Understanding China’s future potential by studying a small 4th-tier city (Part 1)

As China is no longer growing as fast, what can we learn from the story of one of its most ordinary cities.

The article we are sampling today is about a nondescript city called Gaoyou. As the author Qin Shuo pointed out, the reason for telling the story of this small city is not because there is anything special about it, but rather, because there is nothing special about it. Gaoyou has no abundant resources, no fancy high-tech, no star enterprises, and is not somewhere young talents would think of for career. It is, however, exactly what most of China’s thousands of cities and counties look like. But most of Chinese people live in a city like Gaoyou. So only by understanding China at this granular level, can one have a real pulse on what China will develop into amidst all the pessimism that we are seeing today.

This article will come in two parts. In Part 1, the author will give a brief overview of what Gaoyou looks like as a small city, and will tell the stories of earlier pioneers and entrepreneurs who laid the economic foundation for it. In Part 2, the article will center on how technological innovation takes shape at such a miniature scale, and will also give you a microscopic view of how China’s local government thinks and operates on a day-to-day basis.

Uncover real China from Gaoyou’s story, a county-level city of 700k+ residents

In early August, I conducted a three-day on-site research in Gaoyou City, which is under the jurisdiction of Yangzhou, Jiangsu in China.

Gaoyou has a history of over 2,240 years. In 223 BC, during the 24th year of Emperor Qin Shi Huang's reign, a high platform and a post station were built here, hence the name Gaoyou (In Chinese, "Gao" means "high" and "You" means "posts".).

Gaoyou has six national key cultural heritage sites, including the ruins of the Grand Canal of China. The Grand Canal flows through Gaoyou like a jade belt, with a length of about 43 kilometers.

Gaoyou has a permanent population of 710,000 and a registered population of 796,000, with an area of 1,963 square kilometers, of which water covers about 40%. Gaoyou Lake covers an area of 780 square kilometers, ranking sixth among freshwater lakes in China. Due to its network of rivers and vast sandy beaches, many people say that "Gaoyou is made of water." Currently, the total annual output of aquatic products in Gaoyou is nearly 200,000 tons, and the area of giant river prawn cultivation accounts for one-fifth of the country's total. Gaoyou duck is one of the three best duck breeds in China, and Gaoyou salted duck eggs are a nationally recognized geographical indication product.

At the end of July, CCID Consulting released its list of the top 100 counties in China for 2023, with Gaoyou ranking 66th. Its GDP exceeded 100 billion yuan in 2022, and its industrial sales exceeded 130 billion yuan, with a general public budget income of over 4 billion yuan.

What to Explore in Gaoyou?

I chose to research Gaoyou not because it's a flagship of China's county-level economy.

Within Jiangsu's 40 counties and county-level cities, 23 make the prestigious "Top 100 Counties" list in China. Gaoyou holds the 20th spot, firmly centered. Admittedly, when compared to the over 1,800 counterparts nationwide, Gaoyou stands upstream, but within limits.

In 2022, while the national per capita disposable income averages 36,900 yuan, Gaoyou's stands slightly taller at 37,800 yuan.

Gaoyou might not lead the charge, but its relentless pursuit paints a different story.

What I hope to explore through Gaoyou as a sample are:

1. In the wake of China's reform and opening-up, some areas, primarily coastal regions, have substantially reaped rewards from their integration into the global value chain. However, Gaoyou has long had fewer foreign-funded enterprises and has not yet benefited from the open culture. Instead, it has predominantly followed a path of self-reliant and independent development. Can this path prove sustainable?

2. Gaoyou possesses fertile natural resources, yet its Gaoyou Lake has been under a 'fishing ban' for a decade, depriving it of a food source from the lake. The city lacks metallic minerals, coal, oil, and other natural resources. Throughout history, it has received limited investments from state-owned enterprises, and it lacks a cornerstone enterprise akin to Moutai (600519.SH) or CATL(300750.SZ). Today, it only has one listed company (Chuan Yi Technology, 603100.SH). Gaoyou isn't a financial hub, where nationwide individuals contribute to its exchanges and financial institutions, nor is it like a video game company with constant 24/7 transactions for popular products. However, most parts of China are probably like Gaoyou. Can this kind of predicament lead to development?

3. As a fourth-tier city, Gaoyou places significant emphasis on education and culture. However, despite sending numerous college students away each year, only a few return after graduation. The city faces a shortage of higher education resources, with only Yangzhou University building a modern agricultural science and education demonstration zone here, and Yangzhou Vocational College has just started construction of the Gaoyou Lake campus. Can these talent conditions drive innovation and high-quality development?

Every piece of land can be a classroom. In Gaoyou, I sensed the power of destiny through the hands and feet of the female workers stitching at Bosideng (3998.HK) clothing factory, the farmers tending to giant river prawn ecological breeding base, the laborers in Gaoyou Duck Group's duck egg processing workshop, and the sales staff of the streetlighting enterprise. Their ceaseless daily toil never halts.

This is destiny, perhaps shared by most places and Chinese people alike.

Yet, is a life of unwavering manual labor a wretched fate? If your hands and feet cease their movement, you may escape suffering, but perhaps your life will come to an end.

People in Gaoyou find joy in their labor, as it paves the way for an improved life. Their countenances exhibit not bitterness, but rather a sense of tranquility and poise.

Through diligent efforts, Gaoyou has risen to prominence as a renowned hub for down jackets and garment production, a center for streetlight manufacturing and specialized cables. Not to mention the famous Gaoyou Duck salted eggs and giant river prawns. Beyond the traditional machinery and equipment, wire and cable, and textile and clothing industries, Gaoyou is actively cultivating a '3+3 industrial system', consisting of the emerging industries of optical storage and charging, lighting fixtures, and electronic information.

The happiness index of Gaoyou people is actually quite high. A cup of soy milk, a bowl of noodles, and an egg are the most common breakfast for locals, costing RMB 5.5 per set (~$0.8). The housing price in good areas of the city is around RMB 6,000 to 7,000 per square meter (as compared to over RMB 100,000 per square meter in the central regions of Shanghai.). During their leisure time, locals go to the Xiti Canal Cultural Park for exercise and a stroll, watching the sunset over the Pearl Lake and the shimmering sails on the water. Although it lacks the modernity and anxiety of big cities, it represents the majority of China.

In my opinion, the development of Gaoyou is a combination of hardworking local labor and a group of entrepreneurial leaders, a combination of endogenous autonomous development and outward-oriented exploration and innovation. Here, "outward-oriented" does not refer to foreign investment and trade as commonly understood, but to the exploration and utilization of all resources, factors, and markets beyond oneself, paired with Gaoyou residents' tenacity.

Amidst today's unpredictable global landscape, many are discussing the concept of internal growth. Nevertheless, exclusive dependence on endogenous development could result in seclusion and complacency. The country advocates self-reliance and progress, emphasizing that while the "self" holds significance, the "progress" holds paramount importance — this entails perpetual self-evolution, crafting a novel self, and discovering pathways within an expansive China and the worldwide market where one can participate and excel, and turning opportunities into reality.

Hence, the core remains centered on individuals, their personal drive, and entrepreneurial and innovative spirit.

Hardworking individuals × leading entrepreneurs

A fundamental requirement for development is that people need to be hardworking.

In the Bosideng clothing workshop, I learned that the workers here can produce 8 down jackets per day, while workers in some northern regions in China can only produce five or six. As a result, the Bosideng Group headquartered in Changshu has shifted orders here, increasing the order volume for Gaoyou.

"Now the filling process has been automated, but the sewing process still requires people. The locals in Gaoyou are clever with their hands. Using a sewing machine to sew sleeves, workers from other factories need two hands, but Gaoyou girls can do it with just one hand and at a faster speed. This allows for more orders to be completed," said an individual from Gaoyou Economic Development Zone.

As of the end of 2020, there were more than 350 textile and clothing enterprises in Gaoyou, including 46 large-scale enterprises, with over 40,000 employees. Local workers account for over 90% of the workforce, with an annual income of RMB 60,000 to 80,000. With a skilled workforce, Gaoyou enjoys a reputation in the industry for being able to handle any orders, no matter how difficult.

In 2020, Gaoyou's textile and clothing enterprises processed over 100 million pieces of clothing, including 20 million down jackets, and the leading enterprise Bosideng alone produced four to five million pieces.

Bosideng Clothing Co., Ltd. is located in the Economic Development Zone, with over 2,000 employees. There are also four processing points in four towns, each with over 200 workers. The processing points are located in the towns for the convenience of local employment and do not require daily transportation by bus. However, the standards for employment, training, and management are the same.

Development of Gaoyou’s garment industry, propelled by Bosideng

The garment industry in Gaoyou started in the 1980s when a group of "三来一补 three comes, one compensates" enterprises cooperated with township enterprises to expand production and promote the transformation of surplus rural labor. The first decade of this century was the golden decade of Gaoyou's textile and garment industry, with a peak of nearly 600 enterprises, nearly 60,000 employees (accounting for over 45% of the city's industrial employees), and RMB 6 billion in revenue.

[Baiguan note: The "three comes, one compensates" model's "three comes" refers to processing materials, processing samples, and assembling components, which all come from foreign companies, while "one compensates" refers to trade subsidies. This is a common form of trade practices during the early stages of reform and opening up when China had no resources.]

Afterwards, the country's environmental protection requirements became increasingly strict, and the workshop-style enterprises with extensive management in down and feather processing caused water pollution, gradually being forced to retreat. The leading enterprises that focus on environmental protection, design, digitization, and have technological advantages gradually became the main and dominant players in the industry chain.

In the annals of Gaoyou's garment industry, December 5, 2005, stands as a momentous date. On this day, Bosideng Clothing Co., Ltd. established its presence in the economic development zone. The venture introduced a French CAD design system, an Italian steam ironing assembly line, and specialized production equipment from Germany and Japan. Completion was achieved in 2006, and by 2007, it ranked among Gaoyou's top taxpayers, contributing a sum of RMB 45 million.

Initiating from the realm of clothing, Bosideng Group extended its investments to various sectors within Gaoyou, spanning textiles, logistics, commerce, hotels, industrial parks, and photovoltaics. By 2022, Bosideng’s tax contributions exceeded 400 million RMB, constituting 10% of Gaoyou's general public budget revenue.

He Qixin, the visionary who brought Bosideng to Gaoyou

It was local entrepreneur He Qixin who introduced the Bosideng Group to Gaoyou. He was born in 1966 into a humble peasant family in Zhongdong Village. His family managed to scrape by with just one harvest per year and raising ducks to supplement their income. During that era, a fully grown duck fetched a mere two or three yuan, and "even after a year of hard work, any losses among the ducks would only result in earning a few coins.”

He Qixin started his journey by working in a factory during his youth, eventually venturing into his own small garment factory. Over time, he nurtured its growth. By 2005, the factory had expanded to encompass 1,700 employees, standing as Gaoyou's largest garment factory. It was during this year that he won the trust of Bosideng Group, and the two sides jointly established Jiangsu Bosideng Clothing Co., Ltd., with Bosideng headquarters holding 55% and his enterprise holding 45% and being responsible for full management of the company.

He Qixin recalled that as far back as 1997, he had visited Changshu, the headquarters city of Bosideng. However, at that time, Bosideng showed no interest in establishing a presence in Gaoyou. The dramatic shift in their stance in 2005 was driven by the fact that "they highly esteemed the quality of our products and our punctual delivery capability. Moreover, they recognized our abundant pool of skilled garment workers as a pivotal factor.”

Pioneers in Gaoyou's lighting industry

If He Qixin stands as a vanguard in the garment industry, then Chen Jingchun emerges as the veritable initiator of Gaoyou's street lamp industry. He founded Gaoyou County Lighting Equipment Factory, the first lamp production enterprise in Gaoyou, cementing his legacy in the local industry.

Chen Jingchun: from rags to riches in the planned economy era

In 1972, Yao Peishan, the team leader, and Nie Hengcai, the director, of Pantang Brigade, Gaoyou Guoji Public Commune, were dissatisfied with the fact that farmers could only earn three or four cents a day. They decided to take risks and start a factory [Baiguan: China was still transitioning from the tumultuous years of the Cultural Revolution (1966-1976), a period marked by political upheaval, social turmoil, and economic instability. Private enterprise was not officially encouraged and could lead to potential harassment, fines, or even imprisonment.] They met Chen Jingchun, who had worked in a county-owned enterprise, through acquaintances and invited him to make radiators and chisels. However, under the planned economy, it was difficult to obtain materials from state-owned radio factories without resorting to speculation. They didn't have the necessary conditions to start a business, so Chen had to leave Pantang with regret.

In 1976, as the collective enterprise acquired some space, Yao and Nie turned to Chen Jingchun once again. After multiple invitations, on September 12, he finally arrived at Pantang village to establish Gaoyou County Lighting Electrical Appliance Factory. Lacking a factory building, they sought refuge in several dilapidated warehouses from the production team. With no startup capital, they sold two pigs from the team's inventory. Devoid of insulating adhesive equipment for ballast production, they ingeniously employed soup cans from members' homes. Coal was absent, replaced by firewood to fuel the earthen stove. Beds were non-existent, replaced by makeshift "duck carriers" filled with straw and manure. Short on material funds, Yao, the team leader, even borrowed money from egg-selling members. Fearful of daylight production, Chen Jingchun and his apprentices toiled tirelessly during the night, crafting over a dozen ballasts by morning. They then packed them, shouldered the load, and embarked on a journey involving buses, trains, and boats to approach city streetlight management departments.

Luck often comes unexpectedly. Once while on a business trip in Chengdu, Chen Jingchun learned by chance that a wireless factory in Zibo, Shandong was facing closure and had a stock of several thousand town flow regulators. He immediately went there and bought them at 5 yuan per unit. After testing, inspection, and packaging, he sold them to his customers at 16 yuan per unit, earning his first bucket of gold. From then on, they went from scratch to mass production, developing a series of products such as light poles, series lighting fixtures, high poles, and Chinese lamps, which were deeply loved by the market.

As the enterprise develops, the lives of the villagers have also greatly improved. Basic infrastructure such as irrigation, bridges, roads, electricity, new houses, and school buildings are gradually being improved. A large number of young people have learned skills and found spouses by working in the factory. Children of outstanding sales performers can have priority in entering the factory. Villagers over 60 years old can also receive pension subsidies.

In 1989, Gaoyou County Lighting Appliance Factory's output value surged past RMB 10 million, elevating it to a star enterprise in Gaoyou. Nie Hengcai emphasized that the credit for Gaoyou's lightening industry's success belongs largely to Chen Jingchun. Additionally, Gaoyou's industrious and resourceful community, driven by their resolute aspiration to overcome poverty and attain prosperity, emboldened them to dream, act, and embark on entrepreneurial ventures, undaunted by challenges or setbacks. "Their knack for emulation is strong, with one individual learning from another; their fervor for collective advancement is steadfast, with one inspiring another. As a nucleus enterprise spawns a series of enterprises, an industrial cluster takes root and flourishes gradually.”

Today…

During my visits to numerous lighting enterprises including Noel Group, Longteng Lighting, and Haowei Transportation, an overwhelming majority of interviewees emphasized the pivotal role of Chen Jingchun. Notably, Noel Group's exhibition hall dedicated a special section to the pioneers of Chen Jingchun's era, capturing their spirit with the theme "Never Forget the Well Digger.”

After more than 40 years of development, Gaoyou's road lighting and lighting industry have achieved multiple leaps from guerrilla to regular army, from manual work to mechanization and automation, and from single lighting to smart and multi-functional lighting and green environmental protection lighting. Currently, Gaoyou High-tech Industrial Development Zone has nearly 1,300 road lighting and smart lighting enterprises (more than 80 of which are above designated size), with more than 40,000 employees, forming an integrated industrial chain of road lighting poles, lamps, light sources, surface treatment, accessories production, and supporting services, with an annual total sales revenue of about RMB 20 billion. Gaoyou occupies nearly 70% of the national market share of streetlight poles and 25% of the finished streetlamp market. More than 5,000 marketing personnel are active in various places, and the sales network covers all large and medium-sized cities. There are also 400 cross-border e-commerce companies that allow Gaoyou products to be sold all over the world.

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