Labor shortages, rising rents, falling sales

Nation's entrepreneurial hub finds it hard to adapt to changing business conditions

It's early afternoon. The weather is getting warmer. The dusty roads in the shoemaking capital of China are empty except for a few teenagers in bizarre hairstyles and gaudy attire that make them look more like punk rockers than, well, jobseekers.

They aren't looking for jobs at nightclubs. There are none in this neighborhood of factories and more factories making shoes by the million.

A few years ago, such unconventional teenagers wouldn't have stood a chance of landing a job in any factory here. They probably wouldn't even have got past the gate.

But times have changed. Employers have not become more tolerant, but are faced with the big problem of finding enough people to work for them.

The labor shortage is troubling factory owners in industrialized coastal regions from Tianjin to Foshan in Guangdong province. But the problem is hitting Wenzhou particularly hard simply because of the harsh working conditions in many factories churning out copious quantities of small goods and selling them to overseas buyers at razor-thin profit margins.

As Zhou Haifan, a director of Juyi Group, a well-known shoemaker in Wenzhou, has learned, there is a limit to how far you can cut your costs to survive. Business has been bad in the past few years. To compete for those dwindling overseas orders, Juyi has had to keep trimming its costs to the point that it can no longer afford to keep its experienced workers.

Now "we hire anyone who is willing to work for what we can afford to offer", Zhou said. "Many people who previously worked here did not return after Spring Festival," she said. "Some of them moved to other cities to find work, while others found better opportunities in their hometowns," she added.

A labor shortage is just one symptom of what many economists have predicted: the inexorable decline of the highly labor-intensive industries that earned Wenzhou national fame as an entrepreneurial hub in the past few decades.

But the magic of this town, best known for its hardnosed approach to business, is wearing thin, while its entrepreneurs, sitting on their accumulated wealth, are either jumping ship or seeking to climb the value chain.

Of course, Wenzhou is not all gloom and doom. The city's narrow streets are still jammed with luxury cars and a new mall, which houses some of the world's top fashion brands, opened for business last year.

Luxury car dealers along the airport expressway are still hanging out huge banners to lure big spenders returning from their business trips. Meanwhile, luxury restaurants in downtown Wenzhou, where a meal of seafood delicacies can easily cost in excess of 10,000 yuan ($1,610), are packed with patrons most evenings, and the many agencies offering services to arrange overseas studies for the children of rich families are said to be doing roaring business.

Rapid expansion hurts

But the situation in the city's old factory districts doesn't look so uplifting. In fact, it's downright depressing.

Su Zhiguo's convenience store on Xiedudadao, or Shoe Capital Avenue, opposite the Juyi factory complex, used to be a hotspot in the area, teeming with customers from the nearby factories. Opened in 2006, the store has grown from 30 square meters to 300 square meters. Su said he wished he had not been so ambitious.

Su said his sales have dropped more than 30 percent since the middle of last year. Not only are there fewer customers, those who still come are buying less than before.

What's more, competition has intensified.

When business was good, new stores opened to fight for a share of the pie. It was fine when the pie was getting bigger. Now, "we have to cut prices to compete for the dwindling clientele", Su said.

Meanwhile, the annual rent for his shop has gone up to 230,000 yuan from 150,000 yuan.

"I am not moving the big ticket items that can yield a wider profit margin fast enough to make money to pay the rent," Su said, adding that he is seriously considering moving to smaller premises.

"That's the only way I can stay afloat."

He might as well be considering moving to another district, such as Wenzhou High-Tech Park, 21 kilometers to the south, where the roads are wide and the buildings are new. What's more, the people working there seem to be more affluent. There's just one problem: there aren't enough of them around, as Zhou Hailan found out to her disappointment.

Zhou opened a small convenience store there with the money she earned from buying and selling properties for a quick profit. In other places, such an undertaking would be called speculation. But that's a bad word in Wenzhou. The word speculation doesn't even exist in the local dialect. "I was an investor," Zhou insisted.

Her new investment obviously isn't paying off that well. "There is almost no business at all," said Zhou.

"There are few local people working in this district. As a result, items such as the local-brand liquor, or anything else produced and sold just in Wenzhou, literally doesn't sell at all."

Of course the decision to open the store was made after thorough consideration. "There is competition everywhere in Wenzhou. As this district is relatively new, we may have more opportunities here," she said.

Zhou said she is going to wait it out.

"I can imagine that this place will be booming with new factories and people earning good money," she said. "I'll then be in a good position because I was the first to stake my claim here."

Nearby her store is Xie Maohui's 100-square-meter two-story restaurant. On the third day after the Lantern Festival, Xie returned from his hometown of Lishui, a city in southwestern Zhejiang, and started preparations for the year ahead.

Xie moved his restaurant to the high-tech park at the beginning of 2012 after its previous location in downtown Wenzhou was demolished.

"Business there was lousy, but here it's even worse. As almost all the factories here provide meals, there is little chance for us. The staff just come to us for a change," he said.

The only advantage that Xie can think of is that the rent is not that high, at around 40,000 yuan a year. But he said he hopes his business can improve this year, as his wife is pregnant.

"I need more money to support my family," he said.