China's Central Provinces

China’s Regions: Central

Tuesday, November 14, 2006 0:23

Historically abundant in natural resources, the central provinces were once as prosperous as many of the provinces on the east coast (Wuhan’s GDP was ahead of all the other second tier cities on the east coast until only a few years ago).However, as the economies of the east coast began to attract heavy investment, and their economies rose as a result, the central provinces were left behind with those in the southwest, northeast, and out lying areas. To make up ground, many of the cities within these provinces have had to reinvent themselves.

For central provinces, there have been two key national level changes in the last 3-5 years that have had a large impact in the importance and accessibility of the region. The first was the building of China-wide highway, water, and rail infrastructure, and the recognition of the importance Wuhan and Xian will play as in the hubs for logistics in China. The other, was the “Go West” initiative that promoted investment and growth in the southwest provinces of Sichuan, Chongqing, Guanxi, and Guizhou.
On a regional/ local level, macroeconomic conditions (low labor, land, and other costs) and historically talented labor have also lead to an increase in manufacturers (local and international). In Xian, the labor pool (supported by numerous universities) has become one of China’s most reputable cities for software development and aerospace. this comes largely from the work on China’s space and military applications. In Wuhan, the Pittsburgh of China, steel working and access to the Yellow River have created a labor pool talented in heavy manufacturing of Trucks, motorcycles, constriction equipment, auto, and other parts that will support those industries.
Primary Growth Cities:
Wuhan – While Wuhan has been growing, it has not grown as fast as many thought it would, and has actually lower growth rates than other second tier Chinese cities. Wuhan has established itself as a city where large amounts of money from foreign companies can be invested and has a lot of heavy industrial complexes for steel, auto, and coal that require large amounts of investment. Following Wuhan’s economic growth has been the rising disposable income level of its residents. With rising incomes, Wuhan’s residents are now attracting the attention of high end developers, auto manufacturers, and foreign branded consumer goods companies.
Quick Stats: Population: 8.58 million / GDP: 27.98 billion USD/ Contracted FDI: 199 million USD / Per capita Disposable Income: 10850 RMB
Xian – . Located in the north of China in-between Beijing and Chengdu, Xian has historically been considered to be the “Gateway to the West” for multinationals looking to open the western front. Due primarily to the lack of infrastructure to really serve as a manufacturing base for Chinese products, the difficulties of Western firms to get their East Coast operations profitable, and a lack of a strong local market, Xian did not receive the attention or investments as originally planned. To capture investment, Xian has leverage its 700 scientific research institutions and 40 universities to become a leader in aeronautics, aerospace, software, and other high value industries. By the end of 2004, fifty-eight countries and regions had established about 2,560 enterprises in Xian.
Quick Stats: Population: 7.42 million / GDP: 15.88 billion USD/ Contracted FDI: 140 million USD / Per capita Disposable Income: 15925 RMB
Other Cities: Nanchang
Wrap Up:
The central provinces are going to play an important role in the future of China, but it is going to take longer for this area to develop than it did on the east coast.
In order to bring in much needed investment, the area will need to leverage its regional advantages to attract companies looking to manufacture for the domestic market. In the area of logistics, Xian and Wuhan will play critical roles as long haul trucking and rail routes will connect east and west/ north and south through these cities.
From a manufacturing perspective, the investments by IBM, Motorola, and Boeing are all testaments to the future of Xian while the investments by LEAR, Peugeot, and Cummins in Wuhan show how it is leveraging its historical strengths and regional access to raw materials to draw in an increasing level of technology and investment.
The one thing really holding this area back though is that the cities themselves are not ones that foreign expatriates or senior local managers want to live in (unlike Dalian, Xiamen, or Chengdu) and that could continue to restrict investment.