China’s dragon blows hot and cold in Africa

Kabelo Moshoeshoe sits in the shade of a weather-beaten tarpaulin playing cards with two friends while manning his flimsy street-side market stall.

With few potential customers in sight, there is little danger the game will be disturbed as Mr. Moshoeshoe complains that business is bad because competition in Maseru, the capital of Lesotho, has been rising.

And Mr. Moshoeshoe does not have far to look to study his competitors. All around him are permanent stores, many of which are manned by Chinese and Indian business people selling clothes, groceries and hardware.

Many Basotho complain that an influx of Chinese traders into Lesotho has put additional pressure on local businessmen struggling to turn a profit in an impoverished country with a $2.8-billion (U.S.) economy and a population of 2 million.

It is not the large, state-backed Chinese entities commonly associated with the Asian giant's push into Africa that is fuelling their gripes, but Chinese families who have made their way to the small southern African nation and set up shops everywhere from downtown Maseru to villages nestled in the kingdom's mountainous hinterland.

"Since we are living in the third world we just have to accept it happening in our country," Mr. Moshoeshoe says. "A few of us do worry."

In a nearby clothes store filled with Chinese labels, a Chinese trader smiles and says "too many" when asked how many shops his family has. The phenomenon illustrates the balancing act African states juggle as they seek to engage with the world's second-largest economy.

The Lesotho government is keen to attract Chinese investment as it battles high unemployment and poverty, fully aware of the role China has played providing cheap financing and developing infrastructure across the continent. But the proliferation of Chinese businesses can foster disgruntlement as Chinese traders are seen to take opportunities from the local community.

It is a theme that is likely to garner attention this week as Xi Jinping, China's new president, heads to South Africa for the first BRICS summit to be held in Africa.

Thomas Thabane, Lesotho's prime minister, says his government is holding discussions with Beijing and "working on a new era of economic co-operation."

"Truly speaking, I think it is embarrassing to both sides," Mr. Thabane says. "But the compensation we are looking for is not to kick out a chap who has a shop and so on, but rather to increase the more useful part of our co-operation with China."

His concerns echo broader worries across the continent. African officials have raised concerns about the trade imbalances between the continent and China, as the latter imports raw materials from Africa, while flooding it with cheap manufactured goods.

Lamido Sanusi, Nigeria's central bank governor, wrote in the Financial Times this month that Africa risked "opening itself up to a new form of imperialism," while Jacob Zuma, president of South Africa, the continent's only BRICS member, warned last year that the "trade pattern is unsustainable in the long term."

Yet at the same time, African governments are cognizant of the financial benefits that a solid relationship with Beijing can accrue, particularly as traditional donors in the west face domestic economic problems.

"China is very important to Africa … Europe seems to be having an inward look and paying less attention to Africa," Mr. Thabane says. "I think Europe is making a mistake because they are opening the space for China."

Lesotho is an example of a state that requires foreign investment to boost job creation in the absence of a developed domestic private sector.

The country's biggest private sector employer by far is the textiles industry. The kingdom hosts 38 textile producers, including 21 Taiwanese and two Chinese. It has been stimulated by the African Growth and Opportunities Act (AGOA), a U.S. trade agreement that allows African countries to export goods to the U.S. tariff-free.

In the Lesotho Precious Garments factory, a Chinese supervisor uses Sotho to urge women packing navy blue "Greg Norman" polo shirts to speed up, after switching from his native language when speaking to a colleague through a walkie-talkie. Chien Fu-Chin, the Taiwanese general manager, says the factory employs 140 Chinese among its 4,000-strong work force.

Yet, in spite of Lesotho hosting the textile industry for more than a decade, there are no Basotho factory owners in the sector. And with concerns that AGOA might not be renewed after 2015 as African-based textile producers face heated competition from Asian producers such as Vietnam and Bangladesh, questions remain about the long-term sustainability of the industry in the kingdom.

Thus the government is looking to China in the hope of luring new investment in manufacturing. "It's more a reflection of the aggressiveness of Chinese business into this part of the world and the withdrawal of European companies," says Joshua Setipa, chief executive of the Lesotho National Development Corporation.