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Row over China Square discount store after traders' protest presages diplomatic ructions

Battle over Chinese retailer in Nairobi and mounting debts could ratchet up tensions between Beijing-Nairobi

Trade Cabinet Secretary (CS) Moses Kuria's brash response to protests of unfair competition by a retail store in Nairobi is threatening a diplomatic spat between the country and China.  It comes as Beijing is stepping up criticism of the international financial institutions and their mechanisms for addressing debt crises in developing economies (Dispatches 24/1/23, East-West blame game on debt heats up).

In the tussle over China Square, a Chinese-owned discount store in a popular shopping mall on the outskirts of Nairobi, over a thousand traders marched through the city complaining of unfair competition. Some protested at the Deputy President's office, calling for action against Chinese business people, whom they accuse of undercutting with significantly lower prices.

In a tweet threatening to take over the store's lease and hand it to local traders, CS Kuria appears to fault China Square's owners for selling finished goods, insisting that 'we welcome Chinese investors to Kenya as manufacturers, not traders.'

Kuria threatened the deportation of any foreign national engaged in retail trade, terming the Mall that houses the store a threat to local traders.

The controversy led to the store to announce its temporary closure on 26 February, after less than a month of operations. This prompted Beijing's embassy to offers 'support for Chinese enterprises and Chinese citizens in conducting business in accordance with Kenyan laws and regulations'. It added that it expected the Kenyan government would 'protect the legitimate rights and interests of Chinese enterprises and Chinese citizens and create an inclusive and friendly business environment.'

This retail spat has stoked arguments about trade imbalances between Kenya and the Chinese economy and the pattern of trade in manufactured goods between the two countries, characterised by high imports from China and significantly lower exports from Kenya.

Last month, the Nairobi newspaper Business Daily ran an editorial calling on the government to explain discrepancies in its official data showing that in the ten months to the end of October 2022 Kenya had imported 377.5 billion Kenya shillings (US$2.92bn) of goods from China – but that China's official data showed it had exported Shs809.4bn in the same period.

The Kenya Revenue Authority should explain the Shs377.5bn gap between the two figures, argued Business Daily. One reason could be the deliberate mispricing of trade: under-pricing imports reduces the level of customs duty payable.

Kenyan companies also rail against the structure of trade with China. Most of China's imports from the continent are raw materials, produced by low-margin businesses that use low-skilled workers; Kenya's imports from China are mainly finished goods.  

High manufacturing costs in Kenya that are edging local producers out of business, unable to compete against far cheaper imports from China and other East Asian economies.

And the traders' protests over China Square last month revived some of the nationalistic lines in President William Ruto's election campaign last year when he pledged that all Chinese workers without official documents would be deported.

He also promised to make public the terms of the US$3bn contract with China's Road and Bridge Corporation for the loss-making Nairobi-Mombasa standard gauge railway. So far the selective release documents have shown the terms to be poor value for money and highly advantageous to the Chinese company.

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