The Story Behind The Legend Of Wenzhou Shoe Enterprises

Juyi Shoes is one of the entrepreneurial companies that help China pform itself from a poor agricultural country into a global manufacturing powerhouse.

In 1988, Li Ailian borrowed money from relatives and set up a factory to make shoes with leather leftovers as materials.

Today, the company is run by her son, and now has 3800 employees, producing 10 million pairs of shoes every year for customers including Spain Zara.

Many of Li Ailian's neighbours also have similar stories.

The giant one is located in Wenzhou, 250 kilometers south of Shanghai, where active local entrepreneurs have turned it into a leader in China's private economy.

It is estimated that Wenzhou has 30 000 small businesses.

However, one thing about giant is not consistent with the reputation of rugged individualism in Wenzhou.

The office building of the company has a whole layer used to celebrate the Communist Party of China, and in the room prepared for Communist Party members, there are 6 stately portraits hanging in the following order: Marx (Marx), Engels (Engels), Lenin (Lenin), Stalin (Stalin), Mao Zedong and Deng Xiaoping.

Celebrating 30 years of reform and opening up, China has held 30th anniversary activities celebrating reform and opening up.

30 years ago, Deng Xiaoping relaxed the control of the economy, resulting in a long period of high growth, leaving tens of millions of Chinese out of poverty.

Concerts, seminars and speeches are the main elements of the celebration.

However, when the anniversary commemorates China's reflection, people are wondering whether the remarkable economic growth will continue, and whether Chinese style capitalism can survive in deep contradictions.

In the short term, Wenzhou is an effective wind vane for the health of the global economy and the strength of consumer demand.

The recession in Wenzhou and other export centres reflects the frustration of consumers elsewhere.

In addition, the fate of Wenzhou entrepreneurs will be a significant test of China's pition from low-cost manufacturing to more complex economic structures.

The most direct threat comes from the global economic slowdown, the news of China's decline in exports in November, which shows the difficulties ahead.

But the weak economy has also ignited a debate: whether the government's economic control still stifle entrepreneurship is the root of China's success.

After 30 years of reform, China's financial system is still dominated by party power, which means that financing often relies on political relations rather than business savvy.

Yao Xianguo, Dean of the school of public administration, Zhejiang University, said: "China's financial system has not yet been fully liberalized.

Large Private Companies are increasingly dependent on the government, while smaller companies are affected by their inability to obtain loans from state-owned banks.

Wenzhou has proved how capitalism has started from scratch after Deng Xiaoping's administration.

Wenzhou is hardly known abroad, and it is a legend in China, which can be proved by many explanations of its success.

It is said that the three sides of Wenzhou are isolated from the world, and Wenzhou enterprises began to develop when the Chinese government did not approve of capitalism.

Some people also say that Mao Zedong does not agree to put the important state-owned enterprises in this area, because the geographical location of the sea opposite to Taiwan makes it vulnerable to attack, which means that Wenzhou can only create its own economic base.

The horizon of Wenzhou is dotted with churches with Red Cross signs. It seems to imply that Yu Xinjiao's commercial culture originated from the theory of individualism in Wenzhou.

No matter what the reason is, Wenzhou's factories have become a new force in the global light industry, no matter what the reason is. Wenzhou's factory has become a new force in the global light industry.

For anyone who uses a lighter, 70% of the lighter are made in Wenzhou.

Light switches, zippers, and even adult toys are the same.

Towns near Wenzhou are the main production areas for door pivot, plugs, bra, socks and neckties.

There are many stories about shrewd entrepreneurs.

Nan Cunhui used to repair shoes until he and some friends began making electric switches at parts in the evening.

Since then, he has gradually established CHINT, the largest power equipment company in China (Chint), with an annual sales volume of US $2 billion 300 million.

(a friend who had started a business together with him) set up his own company, Delixi, which is now the second largest power equipment company in China.

Xie Jian, Professor of Wenzhou University 1, s City College, Wenzhou University, said: "what is interesting is that entrepreneurs from CHINT and other companies are farmers, and have achieved all their achievements by their own efforts."

He argues that the success of manufacturing is often not the credit of the Chinese government.

"Enterprises always have to move ahead of the government."

The private sector in Wenzhou is also rooted in the local private banking network.

Many factories start with money raised by relatives and friends from underground banks. The underground banks exist in the gray area of law, which is acquiescence, but has not been officially approved by the government.

This combination of light industry and large family microfinance can also find smaller versions elsewhere in China, but it is often referred to as the "Wenzhou model".

However, this model is currently under pressure.

As exports are declining, low-cost manufacturing companies are especially hard pressed.

It is very difficult to accurately describe the current situation of Wenzhou's industry. There are very few reports about bankruptcies of enterprises or underground banks. This is different from the situation of export centers in Guangdong, southern China.

But Zhou Dewen, President of Wenzhou Association of small and medium enterprises, said that about 20% of SMEs in Wenzhou were shut down and semi shut down, and this year's exports fell by 15%.

Linkov, vice president of CHINT, said: "our performance this year is actually very good, but the impact of the crisis has just begun."

In the narrow streets of Wenzhou's double lane town, the noise from the small shoemaking workshop was once full of noise. Now the signs of economic slowdown are clear. Some factories are closed and others are in large quantities.

Ye Yonglin, owner of Dilun Shoes, said most factories had to cut production.

"If you are a small company and do not have regular contracts with customers or have no advantages in quality and brand, you will lose a lot now," he said.

However, brand building and technology investment require money. This is also the intersection between Wenzhou's manufacturing slump and the biggest debate surrounding the future of China's economic reform.

The difficulty of private financing is that although the Wenzhou model of private financing is very effective for start-ups, it does not work well in pushing the company to the next stage.

The informal market is not only small in scale, but also high in interest rates. Borrowers may pay up to 40% to 50% interest a year.

China's formal finance is dominated by the state.

Most of the credit is provided by major commercial banks in China, mainly for other state-owned enterprises.

Therefore, with the development and expansion of private enterprises and the need for more capital or land, some enterprises feel that it is necessary to close to all kinds of branches of Communist power.

Over the past 10 years, there has been a strange "flattery" in Wenzhou: enterprises seek official backing, while the Communist Party that worries about new power bases seeks to infiltrate the private sector.

Stalin, who is loyal to the Communist Party and loyal to the giant shoe industry, is an example, while CHINT boasts that it is the first Wenzhou branch to establish a party branch, even though its founder Nan Cunhui has not joined the party.

Last year, Chinese state media reported that Wenzhou enterprises had established 3400 party branches.

A close relationship with the government is a good deal in any country. The photo of a shake hands with the incumbent president in a corporate executive's room is proof.

But for Yasheng Huang, a professor at Massachusetts Institute of Technology, this is part of the broader trend of party power restraining entrepreneurial instinct, Huang Yasheng (Huang).

He is also the author of the new book Capitalism with Chinese Characteristics.

He said the problem is not a group photo with senior leaders, but behind the scenes pactions that entrepreneurs must take part in if they want to get political asylum.

Huang Yasheng, an entrepreneur, said that in the past 30 years, China has not gradually shifted from government control to capitalism.

On the contrary, the real prosperity of entrepreneurship was relaxed in the 80s of last century when controlling rural areas.

But since 90s, the Chinese government has been rethinking its efforts to strengthen the control of the nascent private sector, with more emphasis on government led urban investment.

He pointed out that financing difficulties of private enterprises may lead to a decline in productivity and thereby damage China's future economic growth.

"One of the reasons why Wenzhou is in trouble is that these enterprises do not have enough capital to modernize," he said.

Today's China is like an oligarchic government led capitalism, and it may become a cronyism based on systemic corruption and pure political power.

Huang Yasheng's theory is full of critics. They point out that joining the World Trade Organization (WTO) and other policies in 2001 greatly encouraged the private sector.

But when the book came out, it was in China's domestic debate about the liberalisation of the financial sector, including the tentative proposals for legalizing underground banks.

The proposal has been opposed by some large state-owned banks, who are worried that this will exacerbate competition. Meanwhile, some officials are also against it. They are worried that this may lead to the rapid expansion of new bank loans.

At the same time, there are also ideological objections to the government's decision to give more financial control rights.

But supporters say that by providing more and cheaper credit to good small businesses, the economy can be injected into the economy at a critical moment.

Zhou Dewen said: "one of the most important things that the government can do for the economy is to legalize underground banks."

Recently, Chinese leaders rightly praised the economic achievements of the past 30 years.

However, if they intend to maintain such a growth record, they will face some difficult questions: how many economic commanding points do they want to continue to control?