Pros and cons of Sino-Zim trade relations

posing unfair competition for locally manufactured goods.
Most of these goods, which include clothes, electrical equipment and furniture, are being imported from across the world including China.

However, according to a report by the Zimbabwe Economic Policy Analysis and Research Unit, the current situation is not necessarily a bad thing as it presents a number of opportunities and challenges for the Zimbabwean economy.
According to Zeparu, in order to create a favourable trade relationship with China there is need for relevant stakeholders to implement measures that curb the trade imbalance.

According to the report titled “The Growing Sino-Indo-Africa Trade and Investment Relations: Prospects and Challenges for Zimbabwe”, the major opportunities on trade relations with China lie largely on cheap imports and hence affordability, especially by industry and the general populace.
“Generally, some Chinese imports can be 75 percent cheaper than equivalent imports from traditional sources of Europe, America or from within the region and up to 50 percent cheaper than the locally produced substitutes.

“For a country that has suffered a 54 percent cumulative decline in Gross Domestic Product between 2000 and 2008, declining per capita income and weak purchasing power, this could be an opportunity to improve the livelihoods of the drowning poor,” read the report.
The report also pointed out that moreover, competition from Chinese imports might discourage monopolistic tendencies and profiteering by both traditional trading partners and local producers.

“The cheap imports can also encourage the producers of local goods to be more efficient and pass on the benefits of such efficiency to the consumers.
“The net effect is price stability and reduced inflationary pressures,” added the report.
Furthermore, given that customs duty contributes 14,3 percent to total revenues, growing imports from China can also contribute to higher revenue inflow hence improvement in the Government’s fiscal position and at the same time creating additional fiscal space for growth enhancing capital expenditures and precluding inflationary deficit financing.

However, the issue of quality and safety standards of the inferior goods imported from China has always been a matter of concern as quality is one of the rights of the consumer that should not be infringed upon.
The local industries complain that they cannot compete with cheap products from China and are forced to close down and recent estimation as shown by Zeparu brought to 30 000 the number of directly threatened jobs.
Therefore, it is imperative for the relevant authorities to ensure that there is a ban on these poor products into the country in order to protect the consumer’s right to quality products and services.
As noted by Zeparu the major challenge regarding Zimbabwe’s trade relations with China is that the terms of trade remains in favour of the former, mirroring the trade relationship with Europe and America.

“Zimbabwe remains a producer of raw, low value exports to China and a market for Chinese finished goods,” read the report.
Another risk as indicated by the report is the risk of the emergence of Chinese monopolies in the long term after which they may also embark on collusive and predatory business practices as well as extraction of monopoly rents.
“This is especially the case since the majority of the Chinese enterprises are state-owned or are closely tied to the central government and can be part of the Chinese government’s going global strategy,” noted the report.

Also reliance on cheap Chinese imports may end up crowding out locally produced goods.
Zeparu gave an example of Zambia where the trade unions assert that imports of Chinese clothes have undermined the clothing and electrical sector and in Nigeria trade unions blame Chinese imports for the loss of 350 000 jobs.

“In Zimbabwe, the textile industry is the worst hit sector from cheap Chinese made clothing material flooding the market and the decade long economic decline resulted in falls in industry capacity utilisation and recovery remains sluggish in many industries including the textile industry,” said the report.
Last year, Zimbabwe’s exports to China amounted to US$167 million while imports from China were worth US$228 million, reflecting a negative trade balance of US$61 million.

“There is, however, potential for trade growth following improvements in the macro-economic environment since the formation of the inclusive Government.”
Raw and unprocessed goods have dominated Zimbabwe’s exports to China, with tobacco being the major product.
As highlighted in the report tobacco exports to China rose from US$95,98 million in 2000 to reach a peak of US$160,65 million in 2003 before falling to below US$100 million in 2006 and 2007 and rose to

US$120 million in 2008.
The other major sectors contributing towards Zimbabwe’s exports to China include agriculture, mining and tourism though these have remained in small quantities of less than US$20 million annually.
“Like many African countries the composition of Zimbabwe’s exports to China has been predominantly agriculture and extractive industries products minerals and metals while imports have been dominantly finished

goods ranging from machinery and equipment to vehicles, textiles, clothing and consumer electronics,” read the report.
The report further said that the trade relationship between Zimbabwe and China is analogous to the developing/developed country scenario, which is a major contributor to the paradox of growth in GDP not only in

Zimbabwe but also with many other developing economies.
“Hence, if unchecked, the growing China-Zimbabwe trade relations will produce the same undesirable effect as those of its traditional trading partners of Europe and America.”
Furthermore, unless this is addressed, the role of export-led growth remains limited given the low value exports in raw materials.

Zeparu points out that measures need to be instituted to transform the nature of the current trade partnership towards a strengthening of the backward and forward linkages between the export sectors and the rest of the economy. This will be in line with the economic win-win co-operation intended in the Development Co-operation Framework Agreement.

“Increase in Chinese imports need to be viewed with caution as they may result in factory closures and the inevitable job and income losses in the country as industries across the whole economy find it unattractive and challenging to compete with cheap Chinese imports.

As found out by the study the local industry is at great risk of being overrun by Chinese products given the antiquated equipment in many local industries, which leaves the country in no position to compete with Chinese imports.

The study concluded that there is need for the country to protect its industry and populace from cheap, low standard goods from China.
“China is exporting quality products to Europe, America among other destinations. The question to ask then is why is Zimbabwe not also getting quality products?”