Wenzhou is considered the shoe capital of China. The prosperous city in Zhejiang province exported 2.2 billion euros worth of shoes as of September this year and many of its entrepreneurs are now exploring new ways of leveraging their wealth for new business opportunities. Photos by Wang Jing / China Daily

Manufacturing hub of Wenzhou takes on challenges of economic change

Monday traffic in Wenzhou is the worst of the week. Numerous BMWs, Ferraris or Lamborghinis surround taxis amid the constant honking by irate drivers on their way to another jam-packed day. Mixed into the exhaust-filled air of the city, one can also detect the smell of business - big or small - that comes with major change.

This is Wenzhou, a coastal city in East China's Zhejiang province, where self-made millionaires abound and locals are known among their fellow countrymen for having the "business gene".

Wenzhou is a major source of "Made in China" goods such as shoes and clothes, with its success riding on the export-oriented economy.

While the city continues to churn out exports with double-digit growth, competition in the local economy is becoming much fiercer with less resources available.

Higher land prices and wages as well as a rising yuan mean small enterprises -mostly original equipment manufacturers (OEM) for overseas companies -are making less profits.

"Wenzhou's economy still largely relies on labor-intensive industries even today, but the current international trade situation has weakened such economic advantages," says Zhou Dewen, the head of the small and medium-sized enterprises (SME) association in Wenzhou.

That is why many believe reforming Wenzhou's business structure is imperative. More than 1,000 enteprises moved their factories out of the city in 2008 alone, and about 25 percent of them moved entirely, figures from Wenzhou's municipal bureau of statistics and the Shanghai Overseas Chinese News show. And the move is ongoing.

During the global financial crisis, many SMEs stopped producing because of the sharp decrease in overseas orders. Up to 20 percent of these companies reportedly shut down.

But Wenzhou's exports are getting back on track in the economic recovery. The city's export volume in the first 10 months of this year reached $11.7 billion (8.78 billion euros), 32.4 percent more than the total volume in 2009. More than 40 percent of the products were shipped to European countries, making the European market the biggest target of Wenzhou's international trade, according to the Wenzhou foreign trade and economic cooperation bureau.

The Wenzhou Evening News reported in September that about 120 Wenzhou shoes enterprises contribute more than 80 percent of the market in France, two decades after they entered the European market.

Traditional exports like clothes and shoes are still leading the local economy. The shoe sector contributed about $3.1 billion to the economy, $350 million more than last year's. Exports of clothes hit $1.21 billion this year, up by 18.5 percent from 2009, the bureau reports.

"To maintain strong economic development, Wenzhou needs its own brands and promote them to the world, rather than just being the OEM of the international market," says Pan Pinging, vice-director of the Wenzhou foreign trade and economic cooperation bureau.

To that effect, small clothing and shoes brands from Wenzhou have started gathering as groups since 2009 to promote local brands to the domestic market first. A group of Wenzhou companies made up of 42 shoes and clothing companies with more than 50 local brands contacted 300 major shopping malls from around China in a trade fair last August.

"Promoting local brands in these big Chinese shopping centers can increase sales of up to 10 billion yuan. And it's a good start to build up the marketing networks for those local brands," says Zheng Chenai, the chairman of the Wenzhou Chamber of Clothing Commerce.

The Wenzhou municipal government also provided about 20 million yuan (2.26 million euros) last year to arrange for local companies to participate in various international trade expositions.

By the middle of this year, more than 5,300 Wenzhou brands had registered under the Madrid system for the international registration of marks, the National Administration for Industry and Commerce reported in September. The system is the primary international system for facilitating the registration of trademarks in multiple jurisdictions around the world.

Wenzhou itself was the first city to set up individual and private enterprises as well as a shareholding cooperative economy, when China began economic reforms in 1978. Through the development in the last 30 years, Wenzhou has been leading the world's light manufacturing sector with hundreds of such companies in the city.

By the end of June this year, only 4.26-sq-km of industry land had been left undeveloped, which is about 6.8 percent of the total industrial land in Wenzhou. The local government is integrating land resources by removing old villages and filling in seashore areas.

"We have limited available resources, especially land, to support companies' expansion," says Jin Shengduo, a director from the Wenzhou municipal commission of development and reform.

However, the coastal city has abundant solar and wind power. In the city's 12th Five-Year Plan (2011-2015), new energy industries have been approved as a crucial part of economic growth.

Companies involved in new energy businesses will get priority in land resource allocation, the local commission of development and reform says.

A number of the struggling shoes and clothes companies have also transformed from the overly competitive traditional market to new energy industries. By the end of October, there were about 60 energy companies in Wenzhou with a total output value of 2 billion yuan from the solar power, wind power, energy storage power station, light-emitting diode and new energy automobile sectors.

The new industries are expected to create about 5 billion yuan of total output value in 2010.

"These new energy industries will be an important part of Wenzhou's sustainable economic development," Jin says.

But Wenzhou still lacks a strong wharf to support the shipping sector, seen as a crucial component of its economy. Most Wenzhou companies have to transfer their products to Shanghai or Ningbo, which is another coastal city in Zhejiang province, for shipment.

In the new five-year plan, Wenzhou is set to build a few ports and wharves with berths of more than 300,000 tons. It will also upgrade existing ports to have an annual integrated throughput capacity of more than 100 million tons.

"Strong port facilities can reduce the cost of products and shorten transportation time," says Shen Cangen, the director of the logistics department from the municipal commission of development and reform.

With better logistics infrastructure, Wenzhou also aims to become the distribution center for more global clothing brands and fine wines in the Chinese mainland. The city boasts a luxury and high-end consumer market. With 750 billion yuan of private capital, its businessmen are expected to have a wide range of investment options beyond their core businesses.

Wealthy investors who incurred losses of up to 30 billion yuan from the mining sector in Shanxi province have turned to the overseas real estate market this year, the Shanghai Business Daily reports.

Following their move, real estate agencies from many developed countries including the United States, Canada and Australia, have headed to Wenzhou to attract high-quality clients since early this year.

The trend is yet another example of the widening appetite of Wenzhou's market, one that is moving beyond "business as usual".