China’s ‘erotic clothes’ capital braces for Trump and e-commerce crackdown

By Casey Corridor, Florence Lo and Xihao Jiang

GUANYUN, China (Reuters) – In an industrial park being constructed with Chinese language state assist in the course of a sprawling farming neighborhood, manufacturing unit boss Lei Congrui straightens a tiny golden bell hanging off a choker on a model carrying white-and-pink lingerie.

What Lei calls his “erotic clothes” showroom is without doubt one of the few already open in WeMet Industrial Park, whose Chinese language title interprets as “Victoria’s Secret City” – although it has no official affiliation to the U.S. model. 

The event of the lingerie business in japanese Guanyun county, 180 miles (290 km) from the metropolis of Nanjing, has exploded partly attributable to a U.S. tariff exemption prone to quickly be curtailed or scrapped.

Below the “de minimis” rule, which seeks to scale back customs paperwork, the US exempts international packages valued at $800 or underneath from tariffs so long as they’re shipped to people.

It has fuelled the meteoric rise of Chinese language e-commerce corporations equivalent to Shein and PDD Holdings’ Temu, in addition to producers like Lei promoting by way of these platforms, whereas additionally being exploited for felony ends, equivalent to fentanyl trafficking.

Efforts by U.S. President Joe Biden to “plug the loophole” in his last days in workplace, and incoming President Donald Trump’s marketing campaign pledge to lift tariffs on China, are threatening funding returns and livelihoods in largely agrarian Guanyun, residence to about 1 million.

The European Union and different international locations are contemplating comparable restrictions. 

De minimis curbs and better tariffs “can have a comparatively giant influence on us,” mentioned the pony-tailed and bespectacled Lei, whose Midnight Allure Garment Co. serves shoppers like Shein and depends on the U.S. for 70% of revenues. 

Nomura estimates China will export $240 billion in items benefiting from this exemption this yr, accounting for 7% of its abroad gross sales and contributing 1.3% of gross home product. 

It forecasts that the U.S. eliminating the rule would cut back export progress by 1.3 proportion factors and GDP progress by 0.2 factors; the figures worsen considerably if Europe and Southeast Asia additionally take away the dispensation. 

“We count on blue-collar staff from these small factories of unbranded, low value-added and labour-intensive merchandise, to be most affected,” says Nomura chief China economist Ting Lu, including that the attire sector was amongst these.

The Guanyun native authorities and China’s commerce ministry, in addition to Shein and PDD, didn’t reply to requests for remark. The ministry mentioned final month “arbitrary” tariffs “will not clear up America’s personal issues” with medication and the financial system.

There are already indicators that Victoria’s Secret City, which started opening in levels from 2021, could not match the hopes of native authorities, who’ve invested 22 billion yuan ($3 billion). Indebted native governments like Guanyun’s have usually performed roles in accelerating profitable industries, although on the danger of sharper future downturns by spurring extra manufacturing capability and deflationary pressures.

On a latest November day, a lot of the park was vacant. No date has been introduced for the launch of different levels of the park, the place buildings housing analysis, design and e-commerce logistics actions are deliberate. 

Different industrial zones throughout China additionally face questions of systemic overinvestment.

Native governments “solely assume so far as they will see,” ignoring the nationwide financial system, mentioned Majid Ghorbani, affiliate professor at China Europe Worldwide Enterprise Faculty in Shanghai.

INDUSTRIAL MODEL

Lei began his enterprise as a highschool pupil in 2006, along with his kinfolk serving to him out in a shabby workshop a couple of 10-minute drive away. In 2014, he began promoting abroad to flee worth wars within the Chinese language market.

A yr later, Washington quadrupled the “de minimis” threshold from $200. His exports have nearly doubled yearly since. His whole income final yr was over $1.3 million, he mentioned.

Lei mentioned lots of his buddies, kinfolk and neighbours opened comparable companies. About 1,400 corporations, using 100,000 individuals, at present produce “erotic clothes” in Guanyun, he mentioned. The figures he cited are corresponding to these reported by Chinese language state media. 

“Should you stroll into any neighbourhood round right here and shout ‘is there anybody making attractive lingerie?’, two heads would come out of virtually each constructing,” mentioned Lei.

Native authorities have been initially circumspect attributable to Communist Social gathering pointers in opposition to “vulgar” merchandise and content material, in line with speeches by Guanyun Social gathering officers transcribed by state-run media.

However they finally embraced the business and fed it state assets, like the commercial park, which is positioned subsequent to an enormous however sparsely frequented high-speed rail station.

“The county authorities’s assist for our erotic lingerie business could be very robust,” Lei mentioned. “It invested in industrial land, organises entrepreneurial coaching and a few corporations obtain funding assist.”

Manufacturing unit homeowners reward the park as a greater place to obtain clients – lots of the showrooms are wholesale and solely open by appointment – and retailer uncooked supplies.

Lei says tariffs and e-commerce curbs would drive him to just accept decrease gross sales volumes, and U.S. customers might want to pay extra.

He is contemplating investing in U.S. warehouses and switching to a bulk cargo delivery mannequin as an alternative of direct-to-customer shipments by air, which may decrease prices. He’s additionally trying to find new shoppers in South America, Center East and central Asia, the place clients may also be discovered on platforms like Temu. 

Xu Yan, founding father of lingerie maker Gummy Park, sells solely a 3rd of her manufacturing abroad and is assured progress in different markets would compensate for any drop in U.S. volumes. 

When Reuters visited her showroom, a mannequin clad in a black camisole and gown was livestreaming for potential Chinese language consumers.

“The USA is only one nation. The world has greater than 8 billion individuals,” Xu mentioned.

How such corporations cope with the looming setback is essential for Guanyun residents. Their common annual disposable earnings exceeded 21,000 yuan in 2022, up sharply from about 5,000 yuan in 2008, the most recent authorities figures present. 

At Midnight Allure’s manufacturing unit close to the commercial park, stitching employee Zhang Lan Lan earns as much as 7,000 yuan a month, on par with many working in China’s booming electrical car sector. At its close by warehouse, 72-year-old Zhou earns as much as 3,000 yuan month-to-month, packaging merchandise within the warehouse with different seniors.

A manufacturing unit job means Zhang can stay together with her kids as an alternative of transferring to a metropolis for work. For Zhou, it means she’s not residence alone throughout the day.

Above all, it is higher than working the land, mentioned Zhou, who solely gave her surname. “Individuals nowadays have it simpler.”

($1 = 7.2317 Chinese language yuan renminbi)