One of China's five major ports for foreign trade, Qingdao is emerging as an economic hub of north-east China. Over recent years, this former German colony has become a powerful base for chemicals and heavy industry and it has become an export engine where international trade (US$5.9bn in 1998) accounts for 55 percent of the city's GDP. Already the source of well-known brand names such as Haier, Hi-Sense and Tsingtao, the city is pushing for a greater share of international markets. Shandong province's leading coastal city is the" top exporter of refrigerators in China and ranks among the top five national producers of electric appliances.
Qingdao is implementing an urban plan initiated in 1985 that tries to preserve the old historic heart of the city while developing new industrial and commercial areas. Since 1992, the local government has spent Yn8.5bn on Qingdao's urban development, with investment coming from public financing and bank loans. The city government's plan is to make Qingdao a hub for transport, trade, finance and information in the Yellow River delta region. Key selected industries include high technology, chemicals, light industry, marine production and tourism.
Covering 10,654 sq km, greater Qingdao had a population of 6.9m at the end of 1998, of which 2.2m live in the city proper. There are plans to create 15 new residential areas by 2010. Qingdao also has big industrial projects along the coastline – it was decided in 1992 that industrial and technological development should be concentrated on the eastern side of the city. More than 20 polluting enterprises in the old city are going to be shut down or relocated.
"The population will then also shift eastward and under these circumstances it will become easier to preserve the architectural heritage of the central part of the city," explains an official in charge of urban planning.
The same strategy of outward development applies to the shipping industry. Qingdao boasts one of the largest trans-shipment ports for international containers in Mainland China, especially refrigerated containers. The port handled 1.24m teu in the first 10 months of 1999, occupying third place in China, behind Shanghai and Shenzhen. It has the largest terminals for crude oil and mineral ore – a 200,000-tonne capacity oil terminal and a 100,000-tonne capacity coal terminal.
The port is divided into three areas, the oldest harbour area being in the city centre and containing 15 berths. Huangdo oil port, the largest crude oil transfer base in the Mainland, has two modem, specialised oil wharves and has started an oil tank project. But the greatest hope for Qingdao's shipping industry lies in the western region, where the authorities want to build a large multi-functional shipping facility handling oil exports, high volume bulk cargo and containerised shipping. The Qianwan Bay area, to comprise 60 berths, is located in Qingdao Economic and Technological Development Zone. Since 1993, a dozen berths have been completed, among them a specialised berth capable of handling fifth-generation, 5,250 teu container ships.
On top of a competitive infrastructure, a dynamic approach to business has taken root in the city. Major light industrial groups such as Haier, Double Star and Aucma have achieved market leadership status in China. "These companies have been able to adapt their goods to the new consumption patterns," Qingdao Mayor Wang Jiahui said recently. "Obeying the rules of the market, they have avoided being hurt by falling demand and the on-going price deflation."
This approach helps to explain Haier's interim 1999 sales of Yn 10.3bn, an increase of 35 percent at a time when the domestic economy has been characterised by falling prices and a retail slowdown. Across the board, the city performed better than the national average during the first half of 1999. Its economic growth, supported mainly by foreign trade, has increased by 12.8 percent. The domestic slump has persuaded groups to increase exports in order to boost total sales during the first six months of 1999, Haier's exports soared 126 percent year-on-year.
The electric appliance manufacturer is building a large production facility in the US and many other industrial groups in Qingdao are also aiming at international markets while consolidating their position in China.
Tsingtao Beer, founded in 1903, is today one of three major beer groups supported by China National Light 39 Industry Chamber. Listed in Shanghai and Hong Kong, the group has invested in a Shenzhen-based joint venture with Japan's Asahi and is expanding rapidly in the competitive domestic market by absorbing loss-making breweries. So far, 15 breweries have been purchased and merged from all over China and five more were expected to become part of Tsingtao Group by the end of 1999. But few other local companies enjoy Tsingtao's easy access to financial markets. This is because, while enterprises all over China are competing to raise capital in Shanghai, Shenzhen, or abroad, only a handful of Qingdao companies have managed to get listed.
"This question is a real matter of concern to me," comments Mayor Wang, "because it is at the heart of the state-owned sector restructuring process. There are strict criteria to get listed and some Qingdao companies are meeting these conditions. I know that at least three of them are waiting their turn to get introduced on the markets."
In spite of this setback, the city's strong infrastructure and industrial facilities are an attraction to foreign businesses and banks. Over the past six years, US$5.29bn of foreign capital has been invested in the city.
At least 28 multinationals have set foot in Qingdao, including several large scale chemical projects. Some 295 foreign funded projects involve an investment of at least US$ l 0m. Mitsubishi, Lucent Technology, Hewlett-Packard, DuPont, Nestle, Ciba and Samsung are all present.
For many expatriates, the charm of the city is another incentive. "Qingdao is the only city in China where our expatriates come to live with their families," says an executive of Rhone-Poulenc, the French chemical and pharmaceutical group. Foreign financial institutions have been happy to follow – Yamaguchi Bank of Japan has a Qingdao branch, while Standard Chartered of Britain, Hong Kong's East Asia Bank and Overseas Chinese Bank of Singapore have all established representative offices.
The development zones
Qingdao has three nationally approved development zones and six provincial-zones. The first zone to be founded in 1984 was the state-approved Qingdao Economic and Technological Development Zone. Built on an area of 220 sq km and conceived as a base for chemicals and heavy industry, the zone has a population of 220,000 and has already attracted 1,048 foreign-funded projects. By the end of 1998, utilised foreign investment stood at US$960m, half of the contracted amount.
The 2.5 sq km Qingdao Free Trade Zone was founded in 1992. It combines areas for trade, bonded warehousing and export oriented processing industries, and has the advantage of being close to the newly built Qianwan port. It is also well connected to Qingdao airport and the centre of the city. By the end of 1998, 593 overseas projects involving a total investment of US$740m had been approved by the zone, most of them attracted by its preferential policies. Foreign-funded financial and insurance institutions are allowed to set up branches in the zone, and foreign trade conducted here is exempt from import and export licences, tariffs and VAT. Products manufactured by enterprises in the zone to be sold either in the zone or abroad are exempt from production tax.
The third state-level development zone is the 67 sq km Qingdao Hi-Tech Industrial Park located in the east of the city. This new high-technology centre with a population of 187,000 comprises industrial areas, an education area, a scientific research area, and residential areas. The park has more than 600 foreign invested projects involving utilised foreign investment of US$650m. Six provincial-level development zones of 6-10 sq km are also trying to attract foreign investment.
With the exception of Jiaonan Economic Development Zone, located 20 km from Qianwan port and adjacent to the ETDZ and free trade zone, none of them enjoy the advantages of the state-level zones.