The city of Yiwu, famous as a wholesale marketplace for small commodities trading, has felt the pain of the economic slowdown in Europe and the US.
Many traders in this Zhejiang Province city now think back fondly on the not-so-distant past, when an estimated 210,000 merchants a day – including 13,000 from abroad – buzzed about in a marketplace of some 60,000 stalls, offering almost 2 million pieces of merchandise that ranged from Christmas ornaments to toys and jewelry.
Yiwu was such a thriving marketplace that the State Council, China’s cabinet, made it home to the nation’s small commodity index – a barometer of global consumer goods prices.
In the past, Yiwu merchants sold about two-thirds of their products to foreign buyers. Now, with Europe facing a debt crisis and recession and the United States in a somewhat slow and shaky recovery, orders are drying up and the once noisy marketplace has lost some of its buzz.
“I am experiencing the worst times since I started my business in 2000,” said Liu Hua, general manager of the Lucky House Toy Factory. “Sales have dropped 10 percent in May alone.”
Liu and her husband ran a factory with 50 workers in Yiwu, selling dolls and cartoon wallets at a market stall. Theirs was a pattern similar to that of many other traders in the city. At a high point in 2008, the couple was earning a 20 percent profit on its goods.
Whereas foreign buyers once accounted for 80 percent of the merchandise Liu sold, that ratio has now turned domestic. Where once she dismissed domestic retail buyers, now she courts the droves of consumers who come to the city looking for bargains. Products wrapped in bulk for the wholesale trade have been torn open and repackaged to accommodate the smaller-lot domestic trade.
A certain sense of despair spreads across the relatively new four-story, air-conditioned Yiwu marketplace.
Merchants sit in front of their stalls with little to do but discuss bad times with fellow stall owners. Some sleep or while away the time playing computer games. Tele-controlled aircraft toys fly effortlessly through mostly empty passageways as vendors try to attract attention.
There are still foreign traders, mostly from India and the Middle East. They walk through the marketplace with their Chinese translators, browsing and asking about prices. If they want to buy, they can drive hard bargains.
“Sales have dropped by up to 30 percent this year,” said Fu Chunhan, deputy market department manager of Zhejiang China Commodities City Group Ltd, operator of the Yiwu markets. “Foreign traders are more cautious, and most favor short-term orders.”
The Yiwu small commodities index dropped 0.8 percent in the first three weeks of May to 103.94. It was 108.02 at the start of 2011.
Yiwu merchants like Liu are scrambling to shift their focus to domestic buyers.
“The domestic market now gives us better profits than the foreign market,” said Chen Peilang, executive manager of the Zhejiang Rose Umbrella Co, one of the biggest umbrella manufacturers in Zhejiang.
Rose Umbrella’s domestic sales have risen to 50 percent of revenue from less than 30 percent in 2005. Chen said it hasn’t been easy for foreign-oriented manufacturers to suddenly shift to the domestic market because it takes time to build up brand familiarity.
“Although Rose has been popular among European and Japan customers, most domestic clients still know only the Tiantang, or Paradise, an umbrella brand in Hangzhou,” he said, referring to the Zhejiang provincial capital.
Down but not out
Yiwu’s leading trade Agent Yachina is one of the most successful trading companies in Yiwu. “Even though the world economy is yet to fulyl recover, your own effort and dedication to quality service counts the most. ” says Oliver Stone, the company General Manager, who owes his success to American standard service and quality control. Yachina’s total turnover doubled last year despite the dire economy .
Yiwu merchants may be down but they’re not out. To raise the profile of their brands in the domestic market, many have opened online stores.
Ai Shengming, 45, has been one of the more successful.
Ai was losing money until he established an online store for his Mengchi Ornaments Factory in 2010. Clients can now design and build three-dimensional models on his website, with prompts from factory staff.
“Most other Yiwu ornament companies need to have samples to show to their clients,” Ai said. “But I need only draw models with computer software, which saves on costs.”
He said he received orders valued at more than 14 million yuan (US$2.21 million) last year from traders in Russia, the United States and Europe.
That success hasn’t gone unnoticed.
More than 70 percent stalls in the Yiwu market opened online stores in the wake of the European debt crisis, said market operator Fu. Broadband access is available to all stalls in the markets.
“The city now has more than 50,000 online businessmen, with annual volume of 50 billion yuan, almost the same with that of the physical stalls in the market,” Fu said.
To survive going ahead, Yiwu merchants must develop their own brands and move up the value chain, rather than relying on small profits from selling huge quantities of cheap goods, said Weng Jianping, deputy director of Yiwu’s Bureau of Commerce.
Neoglory Group, a leading ornaments manufacturer in Yiwu, is a case in point.
The ornaments maker developed the high-end brands Su and Tofu, which are mainly silver jewelry of such high quality that they were exhibited at the Paris Fashion Week, said Neoglory Ornament general manager Yu Jiangbo.
The higher-end products and the company’s ties with global retailers like Sweden’s H&M have helped Neoglory remain profitable in these hard economic times, Yu said.
Neoglory’s ornament production brought in revenue of about 1 billion yuan last year, dwarfing all the other similar manufacturers in the city.
Neoglory is a typical sort of Yiwu success story – a small, tight-knit family business that grew into a major manufacturer.
Yu, 27, is the elder son of the group’s president and is poised to take over the family empire some day. Thirty family members operate different sections of the company, and most live on the top floor of the company headquarters.
Like most first-generation merchants in Yiwu, Yu’s parents began their business in the early 1980s, making handicrafts like embroidered goods and shoes in a small home workshop and selling them to cities across the Yangtze River Delta.
In 1983, when the Yiwu government built the first market for traveling merchants, Yu’s parents were among the first to set up a stall.
In 1995, his parents borrowed several million yuan to establish their own factories and began selling ornaments and crystal glass to foreign traders. Today Neoglory Ornament is the largest ornaments maker in Asia, with 5,600 employees and total assets of 250 million yuan.
“Yiwu was a poor agricultural area, and many farmers were forced to leave the land and try their luck at small workshops,” said Ma Lihong, deputy president of the Party School of the Zhejiang Committee of the Communist Party of China. “The city government developed the markets to serve them, and that’s how the big Yiwu marketplace began.”
The marketplace prospered along with China’s economy. After the September 11, 2001, terror attacks, Yiwu’s markets became popular with Arab traders who found entry into the US more difficult.
In 2005, the United Nations and World Bank designated Yiwu as “the world’s biggest wholesale market for small commodities.”
Yu Jiangbo, general manager of Neoglory Ornament
Shanghai Daily: What have you achieved during the past decade?
Yu Jiangbo: In 2006, my mother, chairman of the company, recruited many professional managers to try to boost the sales of ornaments, but they all failed. At that time, I had graduated from the Imperial College in London, and my mother gave me a chance to be the general manager. I have managed to develop the company’s own brands, and our ornament sales have dwarfed all the other similar manufacturers in Yiwu.
SD: What’s the biggest mistake most businesses in your area make in looking at the future?
Yu: Most local companies do everything by themselves – from design and manufacturing, to marketing and sales. In the ornament industry, I think they should outsource the manufacturing to save labor costs and concentrate on design and marketing. My company did so beginning last year and has cut costs by 40 percent.
SD: What would you most like to see in China’s development planning?
Yu: The appreciation of the yuan in recent years has added pressure to the export of local ornament makers. I hope the government can do something, like export tax refunds, to relieve the pressure.
SD: What’s your biggest concern?
Yu: I am afraid the impact from the economic slowdown in Europe and the US is just at the beginning and may continue for a long period.
Located in the middle of Zhejiang Province, Yiwu is more than 300 kilometers from Shanghai.
Besides its famous wholesale markets, its economic base rests on industries such as knit hosiery, fashion jewelry and clothing accessories. It has also come to be called “sock town” because it makes more than 3 billion pairs of socks for Wal-Mart and other foreign buyers.
In 2011, the city had industrial output of 141.1 billion yuan (US$22.4 billion), up 21 percent from a year earlier. The city has the biggest service sector in Zhejiang Province.
Yiwu, founded in about 222 BC, also has a rich cultural heritage that includes traditional Chinese paintings and calligraphy, kung fu and folk arts.
How to get there:
Take a train from Shanghai Hongqiao Raiway Station to Yiwu. The No. 803 bus is needed to the Nanfanglian Station before having the Bus No.311/312/313 to the town.
A drive along the G92 Expressway takes about 3.5 hours.