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| Hard Turnaround of Wenzhou Economy |
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| China Wenzhou Guide Oct.9, 2008 |
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It seems good news, but also bad news -- The hottest summer has come to an end, power cuts to limit consumption frequently seen in previous years in Wenzhou never occur again.
Before the last broil fades away, Wenzhou businessmen slow down their their busy steps. On the banks of Oujiang River and opposite to Jiangxin Isle famous as an isle of poetry, lights are still shows their charm. On the top-level entertainment streets newly reconstructed, neon lamps are flashing as usual.
However, people are in no mood to enjoy.
More than one thousand Wenzhou enterprises half shut down or close
According to an investigation by Wenzhou Economic and Trade Committee at the beginning of July this year, among 15,521 medium and small enterprises in 31 top industrial towns and developoment zones in Wenzhou, the number of those enterprises shutting down, half shutting down or closing down has attained 1,259, which accounts for 8.1% of the total number of the investigated.
White walls, empty plants, locked doors, tools and materials scattering on the ground of workshops, several factory guards and undownhearted packmen in industrial zones
From the coastlines of Wenzhou to the northeast or directly to the north to Taizhou, Yiwu, Cixi and Ninghai in Ningbo, Shengzhou and Keqiao in Shaoxing, depression seems water from an unlocked tap, flowing down vigorously.
The industrial economy of Zhejiang Province is at a tightened running and enterprises walk burdened, according to an analysis report on Zhejiang's industrial economy by Zhejiang Economic and Trade Committee in July.
As the latest statistics show, the industrial added value of above-scale enterprises in Zhejiang Province rises by 12.2% on an annual basis in the first half of 2008 with the increase dropping by 5.5% compared with the same period of the last year. In the first five months in 2008, the total profit of enterprises goes up by 14.1% with the increase greatly falling by 17.8%. "In the second half of 2008, the economy will still face great uncertainty and serious development trend." The report says pessimistically.
According to an investigation by Wenzhou Economic and Trade Committee at the beginning of July this year, among 15,521 medium and small enterprises in 31 top industrial towns and development zones in Wenzhou, the number of those enterprises shutting down, half shutting down or closing down has attained 1,259, which accounts for 8.1% of the total number of the investigated, increasing by 2.1% compared with that in the first quarter.
Withering Shoes Capital
Some factories start migration and would rather shut down to build new plants in backlands. On major media of Wenzhou, most advertisements asking for plant or equipment rental has been replaced by those for transfer. "The original rent was RMB 25 per square meter, while RMB 6 seems an unacceptable price."
Out of Wenzhou City, large shoes factories can be found anywhere along the westward railways. The signboards of "Shoes Capital of China" at intervals remind miracles once created. At the most prosperous time of Wenzhou shoes-making, it produced 40% of the total shoes in the world, among which 60% were exported.
However, at Yangyi Industrial Zone where factories of shoes materials, leather and shoes-making can be found everywhere, shutdowns sweep the whole zone nowadays. In many factories, only several guards leave with depressed expressions. "These factories can not survive at all." Said Lin Jinbiao, former director of Wenzhou Shoes Materials Association and chairman of Haoba Shoes Materials. Due to the rocketing prices of raw materials, RMB appreciation, reduction of export tax rebate, adjustment of interest rate and rising labor force and logistics costs, the profitability space has been further compressed.
For instance, as for a sole at more than RMB10, there was an about RMB1 profit before. However, impacted by cost rise, the profit has been totally killed. "The net profit was 5% before, but it is lucky if it is 1% now." "We do have orders, but we dare not receive." Said Lin Jinbiao. On the first floor of his factory, five production lines for shoes soles have been stopped now.
Due to the rise of steel price, the fee for molds of shoes soles have increased from RMB 2,000 to RMB 3,000 per piece; because of the jump of oil price, the cost on one ton of materials to produce shoes materials has been increased by more than RMB 3,000 (as the main raw materials of shoes materials are petrochemicals); of course, the transportation cost has also risen.
Meanwhile, the labor force cost is going up too. In several years before, the base salary for a common worker was RMB 850, while it has gone up to RMB 1,200 now. The countermeasure taken by Lin is reducing the number of contracted workers from over 100 during the golden time to about 50. "What we can do is to employ fewer workers, receive fewer orders and ensure the stability of employed workers."
However, even if there is no production, only the base salaries for workers are enough to knock down an unprepared enterprise. Lin said that he knows a scale shoes-making enterprise where only the expenditure on worker salaries has attained more than 1 million. In Wenzhou, the largest shoes-making factory owns about 2,000 workers, which require tens of millions for salaries. "Without orders in three months, a factory will definitely die."
RMB appreciation exacerbates difficulties, since most overseas orders are valued by dollars. In the past one year, the exchange rate of RMB against USD has risen by 10%. That is to say, if an order is signed one year before, there will be totally no profit after it is finished. "It is luck not to lose money." Lin said.
Control measures on environmental protection are also another factor. According to Lin, over 100 factories supplying shoes leather to shoes-making factories in Yangyi has all closed down since they can not afford the cost on pollution control.
Depression in a large area also aggravates fund tension. "Even an overseas order brings arrearage. A Korean client has owed us over 1 million for more than three months." Lin is worrying about his three million account receivable. "We can not afford to advance money constantly."
Most people no longer consider manufacture as their main business. An owner of a shoes-making factory borrowed 60 million with his plants and houses as mortagage and invested all into real estate in Sichuan Province. Lin said those people have no choice. "If they borrow money to expand their production, it will be a vicious cycle."
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