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Saturday, May 15, 2021

Chinese factory owner embraces cutthroat ‘street vendor economy’ to survive

Exports and domestic orders have dried up, leaving manufacturers with little choice but to explore alternatives to sell off inventories. Large Chinese cities such as Beijing and Shenzhen continue to resist calls to promote ‘street vendor economy’, but clusters of hawkers can still be found

With tens of thousands of unsold dresses in his factory inventory, Huang Weijie knew he had to get creative if he hoped to survive the global economic downturn. So, he hit the streets to sell them one at a time – out of the back of his car.
And it turns out other small manufacturers in China have had the same idea.

For years, roadside stalls and mobile vendors have been frowned upon as a blight on China’s urban landscapes, representing disorder and backwardness in the eyes of Chinese authorities.

Urban management officers – civil servants known as Chengguan – were tasked with chasing vendors off the streets. And their heavy-handed approach often led to brawls, with peddlers beaten or their wares destroyed.

But last month, the government seemed to be changing its tune during the coronavirus pandemic when Premier Li Keqiang, the nation’s second-most senior leader, praised the city of Chengdu in Sichuan province for “creating 100,000 jobs by allowing 36,000 street stalls”.

Still, there was considerable resistance from larger metropolitan cities including Beijing, Shanghai and Shenzhen, where local authorities said a “street vendor economy” did not fit their plans. Some local authorities even vowed to step up their policing of street hawkers.

But Li’s ringing endorsement of street stalls was music to Huang’s ears. The 44-year-old owns a struggling garment factory in Guangdong province, China’s manufacturing and export hub.

Until this past spring, those turning to street vending to earn a living were mainly low-income and unemployed individuals. But as the pandemic has taken a heavy toll on both export orders and domestic sales, putting tens of millions of jobs in peril, even small manufacturers such as Huang are taking to the streets to survive.

“I was thinking of closing the factory [for good], but Li Keqiang’s support for a ‘street vendor economy’ inspired me to give this new way a try.”

So, Huang has taken to visiting various clusters of street stalls across the Pearl River Delta.

In contrast to the unemployed hawkers, who have the means to set up only meagre street stalls, Huang drives a white Toyota, with a tarp in the boot and a variety of colourful clothing filling the car.

He paid rent to set up a stall in various neighbourhoods of Guangzhou, Guangdong’s capital, then moved on to nearby Foshan a week later, and then on to other regional cities such as Dongguan and Zhongshan.

But he acknowledged that it was difficult to set up street stalls in the commercial centres of Guangdong’s bigger cities such as Guangzhou, Dongguan and Shenzhen. Street-stall clusters are mainly found in subdistricts of cities or townships – around industrial estates and factories.

Huang has been running his factory for the better part of a decade, but where business was once booming, it has all but dried up in the current economic climate, leaving him with a massive inventory of unsold dresses.

“I have tens of thousands of dresses, all of which have been in storage since late last year,” Huang said.

Huang first tried to sell in Guangzhou’s wholesale markets and retail stores, but he found little help. After Li’s endorsement, Huang began to test whether the emerging street markets could help him sell his ample inventory, and possibly become a channel for stable cash flow that would allow his factory to resume minimal operations later this year, rather than close permanently.

Huang’s plight is far from unique in China. A large number of small manufacturers of all stripes – from footwear to clothing to hardware, regardless of whether the product is for export or for domestic sales – have been hit hard by the impact of the global coronavirus pandemic and are now facing severe shortages of capital to continue operations amid a growing inventory backlog.

“Everyone was looking forward to a recovery of exports, but we are now finding that it was a dream as we watch coronavirus cases continue to climb globally,” Huang said. “Meanwhile, we can’t make the payments to keep operating our factories, as we have run out of cash.”

Liang Lu, who runs an association of manufacturers in Dongguan, pointed to an endless stream of news about manufacturers being forced to close and urgently sell off their inventories, or simply shut down.

“Last week, a sock factory came to us for help to promote sales for 4 million unsold pairs, and this week a footwear factory came with tens of thousands of pairs of its stock worth 16 million yuan (US$2.29 million),” Liang said. “Many goods made for export just sit in the factories’ warehouses.”

On July 15, Guangzhou-based Lida footwear announced that it would close, putting 1,200 employees out of work. The company said its export business had been severely damaged by the pandemic and the Sino-US trade war. In its statement to employees, the company said its board of directors had exhausted all measures to increase orders and cash flow, but its efforts did not go as planned, and the company had no choice but to shut down.

According to Huang, there are fewer and fewer people and businesses at Guangzhou’s wholesale market clusters. These had been China’s largest distribution centres, constantly filling orders and shipping goods to all parts of the country and the world.
“The sales at those clothing wholesale markets have languished, and there are few foreign buyers,” Huang said.

In May, Huang tried to sell his goods on Shangxiajiu, Guangzhou’s busiest pedestrian-only shopping street, but failed. “I rented an empty small shop for a month from May 2 with a rent of 3,500 yuan (US$500),” he said, adding that the same shop would have cost about 6,000 yuan a month last summer.

Shangxiajiu is home to hundreds of shops, including several malls featuring an interesting mix of old European and Chinese architecture. And it is perhaps the best place to observe the state of Guangdong’s consumer spending.

Before the pandemic, Guangdong was home to more than 40 million migrants from across the country, so Huang expected Shangxiajiu to be fertile sales territory. But that wasn’t the case.

“For the whole month, I made less than 4,000 yuan at the Shangxiajiu shop,” Huang said. “It made me think that the spending power of the migrant population living in Guangdong is much worse than before, and that many migrants have left because of factory shutdowns.”

Huang said shops in the district were engaging in cutthroat price wars in a desperate attempt to sell off their stock. “Everyone is racing to cut prices and destock,” he said. “When one company starts to drop its price to 40 yuan (US$5.72) for a summer dress, the next cuts to 35, and then others are willing to sell at 30 and even 20.

“But even with the fierce price wars, everyone’s sales are still very low.”

In the past month, Huang has spent 350 yuan to rent a studio flat, furnished with only a metal bunk bed, inside the Xiaolan neighbourhood of Zhongshan city. Then he went looking for clusters of street stalls within 20km of his flat.

“Actually, I’m exploring and making a map of the delta’s clusters of street stalls nearby where a large number of migrant workers work and live,” he said. “Most street stalls are usually three metres (10 feet) by two metres (6.5 feet) and cost between 400 and 600 yuan a month to rent. In some places I could make 500 yuan per night, some just 200 yuan. It depends on how many factories are still operating nearby.

“I’m going to set up 20 street stalls or more and hire some people at those places so I can sell more.”

But the uncertain outlook nags at Huang. “I set up a street stall for the past two months, and went to many industrial estates. The nights are just quiet at the industrial estates where workers used to work overtime until midnight a couple of years ago.”
And the situation for small manufacturers may get worse before it gets better.

Simon Zhao, an associate dean with the division of humanities and social sciences at Zhuhai’s United International College, speculated that Chinese factories will continue to close because both domestic and overseas demand will be weak in the coming months.

“This will continue until production capacity of market participants is in balance with market demand,” Zhao said.


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