By+LIU+QINGHAI

IN recent years， growing numbers of Chinese enterprises have initiated investment in Africa. From 2009 to 2012， Chinas direct investment in Africa increased from US$1.44 billion to US $2.52 billion， with an annual growth of 20.5 percent. Over the same period， Chinas cumulative direct investment in Africa rose from US $9.33 billion to US $21.23 billion. Currently， over 2，000 Chinese enterprises are operating in more than 50 African countries and regions， private enterprises accounting for the great majority of them.

Zhejiang Province in eastern China has a booming private economy， its merchants having started exploring global markets centuries ago. My team conducted three surveys from November 2011 to July 2012 on local private businesses. The first examined their investment goals and conditions in Africa. The second targeted Zhejiang wholesalers and retailers in Johannesburg， South Africa. And the third was a corporate social responsibility （CSR） survey on Chinese private enterprises investing in Senegal and Nigeria.

We found that most respondents（92 percent） were keen on investing in Africa. Although the majority of enterprises had not yet done so， they intend to invest in manufacturing （45 percent）， the property market （17 percent） and agriculture （12 percent） among other sectors.

Intention vs. Reality

There is a huge gap between the African industries that Chinese enterprises intend to invest in and those they are actually involved in. It is most remarkable in the catering industry. Although few enterprises originally intended to invest in this sector， it has actually attracted the most Chinese investment. In contrast， most enterprises expressed intentions to invest in agriculture but none have actually done so. In the case of the property market， 17 percent of enterprises intended to invest but only 3 percent did. And similar statistics are true for the manufacturing industry as well as education， finance and entertainment sectors.

This huge gap shows that， to some extent， certain enterprises with investment intentions may find difficulties in adapting to actual conditions in Africa， for various reasons. It also points to the fact that Chinese enterprises still lack reliable information and detailed feasibility analyses concerning investment in Africa.

In terms of profitability， 62 percent of the surveyed enterprises have performed well or very well， and none are operating at a loss， which indicates it is worthwhile and promising to invest in Africa.

With regard to obtaining information on the African market， 39 percent of enterprises said they collect information through browsing websites. At the same time， 16 percent still gather information mainly through exhibitions， seminars and clients. Information is critical to African investment decision-making. However， if enterprises only collect information individually， costs would be enormous， with most enterprises unable to afford it. Thus， it is necessary for relevant authorities to provide information by organizing （or encouraging enterprises to hold） exhibitions and seminars.

All the Chinese companies we surveyed cited government support as important， prioritizing policies， information and financial assistance. The need for professionals with expertise in the African market ranked fourth.

Social Responsibility

The level to which Chinese private enterprises fulfill their CSR in Africa has caught much of the worlds attention. Our CSR survey analyzed 22 Chinese private enterprises investing in Senegal and Nigeria （11 Chinese SOEs in Africa also included in the comparative survey）， as well as 100 Africans from all walks of life. The outcomes are as follows.The average rate of local employees in private enterprises is 85 percent， higher than the 75 percent average among all Chinese enterprises in Africa， and the 55 percent rate for Chinese SOEs. The longer a company stays in Africa and the larger it becomes， the higher its localization rate. The average salary of local employees is not very high， but still higher， or even substantially higher in some cases， than the minimum wage in the host country. Only a handful of companies paid their employees less than the legal minimum wage at first， but provided increases after intervention by local labor authorities. More than half （51 percent） of Africans working for Chinese employers responded citing “good working conditions，” while only 17 percent cited “bad working conditions.”

As for environmental protection， 37 percent of the African respondents thought Chinese enterprises do a good job， while 27 percent believed they dont. As many as 85 percent of Chinese enterprises provide training for local workers. All in all， 89 percent of the Africans thought Chinese firms have made progress in fulfilling their CSR， manifest in how they have begun to recruit more local people and raise wages and employee benefits.

Based on the evaluations by African respondents， Chinese enterprises scored 60.1 points （out of a total of 100） in the fulfillment of CSR， compared to 56.38 points for Western companies. A total of 96 percent of respondents welcome Chinese investment in their countries， and 95 percent deem China a better development partner than Western countries.

Shared Features and Existing Problems

Although Chinese private enterprises differ from one another in many aspects， they have a lot in common overall. They are mostly small and medium-sized companies. Profitability has been good but is decreasing rapidly. The majority of their funds derive from self-finance， largely relying on family networks. Only a few larger companies obtain a certain amount of funds from provincial governments.

Chinese private enterprises are generally adventurous and innovative， some ready to take risks shunned by Western rivals. As one Chinese investor once said， “Dont be afraid of strong winds and huge waves. Big fish can be caught nowhere but in the deep sea.” Accord- ing to the three surveys， Chinese private enterprises investing in Africa still face many problems. These include shortages of capital， information （including knowledge of local languages， cultures and markets） and market research channels. Rising customs-clearance fees， difficulties applying for visas， and public insecurity are also major concerns.

There is fierce competition among Chinese businesses. Take， for example， the woolen blanket business in South Africa： its wholesale profits reached 200 percent in the early years， but later shrunk to RMB 3-4 per blanket due to price wars， destroying the profitability of the entire market.

Policy Implications

Africa has seen accelerated growth in direct investment from China， despite the general decrease in foreign direct investment （FDI） since 2009. The rapid growth of Chinese capital in Africa is indicative of the continents development potential and investment appeal， and also points to the mutually beneficial nature of ChinaAfrica cooperation. This trend is likely to continue to grow in the near future， and its role surely deserves more focused attention.

In analyzing the impact of this trend， one must be mindful that China is still a developing country， and its private sector is a relatively new player in the overseas FDI field. Nevertheless， the survey findings provide strong evidence that Chinese private enterprises in Africa have made a positive impact in many aspects in Africa， especially in creating local jobs， training local workers， diversifying local industries and developing entrepreneurial spirit. There is no evidence of excessive importation of Chinese workers to African countries.

Like any FDI ventures， Chinese private enterprises in Africa have encountered not only new opportunities but also special challenges. How host governments meet such challenges will certainly determine the net impact of foreign investment in their economies. There are important policy implications for African governments and the Chinese government， as well as for the Chinese firms concerned.

Most Chinese private enterprises in Africa are labor-intensive， working with relatively low technology. Laborintensive industries can provide more employment and have a “l(fā)earn by doing” effect. Low technology is easier for less-developed host countries to absorb and adopt. The positive impact of such investment can be traced to the so-called“flying geese” model. Chinas mainland in the 1980s-90s benefited tremendously during its economic takeoff by attracting many assertive， risk-taking small and medium-sized investors from Hong Kong， Taiwan and other “Asian Tigers.”

This scenario is now being repeated in Africa. African governments should make particular efforts to reform their domestic economic systems， gradually improving investment policies， legal frameworks， infrastructures， social stability and security， and create special economic zones or industrial parks as China did in the 1980s-90s， paving the way for foreign investors proper integration into the domestic industrialization process.

Among the measures to attract Chinese investors， one noteworthy aspect is the powerful “word of mouth” effect among Chinese private firms， whose executives are often from the same hometowns or even the same family clans. Thus， it is very important for African governments to pay greater attention to those who have already arrived on the scene， enabling higher satisfaction through simplified procedures， uniform treatment， and consistent， transparent procedures and services （e.g.， providing Chinese enterprises with training in local languages and culture）.

On the Chinese side， the government should give more support to small and mediumsized firms going to Africa. Compared with large stateowned enterprises， private investments are more dynamic and diversified. The Chinese government still has a great deal to do in such domains as providing more financial and information assistance， enhancing dialogue mechanisms between China and Africa， improving CSR laws and regulations， making relevant regulatory procedures simpler and more efficient， and strengthening cooperation with other countries and organizations.

Chinese investors also have much of their own work to do to survive and thrive in Africa. They should conduct due diligence before making investment， making a comprehensive analysis of the local social， cultural and legal environment， and abide by local laws and rules. It is also important to build a complete industrial chain， strengthen technology transfer， and take more initiative in reaching out to local communities， the media， NGOs and international organizations， etc.

Chinese investment in Africa creates a win-win situation， whose fruition demands further constructive inputs by both Chinese and African governments as well as Chinese enterprises operating on the continent.