Economy

Can Yiwu reboot?

It’s a city you’ve never heard of, but its traces are all over your home…

Yiwu: a city with a can-do approach

Whether it’s a sheikh’s headscarf, a pair of surgical gloves or just a bog-standard T-shirt, the chances are it was sourced from Yiwu. The Chinese city is a sort of Silk Road for modern China’s exports – a place where foreign buyers come to find products from the world’s workshop.

Yiwu distributes around half a million distinct products to 212 countries – and 500 new items are added to the list every day. It specialises in consumer goods of the non-durable variety. Spread over 2.6 million square metres, Yiwu International Commerce Centre is known as the ‘shoppers’ paradise’ and is the city’s hub. It provides around one million jobs, and houses about 10,000 permanent overseas buyers.

If ever there was a place leveraged into China’s export model it would be Yiwu. And that’s not good news, right now.

Yiwu’s business model originated in the 1980s. The city’s entrepreneurs – who were termed ‘shoulder pole businessmen’ – began to search for stock in factories in southern China, and in villages like Jinhua and Lishui. They then grouped together to set up stalls, selling the wares they had sourced. From humble beginnings, the market blossomed and became famous throughout China, with sales volumes reaching Rmb49.23 billion in 2008.

But that is not the whole story. Apart from products sold in the market itself – i.e. a foreign company buys 10,000 pairs of socks from a vendor who is displaying 20 different types of sock – the entrepreneurs of Yiwu also broker mass orders between buyers and the factories that form part of the ‘Yiwu network’. In 2007, these factories received Yiwu-originated orders totalling Rmb300 billion ($43.8 billion).

The local media has always viewed Yiwu as a success story. It was not created by regulatory fiat. It became a distribution centre through its people and their entrepreneurial drive. The bigger it got, the more trade flowed its way, as economies of scale set in.

But its middlemen always operated on the basis of high turnover, and low margins. That means the current collapse in volumes hurts – Zhejiang province (of which Yiwu is part) saw a year-on-year export decline of 17.4% in January.

According to China Business News, the city is also being hit hard by a surreptitious rise in protectionist measures overseas. It says local businesspeople are struggling against various anti-dumping measures in the US and Europe.

As if all that weren’t bad enough, the city also faces domestic competition. The planned Guangzhou International Trade and Exhibition City will be twice Yiwu’s size. The challenger’s website states confidently that it expects to become “the centre of global purchasing” and “the first choice for world trade barons.”

Yiwu city planners are responding with a strategic rethink. They are encouraging a move away from the ‘pile it high, sell it cheap’ approach that has previously served them so well. Instead, they want to see Yiwu focus more on sales of middle and high end products with a higher value add. In this respect, Yiwu resembles China as a whole: it also wants to move up the value chain from low end, cheap manufacturing to branded production.

So the outcome of Yiwu’s own reinvention could be a case study for China as a whole.


© ChinTell Ltd. All rights reserved.

Exclusively sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.