I’ve received a few questions from readers, wanting to know more about the impact Chinese entrepreneurs are having in Spain.
In my story for Businessweek, I write about Chinese entrepreneurs in Madrid and Barcelona who are expanding and investing further in their businesses just as Spain seems headed back into recession. It certainly doesn’t seem like a time to be taking big risks. Around 350,000 companies filed for bankruptcy in the second half of 2011 — that’s a third of all companies to have shut down since Spain’s economy began to teeter at the end of 2008 with the collapse of the housing construction bubble.
But the Chinese in Spain — most of whom come from Qingtian County in Zhejiang Province — seem undeterred.
Readers wanted to know more specifically about how the economic activity of the Chinese was contributing to the Spanish economy. Here are some of their questions:
1) How have the Chinese entrepreneurs, as a group, contributed to the Spanish economy? i.e. Do Chinese businesses hire non-Chinese workers as well? Do Chinese shop at non-Chinese stores/buy supplies from non-Chinese suppliers?
These are great questions, none of which can be answered with statistics. There just isn’t any data on where the Chinese shop or who they hire. But I can tell you what I know of Chinese business practices based on my interviews with Chinese nationals across Europe.
While the Chinese in Spain prefer to hire their own (especially if they are from the same hometown i.e. Qingtian), they do indeed hire non-Chinese workers and shop at non-Chinese stores and suppliers. Kathalina, a wholesale and retail clothing entrepreneur in Barcelona, hires two Pakistani workers to help out at one of her stores. (I have to ask how much they are being paid. I suspect even less than Chinese workers) At many Chinese-run bars, there are often Spanish cooks who teach the new Chinese owners and workers how to make a decent coffee and a side of patatas bravas. And at my cousin’s newly acquired bar in Turin, he’s made it a point to keep on the pretty, blonde Romanian bartender. She’s popular with the male clientele and though he needs to pay her more than double what he would pay a Chinese worker, she’s an asset to his business. So yes. They do help the wider European economy by hiring non-Chinese, if it is advantageous for their business.
Do they shop and gather supplies from non-Chinese buyers? Yes. My cousin in Turin has to order croissants, coffee beans, wine, ice cubes and many, many other products for the bar. Most of the supplies comes from non-Chinese companies.
But what about the wholesale industry? Do the Chinese also shop and gather supplies from non-Chinese buyers? The answer: They don’t have to. Across southern Europe, the clothing supply chain is now dominated by Chinese entrepreneurs. Let me give you an example. Kathalina and her husband own a total of five garment (wholesale and retail) shops in Barcelona. Every week, she flies to Prato, Italy, to procure her stock. Prato is a textile hub in Tuscany, 50 miles west of Pisa. Recently, Prato has become inundated with Chinese immigrants mostly seeking work in the textile factories. Today, there are more than 4,000 Chinese-owned textile makers. A decade ago, there were only 400. Prato has become famous for products that are “Pronto Moda” or “fast fashion” — a main distribution centre that can produce Italian fashion goods quickly (and cheaply) by Chinese hands. In the past, the Chinese were middlemen in a long supply chain. Now, some Chinese textile makers have started work with design. From the drawing board, garments are produced by Chinese-run workshops, distributed by Chinese-run warehouses and picked up by Chinese wholesalers like Kathalina. Her clients are multi-cultural: Spanish, Moroccan, Chinese, Ecuadorian. But Kathalina herself is diversifying. She opened her first retail shop in the Barcelona city centre last year.
2) Do the Chinese pay their taxes?
Aha. Touchy subject. Taxes. Most of the Chinese-run businesses in Europe — restaurants, bars, retail and even wholesale — are a cash business. So naturally, whether you are Chinese or not, this is a kind of business that more easily allows one to reduce the taxes he or she might owe. One of the major complaints I hear from Europeans is how the Chinese are cheating the system by underreporting their sales or using undocumented immigrants to avoid paying taxes.
The accusations have some truth to them, but the Chinese are not the only ones guilty of this. Tax evasion is not a Chinese-only issue. In Spain, it is a widespread practice that has grown to be a hot topic only in light of the economic crisis. Of course, immigrants are the first ones to the blamed. The Spanish black economy is equivalent to 19.2% of the official gross domestic product. The number of jobs in Spain’s underground economy had risen from about 1.5 million in the early 1980s to more than 4 million in the three years to 2008, according to a study co-authored by Ignacio Mauleón, economics professor at Madrid’s King Juan Carlos University. “When there’s no crisis, no one worries about it,” Mauleón told the Financial Times. “But now it’s an issue that everyone thinks about, because of the country’s budget deficit.”
Italy is famous for its SMEs; 95 percent of the country’s businesses employ fewer than 10 workers in order to avoid arduous provisions of national union contracts. Another way to avoid stifling labour laws is for Italian companies to opt out of the formal economy altogether. Anywhere from 15 percent to 27 percent of economic activity is underground, according to the Organization for Economic Cooperation and Development
and the International Monetary Fund.
3) From a reader who seemed rather irked by my story: I honestly think you should make a bit more of a thorough research on the situation of Chinese workers in Spain to make your article more accurate. I suggest you begin with the sale of dangerous toys, outdated food, cheap imitation of chocolate, drinks, fake cigarettes in [their] cornerstores. Nothing else to say, have a nice day.
I think this reader has brought up an interesting, but entirely separate issue of the quality of products being sold Chinese shopkeepers in Spain. While product quality is a contentious issue, this does not contradict the fact that the Chinese are resilient entrepreneurs who have managed to keep a very low unemployment rate while the Spanish economy struggles.
But, the reader provokes an interesting question: Why has the “Made in China” or “Sold by Chinese” become synonymous to cheap, cheap cheap? I must admit, I am guilty of this stereotyping as well. While I was shopping in Venice, I went into a store selling leather hand bags. The products looked nice. The prices were very reasonable. Then I saw the owner: he was Chinese. I said to my husband, “The owner is Chinese, let’s get outta here!” Upon seeing the Chinese owner, I immediately had fears about the quality of his products and became suspicious, thinking his leather hand bags could be pleather hand bags. If I hadn’t seen him, I probably wouldn’t have had these thoughts.
Still, the stereotype is there most probably because many of us have encountered so many low quality products that are made in China. I have spent time touring Chinese-run wholesale distribution centers in Fuenlabrada, just outside of Madrid and I can tell you there are a range of products varying in price, some of them made in Spain and some of them made in China. So let’s be fair and not say that everything sold by the Chinese is cheap, toxic and illegal.
The reader might be referring to 2011 raid in which the Spanish government confiscated 561,000 fake cigarettes imported from China. Last week, Businessweek published a story about cigarette smugglers reporting that illegal imports now account for 7 percent to 8 percent of overall cigarette sales, compared with nearly zero a year ago, according to the country’s tobacconists’ association.
Though Kathalina has been to Prato dozens of times, she has never been inside the old city. In fact, she didn’t even know there was an old city to explore. She knows the industrial part of town really well and brought me to eat in Prato’s Chinatown just outside the old city walls. I guess that’s all she needs to know since is in Prato each week for less than 24 hours. I stayed an extra day to explore the other side of Prato and had a chance to dine at the oldest trattoria in town. When my husband and I stumbled in from the cold, wefound a beautiful candle-lit restaurant, furnished by old wooden furniture, high ceilings and quaint red and white checkered table cloths. The local Italians stared at us all night long. I can guess very few Chinese have eaten at this local trattoria. It was sad to think that 40,000 Chinese live in the city of Prato, yet the lives of the Chinese emigrants and the Italian locals continue to be so very segregated.
5) How much money stays in Spain, how much returns to China to boost Qingtian?
Remittances are a very important part of the overseas Chinese culture in Europe, especially to emigrants from Qingtian. For a long time Qingtian was a poor and isolated county in eastern Zhejiang. Today, it is one of the richest areas in eastern Zhejiang, complete with western-styled coffee shops and restaurants (though the food is not authentic at all!) and apartment prices rivalling some Shanghai neighbourhoods. This is all thanks to the remittances that are sent back home from Europe each and every year. So, as you can imagine, there’s a lot of hometown pride. And because Qingtian is a small place, everyone sorta knows everyone. The minute you mention you’re from Qingtian (or married to a Qingtianese) you’re welcomed like family.
I have the specific stats about Qingtian’s remittances, but have yet to carefully go through them. Let’s use those numbers in a future blog post about remittances!