By Casey Hall, Florence Lu, and Shihao Jiang
GUANYUN, China (Reuters) – In an industrial zone being built with Chinese state support amid a sprawling agricultural community, factory head Li Congrui adjusts a small golden bell hanging from a pendant on a mannequin wearing white and pink lingerie.
What Li calls his “sexy clothing” showroom is one of the few already open in the WeMet Industrial Park, whose Chinese name translates to “Victoria’s Secret City” — though it has no official affiliation with the American brand.
The development of the underwear industry in eastern Guanyun County, 180 miles (290 km) from Nanjing, has expanded significantly due in part to a US tariff exemption that will likely be reduced or eliminated soon.
Under the “de minimis” rule, which seeks to reduce customs paperwork, the United States exempts foreign packages worth $800 or less from customs duties as long as they are shipped to individuals.
This has led to the rapid rise of Chinese e-commerce companies like Shein and PDD Holdings Temu, as well as producers like Lei who sell through those platforms, while also being exploited for criminal purposes, such as trafficking fentanyl.
US President Joe Biden's efforts to “close the loophole” in his final days in office, and incoming President Donald Trump's campaign pledge to raise tariffs on China, threaten investment returns and livelihoods in the largely agricultural Guanyun region, which is home to about 1 million people.
The European Union and other countries are considering imposing similar restrictions.
Minimum restrictions and higher tariffs “will have a relatively big impact on us,” said the pony-tailed and bespectacled Lee, whose Midnight Charm Garment Co. serves clients like Shein and relies on the United States for 70% of revenue.
Nomura estimates that China will export $240 billion worth of goods benefiting from this exemption this year, representing 7% of its foreign sales and contributing 1.3% of GDP.
The US abolition of this rule is expected to reduce export growth by 1.3 percentage points and GDP growth by 0.2 points; The numbers worsen dramatically if Europe and Southeast Asia also remove this exemption.
“We expect that workers from those small factories that produce off-brand, low-value-added and labor-intensive products will be the most affected,” says Ting Lu, chief China economist at Nomura Bank, adding that the apparel sector was among those sectors.
The local government of Guanyun and China's Ministry of Commerce, as well as Shen and BDD, did not respond to requests for comment. The department said last month that “arbitrary” tariffs “will not solve America's problems” regarding drugs and the economy.
There are already signs that Victoria's Secret City, which began opening in phases from 2021, may not meet the hopes of local authorities, who have invested 22 billion yuan ($3 billion). Debt-burdened local governments, such as Guanyun's, have often played roles in accelerating successful industries, albeit at the risk of more severe downturns in the future by stimulating excess manufacturing capacity and deflationary pressures.
On a recent November day, much of the park was vacant. No date has been announced for the launch of the other phases of the complex, as the buildings are scheduled to house research, design, and e-commerce logistics activities.
Other industrial regions across China also face questions of systemic overinvestment.
Majid Ghorbani, an associate professor at the China Europe School of International Business in Shanghai, said local governments “only think about what they can see,” ignoring the national economy.
Industrial model
Lee started his business as a high school student in 2006, where relatives helped him out in a dilapidated workshop about a 10-minute drive away. In 2014, it began selling abroad to escape price wars in the Chinese market.
A year later, Washington quadrupled the “minimum” threshold from $200. Its exports have roughly doubled every year since then. He said his total revenues last year exceeded $1.3 million.
He told me that many of his friends, relatives and neighbors have opened similar businesses. He said that about 1,400 companies, employing 100,000 people, currently produce “sexy clothes” in Guanyun. The numbers he mentioned are similar to those reported by Chinese state media.
“If you walked into any neighborhood here and shouted, ‘Is there anyone who makes sexy lingerie?’, two heads would pop out of almost every building,” Lee said.
Local authorities were initially wary due to Communist Party guidelines against “vulgar” products and content, according to speeches by Guanyun Party officials reported by state-run media.
But they eventually embraced the industry and supplied it with state resources, such as the industrial zone, which is located next to a giant high-speed train station but is frequented by few people.
“The provincial government's support for our sexy lingerie industry is very strong,” Li said. “It has invested in industrial land, organizes entrepreneurship training, and some companies receive financial support.”
Factory owners praise the park as a better place to receive customers — many showrooms are wholesale and open only by appointment — and store raw materials.
Lee says tariffs and restrictions on e-commerce will force him to accept lower sales volumes, and American consumers will need to pay more.
He is considering investing in U.S. warehouses and switching to a bulk shipping model rather than direct-to-customer shipping by air, which could cut costs. He is also looking for new clients in South America, the Middle East and Central Asia, where clients can also be found on platforms like Temu.
Xu Yan, founder of underwear maker Gummy Park, sells only a third of its production overseas, and is confident that growth in other markets will offset any decline in US volumes.
When Reuters visited her showroom, a model wearing a crop top and black robe was broadcasting live to potential Chinese buyers.
“The United States is just one country. The world has more than 8 billion people,” Shaw said.
How these companies deal with the looming setback is crucial to Guanyin residents. The latest government figures show their average annual disposable income exceeded 21,000 yuan in 2022, up sharply from about 5,000 yuan in 2008.
At the Midnight Charm factory near the industrial park, seamstress Zhang Lanlan earns up to 7,000 yuan a month, the equivalent of many workers in China's booming electric car sector. At a nearby warehouse, 72-year-old Zhou earns up to 3,000 yuan a month by packing products in the warehouse with other elderly people.
Working in the factory means Zhang can live with her children instead of moving to the city to work. For Cho, this means she's not home alone during the day.
Cho, who gave only her surname, said it was better than working the land first of all. “People these days have it easier.”
($1 = 7.2317 RMB)
