DRIVING into the city of Wenling by way of Daxi Town leaves no doubt about the dominant industry. Along the main highway, advertisements and business names herald why Wenling has come to be called China's "water pump capital."

Most of the city's 3,000 pump manufacturers are based in Daxi.

At the end of the main road sits the Roman-style Koro Hotel, the only five-star accommodation in the city. It's owned by Xie Qiding, the 56-year-old entrepreneur known as the father of Wenling's pump industry.

Xie has become a billionaire, but his business empire has diversified from pumps into hotels and real estate.

"The pump industry went through very fierce competition in Wenling 10 years ago," Xie explained. "Profits were shrinking, so I decided to move into other businesses."

Today, pump manufacturing accounts for only 30 percent of the business volume at Xie's Jinlong Investment Co.

From his office on the ninth floor of the hotel that dwarfs most other buildings in the area, Xie can see the pump factories below. They look prosperous despite all the challenges the industry has faced.

Intense competition

Despite intense competition and shrinking profits, pump manufacturers in Wenling still employ 80,000 workers and managed to achieve industry output of 38 billion yuan (US$6 billion) last year, or 25 percent of the city's industrial production.

More than 60 percent of exported Chinese pumps come from Daxi Town, funneling water to families, farms and industries across the world.

Xie made the first water pump in 1982. The event is considered a proud milestone by local residents, right up there with the appearance of the first television station and the first telephone services in 1989.

Prior to making his millions, Xie was a humble farmer living alone with his widowed mother in Daxi. Three times a day it was his task to carry water from the river up a hill to the farmhouse.

The drone work made him stop and think. Wasn't there an easier, more efficient way of getting water to the house? He studied the matter at length, and he finally managed to convert a pump for agricultural use into the first household water pump in the city.

"I can still remember how happy I was seeing the water gushing out," Xie said.

Encouraged by that success, Xie was quick to figure out that other people would also welcome water pumps. He borrowed 10,000 yuan and bought a new pump, molds and other simple tools from outside town. He took the pump apart and reassembled it a hundred times until he fully understood how it worked. He even traveled to Zhejiang University in Hangzhou to seek the help of a professor.

Many villagers laughed at him at the time. "I was told that a farmer could never turn out a pump a day," he said. "Even close relatives mocked my ambition."

Undaunted

Xie was undaunted. He made the first molds for pumps a year later and was able to begin mass production soon after.

"I can remember clearly that I sold my first pump to the boss of a local brick kiln," Xie said. "The price was 150 yuan, and my profit was 38 yuan."

The rest, as they say, is history.

The mocking stopped and a serious look at pump manufacturing began in Daxi. By 2000, nearly every family in Daxi either had opened a water pump workshop or helped someone else in manufacturing.

The cottage industry still prevails. Family-style workshops can be seen across the town. Many now employ migrant labor.

In fact, large factories account for only about a 10th of the pumps made in Wenling. Only a single company has total assets of more than 1 billion yuan.

Of course, with so many people diving into what they perceived to be a profitable endeavor, competition wore profit margins down to a mere 1 percent. Many factories were driven to bankruptcy around 2002 and the town's camaraderie began to sour. That's when Xie decided to switch business gears.

The city government and several leading pump manufacturers got together in 2004 to try to restore order to the industry. They cobbled together a code of business practices and quality standards.

"Local pump makers finally realized they had driven themselves to a dead end," Xie said. "But even so, profits remain low."

Most of Xie's successors are now realizing that the best way to get ahead is to think creatively.

"Innovation and expanded markets are the logical solution for Wenling pump makers," said Chen Yiwen, general manager of the Taifu Pump Co, a leading manufacturer in the city.

Chen took over Taifu Pump from his father 20 years ago, when the company was teetering on bankruptcy. He abandoned the strategy of manufacturing for the domestic market and began looking abroad for new buyers.

"It's better to fight with foreign pump makers than to fight internally within the city," Chen said.

Hot sellers

Taifu has become one of the leading pump exporters, selling US$30 million last year. Others followed Chen's strategy and now about half of Wenling pumps are sold abroad.

Innovation is another leg of Chen's strategy.

Taifu has pioneered new kinds of pumps, including those driven by solar or wind energy. They were hot sellers at the China Import and Export Fair in Guangzhou in October.

Chen said he sells 10,000 solar-powered pumps every year. His profit margin has risen to 5 percent. His aim: the sale of a million solar pumps a year.

Another popular product at the annual fair was a 200-meter-deep well pump developed by Lin Faming, general manger and founder of Dafu Pump Industry Co.

Lin's name literally means "invention," and he said the new pump has paid off solid returns after three years of research and development that cost him 3 million yuan. He is now selling 50,000 such pumps a year, earning more than 100 yuan from each pump.

"I can recover the R&D cost within five years and make great profit in future," the 56-year-old Lin said.

"Wenling pump makers used to copy designs when a new product appeared on the market, but now most of us have begun developing our innovative products and focusing on after-sales services," said Chen.

His company now invests 4 million yuan, or 2 percent of profit, on research and development, and applies for more than 10 patents on pump designs every year.

The Wenling government has allocated 100 million yuan a year to support the pump manufacturers in their drive to upgrade products and facilities, said Jiang Sheng, deputy director of the Wenling Industry and Economy Bureau.

"The government provides a 30 percent subsidy for research and a 10 percent subsidy for advanced technology imported from abroad," he said.

"The pump industry will still be a stellar industry and remain a calling card for Wenling," he said.

A new industrial zone for pump makers has been constructed in the east of the city to attract foreign investment in the industry.