To the unsuspecting outsider, Beixiazhu looks like an unremarkable Chinese village. But for years it was the place to be for ambitious traders hoping to strike gold in the country’s booming live-streaming e-commerce industry — until the competition boiled over and drove out sellers as quickly as they arrived.
The frenzy started around 2019, when livestreaming e-commerce took off on short-video platforms like Kuaishou Technology and ByteDance’s Douyin. Located on the outskirts of Yiwu City in eastern Zhejiang province, the global wholesale capital, Beixiazhu became an ideal launching pad for go-getters eager to tap into a growing industry that promised fame and fortune just a livestream away.
Today, the legacy of that period still lingers in the 99 houses once occupied by livestreaming vendors in Beixiazhu. Signs advertising “super supply chains” and “viral hot-selling livestream products” remain on storefronts. On a weathered wall you can still make out a fading painted slogan: “Why come to Yiwu without dreams?”
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But the bustling hustle and bustle has disappeared. Store owners, who once rushed to pack orders, have slowed their pace.
Ads in Beixiazhu promoting classes for aspiring livestreamers and “super supply chains” for sellers. Photo: Wency Chen alt=Ads in Beixiazhu promoting classes for aspiring livestreamers and “super supply chain” for sellers. Photo: Wency Chen>
One business owner, pointing to a narrow path outside his store, said the place used to be packed with cars and livestreamers. If a product went viral, everyone would jump on it and sell it at a lower price to beat each other. Eventually it got to the point where no one was making any money and everything fell apart, he said.
That kind of cutthroat competition is locally referred to as Juana word that has entered the Chinese cultural lexicon in recent years. Derived from the Chinese term for involution, it describes a society or industry caught in a brutal rat race without real progress, with people undermining each other until all resources are exhausted.
The growing involution was one of the key factors behind the Chinese government’s abrupt economic policy shift late last month, as excessive competition threatens to disrupt Beijing’s goal of improving its supply chain. It comes after the nations’ top leaders stated unequivocally over the summer that “involution-style” competition should be avoided.
Beixiazhu’s demise serves as a warning for China’s e-commerce sector, which has been locked in a fierce price war since last year amid a post-pandemic economic slowdown and sluggish domestic spending.
Outside one of the dozens of buildings in Beixiazhu was once occupied by livestreamers. Photo: Wency Chen alt=Outside one of dozens of buildings in Beixiazhu were once occupied by livestreamers. Photo: Wency Chen>
Industry giants from Douyin to Taobao and Alibaba Group Holding’s Tmall Group have adjusted their recommendation algorithms to prioritize prices. JD.com launched a major grant campaign and doubled down on its budget shopping platform. Alibaba owns the South China Morning Post.
Discount shopping platform operator PDD Holdings, operator of Pinduoduo and its cross-border sibling Temu, took advantage of the spending slump in China to entice more price-conscious consumers, resulting in an eye-popping 90 percent growth in both profits and sales. 2023.
The race to the bottom of prices is clearly palpable in Yiwu.
Located just a 10-minute drive from Beixiazhu, the Yiwu International Trade Market is known as the world’s largest wholesale hub for small manufactured items.
A bird’s eye view of Yiwu’s international trade market. Photo: Wency Chen alt=A bird’s eye view of the Yiwu International Trade Market. Photo: Wency Chen>
Covering 6.4 million square meters across five major districts, the huge market is a maze of intersecting alleys and some 75,000 stalls. According to official figures, around 2.1 million items are sold there. The location is so important to China’s economy that President Xi Jinping visited it last year as part of his inspection tour of Zhejiang.
In 2023, Yiwu’s export volume rose 16 percent year-on-year to more than 500 billion yuan, with cross-border e-commerce contributing about 121 billion yuan, according to government figures.
On a recent day, the market was abuzz with trading. Buyers from all over the world negotiated prices. Others rushed the aisles, live streaming their latest finds to the online audience. Piles of merchandise were sprayed across the floor, ready to be packed: no fancy branding, just rock-bottom prices. A flower-shaped hair claw cost 1 yuan ($0.14), a Stanley tumbler lookalike sold for about 10 yuan, and yoga pants cost about the same.
But while business is booming, many small merchants say it is becoming increasingly difficult to make money.
“The involution has come too quickly to our industry, leading to unhealthy practices,” said Huang Qianqian, a Yiwu trader who sells mainly to Southeast Asian customers through Shopee, Shein, TikTok Shop and Temu. The main problem in the sector is an oversupply of goods combined with a lack of purchasing power, she said.
Within Yiwu international trade market. Photo: Wency Chen alt=Inside Yiwu International Trade Market. Photo: Wency Chen>
Further down the supply chain, manufacturers are also struggling with razor-thin profits. “In the past, orders from a few big customers were enough to make money,” said Zhang Jianhong, owner of a garment factory and a stall in the Yiwu Market selling colorful stockings and bodysuits decorated with eye-catching patterns.
Zhang has worked in Yiwu for more than two decades and has witnessed how rising rents and labor costs have eroded her profit margins, which have fallen from 40 percent to 10 percent. For suppliers like Zhang, the Internet can be a double-edged sword: While an online presence helps bring in new customers, it also makes it easier for competitors to copy products and undercut prices.
“Our goal for the next few years is just to survive,” she said, noting that her company is prioritizing design, hoping to create products that stand out.
The Juan According to industry watchers, the phenomenon will not disappear anytime soon.
“Overall consumer demand in China remains weak and concerns about deflation persist,” said Kenny Ng Lai-yin, strategist at Everbright Securities International. As the country’s real estate market has crumbled, household wealth has declined, as has consumer confidence, he added.
China’s retail sales, an indicator of consumer activity, remain weak, rising just 2.1 percent year-on-year in August, a month that typically benefits from the peak in summer travel, according to National Bureau of Statistics data. Online sales of goods rose less than 1 percent, while the consumer price index grew only 0.6 percent, indicating deflationary pressures.
Industrial production rose a lower-than-expected 4.5 percent in the same month, while industrial profits plunged nearly 18 percent, adding to a recent wave of gloomy economic data.
The economic challenges are reflected in corporate earnings and investor sentiment.
Alibaba’s core e-commerce businesses, Taobao and Tmall Group, posted a meager 0.85 percent year-on-year revenue growth in the first half of this year, while order volume and gross merchandise value of its domestic e-commerce business both registered a growth of almost double digits compared to last year.
PDD, which reported a doubling of sales in the first six months and a nearly 183 percent year-on-year profit increase, saw its shares fall 25 percent in one day after the company warned of uncertainties and downward pressure on profits amid the increasing competition.
“Transaction volume on the major e-commerce platforms remains robust, but profitability is under pressure, indicating that both merchants and platforms are willing to sacrifice short-term profits for long-term gains,” said Everbright’s Ng.
Under Beijing’s warning against involution, e-commerce platforms are trying to move away from competing solely on price.
Alibaba and ByteDance have started to downplay low prices in their recommendation systems. Douyin, TikTok’s Chinese sibling, will not “simply pursue absolutely low prices,” Wei Wenwen, president of Douyin’s e-commerce company, said at an internal meeting in July.
Platforms have also adopted more merchant-friendly policies. Since September, Alibaba’s Tmall has waived its annual software service fees, which previously ranged from 30,000 yuan to 60,000 yuan. Pinduoduo, meanwhile, pledged to waive 10 billion yuan in transaction fees for “high-end” traders, while cutting fees and deposits for technology services and eliminating logistics costs.
In the long term, competition in the sector will increasingly focus on factors such as product quality, service and supporting infrastructure, Ng said.
Live streamers broadcast from a store in Yiwu selling knitted decorations and accessories. Photo: Wency Chen alt=Livestreamers broadcast from a store in Yiwu selling knitted decorations and accessories. Photo: Wency Chen>
Help appears to be on the way amid the e-commerce sector’s troubles.
Ahead of China’s weeklong National Day holiday, which started on October 1, Beijing unveiled a bold stimulus package aimed at reviving economic growth. It includes measures to lower borrowing costs and boost the struggling housing market, aimed at boosting consumption and investment.
The stimulus plan is expected to have a bigger impact next year as it takes time for the government to implement policies, Ng said.
For many companies in Beixiazhu, the good news may have come too late. Many merchants have already moved there and some of the surrounding areas of the village are slated for demolition.
A snack bar owner said there are fewer and fewer people left. He plans to leave next month.
Still, others prefer to look on the bright side.
“I feel that optimism prevails in Yiwu,” said Huang, the Yiwu-based trader who sells to Southeast Asian consumers. “There is confidence that money can still be made. Uncertainty is part of it, as always.”
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice covering China and Asia for more than a century. For more SCMP stories, explore the SCMP app or visit the SCMP Facebook page Tweet pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.
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