Could the Coronavirus lead to a change of Africa-China trade patterns?

 In op-ed, personal

A security personnel wearing protective clothing to help stop the spread of a deadly SARS-like virus which originated in the central city of Wuhan is seen at the entrance of subway station in Beijing on January 28, 2020.

Photo Credit: NOEL CELIS / AFP

With the recent Coronavirus, 2019-nCoV outbreak thrusting China into the limelight, the world is gripped by health concerns. However, the impact of the virus on trade, including with African countries, could also have long-term implications, for better or worse.

Yiwu, a little-known city in Zhejiang Province, Eastern China is a home to the world’s biggest market for “small commodities”, or rather, wholesale manufactured items. At over 7 kilometres large and with 70,000 businesses inside, you can find literally everything from kitchen appliances, to hair accessories and Christmas decorations.  Around 300,000 foreigners visit Yiwu each year to purchase cheap but highly desirable goods and send them back to their home countries, the vast majority of these from developing nations, including African countries.

During December 2019, Yiwu reported a staggering 35.761 million USD worth of goods was exported overseas. And because of this bustling export market full of international traders, the city is a multicultural haven within China.

Whilst visiting the market in 2019, I was astounded by not only the variety of goods but also the variety of nationalities, in particular those from developing nations. Although Yiwu is a small city of only 1.2 million people, it was estimated in 2016 that about 80,000 African traders visit each year, and around 3,000 traders from over 50 African countries have settled in the city.

With regards to trade, Yiwu exported 48.21 billion yuan ($7.24 billion) of small manufactured goods to Africa in 2015, a reported 51 percent year-on-year increase. Furthermore, an average 200 containers, filled with hundreds of products such as garments, toys, accessories and electronic devices are sent to the African continent each year.

But currently this gigantic market is empty. No traders can be found pacing the floors trying to get the best deals. Few containers are leaving the nearest port in Ningbo, life is at a stand-still.

This is because Yiwu market, like many other markets across China, is closed due to the recent outbreak out the Coronavirus, 2019-nCoV. And Zhejiang Province, where Yiwu is located, has been particularly badly hit. To date there have been 1117** confirmed cases – the second highest number outside of Hubei, the epicentre of the epidemic, and they are continuing to rise.

But what does this temporary closure mean for the all the foreign traders and their communities back home who rely on the goods from Yiwu?

Firstly, looking at the economic impacts from SARS may provide some clues. A 2004 analysis determined that the SARS crisis cost the world economy a total of about 40 billion USD.  The economic fallout had a ripple effect, slowing manufacturing, trade and tourism, not only in China but across the region and beyond.

There is no doubt the latest Coronavirus is going to have a similar impact on trade and cities such as Yiwu, and the traders who rely on these small manufactured goods for their business will need to be resilient. In the short term, the number of foreign visitors will certainly slow and it is expected that the number of orders will be reduced.

However, the situation may also provide an opportunity for both the foreign traders and the businesses in China to review ‘how best to trade’ and grow their partnerships.

For the traders buying all these small manufactured goods from China, it has created a reliance on markets such as Yiwu, and on a broader level for many countries contributed to large trade deficits with China. Data my consultancy firm Development Reimagined released in mid-2019 showed that 74% of African nations have trade deficits with China.

In order to build a stronger ‘win- win relationship’ and one more resilient to shut-downs in China, there is an opportunity to develop manufacturing capacity in African countries and utilise their lower labour costs. This would mean in the short-term exporting machinery and skills from Yiwu, as opposed to exporting low-cost finished goods.

That said, doing so would means the businesses in Yiwu would need to diversify their niche from being in the “small commodity capital of China” to becoming the leading exporters of machinery and skills for manufactured goods. However, in the long run this will also help Yiwu to become more resilient when unexpected shocks – such as the Coronavirus – occur.

Whilst visiting Yiwu last year, I spoke to many African traders who hoped in the future to shift from exporting the finished goods and to instead help their local communities source machinery, to add value and create jobs back home. I hope that once the Coronavirus has been contained and managed in China and globally, they will have the opportunity to see this vision through.

In the short term, the situation for everyone in China is tough – but I have no doubt the community in Yiwu can work together to weather the storm and together develop a new, stronger and revitalised trade relationship in the future.

By Leah Lynch, Development Reimagined Deputy Director. This article was originally published on The China Africa Project on February 6th 2020

** number correct as of February 11th 2020

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