After Nanjing Auto Group bought struggling British carmaker MG Rover, beating out rival Shanghai Automotive Industry Corp, it landed in global headlines and put Nanjing on the map. With automakers like Ford, Fiat and Mazda already producing in the former imperial capital, the talk among the city's residents is that Nanjing is gearing up to take its place as the next Detroit.
But, foreign businessmen and city technocrats shrug their shoulders or roll their eyes when the Nanjing Auto-Rover deal is mentioned. No one seems sure what the state-owned enterprise has in mind. A foreign operations manager working in Nanjing says Nanjing Auto is such a non-presence in the city he had to ask someone what it was when he heard about the takeover. In truth, despite rapid growth and a GDP that doubled in less than five years, the city itself has gone relatively unnoticed as China makes its economic ascent, being better known for Ming tombs and the horrific World War II massacre than for manufacturing success and impressive FDI inflows.
From a muddy platform at the half-constructed railway station, Nanjing looks like any developing Chinese city – in every direction cranes stand silhouetted against the sky and dust settles on any exposed surface. What makes Nanjing stand out – what is driving impressive growth in capital-intensive secondary industries like auto manufacturing, chemicals, and electronics – is Nanjing's well-educated, highly-skilled population.
The 6.4m city residents have more per capita university graduates than the population of any other Chinese city. Nanjing's history as a Ming capital has bequeathed the city a legacy of impressive educational institutions with some 38 universities and 600 research institutes and trade schools. Along with Shanghai, Beijing and Xi'an it ranks as one of China's four centers of learning.
Bjorn Bostrom, president of Nanjing Ericsson Panda Communications Company, a telecommunications joint venture based in Nanjing since 1992, says the employees are his company?s greatest asset. "They have a high education level, an eagerness and a loyalty that is really impressive."
Nanjing's human capital and its strategic location in Jiangsu province (one of China's fastest growing provinces) are finally attracting foreign funds. FDI increased to US$2.59bn last year, a 25% jump from 2003. Following the flow of capital, department stores have opened; Starbucks has started appearing on unexpected corners. Nanjing seems to be riding the new wave of capital that is moving beyond the coast and braving China's inland.
More than cheap labor
When Ericsson moved to the newly opened Jiang Ning Science Park in 1996, the low sprawling buildings of its telecommunications plant dominated the empty lots. Almost 10 years later, sitting in a clean corner office with windows looking over shiny new production plants of industry giants like Pepsi, Siemens and Toshiba, Bostrom could not be more positive about his firm's experience in Nanjing. Three quarters of his staff hold a college degree. "In Shenzhen you'd be lucky if the reverse was true," he says. Ericsson's success in Nanjing (expanding from 50 original employees to 560 today) and its president's enthusiasm for the work culture has helped to woo other multinational companies to the river city. Urged by Bostrom to try this cultural capital, Flextronics, the world's largest electronics company, moved beyond its factories in Beijing and Shanghai to open up shop in the Nanjing development zone. Flextronics representatives continue to thank Bostrom for introducing them to Nanjing, Bostrom says.
Siemens set up Siemens Numerical Control Ltd, a joint venture with China Northern Industry Group Co, in 1996 right next door to Ericsson. They were attracted by the good training schools specially those for machine use, says Marc Wucherer, general manager of the Siemens Numerical Control plant. "We didn't want to be just a production center, but also an R&D base and this demanded a population that could support it."
Today 70 of Siemens 330 Nanjing employees are working in research and development, and they plan to up that number to 100 in the next two years. "We're expanding everything," Wucherer says. Many MNCs located in Nanjing – including Ericsson and Lucent – have substantial R&D programs. BASF AG, the world's largest chemical maker, opened its US$2.9bn Nanjing plant early this summer, the first plant of its kind in China.
Most foreign companies, of course, must still invest in extensive employee training. In the Australia-based plants of Heat and Control, a global food-processing manufacturer, employees are trained in a four-year apprenticeship program and have a wide variety of skills allowing them to take part in each step of the building process. Workers in Heat and Control's three-month old Nanjing plant, on the other hand, are single-skilled, working in an assembly line process where one does all the assembling, another the welding, a third the polishing. Still, capitalizing on Nanjing's resources, the company is working with one of the local technical schools to design a program to better train future employees in the building process.
And while King suggests Nanjing's manufacturing base of state-owned enterprises provides a trained workforce for private enterprise to pilfer, some general managers say SOE training can be a double-edged sword. Foreign enterprises do choose to augment their pool of fresh young graduates with older experienced workers, but former-SOE employees can have an attitude about work that doesn't necessarily lend itself to private employment. This potential stumbling block, however, is hardly unique to Nanjing. Impressive levels of foreign direct investment in capital-intensive, secondary industries stand as the ultimate testament to Nanjing's highly-skilled workers. Nanjing's chemical industry earned US$11.2bn in 2004, almost one half of the city's 2004 GDP. The electronics and auto industries brought in US$9bn and US$2.1bn respectively.
Location, location, location
Just a 300km distance and a three-hour train ride from Shanghai and the heart of the Yangtze River delta, the city of Nanjing has access to the trade routes, transportation and infrastructure spillover from the more mature coastal economies. "Today 300km is not a great distance; more than 300km might not be worth it. To go to Chongqing, that is a major step," says Bostrom.
The proximity to suppliers based in Jiangsu province is a major draw for firms like Ericsson that depend on rapid turnover for their competitive advantage. Ericsson can maintain a 10-day lead-time for assembling special orders at its Nanjing plant because its sub-suppliers are so close by.
Also, Nanjing's location at the crossroads 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 get their products around the country and overseas. The four-lane road to Shanghai is being expanded into an eight-lane highway and is set to be completed by October. "That will minimize the drawbacks of not being in Shanghai, and maximize the benefits of a low pay scale," says operations manager at Heat and Control, Nigel Morrison.
Nanjing's port, the largest inland port in China, has a daily turnover of 50,000 tonnes. The city places in China's top ten in terms of number of cargo transportation routes. With four million passengers traveling through each year, Nanjing's airport is fifteenth in terms of traffic in China.
In fact, the only drawback to Nanjing's location is the lack of direct flights to Europe, says Bostrom.
Beyond logistical accessibility, Nanjing, as a provincial capital, provides easy access to state services and global organizations. The Jiang Ning development zone promises to have all necessary government licenses and deeds signed and filed in just seven days.
The city also is home to China's only European Chamber of Commerce outside Beijing and Shanghai. Heat and Control's Morrisson, an Australian working for an American firm, is a member because he finds the support of a trade group, any trade group, quite useful.
Small city advantages
A center of learning, a logistical hub, Nanjing has "all the advantages of a big city, without the problems associated with over-heating" says Ericsson's Bostrom. The prices for land and labor remain comparably quite low. Average annual wages are US$3,128. The average price of land was US$15,000-22,000 per mu, compared with US$660,000 per mu in Shanghai and US$440,000 in Beijing.
And the advantages of Nanjing's less saturated market expand beyond cheap wages and property. In Nanjing, with fewer enterprises to choose from, employees tend to be more loyal to their companies, according to Bostrom. While most managers continually complain about staff-retention across China, Bostrom says his employees are willing to stick around for the long term.
Finally, in terms of quality of life, Nanjing provides green spaces and clean air sorely missed in the urban sprawl of some of China's coastal cities. Having been by-passed by the first wave of development, and now capitalizing on higher tech industries, Nanjing has been able to preserve its environment and its history.
"Most foreign visitors are surprised how green the city is," says the general manager of the Nanjing Hilton, Halldor Briem. In between bulldozed buildings and half constructed lots there are glimpses of willows draping their long branches into the slow flowing Yangtze and green lawns expanding out from the base of original city walls. Many expats, having once worked in Shanghai or Beijing, enjoy access to the vast Purple Mountain Park where acre upon acre of forest surrounds cultural sites like Sun Yet-sen's mausoleum in the center of the city
On its way up
Nanjing is, without question, a city on the rise. And part of that is a growing and increasingly westernized service sector. As of only two or three years ago, Nanjing supermarkets began selling French wines and cheeses. "Today, you can get almost anything you want here," says Siemens' Wucherer.
Room rates and occupancy rates have risen at the Nanjing Hilton, despite the fact that more and more western chain hotels are setting up in the city. About 80% of the guests are visiting on business. But Nanjing is a draw for tourism – especially attractive to Chinese tourists looking for a crash course in their nation's history.
Sun Yet-sen's mausoleum, the prototypical Ming tomb and the massacre museum all give Nanjing a historical background sorely lacking in several Chinese cities that seem to have gone up over night. The municipal government, in the last few years, has just started supporting the service industry, specifically tourism, says Hilton manager Briem. He expects the industry to keep growing.
Developers, moving beyond Shanghai and eyeing Nanjing's land, seem to agree with him. "Nanjing 1912," a recently opened entertainment complex named for the year Sun Yet-sen declared the creation of the Republic of China from the governor's palace in the city center, serves as Nanjing's Xintiandi, housing high-end restaurants and expensive shops in stylized brick buildings.
Still, on a recent Thursday night, the empty alleys of "1912" stood as a reminder that while Nanjing may be on its way up, it is not yet there. The optimists boasting about Nanjing as the next Detroit, do well to note that the city has its sights set on a smaller goal simply working to be China's no 3 auto-producer in the next five years. While the city opened up to foreign enterprises in 1984, one of China's first to do so, it still lags behind Suzhou and Wuxi (the neighboring cities leading Jiangsu's boom) in terms of GDP. Nanjing's growth has been recent, with the GDP doubling from US$11bn to US$23.5bn in just the last five years.
Yes, Nanjing has a lot to offer the investor and it has a potentially booming future. But as with any developing Chinese city, much remains to be seen.
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