Wenzhou feels the export blues

Wenzhou, a city 250 km from Shanghai, known for private sector entrepreneurs, did not experience a winter electrical shortage for the first time in six years.

In December 2008, the Wenzhou power grid load was lower than the same period a year ago because many manufacturers reduced production due to the global economic slump.

"That situation rarely happened before," said Zhang Xiaodong, who runs a sunglasses factory in Wenzhou. "Before manufacturers' biggest concern was that the electricity would be cut off due to an overload."

According to Wenzhou Lucheng Shoe Industry Association, 47 factories have stopped production and of 283 enterprises, 26 were shut down.

Wenzhou's factories were a global force in terms of light manufacturing. If you buy a cigarette lighter, there is 70 percent chance that it was made in Wenzhou.

And if you use zippers, plugs, or hinges, odds are it was also made in Wenzhou.

But when the global economic meltdown shrank the export market, Wenzhou's low-cost manufacturing companies especially felt the pinch.

Zhou Dewen, head of the Wenzhou Small and Medium-sized Companies Association, said production has stopped or been cut at 20 percent of Wenzhou's factories, while exports have dropped 15 percent this year.

"If you are not a big company with stable contracts, you might be hurting a lot right now," said Zhou.

He said there are 300,000 companies in Wenhou, but 8,000 have shut down this year as exports drop off.

China's General Administration of Customs said Chinese exports slumped last month by their fastest pace in a decade. Exports fell 2.8 percent after declining 2.2 percent in November.

Ke Jie'ou, who runs Wenzhou Qiansi clothing company, doesn't go to the beauty salon as often as before because she tries to use her money more cautiously after her factory suffered a large drop in orders.

Her factory made 50,000 articles of clothing in 2007, but last year, the factory only sold 20,000 items.

"We've got fewer orders due to the financial crisis," Ke said. "The whole export situation is not optimistic, but our case is not the worst. I know a friend of mine who shut down his factory because orders dramatically declined."

To reverse the situation, Ke Jie'ou does what most other Chinese manufacturers are doing - trying to focus on the domestic market rather than overseas.

"We used to export 70 percent of our products but now we are about to change our strategy and I am going to do half abroad and half domestic," she said.

Zhou Dewen said it would be a two or three year process of recovery for companies to begin selling domestically. Currently 75 percent of Wenzhou companies are directly or indirectly linked to exports.

The Chinese government has announced a 4 trillion yuan stimulus package to shore up its economy and expand its domestic demand.

Although it won't have an immediate impact on these small and medium sized companies, Ke said she could get easier access to bank loans due to the local government's support.

"Wenzhou manufacturing usually refers to low cost, low-price and low-value added model, which is useful for starting a business from scratch, but now it is the time to reshuffle the structure to make it more competitive, " said Zhao Yide, mayor of Wenzhou.

"The financial crisis might be a good chance to push the process of reform," he said. "Building a brand and investing in technology are regarded fairly important."

(China Daily 02/09/2009 page10)