Can Mass Smuggling Help China’s Sagging Economy?

Futian Kouan

As it struggles with a weakening economy and now a bearish stock market, China has recently taken two giant steps to stimulate the transition to a consumer-led economy. One is official policy and the other is a more spontaneous, chaotic, possibly illegal but ultimately perhaps more effective.

In May, China announced it would slash tariffs on a range of goods from imported shoes to cosmetics to lower prices and boost spending at home. The other step may do more in the short-term for lowering high consumer prices in China and narrowing the gap with goods sold in neighboring Hong Kong.

Quietly but rather systematically, Chinese Customs has begun permitting, at least at one border crossing, smuggling on a truly gargantuan scale. Thousands of Chinese are passing through Shenzhen’s Futian Kouan (also sometimes known as Futian Port) crossing every hour, with most pulling huge wheelie suitcases or hand-trucks laden with the products sold in Hong Kong that are most in demand here in China — milk powder, electronics, diapers, food, candy, even luxury products like designer bags and watches.

At a guess, several tons of merchandise is being moved every hour from noon until 10pm into China this way. What was once one of the most fiercely policed Customs posts in the world has become at various times an open channel through which anyone with the cash and energy can bring goods in without a risk of confiscation or payment of the high official Chinese Customs duties.

There was always smuggling between Hong Kong and Shenzhen. But, until recently, those doing the smuggling tried to hide the fact they were evading the rules. The whole idea of smuggling, after all, is to try to pass unnoticed through Customs. Not any longer, not some days at Futian Kouan.

The Futian Kouan border has become the key link in what is probably the world’s largest free-form wholesale network in the world — cross the border into Hong Kong the morning, head right for the shops, haul the goods across the border at Futian Kouan in the afternoon, then sell through shops back in China that evening.

There’s plenty of money to be made. Prices in Hong Kong are often one-third to one-half lower than in the PRC. If you remove the worry of being stopped at Customs, well, then it’s harder to think of many easier ways to turn a quick profit.

Why Chinese Customs is turning a blind eye is not certain. Is it an effort to encourage more consumer spending in China by allowing in more low-priced stuff from Hong Kong? Or is it a way to torpedo the effects of new visa rules in Hong Kong to limit the number of Chinese on shopping trips? Hong Kong caused further aggravation in Beijing by voting down China’s plans for electing Hong Kong’s next leader.

Whatever the reason, the overall impact of the crowd smuggling is not insignificant. Shops have bloomed in Shenzhen and further afield selling the goods pulled across the border. The only downside is that the Futian Kouan border crossing, once rather sleepy, has become inundated by the foot traffic of entrepreneurial Chinese going to and from Hong Kong to buy in bulk. Lines at immigration are at least four to five times longer than previously.

There’s been no official announcement that Customs is now occasionally taking a relaxed attitude at Futian Kouan. But, word has clearly spread.

The border separating Shenzhen and Hong Kong is the busiest in the world, with at least ten million people crossing every month. There are four main border stations. Two connect directly between the Shenzhen and Hong Kong metro systems. The other two are for cars and buses.

The busiest crossing of the four, at least until recently, Lo Wu. Here, there’s no sign of any new tolerance for big-time smuggling. Uniformed Chinese Customs officials stand just outside the immigration channel. Most anyone pulling even a single suitcase is directed to one of the nearby x-ray machines, where each bad is inspected. Fines and confiscation remain routine. No one would dare try to walk into China at Lo Wu crossing, as they do now at Futian Kouan, pulling a hand-truck piled with crates of stuff bought in Hong Kong.

As at Lo Wu, it is also possible at Futian Kouan to connect on foot, once you’ve passed through both Hong Kong and Chinese immigration and Customs, from the Hong Kong to the Shenzhen Metro systems. But, Futian Kouan is not a main stop on the Hong Kong Metro. There are three to four to fives times more trains every hour to Lo Wu. The Lo Wu trains used to be packed at all hours of the day. These days, far less so. Now, Chinese queue up at Hong Kong Metro platforms specifically to catch the less-frequent trains terminating at Futian Kouan.

With such large crowds and long lines, I stopped using Futian Kouan when I cross back from Hong Kong. But, I still feel the splashback from the tide of bodies and merchandise moving across the border. Most who cross at Futian Kouan then get on the Shenzhen Metro. Technically, anyone carrying even one large suitcase is supposed to buy a special ticket, and those with lots of bags are meant to use other means of transport. These rules seem to be no more strictly enforced than those at Futian Kouan Customs. Result is, most days on my rush-hour ride home, Chinese bulk shoppers fresh in from Hong Kong will try to squeeze in, with their 200-300 pounds of loaded boxes and bags. (See photo above.)

In Hong Kong, over the last nine months, there’ve been anti-PRC demonstrations, as well as some unfriendly chatter, from people complaining about the crowds of Chinese bargain-hunters arriving each day. Hong Kongers, not affectionately, refer to the Chinese as “locus shoppers”.  New rules then came in limiting Shenzhen residents to one trip a week to Hong Kong. Fewer Shenzhen residents now cross every day, but those that do, are making up for it by bringing far more back with them on each trip, while Chinese Customs officials silently oblige.

If headstong people in Hong Kong needed any reminding, it’s China that calls the shots.



In China, Newspapers Can Still Thrive

Newspapers, as everyone knows by now, are a crummy business, being slowly but surely pounded to death by two major forces they can’t control. First, news is now available for free, instantly, online. So, no need to wait for – and pay for — tomorrow’s newspaper to find out what’s happened today. At the same time, Google and Craigslist have created a far more efficient, and generally far cheaper,  form of advertising online than traditional print advertising.

On the whole, it’s a very gloomy picture. But, there is one new newspaper business model that not only goes from strength to strength, it will likely continue to make big money for many years to come. It’s the free newspapers distributed on subway and metro systems. The first one appeared in Sweden in 1995. Shenzhen, where I live, this year got its first entrant, called “地铁早8点”( “8 O’clock” in English). These free newspapers seem inoculated from every pathogen that is killing off the big urban newspapers around the world like the New York Times, LA Times, Le Monde, South China Morning Post. 

Start with the fact they are free. That certainly makes it easier to find readers. Next, there’s guaranteed, efficient and low-cost distribution. In the case of 8 O’clock, the paper is handed out by reps or left in big piles weekday mornings at many of Shenzhen’s 137 subway stations. Based on my daily subway commute, I’d say the newspaper is now being read by well over 60% of the people on my morning rush-hour train. The newspaper is bulging with ads. By any standards, this is a both a business success and a repudiation of the notion that print newspapers are sledding towards extinction.

The key to success for 8 O’Clock is knowing who its readers are and what they want to read about. 8 O’Clock, like most free subway newspapers, attracts mainly under-40 office workers. They have very clear editorial tastes, and these differ in some key ways from the many newspapers that are now headed for the boneyard. For one thing, 8 O’clock doesn’t try to break major stories or even stay current on political or economic stories fighting for headlines elsewhere. Instead, it offers its readers a mix of brief articles about celebrities, sports stars, oddball “human interest” tales and the occasional local scandal. Around half of each page is pictures, either advertising copy or outsized art work accompanying the short articles.

8 O’Clock is owned by the biggest traditional newspaper publishing company in Shenzhen, called Shenzhen Press Group. It has ten other newspapers in Shenzhen, all using the conventional paid-circulation model. This offers some obvious traps for Shenzhen Press Group, most obviously in selling a product at newsstands with some strong similarities to the one it’s giving away for free in subway stations.  But, against that, Shenzhen Press Group is reaching people with 8 O’clock that most likely never buy paid-for newspapers. What’s more, Shenzhen Press Group already has an in-house advertising team and deep knowledge of the local market to sell ads efficiently in 8 O’Clock. A full-page color ad sells for around USD$25,000-$35,000, depending on the day of the week and placement. Readership is somewhere around 300,000 a day.

Beijing, Shanghai, Shenyang and Guangzhou all have their own free subway newspapers. All seem to be thriving.  Other countries also have them, including US, UK, Germany.

China is the ideal place for free subway-distributed newspapers to thrive. Start with the fact, of course, its cities are huge and subway ridership dwarves that of most Western cities. But, as important, the newspaper industry in China is relatively new. Chinese aren’t imprinted in the way that so many Americans and Europeans are about what newspapers are for. The popular ones see themselves, unashamedly, as for-profit vehicles: an effective advertising medium. Not as a civic trust.

The editorial goal is to get enough people reading articles at the top of the page to deliver big audiences, efficiently, for the advertisers renting space at the bottom. For 8 O’clock, the advertisers are mainly large auto brands, hospitals, realtors and big chain stores all of whose businesses are thriving in China’s booming domestic economy. 

In cities like Shenzhen, Shanghai and Beijing, purchasing power, along with property prices, are reaching first world levels. There’s massive net migration into large cities in China, compared with stagnant, or declining populations in most big Western cities. The subway systems are themselves mainly new, with extensive networks – 14 lines in Beijing, 11 in Shanghai, five in Shenzhen, with two more on the way. As the systems grow, so too will the profits of the free subway newspapers like 8 O’clock.

A generation ago, there was basically only one newspaper of any importance and readership in China, the Communist Party’s People’s Daily (“人民日报”).  It’s still published, and has changed little down the years, a slim sheaf of turgid and often theoretical writing barely leavened by photos or ads. Meanwhile, thousands of newspapers and magazines have entered the market with a broad range of content.

All major media in China are still subject to censorship and, in theory, under the control of the Party’s propaganda department. But, 8 O’clock has ample scope to provide what Shenzhen’s subway commuters are after, at a price they can’t argue with.  A financially healthy newspaper serving a financially prospering city– 8 O’clock will keep waltzing compared to the wretched papers in the US and Europe.