China’s coastal provinces, heavily reliant on international exports, have been hit hard by the global financial crisis. How extensively has that downturn affected the export-oriented clothing industry in Wenzhou, a coastal city in eastern China’s Zhejiang Province? Considering this question, I recently visited the city.

Challenge

The people of Wenzhou are renowned for their business skills. According to historical records, merchants here began to explore overseas markets in the early 17th Century. Since China’s reform and opening-up commenced in the late 1970s, Wenzhou business people have established commercial networks and enterprises around the world.

A Wenzhou clothing factory production line operates at full speed. by Tan Xingyu

“Wenzhou people are talented in business, but, in fact, they were forced to become so,” explains Zhang Xunting, deputy director of the Information Office of the Municipal Government of Wenzhou. A native of Wenzhou, he witnessed first-hand the city’s rapid growth. “The city’s land territory is less than 12,000 square kilometers, most of which is made up of mountainous areas. A local saying goes: ‘Eighty percent is mountain, ten percent river, and the rest paddy fields.’ It’s difficult to develop such areas due to the rugged terrain. In addition, Wenzhou is densely populated, with nearly 8 million permanent residents, ranking it first in population in the province. Short of natural resources, with insufficient government investment, Wenzhou suffered extreme poverty for a long while before China’s reform and opening-up. To make a living, many locals founded small businesses, and some eventually realized great success,” he explained.

“Today, Wenzhou is home to more than 2,500 clothing enterprises, 290 of which are considered to be large-scale,” explains Hong Zhenning, vice chairman of the Wenzhou Federation of Social Sciences, during our interview. “Collectively, those firms own nine name-brand Chinese products, 10 Chinese famous trademarks, 17 national inspection-exempted products, and 39 provincial famous trademarks. In 2008, Wenzhou earned more than 40 billion yuan from its clothing industry, including $1.229 billion from clothes and clothing accessories export.” He also pointed out that when China introduced reforms three decades ago, light industries like clothing, requiring moderate investment but generating rapid return, were the best options for reviving Wenzhou’s economy. Beginning with household workshops, the city’s manufacturing sector has witnessed an enormous transformation. To date, it has developed five mainstay industries, including low-voltage electric apparatuses, clothing, leather, furniture and package printing. In particular, the clothing industry plays an important role in the local economy.

A Wenzhou-based garment brand, Metersbonwe realizes a market miracle thanks to its “virtual operation.” IC

“The financial crisis severely impacted Wenzhou’s clothing industry,” said Zheng Chen’ai, chairman of Wenzhou Fashion Association. He explained that the situation was still fierce, although compared with the Pearl River Delta area, Wenzhou’s clothing enterprises rely less on exports, many of which receive orders from domestic buyers. Statistics reveal that in the first quarter of 2009, the city’s above-scale textile, clothing, shoes and headwear enterprises realized a total industrial output of 4.783 billion yuan, an increase of 2.04 percent over the same period last year, earning $238 million from clothes and clothing accessories export, an increase of 0.20 percent over the same period last year.

At the end of 2008, as a result of the global financial crisis, in a single day three clothing enterprises went bankrupt in the city’s Ouhai District, where are concentrated many companies specializing in Western-style suits. This sent shockwaves through the city’s clothing industry. “Most enterprises ran under their production capacity, and some middle and small-sized companies even went bankrupt. Short of R&D competence, they had no choice but to close down when foreign buyers cancelled their orders.” A survey conducted by the Wenzhou Fashion Association early this year indicated that after the Spring Festival holiday, many enterprises began to cut jobs and shut down production lines. For instance, Falanximu, an OEM company mainly producing export-oriented garments, was forced to shut down one of its three production lines due to falling overseas demand.

Facing such an unprecedented economic crisis, the Chinese government formulated a series of industrial revival plans. On February 4, 2009, the State Council unveiled the adjustment and revival plan for the textile industry, which includes policies aiming to integrate domestic and international markets, encourage technical innovation, enhance the construction of independent brands, and optimize regional industrial structure. Additionally, the plan strengthens fiscal and tax policy support for the textile industry. For instance, the export rebate rate of textile and garments increased from 14 to 15 percent. It is estimated that Wenzhou’s clothing industry will thus earn additional export rebates of 330 million yuan in 2009. Cai Huantian, president of the Foreign Trade Council of Wenzhou Fashion Association, said that the increase of export rebate rate will enable enterprises to save a considerable level of liquid capital and relieve the pressure imposed by the global financial crisis, thus reviving the textile industry and promoting employment.