Are China's Cheap Traders Outstaying Their Welcome In Russia?

The massive Cherkizovsky market in Moscow, home to some 60,000 mainland Chinese traders and with an estimated turnover of nearly a billion dollars a year has been forcibly closed by Russian authorities on the grounds of improper hygiene and environmental standards. The market has thrived since 1991, when the collapse of the Soviet Union coincided with Chinas manufacturing surplus of cheap goods and while Russians were relatively cash-strapped and lacking light industrial and consumer goods.

To put the significance of the Cherkizovsky market into perspective, it accounted for 50 percent of Russian-Sino trade for many years. An estimated 80,000 traders have now lost their jobs and their goods confiscated. It is currently being torn down and a re-opening is not on the cards.

The traders who have survived have been offered alternative sites but at higher rents. Yu Anlin, Chairman of the Wenzhou Business Association of Moscow, was quoted by the South China Morning Post that the members of his association have lost close to US$800million. A new market is being built, but will not be completed for another two years.

The story behind the demise of the Cherkizovsky market belies a toughening of policies in emerging markets against the massive proliferation of cheap Chinese goods. While the supply of such products has been welcomed in the past, markets such as Russia, India, Africa and Latin America have been growing increasingly tired of the China overkill in the rush to meet demand.

Blind eyes have been turned to the practice of avoiding awkward (and price increasing) customs and administrative procedures. Chinese traders have become used to paying off middlemen and customs officials in emerging markets to facilitate trade, keeping prices down and speeding up delivery times. Local populations have initially been thankful but then the entire supply chain and personnel selling the products have all been Chinese, many of them working illegally.

With 60,000 Chinese working in the Cherkizovsky market alone, the political benefit to the Russians of turning a blind eye to the smuggling in of cheap produce has become significantly weakened.

There are other issues. As the emerging markets of Russia, Africa and Latin America have begun to move upwards, local businesses have found they have unable to compete in their own country against the massive grey imported volume of Chinese products. Employment of locals in markets such as the Cherkizovsky has also remained inherently limited to mainly illegal, imported Chinese labor, pushing out employment opportunities for the locals. Increasingly, Chinese cheap products are being seen as unreliable, and shoddy.

I am reminded of the Chinese steel hammer purchased a few months ago in a Chinese stall in Nairobi. After three strikes to hammer a tent peg into the ground- I was on safari - both the wooden handle and the metal head fractured. Asking later about the perception of Chinese goods in Kenya, the impression I received was that they were generally very poor. That may also be indicative of mass dumping of substandard made in China products onto the less well-protected emerging markets.

Clearly, the mood is changing. Chinas manufacturers are going to have to give up control of employing only Chinese in the entire supply chain and local consumers are going to have to get used to paying more. Politically, in Russia at least, the pendulum of cheap Chinese imports is moving away from a grateful purchase to a slow realization that cheap Chinese imported products equate to a destruction of domestic employment and local business development opportunities. That is going to be too much of a political barrier for emerging governments to continue to tolerate.