[ By Chris Devonshire-Ellis, Senior Partner, Dezan Shira & Associates ]
China's Ministry of Commerce has created an impetus to direct foreign investment into central China, the “Go Inland” project, and launched this in the city of Changsha with the “Central China Business Summit” last month. With the government having all the big guns participating, including Madam Wu Yi, China's vice-premier, Bo Xi Lai, Minister of Commerce, Donald Tsang (Hong Kong), Edmund Ho (Macao) and all the Governors of the central China region, this is an initiative that deserves to be taken seriously.
Foreign investors should also be keeping an eye on such developments. As the coastal regions and cities get more expensive, pure economics encourages savvy international investors to look inland in order to both reduce costs and develop new domestic markets. Many are already there – and prospering. But what are the demographics of central China ? Where are the places to look out for ? What risks are there ? And what incentives exist ?
The Go Inland Campaign
As an official initiative, for central China, this project includes the six provinces of Anhui, Henan, Hubei, Hunan, Jiangxi and Shanxi. This area comprises a population of some 361 million people over an area of 1.028 million sq km. If it were a country in its own right, it would be the third largest in the world after China and India, while the population is the same as Indonesia and Japan combined. It includes 30 airports, 12 inland ports capable of handling up to 10,000 tonnage berths, 460,000 km of highway (about double that of Germany), and approximately 15,000 km of railway (about the same as the UK). Collectively, the region imported some USD21.6 billion worth of goods in 2005, and exported some USD27.8 billion worth of products.
Why Go Inland ?
There are two essential drivers : economics, and opportunity. Let's look at these separately and consider the balancing factors.
ECONOMICS – LOWER OPERATIONAL COSTS INLAND ?
The argument, simply put, goes that China's main commercial centres on the coast, such as Beijing / Tianjin, Shanghai and the Yangtze River Delta and to a smaller extent the Dalian / Qingdao corridor, are getting more expensive. The cost of land and labor is increasing, and this trend shows no sign of changing. However, it is also true that for export-biased businesses, proximity to a port is a major advantage that going inland is going to start to eat into in terms of increased transportation costs. The main debate here then is a pure trade-off between the costs of land and labor, the predicted trend for these, and the comparisons between China's coastal cities and those further inland. Balanced against this must be the additional logistics cost of getting product out of central China and to a port.
Taking the first-tier cities of Beijing, Shanghai and Guangzhou as benchmarks, we can compare the current legally permissible minimum salaries payable in these cities, and the capital cities of each of the six inland provinces and start to draw some conclusions. These statistics are courtesy of Dezan Shira & Associates National Investment Intelligence Unit.
