In Guanyun County, China, an industrial park nicknamed “Victoria’s Secret Town” thrives on producing lingerie for export, largely thanks to a US tariff exemption known as the “de minimis” rule. This rule allows packages valued under $800 to bypass tariffs when shipped to individuals, fueling the growth of Chinese e-commerce giants like Shein and Temu, and benefiting local producers like Lei Congrui, owner of Midnight Charm Garment Co.
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Thriving on a Tariff Loophole
Guanyun’s lingerie industry, located 180 miles from Nanjing, has experienced explosive growth due to this exemption. Lei’s “erotic clothing” showroom, one of the few operational businesses in the WeMet Industrial Park (Victoria’s Secret Town), exemplifies this boom. His company, along with many others, relies heavily on platforms like Shein to reach US customers, with 70% of Midnight Charm’s revenue originating from the US market.
The “de minimis” rule, designed to simplify customs procedures, has inadvertently facilitated the rapid expansion of Chinese e-commerce and manufacturing. Nomura estimates that $240 billion worth of Chinese goods, representing 7% of overseas sales and contributing 1.3% to GDP, will benefit from this exemption in 2024 (the year the original article was written).
Looming Threats to a Booming Business
However, this reliance on the “de minimis” rule poses significant risks. Efforts by the Biden administration and potential future actions by the Trump administration to close this “loophole” and raise tariffs threaten Guanyun’s economic prosperity. Similar restrictions are being considered by the European Union and other countries.
Eliminating the rule could significantly impact China’s export growth and GDP, particularly affecting blue-collar workers in industries like apparel, according to Nomura’s chief China economist Ting Lu. The potential for reduced export growth by 1.3 percentage points and a 0.2 point decrease in GDP growth underscores the severity of the situation, especially if other regions follow suit.
Victoria’s Secret Town: A Mirage of Prosperity?
Despite the local government’s substantial $3 billion investment, Victoria’s Secret Town remains largely vacant. The park, intended to encompass research, design, and logistics facilities, raises concerns about overinvestment and the potential for future economic downturns. The absence of a launch date for the remaining phases of the park further amplifies these anxieties. This situation mirrors broader concerns about systemic overinvestment in industrial zones across China.
From Humble Beginnings to International Trade
Lei’s entrepreneurial journey began in 2006, evolving from a small workshop to an international business. Driven by domestic price wars, he ventured into overseas markets in 2014. The subsequent quadrupling of the “de minimis” threshold by the US in 2015 further propelled his export growth, almost doubling annually. His success story is replicated across Guanyun, with an estimated 1,400 firms and 100,000 employees engaged in the “erotic clothing” industry.
Initially hesitant due to concerns about “vulgar” products, local authorities eventually embraced the industry, providing resources like the industrial park and entrepreneurial training. This support highlights the complex relationship between economic pragmatism and political ideology in China.
Adapting to a Changing Landscape
Facing potential trade restrictions, Lei and other business owners are exploring alternative strategies. These include investing in US warehouses, transitioning to bulk shipping, and diversifying into new markets in South America, the Middle East, and Central Asia, leveraging platforms like Temu.
Some entrepreneurs, like Xu Yan, founder of lingerie maker Gummy Park, are less reliant on the US market and express confidence in compensating for potential losses through growth in other regions.
The Human Cost of Economic Uncertainty
The fate of Guanyun’s lingerie industry directly impacts the livelihoods of its residents. The significant increase in average disposable income since 2008 underscores the industry’s contribution to local prosperity. Factory workers like Zhang Lan Lan earn competitive wages, while seniors like Zhou find employment opportunities that improve their quality of life. For many, these jobs represent a preferable alternative to agricultural labor and migration to urban centers. The potential disruption to this economic engine raises significant concerns about the future well-being of Guanyun’s community. A decline in the industry would have a ripple effect, impacting not just factory owners but also workers and their families.
The uncertainty surrounding the “de minimis” rule underscores the precarious nature of global trade and the vulnerability of communities reliant on specific trade policies. The future of Guanyun’s lingerie industry, and the livelihoods it supports, hangs in the balance.
