Tourists shopping for handicraft products in Wuyi, Zhejiang province. China's booming private economy features entrepreneurial spirit as well as regional divergence. [China Daily]
In contrast with boomtowns such as restless Wenzhou and flashy Yiwu in prosperous Zhejiang province, Nantong, a textile manufacturing center in the equally prosperous Jiangsu province, is a study in conservatism and restraint.
Of course, it's all about the people, or more precisely, the business people whose entrepreneurial spirit has turned these backwaters into economic powerhouses. Their achievements have shown that, contrary to a belief prevalent among some business people, China's economic development is anything but monolithic and that regional divergence is not only tolerated but is also recognized as a source of vitality in the best of times and the worst of times.
To understand the engines that have continued to drive Chinese economic growth at a time when the more developed economies of the United States and Europe are faltering, it pays to follow the widely differing approaches taken by the private-sector entrepreneurs in the country's industrial heartland as they attempt to cope with the new challenges arising from the escalating cost of manufacturing.
In the eastern coastal provinces of Jiangsu and Zhejiang, manufacturers of a wide range of consumer goods have known for some time that the days of low-cost labor and land are numbered.
In the past three years the cost of labor in Zhejiang has risen by an aggregate 30 percent. The rate of increase in Jiangsu during the same period was about 20 percent. The manufacturing profit margin has been further squeezed by a rapid increase in the cost of materials, fuelled by the rise in the price of oil and other factors.
Profit margins have also been affected by the rise in the value of the yuan against many of the world's major currencies. It has appreciated by 1.9 percent against the US dollar in the past five months, and by 28 percent since China began its revaluation process in 2005. In the face of stiff competition, especially from other emerging markets, many Chinese exporters have absorbed the foreign-exchange losses for fear of losing business.
Unwilling to accept lower profit margins, many entrepreneurs in Wenzhou have taken measures to wind down their manufacturing operations and shift their investments to property, stocks and coal mines - sectors that can produce big profits rapidly. Flush with spare cash, some business people have speculated in collectibles, including antiques, paintings and other less-well-known artifacts, such as yellow gemstones and ancient clay teapots.
The textile tycoons in Nantong have taken a much more low-key approach to wealth diversification, as befits a low-key city which does not flaunt its wealth with a jungle of tall buildings, intertwined with a labyrinth of flyovers.
Zhu Xiaohui came to Nantong from Shanghai some five years ago. Thanks to the Sutong Bridge, which was opened in 2008, she is now able to drive back to her hometown every week, a journey which takes around 60 minutes.
Totally dedicated to her own textile design studio established in late 2007, Zhu said she does not have much time for wandering around the city, but her acquaintance with Nantong's business community has taught her a valuable lesson.
"Quite contrary to my expectations, businessmen in Nantong are quite shrewd. It was quite difficult for me to work with them at first," said Zhu.
"Maybe people in Nantong will not be happy to hear this, but they are actually quite snobbish. For example, if my studio were to close, it is quite possible that my former working partners would not wish to be friends with me any longer. No kidding, and I'm not badmouthing behind others' backs, but I have learned this from my own experiences."
Xue Fei, 40, owns a Nantong-based family-run textile company which supplies the domestic market. It has annual average earnings of 500,000 yuan ($77,000) and has three stores in the city.
"I've never made any extra investments but have expanded the number of stores during the last decade as I don't want to take any risks with my money," said Xue, who has worked in the textile industry for more than a dozen years.
Similarly, Shi Weidong, 43, a manufacturer of wire rope, another well-known industry in Nantong, has rarely plowed his profits into investments as he feels more comfortable and safer leaving them in the bank.
"I just spent 500,000 yuan in the equity market, buying steel-related products, which I deal with every day, because I don't want to put my hard-earned money into any risky investments," said Shi, whose factory receives annual orders worth around 10 million yuan from the domestic and international markets and makes an annual profit of four million yuan.
"I have plenty of friends among Zhejiang's businessmen. They do not pay much attention to what you do and who you are. Whether you are 'useful' to their business or not does not matter so much. In other words, they are not all that pragmatic," said Zhu.
Born and raised in Nantong, Sun Muyang works for the local government. As far as she can see, people in Yiwu and Wenzhou are more concerned about their businesses and work much harder, while the people in her city prefer "leading leisurely lives". Although Nantong also has a long history in the private economy, it is now, unfortunately, "lagging behind" the other cities.
However, Sun is probably being modest about her city. According to Ding Dawei, the mayor of Nantong, the number of private companies registered there in 2010 was the second-highest in Jiangsu province, with 24 of those companies gaining a place in the list of China's top 500 private companies.
Private enterprise accounts for some 60 percent of the city's GDP, an increase of approximately 2 percent compared with 2009. The city has also attracted some 53.6 billion yuan in external investment in the private sector.
The textile industry has always been a pillar of Nantong's economy. In 2010, the industry had output valued at more than 169 billion yuan, a rise of about 17 percent compared with 2009. Two of the city's textile production facilities have been selected as model centers by the World Intellectual Property Organization. In 2010, around 70 of the city's textile brands were ranked by the China Enterprise Confederation as "provincially well-known", and another 40 were categorized as "nationally well-known".
Using the booming regional economy to its advantage, Zhejiang was one of the earliest locations for private enterprise in China. The local government also offers guidance and support services as part of its efforts to boost the non-State-owned economy. At present, 90 percent of local companies are in the private sector.
However, rather than witnessing the arrival of foreign business people, entrepreneurs from Wenzhou have moved outside of the city, and the country, to display their talents in company management.
At the beginning of the 20th century, Wenzhou was home to a large number of foreign businessmen. The great influx of foreign products, accompanied by cultural diversification, stimulated the development of the city's economy and left an impression on the local people.
The more enterprising natives adopted the idea of industrialization from the foreign businesses and quickly transformed their own cottage industries into large-scale production powerhouses. At the last count, Wenzhou had a total of 240,000 privately owned commercial and industrial units, and 130,000 enterprises officially ranked as "conglomerates".
With the increase in the costs of labor and materials, creative Wenzhou merchants have started shifting their focus to investment in other areas.
"On average, every household in Wenzhou owns 1.2 properties in Shanghai," said Gao Lei, who runs the Wenzhou-based Computer Market Development Ltd, which employs about 100 staff. He owns 30 properties nationwide, including five in Shanghai. "It is a way to manage my wealth," he said.
Gao normally flies to different cities within China every month with fellow property investors to look for better investment opportunities in the real estate market.
"I also have put a certain investment in the equity market, which is still developing, and has promising profits which will probably be higher than the returns from buying and selling properties," said Gao.
According to 2009 statistics provided by the local government, villagers in the city's Pingyang county alone owned more than 200 coal mines in Shanxi province, amounting to a total investment of 30 billion yuan. Investments have also been made in the Inner Mongolia autonomous region, and in the provinces of Gansu and Guizhou, all of which are rich in reserves of nonferrous metals.
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