Play the Game of Life
Ryan Petersen's Blog

Even in this country of economic miracles and overnight success stories, the city is an anomaly. What was 20 years ago an isolated farming village encircled at a distance by jagged green mountains, is today a key center for vast global trade networks. But this city is not Shenzhen, whose proximity to Hong Kong, access to the sea and status as China's first special economic zone make its 'miraculous' growth appear somewhat less divinely influenced. Nor is it Shanghai or some other coastal metropolis with long-standing ties to the international business community. Rather, we are talking about Yiwu, a small town a few hours from the Pacific coast in East China's Zhejiang province that now boasts the world's largest wholesale markets. Today this sourcing 'Mecca' attracts thousands of businessmen from all points on the compass, each drawn by the world's lowest prices on generic goods.

But how and why did the markets develop here? In a period of just two decades, how did this isolated farming town with no port, without a large (by China's standards) or skilled (by any standards) population base, nor access to any noteworthy raw materials, develop into a major player in the global supply chain?

To answer these questions, I spoke with Haresh Ahuja, an Indian sourcing agent, raised in Hong Kong, who has been coming to Yiwu for more than a decade. At that time, Yiwu didn't have the factories, epic wholesale shopping centers or the accompanying luxury hotels. Yiwu started out as a 'stock market,' he says. If a manufacturer's client rejected items for quality control or some other reason, the stock was shipped here. Sometimes the goods were completely defective, so they would be sold for well below the cost of production (and often below the cost of raw materials). A guy from Africa might come and buy 10,000 TV remote controls, none of which actually work, but maybe he knows that he can strip out some of the components and resell them for more than he has to pay here. Other times there were minor problems that might not affect a less distinguishing customer.

By the mid-nineties Yiwu was already known as "the place where you could buy shit for the price of shit." Recognizing the smell of a good deal, customers arrived in droves, especially from developing countries where price took precedence over quality. We are talking about the cheapest place on Earth to buy generic, commoditified products: buttons, Christmas lights, nail clippers, hammers, coat hangers, inflatable balls, zippers, whatever you can think of. But if you think of something new, don't tell anybody here, because they will start copying your idea within 5 minutes. According to Wikipedia, "Yiwu is also known as sock town" as it produces over three billion pairs of socks for Wal-Mart, Pringle and Disney annually. " This is Jack Welch's 'Commodity Hell.' It's a real place, and to everybody's suprise gorgeous green peaks surround the place.

Well, eventually as more and more buyers came to Yiwu, Chinese businessmen recognized the opportunity. Instead of just sending unwanted stock, why not set up production specifically for the demands of the Yiwu market. Even better, let's build the factories right in Yiwu to save on shipping costs and reduce delivery times. And so the boom began in earnest, continuing to where today Yiwu is not just a final resting place for unwanted 'shit' (though plenty of that is mixed in with the good stuff) but rather is one of the best places to find exceptional prices on a huge range of interesting, marketable products.

Demand for display space in Yiwu soon far outstripped supply in the city's dilapidated wholesale markets. Local government cadres, always eager to encourage economic growth, quickly put together a plan to build an enormous, ultra-modern wholesale market where manufacturers from around China could display their goods to the growing masses of foreign buyers. In 2003, the Fu Tian (Rich Fields) Market opened. With double the square footage of an international mega-airport, the market quickly became the place to source your low-cost commodities. Last year they doubled the market's size again, adding Phase II. In all the market now stretches for 3 kilometers north to south, three to five stories high and 6-10 aisles wide. And every booth is rented out, brimming with dirt-cheap products ready for immediate sale to points around the globe. To meet the demand for more display space, the city is now building Phase III of the market, which will open in 2008.

Clearly Yiwu is a phenomenon that could only happen in post-reforms China. Seven series BMWs vie with rickshaw bicycles for manuevering space on the city's crowded streets. New Arabian restaurants and American fast food chains pop up around nearly every corner. Specactular, verdant green mountains are left forgotten in the smoggy distance as the people in the valley below rush about in search of the next big deal.

On the surface, Yiwu's culture is all-business. There are no weekends at the wholesale markets. Sales staff rest only on national holidays, working 7-day weeks the rest of year. As a result, they approach work in a surly state characterized by utter exhaustion and a complete lack of enthusiasm. Many lay their heads on their desks in defeat. Others curl up on a cardboard mat in a vain attempt to recharge their batteries. Still more fade in and out of a half-numb trance while playing online computer games, refusing even to look up from the screen to answer a customer's questions. Smiles are rare. Any unusual requests are unceremoniously denied before any real thought is given to the idea's feasibility. Even simple things, like asking that each product be packaged in its own box, instead of in a box of 4, is quickly written off as "too much trouble."

In sum, Yiwu has sacrificed everything--quality, creativity, customer service, health and happiness--in the name of cheap prices. In that sense, the city is but a lense to provide a deeper look into China's economic 'miracle' itself, the future of which must be cast into doubt if these underlying principles of sound economies are not revisited.

Labels: business, china, hong kong