Out of the shadows

The US$2.9 billion facility – a joint venture between Germany's BASF and Yangtze Petrochemical (YPC), a subsidiary of China's Sinopec – is the city's largest foreign invested project to date and is spearheading the emergence of Nanjing from the shadows of Shanghai, 300 km to the east, as an economic hub in its own right.

The 220-hectare plant, set to produce 1.7 million metric tons of high-quality chemicals and polymers annually, is BASF's biggest construction project to date in China. It is not due to come online until early 2005, but is already the centerpiece of Nanjing's drive to become China's leading chemical production center.

Bernd Blumenberg, president of BASFYPC, said the city's location, excellent transport links, its business-savvy government and a well-educated but relatively low-cost workforce were the main reasons behind BASF's choice of Nanjing as a base. Nanjing, he said, simply has "excellent conditions available for investment into petrochemicals."

The conditions are certainly good enough to have attracted 7,000-plus foreign businesses to locate in a city fast becoming a key commercial center within the powerhouse Yangtze delta region.

Helmut Gusten, General Manager in Nanjing for German tool manufacturer Leitz, sees the city as being well situated for serving customers across China as well as importing parts and materials from overseas. Situated at the center of one of the best highway networks in China, with a thriving inland port, and with flights serving all the country's major cities, Nanjing is a prime hub for serving the China market, he said. "This region is really made for selling to China, everybody here accepts that and makes it work," Gusten said.

By far the majority of Nanjing's foreign investors are European companies, particularly German and Dutch firms who dominate the chemical, engineering and IT sectors.

Indeed, on a sunny spring day Nanjing, with its clean, small city feel, has elements that give it a distinctly European air. Although it is home to more than six million people, the city's wide, tree-lined avenues, its parks and lakes, and a profusion of bicycles give it a relaxed atmosphere, even as construction of high-rises, factories and shopping centers pushes ahead at a feverish pace.

The city itself has had a rich and at times turbulent history, most visible today in the large chunks of what was once the longest city wall in the world and a bustling, if rather touristy, old quarter.

In the West, where it was formerly known as Nanking, the city is perhaps most widely known for one its darkest episodes – the 1937 massacre by the Japanese imperial army that became known as the Rape of Nanjing. It is an event that the city is keen not to see forgotten and which is documented in graphic detail at the city's suitably somber Memorial Hall.

But while the past remains an important part of Nanjing's conscience, the city's eyes are firmly on the future and foreign business leaders say investment by Japanese businesses is welcomed like any other.

The name of Nanjing translates as "Southern Capital" – the foil to the Northern Capital, Beijing, and a hint to the city's past role at the political heart of 10 Chinese dynasties and regimes. Twice the city was the capital of a united China – first in the early days of the Ming dynasty in the 14th century and again under the Nationalist Kuomintang in the first half of the 20th century.

Although Nanjing's political clout has long since waned in favor of its northern counterpart, the ancient city is today capital of Jiangsu province, an area blessed with some of the most fertile land in China and, after Guangdong, the second richest in China.

Backed by its rich hinterland and capitalizing on its location at the gateway to the Yangtze, a key arterial route into central China, Nanjing is one of the wealthiest cities in China and a leading center of learning. As such, it possesses a highly educated workforce and with around 30 colleges and universities, the city has become a major research and development base.

Nanjing's educational sector is set for a further boost with construction of the Xianlin University City on the north bank of the Yangtze. With an investment of more than US$604 million the 70 kilometer-square campus will give the city an academic center capable of handling up to 120,000 students at one time and a steady stream of skilled labor to draw in further foreign investment.

Led by the chemical, electronics and automobile industries, Nanjing's economy is growing rapidly, fueled by an influx of contracted foreign investment that grew by over 84 percent last year to more than US$4 billion.

Aside from the giant BASF plant other major investors to have set up shop in Nanjing include Siemens, Ericsson, Fiat/Iveco and BP, all of which have pumped millions of dollars into the city's development zones. US carmaker Ford also announced recently that it had chosen the city as the site for a US$1 billion JV investment in its second plant in China.

These big players may attract the headlines, but Nanjing has also drawn dozens of small – and medium-sized enterprises (SMEs), such as Leitz, the German tool manufacturer which employs just under 100 staff at its Nanjing plant.

Gusten, Leitz's general manager, said initially city authorities were competing with Shanghai for investments from Fortune 500 companies, before they realized the potential the city offered as a base for SMEs.

"Big companies can handle strategic losses in order to get a foothold in China," he said. "But for SMEs like us, the only justification we have for being here is if we make a profit." Gusten is moving his plant from rented premises to a new purpose-built center later this year, the result of what he described as "success-based investment" and a business that has grown at 30-40% a year since 1999.

A city resident since 1996, Gusten said for SMEs the simple benefit offered by Nanjing is cost. "We're not too close to Shanghai, but we're also not too far away," he said, noting that Nanjing's location gives easy access to China's business capital, but with much lower labor and land costs. Nanjing's cost-location balance can be a benefit for some, but for others, like Fiat representative Flavio Ciappa, it can also be a source of concern.

His plant on the outskirts of the city employs around 3,000 workers and plans to raise output to 50,000 vehicles this year, up from 37,000 in 2003. "People from Nanjing really think business," he said, "and as for quality, our product is as good or better than any other Fiat factory elsewhere in the world."

But with its proximity to Shanghai, Ciappa has found it difficult to retain experienced staff who can often be tempted by the brighter lights and fatter paychecks just a short hop away. Nanjing and Shanghai, he said, are two separate countries.

"If people from Nanjing find an El Dorado in Shanghai then you can start to have a hemorrhage of labor," Ciappa said. "And you can't do much about it other than to raise wages."

For Gusten, meanwhile, who heads Nanjing's new chapter of the European Chamber of Commerce, a far greater worry is the threatened weekly power cuts, the result of Jiangsu's lingering 7% deficit in generating capacity.

Here he sees the strong sense of community among Nanjing's foreign businesses coming into its own. "We need a collective voice to communicate with the government," Gusten said. "We can't afford to stop production, we can't afford to be cut off from our customers and we need to secure our investment," he said.

His concern is shared by many other enterprises which, like Leitz, are running production shifts round the clock to meet demand and maintain profits. In the harsh realities of the China market, prices are going down while wages and other costs are going up, Gusten said. "If you raise prices in this market your customers will kill you," he said. "So the only way for us to keep our profits is to increase volume – and power cuts won't help."

Aside from power concerns though, most foreign investors say Nanjing's infrastructural growth is generally keeping pace with its fast growing economy, making the city a highly livable place for expatriates to work and raise a family.

The first line of the city's planned six-line metro system is nearing completion and should open in time for the 10th National Games, which come to Nanjing in 2005. Meanwhile the city itself is becoming increasingly connected with the outside world. A new high-speed rail line is set to cut the journey time to Shanghai from three hours to less than two, and Singapore Airlines has become the latest international carrier to begin services to the city's airport.

As investment continues to flood in, more and more foreigners are drawn to live in Nanjing, bringing with them the demand for more services, which in turn is making the city more attractive to others.

Later this year, for example, the Nanjing International School, already the city's biggest employer of foreign workers, will move to new premises more than doubling its capacity to over 300 pupils. The school has become an important focus for the city's foreign community and many residents say it is part of what makes Nanjing a family-friendly city.

The resilience of the city's foreign community and its attachment to Nanjing was most severely tested five years ago, following the horrific murder of a German family, the Pfrangs, by a group of rural thieves who had broken into their apartment. It was an event that understandably hit home with almost every member of Nanjing's close-knit foreign community.

But rather than flee or shut themselves off in high-security compounds, a group of expatriates formed the Pfrang Foundation to provide educational support and other aid to poor villagers in rural Jiangsu. To date it has supported more than 700 schoolchildren through primary- and secondary-level education.

"We get very generous support from the foreigners living here," said Gusten, one of the foundation's committee members. "It's a way of making sure we stay together as well as stay attached and involved with the local community."