by Bradley Gardner

If you arrive in Wenzhou by train, chances are that the first thing you will see is something previously almost unheard of there – a major government-funded infrastructure project: the majority of Wenzhou's streets, all its highways, and even its airport, were built by private business owners. But in January 2009, at the onset of the global financial crisis, ground was broken on the new southern train station as part of a governmental effort to provide employment for the city's large migrant worker population in the face of large-scale lay-offs in factories.

Many laborers left anyway, finding jobs on infrastructure projects nearer to their hometowns. This shift in the labor market has hurt many traditional industries, but, ever resiliant, Wenzhou's "super entrepreneurs" have already found new means of making money. Sometimes in clever places.

THE CITY AND ITS PEOPLE

"Wenzhou hasn't developed like Guangdong," says Chen Chuanbo, a clothing designer who acted as my guide around the city. "Wenzhou didn't develop at all; it was Wenzhou people who developed."

Driving around the city it's easy to see his point. The infrastructure looks a lot like a third-tier city buildings are left half torn down; the lake is strewn with garbage, as are some areas of town where there is no collection service. Driving me from the train station to my hotel, Chen gets lost a few times, remarking that "because all the roads in Wenzhou were built by private citizens none of them make any sense."

But that's part of the city's mystique. "Before Reform and Opening, Wenzhou was the poorest area of China," one taxi driver told me. "People were so poor that they would send their children to other cities because there wasn't enough to eat." Though this is perhaps an exaggeration, Wenzhou was until Reform and Opening largely rural – in 1978 only 10% of Wenzhou residents had an urban hukou or household registration card. Geography played a major part in this: the city is separated from the rest of China by a wall of mountains, and previously lacked all but the most basic infrastructure to connect it to the rest of the country.

These days, BMWs line the streets. Despite the generally haphazard appearance of the city, people from Wenzhou are assumed to be wealthy. When in taxis or restaurants, Wenzhounese always address the drivers or serving staff in putonghua, assuming that to hold jobs like that in Wenzhou they must come from outside the city and therefore can't understand the city's nearly indecipherable dialect – considered to be the most complicated in the country.

The business acumen of local residents is legendary – they are often called "The Venetians of China," and they proudly accept their reputation for being able to sniff out a business deal wherever it may be hiding. They have long since spread across the whole of China searching for opportunities. Shanxi coal mine owners – "all Wenzhou people," says Cai Youfei, a local garment factory owner. Cell phone manufacturers in Shenzhen – "mostly Wenzhou people," says Chen, offering me a few contacts when I imply that he's stretching credibility. Wenzhounese business interests stretch well beyond the country's borders as well – Paris' third arrondissement is packed with Wenzhounese restaurants where you can hear Wenzhou's distinctive dialect being spoken. People from this one city are said to control most of the Chinese restaurants in Vienna and Barcelona, and their garment factories give them a good amount of economic clout in Italy.

"When most people get together they talk about sports, or romance, or whatever. When Wenzhou people get together they just talk about business," says Cai.

TREMORS FROM THE CRISIS

Cai Youfei's story is a fairly common one for a Wenzhou boss – he started working in a factory when he was 20, earning RMB 500 a month. Six years later he opened his own clothing factory with three friends, including Chen, which is now in its sixth year of operation and has revenue in the RMB tens of millions. He never graduated from high school and, according to his friends, worries about maintaining face around his college-educated wife and her friends. After the interview he offers his BMW for the day, and later, in a bar, pulls out a wad of hundred RMB notes every time a server comes around. He insists that the financial crisis didn't affect his company at all.

But, nevertheless, his company, Wenzhou Hongdi Fashion, has problems. Cai was forced to raise the salaries of his employees by two-thirds — from RMB 3,000 to RMB 5,000 a month — because of the ready availability of infrastructure jobs in Anhui and Jiangxi that could tempt employees away. Cai also admits that "the garment business is getting more difficult" because of competition from South Asia.

Zhang Xiong, general manager at a much larger garment factory in Pingyang, a suburb of Wenzhou, which makes products for Italian brand Giuseppe, is much more forthright. "We're growing now, but March to May of 2009 was pretty bad," he says. "Costs are still increasing, and that's cutting into our profits." Like with many of the people CIB spoke to, Zhang has been forced to raise salaries; his company has seen around 60-70% growth in factory worker's wages in the last year.

Wenzhou factories are overcoming these challenges in various ways. First, many of the garment factory owners have moved away from the export market: Cai's factory currently makes clothes only for Chinese brands — K-boxing, Septwolves, Youngor and Baoxiniao are four leading brands he names — while Giuseppe, despite being a foreign brand, sells only to the Chinese market: 60% of their sales are uniforms made for Chinese banks. In these sectors foreign competition is considerably weaker than the export market, and there is a lot of room to grow. "Our Italian partners invested with us because they saw huge profits in the Chinese market," says Zhang.

Second, these companies have begun to attach greater weight to quality. "Our clothes aren't cheap, we're focused on quality design," explains Cai, who sends all his designers on research trips to Italy twice a year, while Zhang admits to charging more than his competitors because the Giuseppe brand "is a leader in the industry."

The factory owners are also moving into more capital-intensive products. Zhang notes that Wenzhou has traditionally focused on light industry because it doesn't require much money to get started. But with the city's current wealth it's become easier for companies to venture into electronics and petrochemicals, which MIT professor Yasheng Huang says, in his 2008 book Capitalism with Chinese Characteristics, are new areas where Wenzhou people are spreading their wings. The auto industry is also a major new component of the city's economy, with several Chinese car brands in Zhejiang, as well as a growing number of foreign contracts.

PROFITS IN DISASTER

When the stimulus plan was introduced last year, some individuals in Wenzhou found a quick profit in an unexpected place: banks.

Wenzhou entrepreneurs have always had a rocky relationship with the official banks. "When we need money they won't give it to us, but as soon as we don't need money they are eager to lend," says Cai. The majority of China's underground banks — unregulated institutions which gave out high interest loans to people with little assets — are therefore said to be in Wenzhou.

But at the height of the stimulus package legal banks were especially eager to lend, with instructions from the government to increase their output as much as possible, and regulatory efforts to increase lending to small and medium-sized enterprises. The result has been that factory owners were able to get cash on demand, with few questions asked about how they were going to use it. Many deposited the money in underground banks, where they were able to get higher rates of interest than the original interest rate of the loan, say Cai and Chen, though neither admit to doing it themselves.

Then, as always, there is property speculation. Property prices quickly bounced back from a January 2009 low, and, if you take Wenzhou people at their word, it seems like they were doing all the buying. "I buy and sell houses in Wenzhou, Hangzhou, Shanghai and Beijing," says Cai, though he says he's too busy at his factory to actually go visit them. "We know a lot of bosses, so we can buy houses together at a discount." Zhang says he and his friends buy property in several cities, mentioning Hainan in particular.

NEEDING NO HELP

On my last night in the city I had dinner with the owner of an auto parts factory in the city, later joined by four members of the local government. When asked what had made Wenzhou so successful, and how other local governments could follow the city's example, they just said: "It's not the local government that's smart; it's the entrepreneurs who are smart." Everyone at the dinner largely agreed that no matter what happens after the crisis, Wenzhou is established enough that the city's future is assured. "Wenzhou people now tell their children that they shouldn't do business, it's too hard and painful; instead they should focus on becoming educated, and finding work in a knowledge field," says Chen.

The factory owner picked up the tab, and, along with the local government men, made plans to continue on to a karaoke bar. One of the government officials called me brother, but the factory owner told Chen it was probably better if we didn't continue the night with them.