What does China's “hometown of fireworks” tell about its county-level economy?
What does China's “hometown of fireworks” tell about its county-level economy?
Lighting up innovation: Liuyang Fireworks spark China's county-level economies
In our "China City" series, we've previously explored some of China's most "ordinary" towns and cities to provide a snapshot of the broader Chinese economy. We believe that to understand where China is heading, it's crucial to examine the lower-tier cities where most of the population resides. These cities are particularly important because they are seldom featured in mainstream media.
Today, in our "China City" series, we're visiting Liuyang, the "Hometown of Fireworks." Setting off fireworks is a key part of Chinese New Year celebrations. By looking at Liuyang and its ever-evolving fireworks industry, we aim to give you a glimpse into China's economy and how people feel about the future.
Liuyang City, the heart of China's fireworks industry, illustrates more than a celebratory tradition that lights up the sky; it also serves as a great example to understand the economic landscape of China's county-level economies. However, as of June 2022, China has banned fireworks in over 90% of its cities and counties to address environmental, safety, and noise concerns, thus imposing significant pressure on China's fireworks industry. Following the end of strict COVID-19 controls in December 2022, there has been a revitalization of the industry, with significant economic growth and a re-emphasis on the cultural and commercial importance of fireworks in Chinese society.
In today's post, we will translate the analysis of Zhaibo [Baiguan: Zhaibo is a widely-read WeChat Account covering business insights (ID:exact-interaction)]. We will explore how Liuyang Fireworks represents the challenges and opportunities for county-level economies in China, merging cultural heritage with modernity. This exploration will shed light on how local economies can adapt, innovate, and thrive amidst changes in the regulatory environment and local economic strategies.
Below is Baiguan's translation of the original article:
Taking fireworks as an example, why is Liuyang a sample for observing China's county-level economy?
For fireworks practitioners in Liuyang City, Hunan Province, China, celebrating the Spring Festival away from home has both negative and positive aspects.
The bad thing refers to the regret of not being able to reunite with family; the good thing means that this year's Spring Festival has finally received orders for fireworks from other places again.
Liuyang, governed by Changsha City, is a county-level city in Hunan Province, China. The names of many significant locations remind new visitors of one fact: Liuyang has been the hometown of fireworks since ancient times. Notable landmarks include the Fireworks Square, Fireworks Avenue, Fireworks Goddess Statue, Fireworks New Village, and so forth. Fireworks are an integral part of the residents' livelihood and lifestyle.
According to the Liuyang County Chronicle, during the Qianlong emperor's reign of the Qing Dynasty, Liuyang became the center of firecracker production in Hunan; during the reign of the Xianfeng emperor and Tongzhi emperor, Liuyang Fireworks were widely sold to Guangdong, Shandong, Shanxi, and other provinces. By the Guangxu emperor's reign, Liuyang Fireworks began to be exported, trading as far as Indonesia and Malaysia. To date, 300,000 people in this city are engaged in fireworks production. In Dayao Town, even 70% of the residents are fireworks practitioners.
In Liuyang City, the sound of fireworks bursting can be heard year-round. The locals in Liuyang make fireworks and love fireworks. In addition to funerals, weddings, and celebration activities, there are fireworks tests from local manufacturers on the viewing platform by the Liuyang River starting Monday. During the annual International Fireworks Festival, even the roofs of houses become private viewing areas, selling tickets to tourists.
During the Spring Festival of 2023, as the measures for epidemic prevention and control were relaxed, the longstanding ban on fireworks was finally lifted. Liuyang, known as the hometown of fireworks, suddenly became the center of attention. The familiar sights of smoke and fire reappeared, marking the revival of Liuyang's traditional Spring Festival celebrations.
In the past and the future, Zhaibo has reported and will continue to delve into various stories of industry chains, while the Liuyang Fireworks industry chain may be the most unique among them. By paying attention to Liuyang Fireworks, we focus on how to seek upgrades and breakthroughs in a franchise-based and policy-sensitive industry, a static industry with a stifled market capacity under the domestic economic circulation system.
Given the context of franchising, the ban on fireworks and the prior epidemic have stifled domestic consumer demand for a long time, and the fireworks industry's capacity for self-development is significantly limited; Liuyang Fireworks wants to seek external development, but they lack international brand recognition and cultural influence.
From various perspectives, the direction of upgrading the Liuyang Fireworks industry appears clear, like viewing through a transparent glass top. This results in a relatively static state, with fireworks displaying characteristics typical of sunset industries.
For instance, as an industrial product, the added value of fireworks is decreasing while demand weakens. Young people in Liuyang no longer view the fireworks industry as their prospect, leading to a loss of existing high-end talent. This results in a need for more vitality within the industry regarding product research, development, and innovative models.
These issues, which coincided with the Spring Festival of 2023, coexist with joy and chaos: orders suddenly surged, yet the stifled production capacity and talent supply could not meet the skyrocketing demand. As a “minor” variable in the industry, short videos sparked popularity and propelled Liuyang to a traffic peak.
With policy easing, fireworks practitioners in Liuyang City now have the freedom to engage in cultural industries and develop cultural tourism projects, allowing fireworks to expand beyond a limited development space. "Did you know that we've never had children left behind here? Fireworks are our wealth."
The renowned fireworks artist Guoqiang Cai was known at home and abroad for his work "Sky Ladder,” which symbolizes humanity's exploration of the universe and our aspirations to reach greater heights. Now, it seems as though a "Sky Ladder" has appeared before the Liuyang People. Amidst the vast darkness, this solitary sky ladder scatters a faint, weak light. It holds the hope and passion of the fireworks practitioners in Liuyang, burning upwards.
The sudden serendipity
The relaxation of the ban policy was not without warning, at least for the people of Liuyang.
Zhang Yang is the general manager of Liuyang Intently Fireworks Co., Ltd. [Baiguan: a fireworks enterprise specializing in scientific research, fireworks production, firecracker sales, and large-scale fireworks displays]. Starting from mid-November in 2023, Zhang Yang began receiving numerous fireworks projects. The Liuyang Fireworks Association's office also started receiving calls from other provinces daily. Subsequently, an avalanche of these projects came in, and the phone rang more and more urgently.
Over half of the customer base for fireworks display projects comprises government agencies throughout China. The surge in orders reflects policy ambiguity. In the aftermath of the epidemic, boosting consumer confidence and rejuvenating the city's market atmosphere are crucial tasks. Given the Spring Festival's impact, fireworks have emerged as the optimal catalyst.
Since ancient times, the development of the fireworks industry has been inseparable from the growth of the urban class represented by merchants and artisans. Old folk operas, acrobatics, and other entertainment venues were the familiar places for setting off fireworks, which symbolize commercial vitality in the eyes of the Chinese people. Recently, areas like Henan and Shandong Province, which previously enforced strict bans, have officially permitted fireworks. This has led the fireworks practitioners in Liuyang to believe that the springtime of the fireworks industry may finally be returning.
According to the Liuyang Fireworks Association, during the 2023 Spring Festival period (from New Year's Eve to the 15th of the first lunar month), approximately 500 large-scale fireworks displays were held nationwide. The total expenditure surpassed 200 million yuan, four to five times the amount spent during the pandemic. This figure is equivalent to the total volume for the entire year of 2022.
On the eve of the Chinese New Year, Zhang Yang was still in Hangzhou for her project. She mentioned that the city's fireworks show was hastily planned and finalized on January 16th, leaving less than a week before New Year's Eve. Until the day we talked, her phone was still popping up with new project communication needs.
However, "Our resources are already saturated; both workers and goods are insufficient, and we really can't take any more,” she said.
The fireworks' unexpected comeback brought joy and surprise to Liuyang's fireworks practitioners. "We were mentally unprepared. 2022 was not very prosperous, and we had little hope for 2023," said Douyin influencer Fireworks Prince.
Insufficient production capacity is the most apparent problem faced by Liuyang's fireworks practitioners in the Spring Festival of 2023. In 2013, the increasingly strict nationwide ban led the fireworks industry in Liuyang into a hibernation period, with the growth rate of output value almost halved, and it has been declining ever since, with many fireworks companies withdrawing. The Fireworks Prince told us: "If we used to have 1,000 fireworks factories here, there might only be 500 left now."
The pandemic has significantly reduced the number of gatherings involving fireworks shows. Zhang Yang said, "During the pandemic, we didn't have a single project for as long as six months."
Due to various factors, manufacturers have low expectations for stockpiling. In addition, based on the statistics of past Spring Festivals, the order process is typically completed by November. No one expected that the sudden adjustment of policies would bring such a rapid market demand.
Zhang Yang's company, one of the few in the country specializing in fireworks displays, maintains stable reserves of equipment and goods throughout the year. With mature event organization processes and resource allocation capabilities, they are well-prepared. For the 2023 Spring Festival, Zhang Yang began preparations early, stocking up on fireworks worth 5 to 8 million yuan. Despite these preparations, demand still exceeded their capacity.
The goods issue can be resolved by adjusting or tightening production, but it's more challenging to compensate for a shortage of teams and talents. Fireworks involve art and technology, demanding a comprehensive understanding of music, art, and electronic information.
The fireworks display at the 2008 Beijing Olympics marked a golden age for Liuyang, attracting a significant influx of talent. This period also saw the emergence of professional fireworks companies. However, following a decade-long ban and the three-year pandemic, fireworks are now considered a sunset industry. The original talent pool has quickly diminished, with many individuals transitioning to different fields and younger generations reluctant to get involved.
Regardless, the fireworks industry has started to recover, giving hope to practitioners in Liuyang. As fireworks bloom again in the night sky, people on the ground finally show expressions of happiness.
Huang Cheng, a renowned director of Liuyang fireworks shows, considers "fireworks the best emotional product." He believes they can help people release emotions suppressed for years. The recent surge in the fireworks industry is surprising yet understandable.
"Everyone breathed a sigh of relief," said Zhang Yang.
Policy as a constructive skeleton
The fireworks industry needs more independent development capacity. This is evident in production, circulation, and sales, where external influences are present. Policies act like skeletons, defining and shaping the path of the whole industry.
For the older generation involved in the fireworks industry, bans and permissions for fireworks cycle every ten years. They've grown accustomed to these policy fluctuations affecting their business. In factories, each worker must pass a level-specific exam and hold a certificate to work. The restrictions on the circulation and sales links are always present; wholesale distribution requires a special license, and retail channels must also be divided into short-term sales and long-term sales.
In an era where factories in the industry chains are eliminating middle links and transitioning to retail, the fireworks industry still maintains the traditional wholesale link, the step they deem necessary.
Even a considerable part of market demand is propped initially up by government customers who do not pursue economic benefits. Many places will enhance the celebratory atmosphere with fireworks shows during large-scale festival activities, such as May Day, National Day, and Spring Festival.
The fireworks industry inherently operates on a B2B (Business-to-Business) model, or more precisely, a G2B (Government-to-Business) or B2G (Business-to-Government) model. This causes the fireworks market to display static characteristics. In other words, the demand is relatively fixed, and the market capacity has a set upper and lower limit. While restrictions on usage may limit the industry's scale, the market economy also has its elasticity. The needs of the local pillar industry economy, the requirements of local governments, approved activities, and deep-rooted traditional customs ensure that the fireworks industry can maintain a stable state.
The industry's internal development capability could be improved, as evidenced by the slowdown in research and development speed on the product side. The "Gatling Gun" style, which went viral in 2023, was already available and exported to foreign countries years prior. The further manufacturers are from end consumers, the slower the market feedback is received, making the manufacturers less responsive to potential market demands. Manufacturers are only willing to invest significant resources in product development with sufficient incentives.
Fireworks Prince, whose real name is Qingguang He, formerly worked at a fireworks factory. He was one of the pioneers in Liuyang to post videos of fireworks on Douyin. Many Liuyang fireworks manufacturers collaborated with him to film and promote their products. However, these collaborations typically last for approximately two years.
"There are not so many new products to shoot, and the factory may not necessarily be profitable to invest in research and development," he explained. "You always need new things to shoot short videos."
During the golden age of the fireworks industry, the government once encouraged tens of millions in investments to address the ten major technical issues. However, as demand has decreased, these incentives for research and development have gradually slowed.
China is the largest exporter of fireworks in the international market, primarily supplying the mass consumer market. However, Italy, Spain, and Japan are the leading countries in the professional pyrotechnics market. Specifically, Japan specializes in aerial fireworks.
While professional pyrotechnic products may appear similar to fireworks for personal use, they contain higher-purity raw materials and more active ingredients. Consequently, they demand more significant research and development capabilities from the manufacturing company and safety and standardization in production processes.
Currently, China only allows fireworks production that is less than 6 inches in diameter for safety reasons. Stringent controls on the ratio of large fireworks used in large-scale pyrotechnic activities also exist. In contrast, Japan and Europe do not enforce specific requirements on fireworks specifications.
The enthusiasm and intensity of research and development in the professional pyrotechnics market for the latter two areas are higher. Guoqiang Cai, a renowned fireworks artist from China, returned from studying in Japan. In 2014, Saitama Prefecture in Japan launched the world's most giant fireworks at their fireworks festival. This "4-foot ball" has a diameter of over 1 meter and weighs 460 kilograms, exploding into a 732-meter flower.
Zhang Yang's company considers Japanese craftsmanship and products when buying specialized pyrotechnic items. However, due to import restrictions, the company must first bring Japanese artisans to China for instruction, purchase raw materials from Japanese suppliers, and entrust specified factories to produce. This entire process is quite intricate.
However, the stringent domestic regulatory policy has significantly enhanced the industry's safety standards. Historically, in Liuyang's fireworks production, home workshops were the predominant form. Qingguang He recalled that many children engaged in the family's fireworks production from a young age: "Children were tasked with threading the wires, while the father mixed the materials. We would go to the drugstore to mix the materials back then, as the raw materials were readily accessible."
Nowadays, every fireworks factory has a first-level management department responsible for safe production, the drugged and non-medicated links are physically separated, and there are specific regulations for the location of the burning samples.
"Indeed, the fireworks industry policy has been rigorous in the past ten years, but at the same time, you will find that there are very few safety accidents in the production of fireworks, and the news of injuries due to fireworks has also decreased." Zhang Yang said. With the improvement of the standardization of the entire industry and the withdrawal of backward production capacity, the production and ignition of fireworks have become very safe.
Short video as a “minor” variable
Changes in the external business environment often have limited impact on the static fireworks industry. For the fireworks practitioners in Liuyang, short videos may be one of the few variables in recent years: the process of making fireworks has eventually overcome various backstage obstacles and is seen by consumers.
During the challenging times of the burning ban and the pandemic, the surge of short videos created new ripples in the calm lake of our lives. As short videos spread, more people become familiar with Gatling Gun, Jellyfish Fireworks, Milan Night, and Open Sesame. These colorful products are leading people into the mesmerizing world of fireworks.
With the ease of policies, consumers have started actively seeking innovative, enjoyable, and visually appealing products, igniting their demand. This has led to the emergence of the "Internet celebrity fireworks" concept.
Qingguang He stated, "A few years ago, when the fireworks business was sluggish, it was common for goods to remain in warehouses, and manufacturers faced the risk of bankruptcy. However, with the popularity of short videos, demand has soared every year."
Years ago, the fireworks practitioners in Liuyang had yet to recognize the potential connection between short video dissemination and the impressive visual effects of fireworks. Qingguang He was among the first to take the plunge and quickly succeeded. He has 1.5 million followers, and his most-viewed video has reached 963,000 views.
The manufacturer, HuiYue Fireworks, frequently collaborates with Qingguang He to film the effects of product ignition trials. Their saleswoman, Youyou, mentioned that they only started promoting on TikTok in the past two years. "We used to focus more on exports, but since shifting to domestic sales, we've found that short videos are advantageous for brand promotion," she stated. HuiYue Fireworks consistently regularly collaborates with three famous fireworks influencers and set up an account on TikTok.
"Many manufacturers have established specific promotion departments that post short videos. There was no such thing as a promotion department in the factory before," said Qingguang He.
Despite the popularity of short fireworks-related videos, the industry struggles to keep pace with development due to swift internal circulation. In other consumer goods industries, live-streaming e-commerce has become a crucial operation. This short-chain model has benefited countless manufacturers and improved the supply chain's rapid response capability.
The fireworks industry, due to franchising, cannot directly sell online. Even when consumers spot desirable products in videos, they can only purchase them at local retail outlets. This often leads to supply-demand mismatches. The distributor's ability to quickly adapt their product selection to consumer demand becomes crucial at this point.
Qingguang He has become accustomed to seeing users complain about him not selling goods directly in his private messages. Similarly, Yuyou of Huiyue Fireworks has clarified that short video promotions primarily target business customers or leverage influence with retail customers to boost business and distributor orders.
"At least short videos have made more consumers want to buy good-looking fireworks." Zhang Yang said. "In the past, people might only buy near New Year's Eve, but now, the explosion of fireworks sales has advanced many days."
The traffic aggregation ability of short videos seems unable to make a breakthrough at the product level in terms of the critical process of production-distribution-sale. However, their emergence has played a significant role as an accelerator in certain aspects of the fireworks industry.
From industrial products to cultural products
The considerable traffic brought by short videos is challenging for manufacturers to capitalize on due to blockages in the sales process. Nevertheless, Liuyang is attempting to attract this fireworks traffic to its cultural business card. As a result, more internet users recognize Liuyang's cultural identity as the hometown of fireworks on social media.
Huang Cheng, the director of fireworks shows, openly discusses the challenges of the fireworks industry. "The industry has faced difficulties in the past few years, but policy restrictions are not the root cause," he said. "The issue is that our fireworks are considered industrial products, not cultural products.”
Liuyang City has exported numerous fireworks products worldwide but needs a brand identity. This situation seems to be yet another example of a "low-end manufacturing upgrade." Generally, when domestic markets face development bottlenecks, overseas demand often acts as a catalyst for upgrading and transforming domestic industries. However, Liuyang does not have this opportunity.
Adhering strictly to an industrial products manufacturing mindset can make any sensitive factor, like safety and environmental protection, a potential risk to the industry. Transforming into a cultural sector can provide a larger space and stage for maneuver. Fireworks are an indispensable part of traditional culture, with strong artistic potential. Liuyang still has a lot of room for improvement in this regard.
"Belgium's Tomorrowland music festival, Japan's fireworks festival, and Disney's fireworks are all examples of Cultural IP (Intellectual Property). They are brands, and they are fundamentally different from us," Huang Cheng stated thoughtfully. "The profit model of these fireworks IP brands is cultural tourism, which has more added value and yields several times the profit of pure industrial production."
Take the Japanese Fireworks Festival as an example. Historically, Japan's earliest fireworks festival occurred in the 18th century for disaster relief, similar to the Chinese legend of the Monster Nian from a cultural core perspective. However, the cultural connotation of fireworks in Japan has been constantly enriched with the times. The combination with the summer festival has turned the fireworks festival into a consumer event, and the fireworks festival has gradually become an essential strategy for various regions in Japan to develop cultural tourism and stimulate consumption.
According to statistics from the Japan Tourism Official Website, Japan holds more than 1,000 fireworks festivals each year. Fireworks festivals in Tokyo's Sumida River, Niigata County's Nagaoka, and Shizuoka's Kawaguchiko attract many domestic and foreign tourists.
Various popular culture mediums, including movies, animations, and music, consistently reinforce the symbolism of the fireworks festival in cultural tourism. The anime movie Your Name and the song Uchiage Hanabi by musician Kenshi Yonezu, both themed around fireworks festivals, have gone viral in China.
In contrast, China's fireworks industry, despite its prominence in traditional culture and its role as the leading source in the broader East Asian cultural sphere, has struggled to develop into a robust Cultural IP. It has gradually become a kind of misplaced psychological advantage. Recent news about "Korea's Lunar New Year Fireworks Application for the List of World Heritage" triggered a wave of outrage in China, manifesting widespread resentment.
For Liuyang, known as the hometown of fireworks, the frustration caused by this misplacement will likely grow due to the influence of cultural atmosphere and economic interests. Nonetheless, the development of the cultural industry goes beyond a simple assertion. Many pain points, such as needing more talent, restrict the industry's progress.
Training a high-level artisan takes between 6 and 10 years. In addition, becoming a comprehensive fireworks expert requires many practical experiences. Given its extensive knowledge requirements, training in this industry can only be facilitated through a master-apprentice model. Currently, only about 50 individuals in China genuinely understand design, planning, and operation and are qualified to be fireworks performance designers.
While fireworks have become a significant part of the cultural industry, the challenge remains in making Chinese traditional customs globally recognized and celebrated, such as Disney Fireworks. Solving this problem requires more influential works with artistic appeal and the overall progress and collaboration of domestic cultural and creative industries.
To some extent, Liuyang Fireworks exemplifies the pursuit of industrial breakthroughs within the internal circulation economy. Prioritizing domestic cultural tourism is currently the most viable strategy for such a breakthrough.
As early as 2019, Huang Cheng contacted relevant officials of the Liuyang City Government to discuss the development direction of the Liuyang fireworks industry. "Liuyang is a very innovative city. Many leaders also took trips abroad at that time. Subsequently, they established a cultural and tourism brand for visiting Liuyang to watch fireworks on weekends."
In July 2022, the "Sky Theater” was launched, renovated, and built by Huang Cheng Studio and the state-owned Liufa Group from the old viewing platform. It has become a new landmark for Liuyang Fireworks Cultural Tourism. After the epidemic was lifted, it has attracted over 10,000 tourists from different places since New Year's Day.
Additionally, he is developing his cultural tourism brand, "Flame Encounter," which features immersive events centered around fireworks and fire. The launch cost of "Flame Encounter" in Wuhan was 1 million, but it ultimately generated a revenue of 10 million. This demonstrates the potential of cultural tourism.
Zhang Yang is also planning Cultural IP projects. He stated, "After the policy was relaxed, we can finally explore some long-planned ideas."
In her plan, fireworks should extend beyond a 15-30 minute display. They should offer more social activities, including daytime games, mazes, and cultural creativity. "Of course, all activities will be themed around fireworks."
The industry is heralding the arrival of the boom, along with new opportunities. However, fireworks practitioners in Liuyang remain cautiously optimistic, given their experiences with past ups and downs.
"We once experienced a golden age, with booming sales after the Beijing Olympics. However, due to a unilateral ban on burning, the fireworks industry plummeted from the peak to the bottom," said Huang Cheng. "Now, in the era of personal media, we need to be more vigilant."
Zhang Yang believed that the market recovery trend in 2023 was evident. Barring any significant policy changes, he anticipates improvements in the fireworks industry. "At least, it can be promising for three years," he said.
