China's foreign trade and export enterprises have encountered unprecedented pressure during the global financial crisis -- but analysts say they believe innovation is the way out for the "Made in China" brand.

The Quanzhou Baofeng Shoes Company, one of China's leading producer of slippers, is precisely the type of exporter that should be on its knees. Headquartered in Quanzhou, a coastal city in southeastern Fujian Province, Baofeng used to export 90 percent of its annual output to the United States.

The company's exports fell about 20 percent from a year earlier in 2008 but the situation improved after the company put efforts into developing its domestic market, moving up the value chain and building its own brand, the company's general manager, Zheng Guozhang, said.

"Innovation is the key to a company's success," Zheng said. In this company of 1,000 employees, more than 100 are working on research and development.

Zheng expects exports to start picking up no later than the second half of 2010.

It is a similar story in southern Guangdong Province, the world's largest base of toy production and exports. Customs figures show products of self-owned, independent brands have achieved better and faster growth than those without independent brands.

Guangdong's toy exports from self-owned brands expanded from January's 48 million U.S. dollars to 100 million U.S. dollars in July, up 41.4 percent compared with June.

While Baofeng might be surviving rather than thriving, its performance is encouraging, considering wider pain across China's export sector.

Exports, one of the three engines that have fueled China's fast growth in recent times, fell 22.2 percent year on year in the first eight months this year. The other two engines are investment and consumption.

Some export companies had to close or shut down production because of falling orders, which caused millions of job losses.

Analysts believe the global financial crisis and its aftermath have revealed long-existing problems in China's export sector -- lack of independent brands and technology innovation. However, the crisis also offered an opportunity for transformation.

The opportunity is costs for innovation are low, said Lin Jiang, head of the Public Finance and Taxation Department of Lingnan College of the Sun Yat-sen University.

China's export companies are facing stern challenges both at home and abroad and these would persist into the post-crisis period, said Zhang Yansheng, director of the Institute of Foreign Trade of the National Development and Reform Commission, China's top economic planner.

Exporters had to suffer falling orders and increasing protectionism from outside while internally they had to go through painful transformation, Zhang said.

To survive the challenges, domestic enterprises must transform from the traditional labor-intensive and capital-intensive production methods to technology-intensive, and move from imitation to innovation, he said.

"By using today's difficult economic environment as an opportunity to upgrade research and development organizations, focus, practices, and management will help companies not only to cut costs but also to raise productivity and speed up marketing -- while positioning themselves for even greater success in the future," according to a report from McKinsey and Company.

However, entrepreneurs and economists are not the only people to have realized the importance of innovation,. Chinese officialdom has repeatedly hailed innovation.

"To overcome the severe international financial crisis, we must rely more on science and technology to make breakthroughs and boost development," Premier Wen Jiabao said when delivering an opening speech at the Summer Davos on Sept. 10 in northeastern China's Dalian.

"We should see scientific and technological innovation as an important pillar and make greater efforts to develop new industries of strategic importance," he said. "We will make China a country of innovation."

(Xinhua News Agency September 24, 2009)