To the unsuspecting outsider, Beixiazhu looks like any unremarkable Chinese village. But for years, this was the place to be for ambitious merchants hoping to strike gold in the country’s booming live-streaming e-commerce industry – until the competition simmered to a boil, driving out sellers as quickly as they arrived.
The frenzy began around 2019, as live-streaming e-commerce took off on short-video platforms like Kuaishou Technology and ByteDance‘s Douyin. Beixiazhu, sitting on the outskirts of eastern Zhejiang province’s Yiwu city, the global wholesale capital, became an ideal launch pad for go-getters eager to tap into a growing industry that promised fame and fortune just a live stream away.
Today, the legacy from that period still lingers in the 99 houses once occupied by live-streaming sellers in Beixiazhu. Signs advertising “super supply chains” and “viral hot-selling live-stream products” remain displayed on storefronts. On a weathered wall, one can still make out a fading painted slogan: “Without dreams, why come to Yiwu?”
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But the bustling crowds have vanished. Shop owners, once hurriedly packing orders, have slowed their pace.
Advertisements in Beixiazhu promoting classes for aspiring live streamers and “super supply chains” for merchants. Photo: Wency Chen alt=Advertisements in Beixiazhu promoting classes for aspiring live streamers and “super supply chains” for merchants. Photo: Wency Chen>
A business owner, pointing at a narrow path outside his shop, said the place used to be jammed with cars and live streamers. If one product went viral, everyone would jump on it, selling it a lower price to beat each other out. Eventually, it came to a point when no one was making any money, and everything fell apart, he said.
That kind of cutthroat competition is referred to locally as juan, a word that entered the Chinese cultural lexicon in recent years. Derived from the Chinese term for involution, it describes a society or an industry caught in a relentless rat race with no real progress, as people undercut each other until all resources are drained.
Rising involution was one of the key factors behind the Chinese government’s abrupt economic policy shift at the end of last month, as excessive competition threatens to disrupt Beijing’s goal of upgrading its supply chain. It comes after the nations’ top leadership stated unequivocally over summer that “involution-style” competition should be avoided.
The downfall of Beixiazhu serves as a cautionary tale for China’s e-commerce sector, which has plunged into a fierce price war since last year amid a post-pandemic economic slowdown and sluggish domestic spending.
Outside one of the dozens buildings in Beixiazhu there were once occupied by live streamers. Photo: Wency Chen alt=Outside one of the dozens buildings in Beixiazhu there were once occupied by live streamers. Photo: Wency Chen>
Industry giants from Douyin to Alibaba Group Holding‘s Taobao and Tmall Group tweaked their recommendation algorithms to prioritise pricing. JD.com launched a major subsidy 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, capitalised on the spending slump in China to entice more budget-conscious consumers, resulting in an eye-popping 90 per cent growth in both profit and revenue in 2023.
The race to the bottom in pricing is keenly felt in Yiwu.
Located just a 10-minute drive from Beixiazhu, Yiwu International Trade Market is known as the world’s largest wholesale hub for small manufactured items.
A bird’s-eye view of the Yiwu International Trade Market. Photo: Wency Chen alt=A bird’s-eye view of the Yiwu International Trade Market. Photo: Wency Chen>
Spanning 6.4 million square metres (69 million square feet) across five large districts, the vast market is a maze of intersecting alleys and some 75,000 booths. Some 2.1 million items are sold there, according to official figures. So important is the site to China’s economy that President Xi Jinping paid a visit there last year as part of his inspection tour of Zhejiang.
In 2023, Yiwu’s export volume rose 16 per cent year on year to reach over 500 billion yuan, with cross-border e-commerce contributing around 121 billion yuan, according to government figures.
On a recent day, business was abuzz around the market. Buyers travelling from across the globe haggled over prices. Others scurried through aisles, live-streaming their latest finds to online audiences. Piles of merchandise were sprayed across the floor, ready to be packed: no fancy branding, just rock-bottom prices. A flower-shaped hair claw went for 1 yuan (US$0.14), a Stanley tumbler lookalike sold for around 10 yuan, and a pair of yoga pants cost roughly the same.
But while business is roaring, many small merchants said they find it increasingly difficult to make money.
“Involution has come too fast to our industry, resulting in some unhealthy practices,” said Huang Qianqian, a Yiwu merchant who sells mostly to Southeast Asian customers on Shopee, Shein, TikTok Shop and Temu. The main issue in the sector is an oversupply of goods combined with a lack of purchasing power, she said.
Inside the Yiwu International Trade Market. Photo: Wency Chen alt=Inside the Yiwu International Trade Market. Photo: Wency Chen>
Further up the supply chain, manufacturers are also grappling with razor-thin profits. “In the past, orders from a few big clients would be enough for us to make money,” said Zhang Jianhong, owner of a clothing factory and a stall at the Yiwu market that sells colourful stockings and bodysuits adorned with bold patterns.
Having been in Yiwu for more than two decades, Zhang has witnessed how rising rents and labour costs are eating into her profit margins, which have plunged to 10 per cent from 40 per cent. 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 rivals to copy products and undercut prices.
“Our goal for the next couple of years is just to survive,” she said, noting that her company is prioritising designs, hoping to create products that stand out.
The juan phenomenon is not going away any time soon, according to industry watchers.
“China’s overall consumer demand remains weak, with deflation concerns persisting,” said Kenny Ng Lai-yin, a strategist at Everbright Securities International. As the country’s real-estate market crumbled, household wealth has declined along with consumer confidence, he added.
China’s retail sales, an indicator of consumption activity, remain sluggish, rising just 2.1 per cent year on year in August, a month that usually benefits from peak summer travel, according to data from the National Bureau of Statistics. Online sales of goods edged up less than 1 per cent, while the consumer price index grew only 0.6 per cent, hinting at deflationary pressure.
Industrial production rose at a lower-than-expected 4.5 per cent in the same month, while industrial profits plunged nearly 18 per cent, adding to a recent spate of bleak economic readings.
The economic challenges are reflected in company earnings and investor sentiment.
Alibaba’s core e-commerce unit, Taobao and Tmall Group, posted a meagre 0.85 per cent year-on-year growth in revenue in the first half of this year, even as order volume and gross merchandise value of its domestic e-commerce business both achieved nearly double-digit growth from last year.
PDD, which reported a doubling in revenue and nearly 183 per cent jump in profit year on year for the first six months, saw its shares slide 25 per cent in one day after the company warned of uncertainties and downward pressure on profits amid rising competition.
“Transaction volume on major e-commerce platforms remains robust, but profitability is under pressure, which indicates 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 have been trying to shift away from competing solely on price.
Alibaba and ByteDance have started to play down low prices in their recommendation systems. Douyin, the Chinese sibling of TikTok, will not “simply pursue absolute low prices”, Wei Wenwen, president of Douyin’s e-commerce business, said during an internal meeting in July.
Platforms have also rolled out more merchant-friendly policies. Since September, Alibaba’s Tmall has waived its annual software service fee, which previously ranged from 30,000 yuan to 60,000 yuan. Pinduoduo, meanwhile, pledged to waive 10 billion yuan in transaction fees for “high-quality” merchants, while lowering technology service fees and deposits, and removing logistics costs.
In the long run, industry competition will focus increasingly on factors such as product quality, service and supporting infrastructure, Ng said.
Live streamers broadcast from a shop in Yiwu selling knitted decorations and accessories. Photo: Wency Chen alt=Live streamers broadcast from a shop in Yiwu selling knitted decorations and accessories. Photo: Wency Chen>
Help appears to be on the way amid the e-commerce sector’s struggles.
Ahead of China’s week-long national holiday that began on October 1, Beijing unveiled a bold stimulus package aimed at reviving economic growth. It includes measures to reduce borrowing costs and boost the struggling housing market, designed to spur consumption and investment.
The stimulus plan is expected to have a greater impact next year, because it takes time for the government to implement policies, according to Ng.
The good news may have come too late for many businesses in Beixiazhu. There, many merchants have already moved out, and part of the village’s surrounding areas are slated for demolition.
A snack shop owner said there are fewer and fewer people remaining. He plans to leave next month.
Still, others prefer to look on the bright side.
“I feel that in Yiwu, optimism prevails,” said Huang, the Yiwu-based merchant who sells to Southeast Asian shoppers. “There is confidence that money can still be made. Uncertainty is just part of the game, as always.”
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP’s Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2024. South China Morning Post Publishers Ltd. All rights reserved.
