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The Association first concentrated on enhancing the reputation of Wenzhou shoe products. Now the Association has 1138 member enterprises and 26 association branches. Since its establishment the Association has made great efforts to improve shoe quality by training on production and design and introduction of advanced equipment. It organized local managers to visit their counterparts in the US Italy and Korea and has also helped member enterprises to expand sales channels--with annual shoe exhibitions in cities around China since 1996 and by contact with foreign customers such as the trade association of Italy. Its International Shoe Equipment Material and Technology Exhibition has become one of the most professional exhibitions in Asia. Recently the Association organized development of an electronic information network. The Association also works as a bridge agency between the shoe industry and the government passing policy to enterprises and transmitting the requirements of enterprises to the government.

Attitude of local government

The local governments of Wenzhou did nothing when its shoemakers began business. This was unusual in the 1980s as at that time the political atmosphere tended to be hostile to private initiatives. The Wenzhou government took such a non-interventionist attitude because with meager land and natural resources and no modern industrial basis its people were poor and had little other chance to improve themselves. Privatelyowned firms created by rural residents therefore boomed initially taking the then policy-favored title of 'township or village enterprise'.

Wenzhou government was however responsive to the shoe-burning accident and called on local shoemakers to improve quality. This encouraged not only better quality management but also newcomers into shoemaking. Thereafter Wenzhou government actively supported service activities; for example it was involved in the establishment of a footwear design centre set up in cooperation with an Italian business entity. Colleges and schools in Wenzhou have added professional majors of shoe leather under the coordination of government. Recently the Wenzhou government began construction of a shoe industry park called 'Chinese Shoes Metropolis' in Shuangyu Town with functional areas planned for shoe-making machinery services and shoes-culture including a shoes-cultural museum an exhibition hall for shoe transactions and a shoes-cultural park. The Metropolis will enable visitors to enjoy both new techniques of shoe-making and the traditional culture of Wenzhou as well as shopping and relaxation. The investment in this industrial park is estimated at 500 million Yuan largely from the city budget which signals that shoemaking is centrally integrated in the regional development strategy of Wenzhou.

DISCUSSION/CONCLUSION

Geographically agglomerated traditional manufacturing which produces mainly consumer goods has contributed greatly to China's export growth. It has been an important driver to regional industrialization of coastal areas and offers ordinary rural residents the opportunity to learn modern production and distribution techniques. Hundreds of millions of people have been integrated into global production and have thereby improved their lives.

Today after two decades of development China is faced with challenges in the labor-intensive export-oriented manufacture of consumer goods.

Firstly, as China has entered widely into international markets, and with accession to the WTO, the number of trade disputes involving China has increased dramatically. It is reported that in 2003 of the overall 194 anti-dumping lawsuits launched by WTO members 54 were against China. The Spanish burning of Chinamade shoes is a warning and has indeed made China policy makers seriously consider international reactions. China's economy is huge and its impact on the global economy is a factor which has to be taken into account in China's development policy formation. However, China's policymakers are still inexperienced in this regard.

As far as further development of traditional manufacturing is concerned there are several problems to address. One relates to the erosion of low cost advantages. Labor costs are increasing following the decision made by the central government of China in 2005 that farmers are to be freed from agricultural taxes and to enjoy subsidies for infrastructure and food crops planting. This elevates the threshold of the minimal acceptable wage for immigrant farmers an important labor force for manufacturing. Labor shortages have occurred since 2004 in Guangdong and Zhejiang provinces, the most important homes of labor-intensive manufacturing. In addition costs of land and raw materials are rising.

Pollution caused by industrial production and the resultant environmental degradation is another problem. The footwear industry produces millions of tons of wastewater from leather and paper-making and is one of the most contaminative sources of industrial pollution. Waste residue from the shoe and other industries is also huge. One can see waste residue piled up like skyscrapers around shoe industry towns. Construction of treatment facilities for wastewater and residue has begun but capacity and efficiency is still far from adequate. Additional investment is required to remedy environmental degradation which further wears away the low cost advantage.

Some of the trade-related lawsuits against China point out that goods manufactured in China have problems in areas of environmental protection or labor welfare. These problems must be dealt with carefully on every count. There are surely other censures against China mainly related to its industrial and trade policies and over which there are debates among development policy analysts but these are issues issue beyond the scope of this paper.

It is however certain that China needs continuing production in its traditional industries and that continuation is only possible by means of improved manufacturing quality and efficiency. To cope with the cost proliferation it must climb up the value chain from OEM to ODM (original design manufacturing) and OBM (own brand manufacturing). Investment in environmental protection can no longer be delayed. There is as well great room for improvement in learning and cluster efficiency. All these concern technical organizational and managerial advancement requiring higher levels of human and physical capital. China is at a major developmental crossroad.

Received 9 June 2005 Accepted 17 January 2006

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(1) This is only an incomplete estimation counted from various publications and media reports and from empirical case studies of our research group. The cluster mapping project of China is about to start now.

(2) The industrial clusters in Guangdong were called Specialized town (Zhuanye zhen) in the end of 1990s.

(3) The industrial clusters in Zhejiang were called Specialized industrial district (Zhuanyehua chanye qu) in 2000.

(4) The 'export processing trade' refers to certain government-approved transactions where a foreign party purchases Chinese manufactured goods or has raw materials and components processed on a consignment basis in China in both cases with the inputs imported free of duties and value-added tax.

(5) The Pearl River Delta counts for 80% of GDP of Guangdong province and 26% of foreign direct investment of the nation.

JICI WANG

Department of Urban and Regional Planning

Peking University

Beijing, China

Innovation: Management, Policy, & Practice •