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When news of one runaway boss after another broke out, the current situation of Wenzhou's real industry became the focus of the nation - why has this been so concentrated recently? Why Wenzhou? A series of question marks have been raised about this place, which was previously famous for "property speculation and garlic trading".
Capital
From abundance to exhaustion in less than two years
The boss of Xinte Group, known as the "King of Glasses", Hu Fulin; Sun Fucai, chairman of Omicron Fluid Equipment Co., Ltd.; the boss of Longwan Xinnaibao Shoes Industry; Tang Feng Shoes boss Huang Bohe; the boss of the Jinzhu Industrial Zone Xingji Shoes Industry; the boss of Ou Ba Standard Parts Co., Ltd.; Wu Baozhong, chairman of Baokang Stainless Steel Products Co., Ltd.; and the boss of Fuyan Brothers Industry Co., Ltd... The list of Wenzhou bosses who have "run away" or gone missing keeps getting longer.
A closer look reveals that these bosses share a common trait - they are industrialists.
"Wenzhou is originally the 'headquarters' of private enterprises, with many private entrepreneurs. Every year, there are some businesses that rise and fall," said a seasoned entrepreneur: "However, the direct reason for the collective 'running away' is simply - no money." After the Mid-Autumn Festival this year, Zhou Dewen, president of the Wenzhou Small and Medium Enterprises Promotion Association, investigated 11 companies, eight of which admitted to tight capital turnover.
From the start of abundant capital in 2009 to the chain-breaking in the second half of 2011, the good times lasted for less than two years - a Wenzhou industrialist privately revealed: "In 2009, during the post-financial crisis phase, local governments had money, banks had money, entrepreneurs had money, and the people also had money. It felt like there was a lot of money, so entrepreneurs began to increase their investments." He also mentioned that he was once "enticed" by the "abundant capital" - "At the time, there were two choices: one was to upgrade and expand existing industries, and the other was to transition to emerging industries."
"Hu Fulin, the 'King of Glasses', was very 'unfortunate' when he boldly invested 6 billion yuan into the solar photovoltaic industry in 2008." A person familiar with Hu Fulin within the industry stated, "Solar photovoltaics is indeed an emerging industry, but the initial investment is large, easily affected by international factors, all of which he did not consider at the beginning, especially during the period of sufficient bank funds in 2008 and 2009, he always thought borrowing was easy." When the "frontline" had already been extended, the price of polysilicon dropped by half within a year, leaving Hu Fulin with no choice but to flee.
Profit
Industry average profit margin is only 3%
"The difficulties faced by Wenzhou small and medium-sized enterprises this time are very different from those during the financial crisis in 2008," Zhou Dewen analyzed and pointed out, "The financial crisis in 2008 made many small and medium-sized enterprises unable to obtain business orders, forcing them to shut down or even go bankrupt. This time, however, there are orders, but the enterprises dare not or do not want to accept them."
According to a survey conducted by the Wenzhou Economic and Trade Bureau involving 855 enterprises, about 25% of labor-intensive industries such as footwear, clothing, glasses, lighters, pens, and locks dared not take orders due to a lack of workers. The survey showed that the sales output of 35 export-oriented enterprises fell by 7% year-on-year in the first quarter, profits decreased by about 30% year-on-year, and the loss ratio reached one-fourth. One-third of the enterprises maintained profit growth, with an average profit margin of 3% in these industries, and fewer than 10 enterprises had profits exceeding 5%.
Wenzhou Oriental Light Industry Co., Ltd. is a leading enterprise in Wenzhou's lighter industry, employing more than 500 people, with annual exports reaching millions of US dollars. Chairman Li Zhongjian once told Zhou Dewen that the company's annual profit was less than what his son earned from a small cake shop: "Nowadays, the settlement cycle for orders is 3-6 months, not only exposing us to significant exchange rate risks, but also making it impossible to wait for capital turnover. Since the beginning of this year, we have abandoned multiple orders worth tens of millions or even hundreds of millions of yuan."
"Wenzhou private enterprises mostly developed in labor-intensive industries such as lighters, leather shoes, and glasses, and have been affected by the financial crisis, resulting in decreasing profits in these industries." An unnamed insider frankly admitted, "Therefore, everyone was indeed considering whether to transform or upgrade over the past few years."
Not transforming means low industry profits; transforming means uncertain control over cross-industry situations. This difficult problem was placed before Wenzhou's industrialists. During our interviews in Wenzhou, we found that most enterprises that stood firm through this storm were those that focused on their own prosperous industries and merely upgraded and reformed; the enterprises where the "bosses ran away" were mostly unsuccessful transformations.
Zhou Dewen indicated that outward-oriented small and medium-sized enterprises face greater pressure, with profits falling from 8%-12% during the financial crisis period to today's 1%-3%. "One of the main reasons is the loss of profit space caused by RMB appreciation."
Human Resources
Workers demand higher wages
"Our human resource cost increase exceeds 15%," Yu Wenpin revealed to reporters, "which I can still accept." Starting in May, Yu Wenpin prepared to implement the "collective wage negotiation system," "in simple terms, it's a face-to-face discussion with employees about how much their wages should be." It is understood that currently, there is no available template for wage collective negotiation nationwide, "we are crossing the river by feeling the stones."
Meanwhile, during our interview with Xinte Group, the group's employees expressed that they receive a raise once a year, "the company raises wages every year. For general laborers working 10 hours a day for 26 days, the monthly salary is 2700 yuan. In June, those who performed well received an additional 200 yuan." Taking the average employee salary of 3000 yuan at Xinte Group as an example, Hu Fulin would need to spend over 600,000 yuan in cash for a single wage increase in June.
"A lot of Wenzhou private enterprises are mainly labor-intensive, and the rise in human resource costs certainly affects the enterprises," a certain entrepreneur frankly admitted, "if the enterprise can develop healthily, then this increase is still tolerable, but if capital turnover is already difficult, then this becomes one of the straws that breaks the camel's back." It was learned that after Hu Fulin "fled," the government paid over 9 million yuan in September wages for the workers.
"This year's wage increase trend has become increasingly intense, the era of labor dividend has passed, workers are demanding wage increases, and enterprises are actively giving wage increases to employees," Zhou Dewen disclosed.