China's vast domestic market is becoming increasingly attractive to Hong Kong companies, now that China has gained access to the WTO and, with that move, is decentralising its foreign trade rights. A Hong Kong business group visited Yiwu in Zhejiang province, to search out just what business opportunities are there. Group members say the city can serve as an excellent domestic sales channel for Hong Kong traders.
Yiwu in central Zhejiang is only two hours' drive from Hangzhou and there are regular flights to and from Guangzhou and Shenzhen. It is a small-to-medium-sized city with a population of about 600,000.
Stalls in the City: a host of products. A large number of traders are engaged in the wholesale and export of small commodities in Yiwu - items like ties, socks, stockings, zippers and clothing accessories (but that list is by no means exhaustive).
The city's wholesale market consists of the China Small Commodities City, together with specialised markets and streets - but Commodities City is the most significant.
China Small Commodities City combines production and marketing
China Small Commodities City grossed Rmb19.3 billion in turnover in 2000, and the figure is expected to reach Rmb21 billion this year; in fact, it has been the country's top-billing specialised market for the past 10 years.
Textiles on display. Besides clothing and accessories, the China Commodities City deals in a wide variety of other wholesale sectors, including ornaments, toys, hardware, household items, electrical appliances, shoes, handicraft articles, and cosmetics.
Some wholesalers have factories in neighbouring areas, typically entering trade and manufacturing after building up a steady stream of customers. Xinguang, a famous local ornament manufacturer, is a case in point. So, Yiwu crosses the line from wholesale centre to also being a production base.
Not just clothing, but commodities. Most of the businesses in Yiwu are private, small- and medium-sized enterprises (SMEs). Some are no more than township enterprises: for example, a small ornaments company may operate simply by outsourcing its production to households in townships and villages. There are also operations that have created their own brand names, such as Dinghao neckties and Langsha socks.
The bulk of commodities sold in Yiwu are low-end products. In addition to those made locally in the city and other parts of Zhejiang, many of the goods sold in the market come from coastal areas such as Guangdong. For example, some of the toys are sourced from Chenghai. The proprietor of a local manufacturer of electronic watches notes that watches made in Hong Kong are higher-end products with price quotes higher than his export prices.
Keen competition, easy accessibility
Local businesses are joined by merchants from outside the city, who come to Yiwu to set up stalls or stores to wholesale their own products or act as distributors. At present, the China Small Commodities City charges a monthly rental of Rmb80 (HK$75.4) for a 2 sqm stall, but tenants may sublet the space at a profit. The China Small Commodities City can apply for the relevant business licences on behalf of its tenants.
Specialist street in Yiwu. Some of the wholesale stalls are also retailers. Minimum wholesale quantities can be quite small. For example, toys can be sold in batches of a dozen or so pieces.
The relationship between wholesalers and suppliers may take different forms. Some wholesalers "buy out" the goods with cash while others make purchases by "periodic payment" or on credit. Some manufacturers offer "progressive" incentives to their dealers on the basis of annual sales, that is, the higher the sales value, the bigger the incentive payment. Dinghao Neckties uses this method. On the whole, prices are very competitive because all wholesalers are adopting a "low profit margin, high sales volume" strategy.
Good transportation is essential for a wholesale and distribution centre. Since most of the buyers go for spot stocks, wholesalers must first ship the products from the production point to Yiwu. Besides originating in Yiwu and other parts of Zhejiang, most of the goods are sourced from the coastal areas. The producers are sometimes asked to deliver directly to buyers where big orders are concerned, but this is rare.
The Yiwu City Multi-modal Transportation Corporation is the only enterprise authorised by the government to handle different transport modes at the same time. The company has an extensive distribution network, with over 130 routes serving more than 250 cities. Hong Kong is reachable in two days.
The city's international transport services include consolidating cargoes, bookings, storage, transit, container handling and customs declarations. Shipping is mainly through the port of Ningbo. As for air transport, a logistics centre has been built at the airport and cooperation developed with customs, as well as inspection and quarantine authorities.
Opportunities for Hong Kong export from yiwu
Yiwu is an active trade centre, and one that appears to be readymade for Hong Kong companies prepared to plan carefully if they want to break into the domestic market. Although goods sold in Yiwu are lower end and prices are very competitive, some Hong Kong companies that have visited the city regard Yiwu as a natural springboard into the domestic market.
A number of local wholesalers have also expressed interest in purchasing higher-end products from Hong Kong, and there is room for cooperation between SAR companies and local wholesalers in parts and components production.
Other than selling goods, some Hong Kong companies are considering purchasing materials from Yiwu for production or trading because of their attractive prices. A Hong Kong trading company says it started trading with Yiwu at the request of a Greek client who asked specifically that purchases be made there.
Yiwu may be a small city, but its uniqueness as a wholesale market has attracted many foreign investors who see the future becoming even brighter.china gifts
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