Bolstered by the ongoing nationwide economic reform, Wenzhou’s manufacturing industry now seeks restructuring

By Xie Jun in Wenzhou Source:Global Times Published: 2018/7/18 17:43:39

Guests visit an electric appliance exhibition held in Yueqing, East China's Zhejiang Province. Photo: VCG





Wenzhou's electric appliance sector had been developing rapidly in the wake of China's reform and opening-up policy, which stimulated massive market demand. But as time went by, the sector, like other manufacturing industries in Wenzhou, faced a crossroads, as traditional advantages like cheap labor dwindled and market overproduction weeded out small companies. Experts warn that some Wenzhou merchants don't have innovative mind-sets, which are the only way to preserve local manufacturing glory.

During the last 40 years of reform and opening-up, Wenzhou of East China's Zhejiang Province has won itself a good reputation for small commodity manufacturing - whether it be electronics, shoes, clothes or other products.

In particular, manufacturing of electric appliances and related components has been a mushrooming and popular industry in Wenzhou. However, the industry, like other manufacturing sectors, is currently undergoing some restructuring.

On July 10, the Global Times visited the electric hardware market located in Wenzhou, which is lined with small shops selling products ranging from electric components such as wires and appliances like fans, to bath heaters and electric switches.

At about 3:00 pm, few customers could be seen at the market.

A seller of electric wires, who only gave his surname as Zheng, told the Global Times that Wenzhou's electric appliance industry experienced some downturn several years ago, but over the past two years, it has recovered a little as a result of rising urban reconstruction in the city.

But it was during the 1980s when the local electric appliance industry experienced its initial boom, going through a period of rapid development as market opportunities sprang up along with the economic reform and opening-up policy.

Taking advantage

Hu Jinlin, a native of Liushi town under Yueqing, a county-level city in Wenzhou and also a pioneer in the Wenzhou's electric appliance industry, said that many of Wenzhou's electric appliance tycoons originally started off as metal component sellers and then went on to become electric appliance salespeople.

Hu himself also went on this course. According to him, at the beginning of the reform and opening-up policy in 1978, Wenzhou's economy started to speed up, with many private companies shortly needing to purchase small metal tools like screws due to rising demand. 

"At that time, most tools were sold via a materials company in Yueqing. But the company would only sell products to State-owned companies and cared little about private ones. That gave me and my brother a chance to buy small components from other places like Taishun [a county under Wenzhou about 180 kilometers away from Yueqing] and sell them at a higher price to local customers," he told the Global Times.

In the 1980s, he started to shift his business focus to selling electric appliances, soon witnessing the rise of the industry in Yueqing.

According to Hu, the market changes at the time of the launch of the reform policy provided lots of opportunities to businesspeople like him.

"In the early 1980s, the country was undergoing a transition from a planned economy to a market-driven economy," Hu said.

During the process, he said he gained lots of experience and earned a big fortune, especially because merchants like him knew how to woo customers better and truly understand what they really wanted in the new market-driven economy compared to State-owned firms.

According to Hu, his sales revenues amounted to more than 1 million yuan in 1981, which equaled to about $1.7 million at the time.

Like Hu, many Wenzhou merchants grasped opportunities during early years of the reform and opening-up, which in turn caused the local electric appliance industry to flourish. According to a report released by zj.qq.com in June 2014, by the end of 1980, there were 238 electric appliance and electric component companies as well as nearly 1,000 households doing jobs related to the industry in Liushi town alone.

Industrial upgrading

According to Hu, Wenzhou's electric appliance industry continued to flourish and reached a climax around 2000. But even at that time, Hu sensed that the sector was sure to face production-related problems in the years to come, as too many players jumped into the industry.

"Currently, big tycoons in the sector are still operating well in Wenzhou, but small companies in the sector are having a difficult time - many have had to close down. I guess that in the future, there will only be five to six companies in the sector whose production rates can meet all the market needs, both at home and abroad," Hu told the Global Times.

At the moment, big electric appliance firms in Wenzhou include Chint and China Delixi.

Like the electric appliance sector, other local manufacturing sectors are facing pressure to upgrade, which is tough for many Wenzhou businesses.

"Wenzhou's manufacturing flourished for a number of years after the reform and opening-up policy began, for reasons such as low labor costs, a relatively flexible local management environment and a good labor division system. But those advantages are gradually losing their power as they don't have a high threshold and their strategies can easily be learned by other cities," Ye Hang, a professor with the College of Economics at Zhejiang University, told the Global Times on Wednesday.

According to Ye, when profitability in traditional cheap labor manufacturing shrinks, local manufacturers, as they have for some time, shift to money-sourcing businesses like developing gold mines or coal mines.

"This also demonstrates Wenzhou businesspeople's shortcomings when it comes to having business-oriented mind-sets - they prefer ventures in highly profitable industries instead of spending time and money in technical research," Ye said.

However, Ye also said that for Wenzhou's manufacturing sector, the solution is still to upgrade technologies by increasing input into research and development. "The traditional model is by no means sustainable," he said.

Zhang Yili, a professor with the School of Business at Wenzhou University, said that the city's traditional manufacturing has also been trying to shift toward high-tech industries like electric cars in recent years, but there have been no evident results thus far.

Wenzhou published guidelines in 2017 that noted how the city would push the upgrading of 10 manufacturing sectors, including electric appliances, shoes, clothing and toys. The guidelines also noted that the city's traditional manufacturing sector should evidently upgrade its industrial structure and enhance innovation by the end of 2020.


Newspaper headline: Electric evolution


Posted in: INSIGHT,BIZ FOCUS,BUSINESS

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