Go west, young (Chinese) man

Western China is substantially under-populated compared to the rest of the country. In fact, on the map it doesn't look populated at all outside Chengdu. And yet, as Michael Schwartz explains, Chengdu is enjoying a real boom...

China's great cities hug the eastern quarter of the country as if they are intimidated by the vast expanses of Central and Western China. Last year the percentage of foreign investment in China's coastal provinces varied according to which source you consulted but no-one can doubt that it still makes up a vast majority.

Shanghai has overtaken Beijing as the country's largest city but it may just as well be in a different country from Western China in terms of its amazing economic growth. In a different country except for one factor - the "Develop the West" economic development campaign launched six years ago. 

This is where the city of Chengdu in Sichuan Province comes in. If you were to ask the average observer of China to name one city outside the eastern areas, Chengdu would almost certainly constitute the reply. The city and its 7.5 million inhabitants have been a powerful magnet for attracting overseas investment. Indeed, what with foreign investors being so accustomed to working out of large cities, Chengdu is the only city in the equation except perhaps Chongqing, which has emerged as a major centre for automotive manufacturing (notably with Suzuki, Yamaha, Honda and Ford). Chongqing was also until recently a part of Sichuan Province but now enjoys administrative autonomy. 

Financial and labour attractions

There can be no prizes for guessing the real reason for the recent interest in investment in Chengdu. Even when established (Eastern) Chinese labour costs are lower than those of the developed world, Chengdu weighs in even more cheaply than Eastern China.

Salaries for an average Chengdu worker come to around US$88/month. This is approximately half the wage of a worker in say the enterprise areas established just north of Hong Kong or in Shanghai.

The background to Chengdu's success lies in its local economic development agencies recognising the opportunity their city offered. For example, Chengdu Hi-Tech Zone was established in 1988 and ratified by the State Council as a State Hi-Tech Industrial Development Zone in March 1991. Comprising an area of 87km2, it qualifies as an Asia-Pacific Economic Council scientific and technology park and as an Advanced Hi-Tech Industrial Development Zone of China.

Since these developments Chengdu City has reformed its procedures for introducing change and reform, not to mention standardisation, into administration, investment and financing. The local Sichuan University also played a part in this process. The main aims of standardising the procedures were as follows: 

  • to establish a modern public administrative system;
  • to make clearer and simpler the role of government (nearly 700 administrative procedures were abolished) and to provide, among other things, a set of terms and conditions, samples of correctly filled-in documents, and a complaints procedure;  
  • to apply public policy more efficiently: provincial and national government work from the same offices - the first such occurrence of this in China; 
  • to improve public decision-making, combining public participation, expert opinion and collective decision-making;  
  • to make the new system more accessible by publishing a service manual, and installing touch screens, telephone advice services, and discussion areas for officials and clients.

All in all, Chengdu's initiative was to be on a human and sympathetic scale. 

And the results?

Image

Investment in Chengdu keeps on arriving. For example, Changhong Electronic Appliances, China's leading TV manufacturer, is based in Chengdu. The telecoms/IT sector is no exception to the rule. Little more than a month ago Intel announced investment of US$375 million to construct an assembly and testing plant for its micro-chips. Of course, this has led to some speculation that there will be a drift away from Eastern China to the more remote regions. Naturally the sheer size of investment in China and Chengdu's small size in relation to the rest of the country will not mean some great seismic shift but there will undoubtedly be further 'coups.' 

It should be mentioned in fairness that Intel was already investing in Maipu (Sichuan) Communication Technology, a network equipment manufacturer. For all that, Chengdu beat off at least three other possibilities for investment because of its labour, public sector policies, and infrastructure. It now hosts Intel's second factory in China, following the Shanghai plant.  

Two other household names with a presence in Chengdu come to mind: Eastman Kodak, with its consumer imaging division regional HQ, and Motorola which has an R&D facility. Sometimes, too, enterprises in countries already renowned for their low labour costs are exploiting Chengdu. One such example occurred a few years ago when PSI Technologies, a company from the Philippines which provides assembly and test service to the power semi-conductor sector, commenced an investment programme expected to total US$20 million. This is an example of where careful research challenges the fundamental conception that Chengdu is remote. PSI's factory is ten miles from Chengdu Airport and from there just two hours from Hong Kong. I

n the very near future SAP, the German software specialist, and even high-street brands such as Ikea and Toyota are set to follow. 

So where will the problems lie? 

So far everything seems so good. And yet there are still obstacles for Chengdu - and any other remote city wishing to cash in on China's boom - to overcome. Often, they are psychological. Just as there is often an unwillingness for say a London, UK-based employee to move out to Northern England so there is a mental barrier against moving to Chengdu for Shanghai- or Beijing-based executives. There are worries about children's education, access to the must-have items of the Shanghai man- or woman-about-town, not to mention concern about infrastructure.  

One PriceWaterhouseCoopers review of Chengdu concluded that if you wanted to set up in the city you actually had to pay extra to put a management team in place or for that matter to induce people who had been raised and educated in Chengdu in the first place against leaving their native city for what are perceived as the temptations of the eastern seaboard.  

Chengdu does, it must be admitted, have an image problem. Five-star hotels may dominate the skyline with modern hi-tech office blocks but there are still several state-run factories which have not caught up with the boom. 

Summing up 

Problems or not, Chengdu can celebrate the success generated by the Develop the West initiative. Estimates of the total number of blue-chip companies investing in Chengdu vary but one review mentions 78 such enterprises.  

There may be transportation costs to factor in but quite simply start-up and labour costs are much lower outside the established (eastern) areas of China. Chengdu's economic growth - well above the average for China as a whole - is proof of her success to date. 

More info:

Sign-up to our weekly newsletter

Keep up-to-date with all the latest news, articles, event and product updates posted on Developing Telecoms.
Subscribe to our FREE weekly email newsletters for the latest telecom info in developing and emerging markets globally.
Sending occasional e-mail from 3rd parties about industry white papers, online and live events relevant to subscribers helps us fund this website and free weekly newsletter. We never sell your personal data. Click here to view our privacy policy.