They produced low value-added goods such as socks and shoes, which were of good quality and low price, and took domestic markets by storm through their aggressive marketing.

Huang He, Director of the Wenzhou Municipal Commission of Development and Reform told Beijing Review that the bottom-up and market-based business model of the savvy Wenzhou entrepreneurs fully unleashed their productivity potentials.

Besides this, the 2 million overseas Wenzhou people, who had left their desolate hometown to earn a living abroad, weaved a tight marketing network for companies back home. Overseas Wenzhou people have set up chambers of commerce or industry associations in all major global markets. These networks have helped Wenzhou's private enterprises secure a firm foothold abroad, Huang said.

Innovative players

Wenzhou's private entrepreneurs are highly motivated when it comes to cementing productivity under the heavy pressure of market competition. According to the Wenzhou Municipal Commission of Development and Reform, each industry in the city is overflowing with thousands of local players scrambling for a slice of the big manufacturing pie.

In particular, small and medium-sized enterprises (SMEs), which account for 99 percent of the city's private sector, have realized the importance of switching to the manufacture of high value-added products, because their low value-added ones have been much more vulnerable to the rising costs of labor and raw materials in recent years, Huang said.

In the past, some SMEs were trapped in a price-cutting game that led to thin profit margins. But now they have been unable to justify price hikes, because their target customers are low-end consumers who are more price-sensitive. Some even have seen their margins become negative and have been muscled out of the market, Huang said.

Zhou Dewen, Chairman of Wenzhou SME Development Association, said Wenzhou's industrial boom depends on innovations in both products and technologies that could enhance competencies of the enterprises. Entrepreneurs also have doubled their efforts to create self-owned brands and patents.

The Wenzhou Municipal Government has offered a series of preferential policies for funding and land use to foster innovation in the private sector.

Its efforts are yielding results. According to data from the Wenzhou Administration for Industry and Commerce, the profit margin of the city's new products in the private sector had grown to 10.4 percent last year, a sharp rise from 3.5 percent in 1998. By the end of 2007, the city had owned more than 81,900 registered brands, 38 of which were recognized as a "Famous Trademark of China" by the State Administration for Industry and Commerce.

Meanwhile, many private enterprises have been moving up the industrial chain. Among them is Wenzhou-based ZSZ Technologies Co. Ltd. Founded in 2006, the company is a supplier of high-power LED (light-emitting diode) lighting products and has dozens of independent intellectual property rights.

Only two years ago, ZSZ was still a traditional shoemaker called Lilies Shoe Co. Ltd. Zhu Jianping, the company's president, said it switched to the hi-tech sector in 2006, because the shoe plant had sagging profits. Wenzhou's fluid industrial supply chain has helped with its turn into an ideal hotbed for the growth of hi-tech industries such as ZSZ, he added.