The foolish man built his house upon sand; the wise man built his house on rock. The ambitious entrepreneurs of Datang chose a sturdy nylon and wool foundation.
“People always need socks,” says Xu Leile, whose company clothes the feet of the British and US armies, European hikers and pampered pet dogs.
Thanks to Xu and hundreds more like him, “Sock City” — northwest of Tie Town, east of Sweater Town — epitomized China’s economic success story. The obscure settlement in eastern Zhejiang Province became an export-driven boomtown, producing as much as a third of the world’s sock supply and thriving even through the financial crisis in 2008 and the subsequent global recession.
Last year, Datang made about two pairs of socks for every person on earth. Long and short, Argyle or polka-dotted, they cram the stores of the nearby wholesale market. In Xu’s spacious new factory, the shelves are stacked with huge reels of red, blue and orange thread.
However, ask Xu about the future and he grimaces.
“I’m very worried. This year is much worse than 2008-2009,” he says.
The biggest of his rivals to have gone under in May — the Anli Sock Group, which produced 60 million pairs of socks annually — could prove to be “the Lehman Brothers of Datang,” State Information Center chief economist Fan Jianping (范劍平) says.
Failures such as Anli’s and a slew of disappointing data in recent weeks are raising fears far beyond China that a slowdown in the world’s second-largest economy is turning into a hard landing. In the face of Europe’s woes and the weak US recovery, Chinese growth has become more important than ever: The ripples are already being felt globally, with commodities analysts blaming tumbling prices on falling demand from China.
Chinese Premier Wen Jiabao (溫家寶) has issued repeated warnings about the economy, saying growth is under pressure and exports need support. Last week’s announcement of approval for infrastructure projects, which some estimate to be worth 1 trillion yuan (US$157.75 billion), appears to be an indication of just how alarmed authorities have become about the largely investment-driven economy.
Until now, they have taken a series of milder measures, such as cutting the reserve ratio requirement and reducing interest rates, mindful of the painful hangover that resulted from the huge 4 trillion yuan stimulus they adopted to stave off the last crisis. That inflated property prices again and left a legacy of massive local government debt and questionable loans and infrastructure projects.
China’s economy saw second-quarter growth of 7.6 percent year-on-year: enviable to US or European eyes, but the lowest rate in three years, and the sixth straight quarter of slowing growth. Export growth slid to 1 percent in July — the lowest rate for three years, bar January, which was skewed by the lunar New Year holiday — and earlier this week, the official factory purchasing managers’ index fell to 49.2 — the first time since November last year that it had dropped below the 50 barrier separating expansion from contraction.
“We should be very worried,” says Anne Stevenson-Yang, co-founder of Beijing-based J Capital Research. “The economy has been in a hard landing since the fourth quarter of last year, but seems to have been helped by the consumer economy ... That’s now down as well.”