Puyuan, a small town nestled in the Tongxiang city of Jiaxing City, Zhejiang province, is home to a population of 50,000 locals and 150,000 migrant farm workers. Despite its modest size, Puyuan is the world's largest sweater production base. In 2013 alone, the town sold 700 million sweaters, approximately two sweaters for every Chinese citizen, valued at 30 billion RMB. This Puyuan miracle is a part of the larger Yiwu miracle, which in turn contributes to the broader narrative of China's rapid industrialization.

The Phenomenon of Industry Clustering in China

A remarkable and shared feature of China's industrialization is the phenomenon of industry clustering, whereby small-scale producers can capitalize on the benefits of economies of scale. Each town or village specializes in the production of one product, claiming a significant share of the country's total output. These industrial clusters are marked by family-based mini-production units, fine job divisions, large-scale production, the use of informal social networks, and low costs - a phenomenon we label the ANT tribe strategy.

The Multi-Logic Nature of the Puyuan Phenomenon

Several questions come to mind when considering the Puyuan miracle. How did this phenomenon occur? What are the underlying logics and principles? Can other countries replicate this model? Why did it take place in Puyuan and not elsewhere in China? These are some of the questions this article intends to explore.

The Puyuan phenomenon is not a straightforward scientific phenomenon with a single logic. Instead, it comprises multiple logics or mechanisms that collectively shape its reality. To understand the Puyuan miracle, we first need to comprehend its historical and geographical conditions.

1.     Historical and Geographical Context

Puyuan, nestled in Southeast China, is part of one of the most densely populated regions in the country's long history. The area has scarce land resources, engendering high competition pressure. The region's warm weather facilitates the cultivation of two rice seasons and many other crops. Consequently, the survival pressure drives technological innovation.

2.     Economic Advantage of Market Size

Alongside the historical and geographical factors, the sheer magnitude of the market contributes to this phenomenon. The large scale of trade means that a factory can reap substantial profit by earning a marginal amount from each unit of the product, thus making them competitive.

3.     Family Commitment and Internal Management Cost

The strong commitment of family provides a long-term view and minimizes the internal management cost. Family is seen as the unit for production and life, with the couple being both business and life partners. Chinese women, known for their hardworking nature and relative independence, shape the work ethics of Chinese culture.

4.     Historical Craftsmen Skills and Technology Adoption

The historical craftsman skills in the region make it easy for Puyuan people to master the technology of sweater production and improve them quickly. Historically, Puyuan was renowned for its silk production, which required a careful mind and precise control of hand operations.

5.     Entrepreneurial Skills and Industry Clustering:

To run a small workshop, individuals need to deal with internal production control, employee management, and external coordination with consumers, wholesalers, and other workshops. Due to the long history of business, these skills have become ingrained in the people of the area.

6.     Social Network and Coordination Cost:

The social network reduces the coordination cost arising from the fine division of jobs. The whole process of sweater production involves 33 steps, and more than 70% of sweaters are produced by small family workshops. The wholesalers in the market play a role in coordinating different shops or steps.

7.     Farmer Worker Spirit and Resource Constraints

Due to very limited resources, Chinese farmers (excluding the one-child generation) struggle for survival. This struggle makes them work hard, be practical, and be willing to accept low wages. Their life is secular and focuses on economic aspects only, making the production cost much lower.

8.     Flexible Payment System for Workers

In Puyuan, the payment is based on a “per piece” model. This system makes the management much easier and allows workers to be shared among different workshops. If one shop has no order, they can work for other shops. When the market is sluggish, workshops can easily stop the loss by closing the shops.

Personal Interpretations and Observations

These explanations are personal interpretations or imaginations, which have not been proven yet. However, some comments and facts suggest they may contain some truth. For instance during our visit to Yiwu in 2018, an Indian entrepreneur in Yiwu attributed Yiwu’s success to the ease of doing business there, while a Pakistani entrepreneur mentioned the affordability of the products.

Final Thoughts on the Puyuan Miracle

To sum up, the Puyuan miracle is a unique phenomenon that encapsulates a blend of several underlying mechanisms. These include the entrepreneurship induced by scarce resources, technological innovation, low labor costs, knowledge sharing, reputation within the network, family-based management, the economy of scale offered by a large market, and a flexible payment system. These mechanisms are prevalent across China, yet some, like entrepreneurship and customer service, stand out especially in Zhejiang Province. The core mechanisms among all are the innovation in technology driven by population pressure and the hardworking nature of the people. These mechanisms coalesce in a distinctive manner, giving rise to the unique Puyuan miracle and the general trend of industry clustering in China.

This phenomenon warrants further investigation. Understanding the Puyuan miracle, and indeed the larger Chinese miracle, is not just significant in its own right, but it also provides valuable insights for global development. In the context of the Puyuan miracle, it is suggested that we need to investigate the network effect of the Chinese economy on neighboring countries and the future integration of economies among China, India, and Pakistan, considering factors such as internet accessibility, infrastructure, logistics systems, and business community connections.

However, it is important to note that the Puyuan miracle is experiencing a shift. The new generation in China exhibits a reluctance to work as hard, leading to a fading of the Puyuan-style entrepreneurship. Puyuan or Yiwu no longer earns income predominantly from production, but rather from trade or acting as a focal point for the trade of sweaters or other small commodities among traders. This evolution of the network and industry clustering is intriguing and it raises the question - who will be the next cluster to follow this path?

For more detailed information on the Puyuan case, please refer to our case description in the first CBEC forum.

Written by Deyi Zhou

Edited by Amar Razzaq