In terms of travel time, Nanjing is now just a short hop away from China's premier business centre, Shanghai. Ever improving road and rail connections mean that the two cities are just three hours apart.
The difference in commercial attitudes and openness to foreign influence has been more difficult to narrow. The skyline may have changed enormously over the past four years, Nanjing city centre now being a forest of office towers like so many other Chinese cities. However, it still has a reputation for being inward looking and leery of foreigners, according to a foreign entrepreneur based in Shanghai. This is also the view of several long-time foreign residents in Nanjing.
Mr. Steve Barru, who runs a consultancy and manages the Nanjing International Business Association, admits that the government is conservative and slow on the regulatory front. The problem is not at the top, he says the current senior leadership is "outward looking and pretty sharp" but in persuading lower level officials to be easier to deal with and more accessible.
Administrative procedures for foreign investors are slow and somewhat complicated.
"We are improving the environment by strengthening the law, standardising practices and speeding up procedures," says an official from Nanjing's foreign trade department. A mediation centre has also been established for foreign investors to air grievances and resolve disputes.
The government has done a considerable amount to improve Nanjing's infrastructure. Power, telecommunications and transport services have all become more reliable.
The city is now an important transportation-hub in east China. Located on the lower reaches of the Yangtze some 350km from where the river meets the sea, Nanjing is Asia's largest inland port. It has an annual capacity to handle 50m tonnes of goods and 150,000 standard containers. Ships of up to 74,000 tonnes can reach Nanjing from downstream but only vessels of less than 10,000 tonnes can pass under the city's bridge upstream.
The modem airport, which was opened in 1997, is 40 minutes to one hour from the city centre. Mainland cities are well served but international connections are limited. Competition from Shanghai has prevented more overseas routes from being established. There are two flights every day to Hong Kong, three a week to Macau and one weekly to Bangkok. Discussions have also taken place about starting a service to Seoul. The airport has a capacity to handle 2.2m passengers annually.
Following the construction of the Huning expressway, Shanghai is just three hours away by road and a similar time by train.
Ironically, one of the great improvements in recent years – good road connections out of the city – presents a challenge to hoteliers since business people from Shanghai can now spend a working day in Nanjing without having to stay the night there.
Rail connections with the rest of China are good, the line to Shanghai being one of the busiest in the country. In March this year it was announced that work had begun on laying a 232km seamless steel railway track between Shanghai and Nanjing, the longest such track in the country. The project is expected to be completed within a year and should lead to greater capacity and faster travel times. The run-down Nanjing railway station is to get a facelift this year following a major fire there last November.
Work is also to begin this year on the first phase of a 17km-long subway. Total investment in this state-approved project is Yn6.46bn. The line will run north-south, taking in the city's downtown area, the rail-way station and scenic Xuanwu Lake.
Three years ago the city authorities decided to initiate a major road widening and improvement scheme. Trees were dug up and the city became a dustbowl. However, a replanting exercise has partly restored the city's leafy appearance.
A second Yangtze road bridge should be completed early next year. This will help relieve pressure on the existing bridge, while a highway linking the new bridge and circling the city should go some way to reducing urban congestion that has been building up in recent years.
Within the city, motorists should be aware that the police force operates one of the strictest traffic control regimes in all China. Stiff penalties are meted out to drivers who jump traffic lights or exceed speeding limits.
By May 2000, Jiangsu province had approved 38,889 foreign-invested enterprises involving contracted investment of US$77.94bn. Actual investment was US$42.05bn. However, the provincial capital of Nanjing lags behind Wuxi and Suzhou when it comes to attracting multinationals.
There are several reasons why Nanjing, a city of 5.3m people, has been eclipsed by its smaller rivals. They include closer proximity to Shanghai, a more enlightened approach by local government officials and the presence of Singapore-run industrial parks.
However, things could be turning in Nanjing's favour in each of these areas -transport is improving, the government is slowly becoming more accommodating and Singapore's planned withdrawal from its involvement in the Singapore-Suzhou Industrial Park is a public relations disaster for Suzhou.
However, Nanjing has its own problems with investment zones. As many as nine are scattered around the city, administered either by the municipal or county governments. Each offers its own preferential policies, locational advantages and industrial specialisations. This can be pretty confusing for foreign investors, who would be well advised to conduct their own due diligence to find out what each zone can actually deliver. It is particularly important to take a view on how long preferential tax policies are likely to continue in the light of China's anticipated admission to the World Trade Organisation.
The zone that has enjoyed fastest growth in recent years is the provincially administered toning Economic Develop-MOM Zone. Jiangning is not able to offer the same concessions as the national-level Nanjing HTDZ, for example, but its closeness to the airport and sound administration have won, over the likes of Ericsson, Motorola and Siemens.
Another zone on the way up is the 10sq km Nanjing ETDZ. The zone's biggest draw is good transportation links, having its own dedicated rail line and being located close to the city's port and a highway. This 10 sq km zone to the north-east of the city was established in 1992 and is split into three areas: pharmaceuticals and food; electronics and machinery; and fine chemicals. Mr. Eric Chen of the zone's investment promotion department admits that Pudong is a tough competitor but he points out to foreign companies that setting up a plant there would cost 30 percent more.
Twenty companies are already operating from the zone, involving US$ 1.3bn of registered capital. The biggest investment is a VCD and television set joint venture between Sharp and Panda, although most foreign investment here is in the form of WFOEs.
Seventy percent of the production of the Sharp and LG plants goes for export to Asia. However, because of Nanjing's growing reputation as a transport gateway to inland China, it perhaps makes more sense to view the city as a base for domestic production. "If you're coming here to manufacture for export, Shanghai is a far superior location," says Barru. "If you're manufacturing for domestic sales and inland distribution, then a city like Nanjing has real attractions."
Labour costs in Nanjing are lower than in Shanghai and lower than even Suzhou.
"In the last two years, and especially now, there has been significantly more interest from foreign investors than in the past," he adds. He says the city has benefited from the general opening up of eastern China and it now gets on the list of places where companies are looking for sites.
By the end of last year, 43 of the world's top 500 companies were reported to have established projects or branches in Nanjing. A critical mass is emerging that should lead to additional investment. As more foreign companies come in, there is a greater need for support services, such as banks, hotels and consultancy services.
European groups Fiat, Ericsson and Philips have a large presence. Ericsson has a joint venture with Nanjing Panda Electronics making mobile telephones. Panda is perhaps Nanjing's most famous company and it has recently returned to profit after two years of heavy losses. The company has pledged its future to developing more high-technology products, having suffered from the intense price competition that broke out among television manufacturers.
In addition to consumer electronics, Nanjing is also a national centre for chemicals and pharmaceuticals. The presence of companies such as Jinling Pharmaceutical and Yangzi Petrochemical is a help in attracting foreign investment in these areas. For example, a US$100m Taiwan Fine Chemical Industry Park is currently being constructed, the centrepiece of which is an alkylbenzene joint venture between Jinling and Taiwan Hetong Chemical. Meanwhile, BASF is teaming up with Sinopec Yangzi Petrochemical to build a US$2.6bn integrated petrochemical site. A feasibility study has been submitted to the central government and the German group is hoping for a swift approval.
Nanjing and southern Jiangsu province generally do not suffer from an abundance of loss-making state-owned enterprises. However, there are problem companies that the government has pledged to reform. By the end of September, the city says it will create new structures for more than 90 percent of its small and medium-sized state enter-prises. Asset sales, mergers and restructuring are being encouraged in line with the central government's policy of preserving large state enterprises, while letting the small sink or swim. Increasingly, private firms and start-ups in high technology and other sectors are absorbing workers laid off from the state sector.
Living in the city
Home to more than 30 universities and colleges, including the prestigious Nanjing University, Nanjing has a reputation as a relaxed and cultured city. As China's capital under the Nationalist government, the city has a history and natural beauty that have not been entirely demolished by the recent construction work. However, some tourist sites, such as Dr. Sun Yatsen's mausoleum, have been spoiled by over-commercialisation.
The feeling of security enjoyed by most expatriates in China was shattered early this year when a German family was brutally murdered in their exclusive villa home. The event was a shock to the foreign community, not just in Nanjing but also across the whole country. Conspiracy theories abound, but a foreign reporter who attended the trial of the migrants alleged to have carried out the Attack is convinced that this was just a bur-glary that went horribly wrong.
Day-to-day living has got much easier in recent years. The arrival of Nanjing International School was an important event for the city's foreign community. Foreign executives with families can now easily relocate to Nanjing.
Shops have improved, although they still fall short of Shanghai in terms of choice and quality. The housing market has become much more flexible, the government having ended the restriction on foreigners living in local accommodation. Anyone with a residency permit, which includes foreign business people and students, are no longer required to live in `approved' buildings.
The hotel sector has been transformed. Just three years ago, the Jinling was the only luxury property in the city. In those days it enjoyed an occupancy rate of 70 percent at an average rate of Yn600. Now, at the top end of the market, it has been joined by the Sheraton and Hilton, while the likes of Holiday Inn and GE Hotel compete at a slightly lower level. The Sheraton has become the leading business hotel, while the Hilton has a greater proportion of tourists.
Increased competition benefits visitors to the city, since increased demand for beds has not kept up with supply. Average rates of some Yn450 at the Sheraton and Hilton represent great value for money.
As for nightlife, there are lots of new clubs, bars and restaurants. However, official conservatism is also apparent here since most of these venues are shut by 11.30pm. Nearby Suzhou has a more liberal approach and a livelier night scene.
For further information, please contact Kevin Julian or Simon Cheong at Freshfields in Hong Kong on +852 2846 3400.