Business Internet China - « second tier-cities

June 13

« second tier-cities » in East China

Reproduced with kind permission of China Briefing magazine

Nanjing

The city sits astride the Yangtze, its port a key waterborne transport hub. It is East China’s second largest business centre, with leading industries such as heavy chemicals, petrochemicals, electronics, automobiles, iron and steel, food, garments and building materials. Infrastructure is improving - the city opened a new subway system in autumn 2005, and the railway station underwent a major refurbishment. A new high-speed rail link from Nanjing to Hangzhou and Ningbo begins construction this year. The newly-expanded Shanghai-Nanjing expressway joins the cities in two hours. Other recent developments include a second road tunnel under Xuanwu Lake, a new road from the airport that allows quick access to central, and the opening of Zhongshan International Golf Club.

Ford is one investor currently making a big commitment, with a new engine plant opening in 2007. Three factors brought Ford here, according to reports – a “good deal on land” ; the city’s port, allowing easy shipment of parts ; and a booming local car market. Nanjing also has one of China’s highest per capita tertiary education rates. As an official said, “the average salary is lower than in Shanghai, but the number of engineers is twice as high”. But the city doesn’t seem suffer from Shanghai’s turnover and high retraining costs.

Hangzhou

In the 13th century, Marco Polo admired Hangzhou, capital of Zhejiang, as a “paradise on earth”. He’d probably still be pretty impressed – modern tourists certainly are with the famous West Lake, historical attractions and scenery.

The city is two hours by rail or car from Shanghai – by 2010 it will have a Maglev link - and it has an international airport with passenger and freight volume up over 25% in 2005. There is upmarket property available or in the pipeline, with prices to match. As an investment destination, Hangzhou has attractions beyond simply its environment. Local expats say office set up costs are lower than Shanghai or Beijing, the tax incentives are very competitive, and the network of local IT companies is second to none.

Ningbo

Ningbo is not just an ordinary city – it has the same authority as provincial governments for economic administration – and has a port second only to Shanghai. Unlike Shanghai, the port is deepwater and capable of handling 300,000 tonne vessels. By 2007, cargo throughput will be 250m tonnes and container throughput 7m TEUs, and by 2010 300m tonnes and 10m TEUs. With bulk container breakdowns, hugely improved logistics, and massive chemical and foodstuff processing developments, Ningbo could yet win the race with Shanghai as port of choice for servicing the east coast.

The city has suffered from the fact that Hangzhou Bay stands between it and Shanghai, but soon this will not be a barrier either – by late 2007, a 33km cross-sea bridge will allow travel to Shanghai in less than two hours. The bridge is already having an impact on the local economy, according to foreign business people in the city – property prices are rising dramatically. One long-term foreign resident calls this “an incredibly dangerous spending spree”, noting that industrial land is now twice that of similar land around Shanghai. It remains to be seen whether this will correct itself – and whether the correction will be hard or soft. We have also heard some concerns about local corruption, and as ever we recommend extensive due diligence. Make sure you know who your partners really are.

Wenzhou

Wenzhou pioneered the market economy in China. The “Wenzhou model” of economic development involved private companies using their own sources of financing and their own way of marketing and management, without much intervention from external investors, either government or FDI.

Some 80% of the world’s metallic-shell lighters and zippers are produced here. The single district of Qiaotou produces 15bn buttons a year. Wenzhou also produces 25% of China’s shoes, 80% of its spectacles, 60% of its razors and 65% of its electricity transformers. In the 1990s, electric appliances manufacturing became a major industry in Wenzhou, with some of the large private enterprises setting up joint ventures with GE and Schneider.

In terms of expat life, it is at an early stage of development – there are no Western hotels yet, and only one McDonalds ! But bars and restaurants are popping up, such as ‘Blue Shell’, ‘Ladefense’, ‘Champs Elysees’ and ‘Power House’.