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Trading Places

The world’s largest small commodities market in Yiwu is seeking to modernize and focus on domestic sales as its export-oriented model of face-to-face trade has ground to a pandemic-induced halt

By NewsChina Updated Nov.1

Chen Ailing, 56, owner of a shop selling Christmas streamers in Yiwu International Trade Market (YITM) in Yiwu, a city in East China’s Zhejiang Province, found herself unusually idle in July, which used to be her busiest time.  

Every year, Yiwu exports at least 80 percent of the world’s Christmas decorations. But this year, Chen’s business has been in the doldrums with no orders arriving because of the coronavirus pandemic and global economic difficulties.  

What Chen is experiencing is typical for the around 75,000 shops in the YITM, the principal and most famous market in Yiwu which specializes in the wholesale of small commodities. Comprising a cluster of markets, it covers more than four million square meters and boasts over two million kinds of products. It sells commodities to over 210 countries and regions. Before the pandemic, it attracted 200,000 visits every day. Since the pandemic spread across the globe, the market, which depended on foreign trade for 70 percent of its transactions, crashed. Many shop owners told NewsChina that their business had declined by 50 to 70 percent.  

In the past 20 years, the wholesale market in Yiwu has built its name as the “world’s supermarket” for its large export volume. But the pandemic exposed the fragility of relying on foreign trade and the traditional means of transactions. Under pressure, the market is mulling its options. 

Weathering the Winter
Chen Tiejun, an official in charge of exports at Yiwu’s commerce bureau, said that exports have displayed a W-shaped fluctuation in the past few months. It dropped to zero in February due to the domestic pandemic. Then the figure fell again as the pandemic broke out on a global scale in late March, before it climbed back. It was not until May that orders picked up again. 

According to Chen Tiejun, before the pandemic, Yiwu had 15,000 foreign residents and received more than 500,000 visits from abroad annually. This March, the city tried to invite 10,000 foreign merchants back but ended up with only 4,000 due to entry restrictions to China, which has barred most foreigners from entering China since late March. Between January and April, Yiwu’s public security bureau recorded 36,066 foreign visits to the city, a drop of 79.3 percent over last year, while the number of foreign residents fell by half.  

Chen Ailing said that her business has been barely one-third compared to that of 2019. In April of that year, she received more than 40 orders. This April, she received only 11 small orders, each worth only several thousand yuan. Some goods she produced for those orders remain piled in the warehouse because of delivery difficulties.  

While exports of consumer goods sharply declined, some business owners turned to producing medical protective equipment to meet global demand. “It [producing masks] is a race against time,” said Lan Longyin, who previously made household supplies and began producing masks in March, earning millions of yuan in two months. But 90 percent of factories lost money because they got on the bandwagon too late, Lan said.  

It is more feasible for export-oriented business owners to turn to the domestic market, said Zhang Yuhu, director of the market development section of Zhejiang China Commodities City Group (ZCCCG), the regulatory body of YITM.  

On June 22, China’s State Council released a notice encouraging exporters facing difficulties to sell their products at home. This is not an easy shift for business owners in the market, even though they already began to do this in March as the pandemic’s impact on exports became evident.  

The problem, Zhang Yuhu states, is that businesses in Yiwu got used to the relatively simple way of handling foreign trade transactions, in which they just need to take orders and a deposit and then produce goods as needed. “They are reluctant to sell goods at home because that requires goods in stock and also involves troubles like returns and refunds,” Zhang said.  

Chen Tiejun said that having stock means they have to pay up front, which increases cost and risk. Besides, they need to explore sales channels in supermarkets and e-commerce platforms. “In the domestic market, competition is rather fierce for consumer goods.” There are also worries about unhealthy competition in the market, such as counterfeits and false advertising. 

The shift also means changing their products to suit domestic tastes. Zhang Jiying, president of an umbrella producer in Yiwu, said their products were mainly exported to countries like Portugal, Spain and France. They looked into the domestic market during the pandemic and found that the products their foreign customers favor - dark-colored backgrounds with bright and bold designs - were not popular among domestic consumers, who prefer simpler designs. 

For companies that produce goods suited to foreign consumers’ spending habits, like hats, turning inward also means giving up profits, as prices need to be low enough to sell at home where there is less demand. 

Chen Ailing, a wholesaler, in her store in Yiwu, Zhejiang Province, July 11

Transitioning Online
Despite this, Zhao Ping, director of the international trade research department of the Academy of China Council for the Promotion of International Trade, suggested the small commodities market in Yiwu should put more effort into exploring the domestic market and take both markets into consideration as overseas demand could continue to decline. 
The current situation makes it more urgent for Yiwu’s small commodities market to conduct more business online. Some business owners in the YITM said they have felt the squeeze from cross-border e-commerce in recent years, and the pandemic aggravated the situation. Without an online shop, Chen Ailing said she noticed the impact of e-commerce in 2014, when her annual transactions contracted by 20 percent to 8 million yuan (US$1.14m).  

“The internet is making the market more transparent,” said Chen Ailing. She said that people can directly contact purchasers via cross-border e-commerce platforms to get orders and then find factories to produce the goods they want. Foreign buyers can also buydirectly on e-commerce platforms if their orders are small. “Offline transactions do not have an obvious price advantage either. Losing orders is inevitable,” Chen said. 

Between 2011 and 2016, YITM’s trading volume rose from 45.6 billion (US$6.5b) to 110.5 billion yuan (US$15.9b), but its share of the city’s total transactions dropped from 43 to 35 percent, which shows the market’s weakened role in absorbing resources and in foreign trade under the decentralizing effects of e-commerce. Despite YITM’s expanded trading volume, growth slowed between 2014 and 2018, dropping from 25.5 percent to 10.8 percent.  

Fan Wenwu, vice director of Yiwu’s market development committee, said Yiwu was early in developing cross-border e-commerce. “But wholesalers in the small commodities market are not the main users.”  

Jia Shaohua, former vice president of Yiwu Industrial & Commercial College, said wholesalers in YITM felt the pinch when e-commerce bloomed around 2009, but it was not until 2013 that their sense of urgency grew. Some sold both offline and online.  

Li Xiaoli, a shop owner in the market, first tried cross-border e-commerce in 2014. Now 40 percent of her foreign trade is online. She had to sell one of her two stalls last year, at a price half that of 15 years ago, as offline business declined.  

Shopping site Yiwugou was built for the market in 2012, but it only lists product photos and prices. It does not process transactions. Most purchasers still buy in brick-and-mortar shops.  

Zhang Jinyin, a regional manager in Yiwu of Alibaba.com, Alibaba Group’s platform which focuses on expanding business for foreign trade companies, said the platform had about 7,000 registered vendors from Yiwu, but those from YITM accounted for only 20 percent.  

This situation is about to change. According to Zhang Yuhu, since March the ZCCCG has been building a digital platform named Chinagoods for online transactions. It will provide services to cover the entire chain of trade from placing orders to the transport and clearance of goods.  

In June, the Yiwu government and Alibaba Group announced they will develop a digital comprehensive bonded zone and an eWTP (Electronic World Trade Platform, a framework of Alibaba aiming to boost cross-border e-commerce) trade service platform for Yiwu, to make cross-border e-commerce more accessible to small- and medium-sized enterprises in the city, a year after the two partners agreed to launch an eWTP hub in Yiwu. This is expected to speed up the shift to e-commerce for the world’s biggest small commodities market.  

As livestreaming has boomed in Yiwu, after this Spring Festival, the ZCCCG also built more than 200 free livestreaming chat booths in the market and organized training for the shop owners, encouraging them to sell in this way. But NewsChina saw only a few shops doing this in the market.  

Not all goods are suitable for livestreaming, said Zhang Yuhu, because products like large mechanical equipment and zippers are hard to demonstrate. The narrowing profit margin, unsustainable flow of incoming orders and impracticality of demonstrating goods prevent livestreaming from being widely used, experts said.  

“[Yet] it is inevitable that offline transactions will continue to decrease as the small commodities market develops an online presence,” said Chen Zongsheng, a professor of economics at Nankai University in Tianjin.  

Zhang Kuo, general manager of Alibaba.com, said that physical stores will only function as demonstration spaces. Some worry that even physical exhibition halls will become unnecessary as virtual showrooms are easy to set up.  

But Zhang Yuhu believes that it is not possible for e-commerce to totally replace the brick-and-mortar market. “Physical stores are necessary, at least in the near future. Seeing is believing. Foreign buyers still regularly visit Yiwu several times a year. Besides, regular offline contact helps maintain a good seller-buyer relationship,” said Zhang.  

Envisioning the small commodities market’s future in e-commerce, Yiwu boasts a remarkable edge with its sound supply chain and logistics, Zhang Jinyin said. All the links of the trade process, from shipment and clearance to quarantine, can take place within a five-kilometer radius in the city. The express delivery fee there is five times less expensive than other places in the country. These advantages, which have boosted traditional transactions, are expected to facilitate its online transition.  

But its weaknesses are also obvious. Compared with leading cross-border e-commerce cities like Shenzhen in Guangdong Province and Hangzhou, a tech hub just 130 kilometers away, Yiwu falls behind in talent and big influential e-commerce companies, Fan said. In the city, which does not have a university, for example, people who engage in e-commerce are usually from junior colleges, while many of their counterparts in Shenzhen and Hangzhou have postgraduate degrees. It is one of the gaps the county-level city will need to overcome if it is to catch up and transform its sales model. 

Miao Miao, an online vendor, prepares for her livestream, Yiwu, Zhejiang Province, July 13