Among the three municipalities granted provincial status in the early stages of China's push to open up to trade, Tianjin has the lowest profile among foreign investors.
Overshadowed by the political significance of near neighbour, Beijing, and unable to match the glamour and verve of Shanghai's reincarnation as a trading port, Tianjin's economic importance has often been over-looked. However, the international business community should expect to hear much more about Tianjin in the future as it emerges as a key manufacturing centre for the Chinese microchip industry.
Zone attains critical mass
At the end of a two-hour drive from central Beijing, and almost one hour away from downtown Tianjin, the Tianjin Economic Development Zone (Teda) seems an unlikely location for the nerve centre of high-technology manufacturing in China. It is, however, strategically located near the excellent road and sea services that feed into Tanggu port.
After 15 years of wooing foreign companies, it has now reached critical mass. Since it was established as the first state-approved development zone back in 1984, Teda has attracted more than 3,000 companies to its facilities and pledged investment has now topped US$10bn. Leading edge manufacturers of semiconductor chips, most notably
Motorola, Samsung and Gemplus, are all committed to building operations in Teda that will supply components to meet the fast-growing demand for mobile phones, smart cards and computer systems.
The single biggest investment so far is a US$1.9bn semiconductor plant planned by Motorola, from where the US company will supply chips to China and the whole of the Asia-Pacific. It will be one of the biggest semiconductor manufacturing facilities in the world when production starts in May.
While the growth of the domestic Chinese market for products using semiconductor chips is probably more buoyant than any-where else in the world, Tianjin is also well placed to benefit from a shift of manufacturing in the high-technology industry to China.
When construction is complete, the city will rank as one of the few in the region with a wafer fabrication plant. A Motorola spokesman said that the company decided to focus its investment on China because the country is emerging as a top manufacturing centre for semiconductor chips. It does the company's prospects in China no harm that the Tianjin facility will be its second integrated chip plant in Asia with a wafer fabrication facility, complementing a similar factory in Japan.
The US$1.9bn investment will be split between two separate manufacturing facilities. At the first site, the Motorola Tianjin Integrated Semiconductor Manufacturing Complex, a range of semiconductor products will be made for use in wireless communications devices, automobile electronics and consumer products. On completion in 2002, the facility will employ 2,400 people.
?The site will become one of the largest integrated semiconductor manufacturing facilities in the world, and the most advanced in China,? a company statement claims.
At the second site, called Motorola Asia Telecommunication Product Manufacturing, the emphasis will be on producing components for the wireless internet across a range of networks including GSM, TDMA, WAP, wireless internet protocol and GPRS. The facility will also supply infrastructure equipment to support these networks. The complex will include China's first wholly foreign-owned silicon-wafer fabrication plant, which will go on-line by the end of 2001.
Part of the attraction for Motorola in Tianjin was the great deal it was able to secure from Teda. Its VAT will be cut from 17 percent to 6 percent and its enterprise income tax will be exempted for five years and reduced by 50 percent for another five years. The imported raw materials and parts for the project's production will be free from import duties. Its profits will be permitted to be converted into US dollars.
Another crucial factor is the abundant sup-ply of skilled labour in the Beijing/Tianjin area. Although the company will have to surmount a reluctance of skilled professionals to live, or at the very least, work in Teda, as opposed to Beijing, it sees the area as having enough young scientists to meet its needs.
Partly this can be attributed to the fact that Motorola has been proactive in training a talent pool it can draw on. The Motorola University is the largest such facility operated by a multinational in the country. It boasts two campuses – one in Tianjin and another in the Chaoyang district of Beijing – a US$4.5m annual budget, 42 full-time staff and 90 part-time instructors.
The company already has eight semiconductor design houses on the Mainland, which places it at the forefront of the emergence of design houses capable of working on semi-conductor projects.
"Despite the cost and technology hurdles involved in building really up-to-the-minute foundries, the time is not far off when Tianjin will definitely be host to a competitive fab-foundry business," says one executive in a rival semiconductor firm. "With the commitment of Motorola, it has a multinational-integrated device manufacturer there with a production foundry."
Chinese companies are also investing in the chip sector, attracted by the surging demand for semiconductors caused by the country's increasing use of computer technology. In the past three months, construction has begun on major plants in Beijing and Shanghai. Huaxia Semiconductor Manufacturing Co in Beijing, part funded by Shougang steel group, is expected to attract investment of up to US$10bn by 2010. The plant is due to start operation in 2002.
Shanghai has announced plans to build an entire semiconductor industry by 2005, with at least 10 foundries. This in turn will allow the development of all supporting industries, such as maintenance and integrated circuit design. Shanghai Grace Semiconductor Manufacturing Corporation has set up in Zhangjiang High-Tech Park with US$1.63bn of investment and it plans to start operations in 2002. Meanwhile, Shanghai Hua Hong NEC Electronics was recently reported to be considering building a US$1.6bn second fabrication plant in Pudong. Shanghai has announced plans to build an entire semiconductor industry by 2005, with at least 10 foundries. This in turn will allow the development of supporting industries, such as maintenance and integrated circuit design.
While the Motorola contract is a coup for Teda, officials are also pleased that this is not a one-off investment in the high-tech sector. They believe that another recent announcement by the French integrated circuit card manufacturer, Gemplus, that it would open a plant to supply rising demand for smart cards in China, points to a trend among manufactures to look at the city as a base for sophisticated manufacturing facilities.
The 3,000 sq metre Gemplus plant will produce 80m integrated circuit and SIM cards for mobile telephone users. According to Mr. Simon Gao, sales manager for Infineon Technology China, there are more than 30 cities exploring schemes to use integrated circuit cards for their transit systems.
Early this year, the Japanese electronics company Rohm signed a contract for land-use rights in Teda. The company, which makes a variety of components used in mobile phones, computers and other electronic devices, plans to set up a production and research centre on the site. Already one of the biggest IT investors in the city, Rohm plans to boost its investment to US$300m.
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