Monday traffic in Wenzhou is the worst of the week. Numerous BMWs, Ferraris or Lamborghinis surround taxis amid the constant honking by irate drivers on their way to another jam-packed day. Mixed into the exhaust-filled air of the city, one can also detect the smell of business - big or small - that comes with major change.

This is Wenzhou, a coastal city in East China's Zhejiang province, where self-made millionaires abound and locals are known among their fellow countrymen for having the "business gene".

Wenzhou is a major source of "Made in China" goods such as shoes and clothes, with its success riding on the export-oriented economy.

While the city continues to churn out exports with double-digit growth, competition in the local economy is becoming much fiercer with fewer resources available.

Higher land prices and wages as well as a rising yuan mean small enterprises - mostly original equipment manufacturers (OEMs) for overseas companies - are making smaller profits.

"Wenzhou's economy largely relies on labor-intensive industries even today, but the current international trade situation has weakened such economic advantages," said Zhou Dewen, the head of the small- and medium-sized enterprises (SMEs) association in Wenzhou.

That is why many believe reforming the city's business structure is imperative. More than 1,000 enterprises moved their factories out of the city in 2008 alone, and about 25 percent of them moved entirely, figures from Wenzhou's Municipal Bureau of Statistics and the Shanghai Overseas Chinese News show. And the move is ongoing.

During the global financial crisis, many SMEs stopped producing because of the sharp decrease in overseas orders. Up to 20 percent of these companies are reported to have closed down.

But Wenzhou's exports are getting back on track in the economic recovery. The city's export volume in the first 10 months of this year reached US$11.7 billion, 32.4 percent more than the total volume in 2009. More than 50 percent of the products were shipped to the United States and European countries, making Western markets the biggest target of the city's international trade, according to the Wenzhou Foreign Trade and Economic Cooperation Bureau.

According to local media, European Union countries are still taking the lion's share of the city's products, but Wenzhou also exported more than US$218 million worth of shoes to the United States, which replaced Russia as the second-largest overseas market last year.

Traditional exports such as clothes and shoes are still leading the local economy. The shoe sector contributed about US$3.1 billion to the economy, US$350 million more than last year. Exports of clothes hit US$1.21 billion this year, up by 18.5 percent from 2009, the bureau reports.

"To maintain strong economic development, Wenzhou needs its own brands and to promote them to the world, rather than just being the OEM of the international market," said Pan Pinging, vice-director of the bureau.

To that effect, small clothing and shoe companies from Wenzhou have begun gathering as groups since 2009 to promote local brands to the domestic market first.

A group of Wenzhou companies, composed of 42 shoe and clothing companies with more than 50 local brands, contacted 300 major shopping malls around China at a trade fair last August.

"Promoting local brands in these big Chinese shopping centers can increase sales of up to 10 billion yuan (US$1.5 billion). And it's a good start to building-up the marketing networks for those local brands," said Zheng Chenai, the chairman of the Wenzhou Chamber of Clothing Commerce.

The local municipal government also provided about 20 million yuan in 2009 to arrange for local companies to participate in various international trade expositions.

By the middle of this year, more than 5,300 Wenzhou brands had registered under the Madrid system for the international registration of Marks, according to a September report by the National Administration for Industry and Commerce. The Madrid system is the primary international method for facilitating the registration of trademarks in multiple jurisdictions around the world.

Wenzhou itself was the first Chinese city to establish individual and private enterprises as well as a shareholding cooperative economy, when the country began economic reforms in 1978. Through the development during the last 30 years, Wenzhou has been leading the world's light-manufacturing sector with hundreds of such companies in the city.

By the end of June this year, only 4.26 square kilometers of industrial land had been left undeveloped, that's around 6.8 percent of the total industrial land in Wenzhou. The local government is also integrating land resources by removing old villages and reclaiming seashore areas.

"We have limited resources available, especially land, to support the companies' expansion," said Jin Shengduo, a director from the Wenzhou Municipal Commission of Development and Reform.

However, the coastal city has abundant solar and wind power.

As part of the city's 12th Five-Year Plan (2011-2015), new-energy industries have been approved as a crucial part of economic growth.

Companies involved in new-energy businesses will get priority in land-resource allocation, the local Commission of Development and Reform says.

A number of the struggling shoe and clothing companies have also been transformed from the overly competitive traditional markets to new-energy industries. By the end of October, there were about 60 energy companies in Wenzhou with a total output value of 2 billion yuan from sectors such as solar power, wind power, energy-storage power stations, light-emitting diodes, and new-energy automobiles.

These new industries are expected to create about 5 billion yuan of total output value in 2010.

"These new-energy industries will be an important part of Wenzhou's sustainable economic development," Jin said.

But the city still lacks a strong wharf to support the shipping sector, seen as a crucial component of its economy. As a result, most Wenzhou-based companies have to transfer their products to Shanghai or Ningbo, another coastal city in Zhejiang province, for shipment.

In the new five-year plan, Wenzhou is set to build a number of ports and wharves with berths of more than 300,000 tons. It will also upgrade existing ports to an annual integrated throughput capacity of more than 100 million tons.

"Strong port facilities can reduce the cost of products and shorten transportation time," says Shen Cangen, director of the Logistics Department at the Municipal Commission of Development and Reform.

With an improved logistics infrastructure, Wenzhou also aims to become the major distribution center for more global clothing brands and fine wines on the Chinese mainland.

(China Daily December 16, 2010)