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Case Study: From Marketplace to Makerspace (Yiwu, China)

2019-01-03

By Belinda Yuen / Lee Kuan Yew Centre for Innovative Cities


Yiwu was a city of special mention of the 3rd Guangzhou International Award for Urban Innovation in 2016. This study tour took place during July 26th and 27th, 2017.


Yiwu, located some 300 km from Shanghai in Zhejiang Province, China, is a city for production, storage and re-export, specialising in small commodities (e.g. jewellery, decorative items, toys, household appliances). Over 60% of the world’s Christmas decorative items in 2013 are estimated to have come from Yiwu. 

For centuries, Yiwu has featured heavily in China’s entrepreneurship and trade development as recounted through the local folklore on “sugar-for-chicken feathers”. As the story goes, Yiwu men would travel to surrounding rural villages to exchange their local brown sugar candies for chicken feathers, which they could then use as fertilizer or made into feather dusters for export. According to historical records, its earliest wholesale markets can be traced to the 1700s. 

In recent decades, Yiwu has become one of the first free marketplaces in China. In 1995, it is listed as Zhejiang’s sole city in China’s experimental counties/cities of comprehensive reform. By 2004-05, Yiwu’s commodities centres/markets are ranked among the ‘most favourite Chinese cities of domestic and foreign public’ and the ‘largest small commodity wholesale market in the world’ by the United Nations, the World Bank and Morgan Stanley. In 2011, Yiwu is approved as the pilot city for international trade reform in China.

The growth of international trade has triggered a progressive internationalisation of Yiwu.  Signs at the train station are in Chinese, English and Arabic. Restaurants of many different nationalities, e.g. Turkish, Arab can be seen around the city (e.g. in Binwang business zone). Its population including foreign visitors and residents has increased 240% over the last 17 years.  


Background

Today, Yiwu is a city of about 2 million people with a land area of 1,105 sq km. More than 500,000 foreign business people visit Yiwu every year. A growing number are from the Middle East and Africa. According to Gulf News General 2011, some 200,000 Arab wholesalers visit Yiwu every year. Yiwu has 15,000 foreign residents from more than 100 countries, mostly working in the import and export businesses. This population is the largest, both in relative and absolute numbers, in Zhejiang Province.

But, the growing number of international connections and business transactions also brings trade disputes between foreign and local trading partners. While a rapid rise in trade disputes may be an indicator of the new development in international commerce, it has been borne out in practice that trade disputes can bring bad publicity and in some cases, initially private trade-related problem is elevated to a state-to-state international trade conflict. 

Conversely, the endeavour for prompt trade dispute resolution can develop the confidence of foreign businessmen and improve the level of trust of foreign buyers, ensuring a business-friendly environment. It is in the interest of cities to resolve trade disputes sooner, rather than later.


Process

1. The Process and Power of Mediation

Yiwu’s experience with trade dispute resolution provides an interesting perspective. Beyond the traditional civil justice dispute resolution process of litigation and trial, which can often take a long time, the Yiwu Bureau of Justice in May 2013 piloted the first-of-its-kind mediation process in China in its determination to expeditiously resolve foreign-related trade disputes.

The process involves the establishment of the Yiwu People’s Mediation Committee for Foreign-related Disputes (PMCFD) under the Bureau of Justice.  A distinctive feature of this Committee is its use of volunteer resident/partially resident foreigners doing business in Yiwu as mediators to reduce trade disputes. This is a revolutionary concept in the application of the rule of law in China. 

From an original 3, the number of foreign mediators has quickly expanded to 11 by April 2014 and to 22 from 18 countries by 2017[1]. The appointed foreign mediators are skillful and well-regarded business people who have lived in Yiwu for more than 10 years. They speak at least 3 languages including Chinese (some can even speak Yiwu dialect), are familiar with China and Chinese culture, and importantly, operate respected businesses with a high degree of integrity.

Besides the foreign mediators, there are 37 Chinese mediators, comprising judges, public prosecutors, lawyers and trade specialists. The PMCFD works closely with Yiwu People’s (public) Prosecutor and Yiwu’s People Court throughout the mediation process. It employs 3 judges from Yiwu People’s Court as instructors and mentors to the mediators. Their presence adds credibility and trust to the mediation process. 

Mediators are re-elected and re-appointed for a term of 1 year while new mediators are inducted based on self-recommendation, peer recommendation, interviews and evaluation. Comprising 22 foreign members, as far as possible, the mediators are matched with the cultural, linguistic and trade background of the affected parties in the mediation panel. Mediators from the same country with the affected parties will be the first choices in the mediation process. If match of nationalities cannot be achieved, mediators that speak the same language will be invited to join in the mediation. In addition to mediation, mediators are asked to follow up on the implementation of the results and assist in the publicity of laws and regulations.

Aside from individual mediator review, the Yiwu Bureau of Justice would evaluate the actions of PMCFD on an annual basis to ensure that the processes and outcomes of the mediation cases are in compliance with the law. Where necessary, further measures and guidelines are suggested for improvement and standardisation. 

Its success may be traced to several efficiencies: 

(1) Simplified process - compared to the traditional recourse to legal justice, which procedure is complex, the mediation process is relatively simple. It involves the lodge of complaint application (stating the parties and nature of dispute), and a hearing is then scheduled, usually within 1 or 2 weeks. 

(2) Time saving – while the traditional recourse to legal justice can take a long time (1 or more months), the entire mediation process takes 10 working days, (technically usually 1 or 2 weeks) and sometimes 2 to 3 days. 

(3) Cost saving – the foreign mediators who make up the mediation panels are not only culturally and linguistically sensitive but also have deep knowledge and familiarity with their business and trade practices. They together with the legal service come at no cost to the affected parties as part of the mediation process. From the viewpoint of the city, mediation offers a less costly route of dispute resolution than going to court. 

(4) Communication and Outreach - another benefit stems from the novel notion of the mediator’s ‘Dual Responsibilities for One Position’ where the mediator undertakes not just dispute mediation but also advocacy work to familiarise traders, foreign and local, with Chinese laws and rules on business and trade. 

Through the induction of resident foreign business people as mediators, the PMCFD is able to introduce foreign business people to participate in the resolution of foreign-related trade disputes, infuse cultural awareness and break language and cultural barriers, make foreign-related legal matters more targeted and effective, and crucially, improve the trust of all parties in foreign-related dispute resolution. The consequential outcome is the twin accomplishment of people-centred, culturally sensitive mediation and the popularisation of the rule of law. 

Both local and foreign traders are now more aware of the PMCFD and mediation services. The PMCFD has been scaling up its outreach, advocacy and informational services. It has used various platforms including social media (e.g. WeChat) and case stories to sensitise traders and mainstream good trade ethical behaviour and knowledge of rule of law. 

Its work has been telecast on national television and made into a short film. Lessons from the mediation cases have been compiled and available in Chinese and English in codes of conduct for local and foreign traders (e.g. intellectual property rights protection in Yiwu) while a database and referral system has been established to keep track of recurrently dishonest traders. The PMCFD is continuing to expand its data collection and statistics to disseminate and raise awareness of the business community so as to avoid unofficial market practices and become more effective in mediation.

Of centrality is information exchange and cooperation with other departments and stakeholders in a whole-of-society approach to mediation. The methods, procedures and guidelines are established in a participatory process involving not just various departments of the municipal government (e.g. the Courts, Procuratorate, Customs, Public Security Bureau, Foreign and Overseas Chinese Affairs Office, Administration for Commerce) but also business and trade representatives, experts, legal and para-legal professionals. 

To keep communication open, monthly meetings are held including on-line discussions with mediators, experts and legal and public authorities. The agenda covers the discussion of workload planning, daily cases, outstanding issues, lessons from the mediation process as well as legal training to improve foreign mediator’s local knowledge, mediation and communication skills. A key tenet is its emphasis on continuous reflection and learning to improve service quality and environment for trading. Such is its success that the PMCFD is looking to invite more foreign mediators including experienced overseas Chinese business people to augment the mediation team. 

Rather than working in silo, the PMCFD acts to galvanise key stakeholders - administrative and professional - to create executable and realistic resolutions. It has regular dialogue and communication with Yiwu Foreign and Overseas Chinese Affairs Office, Bureau of Public Security, Immigration Bureau, China Commodity Group and other foreign affairs and trade related organisations. To this end, Yiwu has created a one-stop business and immigration facilitation service centre for doing business in Yiwu. This is conveniently located next to Yiwu’s International Trade Market District Four.

2. Not Just Mediation, But Dispute Prevention

More than mediation, Yiwu has taken a holistic approach to view trade disputes along the conflict continuum, taking steps to avoid conflicts from arising in the first place through its project of ‘Integration of Foreign Population into Yiwu’. With the growth of diverse groups has come a strengthened emphasis on creating a city of inclusive, vibrant neighbourhoods. The key strategy is to foster tolerance and hospitality for foreign business people through the close connection between economic development and local urban spaces, giving them the feeling of home. 

Each year, foreign residents in Yiwu are invited to meetings to share the problems they encounter in work and in daily life. A list of 10 “internationalizing measures” is then designed based on this sharing and government departments are charged with their implementation as relevant to their respective duties. In addition, regular sessions are held to expound these 10 measures and interpret new foreign-related policies.

At the neighbourhood level, various cultural programmes are organised for the resident foreign communities to help them settle in, get connected and become familiar with Chinese culture, e.g. Chinese language classes, day trips around Yiwu, dumpling festival, children’s art classes, information on healthcare, education, etc.  

Since 2014, Yiwu has established the Yiwu Tongyue Social Services Centre at Jimingshan Neighbourhood, the first non-profit social service centre, to better connect with the foreign communities in Jimingshan Neighbourhood and surrounding neighbourhoods (residents of over 50 countries live in Jimingshan Neighbourhood). The centre is open 7 days a week, providing a community-dwelling focal point for multi/inter-cultural and country exchange and interaction. The aim is to build a Yiwu international fusion community, making community living a harmonious and pleasant experience. 

Community conflicts are not neglected. The centre offers community mediation service for social, community or family disputes. As with the PMCFD, this service also includes volunteer foreign mediators on its team.

At the business level, foreign trade and business groups are supported through the International Family Programme to organise social activity clubs, e.g. healthcare, sports, etc. Maximising social inclusion is also about recognising and making better use of the talent that resides within the foreign communities. A “friendship award” is accorded to foreigners who make strong contribution to Yiwu’s social and economic development.

  • Some of the synergistic way in which the foreign communities interact with the city includes: They are invited to give input to local business development matters through interactive meetings with local authorities in an integrated approach of co-developing solutions to better respond to the opportunities and problems associated with foreign trade;

  • They are invited to become a part of the local community, e.g. through volunteerism as mediators, ambassadors and mentors to help new foreign arrivals to settle into life in Yiwu, etc.; 

  • They are invited to introduce their culture through cultural events and activities to local communities, offering opportunities for local people to learn international culture and languages. 

At the core is a commitment to social and cultural understanding, cohesion and integration. Actions are taken to resolve conflicts at the basic level. As many international scholars observed, culture is a key factor in conflict evolution and resolution; cultural awareness and understanding is a must-have when dealing with cross-cultural conflicts because cultural differences contribute to how a person thinks and acts[2]. Conflict avoidance though a separate matter should be considered in dispute management.


Outcome

The mediation process has proved hugely successful. The PMCFD handles, on average, over 100 foreign-related disputes each year. Between 2013 and July 2016, 287 disputes involving about RMB45 million were reconciled through mediation with a success rate of 96.7%. This has enabled Chinese and foreign traders to recover about RMB23 million of economic damages. 

For Dispute Prevention, the actions are simple but fundamental to building awareness and connection across different communities, especially towards developing an entire ecosystem of services to foster a conducive environment for working and living in Yiwu. The outcome is perhaps best glimpsed from the Ethiopian mediator’s (whom we met during the July 2017 visit) declaration that ‘Yiwu is my home’, which seems to suggest that Yiwu is well on its way to realise its goal of making the foreign resident feel at home in the city. 


Highlights

Yiwu’s innovation is not limited to minimising trade disputes but extends to continuous upgrading of technology and science in its business ecosystem. The increase in business and trade transactions has accelerated the expansion of small factories to produce and process small trade products to be sold and exported from Yiwu’s marketplace. With the advent of technology and advanced manufacturing, Yiwu is placing renewed emphasis to aggregate and strengthen its industrial economy. It is restructuring its low-technology industrial activities towards higher technology and value-added products.

The step change though recent is reshaping the image of Yiwu, projecting an external image of a business- and community-friendly place while providing a framework for global marketing of both place and products by local firms and foreign businesses doing business in Yiwu. Doing so is not easy. It takes leadership, vision and institutional innovation on the part of policymakers as well as active participation and partnership on the part of businesses and community. A key tenet is its emphasis on continuous reflection and learning to improve service quality and environment for trading and living in Yiwu.


Lessons Learned

In common with many Chinese cities, Yiwu is working to establish its position within the global economy. What distinguishes Yiwu is its holistic approach towards conflict resolution and ease of doing business. Despite its size and scale, Yiwu demonstrates that it is possible for sub-national places to try new policy approaches like mediation in the resolution of foreign-related trade disputes and keep at the leading edge through institutional innovation. 

Recognising the importance of place branding, gradually but surely, Yiwu has started the process towards strengthening its image as a welcoming and convenient place for international business. Its place strategy is comprehensive, taking account of both institutional and societal aspects. Harnessing the skills of the many business people in Yiwu through its innovative use of foreign business mediators in trade disputes, it is making foreign-related legal matters more effective, and crucially, improving the trust of all parties in foreign-related dispute resolution. Rather than working in silos, the different agencies have come together and worked assiduously to simplify the process, improve time, cost and communication between international and local business people.  At the same time, they are infusing greater cultural awareness, reducing language and cultural barriers, and building greater tolerance among the different communities at various levels, which is a crucial first step in dispute prevention. 

Taking a holistic, whole-of-society approach to urban choices, as Yiwu has done in the case of inducting foreign mediators into the resolution of foreign-related trade disputes, is a most valuable response to the dynamics of innovation activities over time and space. Properly conceived, local innovation can come in many forms and phases of production and development to intimately affect how communities are built. If ever there was a lesson from the Yiwu mediation experience, it is how diverse communities become connected to ensure a thriving and tolerant society where constituents can live, work, learn and play together and feel a sense of belonging - ‘Yiwu is my home’. The challenge is to ensure the innovative momentum continues to keep pace with economic growth and wealth creation.

China, like many countries, has recognised that investments in research, innovation and enterprise are critical to its future economy. It has begun to invest in R&D, especially technological innovation: the R&D expenditure currently accounts for 1.61% of GDP. Yiwu, too, has started to develop the required infrastructure including technology parks and innovation districts with focus on fashion, information, advanced equipment manufacturing and biomedical sciences. It is attracting local and international corporations and scientists to work in these districts with persuasive support packages including housing subsidy. For example, 

An example is the Yiwu Information and Optoelectronics Hi-Tech Industrial Park (143 sq km) located in the north-east of Yiwu. Announced in February 2017, Yiwu Information and Optoelectronics Hi-Tech Industrial Park is a provincial-level incubator for sci-tech enterprises. It is positioned as a platform for the commercialization of research, innovation and entrepreneurship, incubation of hi-tech enterprises and industrial transformation, especially in photoelectric LED. The industrial park has attracted more than 160 PhD degree holders and incubated over 100 projects. 

These development strategies are a break with the prevailing model of the single commodity industrial districts based on the doctrine of ‘one village, one product’. The industrial park development though work-in-progress showcases yet another aspect of Yiwu’s adeptness in adapting traditional in-situations to new, modern conditions to support its role as a one-stop trading window for global and domestic firms. It testifies to Yiwu’s innovative spirit. 



[1] They include business people from Chad, Costa Rica, Egypt, Ethiopia, Guinea, India, Iran, Jordan, Nepal, Pakistan, Philippines, Senegal, Singapore, South Korea, Sudan, Syria, Tunisia and Turkey.

[2] See e.g. Elmer, D. (1993). Cross-cultural Conflict: Building Relationships for Effective Ministry. Downers Grove, IL: Intervarsity; Avruch, K. (1998). Culture and Conflict Resolution. Washington DC: USIP Press; Harvard Law School Program on Negotiation (2016) The New Conflict Management: Effective Conflict Resolution Strategies to Avoid Litigation, Special Report.