City Report: Chengdu

Tuesday, December 5, 2006 20:17

As the capital of Sichuan province, Chengdu is one of the cities of primary focus for the “Go West” policy of the Central Government. Situated in a valley of mountains, the city of Chengdu resembles Beijing in climate, pollution, and rate of construction. Chengdu is going through its own renaissance with heavy investment in infrastructure and numerous high end real estate development projects during the last several years.

Once a city of 5 million people, Chengdu’s population has expanded to nearly 10 million people in the last 10 years as people moved from the farm into the city. This population boom is expected to continue to 15 million in the next 5 years as residents of Sichuan move to Chengdu in search of jobs and a better quality of life.

To promote the growth of the city and sustain the stability of Sichuan, national, provincial, and local levels of Government are trying to turn Chengdu into one of two centers for high-tech education and R&D in China (Xi’an is the second). Chengdu hosts numerous universities offering education in computer software, engineering, and biotechnology to raise the education level and opportunities for residents.

With nearly a 150 million people in the vicinity of Chengdu, foreign firms view Chengdu as a low cost center for staffing R&D, manufacturing, and other commercial enterprises. Additionally, it provides a vast market for fast moving consumer goods. The foreign firms’ desire to enter Chengdu will help fuel the Chinese Government’s goals for further developing thecity of Chengdu.

Economic Overview:

As shown in Figure 1, Chengdu has recorded an almost 400 percent increase in GDP since 1995, nearly doubling its per capita disposable income. Chengdu has been able to attract domestic and international investment alike by leveraging its status as one of the southwest’s provincial capitals.

Chengdu macroeconomic map

With Chengdu’s remote location and the transportation network to the coast poor, the city is unable to succeed in the same manner as cities on the East coast. While a major hindrance in the past, this is proving to be a strength in other ways as companies look to Chengdu and the neighboring areas as a market in and of itself.
The Chengdu Government has identified the following 6 industries as pillar:

  • Electronic information
  • Biology engineering and pharmaceutics
  • Machinery manufacturing (auto and aviation included)
  • Food processing (tobacco included)
  • Metallurgy and building materials
  • Petrochemical processing

To achieve success in these industries, Chengdu has used education to create a labor market that is highly skilled, at wage rates that are much lower than the East coast. In addition to its focus on technology and education, the city recognizes that transport infrastructure must be increased for more efficient movement of goods. Many FCMG companies such as Johnson & Johnson, Procter & Gamble, and Astra Zeneca see the southwest as its own market.

Foreign Presence:
Under the current central party leadership, the “Go West” policy encourages growth beyond the East coast. Local Governments of second tier cities are given more flexibility to offer incentives for investment in their regions. With Government incentives being available in the capital of the most populous province with a large labor pool and an average salary far less than those found on the East coast, Chengdu is becoming more attractive to companies viewing the west as a separate market for consumer goods. Items from toothpaste to printers will soon be manufactured in and around Chengdu.Chengdu FDI

By the end of 2003, 78 fortune 500 companies had invested in Chengdu. Companies including Motorola, IBM, Intel, United Technologies, Coca Cola, Pepsi Cola, Toyota, Sumitomo, Marubeni, Lafarge cement, and GM all have manufacturing operations in Chengdu. Others such as Microsoft, Price Waterhouse, and Jones Lange LaSalle have set up sales and service offices in the area.

Many FCMG companies like Bayer, Johnson & Johnson, and others who previously established sales offices in Chengdu are beginning to set up factories that will be used to service local markets. This momentum can be seen in Figure 2 as the amount of committed and utilized capital from foreign sources has climbed each year. Note that in the year 2003, the number of contracts fell from 225 to 205, yet the committed investment figure increased significantly. This shows that Chengdu’s foreign investment is no longer smaller joint venture arrangements, but that the new money is from investors establishing wholly owned factories in the area.

Many multinational companies are invested and continue to invest due in large part to the increased presence of universities and technology parks in Chengdu. Lacking an export market, investments coming to Chengdu the city are often in the form of high technology research and development centers or are for products that will be sold in the regional markets.

Wrap Up:

Chengdu has in the last 3 years grown as a city in population, size, foreign investment, and quantity of real estate development projects. This trend shows little sign of slowing and many firms are looking to establish Western bases in Chengdu by increasing investments. With a growing population, double-digit GDP growth, and increases in FDI each year, it looks as if the “Go West” policy has finally caught on.

As the Government looks for ways to close the income gap and develop the west, Chengdu will continue to receive the full financial and political support of Beijing, and as shown above this will lead to Chengdu developing itself into the capital of China’s southwest market.

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One Response to “City Report: Chengdu”

  1. Prologis in China: If You Build It, They Will Come says:

    July 26th, 2007 at 6:43 pm

    […] 19 markets, my guesses would be (links are to our profiles of those cities): Beijing, Changsha, Chengdu, Chonging, Dalian, Dongguan, Guangzhou, Hangzhou, Nanjing, Ningbo, Qingdao, Shanghai, Shenyang, […]

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