City of Wenzhou Leads China Down Capitalist Path

When China’s parliament officially enshrined support for the private sector in the constitution last month, it may have seemed an incredible step for the ruling Communist Party.

But it struck entrepreneurs here as nothing but inevitable.

“I don’t know anyone who works in a state-owned enterprise anymore,” said Wu Hui, the 30-year-old director of China’s largest manufacturer of sex toys--the most private of private enterprises. “They’ve all been sacked a long time ago. Now everyone is in the private sector.”

Wu and other residents of this port city of 7 million discovered decades ago what Beijing is now acknowledging: that the private sector, not the state, can help drive China’s huge economy into the next century.

Wenzhou is named for its mild weather and known for its feisty entrepreneurs. Located in Zhejiang province about 900 miles southeast of Beijing and cut off from the rest of the country by a rugged mountain range, the city has developed a unique, bubbling dialect--and its own way of doing things.

Long before private enterprise was politically correct, Wenzhou was a bastion of such trade. During the tail end of the 1966-76 Cultural Revolution--when being called a “capitalist” was a stinging denunciation if not a prison offense--the brash businesspeople here were running small family factories under cover of fake signs, calling themselves cooperatives. The local government, happy to get more taxes from the growing enterprises, looked the other way.

Slowly, the “Wenzhou way” has become a model for China, though not without a fight from Communist Party hard-liners. Though Deng Xiaoping gave the official go-ahead to “get rich” in 1992, the central government has grappled with the evolution from Marxism to the market.

Today, with millions of Chinese thrown out of work by the failure of state-owned enterprises, the majority of the country’s jobs are being created by the still small private sector. Official ambivalence is turning into a desperate dependence on private industry. New laws passed by the National People’s Congress, or NPC, will ensure legal support for the private sector, more access to credit and help in going public.

But the future is already arrived in Wenzhou. Nearly nine out of 10 people here have found work with private companies that have become national leaders in manufacturing everything from home appliances to leather goods.

Wenzhou has about 40,000 private businesses that produce 90% of the city’s industrial output. Only two major state-owned companies still exist here, and they are not doing well, bankers say.

The largest taxpayer is Zhengtai Group, which opened in 1984 as a small switchboard maker and has quietly emerged as China’s largest maker of low-voltage electronic products--from power plant switches to hair dryers. It produced about $24 million worth of goods last year and boasts 5,000 employees, 1,500 of whom were hired after their state-owned employers went bankrupt.

Zhengtai had watched the government’s slow recognition of private enterprises, evolving, in China’s political lexicon, from “a complement” to the state-run economy to a “useful part” and, finally, in March, to an “important component.”

“We’re glad about the law,” said Chen Jianke, Zhengtai’s vice president. “Policies in China change back and forth, depending on political conditions. Nothing is written in stone. But now that it will be written in the constitution, we are guaranteed some stability.”

When Zhengtai opened its doors, banks wouldn’t risk a loan to a private factory, afraid that the government would waver and order its closure. The loans instead went to state-run companies.

“Now it has turned upside-down,” Chen said. “Now banks welcome the private sector as a good risk, with the capability to pay back loans. The banks are afraid of the state-owned enterprises instead.”

Last year, Zhengtai’s chairman, Nan Cunhui, became one of a handful of members of China’s parliament who hail from outside government circles. Nan, a 36-year-old with a baby face and a confident swagger, has been pushing for private companies to have equal access to credit and the market since he started his company without a loan in 1984.

“It shows the Communist Party has respect for the result of self-creation,” he said recently. “It should boost the country’s prosperity and stability.”

But now that the government has finally made it easier for new companies to start up, Zhengtai’s leaders also feel new economic pressures of increased competition. Soon Zhengtai will have more private rivals, and someday, the state-owned enterprises that survive the reforms will be all the stronger.

Then there are the political pressures. Last year, when Nan joined the NPC, the company also elevated its small Communist Party branch into a full-fledged committee.

“Before, we were at the back of the stage,” Chen, the group’s vice president, said of his company.

“Suddenly we’ve been pushed to the front of the stage and into the spotlight,” said Chen. “What happens if we don’t perform well?”

In that spotlight, there is some intellectual tightrope-walking to reconcile private enterprise with a socialist market economy.

“There’s no contradiction between Communist ideology and private enterprise,” said Liao Yi, a member of the company’s Communist Party committee. “Zhengtai doesn’t just benefit individual owners, it benefits society as a whole. It creates jobs and pays taxes.

“If it becomes a global brand, it will benefit the country,” he said. “If it lists on the stock market, then everyone can be an owner. And when everyone is an owner, isn’t that socialism?”