City Report: Nanjing

Wednesday, January 3, 2007 3:37

Just a three-hour train ride from Shanghai (300km) and near the heart of the Pearl River delta, the city of Nanjing has access to trade routes, transportation, and infrastructure spillover from the more mature coastal economies. Located between Shanghai and other regional manufacturing cities in the Zhejiang, Jiangsu, and Anhui provinces, Nanjing is not only a key strategic logistics hub, but also an attractive OEM manufacturing base that is able to source products regionally.

Nanjing has enjoyed tremendous growth in the last 5 years as labor rates and general costs of manufacturing have become competitive advantages. Shanghai’s rapid increase in the costs of manufacturing has been a catalyst for Nanjing’s growth.With many foreign and domestic companies moving to Nanjing to establish first operations in China (as well as expand their existing operations in Shanghai), the Government has made an all out effort to improve the infrastructure, housing, and services within the city.

Foreign managers living there now say that Nanjing’s quality of life has improved dramatically in the last 3 years and thus more and more foreign managers are gladly moving into the area. With good schools, affordable housing, Shanghai only 2 hours away, and the ability to enjoy nature, retaining managers in the area can actually be easier.

Economic Overview:
Nanjing’s location at the cross-roads of China’s two major development belts (the north/south coastal megalopolis and the east/west Yangtze River basin) provides easy transportation for companies that need to distribute products around the country and overseas.

As the macroeconomic table above shows, Nanjing grew at a pace of over 15% for the last four years. Real Estate development investment, including industrial, commercial, and residential, has followed this trend closely, thus indicating a need for the city to grow physically to meet the demands of production.

Nanjing has built a comprehensive industrial manufacturing base on petrochemicals, electronics, automobile, steel, and power. Information systems, petroleum and chemical, and manufacturing cover 36 sectors of over 200 categories with more than 2000 major varieties.

To support the growth of the past and build the future, Nanjing has over 77 professional schools and over 8,100 graduates every year. These graduates include over 1,400 in electronics and over 300 in communications.

Foreign Presence:
Due in large part to its proximity to Shanghai, Nanjing enjoys the attention of many foreign companies looking to setup manufacturing. More and more foreign companies are moving from Shanghai to Nanjing to open new factories with lower land prices, labor costs, and highly educated employees found in Nanjing.

Foreign investment zones have been improved and expanded, a new logistics park has been built, and many of the services found in Shanghai (hyper-markets, international schools and hospitals) can now be found in Nanjing. The resulting improvements have established Nanjing as one of the top provincial capitals on the east coast and will continue to draw foreign managers as a hub to Shanghai and inner coast operations.

Companies like Ford, Intel, and Jones Lange LaSalle invested in or increased their investment in Nanjing for the last two years and recently Mindray Medical (establish R&D and manufacturing) and Hercules (Manufacturing) both announced large investments

nanjing FDI graph

We can see from the figure above that contracted FDI increased by nearly 250% from in 2.08 billion USD in 2001 to 5.42 billion USD in 2005 (contracts increased from 333 to 728).

As a sign that Nanjing’s FDI is transforming into higher quality investments through wholly owned vehicles, the number of contracts actually flattened out between 2003 and 2005 while both contracted and utilized capital rose. This change shows that like many other cities in China, contracts are moving from lower value joint venture agreements to high value wholly owned foreign entity establishments.

Much of this is a result of WTO restrictions being lifted thus allowing minority investors to take majority or whole position, but more importantly, it is a sign that investors are more comfortable in the area.

For small to medium sized firm locating primary operations in Nanjing is something to be considered as the investment required is less, it is near Shanghai, and labor pool conditions are much more favorable than in Shanghai.

Conclusions:
Nanjing has more than any other city benefited from Shanghai’s meteoric real estate and economic boom. The last 5 years have seen macroeconomic growth and investment significantly increase as more and more companies (domestic and foreign) look to find lower cost bases in the area of Shanghai.

With its logistics infrastructure (highway, rail, water, and air), strong university system, and a labor pool that is much stronger than other 2nd tier cities, many companies are moving manufacturing and back offices to Nanjing. As a result, the service .sector to support this growth are coming online as well. So where finding local real estate, accounting, and law providers was difficult 5 years ago, now it is much easier and many are the regional offices of firms in Shanghai.

Nanjing will continue to see more investment and movement of foreign capital to the city as the costs of manufacturing in Shanghai rise and the improvements in Nanjing’s infrastructure continue to increase.

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7 Responses to “City Report: Nanjing”

  1. Wuhan Investment Zones | All Roads Lead To China says:

    July 3rd, 2007 at 1:15 am

    […] enjoying our coverage on these zones, and will continue to comment. The next city of focus will be Nanjing Bookmark to: Stumble […]

  2. Tai Te says:

    November 1st, 2007 at 10:01 am

    It’s a 2 hour train ride from Shanghai to Nanjing now (on the bullet train).

  3. Rich says:

    November 1st, 2007 at 10:27 am

    Thanks for the update Tai Te. Glad to hear that the train has knocked that much time off.

    R

  4. Conor says:

    January 3rd, 2008 at 11:49 pm

    Enjoy these city updates, As a relative newcomer to China and somebody whi is trying to learn as quickly as possible about the areas surrounding Shanghai I am very curious about how companiesseeking land/warehouse/factory space will prioritise between Ningbo, Wuxi, Hangzhou, Nanjing, Changzhou, Suzhou etc. in the inevitable move away from Shanghai

  5. Rich says:

    January 4th, 2008 at 12:40 am

    Hi Conor,

    Glad you are enjoying the reading. We are putting together some more meaty guides right now.

    With respect to which city will take priority, I think that there are a lot of variables, but Suzhou has done the bes tso far. Nanjing, Hangzhou, and Ningbo have done well.. and Wuxi and Changzhou are up and coming.

    What I will be interested in is seeing where each city begins to get picky. Suzhou wants high tech, Changzhou is more open than anyone, and Ningbo is looking at a lot of heavy industry too.

    Looking forward to hearing more from ou as you learn more as well.

    R

  6. Ningbonese says:

    January 13th, 2008 at 8:23 am

    Before your article, be sure to check out http://www.NingboGuide.com/ – it’s the local English magazine.

  7. Rich says:

    January 13th, 2008 at 8:51 am

    Thanks Ningbonese.

    Always good appreciate the guidance. Even if it includes a bit of shameless promotion!