The bamboo forests surrounding the city, the mammoth Tibetan plateau in the West and famously flavorful Sichuan cuisine may serve the senses, but only in recent years has the southwestern city of Chengdu served the bottom line. Motorola set up a software center in Sichuan’s capital in 1998, and since then, Intel, Microsoft, Alcatel and a slew of other hi-tech companies have followed. “If you go drive around the science parks here you can see what’s really going on – there are some big names here and there’s a big emphasis from the province to push this industry, that’s for sure,” said Xavier Maurey, Chairman of European Chamber of Commerce’s Chengdu board.
Indeed, shiny new science parks standing in the middle of vast empty fields don’t pop up out of nowhere. The government courted Motorola, for example, by building the modern glass facility and agreeing to lease the premises to the tech giant for a very good price. “The government here has been very supportive,” said Stone Shi, a Jiangsu province native who attended university in Sichuan before becoming site manager at Motorola’s Chengdu facility. “They encouraged us and provided us good services.” When Motorola had a problem with recruiting, they talked to the government, said Shi. When the company had security concerns, the government increased police patrols. The municipality has promised Motorola that any provincial power shortages would not affect the facility.
Much of Chengdu’s progress in the last few years (GDP grew 66.5% from 2000 to 2004, while FDI grew 325% during the same period) is a product of pro-business policies by the municipal government, the provincial government and Beijing. Handouts and sweetened deals have played an integral role in China’s “Go West” campaign to woo educated Chinese and capital-rich MNCs away from saturated eastern cities and into the largely marginalized hinterland.
Now, western China is beginning to reap the rewards of the country’s economic rise, and Chengdu plans to play the role of Western capital.
The bottom line
Certainly it was not propaganda posters of overall-clad patriots moving west with their coastal skills and sophistication that won over the 98 Fortune 500 companies which have set up shop in one of Chengdu’s many tech parks. Few provinces can boast the number of incentives provided by Sichuan. As in the case of Motorola, government flexibility and economic breaks are a big pull to many investors.
“The Chengdu government and the Sichuanese government have been very active in attracting more and more companies,” said Maurey. “The European Chamber has been very active with the authorities to discuss with them the issues which would attract more investment and make foreign investment more comfortable. And they are really listening,” he said.
Beyond government-planned incentives, the fact that Chengdu has not yet been swept away in China’s FDI wave means less competition, and some serious cost-cutting for investors. Wages in Chengdu are about half those in Shanghai or Beijing. Average pay in the western city is RMB 12,671 a year, compared with Shanghai’s RMB 24,398 and Beijing’s RMB 28,348. Firms need not sacrifice intellectual capital in exchange for these cheaper wages. Chengdu, with 30 universities to serve its population of 10 million, has one of the most highly educated populations in China’s interior. “We have very good universities in Sichuan, so they provide us with a huge talent pool,” said Motorola’s Shi. Further, “the people here are quite stable”, he continued. “If you look at this center the attrition rate is quite low compared with the east of China.”
Outside the business sphere, Chengdu offers a slower pace – and some would say a higher quality – of life. The streets are still busy with traffic and construction, but the people and the cars move a bit slower, and it is common for residents to spend an afternoon sitting in a temple teahouse. While some graduates may travel to Beijing or Shanghai in search of bigger opportunities, many return, says European Chamber’s Maurey. “They consider moving back to where they like best – the Sichuanese environment, the food, and the good opportunities they have here.”
As companies across China complain of high staff turnover, reliable employees are certainly a Chengdu advantage. Of course, there’s always a trade-off. Chengdu’s downside is the city’s geographically isolated location. Sichuan is a landlocked province, and no major waterway flows through its capital. Supplies transported in and goods transported out must first go through Chongqing, Luzhou or Leshan, distanced from the city by 360 km, 290 km, and 144 km respectively. By rail it takes four to five days for cargo to travel from Chengdu to Shanghai or Shenzhen. And while Sichuan has an excellent network of roads and rails within the province, the transport system connecting the area with certain regions of China could pose challenges, says Maurey. “Can the cold chain always be guaranteed when frozen goods travel the distance?” Maurey asks rhetorically to illustrate potential logistical problems.
The government has beefed up air transport, recently building a second airport runway. Currently Chengdu has daily flights (both passenger and cargo) to Shanghai, Beijing, Guangzhou and Shenzhen and weekly international flights to Hong Kong, Bangkok and Singapore, among others.
Gateway to the West
While Chengdu’s location may not be ideal for exporting to faraway places, the city’s position on the western frontier provides entry to China’s more far-.ung markets. Sichuan province, China’s third largest in terms of population, encompasses a vast network of roads and railways sprawling toward South-western China, allowing consumerism to increasingly include cities and villages in the interior.
In total, Chengdu now has 21 consumer goods trading markets with a business volume above US$10 million each, and two capital goods markets with a business volume of about US$100 million each. In 2003, Chengdu’s retail sales reached US$9.52 billion, the highest volume of any city in China’s West.
Servicing this market, Chengdu-based electronics manufacturer Sichuan Changhong Electric Co, has become China’s biggest producer of TVs, generating US$583 million last year from color TV sales, a 21.15% year-on-year increase. The company’s income from air conditioning sales grew 99.24% year-on-year, to US$152 million.
This kind of growth potential has lured businesses from around the world. Starting in the early 1990s, mainland businesses looking to cut costs set up factories and markets at this gateway to the West. Chengdu has received significant investment particularly from Guangdong and Fujian businesses. A recent report from the Hong Kong Trade Development Council has also given the city a boost, portraying Chengdu as an opportunity for Hong Kong investors.
Fujian natives control almost 80% of Chengdu’s building material business. Guangdong natives have established beauty and hair salons while also specializing in garments. And, according to the trade development council report, Wenzhou natives control one third of Chengdu’s business, mainly dominating lighting projects, building materials and clothing markets.
Foreign firms also have established shops in Chengdu to serve the western market. Coca Cola, Pepsi Cola, Toyota, Sumitomo and GM – to name a few – have all set up wholly-owned or JV plants. France’s Carrefour moved its headquarters for Central and Western China from Shanghai to Chengdu in 2004. German-based Bayer’s animal pharmaceuticals plant just outside the city supports the region’s agricultural sector. Groupama Insurance, France’s leading mutual insurer, opened its first China branch in Chengdu last year. The firm, which bills itself as a worldwide agriculture specialist, aims to enter both urban and rural markets through its western location.
Hi-tech hub While
Sichuan’s isolated location may prevent the c
apital from developing into an export powerhouse like Yiwu and other strate-gically located second-tier cities, Chengdu has, in fact, scored the silver bullet of development strategy: hi- tech business and R&D centers.
“If you are developing software in Chengdu, infrastructure doesn’t matter. You don’t have to be close to the sea,” Shi said. Motorola’s Chengdu software center develops mobile phone software for overseas clients and an emergency phone system for the local government. And Motorola has already reserved land to expand its Chengdu facility.
French telecommunications company Alcatel announced mid-August its expansion plans. The company will augment its optical communication R&D center already located in the city with a facility for research and development in mobile and fixed lines set to employ an additional 300 engineers.
Beyond telecommunications development, Chengdu is trying to build itself into an online game development center. Game software is already big there, Shi said. Meanwhile, the municipal government is trying to push growth in a sector on which Chinese players spent almost US$500 million last year.
Hitching on the hi-tech wagon, Intel established a US$375 million plant designed to make chips for export to Asian and international markets. While logistics may remain an issue, acting as part of a hi-tech hub has its own advantages.
What’s more, “at least 3-4 IC [integrated circuit] companies are considering moving here”, said Shi. “It is too early to say if Chengdu is going to be the No 1 place in China for software but the speed of growth is certainly close to No 1.”
Roots in the land
Chengdu remains an urban center built on the agriculture industry. About seven million of the city’s 10 million residents are rural workers. While Chengdu doesn’t look all that different from the average Chinese metropolis, it is surrounded by lush vegetation supported by a warm climate and 1,000 mm of annual rainfall. Sichuan’s fertile eastern .ood plain earned the city the nickname “Tian Fu” or “land of abundance” 2,000 years ago. Today, Chengdu’s surrounding area remains a major breadbasket for China.
The fertile plain and the well-timed rainfall allow Chengdu to offer outdoor activities and an access to nature that several of China’s developing cities lack, thus boosting tourism and making the city more liv-able. Industrialization has turned the city center into a polluted smoggy downtown but, just outside the city, nature remains pristine. Several mountains – including the sacred Buddhist peak Emeishan – stand just a few hours away by car.
Sichuan’s verdure is home to 80% of China’s less than 1,000 remaining Giant Pandas. Just 10 km from downtown, the Chengdu Panda Breeding Research Center provides tourists with a view of the bears in an imitation of their natural habitat.
Quality of life
An important consideration in the development of any city goes beyond the construction of infrastructure and new factories. Every thriving region needs cultural centers to attract artists who play an important role in making a city an attractive place to live. Chengdu is developing fast in this area, said Serge Leclercq, director of Alliance Francaise, a government-backed French educational organization.
“We have a cultural difference in Sichuan from the rest of China and there are many Chinese intellectuals in here. There are writers, artists, musicians and China’s first psychoanalyst is here. There is a very open culture,” Leclercq said. The tradition of art and knowledge-seeking in Chengdu extends back through the centuries, when the city was a refuge for poets, painters, and dissidents under fire from one or another angry emperor. In modern times, Chengdu, with its naturally fortified position surrounded by treacherous mountains on all sides, served as a fallback to thousands of Chinese and foreigners on the run from the invading Japanese armies.
Though one of the last giant Mao statues still stands in Tianfu Square, the city center, he is looked upon as a relic of the past rather than a guide to the future. Indeed, the square is now completely dug out as is now completely dug out as part of the city’s plan to build its own Metro transport system (trains won’t be running for at least five years). When Chengdu looks on its past, it considers the delicacies of Sichuan opera, still on display professionally and on an amateur level in People’s Park; at the monks and the teahouse of Wenshu Temple; or the city’s tradition of wartime resistance. And Chengdu embraces the modern, with its designer outlets on People’s Road and its punk rock at the Little Bar in Yulin.
Nightlife for foreigners (and many Chinese) revolves around a small handful of bars such as the Shamrock Pub on People’s South Road. The crowds can fill it up, and most faces are familiar. It is a smaller, more intimate foreign crowd than Beijing’s or Shanghai’s. On a recent Saturday night, as the barkeep lit a flurry of cocktails aflame, a local businessman (who declined to be named here) said, “I’ve sold everything I have in Australia – a million and a half dollars – and invested it all right here [in Chengdu].”
But it is not all roses for foreigners transplanted to Chengdu. The city is growing fast, but many amenities taken for granted in more developed Chinese cities are still in their infancy in Chengdu – or they don’t exist at all. Western restaurants are popping up and offering a wider variety of cuisine, but families with children may have to enter them in the local school system. The Alliance Francaise has opened a French school for Chinese children, providing an education option for children of French expatriates; but otherwise there is no international high school.
This is a problem, said Maurey of the European Chamber of Commerce. “In some industries you may need people in that bracket of 38-50 years old; they have kids.” And for many, there is no acceptable schooling option. “It’s like the chicken and the egg – you have no school so people don’t come but you can’t build a school if there aren’t enough children,” Maurey said.
The Chamber, along with MNCs, is lobbying the government for help with International School funding. Good results are expected.
Meanwhile, the French education presence has had a big impact on the city, said Lerclercq. “In Chengdu we can find good Chinese/ French translators more and more. This is a great development for us. There are more and more French companies coming here. Last year we had Groupama (insurance) arrive, and Airbus is already here.” Plus, Chengdu now has a direct flight to Paris. Perhaps the success of the French will encourage other entrepreneurs to open international schools. But for now, the expats in Chengdu tend to be young, single, or both.
Booming Chengdu is getting a subway, a new traffic system and a better power grid. There are three Parkson department stores and even a Cartier diamond shop. French retailer Carrefour has already established several stores and more are on the way. “Everything is growing,” Lerclercq said.
With government planning and flexibility thrown in too, Chengdu business prospects look healthy in deed.