Traditional low-cost model prevalent in Yiwu may no longer be the right model for China

By Xie Jun Source:Global Times Published: 2018/12/26 18:18:39


Christmas hats for sale in Yiwu, East China's Zhejiang Province in December. Photo: VCG



2018 has certainly been a turbulent year for China. The US has initiated a ferocious trade row with China; some of its allies like Australia and Japan have also taken moves to ban Chinese industrial giants from entering some of their key industries. As a result, there have been continual questions and discussions about whether China can retain its reputation as the "world factory"- namely, can China still find customers for its products, particularly its low-price goods that have been sold to international markets in the past?

Actually, the answer to this question is not an unexpected one as the strength of "Made in China" goods is so strong that few could imagine external factors being able to shake China's international reputation as a manufacturing powerhouse.

This year, I visited the Yiwu International Trade City twice, once in summer and once in winter. As China's most well-known primary wholesale market complex, the trade city has thousands of locally-based retailers selling all kinds of everyday goods - anything that one could possibly imagine - to both domestic and overseas customers. At the trade city, it's quite common to see people of different colors walk into a shop, talk to the vendors and place the orders. Several times I even heard the buyers talking and negotiating with the vendors in Chinese.

In July, I visited the trade city to research an article about Yiwu's exports of US election flags. At that time, the trade friction between the US and China had already broken out, but in the trade center, it was very easy to find vendors that have business connections with the US. Several shop owners showed me the political campaign flags they are about to package and ship to the US. One of them also told me that based on the orders she received, she could predict that Donald Trump would win the mid-term election.

The second trip I made to Yiwu was to research into market rumors that Yiwu is exporting yellow vests to French rebels. Although it was eventually proven to be only market rumors, I did see that there were many shops selling those vests, and one shop owner told me that their targeted customers are mostly from Europe and the US.

Chinese sellers are also building business links with customers from emerging markets. One Christmas gift seller, for example, told me that in recent years the orders from India and Thailand have risen very fast, which has given sellers more business opportunities when the general political climate is not very stable in traditional high-end markets like the US.  

This can be seen as evidence that although China's external trade environment is experiencing greater pressure compared with several years ago, it can't threaten China's dominant position, particularly as a small commodity exporter to the world. The world, including the US, needs "Made in China," which has so many advantages such as low prices with reasonable quality, an image China has built in the past decades. Even if the US hopes to shake this situation, I don't think they can make that happen in a short term.

But is this necessarily a good thing for China? Yes and no. So many Chinese vendors are relying on the so-called Yiwu model - exports and selling of cheap-priced small commodities. But many people, from government leaders to industrial practitioners, have been trying hard to reduce dependence on that model by conducting industrial upgrading - making products that have higher value and are more irreplaceable for overseas buyers.

From what I see in Yiwu, it's still difficult for many Chinese people to achieve that goal, not only because of the technical limitation, but also because they are too familiar with the traditional low-cost business model and are at a loss how to change.

 If the external environment worsens further in the future and if the push from the Chinese government gets stronger, there could be a fierce battle for traditional manufacturers and sellers in China. Many businesses might collapse and many people might change their profession. But for those who are willing and able to change, China's manufacturing should turn over a new leaf.

Posted in: ECONOMY,COMPANIES,BIZ FOCUS

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