China's Capital Of Capitalism Weathers Recession

Zhang Huamei was China's first officially sanction entrepreneur i i

hide captionZhang Huamei — known as "Capitalist Number One" — was just 19 years old in 1979 when she received the country's first-ever license to do private business. She says she applied for the license out of fear of being caught doing business secretly.

Shen Cichen/NPR
Zhang Huamei was China's first officially sanction entrepreneur

Zhang Huamei — known as "Capitalist Number One" — was just 19 years old in 1979 when she received the country's first-ever license to do private business. She says she applied for the license out of fear of being caught doing business secretly.

Shen Cichen/NPR

China's entrepreneurial zeal means it's now second only to the U.S. in the number of billionaires, according to Forbes magazine, which says China's billionaires have doubled over the past year to 64.

Nowhere is China's private sector more apparent than in the city of Wenzhou, 300 miles south of Shanghai, which produces 70 percent of the world's cigarette lighters and 60 percent of its buttons.

But in the cradle of China's capitalist revolution, the past year has not been good for China's entrepreneurs.

Capitalist Number One

China's economic miracle started with one woman: Zhang Huamei, a trendily dressed 49-year-old whose husky voice hints at the past three decades she's spent hawking her wares. She was the country's first officially approved self-employed private entrepreneur after the Cultural Revolution — or "Capitalist Number One," as one newspaper called her. Back in 1979, it's hard to imagine how different life was.

"We weren't allowed to do business, so we did it secretly," Zhang says. "I put up a little table in front of my house and sold stuff like toys. I was very scared, but I had to make a living. Most people inherited their parents' jobs after they retired, but I was the youngest of seven kids, so I'd never inherit a job. So I thought I might as well try business."

Zhang decided to go legit at the first opportunity and applied for a private entrepreneur's license — China's first — in November 1979. It still hangs on the wall of her small button shop in the center of Wenzhou. Though she is still in business, Zhang is not proud of her place in history.

"I'm ashamed that after three decades, I'm still a small entrepreneur," she says ruefully. "There are so many Wenzhou people who went into business after me who developed huge companies and became the bosses of big factories. I'm not satisfied with myself."

Buttons from Zhang's shop i i

hide captionZhang says she is ashamed that she's still a small-scale businesswoman, and not the boss of a huge conglomerate. Here, buttons from her shop.

Shen Cichen/NPR
Buttons from Zhang's shop

Zhang says she is ashamed that she's still a small-scale businesswoman, and not the boss of a huge conglomerate. Here, buttons from her shop.

Shen Cichen/NPR

Capital Of Capitalism

Hemmed in by mountains and the sea, Wenzhou's land shortage forced its inhabitants into trade. Now, it's China's capital of capitalism. Ninety-nine percent of all business in the city is private sector, according to Wenzhou government statistics.

And those entrepreneurs have been phenomenally successful: Last year, one in every three Chinese tourists overseas was from Wenzhou and one-tenth of China's luxury cars ended up in this city of 8 million.

Nowhere is the Wenzhou love of making money — and flaunting it — more apparent than the city's only Louis Vuitton store. As soft Muzak chimes in the background, brand-conscious shoppers finger the $300 key rings and ogle the leather bags.

"We all like LV (Louis Vuitton) for bags, since everyone knows this brand," says a man who identifies himself as Mr. Wu. He does a quick inventory of his wardrobe: bag by Louis Vuitton, shoes by Gucci, stripy cotton sweater by Paul & Shark with a $600 price tag. "Very expensive, but it's worth it," he adds, beaming in a self-satisfied manner.

Mrs. Jin is more sniffy about Louis Vuitton. "It's too vulgar nowadays," she says dismissively. "The streets are awash with it. I prefer Chanel, it's more elegant."

Millionaire Chen Wenda

hide captionChen Wenda started a lighter-parts factory at age 18. Two decades later, the millionaire owns a shoe factory, a wine business, real estate interests and a soccer team. He started the wine business to appeal to the brash, high-rolling millionaires of Wenzhou, where Chen says people like to flaunt their wealth more than in any other place in China.

Shen Cichen/NPR

Diversify, Diversify, Diversify

One 30-something millionaire, Chen Wenda, is aiming to cash in on the famed Wenzhou flashiness with his wine cellar stuffed full of Chateau Lafite and Petrus.

His trajectory follows a typical Wenzhou path. In 1988, at age 18, he started a lighter-part factory. Then he diversified. Now he has a shoe factory, an import-export business, a wine business, real-estate interests, and for the past two years, his own personal soccer team, which costs him half-a-million dollars a year. He describes the Wenzhou way of making money.

"I set up businesses and drop those that don't make money, like the lighter-part factory. No one puts their eggs in one basket," he explains.

"In Wenzhou, every single person does real estate. Everyone is pushing up the prices of buildings. We dare to do stuff. We're not scared. And everyone wants to be their own boss," he says.

These days, one in every ten bottles of wine drunk in China is guzzled in Wenzhou, as an accompaniment to deal-making. But Chen says the businessmen here are too busy making money to bother with the niceties of wine drinking.

"If they think that wine is too sour, they might add Coke to make it go down smoothly. If that's what they want to do, that's fine," he adds. "I don't see the need to emphasize European wine culture. Wenzhou people are too busy to do all of that. They have to meet people and do business."

Chen's wine cellar includes expensive bottles of Chateau Margaux from 1934

hide captionChen's wine cellar contains bottles of cobweb-strewn Chateau Margaux from 1934 worth thousands of dollars each.

Shen Cichen/NPR

Tough Times

Despite the bravado, the last couple of years have been painful for Wenzhou's entrepreneurs. The financial crisis pummeled its export machine, causing almost 40 percent of business to stop operations in 2008, according to Zhou Dewen from Wenzhou's Small and Medium Business Development Association. Wenzhou's foreign trade plummeted 35 percent.

Then, just as things were starting to turn around last year, the private sector found itself under attack. A huge lending binge by state-owned banks funneled money almost exclusively to state-owned enterprises, while private ownership rights were infringed in some cases.

"2009 was the worst year for Wenzhou since economic reforms started," says Zhou. "The phenomenon of theguojin mintui (state advancing as the private sector retreats) was very obvious, in the reform of coal mines and other infrastructural investments, including real estate."

Zhou is referring to the re-nationalization of coal mines in Shanxi province in the name of improving safety. He estimates Wenzhou businessmen lost about $4 billion, or half their investment, when many smaller, privately owned coal mines were shut down or forcibly sold to state conglomerates. This hit the city hard: In the first half of last year, its economic growth — normally in double digits — was just 4.5 percent.

America, Beware

But no one is panicking yet. Back in her button shop, China's first officially approved entrepreneur remarks that the success of Wenzhou's people is due to their ability to chi ku, or "eat hardship." Given how far the city has come, Zhang is confident of its future.

"So much has changed in the past 30 years. Chinese people are getting strong. We ordinary people have lots of money in our pockets. We want to send our kids to school in the U.S.; we want to travel there," she says. "You should open up to us. If you don't, your America will be slowly swallowed up by us."

Such brashness is typical in Wenzhou. The city epitomizes the vitality of China's private sector. And its loud, confident business community will be hoping that China's reform process isn't turning against them.

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