Jintan Economic Development Zone (JEDZ) is at a crossroads. Since opening in 1993, the 68-square-kilometer zone, located an hour west of Nanjing, in Jiangsu province, has attracted a smattering of different companies.
Four disparate industries – new materials, machinery, garment and textiles, and fine chemicals – currently make up more than 90% of JEDZ’s GDP. Notable foreign clothing makers Lee, Gap and Valentino all do low-cost textile manufacturing for export in the zone.
But now Jintan wants a change. Like all industrial zones, it is under pressure to move up the value chain. Across the country, low-end, heavy-polluting manufacturing plants are closing, while Beijing has issued directives such as this year’s new catalogue for foreign investment, pushing FDI toward higher-value-added industries.
“Every town in China has an industrial zone of some sort,” said Matthew Janney, industrial analyst at real estate service provider DTZ, which is acting as consultant to Jintan. “And there are industries like new energies and technology that they are all trying to promote.”
For zones in so-called X-tier cities, anywhere from third- to fifth-tier, this transition can be challenging. Their main selling points – lower costs of living, cheaper land prices and direct access to a low-skilled work force – are not as critical to higher-value industries for turning a profit.
Smaller zones’ success in attracting new higher-end clients largely depends on the success of their larger neighbors. For Jintan, Janney points to the silicon market in nearby Wuxi and Changzhou as having a good potential to spill over.
For industrial zones on Shanghai’s outskirts, in areas like Kunshan and Wujiang, soaking up the myriad high-tech projects originating from the larger city is already underway.
Sandwiched between Shanghai and Suzhou, the economic success of Kunshan, a city of 640,000 – small by Chinese standards – seemed inevitable. The city, known as “little Taipei” on account of the dominance of Taiwan investors there, has developed into one of the country’s major electronics manufacturing bases. Its speciality is LCD screens.
In addition to a location in Shanghai’s backyard, cheaper land prices are a major enticement. Average industrial land prices in Shanghai’s surrounding cities such as Kunshan was US$46 per square meter in the first half of 2008, compared with US$190 per square meter in the city itself, according to research by CB Richard Ellis.
Middle of the action
For X-tier cities positioned beyond Shanghai’s direct gravitational field, there are other sources of run-off in the Yangtze River Delta.
Jiaxing, a city in Zhejiang province of 3.3 million people, is situated 90 kilometers away from Shanghai along the Shanghai-Hangzhou rail line, and is 70 km from Suzhou. With the opening this summer of the 32-km Hangzhou Bay Bridge, the city now has easier access to a fourth hub, Ningbo.
Through its location within this network, Jiaxing is also seeking to climb the value chain. Within the Xiuzhou Industrial Zone, a high-tech park has been established that has attracted electronics manufacturers, among others.
Marty Paugh, president of Global Resources International, a medical device and electronics manufacturer that relocated to Jiaxing five years ago, has noticed a definite shift in the type of business that the zone is seeking to attract.
“They’re definitely set on trying to get more high-tech business into the area,” he said. “For our some of our company’s high-tech operations, they’ve really encouraged us to expand.”
Attracting a more sophisticated and higher-skilled labor pool is critical for X-tier cities like Jiaxing if they hope to develop higher-end industries. Jiaxing’s per capita GDP, at more than US$5,000, puts it in the region’s upper range, making it more attractive for higher-end industries such as IT outsourcing.
Paugh notes that when his company first moved to Jiaxing he had trouble finding managers willing to relocate to a smaller city. This trend has since reversed.
“We’ve been approached by people from Suzhou and Hangzhou who are looking for somewhere less congested and less expensive and are willing to take less money as a tradeoff,” he said.