Issue #157, 1st November 2012
In the last five years, more than 6,000 Chinese shops have popped up in every dorp of South Africa, effectively forming the country’s biggest-ever chain store. And, say retail experts, it amounts to a largely unlawful enterprise that threatens to destroy local commerce and cost the taxman billions.
Suddenly there’s a Chinese shop (maybe three) in every suburb, village and town in South Africa. Every single one. Noseweek has checked. In a matter of five years, no matter how small the dorp, there it is, generally signposted simply as “China Shop” or “R5 Shop”, sometimes endearingly called something like The Happy Store. Very occasionally just a door in a wall, heralded only by that tell-tale display of brightly coloured dresses on the pavement.
In some larger towns there are up to 10 of them; across South Africa anything between 6,000 and 12,000 “China” shops, each selling cheap imported Chinese goods and bravely manned by a very young couple, of humble origin, so fresh from China that they scarcely speak ten words of English.
Visualise it: 12,000 couples equals 24,000 young, start-up Chinese shopkeepers who have managed to enter, settle and work in South Africa, most of them in 2006. That’s 240 Boeing-loads of would-be Chinese shopkeepers. Add to those, the hundreds of new internet cafe and Chinese restaurant operators in evidence, and then you ask yourself: How did they manage to get into the country and get residence and work permits – or continue operating for years without them – when immigrants from other countries with superior skills are famously refused residence and work permits?
It all happened, virtually unremarked-upon, in just five or six years. In that time growth in imports – much of it illegal – from China have rocketed.
Exports of clothing from China to South Africa have risen from R4 billion in 2005, when the shopkeeper migration got under way, to R8.5bn in 2006, and to R11.3bn in 2010. The growth in trade is matched only by the increase in fraud associated with it. As our graph illustrates, while the Chinese government in 2010 recorded R11.3bn in clothing exports to SA, SARS recorded only R6.7bn-worth entering through SA customs. The missing balance was either under-valued (“under invoiced”) or smuggled past customs to avoid the 45% duty payable on clothing.
Besides the loss to SARS, it also gave the importer an unlawful competetive advantage.
Their low prices and the vast variety of fun “junk” crammed on the shelves of these myriad stores are aimed to make customers smile. Unlike the shops set up by Somali immigrants, the Chinese shops appear to have elicited little hostility from their host communities.
Most South Africans, perhaps ignorant of the scale of the phenomenon, appear to have accepted them as just the umpteenth bunch of brave, eager immigrants to reach our shores who will further enrich our multicultural, multi-ethnic society.
But researchers have found that the phenomenon is not nearly as benign as it looks. To quote a recent confidential report prepared by Stellenbosch research company, Econex: “The conspicuous growth of the community of foreign, mostly Chinese, traders operating in South Africa in an unregulated fashion would seem to indicate an absence of concerted efforts by government to address the issue. They have the guise of formal traders, renting premises in the formal business areas of towns and cities, while deliberately avoiding tax and business registration, as well as the requirements contained in labour legislation. They cannot be romanticised as informal traders simply trying to make a living; they entered the country with the explicit intention of operating under the radar of domestic law. Effectively, they are criminals who cannot even plead ignorance of the law.”
Says Professor Colin McCarthy, retired professor of economics at Stellenbosch University and former chairman of the International Trade Commission of South Africa: “I am not a conspiracist. All the empirical evidence indicates that the project to set up such an extensive network of Chinese shops, all following the same pattern and targeting the same market-segment, was well researched, well planned, well organised, and well financed. It effectively now constitutes the biggest retail chain in South Africa – bigger than Pick n Pay, Pep Stores, Woolworths, Edgars, Mr Price – any you can name.
“And there we were, wasting our time worrying about Walmart! In simple terms, this growing activity forms part of the criminal economy.”
So, how did this burgeoning of Chinese shops come about? Who made it possible? Who planned it? Who has financed it? And why has the South African government gone soft on Chinese immigration – or, rather, turned a blind eye to the mass of illegal immigrants from China who have quietly settled in as if nothing was the matter? This, in the context of South Africa’s concerted efforts to force hundreds of thousands of well-adapted refugees from neighbouring countries to return to their countries of origin.
And what of the mass of non-essential imports flooding the South African market and those of neighbouring states, at the expense of local manufacturers, wholesalers, retailers and our own unemployed workers?
“Government’s current industrial policy supposedly regards the textile, clothing and footwear manufacturers as a specific cluster worthy of support, but the conspicuous growth of the community of foreign traders – most, of Chinese origin – operating in South Africa would seem to indicate the absence of coordinated government action (or success) in addressing the problem,” is the conclusion drawn by the authors of the Econex report.
“It’s not the Chinese who are the problem, it’s a law-enforcement problem. We either don’t have the policing capacity or the political will to enforce the law,” said another researcher in the field who asked not to be identified.
“The governing party – for some mysterious reason – feels the need to go softly-softly when it comes to China,” the researcher added.
The impact of the unchecked growth of the black-market economy is huge. The government has lost vast sums in tax revenue due to under-invoiced and undeclared imports, and the non-payment of VAT and various labour-related levies. (It is estimated that SARS last year lost more than R2bn in customs revenue as a result of under-invoiced or undeclared clothing imports from China.)
Imports that are cheaper due to non-payment of tariffs and China’s manipulation of currency exchange rates – China’s currency is deliberately undervalued by 30%, effectively ensuring that all goods exported from China come at a 30% discount – make it impossible for local manufacturers to compete. As they shrink and go out of business, local job opportunities are lost. In addition, the Econex survey found that the unregulated Chinese shops invariably pay their few local employees significantly less than the minimum wage.
Also, some tariff protection on cheap imports was removed soon after 1994 – as the local clothing industry knows only too well. China badly needs South Africa’s raw materials such as iron ore, coal and chrome, so, many believe, South Africa made unnecessary concessions in its trade and tariff negotiations with China.
Why? The negative impact of Chinese immigration and trade is not unique to South Africa. Only the reaction to it here has been different. In several African countries, there is popular resentment of it, mostly directed at Chinese small traders.
Zambia’s presidential election last year was won by Michael Sata, riding on anti-Chinese rhetoric, which resonated with many Zambians claiming Zambia was becoming a “dumping ground” for Chinese traders.
And in Malawi, the government passed a law in July which resulted in Chinese retailers being evicted from small towns and rural areas and restricted to the country’s four city centres. The move has been branded as xenophobic by civil rights groups.
Curiously, the Chinese Ambassador to Malawi, Pan Hejun, raised eyebrows when he said China did not support the small Chinese vendors. “They are capitalising on government’s failure to screen foreign traders,” he told a press briefing on July 23.
This seems at odds with China’s desire to create new markets for its manufacturers. Perhaps when Chinese small traders were first recruited to set up in African countries, no-one had anticipated the xenophobic attacks on Somali traders who had set up spaza shops in SA’s black townships.
They had clearly learned from that precedent when it came to setting up small traders in South Africa. Here none have gone into competition with township spaza shops or with pavement and bus-terminus stall operators. Instead, all the evidence suggests they followed in the footsteps of Pep Stores, invariably setting up shop within 150 metres of a Pep Store in former white town centres or on the fringes of typically coloured residential areas – where they were least likely to antagonise local, usually black, informal traders, while enjoying maximum exposure to their lower-income target market.
Africa attracts the poorest and least- educated of the Chinese migrants. Amongst the interviewees in a study of Chinese traders in Southern Africa by the Brenthurst Foundation, Africa was rated the least desirable choice of location and for most, not their end destination – after Canada, Australia, London or the US. The only reason Chinese traders are here is because of unemployment, stiff competition at home and the prospect of saving enough to one day own their own businesses. Most hope to return home eventually.
Nine out of 10 of the new Chinese immigrants in South Africa are from the Fujian province in south-eastern China, according to a Chinese-speaking researcher who travelled from Joburg to North West, to the Botswana border, Limpopo, Free State, Karoo, Transkei and to Eastern Cape interviewing Chinese shopkeepers. Noseweek’s own research across the Southern and Western Cape confirms this.
In China, Fujian is known as a place from which people migrate, says Isabella Fang, a trader in Sea Point, Cape Town. Mr Bu, a Fujian trader who has lived in South Africa for 22 years, says the reason people migrate from Fujian is “it is very poor with too many people who cannot all find work”.
“Fujianese people often make a lot of trouble… and when it comes, they use the natural way to fix the problem,” says one Chinese trader, confirming that she meant “money”. However, she hailed from another province in China.
According to the Brenthurst study, “Fujian has been extremely successful in facilitating migration to Africa, both legally and illegally. But Fujianese traders are often viewed in a negative light by other Chinese communities. ‘FJ’ traders have a reputation for hard work but also ruthlessness and, in some cases, criminality.”
According to an HSRC “State of the Nation 2005-2006” report by Janet Wilhelm, “…the attitude of South Africa’s original Chinese community (who settled here more than a century ago) towards the new arrivals from mainland Chinese is… at times quite hostile. In this instance, there is a class difference… exacerbated by the negative media coverage, which has focused mainly on the criminal activities of the Chinese triads and, more recently, on job losses that are being blamed on cheap Chinese imports”.
Most of the Chinese migrants since 1994 are believed to be in South Africa illegally. “It is not as if they do not have papers. Many would enter on tourist or student visas then simply stay, forfeiting the deposits they paid at the SA Embassy in Beijing,” says Patrick Chong, chairman of the Chinese Association of South Africa.
South Africa’s Department of Home Affairs was asked how many unclaimed deposits are held at the embassy in Beijing, but did not respond.
As Wilhelm observes: “…it is amazing how so many people can enter a country seemingly unnoticed.”
Many blame the endemic corruption at the Department of Home Affairs.
Wilhelm quotes the SAPS’s Aliens Investigation Unit as saying “many immigrants travel to South Africa via Johannesburg to Mbabane, Maputo and Maseru where they buy false identity documents which they use to enter South Africa by road.
“More often than not, in the case of traders, migration is facilitated with the help of illegal or unlicensed employment agencies or even human smugglers known as ‘snakeheads’.”
The Brenthurst Report relates a case where one family member serves as the pioneer, establishing him/herself as an informal trader in one location before moving upward to become a business owner or wholesaler – in the process, drawing other members of their extended family or hometown to the same location, a phenomenon known as chain migration. (From one pioneer in the ‘Chen’ family, there are today 172 members of the same family scattered across Lesotho doing various types of trading.)
But this is not typical of the recent migration of Chinese shopkeepers. None of those interviewed by Noseweek in their shops in the little Karoo and the South and Western Cape had relatives in South Africa. They did not even know the Chinese couple trading in the next suburb or town; in country towns they appear to lead a lonely life in the shop. All slept in a cubicle in the back of the shop. For company, they all had a TV set in sight of the till, tuned to a mainland Chinese channel. The young Fujianese woman who minds the till in the Chinese shop in Prince Albert told Noseweek she had not left the shop for the past four years and did not know nor had she met any other Chinese shopkeepers. In broken English she said her husband occasionally travels to collect stock, so he might have met other Chinese traders. Her two small children, left in China in the care of her in-laws, she only ever sees and speaks to on “Chinese Facebook”. She was not prepared to answer any further questions.
Several of the young couples encountered by Noseweek have started a family since their arrival in South Africa and it is common to find a toddler scooting in the aisles while mother minds the till.
A SARS official who spoke off the record, estimated that “40-50%” “of traders are not registered for tax. Most deal in cash to avoid registration. The official recounted a story about a small rural shop that was raided where R1.2m was found under the counter. But she quickly added that not all Chinese traders operate illegally.
It is uncertain how much of what is sold in these shops bypasses customs, or is counterfeit.
Noseweek’s SARS contact says that in the past, containers that arrived at Durban would be inspected by a handful of customs officials who would do a spot-check – an almost impossible task, she said, when you could be talking about 40 containers and 20,000 bags being unloaded at a time. Often the first half of a container would be fine, but the other half that was not checked could contain illegal goods.
SARS recently computerised its system to try to cut out any corrupt officials at the port of entry. The new system works according to a “risk profile”. “With a high profile, your goods will be searched all the time,” she said. If not, they simply pass through because – according to the new system – they would already have been electronically declared in China. The new system is not faultless but, says Noseweek’s source, it’s a “slight improvement”.
The official said containers with counterfeit goods are trucked to Joburg in the middle of the night and offloaded at warehouses run by Nigerians. “The Nigerians are big in this and the Chinese importer does not dirty his hands with this stuff.”
[cid:F62577416B5F405C8FA098C8E85800C9@smiths]After sorting, most of the counterfeits go to African street traders. Chinese traders from small towns arrive in small delivery trucks at the warehouses to pick up stock. “They buy with cash and there are never invoices” said Noseweek’s contact. A new trend is to use local courier companies because they are not inspected or searched, the official added.
Last year R10bn in counterfeit goods was seized by police at Durban harbour.
Police spokesman Colonel Vincent Mdunge was quoted as saying in an IOL report in January that, besides the Chinese traders, several ostensibly reputable stores are also being investigated for selling these illegal goods.
The IOL report said the goods seized included “perfume valued at R1,05 billion; cigarettes worth R8m; R8m worth of Lion matches; R2,8m worth of branded clothing; R1,5 worth of toys; clothes worth R300,000; CDs and DVDs to the value of R156,500; toothbrushes worth R7,3m; wallets and bags to the value of R264,000; shoes valued at R3m; cellphones worth R2,5m; accessories to the value of R2,2m; Doom coils worth R40,960; light bulbs worth R279,650; bags worth R200,000; electronics to the value of R129,900 – and R700,000 worth of rugby jerseys.” (Which makes one wonder: is there any perfume on sale in South Africa that isn’t counterfeit? – Ed.)
“The clearing agents are the poison” said Noseweek’s SARS contact.
Recorded Chinese apparel exports to SA versus recorded SA apparel imports from China, in rands (ZAR). The bars show undeclared imports.
The Brenthurst study quotes one clothing trader in Joburg as saying customs was so corrupt that everyone had to participate in the game in order to compete.
And then there are the police. Wilhelm quotes Peter Sapire, a lawyer: “Small stall owners at China City [Ellis Park, Joburg] say police wait to be paid off in the streets outside the centre on Sundays when Chinese shop owners from small towns come in for supplies.
“Chinese people never want any trouble,” says Shwu Ing Liou, an ex-ship’s captain turned businessman and “father” of the three China Towns in Cape Town (in Ottery, Sable Square and Parow). “The government tells us: don’t make trouble, sort it out. Even if you have to pay a little money, you finish it.”
Chinese traders will sacrifice a lot to provide a better future for their children. This will often mean sleeping and eating in their shop.
“In South Africa the unions are too strong, which means labour is too expensive,” says Liou. “In China, people work 24 hours while here, people only work eight hours a day, five days a week. This is why Chinese people can sell cheaper,” he claims.
That’s of course quite apart from the goods probably being counterfeit, with no taxes having been paid – factors he might be forgiven for not having mentioned.
“In South Africa today there is a need for cheap goods,” says Sea Point trader Isabella Fang. She is amazed at how expensive food and everyday items like toilet paper are in a country like South Africa, where the majority live in poverty. She produces a page torn out of a Chinese newspaper advertising supermarket food prices.
“How can ordinary people here afford to buy at local prices?” she asks.
Fang runs an “upmarket” boutique in Sea Point. She imports more-expensive and good-quality stock from China, but says she might be forced to close soon because she cannot cover her expenses.
“People are reluctant to pay more for better-quality Chinese goods” she says. “When people see Chinese goods they do not want to pay much.”
In the course of Noseweek’s interview, only one customer enters her “more-upmarket’’ shop. In contrast, the R5 store across the road bustles with a constant stream of local customers. The woman behind the counter there is reluctant to disclose what their biggest selling items are. I am told by another trader that it’s most likely counterfeit cigarettes.
Three waves and you’re in
There have been three main waves of Chinese migration to South Africa. The earliest influx, in 1870, was from the southern province of Guangdong – mostly Cantonese and Hakka speaking people.
According to the HSRC’s “State of the Nation 2005-2006” report by Janet Wilhelm, “the face of the Chinese community changed” after South Africa forged ties with the Republic of China (Taiwan) in the late 1970s – when there was a second wave of Chinese immigrants from Taiwan.
The children of these original communities went from running shops to becoming doctors, lawyers and accountants, many of whom left South Africa for Canada, Australia and the US.
But, not long after South Africa cut diplomatic ties with Taiwan in 1998, in order to recognise the People’s Republic of China, a third wave of immigrants from mainland China commenced, eventually “swamping” the original communities.
The period between 2003 and 2008 saw the biggest influx, says Patrick Chong, the Chairman of the Chinese Association of South Africa. He estimates that there are at least 300,000 to 400,000 Chinese immigrants in South Africa.
But it’s difficult to pin down a number. According to Wilhelm, there were an estimated 20,000 Chinese people in South Africa in 1994, which climbed to between 100,000 and 200,000 around 2005 – a drop in the ocean compared to the estimated 10-million illegal immigrants living in South Africa.
Home Affairs media spokesperson Ronnie Mamoepa told Noseweek it was not in the department’s mandate to conduct a census. Their mandate was to facilitate legal entry into South Africa’s ports of entry, he said.
The Chinese Embassy did not respond to Noseweek’s request for information but, according to many sources, they do not have the official number of Chinese immigrants either.