This week brings a new addition to the regional investment news from Suzhou.

Located just an hour away (see profile here) from Shanghai, Suzhou has become one of the most favored places in the Yangtze Delta to invest. A drive through Suzhou and SIP and one will quickly see why they have been so successful: cultured gardens, wide roads, new infrastructure, world class warehousing from Prologis, new apartment blocks by the dozen.. and that is just the city itself.

With a recent client in Suzhou, I can also attest to the fact that in addition to having the hardware in place, Suzhou also has the software in place. SIP officials are well seasoned, know how to present their park, take the time to understand what the clients are looking for, and then make their pitch.

Once invested, there is even a one stop shop for firms to manage the daily transactions within the park (customs, taxes, HR, etc).

With that, I offer the inagural newsletter.

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Of all the The China Daily headlines I have seen, none were as important to me than Locals oppose Xiamen chemical plant at public hearings

Following my previous post on the changing environment in China’s environment, it is clear to me that unlike many previous dog and pony shows we have seen before, that there is a real change occurring.

From the perspective of the government, I see three major changes:

1. SEPA and environmental NGOs are being granted a lot of power. There have been public praises by various officials of each, and I expect this to continue.
2. Local officials are now looking for clean investments. 5 years ago, all money was good money, but now officials are very clear about one thing. New investments must pass environmental impacts surveys, and existing investments must clean up
3. NRDC Beijing is no longer just rubber stamping deals. they are now reversing local decisions on projects, and will continue to.

That the two events in Wuxi and Xiamen had a systemic impact, that they were not just a dog and pony show or had been swept under the carpet. Xiamen government officials were for the first time giving their residents a voice… and residents took up the opportunity.

One woman - “No. 35″ - said the existence of the plant would prompt her to reassess her living situation. “I came to Xiamen from Guangzhou with my husband a few years ago just for its clean air and beautiful scenery. I think I’ll have to leave if the plant is built,” she said.

another resident said

a local lawmaker and also a law professor at Xiamen University, said, “It’s not whether the city should build it or not, it’s that the project must be stopped immediately. It’s time to make a decision now.”

Where I see the greatest change and WHERE MNCs NEED TO PAY ATTENTION is that the general masses have changed. Gone are the days where the public is wiling to accept what they are given. there is active public debate, healthy debate, on the costs of development, and that signals the biggest change.

As someone active in NGOs in china, the history of civil society in China has really been government directed. Name an issue, and you will see where the general populace thought the government was responsible for managing it. That resulted in many top down directives….a system counter to the US where consumers really drive civil society.However, this summer changed all that, and where MNCs need to be careful is that more and more we are beginning to see where the top down approach is being bolstered by the bottom up.

It is a dynamic situation, one that will only gain momentum as flare ups occur, and it is one that companies operating in China need to be aware of as another recent article in the WSJ shows.

China Finally Gives Teeth To Environmental Agency

The summer of 2007, will be shown as a turning point in China’s development.

Everyday there was news that brought to light many of the issues China is having to address when managing when managing this economy. There were high profile cases in areas of the environment, manufacturing, labor, health, and so on.

One of these events, the green algae blooms in Taihu lake (and others), rocked China. . For years, chemical factories in the area had been dumping untreated waste into the lake, and when mother nature provided drought conditions in the area, lake levels dropped. When these two elements came together, the chemicals activated natural bacterias. Wuxi residents couldn’t shower in their city’s water, much less drink it. Firms were trucking in water from Shanghai, and overnight the prices of water spiked. It was a nightmare situation for the central government, who have been working on many levels to prevent this issues.

This event, more than any other in China, put government approved environmental activism on the map. Chemical factories were put squarely into the cross hairs of angry citizens and a frustrated central party. In a post entitled, , address how this event impacted a project I was working on and what firms could expect going forward.

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Growing up, I always hear Home is where you hang your hat, but today the China Daily has put together an article on expats in the 2nd tier cities called Home’s where heart is

Written by Viva Goldner, is a very interesting read and I find that many of the quotes she has pooled together represent similar things we are hearing here from the managers we have been interviewing over the last few months (perhaps that is why she quoted me).

In a report aimed at foreign investors, Brubaker examined real estate investment in the three “showcase cities” of Shanghai, Beijing and Guangzhou, which fed an overheated property market with potential returns of more than 200 percent in just a few years.

“As the cities most accessible to foreign businessmen, they offered a degree of familiarity unique in China, and as such, distracted investors from looking to other markets as investment destinations. Unlike second tier provincial capitals, these cities were considered to be safe bets in a country littered with buyer beware stories,” Brubaker says.

“Historically less developed than Shanghai, Beijing and Guangzhou, second-tier cities sought to catch up by rushing to build the infrastructure necessary to attract large sums of investment.

“So, while the primary markets commanded the attention of many foreign investors, new airports, central business district, arterial highways and universities were being planned and constructed in the provincial capitals. The result has been nothing less than the complete transformation of these cities (and) real estate investment has followed.”

More and more, I expect that the cities of Chengdu, Kunming, Dalian, etc will see movement of senior managers (western and chinese) into their cities. for some it is looking for a little more culture than Shanghai can provide, for others it is the opportunity that the city prvides (much like Beijing or Shanghai 10 years ago), while for others it is being told to go there by someone whose pay grade is a nothc higher.

One thing I love about Youtube, is you really can find anything. (Note: if you are in China, the Youtube videos below will not be visible without the use of a proxy service.)

Recently, my work has taken me to Suzhou quite a bit. the area really has improved dramatically over the last 5 years, and there is still a ridiculous amount of growth still expected.

During one of my first visits, I was given the tour of a museum that laid SIP’s history, and for those that don’t know it, it is quite extrodinary as both the Chinese government and Singaporean government really put a lot of faith into what was little more than a water town a 100km from Shanghai.. which was just beginning to see any real action.

The first video below (prepare yourself for the music!) shows clips of SIP from the early days to now, and the second shows what the future will be (hmm.. I see high tech in SIP’s future).

Due in large part to its proximity to Shanghai, Suzhou was one of the first regional cities that foreign companies looked to setup manufacturing. More and more foreign companies are continuing to move to Suzhou to open new factories as the prices of land and labor costs are lower.

For Suzhou, a city that has planned their economy to support and benefit from the growth in Shanghai, the foresight and planning has paid off. Many foreign executives located in Shanghai look to Suzhou before anywhere else for further investment in the south as operations can be managed from Shanghai if need. However, the city is also very suitable to supporting an expatriate lifestyle, and many project managers are opting to move to Suzhou full time

Suzhou Industrial Park (SIP):
Perhaps the most well known investment park in the foreign community, SIP is a joint venture between the Singapore and Suzhou governments. Since being established in 1994, the Singapore—Suzhou Industrial Park has attracted a total of 2650 companies in its 13 years. With 6 projects valued at over 1 billion USD, and 60 projects over 100 million, these 2650 companies have resulted in over 27 billion USD in contracted foreign investment
Basic Stats: under 15 - 30 minutes from downtown depending on destination in zone; Investors include Prologis; 3M, GE, BP, Dupont; Common labor is 1000-1800/ month; average park investment is 10.2 million USD

Suzhou National New & Hi-tech Development Zone
Established in 1992, the Suzhou Hi-technology development zone is a state level zone that focuses on the research, development, and manufacturing of goods. By the end of 2005, over 15 billion had been invested through 1300 ventures (60 of while are ventures of Fortune 500 companies). Of this 15 billion USD, electronics and Telecommunications accounted for 45%, Precision machinery was 30%, and fine chemical 15%.
Basic Stats: Primary investors are Asian corporations (Japanese, HK, Taiwan, and Korea); Greenfield and existing facilities available; Common labor rates up to 1200RMB/ month; 7-10 working days for business license

Zhangjiagang Chemical Industrial Park and Free Trade Zone:
Located an hour and a half west of Shanghai and hour north of Suzhou, the Zhangjiagang area is becoming one of Jiangsu’s fastest growing areas for chemical manufacturing, and has already attracted 80 fine chemical companies. With a free trade zone, Yangtze river port, export processing zone, and the chemical industrial park, Zhangjiagang has recently been successful at attracting away foreign investment from other surrounding areas.
Basic Stats: Investments under 100M USD occur in Suzhou; FTZ and Bonded facilities on site; Investment from Nippon Sanso, Wacker Chemical, Chevron, and Dow Chemical; common labor between 800-1200RMB/ month

Next up… Xi’an (Macro-profile here)

Following the piece on Prologis last week, it was a bit fortuitous that we would see an article in today’s Shanghai daily announcing Ascendas’s plan to raise nearly a billion USD.

For those that are not familiar with Ascendas, it is a Singaporean REIT with close ties to the Singaporean Government. Where Prologis was an early mover in the warehousing/ 3pl facility secotr, Ascendas (through their ties to the Suzhou Investment Park) went for the build to suit facility sector.. and it has paid dividends.

Much like Prologis, the Ascendas developments are world class (I will make trip next week to visit one of the Suzhou facilities), and though they initially had high hurdle rate expectations and were hated by all the big real estate firms Ascendas has done well expanding into other projects in Dalian, Hangzhou, Nanjing, Shenzhen, Suzhou, Tianjin, and Xi’an

And given their interest in raising a billion USD, the list is sure to include other cities (Chengdu, Chongqing, and Wuhan are my first guesses…Wuxi perhaps if the city can guarantee the water supply…. Guangzhou if there is a guaranteed power supply).

For Manufacturers who were once looking for a reliable infrastructure to build on, Prologis and Ascendas are definately making the job of finding space much easier. The only question is can you afford the rent.