Lines Cut Cross the Border

latb1Shilong Town’s Gray Market Affair

Hundreds of angry Hong Kong protesters — men, women, young and old—blocked the Sheung Shui Station’s C2 exit. Shouting “get out, locusts!” they aimed their epitaphs toward any passenger boarding trains heading from Hong Kong to Shenzhen.

This is one scene during the two-day “Liberate Sheung Shui Station” event that took place from September 15 to 16 of 2012. The term “locusts” has long been used by Hong Kongers when referring to the mainland visitors that occupy their territory by taking up hospital beds, buying out baby milk formula and pushing up real estate prices. But this time, Sheung Shui residents were protesting in particular against mainland “gray traders,” who smuggle daily items in piecemeal fashion into Mainland China — especially into neighboring Guangdong with areas, Dongguan’s Shilong Town for example, partitioned for their sales.

On the average public holiday, train cabins, MTR exits and immigration halls are packed with travelers. Some groups with a quick look are easily identifiable. They carry piles of cardboard in matching colors, package style and on the same kind of trolleys. These are the professional “couriers” working for organized smuggling gangs. The top qualification for employment is a multiple-entry Hong Kong visa available for transferring piecemeal cargo back and forth across the border. Due to recent police actions targeting mainland smugglers, Hong Kong passport holders are preferred.

“Sometimes I hire a courier to carry baby milk all the way to my store in Shilong, the two tins per person policy is too strict, if just my hubby and I, we can never get enough milk,” said A Po, an individual trader using the Cantonese term for “old granny” to remain anonymous. “In a good day, I only pay RMB 150 to hire a man to pick up a whole trolley.” A Po and her husband have been in the gray business for 25 years. As early immigrants to Hong Kong, they invested in a Hong Kong goods store back in their hometown of Shilong, a railway town and neighbor to the Hong Kong border city of Shenzhen. A Po travels twice a week on the cross-border railway to supply her own shop and a couple of others.

Unlike A Po, with her double identity as smuggler and store keeper, most couriers are just labor for smuggling gangs. Taking advantage of connection between clansmen, gangs recruits speaking a certain Chinese dialect, Southern Min, Hakka, or Teochew, which are usually not understandable to outsiders. Sheung Shui in particular is the area most severely affected by gang smugglers. But another railway station, Lo Wu, is only one stop away on the Mainland border and an example of the positives and the negatives of the gray market culture. This southern boundary town is where smugglers source goods. Every day, large cargos of daily goods are repacked on the public streets into small hand-cartable portions, creating blockades on walkways and leaving behind garbage in piles. The complaints by local residents mention more than daily annoyances.

“They get all our baby’s food. Every time I visited a pharmacy, I was told baby milk was sold out. If there are a few in stock, the price is way higher than before,” said Josephine, a young Hong Kong mother and Lo Wu shopper. But when Sheung Shui mothers accused mainlanders of robbing their babies’ food, some mainland mothers praised the market as savior. In the 2008 Chinese milk scandal, 300,000 victims were reported nationwide, with six infant deaths. A chemical called “melamine” had been added to dairy products to increase protein content, and later proved to be the main cause for malnutrition and kidney problems among the affected infants.

Unlike A Po, with her double identity as smuggler and store keeper, most couriers are just labor for smuggling gangs.

The trust crisis in the mainland has made baby formula the most popular item among all smuggled goods from Hong Kong. Even though the Hong Kong government adopted a purchase ban allowing only two tins (1.8 kg in weight) per person, the supply in A Po’s store has never stopped.

“[A Po] always said that it’s difficult for milk [formula] now. Don’t complain about price, she pays more for logistics, she pays RMB 200 for each trolley to hire a courier,” said Ying, one of A Po’s long-time customers.

“In downtown Dongguan where my daughter lives, the Hong Kong goods shops are big but very expensive, say, Friso Gold III, each tin, I save, RMB 12 here,” she said with quick calculation. Being a shoes saleswoman for 22 years, she represents the merchant culture of Shilong.

With anti-smuggling sentiment increasing, A Po’s business will likely face more and more challenges. However, if consumer confidence is not rebuilt in China, the gray trade’s survival would stand to reason. After all, she has been here for 25 years and has become a trademark in her neighborhood. “No trust, no business,” that’s her motto, “the newly-opened stores could not compete with mine, it took ages to build up customer confidence,” said A Po.

The whole value chain could have gone wrong if a courier could run away with the goods ordered by his agents, the agent could refuse to return his clients cargo or a trader could provide fake Hong Kong goods to customers. But this seldom happens. Like any other gray business without legal protection, A Po’s business is based on primitive person-to-person trust.

“My grandson needs safe food. I’ve used A Po’s products for a decade, I won’t worry about quality. I know her,” said Ying. Over the years, she has introduced many friends to A Po’s store, and recently, her own daughter.

“Hong Kong is a free port for imports, we trust the West’s food safety standards. Even Hong Kong has a trustworthy quality watchdog, Food and Environmental Hygiene Department,” said Ying’s daughter, a young mother of a 3-year-old. Most Shilong mothers tend to be suspicious of any baby milk formula sold in the Chinese distribution system, even imported items sold on the shelves of Chinese supermarkets. They either buy gray Hong Kong powder in Shilong or travel across the border to shop. “This shopping habit helps, I didn’t hear of any Shilong baby being affected by the 2008 infant milk scandal,” said Ying.

A Town of Vendors

Although A Po’s hometown of Shilong is not the craziest smuggling destination, its merchant business atmosphere and its railway location are perfectly suitable for the gray trade. Exiting the 100-year-old Shilong train station, one can immediately find a special market called “Sha Tau Kok.” It’s named after the notorious gray trafficking point on Chung Ying Street (中英街) in Hong Kong’s Sha Tau Kok. Located on the border, STK residents only need visiting permits for an entry and traffickers may make several trips a day acquiring goods and abusing the custom tariff limits. In the 1980s, the Shilong STK was originally planned to copy the reputation of its namesake to be a place where mainland shoppers could buy genuine Hong Kong products. The Shilong STK now is more like a comprehensive market for everything, from homemade pickled vegetables to made-in-China underwear, and of course, the untaxed goods from Hong Kong.

Before the KCR was built, bulky cargo was shipped to waterfront locations and distributed to extended regions.

In an area of about 14 sq. kilometers, Shilong is Dongguan’s smallest town without much space for manufacturing. Shilong is, however, geographically advantageous for trade. The Dongjiang River, a mother river for Guangdong, goes through Shilong in a “Y” shape, the three banks and rich inland waterways connect Shilong with Huizhou and Heyuan in the north, Guangzhou in the west, Foshan in the southwest and Zhongshan and Hong Kong to the southeast. Before the KCR was built, bulky cargo was shipped to waterfront locations and distributed to extended regions. Later the KCR running through Shilong has revolutionarily changed the freight transportation meaning Shilong lost the advantage of being a unique waterway hub for inland shipments. However, Shilong soon adapted to the modern business model that the railway had brought about and the merchant culture revived. Geo-culturally, almost every Shilong family is selling some kind of goods, shoes, clothes or vegetable and fruits. Even now, some still believe that their kids will make more money by becoming merchants than learning knowledge in universities.
The easy starter requirements motivates entrepreneurship in Shilong. RMB 300 rental plus another RMB 100 for ingredients is just enough to run a pickled-vegetable booth in Shilong STK.

“Besides 3,000 for the rental for 10 sq. meters shop, a total of RMB 100 thousand is enough to invest in a full range of popular items from Hong Kong,” said A Po when asked about a minimum operation costs for a store like hers. If one wants to start with a real small investment in the gray market, the best choice is to run a virtual shop in Taobao, a popular Chinese online marketplace. “There is zero management fee for the first three months, after that I paid RMB 30 per month for the virtual space, and you need only thousands to invest in goods” said Ling, an online shop owner selling imported instant noodle and snacks sourced from Hong Kong.

The Commute

“Where is A Po?”

“She is on the way. Most of the time, on the railway.”

This typical dialogue is often heard in A Po’s store. She is well known, but she seldom shows up spending plenty of time on the train, at the checkpoint, with a courier or in the currency exchange stand. She can travel as much as twice a day, and she is always on the way in her comfortable leather shoes. In an average day, A Po’s daughter-in-law manages the store, A Po and her husband live in Hong Kong and they are responsible for “smuggling” the goods into the family store in Shilong, although she doesn’t see herself as an ordinary smuggler.

In her commutes between the sourcing center Sheung Shui and the gray market in Shilong, A Po mostly takes the train. The Sheung Shui MTR station, where the protest took place, is just one station away from the crossover immigration checkpoints at Lo Wu and Lok Ma Chau. Having purchased her stock in Sheung Shui, A Po uses the East Rail Line, and at Lo Wu border connects to the Guangzhou-Shenzhen Railway to arrive at Shilong Station. The whole point-to-point distance is only 78 kilometers.

“In long queues in the immigration [halls], I see a courier give a place to the person behind him, in order to stick together with their peers, it seems that they have been signaled to which line they can easily pass through each time,“ said A Po, with her short wavy hair and her doubts. When asked whether the signals were part of a back hand deal with railway employees, she said she had no idea.

She wants to separate herself from the likes of the common smuggler. So she says she is an investor and a Hong Kong passport holder. Matching her delicate white pants, the round ivory pearls around her neck seem to declare that their owner is not just an ordinary independent courier selling labor to agents, but a woman with class.

Individual housewife traders like A Po manage everything within a safe range. Their hand-carried luggage is no heavier than 23 kilograms, the maximum weight allowed on a Hong Kong MTR train. In their bags, there are no luxury items, no expensive consumer electronics such as iPhones or iPads, no wines and no cigarettes. These are the targeted items that could incur criminal penalties on visitor’s entry through Chinese customs. Independent smugglers from Shilong are mainly Hong Kong passport holders in their late 50s or early 60s. The fact that the railway connects the two systems of Hong Kong China, has tempted potential opportunists — now, and 30 years ago. Their later smuggler’s story was made possible by an adventure on KCR railway in the late 1970s.

When asked whether the signals were part of a back hand deal with railway employees, she said she had no idea.

“Without a special border pass to board on a passenger train to boundary of Lo Wu, many Shilong people risked climbing on a freight train, dropping off before the terminal. We called it ‘climbing on a dragon train,’” said Mr.Yu. Now in his early 60s, he once attempted to escape to Hong Kong in this way, but failed. For those who succeeded, they soon obtained Hong Kong passports which later turned out to be a powerful tool for the gray business, although they didn’t mean to be gray traders at first. They found themselves with no capital, no skill and only a middle school education. Construction work was too harsh, kitchen work was too time consuming. Later they came to realize that it was profitable to source tax-free goods in Hong Kong and resell them to Shilong, their hometown. With local market updates at their fingertip and free-entry across border, they made a good sum of money.

Through time, the Kawloon-Canton line has witnessed cross-border conflicts between changing stakeholders. It was, 100 years ago, the imperial Chinese government against the British Empire, today, the Sheung Shui residents clash against Mainland gray traders — a new pair of hosts and intruders. The railway story goes on.