The electronic dog and the significance of Yiwu

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Xinhua reported on Thursday that China's first market credit index has been launched in Yiwu. The index, to be published monthly, includes eight sub-indices: credit management, entrepreneur quality, business performance, financial credit, fair competition, commodity quality, intellectual property rights and consumer rights protection - all aimed at reflecting the "development, changes and trends of the credit situation in the Yiwu market."

Located in Jinhua city in Zhejiang province, with a total population of 1.6 million people (including one million non-native residents, a fact supposedly indicative of Yiwu's success as a trading city), Yiwu was an impoverished rural area in the 1970s, but the city has now been hailed as the world's largest platform for the transaction of Christmas presents and a paradise for foreign traders from all over the world; the city's commodity wholesale market, Yiwu China Commodity City has been called The Great Mall of China.

With a trading heritage dating back to the early Qing dynasty when a peddler's organization developed from peasants trading brown sugar for rooster feathers (used in compost), the Yiwu of today originated during the 1970s when vendors spontaneously established two periodic markets. From small-scale family crafts production, capital accumulation in the 1990s led to the establishment of modern mass-producing factories which by 2004 were made up of eight large clusters: socks, shirts, wool, accessories, zippers, toys, key sticks and printing.

With Yiwu trade fairs reaching a total trade value of 9.45 billion Yuan in 2006 and attracting product displays from 110,000 business people in 2007, the success of Yiwu is also derived from local government reform policies since 1982, when restrictions on business were eased and the informal periodic market became the regular Yiwu Commodity Market, utilizing extensive local linkages and distribution systems. As business expanded and constraints appeared, new generations of markets developed in succession to the original. Thus while Yiwu has become a massive marketplace and sourcing platform, it is a product of a long-standing Chinese business heritage as well as a modernizing element of China's modern business network.

Yet with its emphasis on providing cheap, low-end products for global sourcing networks, Yiwu's potential in moving up the value chain is as yet not entirely defined, and Clay Chandler, Fortune magazine's Asia editor, recently wrote that he found
little at Yiwu to suggest Zhejiang's small producers are making the shift from quantity to quality... my visit to Yiwu left me questioning whether Zhejiang's vaunted entrepreneurs have what it takes to climb the global value chain. Part of the trouble, cearly, is that China's financial system - rigged in favour of state-owned giants and foreign multinationals - deprives small, homegrown companies of the capital they need to invest in new technologies and marketing and move beyond commodities to unique, high-value brands.
At least U.S. Secretary of Commerce Carlos Gutierrez, when recently visiting China, was impressed with the gift of an electronic dog he received from Li Changjiang, director of the General Administration of Quality Supervision, Inspection and Quarantine (GAQSIQ). China Daily reported Gutierrez describing the gift as "very lovely, very interesting."

Additional sources:

DING, K, Distribution System of China's Industrial Clusters: Case Study of Yiwu China Commodity City, Institute of Developing Economies Discussion Paper No. 75. LINK

Shanghai Business Review, Volume 3, Issue 6, July 2006. LINK

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