FEER(7/3) Chinese City Reflects Expansion of Private Sector
WANG ZHENTAO, 38, is dressed in black from head to toe -- black Hugo Boss shirt, black jeans, black shoes -- and he's rattling off the names of companies that have come to visit his offices in the coastal city of Wenzhou.
Citibank was here, trying to sell him banking services, the bulky, brush-cut shoe tycoon says. Morgan Stanley came too, he adds, trying to persuade him to list his company -- Aokang Shoes -- on a stockmarket overseas. Shoe firms from Italy, Spain, Japan and Russia have done deals with him so that Aokang produces their shoes for export. The one, however, who didn't come, a company executive says, was Forbes magazine when it was compiling its 2001 list of China's richest individuals -- because Wang refused to see its representatives.
Quite a change from 15 years ago when Wang started his company with three friends and a total investment of 30,000 renminbi ($8,000 at the 1987 exchange rate). It was at a time when officials were publicly burning fake shoes from Wenzhou in a crackdown that battered the reputations of many shoemakers. The partners in Aokang didn't take a single bank loan for the first six years. "At the start," Wang says, "it was hard to get myself known by bankers. Now, all these bankers are coming to me asking if I want to take loans."
Meet the Wenzhou attitude. Wang is one of thousands of private businessmen in this thriving business centre, a 40-minute flight south of Shanghai. Some 95% of the city's industrial output comes from the local private sector, estimates Xie Jian, a management professor at Wenzhou University. As China's economy moves ever further from its statist origins, Wenzhou -- gritty and grey, but vibrant and booming -- offers clues as to where much of it is headed.
In the far southern part of wealthy Zhejiang province, Wenzhou doesn't resemble China's showcase development centres such as Shanghai, where well-funded state firms and high-profile foreign investors rule the economy. Last year, the city's top Communist Party official estimated total foreign investment into Wenzhou since China opened its doors in 1979 at $600 million -- less than half what it cost to build General Motors' single Shanghai car plant.
Wenzhou's development is different. There aren't many big foreign investors in this city of 7.5 million people, and the central government never paid much attention to the place, so big state industry never developed. What exists in Wenzhou is entrepreneurial zeal, a chaotic, cowboy energy that pushed the city to levels of development as impressive as any in China. With a tiny state sector and few foreign investors, the local government has no alternative but to support private enterprise, says Chen Daorong, chairman of Huayi Group, a private maker of high-voltage transformers.
What will the parts of China that follow the Wenzhou model look like? On the plus side, Wenzhou has grown enormously. By its official figures, the city's economy grew 12-fold between 1990 and 2002. (Shanghai's, by comparison, grew by six times.) Wenzhou produces 20% of China's shoes, 80% of its spectacles, 60% of its razors, 65% of its locks and keys, and 65% of its electricity transformers. More than 1.3 million migrant labourers toil in its factories. Some of its companies have grown into international players, and local and foreign name-branded shops line its downtown streets.
On the minus side, it's an ugly, ill-planned sprawl of construction projects and factories, chaotic and polluted, crisscrossed by murky canals and dotted with karaoke parlours. Business practices are all over the map. In the city's drab Renqiao neighbourhood, shirtless migrants crank out cheap pirated shoes in dozens of small mills. One plant manager says he'll make copies of Nike or Adidas sports shoes for 30 renminbi ($3.62) apiece if a customer provides a model. (Today, he's making fake-leather men's shoes with dozens of perforated ventilation holes for export, he says, to North Korea.)
In many ways, Wenzhou is in the middle of a massive, chaotic transition -- one that give clues as to whether China's economic modernization will keep bringing boom or, eventually, bust. China optimists argue that the growth of private enterprise in the country will breed solid business practices, accountability and the realization that companies need to provide a reasonable return on investment. Pessimists contend that the system is too corrupt to allow this transformation, and point to a long list of investment disasters involving private firms, which were widely considered successes before coming under serious scrutiny for corruption.
Recent high-profile examples include Euro-Asia Agricultural Holdings, whose founder Yang Bin went on trial in mid-June for fraud and bribery, and the companies controlled by Shanghai property magnate Chau Ching-ngai, who was detained in May and is under investigation over loans from the Bank of China. Wenzhou has its fair share of corruption as well. In May, authorities sentenced Liu Zhilin, the head of Xinli Electronic Machinery, to death for evading 14.9 million renminbi in tax receipts -- one of the seven biggest tax fraud cases in China last year.
That tension between very real growth and very real problems is played out daily in places such as Wenzhou. Many private ventures, which began as small family shops, now face big-company issues: managing expansion, forays into international markets, increasingly complicated finances, stockmarket listings and the fight against rip-offs of their own brands. Whether these firms are ready to provide greater transparency, and whether they have the depth of management needed to handle their growth, will determine whether Wenzhou's trajectory remains upward.
Take Wang's company. It's the city's biggest shoemaker, reporting pre-tax profits last year of 69 million renminbi and revenues of 1.07 billion renminbi. In his early days, Wang struggled to build a viable company. Now he has one and he's trying to build a brand. He proudly displays pictures of himself burning fakes of his own company's shoes.
This year, in addition to its other contracts to make shoes for other companies, known as original-equipment manufacturing (OEM), Aokang also signed a contract with Italian shoemaker Geox, which lets Aokang use its sales network in exchange for producing and helping to distribute Geox shoes in China. As with most companies on China's coast, brutal cost-efficiency drives this process. Wang says it costs $20 to produce and ship a pair of Geox shoes from Wenzhou, compared with $30 to make them in the Italian company's home base. He's setting aside two production lines for the new brand. "By doing OEM, we can better understand the shoe culture in these nations," Wang says.
But managing the company is harder now that Wang spends at least a week each month meeting partners in Shanghai, at the same time as Aokang is setting up a large production base in the central city of Chongqing. That in turn produces more change. "I'm not in Chongqing," he says. "The whole Chongqing operation is run by employees."
Like Aokang, many growing firms in Wenzhou are encountering new challenges. Consider Hong Qing Ting, a competing shoemaker, which opened its doors in 1995 and, company officials say, last year had revenues of 930 million renminbi and more than 70 million renminbi in pre-tax profits.
The firm's founder, Qian Jinbo, didn't rely on bank loans for the growth of his core shoe business, according to Wei Yanxing, director of the company's cultural centre -- a sort of propaganda unit. But in recent months Qian, sitting on more cash than he knew what do to with, decided to invest in real-estate and educational ventures in Shanghai and a network of retail supermarkets in small Chinese cities. So he's begun borrowing from banks.
Such expansion raises two key issues for firms such as Qian's. One is the wisdom of taking a successful shoe business and expanding rapidly, with debt, into new areas, particularly speculative ones such as property. The other is whether they have the management capacity to make a success of new businesses.
But Wenzhou doesn't lack for ambition. Indeed, the allure of the private sector has even started to draw officials out of government. It's still rare in China for a young, high-level cadre to drop completely out of the public sector to solely pursue business. The usual procedure is for an official to nurture relationships and then retire into business. But in April, Wu Minyi, a Harvard-educated Wenzhou vice-mayor, quit to run the Qian-funded retail venture. Again, Wu voices the Wenzhou attitude: "If I succeed," he says, "many more vice-mayors may quit."
Chen, the transformer-maker, has other issues surrounding the growth of his business. His Huayi Group recently passed the requirements for listing on the Shanghai Stock Exchange, which would give him proceeds to buy a state firm, but also raise a whole range of management and transparency issues.
Chen, a burly man of 47, flips cigarettes nonchalantly onto the table for guests as he describes starting his firm in 1986 with four other partners, who put in 8,000 renminbi each. Chen, a former electrical-equipment travelling salesman, made the company's first sale on a train in the central province of Shaanxi. He says Deng Xiaoping's famous trip to Guangdong province in 1992, when the paramount leader spoke glowingly of Chinese enterprise, opened a lot of doors. After that, Chen says, "I could expand my sales channels from private companies and some daring state firms, because state firms were no longer worried about this or that because we were private."
Of course, the link between private and public is blurred across China, including Wenzhou. Sitting next to Chen is Li Rongguo, the company's vice-president and party secretary. Li was previously party secretary of Liushi county, where Huayi's original offices were located. Chen says that when Li was in government, he helped the company get land on which to build a factory.
Last year, Huayi had 710 million renminbi in revenues, and it has factories in five provinces. It makes high-voltage transformers for provincial power companies, and assembles them for multinationals such as ABB and Toshiba. In an enormous month-old factory, 45 transformers -- three-metre-high boxes priced at 1 million renminbi each -- await shipment to power stations. There would likely be more, Chen says, if the outbreak of Severe Acute Respiratory Syndrome hadn't slowed orders in the past two months.
One of the brutal lessons that Wenzhou firms have learned well is that competition is fierce for companies that live solely on cost. Ask Zhou Dahu, the founder of Zhejiang Tiger Lighter , an 11-year-old company and the largest of the city's myriad lighter makers. In 1991, Zhou found his niche. Operating out of his family home, he and his wife could make metal lighters for about 9 renminbi each and sell them to exporters who could get 500 ($3.30 at the 1991 exchange rate) for one in wealthy Japan. Wenzhou natives living in Europe filled suitcases with lighters to sneak them out of China. Zhou says he made a margin of about 1 renminbi profit per lighter.
Then . . . whomp! Within two years, Zhou says, Wenzhou had 3,000 lighter companies, each seeking to do exactly the same thing. Faced with such cut-throat competition, Zhou shut his company down for about five months. He lay low, and watched competition devour most of them, at which point he re-ignited his links with German and Japanese makers and started to manufacture for them. Last year, he says, his revenues topped 100 million renminbi, and though margins have narrowed in recent years, he's shipping more than 80% of his lighters, most bearing his own brand, abroad to premium markets such as Japan and Europe.
It's a rough business world that former Vice-Mayor Wu is entering. His former public-sector responsibilities -- promoting hi-tech and shaping up Wenzhou's social-security programme -- have given way to his new private-sector tasks, such as searching for suppliers, logistics operators and land. "I thought for some time last year that it was time to try a new project," Wu says, before excusing himself, at 9 p.m. on a weekday, to head out to yet another business meeting.
---
How Wenzhou Went Private
In the 1950s and 1960s, Beijing paid little attention to Wenzhou. Given its proximity to Taiwan, it was considered too risky a place to build heavy industry, says Xie Jian, a professor at Wenzhou University.
The city has consistently returned the favour. In the early 1970s, it bucked the disastrous collective agriculture policies of the Cultural Revolution. In the 1980s, the city government permitted private companies to call themselves "collective enterprises," allowing thousands of small private mills to sprout up. And in the 1990s, through years of pell-mell modernization, the city became a haven for private enterprise.
Perhaps because local government has proved weak, foreign investors -- who typically rely on strong municipal authorities to pave their paths in China -- have largely given Wenzhou a miss. Total foreign investment in the city was $80 million last year. That's small compared with many smaller cities around the southern manufacturing centre of Guangzhou, or with Shanghai. Wenzhou's dingy 13-year-old airport has no international flights, except to Hong Kong.
But to get a better sense of the Wenzhou business spirit, visit the Wenzhou Licheng Plastic Products factory in a large, corrugated-iron shed down a narrow alley behind the residential blocks in the city's Hongdian village. It was set up in 1987, and its 59-year-old owner, Deng Jinchun, watches over a handful of workers making small plastic gears and plastic hooks on six small moulding machines. They press smelly plastic goo in the machines, and then dump the shapes into buckets of dirty water. The shed serves as factory floor, warehouse, office and home of assorted bric-a-brac -- everything from a grandfather clock to Teletubbies dolls.
Despite the humble surroundings, Deng says that he exports nearly everything he makes. He says he's used a network of friends to build ties with several export companies. "You have to have a lot of friends to do business," he says. Last year's revenues: 2 million renminbi ($242,000).
温州－中国私营企业发展的缩影
38岁的王振滔从头到脚，一身黑色装扮：黑色衬衫，黑色牛仔裤，黑色皮鞋。他正在向我们介绍，有哪些公司的人来过他在海滨城市温州的办公室。
他数到：花旗银行(Citibank)来过，向他推销它们的银行业务。摩根士丹利(Morgan Stanley)来过，劝他将他的奥康集团(Aokang Group)拿到海外上市。他的鞋厂做的是出口生意，跟义大利、西班牙、日本和俄罗斯人都有业务来往。不过，厂里的一位管理人员说，有一家想来但没来－在中国名噪一时的《福布斯》杂志，王振滔拒绝了该杂志代表的采访要求，当时这家杂志正在编撰2001年度中国大陆富豪排行榜。
这种情景与15年前王振滔创业时相比真是天壤之别。当时，王振滔跟他的三个朋友凑了3万块钱(当时相当于8,000美元)开始办厂。那时候，中国正在开展打击假冒伪劣产品的活动，政府曾公开销毁温州生产的劣质皮鞋，这使温州鞋子名声扫地。在这种大形势下，他们办厂的头6年时间里，他们没能拿到银行的一分钱贷款。王振滔说，那时候，银行没有人搭理我。现在呢，各家银行都跑来问我：要不要贷款？
从上海到温州搭飞机只要40分钟。在这个商业非常发达的小城市里聚集了成千上万的商人，王振滔只是其中的一位。在温州大学讲授管理课程的谢建（音译）教授说，温州大约有95%的工业产值来自当地的私营企业。在中国经济从计划经济走向进一步开放的时候，基础薄弱但充满活力的温州将为我们考察中国企业的未来提供一些线索。
温州位于经济发达的浙江省的最南端，它的经济格局与上海这样的能显示中国发展成果的中心城市截然不同，在上海，资金雄厚的国有企业和享有国际声誉的外资企业占据著经济的大半江山。
而温州呢？温州市委书记去年估计，温州自1979年中国改革开放以来吸收的外商投资总额只有区区6亿美元，还不到通用汽车(GM)在上海建一家汽车厂所用投资的一半。
温州的发展道路与上海或中国其他许多地区也截然不同。在这座有750万人口的城市，外商投资寥寥无几，中央政府对它一直也不太重视，这里没有一家大型国有企业。
但温州人有创业的热情，有莽撞但干劲十足的开拓精神，这一点使温州今天的发展水平给人留下了深刻印象。私营变压器生产商商华仪集团(Huayi Group)的董事长陈道荣说，由于国有企业和外资企业都不成气候，当地政府除了支持私营企业别无选择。
中国其他追随"温州模式"的地方会发展成什么样子呢？从好的一面看，温州的经济增长确实很快，根据官方数字，从1990年到2002年，温州的国民生产总值增长了12倍（而同期上海增长了6倍）。从具体产品规模看，温州生产的鞋子占全国总产量的20%，眼镜占全国的80%，剃须刀和锁具分别占全国的60%和65%，变压器占全国的65%。
来自全国各地的130万打工妹、打工仔在温州大大小小的工厂里劳作。这些工厂有的已发展成国际化大公司。中外品牌的店铺遍布温州商业区的大街小巷。
但温州仍有落后的一面。城市规划混乱，市区嘈杂不堪，空气污浊，纵横交错的河道里水质混浊，城市的大街小巷充斥著一家家歌厅。
到处都是做生意的人。在任桥乡的数十家小作坊里，光著膀子的打工仔埋头赶制廉价的假冒名牌皮鞋。一家工厂的厂长说，只要能给他提供鞋样，他们就能生产出耐克或阿迪达斯运动鞋，每双只要30块钱人民币（合3.62美元）。他说，现在他们正在生产假冒的男式皮鞋，准备出口到朝鲜。
从很多方面看，温州都还处在巨大而混乱的变革过程之中－从这里人们也许可以预见，中国的经济现代化会继续带来繁荣还是最终以失败告终。
乐观派认为，中国私营企业的发展将培养出成熟的商业行为和责任感，并使企业认识到要给投资者以合理的回报。悲观人士则认为，现行制度太腐败，难以完成这种变革。他们能列出一长串涉及私营企业、最后造成重大损失的投资案例，这些私营企业在因腐败问题而被调查之前，都被普遍认为非常成功。
最近备受关注的两个案例是欧亚农业和上海富豪周正毅控股的几家公司。欧亚农业创始人杨斌因欺诈和行贿受到指控，6月中旬在法庭受审。周正毅则因与中国银行(Bank of China)贷款方面的问题5月份被拘捕并正在接受调查。
温州也出过腐败案件。5月份，信利机电(Xinli Electronic Machinery)负责人刘志林因虚开上亿元增值税发票被判处死刑。这是去年中国查处的7宗骗税大案之一。
在温州这样的地方，经济增长和在此过程中暴露出来的各种问题之间的矛盾冲突每天都在发生。许多从家庭作坊发展起来的私营企业目前也面临著大公司会遇到的问题：如何扩大经营、怎样进军国际市场、财务结构越来越复杂、股票上市以及品牌被盗用等等。 这些私营企业能否有更高的透明度？他们是否具备带领企业实现进一步增长所需要的深层管理能力？问题的答案将决定温州还能否保持它的增长轨迹。
让我们以王振滔的奥康集团为例。它是温州最大的鞋厂，去年，该公司收入达人民币10.7亿元，税前利润达到6,900万元。当年，王振滔为建立一个能够生存的公司而终日打拚。现在，他终于拥有了这样的公司，而且，他还在努力树立自己的品牌。现在，他可以骄傲地展示他自己焚毁那些假冒他们牌子的皮鞋的照片了。
今年，除了为其他公司贴牌生产(OEM)鞋子的合同以外，奥康还与意大利制鞋商Geox签定了协议，根据协议，奥康为Geox生产鞋子并帮助它在中国销售，作为交换，奥康可以使用Geox的销售网络。
尖锐的成本问题催生了奥康的这种业务模式，中国沿海城市的大多数外向型企业也都是这样。王振滔说，在温州，每一双Geox鞋子的生产和发货成本是20美元，而在意大利当地生产的成本是30美元。王振滔为这种新品牌专门留出了两条生产线。他说，贴牌生产的模式使他们能更好地了解意大利等国的制鞋文化。
但是，王振滔现在每个月至少有一周的时间要到上海跟合作伙伴见面，同时，由于奥康又在位于长江上游的重庆市建立了一个大型生产基地，这样一来，对王振滔来说，管理公司的难度加大了，但同时也促使他们在管理模式上发生了很多变化。王振滔说，他平时不去重庆，那里的业务都由下属雇员打理。 像奥康一样，温州许多正在壮大的企业也都面临著新的挑战，比如1995年成立的制鞋企业红蜻蜓(Hong Qing Ting)。该公司的人士说，去年公司收入达到9.3亿元，税前利润超过7,000万元。
在该公司负责企业宣传的魏言兴(音译)说，公司的创始人钱金波最初创业时没有依靠银行贷款，发展起了核心的制鞋业务。 后来，随著企业发展，钱金波手里有了大量资金，却拿不准向哪里投资。最近，他决定在上海投资房地产和教育产业，在国内部分小城市建立零售超市网络。现在，他已经开始向银行借钱了。
这样的扩张给红蜻蜓这类公司提出了两个关键的问题：其一，他们是否具备充分的智慧，能在负债经营的情况下将一家成功的制鞋企业带入新的领域、尤其是房地产这类投机性极强的行业？其二，他们是否具备在新领域获得成功的管理才能？
尽管人们有这样那样的疑问，但温州人从不缺少雄心壮志。实际上，私营企业的魅力正在吸引政府官员辞官加盟。有相当级别的年轻干部辞职下海的事目前在中国还不是很多。有意从商的政府干部通常的做法是在职期间发展自己的关系网，时机成熟后或退休后再开始经商。 但今年4月，温州市副市长、曾就读哈佛大学(Harvard University)的吴敏一辞去官职，接管钱金波创立的零售网络。吴敏一在他的讲话中再次表明了温州人的态度，他说："如果我成功了，会有更多的副市长弃官从商。"
对于华仪集团的陈道荣来说，他的公司在发展中遇到的则是另外一些问题。华仪集团最近通过了上海证交所上市资格审查，这样他可以筹集资金用于收购一家国有企业，但他们同样也遇到了管理和透明度方面的一系列问题。
今年47岁的陈道荣身材魁梧。他在接受采访时一面很随意地向来客递烟，一面向大家讲述1986年他跟其他四个伙伴凑钱创业的故事，当时他们每个人拿出了8,000元钱。以前曾干过电子设备推销员的陈道荣在去陕西的火车上为他的新公司卖出了第一批产品。
他说，中国领导人邓小平1992年的南巡讲话为很多新生事物的发展开启了大门。他说，从那以后，他可以将与私营企业和一些胆子比较大的国营企业所建立的销售渠道进一步扩大，因为国营企业也开始不再为对方是私营企业而有所顾虑、不敢有业务来往。
不过，中国人对私营企业与政府部门的关系一直颇有微词，即使在温州也是这样。采访时在座的还有该公司副总裁兼党委书记李荣国。李荣国以前是柳市镇党委书记，而柳市镇正是华仪集团最早的所在地。陈道荣说，李荣国在政府任职期间为他争取建厂用地给予了很大帮助。 华仪集团去年收入达7.1亿元，它在全国5个省有生产厂。该集团生产电力公司用的高压变压器，还为瑞士ABB公司和日本东芝公司(Toshiba)等跨国公司组装变压器。在该公司的一家刚投产不久的新厂里，笔者见到45只单价在100万元人民币的变压器正在等待发往发电厂。陈道荣说，如果不是因为前两个月非典型肺炎(SARS)导致订单推后，现在交货的设备还会更多。
温州企业吸取的最残酷的教训之一是，对于那些仅靠压低成本求生存的企业来说，竞争将是非常无情的。不信可以问问温州大虎打火机厂(Tiger Lighter)的创始人周大虎。这家有11年历史的工厂是温州成千上万的打火机厂家中最大的一家。
创业初期，周大虎和他的妻子两个人在家里生产金属壳打火机，然后卖给出口商，每只售价9块钱，出口商则以每只500日元（合3.30美元）卖给日本人。移居欧洲的温州人把打火机塞在行李箱中偷偷带出中国。
周大虎说，当时每只打火机他可以赚1块钱。
就这样，忽啦啦一下子，仅仅两年时间，温州就冒出了3,000家打火机厂，每家的生意都一模一样。在这种白热化的竞争面前，周大虎的打火机厂停产5个月左右。他潜下心来观察市场的变化，直到大多数厂家在残酷的竞争中偃旗息鼓。这个时候，他东山再起，重新与德国和日本的厂家取得了联系，开始为他们生产打火机。
他说，去年他的公司收入超过了1亿元。虽然近年来打火机的利润率有所下降，他们生产的打火机仍有超过80%运往日本和欧洲等高档消费市场，其中大多数都是用他自己的品牌。
吴敏一离开官场踏足的商圈是一个无情的世界。他以前分管的工作是促进温州高科技产业发展，建立温州的社会保障系统。而现在，他要操心的是物色供应商、物流服务商，为零售店选址等等事务。
他说，去年有一段时间，还在政府机关的时候，他一直在想，应该是尝试新的人生领域的时候了。
吴敏一说这话的时候，是在一个工作日的晚上9点钟。随后他向笔者道歉告退，因为他还要去参加一个业务会议。
