"The best market in the world"

A small town in China is now the undisputed global capital of zippers and buttons, a microcosm of what's happening throughout the country.

Published May 25, 2005 3:33PM (EDT)

The next time you undo your flies, cast your mind eastward toward Qiaotou. For no matter whether you are wearing bell-bottom jeans, a pencil skirt or tracksuit bottoms, the chances are that the button or zipper originated in this dusty, dirty town in Zhejiang province. Located slap-bang in the middle of nowhere, Qiaotou is the sort of place you might drive through without noticing. It is too small to be marked on most Western maps of China, too insignificant to merit a mention in newspapers and so little known that few outside the local county have heard its name. But in just 25 years, this humble community has destroyed most of its international rivals to become the undisputed global capital of buttons and zippers.

During that time, Qiaotou has transformed itself from a farming village into a manufacturing powerhouse -- a microcosm of what has happened to the entire Chinese economy. It is a familiar story. Paddy fields have been cleared for factories. Peasants have become industrialists. The river, which used to be a clean source for irrigation, is now a heavily polluted outlet for brightly colored plastic waste.

The commercial revolution here is on a scale and at a pace that exceed anything under Mao Zedong. The first small workshop was established in 1980 by three brothers who picked up their first buttons off the street. Now the town's 700 family-run factories churn out 15 billion buttons and 200 million meters of zippers a year. The low-investment, labor-intensive industry was ideal for this remote community. And it could not have timed its rise better. Qiaotou began popping buttons just as China started dressing up. Out went the Mao suits, and in came wardrobes of Western clothes.

If you're looking for a button of exactly the right shape, size and material, this is the place to come. Every day, the wives and daughters of factory owners hawk bags of plastic, cloth, leather and metal samples on Market Street, where the town boasts it has 1,300 button shops selling 1,400 varieties of buttons.

And buyers do indeed come from all over the world. Attracted by prices of less than a penny a zipper and decent quality, international retail outlets and fashion houses are increasingly purchasing from Qiaotou. The local chamber of commerce estimates that three out of every five buttons in the world are made in the town. It ships more than 2 million zippers a day, making it the biggest winner of China's 80 percent share of the international zipper market.

Until recently, such mind-boggling statistics were used as evidence of the Chinese miracle. Now, however, the global domination of manufacturing towns such as Qiaotou is increasingly being discussed in very different terms: as a sign of the Chinese threat.

After the insanity of the Cultural Revolution, the world cheered on the market-oriented reforms initiated by Deng Xiaoping. Growth of more than 9 percent a year for more than two decades has lifted hundreds of millions out of poverty. Consumers across the globe have benefited from the cheap goods churned out by low-paid factory workers in Qiaotou and elsewhere.

But in the past few months, the cheers have been replaced by warnings. A flood of Chinese goods has swept into European and American markets, threatening jobs and alarming Washington and Brussels. Last year, America's trade deficit with China hit $162 billion -- the largest imbalance ever with a single country -- while Europe's deficit rose to 18 billion euros. In the first four months of this year, textile imports from China rose more than 100 percent; last week, the Bush administration responded by setting a limit on shipments of jackets, trousers and shirts. Europe has taken a less aggressive line, but it has also set quotas to protect its clothing industries from Chinese competitors. The advantage does not just come from low wages, however; Washington has also ratcheted up pressure on Beijing to reevaluate its currency -- the yuan, or renminbi -- which U.S. manufacturers claim is undervalued by 40 percent, giving Chinese exporters an unfair advantage.

Qiaotou's businessmen are unfazed. "Even if we lose a few customers in the short term, they will have to come back," says Ye Ke Lian, president of the Great Wall Zipper group. "There is almost nowhere else in the world that makes zippers." A more urgent problem is a shortage of labor and electricity -- both of which suggest the market is already working to reduce China's trade surplus. As well as having to import more oil, labor costs look set to rise. Qiaotou used to rely on a seemingly inexhaustible supply of migrant workers, but salaries of 1,000 yuan (about $120) a month are no longer enough to lure peasants from the countryside. The town currently has about 50,000 migrant workers, but this is 10 percent fewer than it needs.

Qiaotou's zipper and button tycoons have experienced tougher times. Ye was a child during the Great Leap Forward, when he remembers many of his neighbors not having enough to eat, and grew up during the persecution of the Cultural Revolution. "Everyone was poor. I didn't get my first bicycle until my 20s. I bought my first car only five years ago." His company today owns three factories, employs 1,000 people and claims assets of 80 million yuan.

It is a similar story throughout the southern coastal provinces -- the heartland of Chinese manufacturing. With endless streets of giant factories and company dormitories, the most developed areas, such as Shenzhen and Shanghai, are the modern-day equivalents of Manchester and Birmingham, England, at the peak of the Industrial Revolution. But many small towns, not even worthy of a speck on most maps, have also become worldbeaters by focusing on labor-intensive niches.

Drive through the verdant Zhejiang and Jiangsu countryside and the hills and forests give way to manufacturing communities that dominate global markets. Start at the toothbrush town of Hang Ji, pass the tie mecca of Sheng Zhou, head east to the home of cheap cigarette lighters in Zhang Qi, slip down the coast to the giant shoe factories of Wen Ling, then move back inland to Yiwu, which not only makes more socks than anywhere else on Earth but also sells almost everything under the sun.

For if China is the workshop of the world, Yiwu is its showroom. Selling everything from engine parts and cranes to hairclips and costume jewelry, this local market has grown from a few dozen street stalls 10 years ago to become the world's biggest commodity trading center. It is now home to three giant wholesale malls covering a floor space of 800,000 square meters. Half as much space again will be added in October with the completion of the second stage of the international trade center.

The town is rapidly becoming the world's bazaar, with 34,000 stall holders selling a stunningly colorful smorgasbord of locally made, gloriously tacky products. There are alleys full of plastic crocodiles and inflatable guitars, forests of fake plants and plastic flowers, and football pitches full of every size and type of ball imaginable.

Wholesale purchasers come here from all over the globe. The town estimates that 5,000 foreign merchants have established permanent bases in Yiwu. Each year, an additional 200,000 visit for short-term sprees, snapping up containers of trinkets for resale in gift shops. Religious boundaries are no barrier: One stall sells battery-powered frames with illuminated verses from the Quran beside flashing portraits of Jesus and images of Krishna.

"This is the best market in the world right now," says Lucia, a buyer from Bulgaria. "I used to buy from Turkey, but things in China are so cheap you can't imagine." On this trip -- one of six she makes every year -- she plans to spend $60,000, enough to fill two containers with toys, hair decorations and shells. She sells them with a 300 percent markup in Italy, less in Romania.

While most buyers seem to be from the Middle East, Ye says buyers from big Western companies also source many of their products in Yiwu. Few like to reveal their activities, not least because Yiwu's products are often made under license for resale as brand-name goods. Some purchasers, however, just want to keep their rivals from finding out about Yiwu. "This was our secret," says a regular British customer. "Now word about Yiwu is getting out, so we are having to look elsewhere."

According to local officials, Yiwu sells almost 500 million yuan of goods to the U.K. each year -- a fraction of its 29.9 billion yuan in exports. With growth of 30 percent a year, the town is now aiming to become the world's largest supermarket. "We've only just started to go global, but once foreign customers hear about us, they'll come in droves," says He Pei Song, president of the Zhejiang China Commodities City group, which runs the international trade center. "Nowhere else offers this variety of products at this price. China is the cheapest country in the world, and we are the cheapest market in China. So people can make big profits by buying here and selling back home."

That is, of course, how a free market works. But this one is being threatened by the protectionist winds blowing through the corridors of power. U.S. talk of unfair currency manipulation and the need for trade quotas has been heard before. Japan's domination of the world markets for cars and electronics in the 1980s led to a fierce trade dispute and pressure for appreciation of the yen. When Tokyo gave in, the flood of money into Japan inflated an enormous speculative bubble in the early '90s, which burst after a decade of economic stagnation.

China is anxious that its miracle should not sour like Japan's, but at least it can argue that it is less of an economic threat: While Sony and Toyota were taking on U.S. manufacturers in high-tech, high-value sectors, China's biggest exporters are still low-tech operations such as those in Qiaotou and Yiwu. When Japan was accused of taking over the business world, the average income of its workers had surpassed that of their counterparts in the United States, with average salaries of over $20,000 in 1990. The same could not be said of China, where average incomes only recently passed $100 a month.

"Foreign countries say they want China to develop, but when we do, they become frightened of us," says Wu Xie'en, the head of Huaxi village, which has rapidly built a steel and textile industry. "China is changing. The countryside is changing. So are our attitudes. Change is a cause for hope. But China needs to be given time. We need stability."

After two decades allowing towns such as Qiaotou and Yiwu to grow almost unnoticed, the world has suddenly realized just how powerful these specks on the map have become. Thanks to globalization, the crotches of the world are being zipped and buttoned up by deft-fingered migrant workers in a Zhejiang backwater, billions of our teeth are being brushed with bristles from Huang Zi, our cigarettes are being lit by the sparks of Zhang Qi, and our toes are being covered by the socks of Yiwu.

And it is hard to imagine that this will end anytime soon. Lanswe, the biggest sock and stocking manufacturer in the world, spins out 2 million socks a day. Within two years the company plans to triple its workforce to 15,000 and increase output to 5 million socks a day. Textile quotas or no textile quotas, half of them are destined for export.

The company's president, Weng Rong Jin, says he can understand why Brussels wants to restrict this growth, even though it might hurt his business. But in the long run, he says, change must come through market forces rather than export quotas and currency manipulation. "Even if the yuan gets stronger, rich countries will still import socks because they cannot make them cheaply enough themselves. If rich nations really want to compete with China, they need to make us richer. That's the best way to make prices rise here."

By Jonathan Watts

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