China’s footwear capital
Quanzhou locals drive national reform, economic opening-up with homegrown shoe brands
This year marks the 40th anniversary of China’s reform and opening-up policy. During the past 40 years, China’s eastern coastal cities have been at the forefront of the nation’s economic reform. In particular, Quanzhou in East China’s Fujian Province, known for its vigorous private economy and homegrown brands, was cited in 2008 as one of 18 successful cases of local reform and opening-up. Global Times reporter Li Xuanmin recently paid a visit to the city to investigate the role of the private sector in Quanzhou’s economic growth. This is the first part of a fivepart story.
When Xu Jingnan, a businessman based in Quanzhou, East China’s Fujian Province, invested everything into building a shoe factory for Nike in 1983, he never imagined that his own business would “peak” to become a household name 30 years later.
Back in 1983, Xu, now the founder of China’s homegrown basketball shoemaker Peak, had just made his first pail of gold amounting to 10,000 yuan ($1,537) working as a porter, but after hearing that Nike would come to the coastal city, he invested all that money into building a downstream supply chain for the brand.
However, when the factory was completed, Nike unexpectedly withdrew from the deal, which frustrated Xu as he would lose all his investments if he didn’t take measures.
“At that time, the local government was also promoting the reform and opening-up policies, urging local farmers to start small businesses and build factories, so I thought ‘why shouldn’t I give it a try?’” Xu said.
“I was also inspired as the reform and opening-up gave locals like me who were born in rural areas with lower academic qualifications an equal opportunity to compete in the private sector.”
Ups and downs
Like Xu’s career, the shoemaking industry originated in Quanzhou in the early 1980s, when the market-driven economy rose under the reform and opening-up drive.
But things were not easy at the start. Without experience and equipment know-how, local entrepreneurs including Xu had to, at first, open individual workshops and rely on the expertise of their relatives who were in the shoemaking industry in Hong Kong and Macao as well as materials and sewing machines shipped from both special administrative regions.
The “working hard brings success” spirit of local entrepreneurs was demonstrated very early on. And by the late 1980s, a complete and efficient industrial chain for shoemaking had already been built up.
The motivation continues to this day, as illustrated by the sight of hundreds of shoe stores when driving down the streets of Jinjiang, a countylevel city under the administration of Quanzhou, which is dubbed “China’s footwear capital” and the home to downstream industry chains like shoemaking machines and shoe cloth.
“Even a person without any basic knowledge of shoes could be trained into an industry expert when staying in Jinjiang for just one month,” joked Pan Hongyuan, the secretary general of the Fujian Shoemaking Industry Association.
In the 1990s, the shoemaking industry in Quanzhou embarked on a golden era when over 3,000 smalland medium-sized shoe factories were established, with their revenues ballooning at a rapid speed of between 300 percent and 400 percent every
year. The shoe output from Quanzhou represented over 30 percent of China’s total shoe output at that time.
Meanwhile, overseas orders flowed into the city’s original equipment manufacturers (OEMs). The profit for OEMs could even be as high as 10 yuan to 15 yuan a pair at that time.
This boom was also driven by an innovative and flexible fundraising model – biaohui, a type of loan club popular in eastern China. It works like this: a number of friends and relatives put their money together into a capital pool and members of the group bid for the money and the one who offers the highest interest rate wins the money.
“In the start-up period when the working class had limited access to funding, biaohui effectively addressed the problem by raising funds and helping the city’s small merchants take off,” Pan told the Global Times.
Vigorous private economy
However, as China’s reform and opening-up deepened, those OEMs struggled under shrinking profit margins in 2000. Xu, along with other local entrepreneurs, is one of the first in the nation to shift strategy and come up with the idea of “building homegrown brands.” To promote their brands, domestic shoe companies invested lots of money into celebrity endorsement and TV advertising. “Circa 2003, industry insiders joked that the sports channel of China Central Television should be called ‘Quanzhou Local Television’ instead because about 40 Quanzhoubased brands had paid for advertisements to be aired on the channel,” Pan explained. He noted that almost all the most famous Chinese shoe brands, including Anta, Xstep and 361 Sports, were born in Quanzhou. And currently, “the local brands in Quanzhou account for 85 percent of China’s total sports shoe production,” Pan said.
Furthermore, during the development stage, Quanzhou’s private sector explored a leading shareholding system, where friends and relatives of the company’s founder borrowed through purchasing equity rather than mortgage loans – the early form of the modern joint stocks company.
“Starting from scratch, the city’s innovation in private company governance has vitalized the local economy during the 40 years of reform and opening-up,” Pan summarized.
And the shoe industry in Quanzhou is just an example of how the private sector has propelled the city’s overall economic growth. For the past 30 years, private businesses expanded at an annual rate of over 30 percent.
The city has cultivated a complete range of industries, with shoes, textiles and garments forming industrial bases in county-level cities like Jinjiang, and Shishi, each valued at more than $100 billion.
By August 2017, the city had 103 private businesses listed in the stock market, registering a market value of 450 billion yuan, according to media reports. However, after 40 years of economic reform, the city has now reached a dead-end, as labor costs have risen substantially, leaving a number of labor-intensive enterprises now scrambling to find new businesses to make a living.
A wholesale local shoe lace supplier in Jinjiang surnamed Chen told the Global Times that “exports to overseas markets stalled in the last two years,” which resulted in a drop in the company’s revenues.
As such, Pan has urged local merchants to upgrade industrial lines to contain costs. He pointed out that “transferring production lines to Southeast Asian countries where labor costs are relatively cheaper is inevitable, but the key is to develop a high-end industrial line and expand the reputation and sales of homegrown brands in overseas markets.”