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    Shifting Fortunes in a ‘Taobao Village’

    What happens when a model e-commerce village kills the goose that lays the golden eggs?

    One of the things I remember most clearly from my first trip to the village is the traffic.

    It was 2014, and I had just selected a “Taobao Village” in the eastern e-commerce hub of Yiwu for my research. Yiwu is practically synonymous with China’s massive online retail industry, but nothing prepared me for the traffic jam that snarled the village’s roads every afternoon. The blare of truck horns and the scratching of packing tape became the soundtrack of my life, broken intermittently by the buzzing of notifications from Aliwangwang — the messaging app used by Taobao sellers and buyers to communicate.

    At the outset, my research question was straightforward: How does a “model e-commerce village” such as this one come into existence? Scholars who study China’s e-commerce villages traditionally emphasized the importance of location to their success, and my fieldwork site bore this out. Its proximity to Yiwu, a global hub for wholesale markets and freight, seemed perfect for the construction of a village e-commerce industry. But there was clearly more to the story: A well-known wholesale market adjacent to the village had been closed for years when the village’s e-commerce industry suddenly took off. More importantly, there were countless villages in and around Yiwu, many of them closer to the city’s markets than this one. Why weren’t they taking the lead?

    A few of the villagers and merchants I interviewed gave me the same well-worn but believable explanation. In 2005, the village was rebuilt, its old houses torn down, and new ones put up in their place. Due to a lack of business opportunities in the area, however, many of these houses initially sat empty. Worried, an enterprising village cadre identified e-commerce as a potential growth industry and joined with a leader of a vocational school in Yiwu to turn the village into a base for online business startups.

    This telling focused on the role played by an “enterprising village cadre” in transforming the area’s fortunes, but I also saw the basic conditions conducive to the development of an e-commerce industry taking shape in the background: improved infrastructure after the reconstruction of the old village, cheap rent, convenient transportation, and access to wholesale channels.

    Soon, the e-commerce industry in the village began to snowball. One of my research participants moved to the village to start an online business in 2008. He told me he had been drawn by the promise of more opportunities for peer exchanges and the chance to learn about entrepreneurship. He also emphasized the appeal of low rent and convenient logistics. As more merchants gathered in the village, various courier companies began setting up pickup and drop off points nearby, setting off a price war. Merchants found they could ship goods from the village at lower prices than elsewhere.

    Taobao eventually caught on to what was happening in this village and a handful of others around China. In 2013, its parent company, the Alibaba Group, released a list that identified it as one of the earliest “Taobao Villages” in the country. It was a landmark public relations success, one that helped attract entrepreneurs and curious cadres from all over China.

    In order to meet the needs of this influx of merchants, e-commerce training centers, photography studios, modeling agencies, and other related industries sprung up in the village. Another of my interviewees entered the industry in 2014. By then, renting space in the village had become more difficult, and it took her time to find a two-bedroom apartment with enough room for her business. She paid nearly 30,000 yuan ($4,217) a year in rent, 50% more than what similar spaces in neighboring villages cost, but believed the added cost was worth it.

    Running the numbers, she explained that, as long as orders were stable, the village’s low freight costs saved her tens of thousands of yuan a year. It was also easier to find experienced renovation and photography teams in the village, and she saw value in being part of the local networks. “The circles you move in determine your probability of success when starting a business,” she explained. Sure enough, one of her early successes was a product inspired by another merchant in the village.

    In 2014, a year after Alibaba’s announcement, the village made national headlines when officials from the central government visited. The visit resulted in a flood of media coverage, and the following year, the Yiwu International E-Commerce Expo set up a branch venue in the village.

    Yet there were also signs of trouble on the horizon. First, although merchants could still justify its high rents as of 2014, further increases in later years made the village less attractive to entrepreneurs. Second, as a “model” for a new form of rural development, the village’s symbolic and political significance was becoming a burden: Village cadres spent more and more time showing visitors around. Moreover, conflicts between villagers — who benefitted most from the village’s success — and new arrivals drawn by the evermore elusive promise of wealth and good business opportunities became increasingly acute.

    The village’s growth was for the most part a boon to the villagers themselves. Although my landlord complained periodically about the sound of traffic on busy afternoons, he was proud of his village’s success. He was also rich by the standards of the area. The influx of merchants had allowed him to effectively retire and make a living renting his properties. He told me he earned over 100,000 yuan a year in rent alone, more than double the average disposable income of Yiwu residents in 2015.

    A former village cadre I interviewed believed the e-commerce boom had changed the lives of villagers. “(The older generation of villagers) have a lot of houses with annual rental incomes of over 100,000 yuan, so they don’t have to bother to work anymore,” he complained. “They don’t want their children to work too hard, either, just to find a stable job or maybe even stay at home.”

    As rents continued to rise, conflicts between villagers and merchants broke out into the open. To the above-mentioned merchant who came to the village in 2008, the rent increases felt extortionate. “I’ve been in Yiwu for many years, I can even understand the Yiwu dialect; but since I can’t speak it, most people assume I don’t understand it,” he said. “Once, I heard my landlord talking about rent with our neighbor. The neighbor said that each apartment in a house across the street had increased by 5,000 yuan. The neighbor felt that the location and the transportation around his house were better, so he was preparing to increase the rent of each apartment by 10,000 yuan. My landlord agreed with him immediately.”

    “I thought – this isn’t going to turn out well. Sure enough, my landlord came to me that afternoon proposing to increase the rent by 15,000 yuan. We had quite an argument about it.”

    The high rents not only impacted merchants, but also adjacent industries. The first to go were the courier services: In addition to the rise in rental costs, the decrease in order volume caused by the relocation of merchants elsewhere further strained their profit margins. At first, a few couriers left their jobs. Later, courier companies closed their outlets or moved into smaller spaces. Some small- and medium-sized companies even left the village altogether. The result was that some merchants lost their preferred shipping providers or couriers, meaning they longer received the preferential prices that had offset their higher rents.

    When I returned to the village in 2018, many of the merchants I had met there were gone, and the streets were noticeably less prosperous than they had been just a few years prior. Although billboards and the social media account for the village’s e-commerce office still emphasized its identity as “The number one e-commerce village” in China and sought to spin the departure of merchants as a side effect of “industrial upgrading,” it was obvious that the village was no longer at the cutting edge of the e-commerce industry. When Alibaba released an updated list of Taobao Villages in 2021, its name was nowhere to be found.

    Over the past 40 years, many villages have risen to fame for pioneering innovative development models. In the past nine years, I followed the rise and fall of one such village, as my research question changed from why it had succeeded to why it had failed to continue succeeding.

    If I had to give an answer, it’s because villager participation in the village’s economic model was limited. Narratives aside, the force that drove village transformation wasn’t the villagers themselves, but external merchants, while the former largely thrived off rent increases. The entrepreneurial spirit of the newcomers is worth applauding, but we can also draw lessons from the village’s struggles: If local residents and newcomers alike are not integrated into the same economy, they may fall into shortsighted zero-sum games — and lose sight of what made their success possible in the first place.

    Translator: Matt Turner; editors: Cai Yineng and Kilian O’Donnell.

    (Header image: A worker at an online shop moves packages outside a home in Yiwu, Zhejiang province, 2010. Li Zhenyu/VCG)