Private Enterprise — Chinese Style

Corporate Profile

By Carmen Pang,Executive EditorPrivate Enterprise —Chinese StyleEver since Deng Xiaoping, the
late chairman of the Chinese Communist Party, opened the floodgate to economic reforms in the
1980s, China has experienced the kind of economic growth that is beyond the wildest imagination of
any economist. Along with the opening of the billion-plus-people market to international companies,
the reforms also provided opportunities to home-grown Chinese market capitalism. Weiqiao Textile
Co. Ltd. is one of these non-state-owned industrial enterprises that is thriving. But, as China’s
largest producer of cotton textiles, this Shandong province-based giant keeps a surprisingly low
profile.Exponential GrowthEstablished in 1989 as Zouping County Weiqiao Cotton Spinning Factory,
Weiqiao Textile operates today as a publicly traded subsidiary of Shandong Weiqiao Pioneering Group
Co. Ltd., whose other holdings are in apparel manufacturing, printing and dyeing, aluminum and
thermoelectricity. Weiqiao Textile’s main products are cotton yarn, greige fabric and denim.Keeping
pace with China’s economic expansion in the past two decades, Weiqiao Textile experienced its own
phenomenal growth — its 2003 revenues reached 6.56 billion Chinese yuan (approximately $793.5
million based on the exchange rate on December 31, 2003, when the company’s fiscal year ended),
representing a whopping 320-percent growth from its 2000 revenues.Edward Cheung, an analyst with
Tai Fook Research Ltd., the research branch of Hong Kong-based Tai Fook Securities Co. Ltd., is
forecasting the textile maker’s revenues to reach 10.289 billion yuan this year and 12.749 billion
yuan (about $1.542 billion using today’s exchange rate) by 2005.Weiqiao Textile’s initial public
offering on the Hong Kong Stock Exchange in 2003 was one of the largest for the year and caused
quite a buzz in the investment community.According to Wang Donghua, Weiqiao Textile’s head of
investor relations and assistant to the chairman, the IPO has affirmed the company’s position and
brand name in the industry, which are important factors in its further expansion into international
markets and attracting talent.

Weiqiao Textile is headed by chairman Zhang Bo.A Cotton EmpireWeiqiao Textile’s roots are
firmly planted in the cotton textile business. Its five manufacturing facilities (all located in
Shandong province — China’s third-largest cotton-producing region) encompass a total area of 1.342
million square meters and employ more than 69,000 people, who produced 324,000 tons of cotton yarn,
585 million meters of greige fabric and 105 million meters of denim in 2003. According to Wang, 55
percent of the company’s products are exported to 400-plus clients in more than 20 countries and
regions, including Marubeni Corp. and Itochu Corp. in Japan. Its combined cotton yarn and greige
fabric export volume is the highest in the whole of China. In addition, the company also sells its
products to more than 3,000 mainland Chinese customers.To illustrate the sheer size and vast
manufacturing capacity of Weiqiao Textile, one only needs to take a look at the recent headlines
reporting new machinery orders by the company: 512 weaving machines from Belgium-based Picanol
Group, 900 JAT710 air-jet looms from Japan-based Toyota Industries Corp., 40 BENDirect warpers from
Switzerland- based Benninger AG, among other orders.

Weiqiao Textile produced 324,000 tons of cotton yarn, 585 million meters of greige fabric and
105 million meters of denim in 2003.In addition, Wang says the company has recently invested 253
million yuan to develop new high-value-added textile products, as well as 203 million yuan to
upgrade existing manufacturing equipment for value-added cotton textiles. In 2003 alone, 4.5
million yuan was spent on research and development, according to Wang, who adds that the company’s
goal is to improve efficiencies and increase market penetration.

Success FactorsWang cites several key factors to Weiqiao Textile’s success in its rapid
expansion in size and market share: economies of scale and low manufacturing cost; high-quality
products; geographic advantages; broad customer base; and an experienced management team.“As the
largest cotton textile manufacturer in China, we have vast manufacturing capacity and raw material
buying power,” says Wang. “These factors help us maintain low fixed costs and offer more flexible
pricing.”Geographically, Weiqiao Textile’s location in Shandong province on the eastern coast of
China not only allows it easy access to cotton, but also provides it with a well-developed
transportation network. “Since China’s accession to the World Trade Organization, the country’s
cotton yarn and cotton fabric production levels grew 15.8 percent and 9.2 percent respectively from
2002 to 2003,” says Wang.

Weiqiao Textile’s five facilities encompass a total area of 1.342 million square meters and
employ more than 69,000 people.The FutureWith the elimination of global textile quotas looming on
the horizon, Wang sees both growth potential and challenges for Weiqiao Textile, as well as for
China.“The company believes that our export levels will increase significantly, which will broaden
our customer base, particularly in the United States, Europe and Canada,” says Wang. “Our challenge
will be to quicken our pace in upgrading our mass-production capability.“Post-quota, China as a
whole will likely face more competition from other regions. For China to maintain its top position
in global textile production, the long-term strategy is to focus on products with high added
value.”Similarly, in the next five years, Wang says Weiqiao Textile will focus heavily on expanding
its product range to include more value-added offerings. In the plan are the addition of a new
high-tech research and development center, as well as more investment dollars in innovative
equipment.Regarding the future, Wang says Weiqiao Textile’s goal is to become the world’s largest
integrated cotton textile enterprise. Seems like the quiet giant is ready to roar.

Fall 2004