Wenzhou Financial Reform Plaza, launched in August 2012, will provide a range of financial services to small and micro-sized enterprises, including private capital management and overseas investment information. Provided to China Daily

Wenzhou Financial Reform Plaza, the showcase of the government's ambitious efforts to create a new financial order in this hotbed of private enterprise, is located on a four-lane boulevard in an area that is home to many modern, but sparsely occupied, factory buildings.

There are few visitors to the plaza either.

"It is not that we want to hide from the public," said Cen Li, its general manger.

On the contrary, "we are here for a very distinct reason", he added.

The choice of location seeks to convey a strong, clear message that financial reform is essential to facilitate the much-needed industrial restructuring on which the future development of Wenzhou will depend, Cen said.

"Financial reform is tied inextricably to industry restructuring."

Indeed, financial reform is a means to facilitate the restructuring of what many see as Wenzhou's old and worn industrial structure, which is dependent on a plentiful supply of labor and land.

When the cost of both began to rise in recent years, the long-established Wenzhou development model - that had fascinated many people on the mainland and elsewhere - began to fall apart.

Ask 43-year-old Pan Jianzhong, owner of Juyi, one of Wenzhou's largest shoe factories.

Taking over a business started by his mother in 1988 with only 5,000 yuan ($793), he has expanded it into an enterprise with annual sales in excess of $100 million. It employs more than 5,000 workers producing 18 million pairs of shoes a year.

Pointing to a new sewing machine built with German technology, Pan said that he is well ahead of most of his peers in terms of automation.

A graduate of a technology college in Shanghai, Pan said that he has a passion for machinery.

"If I were as conservative as many of my colleagues in this business, I would have to hire at least five times more workers to produce the same quantity of shoes.

"I probably would not have survived the double blow of slowing overseas orders and tightening labor supply at home" that have combined to wreck many Wenzhou manufacturers, he added.

But some forward-thinking Wenzhou entrepreneurs have gone even further than Pan in innovation.

Take Shao Shaoqing, the heir-apparent to his father's soy sauce empire.

After returning from studying in England with a double degree in human resources management and psychology, Shao revamped his family business by branching off into an entirely new field of bio-technology.

The company now produces a number of drugs under the brand name Haikang.

Established in 1998, Haikang was one of the first companies to move into the Wenzhou High-tech Industrial Development Zone, which is located right next to Wenzhou Financial Reform Plaza.

While soy sauce continues to be the big money spinner, "we are testing new grounds that have the potential of widening our profit margin", added Shao.

His company has also started producing precision equipment, including biometric identification systems for use in government departments, the military and the banking industry.

While many other Wenzhou entrepreneurs have seen no need to take advantage of the incentives offered by the high-tech zone, the local government is optimistic that its efforts will yield results.

"We aim at building the zone into a demonstration of economic restructuring for private Chinese companies," said Zheng Deshi, deputy director of the zone's technology industry development department.

"With the financial reforms, we hope that the annual revenue of the zone will reach 95 billion yuan by the end of this year, and 112.5 billion yuan by the end of 2015."

The industrial development zone will focus on strategic, emerging industries such as laser photoelectrics, new energy, and biopharmaceutical companies.

On offer to attract businesses are a number of favorable conditions such as a 100-percent fiscal subsidy in the first year, and 10-million-yuan, one-off awards to technology-related financial organizations with a registered capital of 1 billion yuan.

Baoyi Group, which has been producing valves for the past 30 years, sensed the urgent need of an industrial update and restructuring by establishing a subsidiary in 2010, Zhejiang Eifesun Energy Technology Co Ltd, to manufacture photovoltaic grid-connected inverters, a power system to harness solar energy.

"It was impossible to seek growth in the group by sticking to our traditional products," said Zhang Xiaodong, the new offshoot's general manager.

Eifesun quickly grew into the only company specializing in the manufacture of PV grid-connected inverters in Wenzhou.

The move by Baoyi was typical of what the government has been hoping for, after calling for an entire industrial transformation.

The photovoltaic market was just at its infancy in China around 2009 and with lower thresholds, and Zhang made up his mind to embark on the brand-new industry.

To outsiders, Eifesun entered the industry at a strange time, when there was already an over-supply of photovoltaic components in the market.

Most photovoltaic companies were State-owned, receiving huge amounts of investment from the government.

In 2009, the international community was also building a number of trade barriers against Chinese PV producers, including the opening of countervailing and anti-dumping cases by the United States and the European Union.

But Eifesun saw a gap in the market, and turned to the production of photovoltaic grid-connected inverters, specific products which require much more technology and involve much added value.

However, difficulties arose in 2012, when a credit crisis broke out in Wenzhou, resulting in many SMEs finding it difficult to get loans.

Technology companies found it especially difficult, but luckily, the local government was there to help.

With favorable regulations, Eifesun's bank credit was actually expanded. More than 100 million yuan has now been invested into the company, but Eifesun still has only a 50 million yuan bank loan.

"Without the government's help, we would have shut down a long time ago," said Zhang.

In cooperation with Wenzhou Science and Technology Bureau, Eifesun was awarded major government science and technology projects by district, municipal, provincial and finally national level authorities over three years, which together helped to attract around 5 million yuan of special support funding.

Favorable policies

In the meantime, the local government also announced plans to build the city's own photovoltaic power station, in its efforts to promote the use of green energy.

"Money can be exhausted very quickly, but favorable government policies have an enduring effect," said Zhang.

Baoyi Group is based in Yongjia county of Wenzhou, and Eifesun could have located there too. But the zone provided a better industrial environment, said Zhang.

"In our first year here, the rental was 8 yuan per square meter a month, while the market price should be as much as 40 yuan per sq m," he said.

Being near the Wenzhou Financial Reform Plaza also helped, he said.

Zhang said he hopes to float Eifesun within the next two years, and the plaza, he said, should offer a helping hand.

"We will start joint stock reform this year. Wenzhou Financial Investment Group promises to invest in our company to facilitate our reform. Wenzhou financial office has also issued a number of favorable policies," he said.

However, like many other booming areas in China, finding the best staff continues to be a problem for many in the area, sometimes a more serious problem than financing.

Houses prices in Wenzhou continue to soar, averaging 20,000 yuan per sq m, just slightly lower than the average 22,595 yuan in Shanghai, according to local statistics authorities.

A lack of proper educational resources and poor professional communication platforms can also scare off potential applicants.

As a company, the easiest solution is to offer higher salaries.

Eifesun's researchers - who take up 60 percent of the headcount - receive 18-month salaries, amounting to 150,000 yuan after taxation. Zhang claims they are "10 percent higher than any other company of its kind in Shanghai, Shenzhen and Hangzhou".

For those who are not Wenzhou locals, the company also provides accommodation for researchers with degrees. For Wenzhou residents, postgraduates are given a 1,000 yuan bonus every month, and college graduates get 600 yuan. Shuttle buses take workers to and from work.

"I tell you what, you feel like an emperor working with Eifesun," Zhang said.

Wenzhou government introduced a policy of "retreating from the second industry and entering the third" at the beginning of last year, in an attempt to begin a large-scale industrial restructuring.

In Lucheng district, where manufacturers have traditionally clustered, e-commerce has become the first choice "third industry", said Yu Youhong, the deputy director of Lucheng commerce bureau.

Established at the end of December last year, its e-commerce industrial park has attracted investment of 200 million yuan, and now covers 100,000 square meters of the 900,000 square meters Lucheng industrial park.

Yu said the prospect of attracting more e-commerce interest is good.

Lucheng is known for the manufacture of small commodities including shoes, lighters and glasses, but it has established a solid base for its transformation into an e-commerce hub.

The turnover of Lucheng district's e-commerce sector last year accounted for 40 percent of Wenzhou's turnover, but further progress in the sector will be difficult.

Many companies in Wenzhou, such as Juyi Group, have been involved in e-commerce for a long time.

Part of the problem is the high rents being charged in the area.

The financial reforms currently under way in the city were launched with government help, with organizations often being able to rent buildings for their use.

But for e-commerce companies, no such mechanisms have been introduced yet, said Yu.

Red Dragonfly, the leading Wenzhou-based shoe manufacturer, was also very interested in the park.

But officials in Hangzhou offered it more favorable conditions such as a tax refund for the first three years, which Lucheng district couldn't match.

Magnet for companies

Competition to attract businesses is clearly tough, but officials have high hopes of attracting some high-profile companies.

Yu said Lusen.com, a leading e-commerce company specializing in digital products, could represent its biggest success so far, and become a flagship tenant.

Lou Shaoshan, the general manager of Lusen, has agreed to move in by August, but only after Lucheng district offers him rent exemption for 10 years, which will save the company about 700,000 yuan.

Lou says a lot more needs to be done to attract further interest.

"There is a lack of support companies here, such as marketing or logistics companies.

"People in this industry put a lot of emphasis on a comfortable and modern environment. We do not see much of that at Lucheng," said Lou.

But what Lou does see is government efforts to create the kind of atmosphere which will attract businesses, and that's why he is willing to move in.

As one of Wenzhou's leading companies of its kind, he also thinks he was obliged to do something to help its development.

"The growth of any industrial park needs the example of a leading company."

(China Daily 03/28/2013 page16)