China’s Regions: The West

Tuesday, November 21, 2006 1:01
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As shown in a number of other posts, China’s development has largely been focused on the east coast, however with nearly 20% of china’s population, the Southwest region of China is set to be the next big market for domestic and international companies alike.

For many companies that have been operating in China, it is the provinces of Sichuan and Chongqing have garnered the most attention as their recent growth has been widely reported. In some cases, it is the draw of selling 250 million tubes of toothpaste (P&G), for others it is the R&D base in Chengdu (Intel, Motorola, & Alcatel), and for others it is the increased housing needs (Shui On Properties).

China West

Historically, the biggest hurdle for the area was logistical. Reaching the coast in a timely and cost efficient manner was impossible, and this had a huge impact on the area. Export manufacturing bases were impossible, international investors would rarely visit the area, and without the increased activity, consumer goods manufacturers waited to enter the market.

For the last 18 months though, this has all changed. the Southwest markets through their “build it and they will come” strategy literally replanned, restructured, and rebuilt their towns for what they eventually believed would be an influx of activity… and they bet right.

National Level Policies: “Go West”

The Chinese Central Government launched the Great Western Investment Strategy (also called “Go West” Program) in January 2000. Program goals are to boost the underdeveloped economy in the west and promote sustained national economic growth for the common prosperity of all citizens. Major focuses of this strategy include: accelerate infrastructure development; protect and improve the environment; develop regional industries with local characteristics; rigorously develop science, technology, and education; and improve the investment environment.

Primary growth cities:

Chengdu – As the capital of Sichuan province, Chengdu is one of the cities of primary focus for the “Go West”policy of the Central Government. 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 (Xian is the second). Lacking an export market to the west (trade with southeast Asia is increasing), 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.
Quick Stats: Population: 10.82 million / GDP: 29.64 billion USD/ Contracted FDI: 3.06 billion USD / Per capita Disposable Income: 11359 RMB

Chongqing – Geographically located in southwest China, it lies in the confluence of the upper reaches of the Yangtze River and the Jialing River. Largely ignored by Western businesses until recently, Chongqing’s economy was limited to regional operations because exporting was not viable due to high transport costs. Chongqing is one of China’s four major automobile manufacturing bases, one of the 10 largest iron and steel production centers, and one of the three aluminum production bases. Chongqing has established trade relations with over 140 countries and regions and there are already 26 corporations among the top 500 in the world that have settled in Chongqing; 29 wholly owned entities and 3,700 joint ventures are listed.
Quick Stats: Population: million / GDP: billion USD/ Contracted FDI: billion USD / Per capita Disposable Income: 10243 RMB

Kunming – Due to its remoteness, Kunming has been an economic backwater in China for most of the last 20 years, though this has changed as China’s trade with Southeast Asia has growth and the “Go West” policy was implemented. Kunming’s growth is primarily being catalyzed by the growth in neighboring Chengdu and Chongqing and through the “Go West” policy Kunming will continue to enjoy the support of the Central Government .Kunming’s growth is primarily being catalyzed by the growth in neighboring Chengdu and Chongqing. As a beneficiary and target of the “Go West” policy, Kunming will continue to enjoy the support of the Central Government, and will continue to enjoy the interest of many foreign and domestic manufacturers looking to invest in new manufacturing facilities in China.
Quick Stats: Population: 5.08 million / GDP: 13.28 billion USD/ Contracted FDI: N/A / Per capita Disposable Income: 9616 RMB

Other cities: Guiyang, Nanning, and

Wrap-up:

For many in China, western China will be the next region of focus. Historically held back by logistical challenges and costs, this area has benefited greatly from the government’s investment in the transportation network and the Go West promotional strategy.

For companies looking at the west, one will find governments that are very eager to work with them. Much like 5 years ago in Suzhou, local investment parks and departments have realized that to succeed they need to bring their A game. Tax breaks, loans, and red carpet treatment are more readily available than in areas that have been saturated by foreign investment (Suzhou, Hangzhou, or Tianjin). however, as many of these entities are new to the game, it may take longer and require more patience to get things done.

Succeeding in the west will require a strategy vastly different from the manufacturing for export model that many companies have grown used to in China. With a the number of people in these provinces exceeding that of the United States and Europe, the process of setting up factories to supply everything from toothpaste to Nike shoes to the local market has already begun. In fact, for some companies, the strategy that will succeed will resemble one much closer to a traditional home market expansion strategy where regional factories will support regional markets. What manufacturers will have to pay attention to is the potential of the market first rather than the costs and logistics of integrating output with the supply chain back home.

Given many of the first companies to setup manufacturing in this market have already succeeded in setting up export platforms in other provinces, and are able to bring , establishing manufacturing in Chengdu or Chongqing should be much easier this time around.

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