Chengdu straddles the crossroads leading down through Yunnan, up to Xi‘an, west to Tibet and east to Chongqing. Untapped markets lie in every direction. Of the major western cities – Chongqing, Xian and Kunming are the others – Chengdu is the most metropolitan and convenient for investors looking to set up shop in western China.
Chengdu’s hopes to rise as a national software hub are unsurprising. Last year, 402 software companies, including corporate giants such as Intel, Microsoft and IBM have established facilities in and around the city, generating sales of almost US$2.5 billion.
By 2010 the city expects its software industry to hit almost US$10 billion in sales and US$65 million in exports.
A rising tech hub
The city wants software development to take up 50 million square meters of space, employing an additional 200,000 people. The expansions will mainly take place in the Chengdu Economic and Technology Development Zone on the west side of the city, but also on the city’s outskirt towns of Dujiangyan and Wenjiang.
Chengdu’s aim to evolve into a technology hub is fitting. The city is home to the University of Electronic Science and Technology of China (UESTC), which traces its roots back to Chengdu Institute of Radio Engineering, China’s first university of electric engineering. UESTC is one of the nation’s top schools, churning out several thousand undergrads and hundreds of graduate students and PhDs each year.
Information technology is a particularly popular major in Chengdu. According to data released by the Chengdu Software Association, more than 65,000 people work in the city’s software industry.
This year, there will be nearly 18,500 new IT graduates from over 40 universities across the city. The large supply of IT talent means salaries in Chengdu are relatively low.
Another pull factor for potential companies is the low cost of employing an engineer in Chengdu. The salary is less than half of what a similarly trained engineer in Shanghai would be paid.
The government’s “Go West” policy, designed to steer economic growth and foreign investment inland, is certainly helping Chengdu rise as western China’s premier software, consumer electronics and service hub.
Besides the long-term advantages of a low-cost skilled labor force and generous benefits from the government, the city’s untapped consumer markets are a lucrative shorter term gain.
China’s consumer electronics market is already at US$200 billion and has an estimated growth of 20% per year, said Feng Huo, the general manager of Agilent’s Chengdu Instruments Division. Much of that growth will take place in China’s second- and third-tier cities, and Chengdu is one of them.
Although the city still has a weak infrastructure and poor access to export markets compared to coastal cities, Chengdu is well-positioned as a transit point for consumer goods serving southwest China. In 2006, ProLogis, global developer of industrial real estate facilities, expanded into the city. The company announced the development of two logistics parks totaling US$100 million to be completed in the next three years.
Chengdu’s blossoming growth and strategic location also places the city front and center to become a business process outsourcing (BPO) hotspot. The labor cost for the BPO business in Chengdu is about 30% lower compared to other major cities like Beijing and Shanghai. The turnover rate in Chengdu is also significantly lower, at 5%, compared to 30% in larger cities. Yet despite the city’s potential, there are still hurdles for Chengdu to overcome – foreign language-speaking talent can be hard to come by.
Nonetheless, the city is forging ahead. Intel currently employs over 600 people in the city and has plans to expand their assembly and testing facilities. During the past three years, Intel has brought in computers, Wi-Fi and virtual classroom technology to the cities and towns surrounding Chengdu, establishing a market presence deep in the western hills of China.
Chengdu’s strong consumer markets and active industries have the potential to position the city as a national software hub and help it emerge as a logistics hotspot. But prevailing language and service culture deficiencies loom large. Chengdu could yet become China’s western gateway, but the city’s high-tech vision of itself has not dawned yet.
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