Wenzhou offers a lesson in economics
By Li Jing (China Daily)
Updated: 2004-04-26 09:08

The sliding growth rate of the gross domestic product (GDP) recently in Wenzhou, which produces nearly 70 per cent of the world's lighters, makes experts worry about the future of the city's economic development pattern.

Wenzhou, a city in East China's Zhejiang Province with more than 90 per cent non-State economy, has become a catchword for the entrepreneurial spirit that has swept the country over the past decade.

It produces 20 per cent of China's shoes, 80 per cent of its spectacles, 60 per cent of its razors, 65 per cent of its locks and keys, and 65 per cent of its electric transformers.

The GDP increase of Wenzhou ranked among the top three in the 11 major cities in Zhejiang for a long time.

However, the situation changed dramatically starting in 2002 when the local GDP growth rate plummeted to seventh in the province. Between July and August 2003, it dropped to last.

Moreover, the gross value of industrial production of Wenzhou decreased 1.9 per cent in January this year, while the figures in three other Zhejiang cities - Hangzhou, Huzhou and Shaoxing - all increased by over 20 per cent during the same period.

Some experts questioned the economic development pattern of Wenzhou a couple of years earlier, predicting the pattern dominated by family firms would soon disintegrate.

But many people, including local officials, argue that the economy is still quite healthy, and some reforms have been done by local business people and government to help the "pattern" meet the demands of the times.

There is a popular saying which generally describes the private economic pattern based on family firms in Wenzhou: The eldest brother produces dresses, the second produces cloth, the third produces buttons, and their youngest sister is in charge of marketing and sales.

Under such a pattern, outside people can hardly have a hand in the local economy, said Shi Jinchuan, deputy dean of the Economics College with Zhejiang University.

 "Few domestic and foreign business people have invested in Wenzhou, which may lead to the isolation of Wenzhou from the outside world," said Shi.

Moreover, the social capital of Wenzhou has been flowing outside at an increasing speed in recent years, Shi noted.

For example, Wenzhou people have poured as much as 100 billion yuan (US$12.1 billion) into real estate in other cities, such as Shanghai, Beijing and Chengdu.

If Wenzhou cannot reform its present economic pattern and create a new development system, especially a modern industry development pattern, it will lose the precedence it has established since China started its reform and opening up policy in late 1970s, Shi noted.

However, Zhang Shuguang, director of Beijing Unirule Institute of Economics, said it is too early to say the Wenzhou pattern will disintegrate soon.

Now the dresses and leather shoes have had their own famous brands and lighters also have their advanced technologies, and Wenzhou is occupying and enlarging its shares of light industry market in China, said Zhang.

Moreover, if the economy is measured with gross national product (GNP), Wenzhou may stand out among the tops in the country because millions of Wenzhou people are doing business in other cities around China or even the world, said Zhang.

Zhang Renshou, a professor with the Hangzhou Business School, said: "If we must say there are some problems in the Wenzhou pattern, the source of these problems is not just in Wenzhou, but is rooted in whole China."

The source is that the whole reform of China's market economic system, as well as the governmental management system, financial and legal system, still needs to go further and deeper, the professor noted.

 "The market economy is an open system which cannot be set up completely within a single area," said Zhang.

 "The difficulties in economic development of Wenzhou will increase if the national reforms in economic, political and legal circles cannot follow up with a proper step."

Close