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After boom years, some Chinese firms run into trouble in crisis-hit Sudan

By Ulf Laessing

OMDURMAN, Sudan (Reuters) - When Chinese clothing wholesaler Chan Cui Xiao signed a deal with a Sudanese businessman to export colorful bed sheets to the African country he was confident of making good money.

A few months later he is in serious financial trouble - he shipped his goods to Sudan but did not get paid and has rushed to the country to try to track down his local business partner.

The Sudanese had sent him credit and bank financing letters, and as Chan had done business that way in Egypt and other Arab countries he thought it was safe to export his goods.

"I made a loss of $200,000 but have been unable to find the Sudanese guy. The phone number and address he gave me seem wrong," said Chan, sitting in a stuffy clothing store run by a fellow Chinese in the town of Omdurman, north of Khartoum.

Chan is not alone in losing money. There are at least 10 Chinese clothing wholesalers in Omdurman's dusty fashion market who say they have not been paid by Sudanese partners. Some of them have come over from China to sell off their merchandise from stalls set up in front of the single-storey white brick buildings that line the unpaved market street.

Others are busy filing legal suits, although a weak Sudanese legal system means they probably stand little chance of getting their money back, analysts say.

Sudan has been scrambling to contain an economic crisis since it lost the bulk of its oil production when South Sudan seceded in 2011. As oil revenues were the main source of budget income and of foreign exchange reserves needed to pay for imports, many Sudanese importers are now struggling to get their hands on dollars to pay foreign suppliers.

Financial losses cited by Chinese traders and businessmen raise concern about the African country's ability to revive its economy.

China is Sudan's main trading partner and its lifeline as Western firms have shunned the country since a U.S. trade embargo was introduced in 1997 over Sudan's human rights record. It bans firms operating in the United States from doing business with Sudan.

Chinese firms, undeterred by conflicts, corruption and galloping inflation in Sudan, are building transport and telecommunications infrastructure and supply the country with consumer staples from soap to power sockets to underwear and rice.

There is no sign yet that bigger Chinese companies are pulling out, but if financial problems continue to increase the risk of doing business, that could slow or even jeopardize Sudan's plan to attract more foreign investment to develop its mineral and agricultural resources and overcome international isolation.

HOTEL SLUMP

At a high-level bilateral meeting in Beijing last month, state media from both countries praised the depth of ties.

But for many private Chinese entrepreneurs, most of whom came after the end of Sudan's civil war in 2005, Sudan's depleted finances are creating a difficult business environment.

"We hardly have any projects in Sudan anymore and are now moving staff to Kenya where business is much better," said the head of a mid-sized private Chinese building company.

He asked not to be named as he fears problems with the Sudanese government, which still owes his company money for construction work for ministries in Khartoum over the past two years.

"We used to have 40 Chinese staff. Now we're just 10," he said, sitting in his office in a large but mostly deserted building in southern Khartoum. "Sudan is no longer an important market for us."

China, though, does have an interest in Sudan overcoming its economic crisis as it has investments in South Sudan's oil production, which has to be exported through Sudan.

Sudan resumed oil exports last month - after a 16-month shutdown due to a row with South Sudan over pipeline fees - with the sale of a cargo of oil produced by China National Petroleum Corp, which dominates the oil industry in both countries.

In January, China extended a $1.5 billion loan to Sudan via state-run China Development Bank to help shore up public finances and the Sudanese economy, which shrank 10 percent last year, according to World Bank data.

Chinese firms, especially state enterprises, still have a lot of business in Sudan, part of Beijing's strategic drive across Africa to secure resources for its vast economy. As well as oil, they have invested in farmland projects and are doing exploration work in the mining sector.

Sudan's state airport operator has just won a $700 million loan from China's state-run Export Import Bank to build a new airport in Khartoum - one of the largest industrial projects in the country in recent years.

Still, bilateral trade has been falling. China's exports and imports to and from Sudan, which totaled $11.5 billion in 2011, amounted to just $3.3 billion in the January-November period of 2012, according to official Chinese data.

The drop in oil trade accounted for much of that decline. But even while the oil industry has been shut down trade has continued to fall. In the first five months of this year, Chinese exports to Sudan fell 8 percent from a year earlier to $1.7 billion, the data shows.

Hoteliers in Khartoum are feeling the impact from a drop in Chinese and other Asian business travelers.

Hotels were double- or even triple-booked from 2005 until 2011 when the economy was flush with oil revenues, sparking a building boom. Several new hotels have now opened but many are suffering in the downturn, exacerbated by the exit of most United Nations' staff and aid workers with southern secession.

"We used to have an occupancy rate of much more than 50 percent," said Liu Sui Qin, owner of a hotel near the former U.N. headquarters in Khartoum. "Now it's 20 or 30 percent and prices for a single room have halved to around $40."

Liu came to Sudan 13 years ago from Beijing with her husband who opened a Chinese orthopedic clinic, but she is now pessimistic about business prospects here.

"Maybe we'll wait one or two years. If things don't improve we'll go back to Beijing," she said, playing with her daughter in the hotel lobby.

At least the hotel is still turning a small profit, in sharp contrast to the fashion traders trying to sell off shirts, trousers and bed sheets in Omdurman market.

"It was my biggest mistake coming to Sudan," said Li Kong Kai, who is trying to sell bed sheets in the sweltering heat after her Sudanese partner failed to pay for an order she had already shipped to Khartoum. "I paid $95,000 for my wares and hope to recoup some losses and then go back home."

(This story is refiled story to fix typo in second paragraph)

(Additional reporting by Fiona Li and Michael Martina in Beijing; Editing by Susan Fenton)

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