Wenzhou looks back in wonder at time it could do no wrong

PUBLISHED : Tuesday, 02 December, 2008, 12:00am
UPDATED : Tuesday, 02 December, 2008, 12:00am

Wenzhou in Zhejiang province is full of contradictions: most of the city looks old and backward, but its dusty roads are jammed with luxury cars.

Its residents like telling visitors that their Audis and the BMWs are for everyday use. The city's rich businessmen prefer to keep their Rolls-Royces and Bentleys in the garage.

The cars' popularity speaks to the city's affluence. The coastal city's 7 million residents have an estimated 600 billion yuan (HK$682.3 billion) in private capital, and at least 60 billion yuan of private funding flows through the city's financial system.

But the display of automotive wealth is in sharp contrast to the shacks and seedy sweatshops among the sprawling high-rise residences. Some parts of the city also stink from the sour smell of artificial leather and other chemicals, recalling Hong Kong's industrial areas such as Kwun Tong and San Po Kong in the 1960s and 1970s.

There is little doubt Wenzhou is the biggest beneficiary of the three decades of opening up. Its wealth is a direct result of the booming private sector and little intervention and planning by the government, explaining why community infrastructure lags far behind its gross domestic product.

With little land and other resources, Wenzhou was an impoverished city that attracted little government help or attention. Its people were famous for selling products all over the country in the 1980s and for migrating to other countries to eke out a living.

'At that time, so many Wenzhou people left the city and they opened sweatshops all over the country,' said Zhou Dewen , chairman of the Wenzhou SME Development Promotion Federation.

'Many people from the countryside also went around the country to sell things and became a massive army of salesmen.'

Back in the city, ramshackle sweatshops mushroomed, manufacturing all sorts of commodities, such as electrical appliances, shoes, garments, lighters and spectacles.

'They went around the country and they knew the market demand,' Mr Zhou said. 'When they saw a shortage of a commodity, they found people to produce it.'

However, the get-rich-quick mentality neglected business ethics and quality, turning Wenzhou into a city notorious for fake and substandard goods. In one famous incident, angry Hangzhou residents set 5,000 pairs of substandard Wenzhou-made shoes alight in August, 1987.

Critics have accused Wenzhou of betraying socialism and going down the capitalist road. The issue was only really settled in 1992 when paramount leader Deng Xiaoping made his landmark southern tour.

Wenzhou gradually became a manufacturing hub for small and medium-sized private businesses. Counties and districts have specialised in a commodity. Yueqing makes electrical appliances, Pingyang plastic products, Cangnan specialises in printing, Longgong in pharmaceuticals and school badges, Yongjia in garments and valves, and Lucheng in shoes.

But after China's admission to the World Trade Organisation, the influx of Wenzhou-made goods into US and European Union markets also made the city a target for anti-dumping lawsuits.

Today there are signs that Wenzhou's fortunes have peaked, with the city slipping behind Hangzhou and Ningbo in GDP rankings last year. Its exports have also been under siege in the past two years due to the appreciation of the yuan and rising labour and raw material costs.

The financial meltdown is also expected to bite. Mr Zhou said at least 20 per cent of the factories in Wenzhou had already stopped production because of rising costs and fewer orders.

'There were 3,000 lighter factories last year and fewer than 100 are still running this year,' he said. 'There were some 3,000 fastener factories in the first half of this year but there are fewer than 1,000 still operating now.'

He said 20 per cent of shoe manufacturers and about 1,000 garment factories had stopped production while some 500 to 600 makers of sunglasses were in financial difficulty.

'Wenzhou is suffering less compared to [other export-oriented cities] as businesspeople are very flexible and have shifted to other industries,' Mr Zhou said.

Huite Shoes deputy manager Hu Xiaodong said the company was unaffected because it had its own stores on the mainland, but admitted that the industry was in the doldrums. 'We are cutting budgets and laying off people to brace for more difficult times,' he said.

Workers at Zhenqing Glasses were gloomy. The two-decade-old factory is losing money due to a dramatic drop in orders.

'It used to be quite busy this time of the year, but this year we have not much work at all,' one worker said.

But Huang Shiyi , chairman of Zhejiang BBYY Garments, is upbeat about the future. His father ran a machinery factory, but Mr Huang started a company to sell children's clothes a few years ago. Mr Huang said his decision to focus on branding was the right one. He outsourced production to factories in provinces such as Anhui , where labour is cheaper, and set up retail outlets countrywide.

'If I had stayed in machinery, I would be in difficulty because of the overall environment,' Mr Huang said. 'But our children's clothes business is making a significant profit now.'