China's Regions: The East Coast

China’s Regions: The East Coast

Tuesday, November 7, 2006 5:59

With access to China’s largest sea ports, the east coast of China was the first region to develop in China, and is the market that has been the focus of most international manufacturing activity to date.
This is the area that most foreign companies consider as their primary entry location for manufacturing and markets for greatest sales potential. In fact, when executives say they are entering china, the “market” that they are describing are found within the cities found on the east coast.

Since Deng Xiao Ping’s famous striped cat speech, this area has seen a dramatic change in infrastructure, capabilities, and culture. Historically been attractive due to its proximity to suppliers, access to ports, higher quality of labor, ease of investment, and higher quality of infrastructure, this area has also become attractive for its consumer markets.
Historically, the gateways to China were the markets of :

Beijing – The political capital of China, Beijing has seen phenomenal growth and change over the last 5-8 years. Partly in preparation for the 2008 Olympics, and partly due to a general belief that Beijing needed to undergo 50 years of modernization over the last 5, Beijing’s skyline has been one littered by the blinking lights of cranes as retail, residential, and commercial properties are undergoing 24/7 development. Due to the need to develop political ties in Beijing to conduct business, Beijing has been a traditional base of operations for the world’s largest companies (Motorola, SIEMENS, Bayer, Shell, and others).
Quick Stats: Population: 14.23 million / GDP: 53 billion USD/ Contracted FDI: 6.52 billion USD / Per capita Disposable Income: 15638 RMB
Shanghai – Considered the economic/ financial capital of China, Shanghai has been the poster child for business in China: young, entrepreneurial, and dynamic. historically influenced more than any other mainland Chinese city, Shanghai offers a better quality of life in the eyes of expats, and is quickly becoming the city of choice for companies entering China for the first time. Shanghai has been very successful in attracting OEM manufacturers, financial service providers, banks, law firms, and several dozen regional headquarters. There is little doubt that shanghai will continue its role as China’s most important economic base, and will serve as China HQ and Asia HQ for many companies.
Quick Stats: Population: 16.7 million / GDP: 56.89 billion USD/ Contracted FDI: 2.46 billion USD / Per capita Disposable Income: 16682 RMB
Guangzhou – The southern gateway of Guangzhou has played a very important historical role in China’s export driven economy. Capital of the Guangdong province, it was Guangzhou that got a jump start on China’s success as the Guangdong province saw the high levels of investment in the basic industries that drove China’s future growth through the 90s. textiles, wood products, bicycles, plastics, and other high volume items have historically called this area home, and it is through the movement of these high volume/ low margin items that the ports of Shenzhen, Guangzhou, and Hong Kong grew.
As the east coast has benefited the last 5 years from the growth and success of the gateway cities, there have been a number of second tier cities that have also benefited greatly:
Tianjin – Located just a little over an hour from Beijing (with good traffic), Tianjin is a port city that has more than an other second tier city benefited from its proximity to a gateway city. Through the Tianjin Economic Development Zone (TEDA), Tianjin been very successful in attracting multinational manufacturers like Motorola, Nissan, Canon, and others who are manufacturing high technology goods for both the export and domestic markets. As Beijing continues to grow, and as the Olympics draws nearer, expect the growth in Tianjin to continue as well.
Quick Stats: Population: 10.4 million / GDP: 45.78 billion USD/ Contracted FDI: 430 million USD / Per capita Disposable Income: 11467 RMB
Nanjing – 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. Due in large part to its proximity to Shanghai, Nanjing enjoys the attention of many foreign companies looking to setup manufacturing. Many 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. Nanjing grew at a pace of over 15% for the last four years through an industrial manufacturing base of petrochemicals, electronics, automobile, steel, and power.
Quick Stats: Population: 5.95 million /GDP: 30.16 billion USD/ Contracted FDI: 540 million USD /Per capita Disposable Income: 14997 RMB
Xiamen – Xiamen’s investment has historically been higher than other cities due to its port, location, and ties within the Taiwanese business community. As one of the first four special economic zones (SEZ) in China, Xiamen has enjoyed a high amount of concentrated FDI from Taiwan and Korean companies setting up light and medium manufacturing sites. . Investments have continued to grow steadily, with 453 contracts signed in 2004 for 1.80 billion USD. As Dell and other high tech OEMs continue to invest in Xiamen, it can be expected that many of the small and medium suppliers will soon follow with their own investments.
Quick Stats: Population: 1.53 million / GDP: 12.87 billion USD/ Contracted FDI: 1.3 billion USD / Per capita Disposable Income: 16403 RMB
Other cities: Hefei, Hangzhou, Ningbo, Fuzhou, Shantou, Dongguan, Zhuhai, Shijiazhuang, and Hefei
Wrap up: The east coast has been the engine for growth in china, and will continue to be for the foreseeable. It has been the platform for an export driven economy, and it will be the platform for China’s ongoing success as a developed economy over the long term.
Much like the East coast of the United States in its growth, the proximity to ports was a major factor in attracting the early investment into the area, and it was the ability of those governments, technology zones, cities, and employees to not only fulfill the promises made, but create an environment that attracted more investment.
In the long term, companies will have to move away from an east coast only model. However the cities of the east coast will continue to serve as a platform for the overall domestic economy, and to those that wish to seize the opportunities that presents.