Yiwu: Historical transformation and contributing factors

ABSTRACT Yiwu has transformed from one of the poorest rural counties in the 1970s to one of the richest modern cities in China during the 2010s. This paper examines this significant historical transformation and its key contributing factors along the five dimensions: marketization, industrialization, urbanization, internationalization and digitalization. It also identifies what historical and contemporary factors stimulated the rapid growth of Yiwu and how Yiwu is a special case in comparison to other Chinese localities. This paper argues that business entrepreneurship, local government and their interaction have played particular roles in promoting Yiwu’s transformation. This study builds on and contributes to literature across the fields of development, entrepreneurship and anthropology. It demonstrates how entrepreneurship can promote development even if a region is lacking in what are often assumed to be necessary resources for development. However, for this to be the case there is the need for a supportive and risk-taking government.


Introduction
Yiwu is an exceptional case. Its transformation from one of the poorest rural counties in Zhejiang Province of China in the 1970s to one of the richest cities today is widely described as a miracle (for example , Wang 2009;Chen 2011;Lu, Yang, and Zheng 2014;State Council 2014). According to Zhejiang Statistical Yearbook at various years published by Zhejiang Statistics Bureau, in 1978 when China began its reform to embrace the market economic system, the per capita GDP of China and Zhejiang Province were 381 and 331 yuan respectively, both higher than the 235 yuan of Yiwu. In 2008, when the reform had been implemented for two decades, the per capita GDP of Yiwu reached 68,508 yuan, 3 times that of the whole country and 1.6 times that of Zhejiang Province. In 2016, Yiwu's GDP rose to 112 billion yuan, making it the 14th richest among 2100 counties in China. Yiwu's per capita GDP was 88,823 yuan, much higher than the national average of 53,817 yuan. During this transformation, more than 80 per cent of the population were turned from farmers to traders and from rural to urban-based. A historically agricultural county is now best known for its large wholesale market of small commodities, or any small items, materials, products, articles and objects that are relatively inexpensive, nontechnical, mass-market (Bryant 2016). Yiwu produces, sells and exports its goods to more than 200 countries. This paper examines this significant historical transformation and its key contributing factors along the five dimensions of Yiwu's marketization, industrialization, urbanization, internationalization and digitalization. It builds on and seeks to contribute towards several bodies of literature that cross the boundaries of development, entrepreneurship and anthropology. Development studies argue that fostering industrial clusters enhances regional and national development. A cluster refers to groups of closely-related industries co-located in a region (Porter 1990). The importance of clusters has long been recognized through Alfred Marshall's analysis on the rapid and sustained growth of British industry in the nineteenth century (Marshall [1890(Marshall [ ] 1920. Some characteristics or embeddedness are deemed necessary for a cluster to form and grow, for example, a high-quality research university, skilled labour pool, funding, favourable policies; favourable city characteristics and historical luck (Braunerhjelm and Feldman 2006). However, this body of study lacks the explanation as to how a cluster can be developed without any significant local embeddedness.
Entrepreneurship literature could offer answers since entrepreneurship has long been recognized as an important factor to promote development. This is due to entrepreneurs' ability to foster innovation, enhance employment creation and ensure more equitable income distribution (Hirschman 1958;Acs 2006). An entrepreneur is willing and able to convert a new idea or invention into a successful innovation. Entrepreneurship employs 'the gale of creative destruction' to replace, in whole or in part, inferior offerings across markets and industries, simultaneously creating new products and new business models. However, entrepreneurship can be promoted or depressed by the institutional environment, of which policy is a critical element (North 1990). Existing literature lacks clear recognition of how entrepreneurs and policy makers work hand in hand to promote a region's development.
My approach to the study of Yiwu has also been informed by work in anthropology. In particular I have been influenced by work that has emphasized how in order for researchers to understand the forms of economic globalization, which are central for the dynamics of cities such as Yiwu, it is necessary to trace traders and commodities across space; as well as to give analytical space to considerations of the meaning that traders attach to their activities in the particular contexts in which they work (for example, Matthews, Ribeiro, and Vega 2012). Hence, the material on which this article is based arises out of extensive fieldwork in China, UAE, USA and UK. Building on anthropological studies that have deployed life history as a medium into understanding the dynamics of being a trader (for example, Marsden 2015Marsden , 2016, I gathered the life histories of over 100 Yiwu entrepreneurs, policy makers and foreign traders. These life histories have also been used to juxtapose individual trajectories of traders with the stages of the Yiwu's development as a key international trading centre. Finally, I have also used media information and proceedings from meetings of the Yiwu municipal, Zhejiang provincial and Chinese central governments.
The resulting findings indicate strongly that Yiwu's development is reflected in its marketization, industrialization, urbanization, internationalization and digitalization. Marketization records Yiwu's transition from a small, rural free market to China's, and eventually the world's, largest small commodity trading hub. Industrialization refers to the shift that Yiwu has undergone, from being purely a trading centre to one in which goods are also produced. Urbanization refers to the dramatic change of Yiwu from a rural county to a modern city. Internationalization indicates the extent to which traders in Yiwu have increasingly turned their attention away from domestic trading, towards international markets and forms of investment. Finally, digitalization demonstrates the ways in which Yiwu has refocused from physical shop floor trading to a mixed economy of both the physical shop and online trading. The following sections demonstrate how the interaction between entrepreneurs and policy makers promoted Yiwu's development in these five dimensions respectively.

Marketization
Yiwu's market as a whole consists of Yiwu International Business & Trade Mansion (Yiwu guoji shangmao cheng), also called the Futian Market, and a dozen specialized wholesale markets, including the Huangyuan Market for clothing, furniture and others. This is the outcome of Yiwu's marketization across five stages.
1st stage (1950s-1970s): 'walking traders' and spontaneous trading market laid the foundation for the future Yiwu market I first came across Yiwu as a child, in my hometown in Jiangsu province, the neighbour of Zhejiang Province where Yiwu locates. That was in the middle of the 1970s when everything was in short supply in China. When the person who shouldered the burden of commodity (huo lang dan) came to our village, my mother would buy a candy for me by exchanging chicken feathers. As a child I was unaware that this barter was illegal and that those involved were discriminated against by the wider society.
After formally researching Yiwu in recent years, I learnt that those traders were from Yiwu. They were called walking traders (xing shang) and their activity was called 'exchanging candy with chicken feathers' (ji mao huan tang). Astonishingly, I discovered that Yiwu's 'exchanging candy with chicken feathers' dated back to the sixteenth century (Chen 2011) and through this activity, local people made additional income to supplement limited gain from agriculture. However, from the 1950s until the 1970s, China held a planned economic growth model. The government carried out a thorough clean-up of private capital around 1952, and from then until 1978 all enterprises in China were state or collectively owned. The country suffered from a severe shortage of commodities (Wu 2008), and Yiwu suffered more given the nature owning of hilly land. But local farmers were not allowed to trade as the 'three No rule' (san bu gui ding) was strictly applied by the central government, which is 'No farmers were allowed to give up agriculture and do business, no industrial products were allowed to trade in free market, and no selfemployed person is allowed to engage in wholesale business' (Wang 2009, 15).
However, this would not stop Yiwu people from trading. One early walking trader, who began to trade in early 1970s when he was just above 20s, recalled: Despite the illegal status of trading, I still took great risks and found excuses to leave hometown for trading, because otherwise I would not have money to buy food and clothes for the family. I often claimed that I needed to travel far for our community's business so must obtain certificate from local government authority. … Without a valid certificate we would not be able to trade, nor buy train tickets or find an accommodation, and instead could be arrested at any time (Chen Hongcai, quoted in Liu and Yao 2014).
Local governments were not allowed to publicly support farmers' trading, but took risks to issued certificates. Archival data presented in the museum inside Yiwu's Futian Market shows that the original certificates issued by township and municipal governments were dated back to early 1970s, long before the nation's economic reform starting in 1978. 'This was unique as governments in neighbouring counties or the entire China did not approve trading. … . And the reason was the people were too poor so must trade' (CCTV 2009).
Many local traders believed their early experience as a xing shang laid a solid foundation for them to conduct large-scale trading business afterwards. Ms Zhou Xiaoguang is in her 50s and has actively been involved in trade since turning 16 years old, firstly as a walking trader between 1979 and 1985. She brought small goods such as embroidery needles from Yiwu to sell to a dozen of provinces including the far North-Eastern Heilongjiang province. She is now the chair of Xinguang Group, one of the top accessory companies in China and an agent of Swarovski. She still held the fresh memory on her early trading experience: Life was very harsh at that time. Information was unavailable and communication tool was almost none except for telegraph and limited public telephone. We had to explore every potential market by travelling to the place. Train tickets were so difficult to get. Once getting on a train, we often slept under the seats of other passengers. … Once arriving at a place, we sought a popular location as a temporary market to sell goods, and were frequently driven away by local officers. If the local demand was low, we moved to another place. In this way, we accumulated the most valuable market experience which benefits us for life (interview, 4 August 2017).
Her husband Mr. Yu Yunxin, also in his 50s, was another walking trader at that time. He introduced: 'When discovering a promising market [as a walking trader], I communicated with her [Ms Zhou] and other traders to exchange market information so as to make more money from a more promising market' (interview, 4 August 2017). The two got married after both had made huge contributions to improving their family living standard.
At the end of 1978, Yiwu traders attempted to break through the policy restrictions on trade. They formed many temporary markets in Yiwu by simply placing their trading baskets together on the roads of villages and towns. This was the earliest market form of Yiwu.
2nd stage : officially approve trading In April 1981, the spontaneous market was moved to Bei Men Street, after 200 temporary licenses were issued to individual traders by the Yiwu County Industry and Commerce Bureau, allowing a limited degree of private economy. This was a risk-taking action because no clear permission was given by the central government (Wang 2009). This was also a significant action as Yiwu traders were allowed to trade although it did not publicly announce its permission. Farmers holding the certificate were allowed to buy small commodities from state-owned enterprises or stores, and then sell them at the market.
In April 1982, Mr. Xie Gaohua became the General Secretary of CCP of Yiwu County (xian wei shu ji). He recalled: I am not a native resident of Yiwu. When being appointed to the shuji of Yiwu County, my mother was upset, asking why I was allocated to such a poor county, but I felt strongly about how to eradicate the poverty of Yiwu as the prime responsible person for this county. (Liu and Yao 2014) At that time, national government policy on private trade had not been relaxed, and although Yiwu's government permitted farmers to trade, tax officers still regarded many goods sold at the market as not allowed or requiring more tax paid on them. One female trader Feng Aiqian was frequently driven away by tax officers. She was angry, so she came to the County Government building to seek justice. Xie recalled how this female trader reinforced his determination to allow local people to trade: I asked her to calm down and explain why she should be supported. Ms. Feng stated that she had no job but four kids; she conducted small trading to supplement her family living and her behaviour did not harm anyone. I was impressed and had a deep thought. As central government did not switch the green light to trading by farmers, I went to rural areas to investigate the truth. I witnessed the hardship of local people and realized that trading was indeed a major income supplement to farmers. On my return I abruptly promoted the idea that 'small commodity trading is Yiwu's major advantage' and supported market development. I claimed that I will take full responsibility if provincial and central governments criticize this decision. I was determined to open the small commodity market even though I would lose my official hat (wu sha mao) because of this. But other members in Yiwu Municipal Government said they would support the decision too so all of us took the responsibility for deciding to support the market. (Liu and Yao 2014, 111) But critics highlighted the negative impact of farmers' trade, such as tax evasion and disrupting public order. Xie realized that he must regulate the market first, in order to support it (Liu and Yao 2014). On 25 August 1982, the government of Chou Cheng Town, where trading was taking place, issued 'Strengthening the Management of Small Commodity Market'. This was officially the No.1 file on supporting but also regulating the trading, announcing the opening of a small commodity market in Hu Qing Men on 5 September 1982. Local people needed to register and obtain a certificate issued by the local government in order to trade inside the market. By the end of 1982, Yiwu had a total of 833 registered traders, including 800 farmers, 33 jobless and youth.
Following this No. 1 file, Xie Gaohua announced the revolutionary 'four allows' (si ge yun xu) on 26 November 1982, which was further formalized on 4 December 1982 as No. 172 file of Yiwu County Government. 'Four allows' were: allow farmers to trade, allow long-distance trafficking, allow urban and rural markets' operation, and allow multi-channel competition. Once again, these ideas were 'ahead of the central government policy' (Liu and Yao 2014).
In 1983, the earliest tax policy was issued for Yiwu's trading. Before this point, tax officers charged tax in a very casual way, for example, charging one yuan per person per day for those who sold at the market. With the issued tax policy, traders had to register for trading and pay tax based on their revenue. This was a simplified tax policy in order to avoid complex process such as paying different taxes for different categories of goods. In addition, Yiwu's tax was perceived as 'reasonablenot too high or too low' (CEO of Yiwu Toy Ltd, interview, 7 August 2017). Hence, the wholesale market was promoted based on such simple and 'friendly' tax policies.
On 5 October 1984, Xie Gaohua announced the government strategy of 'Promoting commerce to develop the county' (xing shang jian xian). This placed commerce at the centre of the local government policymaking. Yiwu market was rapidly developed with the focus of domestic customers. Traders in the market were called 'sitting trader' (zuo shang), compared with the earlier 'walking trader' (xing shang).
Ms Zhou transformed into a 'sitting trader' at Yiwu market in 1985 after giving birth to her son, while her husband continued his walking trader journey. Although not a native of Yiwu, she was allocated a booth in Yiwu market, for which she was grateful, stating that 'Yiwu people do not decimate non Yiwu traders'. She successfully transferred from a walking to a sitting trader (cong xing shang biancheng zuo shang) due to her better understanding of customers from different regions of China. She claimed, 'xing shang were among the earliest entrepreneurs of China who explored potential customer demands and understood how to source supply from one region to meet the demand of another. China's market was created by our feet' (interview, 4 August 2017).

: question Yiwu model and its resolution
In 1986 the Chinese had a nationwide discussion about the merits of socialism and capitalism. Many asked if the Yiwu model was attached to capitalism or socialism by picking out problems existing in Yiwu, such as fake goods and low quality. Yiwu's success was questioned. The debate triggered a shock in Yiwu, with business people very concerned about their fate. Some considered stopping trade as they had already accumulated a good fortune. Many rushed into banks to withdraw their deposit, but banks were closed, and the market was at risk. Some subsequently left to search for opportunities in other cities, causing a period of anxiety and confusion. Trading volume was reduced due to the doubt and uncertainty (CCTV 2009;Wang 2009, 20).
Yiwu Municipal Government foresaw the danger that the market would collapse overnight, despite the years of painstaking promotion. It made its position of supporting the market and private economy clear, arguing that private economy was an important part of a socialist economy and must be encouraged and guided unwaveringly. This standpoint was announced to business people through media, publicity and officers' personal contacts. By the end of 1990, business people's confidence seemed to be restored as the demand for booths was increased to 10,500 (Wang 2009, 20).
The questioning was ended eventually in 1992 when Deng Xiaoping made the Southern Tour to announce that Chinese reform would continue. Yiwu returned to normal. It was in the same year of 1992 that the National Industry and Commerce Bureau renamed 'Yiwu Small Commodity Market' to be 'Zhejiang China Small Commodity City'. Yiwu itself also made various efforts to restore its reputation, for example, they invited the most well-known host of China Central Television (CCTV) to visit and report Yiwu positively (CCTV 2009).

4th stage (1992-2014): rapid development and institutionalization
Yiwu learnt lessons from the debate and decided to improve market operation so as to avoid unnecessary further debate. In 1992, Yiwu Municipal Government implemented a massive reform which categorized commodity location in Futian Market. Prior to this, buyers had to search the goods they required throughout the market mixed by 16 categories of goods. The Industry and Commerce Bureau of Yiwu Municipal Government built a new market structure consisting of five districts (qu), hosting same category of goods at same district. It then encouraged traders to trade a single category of product (rather than trading several in the past). After the policy implementation, Futian Market held a total of 70,000 booths, selling 1,700,000 different types of small commodities in five districts. Major categories of goods included arts and crafts, textile accessories, ornaments, hardware, stationery, toys, electric appliance, garments and so on. Huangyuan Market hosts another 5700 booths selling jeans, sportswear, and other types of garments. There were about 10 professional markets and 30 professional streets with shops that specialize in trading particular commodities.
This reform significantly saved customers' time while also improving management quality of the market. According to an Iranian trader who has been trading and acting as an agent for Yiwu goods for more than 15 years, 'In this way, traders did not need to walk around the entire market but just one or two concentrated districts. More importantly, the price was transparent and traders could reduce the possibility of being cheated on price and quality' (interview, 31 July 2017). This reform was initially resisted strongly by shopkeepers because merchants had to be specialized in one or two categories and they were also difficult to ask for a higher price when placing their goods next to other shopkeepers. But they soon shared the benefits of the reform as the transparency and convenience brought by the reform attracted more customers (CEO of Yiwu Toy Ltd, interview, 7 August 2017).
Before 1993, the local government guided the market development through forming a management committee made up of a group of small producers, buyers, government officials and administrators. In 1993, Yiwu Municipal Government established Zhejiang China Small Commodities Market Group ('Shangcheng Group' in short) which, on behalf of the government, owns and manages the Futian, Huangyuan, and Production Material Markets, with a total operation size of 5.5 million square metres (CCP General Secretary of Shangcheng Group, interview, 23 September 2017). It holds the responsibility to protect and increase the value of state assets, that is, the Market. It soon became a listed shareholding company, with 54 per cent owned by the state and 46 per cent by the public. The Chairman of the Shangcheng Group (interview, 16 December 2016) introduced how the Yiwu government empowered its governance and market functions: After ten years' development, Yiwu government felt more urgent to understand regular pattern of Yiwu's development. It realized the necessity to establish an entity to follow the objective law of market economy and to promote market's prosper. It expected our Group to promote the cluster and build our brand and promote information and communication.
According to the market operation size, categories of displayed and sold goods, and numbers of booths, Yiwu Market can be considered the world's largest small commodity wholesale centre. It reached the peak of its development by 2014 (State Council 2014). It is true that our trading business is affected by the recessionary global economy. Our market kept the 20 per cent annual increase rate on its trading business between 2008 and 2014. It S20 was much higher before 2008. At present [in 2016] the annual increase rate is 10 per cent. (interview, 22 May 2016) Analysing what causes the market to decline, the Chair of Shangcheng Group elaborated to me during an interview that: 2014 was the turning point of China's economy from rapid to slow growth. While domestic demand was demolished, global economy is entirely under recession. Salary of domestic workers rises considerably. Industrial transformation is inevitable. The phenomenon of China being the world factory will not appear again. This demands our operators [in the Market] to carry out technology upgrading. Those unable to do so have to transfer capacity.
The local government continued its lobby to provincial and central governments to strengthen Yiwu's position. On the 4 March 2011, Yiwu was formally nominated by the State Development Reform Commission (SDRC) as 'the international trade comprehensive pilot city' but Yiwu did not benefit from this position until the end of 2013 when it was granted a special tax claim code by China's Custom Authority (haiguan zongshu) for its traded goods. Since 2014, exporters with a large quantity and volume, but a total value of less than 300,000 Yuan RMB have been entitled to claim from this code. With this special code the goods enjoy a speedy and simplified procedure when claiming exported goods at custom and inspection bureau. This new system has not only sped up custom claiming, but more importantly regulated the trading goods and enhanced quality control of the goods (Zhejiang Provincial Department of Commerce, interview, 6 April 2017). Over the years, 'the Yiwu trading system was established in a bottom-up, spontaneous manner. The tax system was not regulated' (Director of Division of Promotion, Department of Foreign Trade, Ministry of Commerce, interview, 31 March 2017). Traders encountered problems and ineffectiveness when claiming tax. This was due to the difficulty of categorizing small commodities precisely, as they needed to claim different categories of goods at different prices, place them in different containers and so on. With the new policy, traders only need to claim one code which is unified for Yiwu small commodity In addition to speeding up and simplifying the tax payment system, the new tax code also allowed customers to trace original producers in case there was an issue on the goods they sold. It achieved its goals as 'risk can be controlled, original producer can be found, and the responsibility can be investigated' (Deputy director, Dept. of Institutional Reform, State Development Reform Commission, interview, 29 March 2017).
The deputy director of Yiwu Land and Port Administration introduced the outcome of Yiwu government's efforts to improve Yiwu's logistic services during this period of time: The good results included to allow Yiwu-exported goods to be process export claim at Yiwu Port. Exporters and agents got their goods inspected at Yiwu while filling another form to transfer their claims from Yiwu Port to Ningbo Port. While Ningbo Port still occasionally inspects goods from Yiwu Port, the overall efficiency has improved considerably. With more efforts, now Yiwu Port and Ningbo Port are both subsidiaries of Zhen Jiang Provincial Seaport Group. We are hoping that this will pave the way for Yiwu goods to be exported at Yiwu Port. The goods with completed procedures will be transported to Ningbo Port. The under construction Yi Yong Zhou (Yiwu -Ningbo -Zhoushan) Pathway and especially its Ningbo to Jinghua Railway, expected to be completed by 2020, will vastly increase the transportation capacity (interview, 31 July 2017).
Yiwu government also intended to diversify Yiwu business from export, to both export and import. It thus grasped the timely opportunity to connect its business to the nation's major 'One Belt and One Road' (yi dai yi lu) strategy (Nolan 2015). With the strategy, China launched 9 railway routes between November 2014 and 2017, connecting Yiwu and others to cities alongside the New Silk Road including Madrid, Tehran, Chelybinsk, Mazare Sharif, Riga, Minsk, London and Prague. It eventually made possible the operation of Yiwu-Xinjiang-Madrid railway line. Yiwu Land and Port Administration and the cargo operator -Tian Meng Companyboth revealed why these routes were still not operated frequently. They major reason they claimed was that 'Cargo operators lack interests on these rail routes for the concern of making loss as traders have not got use of these routes' (interview, 12 April 2017).
Many of my correspondents believe Yiwu will largely benefit from the central government initiative of 'One Belt and One Road'. Some noted that their trading activities have been performing better since 2017 thanks to improved trade with One Belt and One Road countries. This claim was supported by Yiwu Custom statistics. Taking the example of the first quarter of 2017, Yiwu's total import and export was 49 billion yuan, an increase of 24 per cent of which export was 48 billion yuan. Among this 48 billion yuan of export, 25 billion yuan was exported to the countries along the 'Belt and Road' route, up 19 per cent over the same period of the previous year and accounting for 51 per cent of the total exports of Yiwu. Among the top 10 exporting destination countries, 8 were 'One Belt and One Road' countries. As Yiwu Research Institute analyzed why the high export to the One Belt and One Road countries can be realized (Yang and Lu 2015): Along the One Belt and One Road, especially Central Asia and Central and Eastern European countries, the demand for daily consumer goods is extremely great but their own production and supply capacity is weak. Yiwu's small commodity production and markets are well-developed. Hence, Yiwu has a good complementarity with these regions.

Industrialization
The foundation of industrialization in Yiwu (by large the Zhejiang province) was weak. By 1980 there were 502 township-owned enterprises, which rose to 7618, plus 1658 village and individual-owned enterprises by 1993 (Chen 2011, 126). There were no large backbone state-owned firms in Yiwu. In 1992-93 Yiwu market had almost 10,000 merchants. Traders desired industrial development in Yiwu to increase supplied goods and reduce supply time, giving them advantages in intense competition. Local production can also facilitate traders to control the quality of goods and find ways of innovation (Liu and Yao 2014).
On the other hand, according to a former Yiwu government officer, it was a popular perception in Yiwu that 'manufacturing enables less profit than distribution business [or trading business]' (interview, 31 March 2017). To improve the local traders' understanding of the importance of developing industries, the Municipal Government held an exhibition entitled 'Famous, Superb and New' on the 28 September 1994. It stipulated that the exhibited goods must be 'famous, superb or new' so that it attracted the best producers from all over China. Precisely as planned, 'Yiwu traders were very clever. They soon negotiated with the exhibited producers and became their agents. However, they did not wish to be controlled. Some entrepreneurs therefore had their ideas to operate factories' (CCTV 2009). Yiwu is now the venue for several nationwide and internal exhibitions. Yiwu's top producer and trader of water tap in Futian Market, stated, I was educated to middle school only and without any knowledge on water tap design. However, I went to all the exhibitions to observe and learn. Now I 'design' water taps in my mind before instructing my young designers in the factories. They turned my ideas into designing papers. My factories would then produce. (interview, 15 December 2016) Female entrepreneur, Zhou Xiaoguang opened a hair accessory factory, and then she found that her talented employees later left Xinguang and opened their own hair accessory factories and shops. Tao Haidi opened a zipper factory. The zipper produced over the course of three days is equivalent to several laps around the earth.
While more and more entrepreneurs began to produce goods for the Market, Yiwu turned itself from 'buy China and sell China' (mai zhong guo mai zhong guo) to 'small commodities, made in Yiwu' (xiao shang ping, yi wu zao). More capital flew from commerce to industry. In 1998, Yiwu government announced a new policy of 'mutual reinforcement of industry and trade' (gong mao lian dong) (Liu and Yao 2014, 553). It initiated ownership reform by enabling firms to implement shareholding enterprise systems. It also subsidized those who intended to open factories through issuing policies on tax, land and loan. According to Mr Zhang, Deputy Director of National Land and Resources Bureau of Yiwu, local government made abundant industrial land available at preferential rates starting in the 1990s, offering local traders a direct incentive to move into the industrial zone (interview, 14 March 2017). This was further confirmed by Ms Zhou of Xinguang Group who recalled: We initially wanted to build our factory and invest in Zhuji [county], as that is our home county. But Zhuji government was not interested in a small firm like ours. Hearing that there was a piece of land in Yiwu, I called Yiwu government to try our luck. Unexpectedly, they warmly welcomed us and cleared up all the obstacles for building factory in a very short period of time. (interview, 4 August 2017) Yiwu government also offered more favourable policies to attract foreign direct investment (FDI) to Yiwu to promote industry. By 2014, the government had set up 2 economic zones at provincial level, 12 industrial bases at national level, 26,700 industrial enterprises, 131 high tech firms including 6 national key enterprise, and 135 R&D centres (Ma et al. 2014, 263). These were key supportive mechanisms for Yiwu in the development of its industry.
As a result, many competitive industries including textile, clothing, craft and printing emerged, leading to the rapid growth of Yiwu's industrial economy. Seamless underclothes accounted for 20 per cent of the global market share (80 per cent of national share). According to the Director of Department of Marketing, Shangcheng Group, by the end of 2016, Yiwu had over 1 million suppliers from the entire nation, of which only one third were from Yiwu (interview, 15 December 2016).

Urbanization
Yiwu's urbanization was driven by the development of marketization and industrialization. According to the Deputy Director of Yiwu Municipal Development and Reform Commission, the key issue of urbanization is how to use land: Land is the mother of wealth. All the development of Yiwu is related to land. Without land, market cannot be expanded and factory cannot be constructed. Foreign investment would also be restricted if no land is allocated to the invested projects. (interview, 15 April 2017) Therefore, he explained further, 'when using land, three red lines were not allowed to cross: urban and rural expansion, permanent agriculture land, and ecosystem'. In brief, Yiwu's urbanization experienced the following stages.
During the first stage between 1978 and 1988, urbanization level, that is, the percentage of permanent urban residents out of the total population increased from 8 to 12 per cent. The construction and development of Yiwu Market helped the formation of the commercial centre of Yiwu. Transportation, catering and other tertiary industries and traditional light industries began to develop. The suburb towns surrounding Yiwu with convenient transportation benefited firstly from the spill over effect of the urban economy, and their handicraft industry was soon developed (Director, Yiwu Research Institute of Reform, interview, 11 April 2017). In 1988, Yiwu became a city.
During this period, there were many profit-making or bribery opportunities during the land allocations, householder relocations and market constructions. As the former head of Chou Cheng town (interview, 16 December 2016) recalled his own experience: we had many occasions to allocate newly constructed houses to those who were relocated due to market construction and others who wished to live in the houses which were modern compared to old fashioned traditional residential houses in Yiwu. Those houses were in high demand. All the officials in the five political streams including the CCP, the National People's Congress and the Political Consultative Conference all wanted a house from me. In the end I had to let everyone draw lots and invite notary office to witness the process.
During the second stage between 1988 and 1998, the urbanization level rose from 12 to 41 per cent. On 19 May 1990, the State Council issued the 'The Provisional Regulations of People's Republic of China on renting and transferring the use right of state-owned land'. Yiwu became a pilot city to experiment with these regulations. Local entrepreneur Gong Pinzhong intended to expand his business by establishing his own factories. He purchased 10 acres at 1.26 million yuan in 1994, then 30 acres and 300 acres so that his company became the leader in the industry. The basic reason that he purchased this large amount of land was that the local government encouraged merchants to transform from trading to producing and trading; hence the price of the land was very low (CCTV 2009).
During the third stage between 1998 and 2014, the urbanization rate of Yiwu rose to 71 per cent (as of 2010). By the end of 2014, the urban area of Yiwu comprised 1105 square kilometres, under the jurisdiction of 6 towns and 8 streets. The registered local population (native Yiwu) was 770,000, with a migrated population of 1.3 million, mainly from Jiangxi, Henan and Anhui which had 252,000, 167,000 and 150,000 respectively, together with 126,000 from the rest of Zhejiang. Urbanization took industrial development as the foundation, which 'promotes employment agglomeration, followed by the move of rural population to the premise of urban agglomeration' (Deputy head of Marketing Department, Shangcheng Group, interview, 13 December 2016).
During the fourth stage between 2015 and 2018, the urbanization rate of Yiwu rose to 76 per cent (as of 2016), compared with 58 per cent of the national urbanization rate. In 2016, the State Development and Reform Commission (SDRC) issued a comprehensive national new urbanization pilot programme. Yiwu was among the first batch of 62 pilot cities. In light of this, Yiwu is aiming for completing urbanization. The current 281 villages will be gathered to 55 new communities with high-floor, multi-village gathering community construction. 600,000 people will be accommodated. According to the deputy head of the Department of National Land and Resources of Yiwu Municipal Government, This reform will solve out three issues related to Yiwu's sustainable development, namely where the land comes from, where the money comes from and where the talents come from. After this reform, land will be available as rural people are moved to concentrated urban areas. The newly available land can be developed for multiple purposes, which will sort out the issue of money. Finally, the reform will turn rural and migrant population to urban residents of Yiwu. This will attract talented migrates. (interview, 15 April 2017) Internationalization By 1997 less than 20 per cent of Yiwu's goods were exported, 'because the domestic market was so good and no one considered overseas market' (An operator in Futian Market, interview, 12 December 2016). In 2015, 65 per cent of Yiwu goods were exported. Despite Yiwu merchants' heavy focus on domestic market in the 1980s and 1990s, very few entrepreneurs began to internationalize before 1990s. Tong Changmao was one of the pioneers who embarked on a thrilling adventure to Dubai in 1995 when he was 27. He described his adventure as 'full of the ups and downs' (interview, 09 August 2017).
I followed a middleman to the UAE; assuming that I was in Dubai but later spotted that I was actually in Sharjah. The middleman already disappeared. Without any language skill, I managed to come to Dubai through body language. I began to investigate the market. I discovered that almost everything in this market was much expensive than those in Yiwu, thinking that all of them could be replaced by Yiwu goods. I imported a container of shirts to Dubai, only finding that none of the shirts could be sold, as the Arabic man size was much bigger than that of the Chinese. I lost everything. … I eventually made a breakthrough after an Indian trader made a small order from me. I transported the ordered goods from Yiwu to Dubai, which were sold so well that more orders followed. For the first time I withdrew US $150,000 from bank, bought me a first class ticket and back to Yiwu with a bag full of cash. I became the household name in Yiwu. Many Yiwu people followed me to Dubai. … I was late called as 'copy boy' by the local traders in Dubai as I basically replaced most of the goods in Dubai market by using similar or imitated goods from Yiwu. Long existing local traders were driven away from the market.
Shi Zhongmou, another Yiwu entrepreneur, was arrested in Xinjiang for selling electric watches, which were mainly smuggled from Hong Kong in early 1980s. After being released from prison, he continued trading while also initiating an idea to construct a Yiwu market in Xinjiang to sell Yiwu goods locally, while also targeting Russian markets, as well as those connected to Muslim-majority Central Asia, Pakistan and Afghanistan. He recalled: 'I eventually completed the construction of Xinjiang Business Trade City in 1993. I subsequently constructed more than 10 markets inside and outside China' (CCTV 2009). Xinjiang Yiwu market played a significant role in attracting Muslim traders to China and promoting Yiwu goods in the Islamic world (An operator in Futian Market, interview, 13 December 2016; Marsden 2017).
The internationalization was accelerated after 1997 when China turned from a shortage to a surplus economy.
The 1997 Asian Financial Crisis enhanced Yiwu goods' advantage due to its low cost feature, because overseas customers favoured cheaper goods more. By the end of 1990s, the central government removed the restriction on import and export. This was reinforced after 2001 when China joined WTO. (An officer of the Ministry of Commerce, interview, 5 August 2016) Internationalization transformed Yiwu from being domestic to international market orientated.
However, according to the director of Marketing Department of Shangcheng group who was making an effort to establish an overseas Yiwu market in East Europe and Central Asian countries, Yiwu's internationalization was 'very limited' despite about 60 per cent of its goods being exported. He explained, 'The green [direct] investment is limited, mainly in the fashion of constructing a trading mall or Yiwu-like markets' (interview, 15 December 2016).

Digitalization
Since 2000, with the effect of national electric (E) commerce booming in China, E commerce was also rapidly developed in Yiwu, which made considerable impact on Yiwu's traditional wholesale market. The deputy general party secretary of Shangcheng Group admitted: A few years ago we had a large debate about whether we should have E commerce. We did not significantly promote E business until now. Physical trading was our advantage and our merchants were good at that. Hence we did not cooperate with Ma Yun by then. (interview, 22 May 2016) Inevitably, however, Yiwu's market was extended into two sectionsa physical one and an online one. To ensure Yiwu's position in online business, the Municipal Government held the World Digital Business Conference annually in Yiwu. It also held exhibitions every year for products of small and medium E business companies. Ms Chen revealed that these events were expected to improve performance and ensure leading position of Yiwu's E business. There were also some measurements to support those with limited finance and education to operate their E business, for example, offering training courses (interview, 22 May 2016).
On 21 December 2012, Yiwu Gou, Yiwu's online sale platform, was established, 13 years after Ma Yun set up his online platform Alibaba in 1999. Even as a latecomer, Yiwu's online business rose rapidly. The Deputy Party Sectary of Shangcheng Group introduced: In 2015 our physical trading revenue was over US$100 billion, while online trading revenue was also over US$ 100 billion. 40 per cent of our merchants are trading both online and offline. Of course, we need to integrate online and offline trading. Alibaba and Jing Dong are both looking for us to form partnership as they have online but not offline. We are confident, as we are the largest offline trading body. Online business has huge issues in terms of lack of supervision on selling defective goods and poor management on online stores. Still, we need to 'dance with the wolfs.' (interview, 22 May 2016) Despite this achievement, most locals believed that Yiwu Municipal Government made a mistake in promoting E commerce. A former deputy mayor of Yiwu observed: Local government was not prepared for danger in times of peace and lacked vision. That they did not accept Ma Yun's proposal to form a partnership was the evidence. In this way Yiwu lost the best timing to establish an online platform. (interview, 7 August 2016) He continued: 'Without being strong on "two legs", that is, both physical and online trading, Yiwu faced greater pressure when global trading was in recession' (interview, 15 April 2017).

Discussion and conclusion
Yiwu's market and its related businesses have fostered a rapidly growing cluster consisting of traders, producers, suppliers, agents and other service firms who facilitated trading and transporting. Yiwu's significant transformation is summarized in the introduction and elaborated in the above sections. Below I present what are claimed by my respondents to be that 'Yiwu factors' that have contributed to the cluster and these transformation.
As the Chair of Shangcheng Group put it, correct self-positioning is the key for Yiwu's transformation and achievement. Since China began the reform in 1978, three major rural industrialization and regional development models have emerged: 'Wenzhou model ', 'Pearl River model' and 'Sunan [South East China] model'. Yiwu did not pursue the 'Sunan model' that started with collective industry, nor the 'Pearl River model' that was promoted by FDI and its related export-oriented economy. However, Yiwu did benefit from the 'Wenzhou model' in many ways given their geographical proximity. Both Yiwu and Wenzhou were founded on 'specialized markets plus rural industrialization'. However, while Yiwu copied the Wenzhou model in the early stage by emphasizing the market, it departed from the Wenzhou model as it continued to focus on the market while Whenzhou transformed its focus from light industry to heavy industry. This may be related to the fact that Wenzhou began with family production and then promoted its market to sell family made products. In other words, the market is not the key strength and hence the focus of Wenzhou model. However, Yiwu began with trading goods from the entirety of China. Although local traders extended their activities from purely trading to producing, supplying and internalizing, creating cluster and promoting development, trading was, and still is Yiwu's strength. While it is not yet clear which model is better, the fact is that Yiwu continues to grow steadily whereas Wenzhou's growth has declined considerably. What is worth noting is that Yiwu lacked all the key resources deemed necessary for a cluster's forming and growing, including high education, and a talent pool.
Entrepreneurship has been found as being critical in Yiwu's transformation. Local informants do not use the term entrepreneurship but instead 'Yiwu spirit' to explain why Yiwu succeeded. 'Yiwu spirit' is described with 12 Chinese words: 'qin geng hao xue, gang zheng yong wei, cheng xin bao rong', meaning 'diligent and studious, upright and brave, integrity and tolerance' (Chen 2011). Such entrepreneurship was nurtured by local culture respecting business and motived by the desire to deal with poverty. Mr Zhu Xiaoliang, a native Yiwu and official in Ministry of Commerce, summarized: 'Everyone's common mentality [in Yiwu] is to be killed rather than starve to death. Those brave ones began to trade regardless of its legal status'. The Director of Division of Comprehensive Reform, Zhejiang Provincial Development and Reform Commission, further expanded on the meaning of Yiwu spirit: 'Yiwu people were not satisfied by the status quopovertyso they were determined to change the status. However, they were more wise than brave. They searched tirelessly and eventually discovered a development model suitable for Yiwu' (interview, 6 April 2017). Entrepreneurship is reflected not only in the motivation but also means of eradicating poverty. That requires innovation, including new ways of doing business and products with new features and prices. My findings concur with the existing literature on Yiwu (for example, Si et al. 2015): Yiwu entrepreneurs are ceaseless in their attempts to test out new ways of doing things, from trading to producing and E commerce; as a result, their products and prices are changing continuously. Of course, rapid development in Wenzhou and other areas also benefited from local people's entrepreneurship, but Yiwu entrepreneurs are more realistic by concentrating on business they are most familiar with, that is, trading. They are probably also more globalized. For example, it is widely claimed that Wenzhou people favour the model of doing business with other Wenzhou natives in order to reduce transaction cost; by contrast, Yiwu entrepreneurs embrace the entire world to do business.
A supportive and capable local government is another widely claimed factor. As many business entrepreneurs expressed, they need a favourable institutional environment to shine and they have got it in Yiwu. As it was expressed by the researcher in Zhejiang Provincial Department of Commerce, Yiwu cluster would not have developed 'without local government's risk taking in permitting the chicken feather trading well before the national economic reform and challenging existing policies consistently after the reform' (interview, 6 April 2017). One recent media report showed relevant evidence. Early in 2017 when Mr. Xie Gaohua visited Yiwu, hundreds of local business people drove and parked on the road, waiting to welcome his visit. One said, 'Xie Shuji is our benefactor. We cannot forget about our benefactor'. At the same time, as claimed by research in Zhejiang Provincial Department of Commerce, several generations of Zhejiang provincial government were all very reasonable and cautions in guiding the market and did not intervene market excessively. On the other hand, they actively helped local entrepreneurs who faced difficulties. … This might be related to the fact that Zhejiang was not an industrial-strong province. The provincial government was very supportive to business, and this was why Zhejiang nurtured not only Yiwu but also Wenzhou and many other clusters. The support was even stronger after Minister Zhong Shan became the governor of our province. He directly removed barriers to international trade. He offered many concrete supports to Yiwu. (interview, 6 April 2017) The well-balanced government role was considered extremely beneficial for Yiwu's development. A former visiting officer allocated by the Ministry of Commerce to Yiwu observed, 'Yiwu has not been controlled to death' (interview, 31 March 2017). The research in Zhejiang Provincial Department of Commerce extended this argument: Yiwu's unique area is that the Market has never been privatized. It has always been in the hands of the local government. At the same time, the local government is wise. It did not excessively control neither lose control of the Market. Jinjiang in Fujian, Hanzhenjie in Wuhan and other specialized markets were largely privatized and controlled by one or a few individuals. Pursing maximum profit and minimum social responsibility was the consequence. Somehow Wenzhou also lacked a wise government as Yiwu didhas. In Yiwu, government controls the market through implementing policies to improve quality of goods and service of trading … to ensure the best service and lower cost. (interview, 6 April 2017) In summary, 'Yiwu spirit' or simply entrepreneurship drove local government to establish and promote the market while policy makers also actively took the advantage of local people's trading capability and entrepreneurship. Both business people and policy makers 'took risk to leverage resources to create new institutions or to transform existing ones' (Maguire, Hardy and Lawrence 2004, 657). While Yiwu has made a significant transformation, local entrepreneurs and policy makers are fully aware of significant challenges. Yiwu benefited considerably from a large domestic market, with an insatiable demand for lower cost small commodities, especially in its early development stage. However, with rising living standards in China, such demand will inevitably reduce. Yiwu also benefited from the mass production capability in China which ensured the seemingly unlimited supply of affordable Yiwu goods. However, with the rising wage, material and environment protection costs, it is becoming more difficult to maintain the lower cost supply. Above all, the rapidly growing field of Ecommerce has begun to source supply from producers rather than Yiwu wholesalers, posing challenges to traditional Yiwu traders who are slow in mastering E commerce methods.
I have sought in this article to explore Yiwu's historic development through the lenses of development, entrepreneurship and anthropology. Yiwu lacked many of the significant characteristics (for example, quality research universities, skilled labour pool, funding, favourable city characteristics and historical luck (Braunerhjelm and Feldman 2006) that are generally regarded by development specialists as enabling a clusteror 'trading node' to form and grow. However, in less than three decades, Yiwu transformed from one of China's poorest to richest counties. Conventional work in development studies is unable to fully explain Yiwu's transformation, yet scholarly work on entrepreneurship offers important insights. The interview material presented in this article demonstrate that Yiwu's entrepreneurs were extremely capable in terms of fostering innovation, enhancing employment creation and ensuring more equitable income distribution (Hirschman 1958;Acs 2006). Such capacities help to explain how Yiwu developed so rapidly as a cluster without having access to significant local resources other than the entrepreneurial talents of local people. Entrepreneurship promotes the development of clusters and trading nodes, while also being supported by a government willing and able to take risks. Reaching such a conclusion, however, has been made possible through embracing the methods of social anthropology. I gathered the life histories of over 100 Yiwu entrepreneurs, policy makers and overseas Chinese and foreign traders, recognizing the critical insights these can offer into the dynamics of being a trader in the context of everyday life, and the distribution of commodities across space, and through these concerns and nature of low end forms of economic globalization more generally (for example, Matthews, Ribeiro, and Vega 2012;Marsden 2015Marsden , 2016. These are central concerns for the dynamics of Yiwu, as well as for the wider socio-economic context in which the city is located (for example, Wu 2008).