 to 2009, 100,045 have gone unpunished, according to the Venezuelan Observatory of Violence NGO.

'All foreign businessmen are targeted, but the Chinese are the most exposed. That's because of the solidarity they show as a community, their ability to raise money easily and the perception that they agree to pay to be freed by their captors,' says sociologist Roberto Briceno-Leon, in Caracas.

Many Chinese, though, prefer to stay put in the face of trouble. In the Mozambique capital, Maputo, for instance, a young Chinese couple who own a small store say they've been robbed twice in the past three months. Although they've only recently started to prosper, they've risked their lives at least twice.

'Last night two policemen were shot dead just in front of our shop. A few weeks ago, three men robbed us at gunpoint. I was shot at by one of them but he missed,' says one of the storekeepers, whose family name is Zhang. He is showing us the robbery as recorded by the store's security cameras. 'When we called the police, they asked for petrol money to agree to come over. We'll have to protect ourselves, but we're not going back to China yet. We have to stay here to earn money. Here we can make money easier than in China,' says Zhang, who stocks various Chinese-made goods.

These days, not all Made in China products are of the cheap variety. A new wave of products is entering Venezuela, for example, through deals sealed in Miraflores Palace, the Chavez government's headquarters. At least US$10 billion of the US$32 billion in loans granted by Beijing to the South American regime was intended for the purchase of high-value Chinese goods. Venezuela bought the first Chinese-made telecommunications satellite, named Simon Bolivar after the early 19th century independence hero, and launched it in 2008. A second Simon Bolivar will be put into orbit in the autumn, according to official announcements. China-made vehicles, weaponry, heavy machinery and high-speed trains are also on Chavez's shopping list.

Chinese companies already compete in 'medium' technology (machinery, vehicles and electronics) sectors around the world and they are moving in on the cutting-edge industries: planes, high-speed trains, satellites, green energies and pharmaceuticals.

'Our priority for the next five years is innovation,' said Zheng Zhihai, vice-chairman of the China Society for WTO Studies, last year in Beijing. 'We want to reduce our dependence on cheap and basic exports. That will slow down growth but will allow us to emphasise the quality of what we sell.'

Zheng's comments are a far cry from the global image of China forged during the Great Leap Forward (1958-61), when, in trying to meet onerous export commitments at a time when a staggering number of citizens were starving to death, the country earned a reputation for producing the shoddiest of goods.

Spending on research and development grew an average 18 per cent a year from 1995 to 2006, making China a major investor in innovation, second only to the United States. Chinese state-owned companies plan to construct high-speed railway lines and sell trains to run on them to Argentina and Turkey. Another is finishing construction of a US$200 million power plant in Dushanbe, the capital of Tajikistan, while in Latin America, mainland pharmaceutical companies are giving European and American drug producers a run for their money. In 2009, Mexico bought 10 million doses of swine flu vaccine from China for 40 per cent less than they would have had to pay a Western competitor.

In Cuba, which has been under a trade embargo imposed by Washington for more than 50 years, China has been the major player in the latest 'revolution': the island's motorisation - as it has been dubbed by locals. China is now the top supplier of vehicles, with about 3,000 Yutong buses and a similar number of Geely cars having taken to the streets of Havana, alongside old Soviet-made Ladas and the Chevrolet, Cadillac and Buick classics that are symbols of the country.

'These vehicles have simply changed the logistics in Cuba, mainly in places like Havana, where a few years ago, buses were rare and were always packed with people. It's a big revolution,' says a foreigner who has resided in the capital for years.

However, concerns remain about Made in China products among global consumers, who often complain about poor quality and inadequate after-sales service, and last summer's train crash in Wenzhou - which left 40 people dead - may well have derailed the government's high-speed-rail ambitions. Nonetheless, Beijing is determined to con- nect the mainland with Central and Southeast Asia and Russia, says Wang Mengshu, one of the nation's most respected railway consultants. Such a network would give China access to natural resources and new markets for Made in China products. Ultimately, the infrastructure will allow goods to reach European markets more speedily, too.

'[This] year, I think we will face severe challenges in our exports and imports,' Wang Shouwen, director of foreign trade at the Ministry of Commerce, was recently quoted as saying, referring to the financial crisis in Europe and the US. Beijing, though, has a plan B: target the emerging markets.

'We've noted that there are currently some developing and emerging economies that are doing relatively well, with sound economic performance, so we will attach more importance to these markets,' Wang said.

Meanwhile, the Feis, Fungs and Zhangs of this world will surely help to keep the Made in China brand on store shelves in the farthest-flung corners of the planet.

Juan Pablo Cardenal and Heriberto Araujo are the authors of La Silenciosa Conquista China ('China's silent conquest'), English and Chinese versions of which are being prepared for a summer release.