TIANJIN, China--(BUSINESS WIRE)--The Tianjin Economic Development Area (TEDA) has just been ranked China's top National Industrial Park by the country's Ministry of Commerce for the 14th consecutive year, but its investment bureau chief Mei Zhihong knows there are stiff challenges ahead as China's economy restructures, according to a report by Z. H. STUDIO.
"Now a lot of Chinese cities are eager to promote themselves. They offer very attractive incentive packages that differ from city to city. We have met a lot of companies who are having difficulty deciding where to go," said Mei.
In topping the ranking, whose results were published in September, TEDA saw off competition from 89 other development areas and industrial parks including those in the Yangtze and Pearl River delta export hubs.
TEDA got the top mark for economic soundness, human resources and social responsibility and governance and was also in the top three for infrastructure capability, environmental protection and technical innovation.
"Investors are happy. It's one of the fastest-growing development zones in China with something like 20 percent a year," said Ren Xianfang, China analyst with his Global Insight in Beijing.
"It's based on much investment in heavy machinery and hi-tech infrastructure and has support from the central and local government. They are trying to move China's industrial base from the south and east to the north to achieve more balance between the regional economies."
TEDA was the first development area to be established in China, in 1984, and by 2010 it had approved 4,870 overseas projects from 74 countries and regions with a total investment of $62.2 billion. Some 78 Fortune 500 Companies have invested in 166 projects there. It has complete industrial clusters involving electronics & telecommunications, automobile, biopharmaceuticals, food & beverage, machinery manufacturing, aerospace, new energy and new material, petrochemicals and modern service and is a "world-class manufacturing powerhouse", according to the Hong Kong Trade Development Council (HKTDC). TEDA is responsible for about 20 percent of Tianjin's annual economic output.
But TEDA still has to differentiate itself from the other development zones mushrooming all over China, such as the 1,200 square km Chongqing Liangjiang New Area launched last year in the country's western interior.
Typically, investors in China's industrial parks face two main costs: start-up costs, including buying land, constructing a facility, bringing in equipment and staff; and operating costs, including dealing with different government organisations, buying raw materials and arranging logistics.
TEDA's strategy is to go beyond offering tasty start-up deals and look at reducing long-term operating costs for its investors, a "software solution in addition to the hardware solution", according to Xu Daihong of TEDA's Policy & Research Center.
"A lot of places focus on the initial cost and give special prices to get companies to come. Our initial costs are in the middle. We are paying more attention to the operational costs. We are not encouraging individual companies to come here. We are encouraging industrial sectors to be here," said Mei.
"We offer a complete environment, including the supply chain, customers and suppliers. Many companies making serious investment look more at these factors. That's one of our biggest advantages," she added.
For example, TEDA has developed a telecoms cluster by first attracting Motorola to invest and then working on bringing in its suppliers too, to bring down logistics costs. Another investor, Samsung, brought its own suppliers with it.
Working with demanding customers has pushed TEDA to go from merely guaranteeing a stable electricity supply during the early years to creating a transparent system to ensure companies know what is required from them by regulations, ensuring a supply of qualified employees and providing outsourced services, according to Xu.
"When China wasn't yet talking about outsourcing these companies showed us how to outsource. One company sold their IT department to someone else, who now operates it and also provides services to other companies. There are many such cases. For myself it's a great experience to work with these companies, you learn so much," said Mei.
In addition to standing out through its services offering, TEDA is finding its own solutions to challenges that are affecting the whole of China's prosperous eastern seaboard, where breakneck development and growth now mean lower land availability and strong upward pressure on salaries.
"China has higher inflation now. It's structural. A tighter labour market leads to higher interest rates. The development model will have to begin to shift," said Tom Miller, managing director of the Dragonomics research firm.
"After so many years of building industrial parks there isn't much land left. Combined with higher land costs and the property market boom all this has reduced competitiveness," said Global Insight's Ren.
Added to this mix is China's recently imposed monetary tightening policy, aimed at bringing down price inflation, which in turn partly drives demand for higher salaries. Tougher borrowing terms mean it is harder for TEDA and its competitors to access cheap capital to develop land.
TEDA relies on a strong partnership with the Tianjin government for land, with Tianjin in turn benefiting from TEDA's international reputation and jolt on the local economy, according to Mei.
"Land is always a very constrained resource in China. We make huge investments in land development and infrastructure. The Tianjin municipal government is very supportive. They encourage us to build cooperation with local districts so we acquire land and compensate. Then we manage and develop the land," said Mei.
In response to upward pressure on salaries, TEDA is encouraging its tenants to freeze the generous pay awarded to top executives while increasing the much lower salaries given to machine operators. The local government has also pledged to subsidise part of salary increases for operators to boost their quality of life.
But TEDA's overall strategy is to move away from labour intensive industry and towards automated high-end manufacturing. Mei cites the Danish healthcare company Novo Nordisk, which has a big plant in TEDA that is operated by just 1,000 people, as an example of the kind of company TEDA is looking for.
"The transformation of industry is a natural process. Lower tech and labour intensive companies will continue to leave TEDA because they can no longer afford the costs. But for Novo Nordisk, which is highly automated and operates on a big margin, it makes good economic sense to be in TEDA because they require a sophisticated and transparent environment," she said.
Suzuki Tatsuya, the general manager of Tokai Carbon, echoes these sentiments.
"We chose TEDA because we realise that it is closer to raw materials and customers. More importantly, local government is the decisive factor. It is natural for us to trust a partner with high administrative efficiency and nice services," he said.
This is also how TEDA hopes to attract companies to its recently established Nangang Industrial Zone. About 200 square km in size, Nangang is envisaged as an all-in-one port complex dominated by petrochemical industry. It has so far inked agreements with Fortune 500 Companies such as Dow Chemical and Air Liquide. About 30 projects worth about $30 billion such as refineries and warehousing logistics are under rapid construction.
TEDA hopes Nangang will achieve an annual industrial output of $47 billion by 2015, rising to $78 billion by 2020, by which time it aims to have become China's main cluster of oil refinery and ethylene production and the main heavy chemical base for north China.
There is also a Modern Service District for finance, trade and logistics services aimed at the manufacturing companies TEDA hopes to lure.
"We want investors to find a similar or even better environment here than what they have at home. We will continue to improve services. It's a very pro-business environment," said Mei.
Tianjin is mentioned in China's latest Five-year plan as an economic centre in north China, while TEDA itself has benefited enormously from serious support from the central government as part of its policy to make the Bohai region an economic force to rival the Pearl River and the Yangtze Deltas, which themselves were the focus of government attention in the 1980s and 1990s respectively.
But central government attention will inevitably shift to other less developed regions, such as the western interior, Mei said.
"No one can permanently depend on other people or the central government. For Guangdong and Shanghai it was the same story. Once the development is there it is self-sustaining. Tianjin can find itself a lot of new opportunities," she said.
By focusing on sophisticated operational support for big high-end manufacturing enterprises rather than sweet start-up deals and offering advantages through the clustering effect of entire industrial sectors, TEDA hopes to maintain its competitive edge as China's economy restructures.
"We are working very hard and challenging ourselves to keep the top position," said Mei.