Companies
Wenzhou firms seek new wealth ways
By Yu Ran (China Daily)
Updated: 2011-05-04 15:05
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Moving away
China's 12th Five-Year Plan (2011-2015) looks to transform its labor-intensive manufacturing economy into one based on technology and innovation. Wenzhou's municipal government released a document in December about upgrading the economic structure, and it noted the costs of raw materials, export expenses and land use. All have risen dramatically, the report said, reinforcing some enterprises' moves out of the city.
"It is getting harder and harder to maintain good profits from making shoes and other small commodities, so a great many merchants gave up," said Xie Rongfang, secretary-general of the Wenzhou Shoe and Leather Industry Association.
The association reported that more than 6,000 factories made shoes at its peak before the world financial crisis. The current number is 2,000.
Strong local companies such as Aokang, Kangnai and Dongyi have stayed in the shoe business, but they have moved industrial bases and factories out of the city, some to inland Anhui and Sichuan provinces.
Dongyi Shoes Co Ltd signed an agreement with the economic development district in Suzhou, Anhui province, in October to invest 600 million yuan on a factory covering 40 hectares. It expects to make more than 30 million pairs of shoes a year, worth 4.6 billion yuan, and to employ up to 18,000.
Also like other shoe manufacturers in Wenzhou, Dongyi has earmarked some of its earnings (20 percent in Dongyi's case) for property investment and the equity market in the city. "In order to avoid taking a huge risk, we never make an investment individually but collaborate with other shareholders" in developing real estate, said Chen Xi, Dongyi's manager.
The Wenzhou model
This group speculation on property is a style of investment unusual elsewhere in China. These fortune-makers cashed in tens of millions of yuan and pooled their resources to buy dozens of apartments and villas in one-off payments. Then, when prices went up, they sold the properties for handsome profits. They have come under intense criticism for pushing up China's housing prices.
In the process, they have also established a new business model with the mixed role of manufacturer and property investor. The intense and collective investment approach, including the gray market, also is distinctive of Wenzhou.
Statistics provided by local government indicate that fewer manufacturers want to make shoes. In the first quarter of 2009, the most recent data available, investments in shoe manufacturing totaled 625 million yuan, a 45.8 percent decrease from the previous year.
This matters because shoes are responsible for up to 70 percent of the manufacturing in Wenzhou. Last year, more than 2,000 enterprises shut down, more than half of them involved in manufacturing.
Zhou, from the small- and medium-sized enterprises council, fears what this might mean for the city and the province. If fewer factories make goods for the country and for export, it will cause a severe imbalance between supply and demand, he said. Wenzhou, one of the most productive regions in China, will hollow out and China might lose its manufacturing advantage.
"Most of the enterprises in Wenzhou have paid too much attention to the finance market. Only 30 percent of private capital returns to the real economy and 70 percent rushing to real estate or stock markets," Zhou said.
Ma Jinlong, an economist and former director of the People's Government Economic Research Center of Wenzhou, has a more optimistic view based on his view of investment as an upgrade from industry.
"Although more manufacturers turning to real estate seems to be a bad sign . . . we could also see it as a business transformation for enterprises, making money from their earnings for even better profits."
Major manufacturers in Wenzhou have not moved their full focus to investment, Ma said, but have tried to get out of the city so they can expand. "The new transformation shouldn't be recognized as a severe problem."
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