China's 'speculation city' returns to real economy

HANGZHOU - The city of Wenzhou, a weather vane of China's private economy, is regaining its foothold after being hit hard by a credit crunch, local entrepreneurs and analysts say.

With its gross domestic product expanding by 7.7 percent last year, about one percentage point higher than in the previous year, to 400 billion yuan (64.32 billion US dollars) for the first time, the east China city saw its economy bottom out at the end of last year.

Latest figures from the Wenzhou statistics bureau showed that new high-tech industry has played a stronger role in the expansion of the local economy, with its aggregate output value reaching 31.2 billion yuan in the first quarter, up 6.2 percent from the same period last year.

The city has yet to release its first-quarter GDP growth figure.

When a credit crisis triggered by the massive default of private loans hit the city in 2011, some 110 billion yuan in private capital sought quick profits through speculation and the underground financial market, primarily in real estate.

Lasting capital outflow from the real economy, which involves the actual production of goods and services, has harmed local entrepreneurs.

What's worse, when the central government stepped in to cool soaring property prices by imposing a series of measures, such as restrictions on purchases and higher down payment requirements, Wenzhou investors were hit hard as the number of buyers plummeted.

To get rid of its shameful title as the "speculation city," the city government has created a strategy to revitalize the city through industrial production.

Under a development blueprint released in March, the city plans to achieve 300 billion yuan in fixed asset investment on projects, with planned investment of five million yuan this year, compared to 261.81 billion yuan in 2013.

Electric power, footwear, clothing, motorcycles and pump valve manufacturing will be the city's pillar industries, while investment in another ten emerging industries, such as the Internet, tourism, modern logistics, culture, lasers and photoelectricity, rail transit, general aviation, new materials and healthcare are encouraged.

The city government also projected a 30 percent year-on-year increase in investment for technical innovation, and 104 new small enterprise parks will be established to inspire entrepreneurship.

It also hopes to attract 100 more new high-tech companies, 500 technology-intensive medium-sized enterprises and 25 research and development centers.

In early March, the State Council approved for Wenzhou to further develop its coastline resources and turn the Wenzhou Port into a pivotal port for the export-oriented economy.

Zhu Like, general manager of Zhejiang Yiming food company, said businessmen in Wenzhou are famous for their sharp business sense and strong willpower.

"As soon as these people have made up their minds to return to the real economy, the city will be on a solid path to an economic recovery," he said.

Zhou Dewen, Chairman of the Wenzhou SME Development Association, said that since the government and business leaders have recognized the economic problems and decided to revive the real economy, Wenzhou will show its economic muscle again in the future.

Taking Wenzhou as "a miniature of the Chinese economy as a whole," he said the Chinese economy is quite resilient, given the Chinese people's unabated enthusiasm for reforms.

If Wenzhou had not been hit by the credit crunch, more private capital would favor speculation rather than the development of the real economy. In that case, the Chinese economy would have faced a real crisis, he added.

Statistics released by the National Bureau of Statistics (NBS) on Wednesday showed that China's economy grew 7.4 percent year on year in the first quarter of 2014, suggesting economic growth in the country was generally stable.

Liu Gang, professor at Nankai University in Tianjin Municipality, said China must continue to promote reform and adjust the financial capital distribution in accordance with economic restructuring and industrial upgrading.

The real economy should remain as the backbone of China's economy, and it should be supported by a compatible financial system and embark on a path of industrial upgrading fueled by innovation, he said.