China's 'erotic clothes' capital braces for Trump and e-commerce crackdown By Reuters

By Casey Corridor, Florence Lo and Xihao Jiang

GUANYUN, China (Reuters) – In an industrial park being constructed with Chinese language state assist in the midst of a sprawling farming neighborhood, manufacturing facility 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 clothing” showroom is likely one of the few already open in WeMet Industrial Park, whose Chinese language title interprets as “Victoria’s Secret Town” – although it has no official affiliation to the U.S. model. 

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

Beneath the “de minimis” rule, which seeks to cut back customs paperwork, america 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 companies similar to Shein and PDD Holdings’ Temu, in addition to producers like Lei promoting via these platforms, whereas additionally being exploited for felony ends, similar to fentanyl trafficking.

Efforts by U.S. President Joe Biden to “plug the loophole” in his closing 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, house to about 1 million.

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

De minimis curbs and better tariffs “will have a relatively large impact on us,” mentioned the pony-tailed and bespectacled Lei, whose Midnight Attraction Garment Co. serves purchasers 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 share factors and GDP progress by 0.2 factors; the figures worsen considerably if Europe and Southeast Asia additionally take away the dispensation. 

“We expect blue-collar workers from those small factories of unbranded, low value-added and labour-intensive products, 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 “won’t solve America’s own problems” with medicine and the economic system.

There are already indicators that Victoria’s Secret City, which started opening in phases from 2021, might 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 threat 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 phases 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 “only think as far as they can see,” ignoring the nationwide economic system, mentioned Majid Ghorbani, affiliate professor at China Europe Worldwide Enterprise College in Shanghai.

INDUSTRIAL MODEL

Lei began his enterprise as a highschool scholar in 2006, along with his family members serving to him out in a shabby workshop a few 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 virtually doubled yearly since. His whole income final yr was over $1.3 million, he mentioned.

Lei mentioned a lot of his associates, family members and neighbours opened related companies. About 1,400 companies, using 100,000 individuals, at the moment produce “erotic clothing” in Guanyun, he mentioned. The figures he cited are similar to these reported by Chinese language state media. 

“If you walk into any neighbourhood around here and shout ‘is there anyone making sexy lingerie?’, two heads would come out of almost every building,” mentioned Lei.

Native authorities had been initially circumspect because of Communist Celebration tips in opposition to “vulgar” merchandise and content material, in line with speeches by Guanyun Celebration officers transcribed by state-run media.

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

“The county government’s support for our erotic lingerie industry is very strong,” Lei mentioned. “It invested in industrial land, organises entrepreneurial training and some firms receive funding support.”

Manufacturing facility house owners 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 power him to just accept decrease gross sales volumes, and U.S. shoppers might want to pay extra.

He is contemplating investing in U.S. warehouses and switching to a bulk cargo transport mannequin as a substitute of direct-to-customer shipments by air, which may decrease prices. He’s additionally looking for new purchasers 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 United States is just one country. The world has more than 8 billion people,” Xu mentioned.

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

At Midnight Attraction’s manufacturing facility 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 automobile 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 facility job means Zhang can stay together with her youngsters as a substitute of transferring to a metropolis for work. For Zhou, it means she’s not house alone throughout the day.

Above all, it is higher than working the land, mentioned Zhou, who solely gave her surname. “People these days have it easier.”

($1 = 7.2317 renminbi)