Business evolution

Mostly sprouting from family workshops, Wenzhou's private enterprises inherited family-controlled operations. The founders and their family members usually controlled the lion's share of and key positions in the enterprises.

While the family management system initially worked well, it became a hindrance as the enterprises increased their production activities. Family control started draining the efficiency of the enterprises and reduced employee loyalty. Family members also narrow-mindedly closed the door to excellent management professionals.

To sustain their growth, many private enterprises in Wenzhou have been transformed to shareholding companies or groups through mergers or internal reorganizations. Modern ownership systems that are more vibrant and market-driven have already breathed fresh air into the city's flourishing private sector, Huang said.

According to the Wenzhou Municipal Commission of Development and Reform, the city currently has more than 14,000 limited companies, 80 shareholding limited companies and 238 groups. Five of its enterprises are listed on stock exchanges at home and abroad.

Baoxiniao Group Co. Ltd., a Wenzhou-based garment producer founded in 1983, is another success story. It has grown from a family workshop into a garment giant with more than 2 billion yuan ($293 million) in assets. In 2001, the group was reorganized as a shareholding company, and all the family members of its five stakeholders gave up their key management positions. Last August, it was listed on the Shenzhen Stock Exchange-a sign that it was moving toward a modern enterprise system.

Wu Zhize, Baoxiniao's founder and president, said being listed on the exchange could compel the company to clearly delineate the group's management procedures and compel it to update its production processes.

"However, the remaining family-controlled systems, though imperfect, should not be forced out immediately," Huang said. "The management systems should evolve in line with the enterprises' realities, and it's unnecessary to rush to shareholding systems."

A sustainable future

Huang said he disagreed with speculation that the euphoria in the city's private sector had given way to nervousness about its fading price advantage. Higher costs for labor and raw materials are not unique to Wenzhou alone, he said, so they pose no threat to its competitiveness among domestic cities. Wenzhou's industries still enjoy a price advantage over their foreign competitors, because China's labor costs are only about 5 percent of what they are in the United States.

Flyco Electrical Appliance Co. Ltd. is a case in point. The company did not join its domestic counterparts in cutting prices for its products a few years ago, but instead raised them and still had a 30-percent profit margin. In recent years it has been overwhelmed by high amount of overseas orders despite a 40-percent price premium over similar products sold by its local competitors. Li Gaiteng, General Manager of Flyco, attributes this to the company's lower prices relative to foreign products and its well-established brand name.

Huang stressed that it was no surprise that some low-end manufacturers of Wenzhou are going bust from the fierce competition. But this factor could add fuel to innovations in the city's private sector, forcing such companies to revamp their production capabilities to churn out more high-value products, he said.

Huang said that as a go-getter in the private sector, Wenzhou itself remains a kind of brand within China as well as in the world, although its sustainability depends on the relentless revitalization of local businesses.