Economy

Sock it to them

How two cities are thriving despite a collapse in exports

A right pair: so far, Datang and Zhili are surviving the downturn

In spite of an unprecedented drop in exports, Datang and Zhili – two manufacturing cities in Zhejiang Province – are bucking the trend, and booming. Their secret?  Sticking to their knitting.

Referred to as the “sock capital of the world”, Datang is a small city on the Hangzhou-Jinhua highway.

The moniker is well earned as local manufacturers have woven 13.5 billion pairs of the humble garments in the last two decades. Enough socks to outfit the global population with a couple of pairs each.

In 2008, sock production underpinned a hefty Rmb36.4 billion ($5.3 billion) in industrial output in Datang alone.

“The economic crisis has affected the industry in some ways, especially in terms of export. But overall, the impact is not too widespread here,” says Datang Communist Party Secretary Yuan Zhigang.

What sets Datang apart from many other industrial cities in China is its ability to refocus the bulk of its efforts on domestic customers rather than export markets.

Zhejiang Dongfangyuan Knitting, a major sock manufacturer based in the city, is a good example, having adjusted its production to switch away from socks for export.

It now sells 60% of its goods in the domestic market according to Cai Rudong, the company’s president. Cai is now looking to hire 30 more workers to boost production.

A town not far from Datang – Zhili – is encountering similar challenges in keeping up with demand.

Zhili boasts the country’s largest manufacturing base for children’s clothing and, like Datang, it is targeting domestic consumers.

Almost all of Zhili’s manufactured products are now being sold domestically, with middle-tier branded goods selling well in second or third-line cities.

Zhili’s performance in the rural area has markedly improved too as farming income rises. But it is also gaining market share in some urban areas as well, as consumers look for lower-priced items in the tougher economic climate.

With business booming, the town is looking to hire another 10,000 workers to meet this year’s orders, says Xinhua. In 2008, sales revenue from selling children’s clothes exceeded Rmb10 billion ($1.46 billion) and this year, the Zhili government is forecasting Rmb12 billion.

But will the good times last? Competition around the country is intensifying as manufacturers continue to charge less for goods. And both Datang and Zhili would like to move away from competition on price to offering a wider range of higher quality products.

To that end, the Zhili government is forecasting that actual output may drop from 400 million outfits to 350 million by the end of 2009, in anticipation of consolidation in the industry.

Under government prompting, up to 500 smaller, less-resourced factories are expected to be absorbed by larger, well-capitalised firms.

Ultimately, the Zhili government wants to cap the number of enterprises at less than 7,000.

If volume falls, prices will have to increase, if Zhili is to keep prospering. Sun Wenyou, secretary of Huzhou CPC Municipal Committee in Zhili isn’t complacent. “Competition will never go away,” he says. “In spite of the strong sales, we need to be vigilant and relentless in our pursuit of excellence.”


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