Upgrading China’s Competitiveness: From Special Economic Zones to Science and Technology Clusters

Dr. Filip De Beule Em. Prof. Dr. Daniel Van Den Bulcke

Institute of Development Policy and Management University of Antwerp

i Preface

While the establishment of economic zones at the beginning of China’s open door policy were careful attempts to open China’s door to the outside world and abandon its isolationist policy, the Chinese leadership today is undoubtedly very proud of these achievements. Twenty five years after the first four Special Economic Zones (SEZ) and twenty years after the development and construction of state- level economic and technological development zones, the China National Philatelic Corporation, which belongs to the Chinese Ministry of Posts and Telecommunications, issued a special stamp in 2004 to commemorate the establishment of the Economic and Technological Development Zones (ETDZ). An accompanying leaflet stated “This stamp was issued in commemoration of the glorious achievements of the state-level economic and technological zones in the past 20 years, highlighting the role and position of the construction of the development zones in China’s economic construction. Deng Xiaoping’s inscription is the main element in the design of the stamp, and abstract symbols are used to reflect the radiating and driving role of the development zones as windows and models.”

This report attempts to describe and evaluate the policy of China to use economic zones as vanguards of development. It is based on desk research with a focus on the studies of clusters and a field trip to China in April 2004 with visits to a number of zones in Shanghai, Chengdu, Chongqing, Beijing and Dalian and interviews with managers of the zones and some Belgian companies located in the zones. Although occasional reference is made to Belgian enterprises located in zones, the main focus is on the role of clusters and zones as instruments for development.

This study tries to bring together the use and expansion of economic and technological zones in China with the recent advances in the economic literature about clusters. Although the many forms and confusing terminology in this domain does make such a combination difficult, it is the conviction of the authors that China is gradually moving away from geographic separate zones and parks where ii companies enjoy tax and other benefits to a more proactive cluster policy where the linkages with other firms in the zone are stimulated. For foreign investors this might mean that they have to reconsider the role of their subsidiaries in China in order not to endanger their relationship with the local and central authorities, which in China still plays a more important role than in other transition economies.

The authors thank the China Europe Management Centre for the fellowship which allowed them to study this interesting subject and are grateful both to the Belgian managers working in such zones and the Chinese managers of the development zones who granted their highly appreciated cooperation for this project.

Filip De Beule Daniel Van Den Bulcke

iii Table of contents

1. Introduction...... 1 2. Glocalization: The Paradox of Economic Space ...... 6 3. Cluster around me! ...... 15 4. China Opens Doors...... 24 4.1 Overview of China’s FDI Policy...... 24 4.1.1 The turbulent 1980s: From Special Economic Zones to Economic and Technological Development Zones ...... 24 4.1.2 The booming 1990s: From Pudong New District to High-Tech Parks ...... 30 4.1.3 The beginning of the new century: Towards Science and Technology Clusters?...... 34 4.2 Regional distribution and impact ...... 38 4.3 Conclusions...... 44 5. A Survey of Selected Development Zones ...... 55 5.1 Pearl River Delta...... 55 5.1.1 Guangzhou Development District ...... 58 5.1.2 Shenzhen High-Tech Park ...... 63 5.2 Yangtze River Delta...... 64 5.2.1 Shanghai Municipality...... 65 5.2.2 Jiangsu Province ...... 83 5.3 Inland China...... 92 5.3.1 Hubei Province ...... 92 5.3.2 Chongqing Municipality...... 95 5.3.3 Sichuan Province ...... 100 5.3.4 Shaanxi Province ...... 103 5.4 Bohai Rim ...... 108 5.4.1 Beijing Municipality...... 108 5.4.2 Tianjin Municipality ...... 112 5.4.3 Liaoning Province...... 114 5.4.4 Shandong Province ...... 118 5.5 Development zones and clusters: conclusion...... 122 6. Concluding Comments ...... 124

iv

List of Tables

Table 2-1 Cluster mapping studies in selected European countries. ..8 Table 2-2 Explanatory variables influencing the location of value added activities by MNCs in the 1970s and 1990s...... 11 Table 3-1 Various inter-firm productive systems...... 16 Table 3-2 Various agglomeration types...... 21 Table 4-1 FDI inflows in major regions in China, per cent, 1994- 2003...... 42 Table 4-2 Chinese SEZs and EPZs elsewhere: comparisons on selected aspects in the middle of the 1980s...... 45 Table 4-3 Overview of ETDZ in China, coastal and inland regions 47 Table 4-4 Overview of HTIDZ in China, coastal and inland region 49 Table 4-5 Overview of EPZs and FTZs in China, coastal and inland regions ...... 51 Table 4-6 Comparison of tax policies of four major types of development zones ...... 53

List of Figures

Figure 4-1 FDI Inflows in China (million USD)...... 37 Figure 4-2 FDI inflows in major regions in China, per cent, 1994- 2003...... 41 Figure 5-1 Gross Regional Product, 2003, USD billion...... 56 Figure 5-2 Foreign Regional Trade, 2003, USD billion...... 58 Figure 5-3 Development zones in Guangdong province ...... 59 Figure 5-4 Main Cities of the Yangtze River Delta...... 65 Figure 5-5 Most important development zones in Shanghai...... 67 Figure 5-6 Investment projects in Zhangjiang High-Tech Park ...... 69 Figure 5-7 Overview of firms located in Zhangjiang High Tech Park ...... 71 Figure 5-8 Semiconductor Industry in Shanghai...... 75 Figure 5-9 Most important development zones in Jiangsu province 84

v

List of Boxes

Box 1 Vitalo Packaging GZFTZ Ltd...... 60 Box 2 Glaverbel Vertec Shenzhen...... 63 Box 3 Bekaert Shanghai Ergang...... 77 Box 4 Ensysta Piping Systems Engineering (Shanghai) Co., Ltd. ...81 Box 5 Atlas Copco Wuxi...... 88 Box 6 Xi’an Thiebaut Pharmaceutical Corporation ...... 106 Box 7 Xi’an Flanders Innovation Services Centre ...... 107

List of Appendixes

Appendix 1 List of interviewed persons in various development zones, April 2004...... 130 Appendix 2 List of documents about selected zones...... 138

vi 1. Introduction

In 1949, the Chinese communist government adopted Lenin’s view that the export of capital is a central mechanism of imperialism and that the international firm is a double parasite by exploiting both the working class of their own country as well as the labourers of less developed countries. The Cold War and Stalin’s theory of two parallel (capitalist and socialist) markets reinforced internal integration among socialist countries, that is, between Russia and China for mutual economic development. This theory argued that socialist countries should not interact with the capitalist world. In 1951, two years after its founding, the People’s Republic of China emphasized participation in the Soviet dominated socialist bloc in order to develop technological know-how. The Korean War and the ensuing US trade embargo on China further entrenched China’s ‘international’ activity within the socialist bloc (Riskin, 1987).

The sudden break-up in Sino-Soviet relations in 1960 left the country completely isolated. Afterwards China did seek to import machinery and technological support from Japan and Western Europe but these initiatives were abruptly ended by the Cultural Revolution (1966- 1976). Globally isolated, China defined its economic strategy in terms of the concept of self-reliance. Essentially, self-reliance became interpreted to mean that, first, localities should strive for self sufficiency in agriculture and industry and, second, at the national level, that China should not rely on foreign resources for economic development.

By the middle 1970s, China’s technological weakness was clearly apparent, even to its leaders. Outdated machinery, equipment and techniques that were imported during the 1950s still constituted the backbone of its industrial production, which was almost completely oriented to the so-called heavy industry. The failure of this attempted modernisation led to mounting internal criticisms and as a result more political emphasis was placed on readjustment and reform. After the death of Chairman Mao Zedong and the purge of the Gang

1 of Four in 1976, China’s repudiation of the closed door policy and its intentions to more fully embrace foreign direct investment (FDI) as a vehicle to obtain advanced technology and assistance in achieving the objectives of modernisation soon became part of its national economic strategy. This new emphasis on foreign owned enterprises was explicitly recognised by the formal inclusion of the Four Modernisations (agriculture, industry, defence, and science and technology) within the Chinese Constitution in 1977 and in the Ten- year Plan (1976-1985) announced during the First Session of the Fifth National People’s Congress in 1978. The subsequent measures to facilitate the gradual entry of FDI followed directly from this plan, when the “Law of the People’s Republic of China on Joint Ventures Using Chinese and Foreign Investment” was adopted as part of its Open Door policy on 1 July 1979 during the second session of the Fifth National People’s Congress. Yet, the original insistence on joint ventures, although there was no upper limit on foreign ownership, indicated that at that time China was not yet ready to welcome wholly owned subsidiaries of foreign multinational corporations (MNCs).

Since 1979, then, the Chinese government has gradually opened up its economy and embraced FDI as a vehicle to obtain advanced technology and assistance in achieving its objectives of modernisation. While foreign direct investment has experienced a rapid growth since 1979, its expansion has been subject to certain fluctuations at particular times. Chinese policy makers have used a system of carrots and sticks to entice and curtail foreign direct investment and initially limit it to particular modes of entry, industries and regions. As such, the regulation of the flow of foreign direct investment into China has had much to do with the country’s establishment over the years of special economic zones, development zones and industrial parks and what today are regarded as ‘clusters’.

The development of FDI in China since the beginning of the 1980s has expanded enormously, reflecting the evolving changes in economic conditions, investment environments and especially government policies. On the one hand, China’s market size and growth, its natural and human resource endowments, its physical,

2 financial and technological infrastructure have made China an increasingly attractive investment site for foreign owned enterprises. On the other hand, China has relied on specific requirements, such as joint ventures, export targets, local content requirements and insistence on technology transfers in order to maximize the benefits of FDI to the host economy. The Chinese government thereby systematically tried to strike a balance between the need to attract foreign direct investment in order to acquire technology, conquer export markets and earn foreign exchange, and thereby maximising the positive fall-out to the host economy; to safeguard China’s autonomous decision-making authority and to orient and control the changeover from a centrally planned to a market economy.

Although Chinese administrators have since the outset tried to attract high technological activities to their country in line with their modernization policy, this has not always been as successful as anticipated. Yet, it has to be admitted that China has, however, gone more quickly than most countries through the investment development path (IDP) (Zhang and Van Den Bulcke, 1996; Dunning and Narula, 2004), which states that there exists a systematic relationship between the degree of internationalization of an economy (as measured by inward and outward direct investment) and its degree of economic development (as measured by gross domestic product per capita) (Dunning, 1993).

The first stage in the IDP is typified by a modest amount of inward FDI because of the limited exploitation of indigenous resources and capabilities and/or markets, and the absence of any significant outward FDI. During this initial IDP stage, exports only consist of resource and/or low-skilled, labour-intensive products, while imports are mainly made up of fairly standardized manufactured goods. Government policy is confined to providing the basic legal and commercial infrastructure and incentives (or protection) to local producers and foreign investors.

During the next stage market-seeking FDI is attracted into the country, particularly that of an import-substituting kind, while, as a result of an improved institutional infrastructure and the upgrading of

3 indigenous capabilities, there is likely to be the take-off of export- oriented inward FDI, mainly of processed primary products or technology and light manufactures. Government policy is normally concentrated on upgrading the quality of labour and capabilities; on creating an active capital market and an effective (and accountable) banking system; and on ensuring a favourable business environment for both domestic and foreign investors.

Stage three is currently perhaps the most interesting one and, taken together with stage four (for at least parts of the economy), likely to be the most relevant one for the future of the Chinese economy, particularly in the larger cities and coastal areas. A growing and domestic market draws in market-seeking FDI to supply those products for which the investing countries earlier on had a comparative advantage to supply them. At the same time, there is an increasing tendency of foreign firms to engage in higher-value stages of export-oriented activities. Because of the upgrading of domestic resources and capabilities, indigenous firms are now beginning to exploit their foreign markets by outbound FDI and/or cross-border cooperative ventures, as well as seeking new outlets for increasing their own competitive advantages. An increasing proportion of exports now consist of medium to high technology-intensive goods and services. There is likely to be increasing regional specialization of economic activities, with agglomerations or networks of related activities. In stage four, too, there is likely to be a sharp increase in innovation-related activities. Often foreign-owned firms play a critical role in fostering such activities, particularly as part of their global or regional strategies. But this can and is also achieved by national and regional governments, partly by their willingness to upgrade the supporting infrastructure for higher-value activities, partly by the framing of a positive FDI policy, and partly by offering the appropriate tax and other incentives for their indigenous firms to be more innovative and seek out new markets, and for individuals to be more entrepreneurial and to upgrade their native skills.

From being regarded as the world’s assembly factory, China is now becoming an attractive location for higher value-added activities. A vast and growing economy, China is increasingly becoming a partner

4 to foreign companies big and small. The country beckons and foreign businesses listen, wondering how, or if, they will manage to capitalize on China’s combination of growth, political stability, investment, market demand and its quest for still more advanced technology. While China has certainly not arrived yet in stage four of the IDP, in which outward FDI typically surpasses incoming FDI, the emergence of Chinese MNCs with investments in many parts of the world, illustrates that China is fast progressing towards an economic power base.

This study of the evolution of economic and technological development zones provides interesting insights into China’s evolving economic and foreign direct investment policy and the way the foreign owned companies have been enticed to locate within these development poles. The second part of the report stresses the contradicting pressures that push firms to globalize while at the same time having to take into account the local situation. In the third part, the economic literature about clusters is analysed. In part four an overview is presented of China’s evolving policy towards FDI with special attention to the geographical dimension. Part five surveys in greater detail a number of well organized zones in the major areas that have been particularly successful in attracting foreign owned firms. Finally, in part six, a short evaluation is given of Chinese policy to use economic and technological zones as a tool to transform their economy and some thoughts are presented about possible future developments.

5 2. Glocalization: The Paradox of Economic Space

Since the 1980s, both the country- and firm-specific factors influencing foreign direct investment have changed significantly. On the one hand, countries adopted a much more welcoming stance towards inbound investment and increasingly see it as a means of upgrading the competitiveness of their indigenous resources and capabilities. Multinational corporations, on the other hand, are increasingly taking a more systemic approach to their global activities and are pursuing more integrated production and marketing strategies.

The last two decades have also witnessed a gradual movement towards a world economy in which intellectual capital has emerged as the key wealth creating asset. In the 1990s, the market value of industrial corporations has been variously calculated at between two and a half and five times the value of their tangible assets, compared with one and a half times in 1982 (Handy, 1989; Blair, 1995; Edvinsson, 1997). The annual capital expenditure on information technology now exceeds the amount spent on production technology. The knowledge component of the output of manufacturing goods is estimated to have risen from 20 per cent in the 1950s to 70 per cent in 1995 (Stewart, 1997), while white collar workers increased their share of the labour force from 40 per cent in the 1960s to more than 60 per cent by 2000.

A further indicator of the rising significance of non-material assets as creators or facilitators of wealth is the growth of services, and particularly those which are knowledge or information intensive. In 1995, on average, services accounted for 63 per cent of the world’s gross product, compared with 53 per cent in 1980 and 45 per cent in 1965 (World Bank, 1997). Insofar as knowledge-intensive and knowledge-supporting production have their unique spatial needs, and tend to require resources and capabilities which MNCs are particularly well suited to provide, it is not unreasonable to 6 hypothesize that both these features will impinge upon the geographical distribution of FDI and related activities.

The increasing globalization of economic activity is made possible by the enormous advances in transport and communication technologies and the reduction in trade and investment barriers throughout the world. Over the last two decades, the growth of world trade has consistently outstripped that of world output, while the sales of the foreign affiliates of MNCs exceeded the value of world trade even more (UNCTAD, 2004). Moreover, between 30 and 50 per cent of trade in non-agricultural products and between 50 and 60 per cent capital and knowledge flows are currently internalized within MNCs (Dunning, 1998), meaning that they take place between the parent company and the subsidiaries or amongst the subsidiaries themselves of the same multinational group.

There has also been a tremendous increase in global FDI flows in the last two decades. This has been accompanied by a slow shift in the pattern of FDI, which has gradually become somewhat more favourable to the developing countries. The share of developing countries in total inward FDI has slowly increased. The average annual percentage flow of FDI into developing countries rose from 25 percent in the 1980s to 30 percent in 1990s. This average would have been much higher in the 1990s but for the slowdown of the Asian economies after 1997, and the M&A boom in the developed world.

While there is increasing worldwide integration of markets, the globalization of the world economy is, at the same time, being constrained by the fact that the location of creative activities and the use of these knowledge assets is becoming increasingly influenced by the presence of immobile clusters of complementary value-added activities. Thus while globalization suggests that the location and ownership of productive and service activities is becoming geographically more dispersed, other economic forces are pushing towards a more pronounced geographical concentration of such activity both within particular regions and specific countries, including the growing concentration and specialization of both

7 manufacturing and service activities in large metropolitan areas within both developed and developing countries. These events are presenting managers, scholars and policy makers with a paradox of ‘sticky places within slippery space’ (Markusen, 1994). Silicon Valley (Saxenian, 1990) and Hollywood (Christopherson and Storper, 1986) may be the world's best-known clusters, but examples abound in every international, national, regional, state and even metropolitan economy, especially in the more advanced nations (Porter, 1998). Table 2-1 gives a list of the number of clusters in 12 EU countries and shows that the phenomenon is becoming widespread, especially because national and regional governments are promoting clusters as ideal location sites for companies that are active in a specific domain or sector.

Table 2-1 Cluster mapping studies in selected European countries.

Country Number of clusters identified Studies and references Austria 45 clusters Belgium Flanders: 14 clusters Wallonia: 9 economic and technological clusters.wallonie.be clusters Denmark 12 mega-clusters www.naec.dk 29 clusters of competence Finland 10 national clusters www.sitra.fi Several regional and local clusters France 100 existing clusters + 80 emerging www.datar.gouv.fr clusters www.districts-industriels.com

Hungary 19 clusters Latvia 4 clusters Norway 6 national clusters english.nifustep.no 62 regional clusters www.step.no Poland 20-30 clusters (some in Free Economic Zones which are sometimes treated as clusters) Slovenia 9 potential clusters + 12 which need more time/support Spain Hundreds of clusters United Kingdom 154 clusters www.dti.gov.uk/clusters/map

Source: European Commission, 2002.

In sum, there is a growing significance of firm-specific knowledge- intensive assets in the wealth-creating process, and the kind of customized assets, for example skilled labour and public

8 infrastructure, which need to be jointly used with these assets if they are to be effectively harnessed and deployed. The increasing competitive pressure obliges companies to look for locations where such an optimal combination can be achieved.

The literature on the locational preferences of foreign direct investors has long acknowledged that these will not primarily depend on the types of activities in which they are engaged, but rather on the motives for the investment and even more so whether it is a single or a sequential investment project. Different kinds of investment incentives are needed to attract inbound MNC activity of a market- or efficiency-seeking kind. Export-oriented FDI is likely to be less influenced by the size of local markets than is import-substituting FDI. Also, investment in R&D facilities requires a different kind of human and physical infrastructure than investment in assembling or marketing activities, and so on.

As affiliates of MNCs have become more embedded in host countries that offer those advantages, this has led to a deepening of their value chains, and a propensity for them to engage in higher- order activities. The location-specific assets, which MNCs perceive they need, are changing as their downstream activities are becoming more knowledge intensive. Except for some labour or resource investments in developing countries, MNCs are increasingly seeking locations which offer the best economic and institutional facilities for their core competencies to be efficiently utilized. It has been suggested that, on the one hand, the presence of other foreign investors in a particular country is even becoming more significant, both as an investment trail or signalling effect to other foreign firms which are less familiar with that country (Liu, 1998), and, on the other hand, as an agglomerative magnet by which firms benefit from being part of a geographical network or cluster of related activities and specialized support services (Wheeler and Mody, 1992).

With regard to FDI, numerous studies suggest that special tax incentives are not the key to attracting FDI, but that the presence of business opportunities is much more important. Business opportunities are in turn enhanced by the rule of law, the quality of a

9 country’s labour force, its infrastructure, and so on. However, the incentives offered by regional authorities have been shown to be a decisive factor in influencing the regional location of inbound MNC activity (Ohmae, 1995). There is also a good deal of evidence to suggest that the promotional campaigns and incentives –in the form of speedy processing of planning applications, land grants, subsidized rents, tax holidays and generous investment allowances— offered by local or regional development agencies to attract FDI tend to resemble those of location tournaments (Wheeler and Mody, 1992; Mytelka, 1996) of which MNCs are the main winners.

Table 2-2 summarizes some of the differences between the kind of variables posited to influence the locational decision of MNCs in the 1970s and those which scholars are showing to influence these same decisions of MNCs in the 1990s. The four main kinds of FDI have been classified, although other contextual variables –such as the size of the firm, the degree of multinationality, country or region of origin and destination and industry, insofar as these have different situational needs–, may be no less significant. The contents of Table 2-2 are largely self-explanatory, but the following items are worth highlighting.

10 Table 2-2 Explanatory variables influencing the location of value added activities by MNCs in the 1970s and 1990s Type of FDI In the 1970s In the 1990s Resource seeking 1. Availability, price, and quality of 1. As in the 1970s, but local opportunities for natural resources upgrading quality of resources and the 2. Infrastructure to enable resources to be processing and transportation of their output are exploited, and products to be exported. more important locational incentive. 3. Government restrictions on FDI and/or 2. Availability of local partners to jointly on capital and dividend remissions. promote knowledge and/or capital-intensive 4. Investment incentives, for example, tax resource exploitation. holidays. Market seeking 1. Mainly domestic and occasionally 1. Mostly large and growing domestic markets adjacent regional markets. and adjacent regional markets. 2. Real wage costs; material costs. 2. Availability and price of skilled and 3. Transport costs; tariff and non-tariff professional labour. trade barriers. 3. Presence and competitiveness of related 4. Government restrictions on FDI and/or firms, for example, leading industrial suppliers. on capital and dividend remissions, but 4. Quality of national and local infrastructure, also privileged access to import licenses. and institutional competence. 5. Less spatially related market distortions, but increased role of agglomerative spatial economies and local service support facilities. 6. Macroeconomic and macro-organizational policies as pursued by host governments.

11 Type of FDI In the 1970s In the 1990s 7. Increased need for presence close to users in knowledge-intensive sectors. 8. Growing importance of promotional activities by regional or local development agencies Efficiency seeking 1. Mainly production costs related, for 1. As in the 1970s, but more emphasis placed example labour, materials, and machinery. on items 2, 3, 4, 5 and 7 above (market- 2. Freedom to engage in trade in seeking), especially for knowledge-intensive intermediate and final products. and integrated MNC activities, such as R&D 3. Presence of agglomerative economies, and some office functions. for example export processing zones. 2. Increased role of governments in removing 4. Investment incentives, for example, tax obstacles to restructuring economic activity and breaks, accelerated depreciation, grants, facilitating the upgrading of human resources subsidized land. by appropriate educational and training programmes. 3. Availability of specialized spatial clusters, for instance, science and industrial parks, service support systems; and of specialized factor inputs. Opportunities for new initiatives by investing firms; an entrepreneurial environment, and one which encourages competitiveness enhancing cooperation within and between firms.

12 Type of FDI In the 1970s In the 1990s Strategic asset 1. Availability of knowledge-related 1. As in the 1970s, but growing geographical seeking assets and markets necessary to protect or dispersion of knowledge-based assets, and need enhance competitive advantages of of firms to harness such assets from foreign investing firms. locations, makes this a more important motive 2. Institutional and other variables for FDI. influencing ease or difficulty at which 2. The price and availability of ‘synergistic’ such assets can be acquired by foreign assets to foreign investors. firms. 3. Opportunities offered (often by particular sub-national spatial units) for exchange of localized tacit knowledge, ideas and interactive learning. 4. Access to different cultures, institutions and systems; and different consumer demands and preferences. Source: Adapted from Dunning (1998) as cited in Beamish et al. (2003).

13 There has been a changing role of spatial transaction costs, which reflect both the liberalization of cross-border markets and the changing characteristics of economic activity. While, in general, the reduction of these costs has led to more aggressive market-seeking FDI, and has promoted a welfare enhancing international division of labour, it has also favoured the spatial bunching or clustering of firms engaged in related activities, so that each may benefit from the presence of the other; and of having access to localized support facilities, shared service centres, distribution networks, customized demand patterns and specialized factor inputs (Maskell, 1996). Table 2-2 stresses that in the 1990s there is an increased role of agglomerative spatial economies and local support services as well as an increased need to be located near the users of knowledge- intensive sectors for market-seeking MNCs. For the efficiency- seeking MNCs more emphasis is attached to the availability of spatial clusters, for instance, science and industrial parks and service support services and an entrepreneurial environment that stimulates competition on the basis of cooperation within and between firms.

The complementary foreign assets and capabilities sought by MNCs wishing to add value to their core competitive advantages are increasingly of a knowledge-facilitating kind, and that this is particularly the case as their affiliates are becoming more firmly rooted in host economies. An exception to this finding is some low value-adding activities in the least developed areas of the world.

Although much of the recent FDI in developing countries is prompted either by traditional market-seeking motives, for example, as in the case of China and India, or by the desire to take advantage of lower production and labour costs, and or the availability and price of natural resources; yet, even there, where firms have a choice, the physical and human infrastructure, together with the macroeconomic environment and the institutional framework of the host country, tend to play a more decisive role than they did before.

14 3. Cluster around me!

The objective of this third part is to provide an overview and synthesis of the different strands of literature relating to clustering. The study takes on an economic perspective on clustering, and much of the literature surveyed here comes from that tradition. But while the work of Porter (1990) and Krugman (1991) has done much to remind economists that geography matters, and to revive interest in the economics of industrial clusters, it must be remembered that work on this theme has a long and distinguished history (Baptista, 1998).

However, despite more than a century of studies on clustering, carried out by different scholars in various disciplines and regions of the world, a systematic and comparative analysis is still missing. Behind the so lightly used terms 'industrial districts', 'clusters', 'valleys', 'regions', many different forms of local productive systems are hidden. There has been an impressive accumulation of studies focusing on local productive systems during the last decade or so. However, the growth in the number of these studies seemingly does not ensure a clear accumulation of knowledge or even conceptual consolidation. To the contrary, the increase in the number of studies has contributed to a rather messy situation marked by a cacophony of heterogeneous and confusing concepts, theories, and research results; a terminological jungle in which any newcomer may plant a tree.

As a definition, then, clusters are a collection of companies in related industries located in a limited geographical area. The two defining characteristics of a cluster are the significance of the linkages and the high agglomeration effects (see Table 3-1). This is what separates them from a network of firms where geographic proximity is low; or a zone where linkages between firms are limited. Arm’s length markets show neither strong linkages nor high agglomerative forces.

15 Table 3-1 Various inter-firm productive systems Agglomeration High Low

High Cluster Network

Linkages Low Zone Market

What is striking in the extensive literature on clusters is the variety of approaches and the different phenomena that are taken into account. The resulting impression is that, on the one side, specific and non- replicable characters of particular clusters are compared with a general -although not always specified- model; on the other hand, general characteristics of the model are automatically applied, without any empirical assessment, to areas where there are just high concentrations of firms. That is why the concepts of clusters, networks, and zones suffer from so much semantic ambiguity, even in this particular report.

From the beginning of the industrial revolution powerful clustering was observed, as for example in the British cotton industry (Mathias, 1983). There is a long tradition in industrial location theory and regional economics, extending back to the nineteenth century, of theorizing about why new industries emerge in particular locales and why, once these places have experienced take off, further expansion of the sector is likely to be constrained to the original or neighbouring sites.

While the observation that firms tend to cluster in particular regions is hardly novel (Smith, 1776; von Thünen, 1826; Marshall, 1890), it has recently been taken up in explaining the stickiness of certain locations in an increasingly slippery world (Markusen, 1994). Theories suggest that firms may be drawn to the same locations because proximity generates positive externalities or agglomeration

16 effects. Economists have proposed agglomeration effects in the form of both static (pecuniary) and dynamic (technological) externalitites to explain industry localisation (Baptista, 1998). Theoretical attempts to formalise agglomeration effects have focused on three mechanisms that would yield such positive feedback loops: inter- firm technological spillovers, specialised labour, and intermediate inputs (Marshall, 1890).

It was by observing industry localization that Marshall derived the concept of external economies. In Marshall’s seminal analysis of industrial organization (1890, 1920, 1927), the three fundamental reasons for geographical concentration or spatial clustering of production were identified as

(1) the existence of a pooled market for workers with specialized skills: "A localized industry gains a great advantage from the fact that it offers a constant market for skill. Employers are apt to resort to any place where they are likely to find a good choice of workers with the special skill which they require; while men seeking employment naturally go to places where there are many employers who need such skill as theirs and where therefore it is likely to find a good market";

(2) the provision of specialised inputs from suppliers and service providers: "Subsidiary trades grow up in the neighbourhood, supplying it with implements and materials, organizing its traffic, and in many ways conducing to the economy of its material […]"; and

(3) the relatively rapid flow of business-related knowledge between firms, which result in what we would now call technological spillovers: "The mysteries of the trade become no mystery; but are as it were in the air. […] Good work is rightly appreciated; inventions and improvements in machinery, processes and the general organization of the business have their merits promptly discussed: if one man starts a new idea, it is taken up by others and combined with

17 suggestions of their own; and thus it becomes the source of further new ideas.”

A distinction should be made between two broad types of agglomeration economies. One type relates to general economies of regional and urban concentration that apply to all firms and industries in a particular location. Such external economies lead to the emergence of manufacturing belts or metropolitan regions (Porter and Sölvell, 1997). These urbanisation economies do not consist of increased efficiency of the enterprises themselves but of reduced transport and search costs for the customers and, therefore, lead to more customers than the individual enterprise would have been able to attract (Pedersen, 1994).

A second type of agglomeration consists of localisation economies. As advances in transportation and information obliterate distance, cities and regions face a tougher time attracting and anchoring income-generating activities (Markusen, 1996). The problem is most acute in advanced capitalist countries, in particular small and open economies such as Belgium, where wage levels and standards of living are substantially higher than in low-wage, labour-abundant and increasingly technically competent countries (Howes, 1993). Production space in these small and open countries has become extremely ‘slippery’. Economists, geographers, and economic development planners have sought for more than a decade for alternative models of development in which activities are sustained or transformed in ways that maintain relatively high wage levels, social contributions, and quality of life. They have searched for ‘sticky places’ in ‘slippery space’ (Markusen, 1994), examining the structure and operation of these geographic concentrations of interconnected companies and institutions.

The theoretical arguments on static agglomeration (or rather localization) economies as a source of interregional differentiation are by now well understood, even if definitive empirical evidence for their importance continues to escape us. Static agglomeration economies are said to occur when the unit costs of production of a business enterprise or establishment are lower in the context of

18 relatively dense clusters of other firms or specialized resources, such as skilled labour or infrastructure, than would be the case if the typical business were located elsewhere. Krugman (1991) recapitulates earlier work in offering as sources of static agglomeration economies: a local concentration of customers (or downstream firms) sufficient to permit suppliers to achieve economies of scale in production or distribution, great enough for local firms to amass sufficient demand to warrant the provision (usually by or via local governments) of specialized infrastructure, and large enough to attract a deep and diversified pool of workers sufficient to realize a more specialized local division of labour.

Dynamic agglomeration economies refer to the heightened prospect for technological learning to occur (not simply reductions in unit costs of production with a given technology) in relatively dense urban places, districts, or clusters compared with less dense locations. To the extent that differences in innovative behaviour among firms are in part attributable to properties of the local economies of which they are a part, most contemporary urban economic and geographic theory treats such dynamic growth processes in terms of the local production and diffusion of information relevant to the firm's decision to adopt (take up) a technology, and of the organizational capacity of that firm to make use of such information (Glaeser et al., 1992; Ormrod, 1990).

In this globalising world of increasingly mobile international corporations, it is puzzling why certain places are able to sustain their attractiveness to both capital and labour. Today's economic map of the world is dominated by what can be called clusters: critical masses of unusual competitive success in particular fields (Porter, 1998).

One extensively researched formulation is that of the flexibly specialised new industrial district. In the original formulation of the industrial district, (Marshall, 1890) envisioned a region where the business structure is comprised of small, locally owned firms that make investment and production decisions locally. Scale economies are relatively minimal, forestalling the rise of large firms. Within the

19 district, substantial trade is transacted between many small firms buying and selling from each other for eventual export from the region. What makes the industrial district so special and vibrant, in Marshall's account, is the existence of a pooled market for workers with specialised skills, the provision of specialised inputs from suppliers and service providers, the relatively rapid flow of business- related knowledge between firms, which result in what are now called technological spillovers.

All of these factors are covered by the notion of agglomeration, which suggests that the stickiness of a place resides not in the individual locational calculus of firms or workers, but in the external economies available to each firm from its spatial conjunction with other firms and suppliers of services. In Marshall's formulation, it was not necessary that any of these actors should be consciously co- operating with each other, in order for the district to exist and operate as such. But in a more recent adaptation (Piore and Sabel, 1984), based on the phenomenon of successful expansion of mature industries in the so-called ‘Third Italy’ (Goodman and Bamford, 1989), and extended to other venues in Europe and the United States (Scott, 1988; Storper, 1989; Paniccia, 1998), researchers have argued that concerted efforts to co-operate among district members to improve district-wide competitiveness can increase the stickiness of the district. While agglomeration economies signal external economies passively obtained by enterprises located close to each other, collective efficiency (Schmitz, 1989; Pedersen, 1994) indicates advantages which enterprises may achieve through active collaboration. Localised information flows, technological spillovers, and specialised pools of knowledge and skills will ensure the revitalisation of these seedbeds of innovation in these clusters. Clusters are considered as networks of production of strongly interdependent firms, knowledge producing agents and customers, linked to each other in a value adding production chain (OECD, 1999).

20 Table 3-2 Various agglomeration types Agglomeration Urbanization Localization Learning Region Creative regions (Saxenian, Florida) (Andersson) Dynamic Cluster (Porter) Entrepreneurial regions Innovative Milieu (Johannisson) (Aydallot, Maillat) Manufacturing belts New Industrial District Efficiency (Ullman, Krugman) (Piore & Sabel, …) Static Metropolises Regional production systems (Pred, Myrdal, Hirschman) (Scott, Storper)

21 However, many of the faster-growing regions of the world turn out not to be formed by small, locally owned, vertically or horizontally specialised enterprises. There exist regions where a number of key firms or facilities act as anchors or hubs to the regional economy. These clusters are dominated by one or several large, locally headquartered firms, in one or more sectors, surrounded by smaller and less powerful suppliers. These hub-and-spoke districts thrive on market power and strategy rather than on networking (Gray et al., 1996; Markusen, 1996). Yet a third variant of rapidly growing industrial districts may be termed satellite platforms (Markusen, 1996), a congregation of branch plant facilities of externally based multinational firms. Tenants of satellite platforms may range from routine assembly functions to relatively sophisticated research. They stand alone, detachable spatially from either up- or downstream operations within the same firm or from agglomerations of competitors and external suppliers or customers (Glasmeier, 1988).

One would especially expect to find the relatively high value-adding foreign subsidiaries in industry cluster locations. These clusters are attractive locations for foreign owned subsidiaries, both in terms of the opportunities for learning and knowledge transfer and in terms of the specialised inputs and labour they provide. The subsidiaries can be seen as "tapping into" the sources of knowledge and ideas, and scientific and technical talent which are embedded in cutting-edge regional innovation complexes (Florida, 1995). There will obviously also be foreign subsidiaries in non-cluster locations, but they are more likely to be of the market-seeking type or resource-seeking type (cheap factors of production), rather than the higher value-adding subsidiaries in industry clusters.

The empirical literature largely conceptualises the location of firms as a process of location scanning and choice (Smith and Florida, 1994). Econometric models treat the location decisions as a form of revealed preference for (1) the classical variables of comparative advantage, such as relative wages, market size, degree of openness, and transport costs; (2) the attributes of a given area, such as (un)employment, unionisation, education, population size and density, minority concentration, transportation access, infrastructure,

22 and tax rate variables, and (3) agglomeration factors (Kravis and Lipsey, 1982; Bartik, 1985; Coughlin et al., 1991; Veugelers, 1991; Woodward, 1992; Brainard, 1993).

Several studies have found evidence of spatial concentration, or agglomeration effects in the location of FDI (Knickerbocker, 1973; Vernon, 1974; Wheeler and Mody, 1992; Florida and Kenney, 1994; Smith and Florida, 1994; Head et al., 1995; Braunerhjelm and Svensson, 1996; Ford and Strange, 1999). Clustering is a self- reinforcing process in which initial FDI accounts for additional FDI (Arthur, 1990; Markusen, 1990; Wheeler and Mody, 1992). Chance events and government inducements may have a lasting influence on the geographical pattern of manufacturing and services. The reliance of China’s government to set up all kinds of zones and clusters to stimulate development and attract FDI indicates that it fully subscribes to this model of development. Yet, these policy options were first carefully explored before they became more strongly adapted. The next part sketches the historical development of China’s FDI policy.

23 4. China Opens Doors

4.1 Overview of China’s FDI Policy While foreign direct investment has experienced a rapid growth since 1979, the expansion has been subject to considerable fluctuations. In large part, the fluctuations of FDI reflect occasional adjustments in the Chinese government’s economic policies and resulting changes in the investment environment. The Chinese government has used a forceful combination of carrots and sticks, i.e., enticements and restrictions of foreign investment in a number of regions and industries (Chen, 1997). As such, the development of FDI has undergone different phases since 1979, reflecting changes in economic conditions, investment environments and government policies. These measures will be briefly analysed with an emphasis on the geographical and to a lesser extent the sectoral dimensions of the Chinese FDI policy.

4.1.1 The turbulent 1980s: From Special Economic Zones to Economic and Technological Development Zones

The first formal statement of commitment to foreign investment by the Chinese government was the promulgation of the “Joint Venture Law” in mid 1979. It established the principles and procedures for foreign direct investment (Pearson, 1991). Under this law, foreign investments were permitted and encouraged in selected fields. The law mandated that foreign firms take a minimum equity stake of 25 per cent in foreign invested enterprises, but it did not prescribe a maximum, even though wholly owned subsidiaries at that time were not explicitly allowed but accepted in certain priority sectors. As an important step to using foreign investment, the Chinese government set up four Special Economic Zones (SEZs) where preferential economic policies were pursued to utilise foreign investment:

24 Shantou, Shenzhen, Xiamen and Zhuhai. A fifth SEZ, Hainan, was added in 1988.

A variety of FDI incentives were promoted, such as tax holidays, duty free import of equipment and export of products, while barriers, such as entry and exit formalities, were reduced (Jia, 1994). However, the regulatory environment for foreign investment was still quite restrictive, as well with regard to the investment mode as to the regional and industrial scope. There were also restrictions on foreign invested enterprises’ access to the domestic markets as well as their use of local labour and land. Poor infrastructure, low labour productivity and a weak legal framework were also major hurdles faced by managers of foreign subsidiaries in SEZs (Lockett, 1987). As a result, FDI in China grew sluggishly, especially during the first four years.

While China’s Special Economic Zones (SEZ) are regarded as one of the first important steps towards the liberalization of China’s economy, it is generally forgotten that they were very experimental and that initially there were serious doubts by certain conservative members of the communist party that they would serve the socialist purposes of the country. In fact even the establishment of the SEZ was only made possible by the success of a smaller area, namely the Shekou zone, which became part of the Shenzhen zone. Although Shekou was administratively within the Shenzhen zone and therefore governed by the Shenzhen municipality, it was separately developed by the China Steamship and Navigation Company, a Hong Kong based agency of the PCR’s Ministry of Transportation. It was the very first area specifically designed for foreign investments in January 1979, even though it concentrated strongly on maritime and shipping activities. Already at that time several of the pioneering companies established in this zone involved a large percentage of investment from China via Hong Kong.

The tentative approach by China with regard to its zoning and FDI policy is also illustrated by the long time lag that existed between the designation of the SEZ and the publication of the laws and regulation about foreign investment, taxation and other issues relevant to

25 potential investors. From the point of view of investors from outside Hong Kong, especially western countries, the uncertainties about such laws and decrees, made that during the first years 90 percent of the investments came from ‘Overseas Chinese’ in Hong Kong. Five years after their establishment the SEZ were still controversial. According to Wu (1989) the leadership did not clearly spell out the nature nor the goals of the SEZ.

Even when Deng Xiaopeng, during an inspection tour at the beginning of 1984, described the chief roles of the SEZ as ‘windows’ for new technology, knowledge, management experience and the policy of openness, his statements were considered too cryptic for the purposes of policy. From later announcements it became clear however that “one of the main goals was indeed China’s desire to absorb from abroad: foreign technology, management methods, foreign exchange and foreign capital” (Wu, 1989). Another set of objectives was “the expected impact on individual Chinese: the provision of employment and the training effects”. Wu (1989) in his early evaluation of the SEZ also implied that the Chinese government actually subsidised them indirectly. Because the Shenzhen municipality was exempt from passing on any of its revenues to the central government at least until 1989, this amounted to a ten year tax holiday and made additional funds available for the construction and development of the zones.

In the 7th Five Year Plan reference was made to the goals and objectives of SEZ, which included: the expansion of foreign trade, especially the export of more refined manufactured and processed goods; the acquisition of foreign exchange; the development of China’s own industries to lessen imports. From the very beginning, a major objective was also ‘the attraction of foreign investment, particularly in technological intensive and export oriented (or foreign exchange earning-oriented) industries’. Accordingly the SEZs were expected to lead in technological importation, to increase exports and create more foreign exchange earnings for China

As was mentioned, the first and foremost preoccupation of the Chinese government to open up the economy was the search for

26 technology. It wanted foreign multinationals to set up supply- oriented joint ventures with state owned enterprises in these zones. The government enforced the balancing of foreign exchange accounts in order to promote exports, on the one hand, and avoid excessive imports, on the other hand. The authorities also tried to increase backward linkages by enforcing localisation of supplies. They believed that the SOEs could exploit the MNEs’ strengths. Although many world class manufacturers were courted, most of the incoming investments were low value-added labour-intensive screwdriver plants by Overseas Chinese. Contractual joint ventures and even subcontracting were the preferred mode of “investment,” as these emerging multinationals wanted to minimise the investment capital and risk. Many Chinese companies also located within these zones, preferably after a ‘round trip’ through Hong Kong.

In 1983, the Chinese government put the “Joint Venture Implementing Regulations” into effect in order to improve the investment environment. These regulations legally clarified the status of joint ventures and provided greater detail about China’s policy on important issues such as profit repatriation, technology transfer, and foreign exchange access. In addition, investment protection treaties were signed between China and a number of investing countries, including Belgium. In April 1984, the Chinese government announced that 14 coastal cities would open to foreign investment, expanding the open door policy from SEZs to other coastal regions. Starting from 1985 China listed the Yangtze River Delta, the Pearl River Delta, and the South Fujian Triangle (Xiamen-Zhangzhou- Quanzhou) as open economic zones, thus forming an open economic coastal belt. This alleviated the concentration of FDI somewhat as many of the Overseas Chinese preferred their hometowns as investment locations. This belt was later extended to include the Bohai Sea Rim, Shandong Peninsula, Liaodong Peninsula, Hebei and Guangxi as open economic areas. These locations better suited Japanese and Korean multinationals (Gong, 1995).

As a result of these improvements in the legal and operational environments, FDI increased rapidly. The contracted value of FDI grew at 53 per cent and 124 per cent in 1984 and 1985 respectively.

27 Some world class multinational enterprises made major FDI commitments in China during the 1984-1985 boom. The two most striking features of the early boom were that, first, investment projects in services dominated FDI in China as many hotel joint ventures were approved. Second, the size distribution of investment projects was highly polarised. At the one extreme, many joint ventures were small in terms of equity capital, especially those established by Hong Kong firms, at less than one million dollars. At the other extreme, some projects were large, with capital exceeding several million dollars. These larger projects were typically investments in hotels, automobile and machinery industries by western firms (Pomfret, 1991).

A sharp decline in the growth rates of both contracted and realised FDI followed the 1984-1985 boom. The decline started from the last quarter of 1985 and continued until the third quarter of 1986. The growth rate of realised FDI declined from 98 per cent in 1984 to 32 per cent in 1985, and further to 13 per cent in 1986. Even more striking was the negative growth of contracted FDI, a leading indicator of foreign investment, with a 52 per cent decline compared to the previous year.

The main reason for this sharp drop in FDI was the economic problems experienced by China and a growing wariness on the part of foreign investors about the worsening investment environment. The rapid economic growth in 1984 and 1985 gave rise to high inflation and a growing trade deficit in China. This led the Chinese government to severely curtail domestic spending of foreign exchange and to tighten approval of so-called non-manufacturing FDI projects. FDI from Overseas Chinese diminished tremendously, previously the main source of investment. These measures also had immediate effects on joint ventures that faced difficulties related to foreign exchange shortages and increased operating costs. These problems were exacerbated by limited domestic market access, low labour productivity and excessive government bureaucracy. Under these circumstances, foreign investors’ confidence was shaken, which resulted in a substantial drop in investment in China.

28 The Chinese government responded to the sharp fall in FDI by publishing the ‘Provisions for the Encouragement of Foreign Investment’ in 1986. These so-called ‘22 Articles’ were followed by a set of central regulations to implement them and by a flurry of provincial and municipal level regulations (Pearson, 1991). Such provisions and regulations not only clarified the legal environment for FIEs, but also provided the solutions to some major problems. For example, wholly foreign owned enterprises (WFOEs) were now officially endorsed. The problem of foreign exchange imbalance in FIEs was also alleviated by establishing swap markets between enterprises. In addition, joint ventures were offered tax benefits and greater autonomy for their business management (UNCTC, 1988).

A gradual simplification of the joint venture approval process with greater autonomy in decision-making at the local level occurred after 1986. In addition, provinces and cities provided their own sets of investment incentives next to the advantages granted by the central government. These incentives included exemption of local tax, lower land-use fees and lower charges for using public utilities. Furthermore, to promote foreign direct investment, almost all open coastal cities set up Economic and Technological Development Zones (ETDZs) designed for high technology industrial projects. In the ETDZs extra tax breaks were offered, in addition to lower land- use fees and other incentives, as administrators of ETDZs had more freedom to take preferential measures. This further enhanced the investment environment in these coastal areas. It again indicated the Chinese government’s firm desire to climb up the technological ladder and attract higher value-added activities and industries (Lemoine, 2000).

In response to the improved investment environment and the preferential treatments, FDI recovered quickly after the autumn of 1986, and maintained a high growth rate in 1987, 1988, and the first half of 1989. The realised FDI increased by 31 per cent in 1987, and by a further 43 per cent in 1988. Over the same period the realised FDI in joint ventures grew by 146 per cent. In contrast to sectoral distribution prior to 1986, 85 per cent of FDI projects in 1988 were

29 manufacturing subsidiaries, and many of these projects were aimed at China’s expanding domestic market.

This new foreign investment boom continued until the beginning of 1989 ending with a sharp decline in FDI projects. In order to cool down the overheated economy and to reduce the two-digit inflation, the Chinese government introduced an austerity programme at the end of 1988. This slowed economic growth in 1989, squeezed domestic credit and dampened market demand. On the one hand, FIEs geared towards the domestic market found it very difficult to sell their products due to the tightened local loan policy and the stagnant market demand. On the other hand, the credit squeeze also limited the ability of prospective local partners in joint ventures to raise capital. Many joint ventures ran into financial and marketing difficulties. Some joint ventures had to be halted at the negotiation stage or changed to wholly foreign-owned enterprises (Kamath, 1990).

The spring of 1989 also witnessed a crackdown of the democracy movement by the Chinese government. The spontaneous memorials following the death of the reform-minded Communist Party Chairman Hu Yaobang’s turned into student-led pro-democracy protests that were crushed on June 4 on Tiananmen Square. The reform process halted and a change in policy orientation became apparent. This worsened the investment environment and reduced the confidence of foreign investors in the stability of Chinese policies.

4.1.2 The booming 1990s: From Pudong New District to High-Tech Parks

In recognition of the negative reaction of foreign investors to the worsened investment environment at the end of the 1980s, the Chinese government issued the “Amendments to the Joint Venture Law” in 1990. These amendments codified several rules designed to encourage investment. Particularly important was the elimination of the duration limit applied to some ventures, and the granting of

30 permission for foreigners to act as joint venture board chairmen (Robertson and Chen, 1990). In 1990 the Chinese government also decided to develop and open the Shanghai Pudong New District, and further liberalise a number of cities along the Yangtze River, thus forming the Yangtze River Economic Open Belt by 1992.

In 1991 the ‘Income Tax Law for Enterprises with Foreign Investment and Foreign Enterprises’ (also called the ‘Unified Income Tax Law’) was passed by the People’s Congress of China. This tax law replaced both the foreign enterprise and joint venture income laws, which had governed foreign operations in China since the early 1980s. It standardised the income tax rates for different forms of FIEs, and eliminated the prior tax discrimination against the wholly foreign owned enterprises, which had previously been subject to unfavourable treatment. In addition, the Chinese government eliminated the austerity programme in early 1991 and replaced it with a promotion for investment through loosening the control over the domestic loans and opening up the domestic market to foreign investors (Kueh, 1992).

The improved investment environment and expansion of domestic credit facilitated the recovery and growth of foreign investment in China after 1990. The contracted FDI grew 18 per cent and 82 per cent in 1990 and 1991 respectively. The new upward trend of FDI was also confirmed by a 25 per cent increase in the realised FDI.

Following Deng Xiaoping’s grand tour of the south in early 1992, the central government adjusted the economic policy in order to speed up economic reform and to further open the economy to foreign investment. It announced the adoption of the socialist market economy strategy and began to build a legal framework to standardise market operations. Regulations covering corporation law, bankruptcy law, individual income law and stock trading law, and some other commercial regulations have been passed since then. In addition, privatisation of state-owned enterprises by selling their shares to the public, and lowering tariff duties on imports have been important measures in further liberalising the Chinese economy and

31 aiding the emergence of high economic growth and a favourable business environment (Chen et al., 1995).

To attract FDI to more interior regions, the Chinese government opened the capital cities of all the inland provinces and so-called autonomous regions. It introduced new and high technology industrial development zones. These zones were introduced at two levels. On a national level, more than 50 zones have been set up in major cities since 1992. There was also the local level development in which provincial governments imitated national level creations of these new development zones. Since 1992 China has also opened a number of Economic Cooperation Zones in border cities and bonded areas in major port cities to exploit their advantage in developing economic and trade cooperation with neighbouring countries, such as the Heilongjiang Heihe Border Economic Cooperation Zone near the border with Russia.

The new policy also permitted foreign invested companies to sell their products in the domestic market, invest in fields such as retailing, trading, transport, finance and banking, and also allowed them to establish stock-holding companies and secondary business to foreign affiliates (Hirano, 1993). Yet, operations by foreign investors in these sectors were limited to certain specific activities and locations. In fact, liberalisation of the service sector was still conditional, restrictive and incomplete. China’s accession to WTO in 2001 has done much to speed up this process, however.

The macro economic policy –including the devaluation of the Renminbi (RMB) in 1994– stimulated growth which acted as an important magnet in attracting FDI. Foreign direct investment in China witnessed an unprecedented boom during the beginning of the 1990s, which was in stark contrast with the steady but small amount of inflows during the 1980s (Figure 3-1). In fact, foreign direct investment inflows during the 1990s constituted over 95 per cent of total FDI inflows since 1979 (SSB/NBS). Among the factors that contributed to the FDI expansion were the further geographical and sectoral liberalisation of China’s FDI regime and the explosive growth of the domestic economy, along with the worldwide rise in

32 FDI outflows in the first half of the 1990s on the one hand and China’s political stability on the other hand (Lardy, 1992). Huge foreign capital went in to the real estate boom of 1992-1993. These years also witnessed the opening up of branches of foreign banks and fashion and food retail outlets. External factors contributed to the surge of foreign investments in to China in that period. Hong Kong investors were joined by large waves of investments from Taiwan and South Korea as political constraints in dealing with China were substantially reduced in these two economies (Luo and O'Connor, 1998).

Consequently, foreign direct investment experienced an unprecedented boom. The contracted FDI in 1992 increased sharply by 385 per cent, with a total of almost US$ 60 billion, exceeding the cumulative total in the past 13 years. The actual FDI also witnessed an exceptional high growth rate of 152 per cent, and amounted to US$ 11 billion. In 1993, the contracted and actual FDI continued to grow by 92 per cent and 150 per cent, respectively. The contracted FDI value amounted to US$ 111 billion – an all time record still today–, and exceeded the cumulative total since 1979. Actual FDI increased year after year until 1998.

In June 1995, the Chinese government published foreign investment guidelines, i.e., the so-called ‘Industry Catalogue.’ The object of this regulation was to direct FDI towards the encouraged sectors. The catalogue divided investment into four categories: encouraged, permitted, restricted and prohibited investment. Encouraged FDI consisted of projects which largely involved the transfer of high- technology and the technical development of leading and basic industries (Van Den Bulcke et al., 2003). The priority sectors received tax concessions and access to soft loans.

During the second half of the 1990s, China intensified its investment promotion efforts in order to face a number of adverse factors, including the negative consequences of the Asian financial crisis of 1997-1998 and the slowdown of its economic growth, even before the Asian financial crisis (Henley, Kirkpatrick et al., 1999). At the beginning of 1998, the Chinese government revised its industrial

33 guidelines (‘Industry Catalogue’) for FDI. Part of its previous incentive scheme for foreign investors, which had been abandoned earlier, was resumed, particularly for those industries listed as having a high priority for attracting FDI (UNCTAD, 1999). Although there has been some consolidation during the last few years of the 1990s, FDI has rebounded with a vengeance, due to the prospects of China’s –since then realised– accession to the WTO.

4.1.3 The beginning of the new century: Towards Science and Technology Clusters?

While China is not yet a technological superstate, it is focusing more and more on R&D activities by giving priority to, for instance, integrated circuits, computer software, information security systems and biotechnology. China has been bargaining with MNCs and granted them special advantages if they decided to establish huge R&D centres there. General Electric has 27 labs in China working on projects from composite materials design to molecular modelling and several other MNCs are following suit.

Yet, the precise number of R&D centres in China is not really clear. According to Walsh (2003) the estimates vary between 120 and 400 foreign-invested R&D centres spread out throughout the country. As is typical for this domain, reliable statistics rely on the kind of definitions that are used and it is not unlikely that especially local Chinese authorities may interpret such definitions in a broad sense. Yet the objective to be among the top most science and technology competitive nations by 2010 is not entirely excluded (Larson, 2000). Even when this aim might also be reached in the next decennia, the P.R. China’s achievements will be impressive.

Since it acceded to the WTO, China has further relaxed various rules and regulations governing FDI and MNC operations (Pingyao, 2002). Industries that were restricted have been gradually opened up, or the pace of opening up has been accelerated by the

34 implementation of the country’s WTO commitments. Restrictions on foreign ownership and geographical areas in which foreign enterprises can provide services have been relaxed. By 2002, almost all services industries have been partially opened, in line with China’s WTO commitments. Foreign equity restrictions should be further relaxed over the next few years to allow fully owned operations by foreign investors in selected services that were still restricted in terms of ownership (OECD, 2000).

In 2002, the revised “Catalogue guiding foreign investment in industry” and “Regulations on guiding foreign investment decisions” came into effect. The newly revised catalogue increased the number of encouraged industries for foreign investment from 186 to 262, and the number of restricted ones was reduced from 112 to 75. For instance, design of integrated circuits, development and production of software, production of computer systems and peripherals, automobile manufacturing, and wholesale and retail of ordinary goods were included in the encouraged category. Manufacturing of certain home appliances, motor vehicle and motorcycle engine manufacturing, jewellery manufacturing and sale, and air transportation were removed from the restricted list, while the management of telecommunication services, which used to be closed to foreign investment, is now included in the restricted category (AMCHAM, 2002).

The revised catalogue also reflects the schedule for liberalisation of foreign ownership up to 2007 in a number of industries, particularly in the services sector. China has also amended and formulated regulations governing telecommunication, banking, insurance, transportation, construction, trading, distribution, tourism, and agency services. Various surveys of future corporate investment plans suggest that FDI flows to China in the next few years are likely to continue their present momentum. These surveys indicate that China would continue to be among the top global destinations for future FDI inflows (AMCHAM, 2002; ATKearney, 2002; DTT, 1998; JBIC, 2002; JETRO, 2002).

35 In order to better channel all this FDI, China’s administrators are trying to better focus the various types of development zones. In order to benefit from the comparative and competitive advantages of certain regions and areas, the different development zones are targeting specific pillar industrial and service sectors in order to try to develop complete value chains in the true spirit of economic clusters.

36 Figure 4-1 FDI Inflows in China (million USD)

140,000

120,000

100,000

80,000

60,000

40,000

20,000

0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Realised FDI Contracted FDI Source: China Statistical Bureau

37 4.2 Regional distribution and impact

Although foreign investors may now be found in almost every corner of China, they are still highly concentrated in the coastal provinces. While about 40 per cent of China’s population lives in the coastal region, this part of the country harbours more than 80 per cent of its FDI. This uneven regional distribution of FDI is the result of a variety of factors (Chen, 1997). First, the early opening up policy explicitly stimulated FDI in coastal provinces. Inland cities and border areas were only encouraged to open up in the 1990s. It was only in 2000 that the Chinese government announced a programme aimed at restoring a more balanced regional development when it decided to apply preferential policies to attract FDI in western or inland China. However, preferential policies were only one of the advantages that coastal provinces offered to foreign investors (Chen, 1997). They also have substantially better economic endowments which give them advantages over inland provinces, such as geographic proximity to international markets, better infrastructure, more and better skilled labour. Furthermore, many coastal provinces advanced more rapidly in the economic liberalisation process, developed a dynamic non-state sector, and thus provided a more favourable environment to foreign investors. Finally, as they recorded higher economic growth, they have also provided foreign business with larger and strongly expanding local markets (Van Den Bulcke et al., 2003).

As the first place to open up to the world economy, Guangdong has been the largest FDI recipient since the open door policy. In addition, as the majority of FDI in China came from Chinese from Hong Kong, Taiwan, and other parts of Asia, location choices of their investment were largely influenced by the historical and cultural links between investors and the sites that were chosen, i.e. the so- called hometown connections. For instance, Hong Kong investors mainly selected Guangdong province as their preferred location of investment. In fact, they contributed over 90 per cent of FDI in Guangdong province, not only because of their geographical

38 proximity but also because of the cultural and other connections (Zhang, 2001). Consequently, Guangdong province was the largest recipient of foreign investment until 2002. Guangdong cumulatively received FDI amounting to 100 billion USD between 1979 and 2000, or approximately 30 per cent of all FDI. In the 1980s, FDI in Guangdong was concentrated in the three Special Economic Zones (Shenzhen, Zhuhai and Shantou) and the Pearl River Delta region. During the 1990s, FDI has been spreading further into the eastern, western and northern areas of Guangdong province, resulting in an increasing share of these sub-regions in the total provincial FDI (Lan, 1997).

Similarly, Taiwanese investors initially invested mainly in Fujian, which is geographically adjacent to Taiwan, and where the local people share the same language (Minnan) and have close ethnic links with Chinese people in Taiwan. However, as a result of the incremental geographical opening up of China, FDI has become more balanced over the years, at least among the coastal provinces (Broadman and Sun, 1997). The dominance of southern provinces, Guangdong and Fujian, has diminished since the 1990s. Locations that have benefited the most from the dispersion of FDI are Shanghai, and the provinces Jiangsu, Zhejiang and Shandong.

Shanghai, which opened the Pudong New Area in 1990 and Zhejiang province attract each about 10 per cent of inward FDI in China. Jiangsu province, boasting cities like Nanjing, Suzhou and Wuxi has taken over the lead from Guangdong province since 2003 as the most attractive investment destination in China. Jiangsu province now draws in about 20 per cent of all FDI in China. Shandong province also attracts about 10 per cent of China’s FDI inflows.

Unlike Asian investors, western investors from industrialised countries do not possess geographic proximity or close cultural ties with particular regions in China (Schroath et al., 1993). Therefore, their investment distribution is not significantly influenced by geo- cultural factors. Rather, their investment location is affected primarily by industrial and technological factors. American and European investments are largely in technologically advanced

39 industries, using capital and technology intensive production methods. This requires a suitably developed industrial base and relevant supplier industries. In the case of China, large cities, especially those in the coastal region such as Beijing, Shanghai, Guangzhou, Tianjin and Nanjing, are relatively more advanced in industrial structure and technology, and therefore fit better with the requirements of American and European investment for technological conditions and industrial linkages (Zhao and Zhu, 2000). These same regions also boast China’s largest markets.

As mentioned, the geographical opening up of China’s economy to FDI has in fact been mainly limited to the coastal provinces (Wei, 1998). The central region of China, including provinces like Shanxi, Jilin, Heilongjiang, Anhui, Jianxi, Henan, Hubei, and Hunan, has attracted less than ten per cent. The western region, including Chongqing, Gansu, Guangxi, Guizhou, Inner Mongolia, Ningxia, Qinghai, Shaanxi, Sichuan, Tibet, Xinjiang, and Yunnan, has only attracted five per cent of total FDI in China. The Chinese policies, together with the investors’ preferences, have thus created diverging patterns of geographic distribution of FDI and economic development.

40 Figure 4-2 FDI inflows in major regions in China, per cent, 1994-2003

35.00%

30.00%

25.00%

20.00%

15.00%

10.00%

5.00%

0.00% 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Beijing Tianjin Liaon ing Shangh ai Jiangs u Zhej iang Fujian Jiangxi Shangd ong Guang dong Sichuan Source:

41 Table 4-1 FDI inflows in major regions in China, per cent, 1994-2003

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Beijing 137,157 107,499 155,290 159,286 216,800 197,525 168,368 176,818 172,464 219,126 Tianjin 101,499 152,093 215,273 251,135 211,361 176,399 116,601 213,348 158,195 153,473 Hebei 52,340 54,668 83,022 110,064 142,868 104,202 67,923 66,989 78,271 96,405 Shaanxi 3,170 6,383 13,808 26,892 24,451 39,129 22,472 23,393 21,164 21,361 Inner Mongolia 4,007 5,781 7,186 7,325 9,082 6,456 10,568 10,703 17,701 8,854

Liaoning 144,014 142,461 173,782 220,470 219,045 106,173 204,446 251,612 341,168 282,410 Jilin 24,192 40,802 45,156 40,227 40,917 30,120 33,701 33,766 24,468 19,059 Heilongjiang 34,759 51,686 56,691 73,485 52,639 31,828 30,086 34,114 35,511 32,180

Shanghai 247,309 289,261 394,094 422,536 360,150 283,665 316,014 429,159 427,229 546,849 Jiangsu 376,315 519,082 521,009 543,511 663,179 607,756 642,550 691,482 1,018,960 1,056,365 Zhejiang 115,026 125,806 152,050 150,345 131,802 123,262 161,266 221,162 307,610 498,055 Anhui 37,000 48,256 50,661 43,443 27,673 26,131 31,847 33,672 38,375 36,720 Fujian 371,318 404,390 408,455 409,666 421,211 402,403 343,191 391,804 383,837 259,903 Jiangxi 26,168 28,888 30,126 47,768 46,496 31,080 22,724 39,575 108,197 161,202 Shangdong 255,242 268,898 263,355 249,294 220,274 225,878 297,119 352,093 473,404 601,617

Henan 38,673 47,855 52,356 69,204 61,654 52,135 56,403 45,729 40,463 53,903 Hubei 60,186 62,512 68,079 79,019 97,294 91,488 94,368 118,860 142,665 156,886 Hunan 33,114 50,773 74,530 91,702 81,816 65,374 67,833 81,011 90,022 101,835 Guangdong 946,343 1,026,011 1,175,407 1,171,083 1,201,994 1,165,750 1,128,091 1,193,203 1,133,400 782,294 Guangxi 83,633 67,263 66,313 87,986 88,613 63,512 52,466 38,416 41,726 41,856 Hainan 91,809 106,207 78,908 70,554 71,715 48,449 43,080 46,691 51,196 42,125

Chongqing 38,675 43,107 23,893 24,436 25,649 19,576 26,083 Sichuan 92,174 54,159 44,090 24,846 37,248 34,101 43,694 58,188 55,583 41,231 Guizhou 6,363 5,703 3,138 4,977 4,535 4,090 2,501 2,829 3,821 4,521 Yunnan 6,500 9,769 6,537 16,566 14,568 15,385 12,812 6,457 11,169 8,384 Tibet

Shaanxi 23,880 32,407 32,609 82,816 30,010 24,197 28,842 35,174 36,005 33,190 Gansu 8,776 6,392 9,002 4,144 3,864 4,104 6,235 7,439 6,121 2,342 Qinghai 241 164 100 247 459 3,649 4,726 2,522 Ningxia 727 390 555 671 1,856 5,134 1,741 1,680 2,200 1,743 Xinjiang 4,830 5,490 6,390 2,472 2,167 2,404 1,911 2,035 1,899 1,534 Regional Total 3,326,765 3,721,549 4,187,971 449,109 4,528,389 3,993,482 4,033,289 4,636,700 5,247,126 5,294,028 Total of the Ministries and other departments 67,819 59,020 25,545 35,595 17,886 38,389 38,192 51,059 27,160 56,439 National Total 3,394,584 3,780,569 4,213,516 4,525,704 4,546,275 4,031,871 4,071,481 4,687,759 5,274,286 5,350,467 Source: China Statistical Bureau.

42

In recognition of the fact that two decades after the start of economic reforms and opening up to the outside, China’s development had become geographically skewed, the Chinese government set up the “Go West” policy in 2000 in order to rectify the situation. Following the announcement of this policy, most inland provinces fought hard to be included in China’s western region, in the hope that they would benefit from the preferential policies that the central government would introduce to the western region as a whole. The central government subsequently included six provinces (Sichuan, Guizhou, Yunnan, Shaanxi, Gansu, and Qinghai), five autonomous regions (Tibet, Ningxia, Xinjiang, Guangxi, and Nei Mongol), and the Chongqing municipality.

The west has however gotten competition from the Northeast. Rejuvenating the economy of the northeast is currently also the focus of a campaign launched by China’s central government. This campaign is not quite similar to the western region development project. While the focus of the latter is on infrastructure development, the central part of the north-eastern project is aimed at restructuring old, large and inefficient SOEs. The northeast was the first area in China to have adopted the planned economy, and today, it is also one of the last bastions of the old economy. Beginning in late 2003, China has stepped up the transition progress in the region.

43 4.3 Conclusions

Ever since China opened its doors, it has done so at its own pace and liking. One of the more distinctive characteristics, has, in fact, been the incremental geographical opening. Upon opening its doors to the world, China implemented a series of pilot projects to encourage economic and developmental growth. As already indicated, from the beginning in 1979, four Special Economic Zones (SEZs), namely Shenzhen, Xiamen, Zhuhai and Shantou, were established in an attempt to attract foreign investment. In SEZs, special policies were adopted to facilitate foreign investment, and preferential tax policies were implemented. In 1988, Hainan Island was established as the fifth and final SEZ.

Initially, state owned industry was seen as the bedrock of future Chinese industrialisation and development but needed foreign direct investment to modernise its manufacturing technology. On the one hand, the open-door policy was at first regarded as a necessary evil to realise the policy of modernisation through transfers of technology. However, state-owned enterprises (SOEs) have instead become China’s Achilles heel.

On the other hand, although the establishment of SEZs was largely intended to attract technology, investment mainly came from emerging MNCs owned by overseas Chinese. This has turned out to be an enormous success. Encouraged by a visit to several SEZs in 1984, Deng Xiaoping decided to promote the opening up of even more cities and zones. As a result, 14 coastal cities were granted open policies and 14 Economic and Technological Development Zones (ETDZs) were established in 12 coastal cities between 1984 and 1988. The first ETDZs were located in Dalian, Tianjin, Qingdao, Minhang (Shanghai), Hongqiao (Shanghai), Ningbo and Guangzhou. Unlike SEZs, an ETDZ is typically located at the suburban region of a major city. Within an ETDZ, special policies are adopted. An administrative committee, normally selected by the local government, oversees economic and social management in the zone

44 on behalf of the local government. Sometimes, the management of the zone has been put in the hands of commercialized state-owned enterprises.

Table 4-2 Chinese SEZs and EPZs elsewhere: comparisons on selected aspects in the middle of the 1980s Export Chinese processing special economic zones zones Strategic aims Socio-political objectives Not usually Yes Emphasis on attracting Yes Yes overseas investment Emphasis on training Not usually Yes technology transfer Financial/legal Relaxation of customs duties Yes Yes Fewer restrictions on profits Yes Yes transfer Lower company taxation Yes Yes Tax holidays' Often initially Initially Export-oriented production Usually Yes, but not totally Access to local market Sometimes Officially restricted Reduced environmental Often Uncertain controls Planning/geographical Physical Size Usually small Rather large Specific designation of Yes Yes boundaries Restrictions on free Usually Usually movement of goods, people Central zone Usually Yes control/administration Physical site Yes Yes planning/delimitation Social and infrastructure Constraints on labour union Often Probably organizations

45 Export Chinese processing special economic zones zones Greater use of female labour Usually Probably Social infrastructure for Sometimes In course of workers construction Cheap industrial sites in zone Yes Yes Standard factory units Often Yes available Residential facilities for Sometimes Yes overseas staff Recreation facilities for Rarely Yes tourism Hotels included Rarely Yes Source: Adapted from Phillips (1986)

The second wave of expansion of ETDZs was preceded by the establishment of the Pudong New Area in Shanghai in 1990. Pudong is like a ‘SEZ on steroids’. The decision to establish the Pudong New Area was aimed at elevating the status of Shanghai, making it the Dragon Head of the Yangtze River Delta Region, which comprises Shanghai, and parts of Jiangsu and Zhejiang. Prior to the establishment of this new district, the Pearl River Delta Region – comprising nine cities in Guangdong– had been the forerunner of China’s open door policy. Unlike Guangdong, which lies at the south-eastern tip of China, Shanghai’s economic development was supposed to have more impact on China’s vast hinterland.

Between 1992 and 1993, a total of 18 state-level ETDZs were established. Since 2000, the State Council approved a third group of another 17 ETDZs. After 2000, to fuel the development of the central and western regions, the central government also endorsed the establishment of a further 11 national ETDZ in inland regions as part of its ‘Go West’ policy.

46 Table 4-3 Overview of ETDZ in China, coastal and inland regions COASTAL REGION INLAND REGION Province/ Names of ETDZs Province/ Names of ETDZs Municipality Municipality Beijing Beijing (BDA) Chongqing Chongqing Shanghai Minhang Anhui Wuhu Hongqiao Hefei Caoheijing Jinqiao EPZ Tianjin Tianjin (TEDA) Gansu Lanzhou Fujian Fuzhou Guangxi Nanning Dongshan Rongqiao Haicang Guangdong Guangzhou Guizhou Guiyang Zhanjiang Heilongjiang Harbin Nansha Henan Zhengzhou Daya Bay Hubei Wuhan Hainan Yangpu Hunan Changsha Hebei Qinhuangdao Inner Hohhot Mongolia Jiangsu Lianyungang Jianxi Nanchang Nanjing Jilin Changchun Nantong Ningxia Yinchuan Kushan Qinghai Xining Suzhou (SIP) Shaanxi Xi'an Liaoning Dalian Shanxi Taiyuan Yingkou Sichuan Chengdu Shenyang Shandong Yantai Xinjiang Urumqi Qingdao Yunan Shihezi Weihai Zhejiang Ningbo Tibet Lhasa Hangzhou Xiaoshan Wenzhou Daxie (Ningbo City)

47

The State Council also ratified Suzhou Industrial Park, Hainan Yangpu Economic Development Zone, Shanghai Jinqiao Export Processing Zone, Ningbo Daxie and Xiamen Haicang Investment Zone. Founded in 1993, the Ningbo Daxie Development Zone is an investment by China International Trust and Investment Corporation (CITIC) and comes under its management. The Suzhou International Park, which was founded in 1994, is a co-operation between the governments of China and Singapore. Hainan Yangpu is officially one of the official national level ETDZs, it is in the unique position of being a combined special economic zone, economic and technological development zone, bonded zone and port zone.

In the late 1980s, the Ministry of Science and Technology initiated a programme called the ‘Torch Programme”. The main objective of this programme was to utilize the technological capacity and resources of research institutes, universities and enterprises to develop new high technology products and expedite the commercialization of innovations. The programme manifested itself in the establishment of High-Tech Industrial Development Zones (HTIDZs). These zones were set up to expedite technological diffusion and create synergies.

In 1988, the first HTIDZ was established in Zhongguancun, a small area in northwest Beijing. In 1991, 26 more HTIDZs were established, followed by another 25 in 1992. So far there are 53 state- level HTIDZs in China –27 in the coastal region and 26 in the hinterland. Although the primary goal of these latter zones was to introduce advanced technologies on a continuous basis, most HTIDZs give preferential tax policies to registered firms without necessarily being high-tech enterprises. In fact, many of these HTIDZs function like an ETDZ, while some ETDZs try to emulate HTIDZs.

48 Table 4-4 Overview of HTIDZ in China, coastal and inland region COASTAL REGION INLAND REGION Province/ Names of HTIDZs Province/ Names of Municipality Municipality HTIDZs Beijing Zhogguancun Chongqing Chongqing Shanghai Zhangjiang Anhui Hefei Tianjin Tianjin Gansu Lanzhou Fujian Xiamen Torch Guangxi Guilin Fuzhou Nanning Guangdong Guangzhou Guizhou Guiyang Shenzhen Heilongjiang Harbin Zhuhai Daqing Fosham Henan Zhengzhou Zhongzhan Torch Luoyang Huizhou Zhongkai Hubei Wuhan East Lake Hainan Haikou Xiangfan Hebei Shijiazhuang Hunan Zhuzhou Baoding Changsha Jiangsu Nanjing Inner Baotou Mongolia Suzhou New Jianxi Nanchang District Changzhou Jilin Jilin Wuxi New District Changchun Liaoning Shenyang Shanxi Raiyuan Anshan Sichuan Chengdu Dalian Mianyang Shandong Jinan Xinjiang Urumqi Weihai Yunnan Kunming Weifang Shaanxi Xi'an Zibo Baoji Qingdao Yangling Agriculture Zhejiang Hangzhou

49 Since the ninth Five-Year Plan of 1996, the lure of technology- intensive FDI has become the priority of many local governments in China (Tuan and Ng, 2002). The major policy tools, on top of the other FDI preferentials, include mostly financial measures to promote hi-tech industries (Lin et al., 2000). These high-tech firms are not just merely producing for the local market, but are also increasingly exporting. Free Trade Zones and especially Export Processing Zones have become a belated policy option to attract these firms.

Free Trade Zones (FTZs) were first initiated in Shanghai at the beginning of the 1990s. In China’s context, free trade zones are special areas for international trade and bounded operations. Originally, FTZs were designed to fulfil three functions: export processing, entrepot trade, logistics and bonded warehousing. Companies in FTZs are eligible for tax refunds on exports, import duty exemption and concessionary value added tax. Currently, there are 15 FTZs in 12 coastal cities with a total planned area of 43 km². Although they are small in size, these FTZs played an important role in experimenting with the concept of free trade prior to China’s entry to WTO.

More recently, export processing zones (EPZs) have been created. These are similar to FTZs but are set up solely for the purpose of managing export processing. The first EPZ was inaugurated in April of 2000. Fourteen other EPZs were established subsequently. Currently, there are 25 EPZs in China. Most EPZs are part of ETDZs, because they fall under the jurisdiction of the Ministry of Commerce, but are separated from them by physical barriers, which are monitored by customs officials. As such, they may also leverage on the established facilities and resources of the existing enterprises in the ETDZ.

50 Table 4-5 Overview of EPZs and FTZs in China, coastal and inland regions COASTAL REGION INLAND REGION Regions Names of Names of Regions Names op EPZs FTZs EPZs Beijing Tianzhu Chongqing Chongqing Shanghai Songjiang Waigaoqiao Anhui Wuhu Jianqiao Qingpu Caohejing Minhang Tianjin Tianjin Tianjin Hebei Qinhuangda o Fujian Xiamen Fuzhou Henan Zhenzhou Xiangyu Guangdong Guangzhou Shangtou Hubei Wuhan Shenzhen Futian Yantian Shatoujiao Guangzhou Zhujai Jiangsu Kunshan Zhangjiaguang Inner Hohhot Mongolia Nantong Lianyungang Suzhou (2) Wuxi Nanjing Liaoning Dalian Dalian Jilin Huichun Shandong Yantai Qingdao Sichuan Chengdu Weihai Zhejiang Hangzhou Ningbo Ningbo Hainan Haikou

51 Free trade zones and export processing zones offers companies within the zones preferential tax policies, simplified customs procedures, liberal foreign exchange privileges and absence of export quotas and other requirements on imports. Goods that enter China through the zones are not assessed for customs duties until they leave the zones for the domestic market.

Apart from these different zones, there are 13 border and economic cooperation zones, software development parks, university science parks, as well as tourist and holiday resort development zones. Software Development Parks (SDPs) and University Science Parks (USPs) are usually located within a High-Tech Industrial Development Zone or High-Tech Park (HTIDZ or HTP). There are 10 national software development bases. These bases are located in Chengdu, Beijing, Dalian, Shanghai, Xi'an, Jinan, Hangzhou, Guangzhou, Changsha and Nanjing. Tourist and holiday resort development zones are quite separate and are designed to promote the booming tourist sector. Border cities have been allowed to set up their own development zones and implement preferential policies similar to those found in the state-level coastal ETDZs.

Lower level authorities have also set up many development zones. While there are generally outstanding local zones, they generally pale in comparison with most state-level zones in terms of infrastructure, organizational set-up, and more importantly, the continuity of preferential policies or even their mere existence. This uncoordinated proliferation of zones made the national government rationalize and even close zones from 2003 onwards.

52 Table 4-6 Comparison of tax policies of four major types of development zones

National Development Zones Open Cities Economic and High-tech Border and Areas and Special Technological Industrial Free Economic Provincial State Economic Development Development Trade Cooperation Development regulations Zones Zones Zones Zones Zones Zones 1.Non- manufacturing enterprises 30% 15% 30% 30% 30% 30% 30% 2.Manufacturing enterprises 30% 15% 15% 15% 15% 15% 24% ①Knowledge intensive and technology intensive projects and Technology Development Centre 30% 15% 15% 15% 15% 15% 15% ②Export-oriented enterprises with its export value of the year equals or exceeds 70% of its output value 15% 10% 10% 10% 10% 12% 12%

53 National Development Zones Open Cities Economic and High-tech Border and Areas and Special Technological Industrial Free Economic Provincial State Economic Development Development Trade Cooperation Development regulations Zones Zones Zones Zones Zones Zones ③Financial institutions with foreign operation capital above 10 million US$ and an operation period of 10 years or more 30% 15% 15% ④Projects concerning energy, transportation, port or public projects 15%

Source: China Association of Development Zones

54 5. A Survey of Selected Development Zones

Collectively called development zones –including economic and technological development zones, hi-tech parks, free trade zones, export processing zones and special economic zones–, they promise a developed infrastructure, a relatively efficient administration and, above all, attractive business terms.

This part will give an overview of the most important regions in China with their respective ETDZs, HTIDZs or HTPs, FTZs, EPZs and SEZs. First, the Pearl River Delta is tackled in Guangdong province. Next the development zones in the Yangtze River Delta are discussed, including Shanghai municipality, and Jiangsu province, before going inland to Hubei province, Chongqing municipality, Sichuan province, and Shaanxi province. Finally, development zones in the Bohai Rim are described, including Beijing and Tianjin municipality, Dalian (in Liaoning province), and Qingdao (in Shangdong province).

While this selection is not complete, it is based on the success, management efficiency and economic importance of the various zones, while focusing on the more attractive regions in China.

5.1 Pearl River Delta

The Pearl River Delta Economic Circle is the economic area encircling the delta region at the mouth of the Pearl River, covering the southern part of Guangdong province. Guangdong itself is located at the south end of the Chinese mainland. Guangdong has played a pioneering role in China’s economic reforms ever since the implementation of national opening policies carried out in the late 1970s. Three of China’s SEZs, namely Shenzhen, Zhuhai and Shantou, are located in Guangdong’s coastal areas. The largest SEZ,

55 Hainan, used to be a part of Guangdong before 1988. With Hong Kong at each side of the Pearl River estuary, Guangdong has become one of China’s most important economic engines with its Gross Regional Product (GRP) exceeding RMB 1.3 trillion in 2003, leading all other administrative regions (see Figure 5-1).

Figure 5-1 Gross Regional Product, 2003, USD billion

Guangdong 162.6 Jiangsu 150.6 Shandong 150.3 Zhejiang 111.2 Hebei 85.8 Henan 85 Shanghai 75.6 Liaoning 72.6 Sichuan 66 Hubei 65.2 Fujian 63.4 Hunan 56 Heilongjiang 53.6 Anhui 48 Beijing 43.7 Jiangxi 34.2 Guangxi 33 Jilin 30.5 Yunnan 29.7 Shanxi 29.6 Shaanxi 29 Tianjin 28.9 Chongqing 27.2 Inner Mongolia 25.3 Xinjiang 22.7 Guizhou 16.3 Gansu 15.7 Hainan 8.4 Qinghai 4.7 Ningxia 4.7 Tibet 2.2

0 20 40 60 80 100 120 140 160 180

Source: China Statistical Bureau

56 In the first decade of development, textile, footwear, small electronics and other labour intensive industries were the main contributors to Guangdong’s economy. Textile & clothing, food & beverage, and construction materials are the three traditional pillar industries. In 2003, their joint industrial output reached RMB 361 billion. IT & electronics, electric & special equipment, and oil & petrochemical industries are three newly developing pillar industries. In 2003, their industrial output reached RMB 1 trillion. Meanwhile, papermaking, pharmaceuticals and automobiles are viewed as three up and coming industries with a huge potential. In 2003, their industrial output reached RMB 158 billion. Among them, the automotive industry is most likely to become one of the pillar industries of Guangdong.

Guangdong is a highly export-oriented economy. It accounted for a third of China’s total foreign trade in 2003. In that year, its foreign trade reached USD 283.7 billion (see Table), of which exports reached USD 152.9 billion. FIEs are the main contributors to Guangdong’s foreign trade. In 2003, exports of FIEs accounted for almost two thirds of its total exports. For foreign direct investment, Guangdong had been the biggest recipient in the past 10 years. However, its leading position has, in recent years, been threatened by Jiangsu province. Although Jiangsu only marginally surpassed Guangdong in terms of FDI in 2003, this change reflects a shifting focus of FIEs from the Pearl River Delta to the Yangtze River Delta, formed by Jiangsu, Shanghai and Zhejiang. To maintain its position or more accurately, to keep up with the booming Yangtze River Delta, Guangdong is striving to elevate its status in the world production chain. Rather like an assembly workshop, it is paying more attention to higher value activities and higher value-added industries, such as IT, automobile and petrochemicals. It is crucial for for foreign investors to be aware of this transition in focus in Guangdong’s manufacturing sector.

57 Figure 5-2 Foreign Regional Trade, 2003, USD billion

Guangdong 283.6 Jiangsu 113.7 Shanghai 112.4 Beijing 68.5 Zhejiang 61.4 Shandong 44.7 Fujian 35.3 Tianjin 29.4 Liaoning 26.6 Hebei 9 Jilin 6.2 Anhui 5.9 Sichuan 5.6 Heilongjiang 5.3 Hubei 5.1 Xinjiang 4.8 Henan 4.7 Hunan 3.7 Guangxi 3.2 Shanxi 3.1 Inner Mongolia 3.1 Shaanxi 2.8 Yunnan 2.7 Chongqing 2.6 Hainan 2.3 Jiangxi 1.7 Gansu 1.3 Guizhou 1 Ningxia 0.7 Qinghai 0.3 Tibet 0.2

0 50 100 150 200 250 300

Source: China Statistical Bureau

5.1.1 Guangzhou Development District The Guangzhou Development District (GDD) is a unique case. It administers four state-level development zones: ETDZ, HTP, FTZ and EPZ. These are the Guangzhou Economic and Technological Development Zone (GETDZ), Guangzhou High-Tech Industrial

58 Development Zone (GHTIDZ), Guangzhou Free Trade Zone (GFTZ) and Guangzhou Export Processing Zone (GEPZ).

Figure 5-3 Development zones in Guangdong province

Source: China Knowledge, 2004.

GETDZ was among the first batch of state-level ETDZs approved by the State Council in 1984. It is divided into three parts –West section, East section and the Yonghe Taiwanese Investment Zone. Approved by the State Council in 1991, GHTIDZ is also one of the earliest state-level high-tech parks. It is made up of several sub-parks, including Guangzhou Science Park (GSP), Tianhe, Huanghuagang, and Civil Science & Technology Park. To achieve more efficient and a business-oriented management, the administrations of the GETDZ and GHTIDZ were merged in 1999.

59 GFTZ, approved by the State Council in 1992, lies to the north of the GETDZ. The total 2 km² planned area was developed in two phases. In 2001, the government of Guangzhou decided that GFTZ should merge into GETDZ. In 2002, it formally became an integrated part of the development zone.

Box 1 Vitalo Packaging GZFTZ Ltd. Vitalo Packaging is a worldwide supplier of high-tech packaging solutions for the electronic and medical industries, with fully- equipped production facilities in Belgium, Ireland, the Philippines, China and Thailand to serve its highly international clientele throughout the world.

In China, Vitalo Packaging set up shop in 1999 in the GFTZ to follow its electronics customers into China, for instance Philips. Vitalo Packaging installed the latest model machinery and a clean room to be able to supply its demanding customers with qualitative products for high tech packaging.

Although Philips was headquartered in Hong Kong and had located in Shenzhen, Vitalo Packaging decided to locate in Guanzhou instead of in Shenzhen for cost reasons. The Free Trade Zone provided a convenient location, although customs management was not always easy or very efficient.

Philips has recently also set up an IC assembly and testing plant in the Suzhou Industrial Park (see further). Vitalo has already established a sales office there, as time to market is critical because product life cycles are becoming shorter. Customers look for suppliers who can not only design, tool, and manufacture quickly but who can service global locations cost-effectively.

GEPZ is the latest addition of the grand Guangzhou Development Zone. It was approved in 2000 by the State Council together with 14 other counterparts across China. Located in the east section of the

60 GDD, the 3 km² area is exclusively dedicated to export processing activities and related logistics.

In 2003, the GDD’s gross zonal product (GZP) reached RMB 42.3 billion, three quarters higher than in 2002. Among the four industrial parks, GETDZ clearly is the main contributor to the GDD, accounting for three quarters of the total added value of the GDD. The Guangzhou Economic and Technological Development Zone has established trade relationship with more than 80 countries and regions. Investors of more than 50 countries and regions have set up factories in the area. It has introduced a total of 503 industrial projects, including 285 projects of over USD 10 million and 13 of investment over USD 100 million. 82 of the World Top 500 Enterprises have invested in the area.

To date, the GDD has formed six industrial clusters, including chemical raw materials and fine chemicals, electronic and telecommunication products, electronic and mechanical equipment, food and beverages, metallurgy and metal processing, and automobile and auto parts equipment. In 2003, these clusters accounted for 87.6 per cent of total industrial output of the GDD. By the end of that year, the GDD had contracted USD 12 billion and attracted USD 5 billion in foreign direct investment, while exporting USD 12 billion of goods.

Like other industrial parks in Guangdong, light industries, such as food and beverages, and household products were the initial major contributors to the GDD. The facilities of Procter & Gamble and Amway, two large US household producers, have played important roles in their respective global markets. Their plants in Guangzhou are the largest outside the US. While the traditional industries will continue to play an important role in the future, other sectors have been selected as new engines of future growth of the GDD, namely the automobile industry, the petrochemical, the metal processing and ICT sector.

The automobile industry has been identified as a potential growth engine. Guangzhou Honda was the first to locate there in the late

61 1990s. In 2003, Guangzhou Honda ranked 5th in the passenger car manufacturer category, producing nearly 120,000 cars for China’s domestic market. Its impact is driving Guangzhou’s automobile industry. Two other top Japanese car makers, Toyota and Nissan, have also ‘parked’ their production plants in Guangzhou, hence making Guangzhou the 3rd largest automotive production base in China. Honda itself has also set up a new company, Honda Automobile China, in the GDD in 2004. When it is in full swing, it aims to make 50,000 cars solely for export to Asia and Europe. To tap into the fast expanding automobile industry in Guangzhou, the GDD has become the favourite investment destination of the auto parts industry. Thus far there are already more than 60 auto parts manufacturing companies in the GDD.

Lianzhong Stainless Steel, a wholly owned subsidiary of Taiwanese steel maker Yieh United Steel represents another growing engine in the GDD, in the metallurgy and metal processing industry. It has invested USD 800 million, and produces 800,000 tons of stainless steel annually. It is expected to attract further investment from up- and down-stream enterprises.

Although Guangdong has been an important manufacturing base for high-tech products, such as PCs and telecommunication equipment, it has functioned more like an assembly workshop. The GDD is striving to increase the investments in R&D and other higher value- added manufacturing industries. Guangzhou Science Park is positioned as the focal point of the GDD’s high-tech industry. In 2004, the Guangzhou Nanker IC project was formally started. It is a USD 186 million project, and is the first IC production line in Guangzhou.

Two industrial parks that have benefited immensely from spillover effects of large projects (attracting upstream and downstream industries) are Daya Bay ETDZ in Huizhou, Guangdong, where a giant petrochemical base is taking shape; and Nansha ETDZ in Guangzou, Guandong, where an automobile production base and other equipment manufacturing bases are being developed.

62 5.1.2 Shenzhen High-Tech Park

Shenzhen, one of the Special Economic Zones, was the pioneer for China’s open door policy.

Box 2 Glaverbel Vertec Shenzhen The Glaverbel Group set up a company, Glaverbel Vertec, in Shenzhen in 1997. The setting up in China of a processing line for high quality extra-thin glass, destined for the liquid crystal display (LCD) market, was in response to the rapid growth in demand in this region over the years. The company processes sheets of extra-thin float glass, initally supplied to it by the Glaverbel Mol plant, but quickly localised supplies.

The investment of around USD 5 million was to reinforce the Group's position on the South-East Asian market, by improving the service to customers and permitting greater flexibility in reacting to the fast development of the market for displays. Customers were international firms, such as Pilkington, Philips, Asahi Glass, and some other Japanese multinationals.

Through its Vertec business unit based on its Mol plant, the Glaverbel Group has already built up a leadership position in an important sector of the market for LCD glass, namely soda lime float glass, for applications such as calculators, watches, car instrument panels, electronic games, domestic appliances, etc.

Although the support of the zonal authorities was excellent, the bureaucratic customs red tape was perceived as excessive and slow, with difficult issues such as, for instance, imports of spare parts or exports of their customers’ products. Although improvements are made over time, policy clarity is not always China’s strong suit.

Shenzhen High-Tech Industrial Park (SZHTIP) is located in the western part of the city of Shenzhen. It was awarded state-level status in 1996. The total development area is 11.57 km². In 2003, the

63 total industrial output value of SZHTIP was RMB 89.5 billion, of which hi-tech output was RMB 86.7 billion.

SZHTIP has been a main contributor to Shenzhen’s economic development. In 2003, SZHTIP accounted for 18 per cent of Shenzhen’s total industrial output. In SZHTIP, the electronics and communication industry is the predominant industry, accounting for 98 percent of the park’s total output. SZHTIP has formed a communication industry cluster encompassing mobile communication, program-controlled exchange and network equipment; a computer industry cluster ranging from components, parts to complete machines; an optical-communication industry cluster including optic fibre, optical cable and devices; and a software industry cluster including IC design, embedded software and systemized integrated software. The industries bioengineering and new materials have also taken shape.

Unlike some, or even most high-tech industrial parks, which focus on original equipment manufacturing, more than half of the park’s products carry locally developed intellectual property. In particular, SZHTIP has become an important R&D base for IC design. By now, there are more than 100 IC design enterprises. SZHTIP has established close ties with many prestigious Chinese, but also foreign, universities. The Shenzhen Virtual University Park now accommodates 40 or so Chinese and foreign universities.

5.2 Yangtze River Delta

The Yangtze Delta Economic Circle is the economic area encircling the delta region at the mouth of Yangtze River, covering Shanghai, the southern part of Jiangsu, and the northern part of Zhejiang. It has numerous metropolises such as the Suzhou, Wuxi, and Changzhou area, and the Hangzhou and Ningbo region.

64 Figure 5-4 Main Cities of the Yangtze River Delta

5.2.1 Shanghai Municipality

Shanghai has long been one of the most important manufacturing bases in China, with a concentration of heavy industries, such as steel, petrochemical, as well as machinery and equipment. In the 1980s, Guangdong province had taken over the leading economic position, however. From 1990 onwards, following the establishment of the Pudong New District, Shanghai started to regain its former importance in China’s economy. Since 1992, Shanghai has realized continuing double digit GRP growth rates. In 2003, its GRP reached RMB 625 billion, or about USD 75 billion. This is more than 3 times higher than in 1990. Between 1990 and 2003, Shanghai’s average annual growth rate was almost 12 per cent. Shanghai’s GRP per capita is the highest in China, reaching USD 5,633 in 2003, almost five times the national average.

Given its unique geographic location and outstanding economic performance, Shanghai has witnessed surging land and labour costs.

65 To maintain its competitive advantage, higher value added industries are of paramount importance, however. Capital and technology intensive industries have become the mainstay of Shanghai’s industrial sector. Together with its traditional industries, six sectors have been identified as Shanghai’s pillar industries: electronics and IT products, automotive products, petrochemical and fine chemicals, fine steel products, machinery and equipment, and biomedical products. In 2003, the output of those six industries reached RMB 656 billion, accounting for two thirds of total output value and three quarters of growth in total output of large enterprises.

Shanghai Port is the largest seaport in China. In 2003, it handled 316 million tons of freight. In terms of container transportation, Shanghai’s container port also ranked first in China. In 2003, it handled more than 11 million TEU, making it the third largest container port in the world, behind to other Asian ports: Hong Kong and Singapore. Shanghai has grown into the most important transportation hub in China’s central coastline, although it is exposed to fierce competition from deep sea ports, such as Ningbo (in Zhejiang province). That is why Shanghai is building an off-shore deep sea port of its own.

Shanghai is also playing an important role in China’s foreign trade. In 2003, the city’s total foreign trade was valued at USD 112 billion, ranking just behind Guangzhou and Jiangsu for highest foreign trade value. High-tech products were the most significant exports. With the export value reaching USD 16.4 billion, high tech products accounted for a third of total exports. In terms of product type, mechanical and electrical products dominated, with 60 per cent of its total exports in 2003.

Given its strategic location, high quality infrastructure, and advanced business environment, Shanghai remains a favourite for foreign and domestic investors, despite its rising costs. In 2003, contracted foreign investment was more than USD 11 billion, and actual FDI was more than USD 5 billion.

66 Figure 5-5 Most important development zones in Shanghai

Source: China Knowledge, 2004

5.2.1.1 Zhangjiang High Tech Park

Zhangjiang High Tech Park (ZJHTP) is located in the central part of Pudong New District, Shanghai (see no. 5 in Figure 5-5). It was approved by the State Council in July of 1992. ZJHTP’s development comes a bit late compared to other established zones, such as Jinqiao and Waigaoqiao. Its development has, however, accelerated since the strategic focus by the Shanghai government on Zhangjiang. On the basis of this focus programme, the park’s area was also increased from 17 to 25 km² (8 km² of which are still vacant), with another 30 km² in a second phase. ZJHTP is divided into six districts, namely, the technical innovation area, the R&D and education area, the integrated circuit industrial area, a biotech and

67 pharmaceutical area, and a residential, commercial and entertainment area.

The development focus of ZJHTP includes IC, software, bio- engineering and medicine. One of the biggest advantages of ZJHTP is its strong R&D capacity, which is essential for the high-tech industry. The park is host to the state-level bio-tech and pharmaceutical base, national information technology innovation base and Pudong Software Development Park.

In 2003, 18 R&D centres were setup in ZJHTP. Among them, the regional or global R&D centres of GE, Honeywell, FirstData China and Infineon. Besides MNCs, ZJHTP is also the top choice for well- known domestic enterprises to set up their R&D centres, such as Lenovo and Kejian.

ZJHTP is also trying to attract returning overseas Chinese. In 2003, 76 companies in the park were set up by returning students, accounting for about a quarter of the total of such companies in Shanghai. By the end of 2003, ZJHTP had developed 11 km². Total foreign investment reached more than USD 7 billion and the number of registered enterprises exceeded 2500. Accumulated fixed asset investment had reached RMB 35 billion at the end of 2003.

Besides its R&D capacity, ZJHTP has also gained a leading position in the IT industry, particularly in IC. The biggest catch is SMIC, China’s largest semiconductor foundry. SMIC’s HQ is located in ZJHTP, together with its three 8-inch fabs. By the end of 2003, ZJHTP had four 8-inch fabs while there are only eight plants in the whole of China. Including Grace and Shanghai Belling, ZJHTP has expanded into the highest concentration of IC manufacturing facilities in China.

68 Figure 5-6 Investment projects in Zhangjiang High-Tech Park

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0 0 1993 1884 1995 1996 1997 1998 1999 2000 2001 2002

Number of projects Total Investment (mio USD) 69

An indication of its success is that ZJHTP’s R&D capacity has attracted upstream and downstream industries which have set up operations in the zone. A relatively complete production chain, from companies engaged in IC design to testing and packaging has been formed. By the end of 2003, 64 IC design companies, 12 testing and packaging firms, and 34 equipment manufacturing plants were set up within ZJHTP. Based on the presence of big projects like SMIC and Grace, an explosive growth of ZJHTP is expected.

As for bioengineering and biomedicine, ZJHTP had attracted 42 production companies, including GSK, Roche and Thodia. Thirty- one related R&D organizations have also been set up in ZJHTP. Zhangjiang is not only trying to attract large firms, but also small ones. The region of Bavaria has, for instance, set up a German centre to try to invite German SMEs to set up in Zhangjiang.

An important section of ZJHTP is the Shanghai Pudong Software Park (SPSP) It was founded in 1998, has been designated as a national software development base and a national software export base. SPSP was jointly invested by China Electronic Corporation and Zhangjiang Hi-tech Park Development Corporation which represent the Ministry of Information Industry (MII) and the Shanghai municipal government, respectively. The company is responsible for the construction, operation and management of the SPSP.

70 Figure 5-7 Overview of firms located in Zhangjiang High Tech Park

71 SPSP’s mission is twofold. First, it tries to establish a favourable environment to attract good software companies engaging in research, development, production, sales, services, in order to foster a group of world class enterprise influential in the information industry; nurture a pool of talent with professional and managerial skills. An important section is the China Eastern Information Security Industry Park that focuses on information security. Second, SPSP aims at shaping itself into a hub for global and local software companies and intends to become the centre for software products, technology, talent and trade. Multinational and local companies should complement each others advantages, share resources and consequently create a virtuous cycle of development.

SPSP has already attracted many well-known software developers, such as Synopsys, Citibank’s R&D centre and the Sony Software R&D centre. In 2003, total sales of enterprises in SPSP reached RMB 5 billion, a third higher than in 2002.

5.2.1.2 Jinqiao EPZ and HTP

Jinqiao is one of the most advanced development zones in Shanghai. Jinqiao has in fact become a new city in its own right. Its residential area of about 4 km² has its own schools, hospitals, shops, public transport, churches and so on.

Approved by the State Council in 1990, it was the first state level development zone that received the status of EPZ. Located in the middle of Pudong, Jinqiao has a planned area of about 27 km². It is connected to Lujiazui Finance and Trade zone in the west, Waigaoqiao Free Trade Zone in the north and is close to Zhangjiang Hi-Tech Park in the south.

The zone is divided into three sections. The 16 km² industrial park lies on the eastern side of the zone. Six km² of this park was approved by the China National Science and Technology Ministry as the Shanghai Jinqiao Hi-Tech Park (SJHTP) in 1998. In 2001, the

72 Jinqiao software park was set up within the SJHTP. The southern section of Jinqiao –with an area of about 4 km²- is also set aside for industrial use. The State Council approved the enclosed development of 3 km² of this section by the Customs department. Since 2002, this area has operated as a real export processing zone. The 4 km² western side of Jinqiao is designated for residential use; that is the Jinqiao International Community.

Jinqiao has played an important role in the development of the Pudong New District. Jingqiao’s contributions to Pudong’s total industrial output, its industrial output of high tech enterprises and its total industrial profit, were respectively 35, 50 and 60 per cent. In 2003, the GZP of Jinqiao reached RMB 30 billion, accounting for 20 per cent of total added value in Pudong. In the past 14 years, Jinqiao has convinced many MNCs to set up their operational facilities in the zone. By 2004, JQEPZ had attracted almost 400 foreign invested enterprises, with contracted foreign investment for almost USD 12 billion, making it one of the most favoured investment destinations in China. On average, each project is valued at more than USD 30 million.

The IT and automotive sectors are the cornerstone of the JQEPZ. In 2003, they accounted for more than a third of total industrial output. The automobile sector is the fastest growing industry, with an output in 2003 that was more than two thirds higher than in the previous year. The main driving force spurring this growth is Shanghai General Motors, a joint venture between GM and Shanghai Automotive Industry Co. (SAIC). In 2003, Shanghai GM manufactured 169,000 passenger cars, making it the third largest passenger carmaker in China. Together with Shanghai Volkwagen (a joint venture between SAIC and Volkswagen that was established already in 1987), it made Shanghai into an important car manufacturing base in China. Consequently, Shanghai has become very attractive to automotive component companies, at the beginning because China insisted on a high percentage of local sourcing but later because car makers are increasingly localising qualitative parts and components in China. Shanghai and Guangzhou are likely to become the two most important car manufacturing bases in China.

73 There are, however, other cities that have attracted major car manufactures, such as Wuhan and Chongqing. The Chinese government is even trying to spread the location of new foreign entrants into the sector. Renault, for instance, would like to locate near its Asian subsidiary Nissan in the south of China, but is finding negotiations rather tough. After a failed investment project in Hubei, which has recently come to an end after ten years, Renault is considering teaming up with Dongfeng. Dongfeng now also has car JVs with France's PSA group (Peugeot and Citroën), Japan's Honda and Kia from South Korea's Hyundai Motor. When the project in Shenzhen with Renault is established, Dongfeng will have agreements with five foreign car JV partners, the highest number by a single Chinese automaker.

Siemens Mobile Communication (Shanghai) and Shanghai HP are the main contributors to Jinqiao’s mobile phone and PC industries. In 2003, 13 million mobile phone and more than 1 million PCs were manufactured in JQEPZ. Huahong NEC also invested the first 8-inch fab lab here.

The presence of Huahong NEC, which invested the first 8-inch fab in China, Semiconductor Manufacturing International Co. (SMIC), Grace Semiconductors Manufacturing Co. and Shanghai Belling in Zhangjiang High-tech Park and Advanced Semiconductor Manufacturing Co. (ASMC) in Caohejing Hightech Park have made Shanghai into an indisputable leading semiconductor manufacturing base (see Figure 5-8)..

74 Figure 5-8 Semiconductor Industry in Shanghai

75 The south section of the park, which is under customs supervision, is still in the early development stages. In 2003, its sales accounted for less than 1 per cent of total sales in JQEPZ, leaving room for the development of export-oriented companies.

5.2.1.3 Waigaoqiao Free Trade Zone

Waigaoqiao Free Trade Zone (WGQFTZ) is China’s earliest and largest free trade zone. WGQFTZ was approved by the State Council in 1990, and now covers 10 km², 8.5 km² of which are under closed customs supervision. WGQFTZ is adjacent to the Waigaoqiao Seaport.

WGQFTZ is also one of the most important free trade zones in China. In 2003, the GZP of WGQFTZ reached RMB 32 billion and the total sales of the companies located within its borders was RMB 227 billion. Total imports and exports reached USD 21 billion. Total cargo and containers handled by Waigaoqiao Port was 16 million tons and 5 million TEUs, respectively, representing more than 50 per cent of Shanghai’s total. Combined imports and exports represented more than 20 billion USD. In 2003, WGQFTZ’s GZP and total import and export value accounted for 43 and 40 per cent respectively of the total of the 15 existing free trade zones in China. In 2003, WGQFTZ attracted USD 1.36 billion, and received USD 610 million of foreign investment, with 30% of reinvestment. Cumulative FDI in the zone amounted to more than 8.5 billion USD.

It has 3 bases and 1 centre, that is a logistics base, an international trading base, a manufacturing base and a commodity exhibition and exchange centre. Like the other free trade zones, the development focus if WGQFTZ is on free trade, export processing, logistics, warehousing and commodities exhibition and exchange. Its unique location and policy advantages have attracted many foreign investors which set up their operational facilities within the zone. In operation since 1990, the zone has attracted more than 6,000 enterprises from 72 different economies. Eighty-five companies are listed on the

76 Fortune 500 largest companies, including Intel, HP, Toshiba, IBM, Philips, and GE. The zone employs more than 100,000 people, including 4,000 expats. Belgium has about 25 projects in the zone, worth 21.81 million USD.

Box 3 Bekaert Shanghai Ergang Bekaert has set up a subsidiary in WGQFTZ for the production of Dramix, a special metal material for the reinforcement of cement in 1997. The company is a 70-30 joint venture with Shanghai Ergang, a subsidiary company of the giant Chinese Bao Steel Company. Total investment was worth 11 million USD, half of which consists of equity capital. Bekaert Shanghai Ergang leases buildings from the zone. Although buildings were readily available at the time of establishment, they had to be finished on the basis of Bekaert’s operational specifications.

The company considered about a half dozen locations before deciding upon WGQFTZ. Although Bekaert -especially given their experience in other locations in China- thought Waigaoqiao was too expensive, the decision to locate there was strongly influenced by their partner, as is often the case. Shanghai Baosteel Pudong International Trading Company had already established in WGQFTZ’s bonded zone in 1993. The policies did allow for the duty free import of the equipment and the raw materials. At first, the product was entirely exported, mostly to the Asian market, as the demand for the new and innovative product in the Chinese market was not forthcoming.

Today, 30 per cent of sales are made domestically, however. Show visits to the company and some reference projects are slowly convincing Chinese engineers and designers to switch to Dramix products. Fifty per cent of steel wire also comes from Bao Steel, for which it received a Bekaert award because of its high quality deliveries.

The Export processing activities are still the main contributor to WGQFTZ. To date, the zone has about 200 companies involved in

77 export processing manufacturing activities. IT enterprises account for 70 per cent of total industrial output among the production and processing enterprises. Waigaoqiao’s IT sector has even formed a park within the zone, and in addition, created an industrial value- added chain. It has formed a structural system in the IT industry, from front-end production to back-end package testing, to auxiliary products and R&D.

WGQFTZ, as all free trade zones in China, is grappling with the gradual eroding of the policy advantages as a result of the WTO agreements, especially since all foreign trading companies will be able to perform domestic trading, regardless of their location. To maintain their competitive advantages, China’s free trade zones are trying to adopt international standards, such as ‘within the boundaries, outside the customs’ and introduce free RMB currency convertibility. The scarcity of available land, energy supply and the rising costs are, however, other limitations to WGQFTZ’s further development.

5.2.1.4 Lujiazui Finance and Trade Zone

In the 1930s and 1940s, Shanghai was the financial centre of the Far East. Due to historical events, Hong Kong has taken over this role. Now, Shanghai’s financial industry is being rejuvenated again. The Lujiazui Finance and Trade Zone (LFTZ) has thereby snatched the most conspicuous position in the developmental history of China. It is the only ‘finance and trade zone’ in China and is set to be the international financial and trading centre in the Asia Pacific Region by 2015. The zone occupies a total of 28 km² in the mid western part of the Pudong New District, facing the Bund across the Yangtze River.

Four types of companies have located in LFTZ. The most important are the banks and finance companies. About a hundred have registered in the zone, of which more than 70 are foreign banks and insurance companies. The total amount of investment is more than

78 20 billion USD. More than 60 per cent of all foreign financial institutions in China are located here.

By 2004, 64 foreign banks from 19 countries had set up 192 operations in China, and 88 of them were approved for RMB business. Total assets of these foreign funded banks in China had reached about USD 50 billion. In addition, more than 200 representative offices of foreign banks had been opened.

In Lujiazui, there are about a thousand trading companies, with many multinationals opening an office. Financial trading houses like Shanghai Stock Exchange and Shanghai Futures Exchange have also moved in. Other markets include diamonds, rubber, currency (for instance a euro market), and steel.

The majority of firms are service companies, such as legal counselling and consultancy. About a quarter of the 4000 companies are foreign owned, employing about 32,000 white collar workers. Major manufacturing corporations, including Siemens, Alcatel and Bao Steel, also have a foothold in Lujiazui, because they want to have a direct link to the different markets, hedge risks, etc.

The administrative committee has subsequently formed different sub-regions to cater to the different types of firms, that is, a bank region, a futures region and a headquarters region. The residential area tries to cater to the demands of the local workforce. The financial centre of the zone was designed by a group of world- renowned urban planners and architects. The Jinmao Tower and Oriental Pearl TV Tower have already become landmarks of Lujiazui, Pudong and Shanghai, for that matter.

5.2.1.5 Caohejing Hi-Tech Park

Caohejing was initially set up in 1984 and approved as an ETDZ in 1988. In 1991, Caohejing was granted the status of state-level high- tech development zone. Caohejing became the only state-level

79 development zone that enjoyed preferential policies granted to both economic and technological development zones and high tech parks.

The zone is dedicated to the development of high technology in the field of microelectronics, IT products, software, telecommunications, laser technology, new materials and aerospace technology. To accelerate the development of Caohejing’s economy and enhance the management and service level, the Caohejing Hi-Tech Park Development Corporation, together with British Aerospace Systems and the Arlington Company, had started to develop a state-of the-art international science park with a total projected area of 60 hectares, called the OASIS Business Park. Oasis is to build up a garden-style park focused on the development of the IT industry by attracting world-known hi-tech companies.

Caohejing also set up a sister park relationship with Finland-based Tampere Technology Centre, France-based ZIRST Park, Germany- based Heidelberg Science Park, and Australia-based La Trobe University Science Park. At the same time, Caohejing has a sister relationship with American Chinese Semiconductor Association in Silicon Valley.

More than 1,000 enterprises have located in Caohejing. Major domestic enterprises and many foreign world-renowned enterprises have set up subsidiaries in the zone, for instance, GE, 3M, Nortel, Toshiba, Schneider, Lucent, and Dupont. Advanced Semiconductor Manufactuing Co (ASMC), previously known as Philips Semiconductor has three fab plants in Caohejing. About 450 foreign invested enterprises have been set up in Caohejing, half of which come from the European Continent. About 150 American firms had chosen Coahejing and 68 Japanese companies. About 62,000 people worked in the park.

Next to manufacturing, another important industry in Caohejing consists of software and IT systems. Many financial institutions have established computer centres or research units in Caohejing.

80 The Caohejing Export Processing Zone, with a first-phase completed area of about 1 km² passed the examination of the relevant authorities in November 2003. The zone opened this EPZ in Pudong for one of their oldest clients, the Japanese company Inventic. Given the stricter policy of the national government with regard to development zones and land (ab)use, this would no longer be possible at this time. To accommodate more foreign investors, a sub- park was established in Pujiang Town with a planned area of about 8 km².

5.2.1.6 Minhang Economic and Technological Development Zone

Minhang Economic and Technological Development Zone (METDZ), established in 1983, was one of the first 14 development zones approved by the State Council in 1986. It has a total area of 3.5 km², which is now fully occupied. It has attracted 158 foreign investted projects, of which 31 were started up by Fortune 500 corporations and another 40 by MNCs. Fifty European and American firms, each, ang about twenty Japanese companies. Contracted investment amounted to USD 2 billion. By the end of 2000, Shanghai Minhang United Development Corporation had invested about RMB 800 million in MHETDZ’s infrastructure development.

The three main manufacturing sectors in the zone are electrical equipment and machinery (Alsthom, Siemens, ABB), biological and pharmaceutical products (Johnson and Johnson, Hangwei, Brystol- Myers Squib), and light industry (Pepsi Cola and Coca Cola). The International Education Joint College of Shanghai Foreign Languages University and a branch of Shanghai Normal University were also set up within MHETDZ.

Box 4 Ensysta Piping Systems Engineering (Shanghai) Co., Ltd. The Belgian company Ensysta is located in METDZ and realizes turnkey industrial projects for the food, pharmaceutical and chemical

81 industries. It focuses on the project design, engineering, management, implementation and validation. It first started out by exporting a project for Xi’an Janssen at the end of the 1980s. At the end of the 1990, they set up a representative office in the Flanders Export Business Centre in Shanghai. Subsequently, two projects for SmithKline Beecham in Tianjin and Shanghai were carried out.

Deloitte and Touche suggested to set up a company in Pudong, but was unable to secure a business license for equipment installation. Ensysta finally set up shop in Minhang and leased the land and buildings from the zone. The option to buy was refused after four years because they had to make way for a university centre and had to look for another location. After tough negotiations Ensysta was allowed to relocate within the same zone, however.

Ensyst’s client portfolio has grown and is also spreading geographically. They continue to focus on western FIEs or WOFEs, as Chinese customers are quite difficult in terms of project and price negotiations.

Given the fact that the METDZ was now fully occupied and the local government was not really cooperating, the Shanghai Minhang United Development Co. Ltd. was looking for other locations to develop, for instance in Fungxian, across the river, or in Anhui. The relevant costs of power, water, and land were all just a fraction of costs in Shanghai. Also compensation costs for relocating people was a cost that they had to factor into their business plan.

To lower investment costs in Shanghai, the Shanghai government has designated Qingpu District, Songjiang District and Jiading District as the new production bases in Shanghai. For example, the land transfer fee in Qingpu District is less than half the level in Minhang ETDZ and Zhangjiang HTP. Since becoming new production bases in Shanghai, Qingpu Industrial Park, Jiading Industrial Park and Sonjiang Industrial Park have achieved accelerated growth in the past few years.

82 5.2.2 Jiangsu Province

Located along China’s east coast, Jiangsu province counts China’s fourth largest population in China. In terms of GRP, Jiangsu is the second largest economy in China. It is one of the cradles of modern Chinese industry. Jiangsu is known for its ‘Sunan’ model, which focused on the creation of large-scale collective Township and Village Enterprises (TVEs) in the 1980s and 1990s. Until the mid 1990s, TVEs were a fast-growing sector, and were the main contributors to Jiangsu’s economy. Today, however, township enterprises are slowly losing their importance in Jiangsu as industrial parks in the province bring in the large investments from foreign companies.

Traditionally, the light industry, especially the textile industry, was the main contributor to Jiangsu’s economy. The petrochemical industry was another important sector. Apart from these industries, the high-tech industry, especially the production of IC and PC, and heavy industry, such as steel, petrochemical and automobile have been growing rapidly in recent years, fuelled by foreign as well as by domestic investments.

While less significant today, Jiangsu’s light industry, such as textile, still plays an essential role in the province’s economy. Increasingly though, high-tech industries, such as telecommunication equipment, PC and other electronic equipment, are becoming the most influential sector in Jiangsu. In 2003, total industrial output for these industries together reached RMB 260 billion; and value-added industrial output of high-tech enterprises accounted for 23 per cent of total value- added industrial output.

83 Figure 5-9 Most important development zones in Jiangsu province

Source: China Knowledge, 2004

Jiangsu has trade ties all over the world. In 2003, foreign trade surged to USD 113 billion, 62 per cent higher than in 2002. Export value was almost USD 60 billion, more than 50 per cent higher than in 2002. The mechanical and electronic sectors produced the most important export products. In 2003, these sectors accounted for almost two thirds of total exports. High-tech products are also playing an increasing role in the export activity. In 2003, the share of high-tech products reached almost 40 per cent. Foreign invested enterprises are the main contributors to Jiangsu’s exports, accounting for 70 per cent of the total. The top four export destinations are the EU, the US, Japan and Hong Kong.

To a large extent, the rapid growth of Jiangsu’s economy is the result of surging foreign investment in the province. In 2003, Jiangsu

84 displaced Guangdong as the number one recipient of FDI in China. In that year, actual FDI in Jiangsu reached USD 15.8 billion, 52.4 per cent higher than in 2002. More than 7,000 projects were approved in 2003, 1,500 of which involved projects of more than USD 10 million, while 37 projects were worth more than USD 100 million. USD 10.1 billion, or almost two thirds of actual FDI, went to provincial and state-level industrial parks.

5.2.2.1 China-Singapore Suzhou Industrial Park

Of the many industrial parks in Jiangsu, the China-Singapore Suzhou Industrial Park (SIP) stands out as a high-profile bilateral cooperative project between the governments of China and Singapore. The establishment of the SIP in 1994 attracted worldwide attention, and generated much interest from foreign investors.

The core district of SIP has an area of 70 km² and is co-developed by the two governments. China-Singapore Suzhou Industrial Park Development Co. Ltd. (CSSD), a joint venture between a Chinese consortium and a Singaporean consortium, is the organisation that is in charge of the development of the overall township.

To boost its export business, China-Singapore Suzhou Industrial Park Export Processing Zone (SIPEPZ) was established in 2000. SIPEPZ covers an area of 3 km² and is to be developed in three phases. Development of the first phase was completed in 2001.

By the end of March 2004, 1400 foreign invested projects had been approved, with a total contracted FDI of USD 16 billion, and actual FDI reaching almost USD 7 billion. The number of projects with an investment value higher than USD 100 million was 45, while ten projects involved an investment of more than USD 1 billion. More than 50 Fortune 500 companies had launched more than 70 projects in the park.

85 Over the years, semiconductors, optic-electronic technologies and mechanical-electronic technologies have formed a relatively complete production chain, and as such became the cornerstone of SIP.

SIUP is not only attractive to foreign investors; it is also gaining the confidence of Chinese entrepreneurs. One of the latest companies to set up in SIP is China’s number two PC company, that is the Founder Group. In early 2004, it decided to establish its largest production plant there, with the aim to produce 6 million units of PC a year. It will be the biggest production base for IT products in Asia with an annual output value of more than RMB 25 billion.

5.2.2.2 Suzhou New District

Suzhou New District (SND) is located in the western part of Suzhou. SND was formerly known as Suzhou High Tech Industry Development Zone. It was approved as a state-level high-tech zone in 1992.

SND is best known for its complicated relationship with SIP. SND, which is supported by the local government, is viewed as a direct rival to SIP, which is backed by two national governments. Similar to SIP, SND is now designated for development as a new town rather than a pure manufacturing base. To some extent, the competition between SND and SIP has shortened the learning curve, and it has grown fast for the last 10 years. Many international enterprises have joined SND. It is, for instance, one of the locations with the highest concentration of Japanese enterprises. By 2004, SND had attracted 200 projects invested by Japanese enterprises with a total investment of USD 3.5 billion. This was more than 30 per cent of total foreign investment in the zone. Out of those projects, more than 30 projects were invested by 20 Japanese Fortune 500 companies. The biggest Japanese investor is Seiko Epson with a total investment of UD 350 million.

86 The pillar industries of SND are electronic and telecommunication equipment (accounting for 45 % of industrial output), precision mechanical products (about 30 %) and fine chemicals (about 15 %). For instance, 80 million LCD display screens for mobile phones were manufactured in SND, accounting for 25 per cent of world production. In 2003, SND’s GZP reached RMB 25 billion, while total foreign trade amounted to USD 16 billion.

To boost the development of export oriented industries, SND Export Processing Zones (SNDEPZ) was started up in 2003, with a total planned area of 3 km². The first phase of the development passed the examination of the relevant authorities. By the end of March 2004, SNDEPZ had attracted nine projects with a total investment of USD 170 million.

5.2.2.3 Wuxi New District

Next to Suzhou, Wuxi is another dominant manufacturing base in Jiangsu province. Wuxi New District (WND) is the main contributor to Wuxi’s development, and is fast becoming the cornerstone of its high-tech industry.

WND started out with Wuxi High-tech Industrial Development zone, which was subsequently upgraded to a state-level high-tech industrial development zone in 1992. Major industries at WND include electronics, information technology, electromechanical engineering, bioengineering, new materials, and fine chemical engineering. WND was extremely successful in wooing foreign direct investment. By the end of 2003, WND had approved 891 foreign invested projects, with a total investment of USD 11 billion and USD 4 billion paid in capital. Forty Fortune 500 MNCs have established subsidiaries in this district. Fuelled by foreign investment, WND has been growing fast in the past 10 years. The average GZP growth rate exceeded 50 per cent. In 2003, the district’s GZP reached RMB 23.6 billion, one of the highest in China.

87 Box 5 Atlas Copco Wuxi In the early 1980s, Atlas Copco has a longstanding relationship in China. When it was asked by Wuxi Compressor to supply blueprints for the production of oil injected screw compressors in China, they signed a license agreement. Over the years, contacts between the two companies were rather frequent, with engineers from Wuxi Compressor Company being trained in the Atlas Copco group’s compressor plant in Antwerp, Belgium.

The project to start a joint venture was initiated in 1993. After intensive market studies, the approval of the feasibility study and the by-laws of the company was obtinaed from the pertinent authorities in Wuxi. The company obtained its business license in 1994, the first meeting of the Board of Directors took place and the design of the new plant was made by local firms based on the blueprints of the plant in Belgium. Particular care was given to the test room, which is a copy of the test room used in Antwerp. The test room is equipped with all modern facilities to secure that the finished compressors meet the same standards as the compressors produced in the main plant in Belgium. Potential suppliers were also being identified. A first group of professionals were sent to Belgium for training.

The company moved to the new plant at the end of 1995, and production started with stationary oil injected screw compressors, soon followed by diesel driven portable machines. The product development, however, will continue to be performed by the main plant in Antwerp, Belgium.

Atlas Copco’s clients are private and state owned Chinese companies, as well as multinational subsidiaries. As their products are the best products around, this attracts the better clients as well.

Meanwhile, WND has also strengthened its ties with foreign counterparts. It has established cooperation with some international counterparts, such as Newland Science Park in the UK and the Triangle Research Park in North Carolina, USA.

88 Undoubtedly, the biggest ‘investment’ WND has attracted, however, is the Wuxi Singapore Industrial Park (WSIP). WSIP is a cooperative project between China and Singapore and was first established in 1993. Although WSIP is much smaller than SIP, it plays and important role in attracting foreign investment and enhancing the management skills of WND as a whole. By the end of 2003, WSIP had lured 75 foreign projects for a total investment of USD 1.6 billion, with USD 1.2 billion utilized, making up 30 per cent of total utilized FDI in WND. The total area of WSIP has been extended to 10 km². The first phase of WSIP has been developed and another 2 km² is under development. The industrial focus of WSIP is electronics, optical technology, information technology, telecommunication equipment, medical and healthcare products, automotive and aerospace components.

Now, besides being a manufacturing base, township development is also included as one of the functions of the development zone, and it has been formally renamed as Wuxi New District. To boost exports, a separate part of WND was also dedicated to the Wuxi Export Processing Zone (WXEPZ) and was recognized as a state-level EPZ in 2002.

WND has also established the Agricultural High-Tech Park, which is supported by Nanjing Agricultural University and the Wuxi Entrepreneurship Park for Overseas Chinese Scholars. The latter has been granted the status of national incubation centre for Chinese students returning from overseas studies. The park facilitates these returnees’ pursuit of advanced R&D and their setting up of new ventures.

5.2.2.4 Nanjing Economic and Technological Development Zone

Nanjing is one of the most famous ancient capital cities in China. Besides being a transportation hub, it also has a high concentration of higher education institutions. These include Nanjing University and

89 Southeast University. While Nanjing still ranked third in Jiangsu province in terms of added value, its strategic location and rich human resources should have allowed it to perform better economically. Nanjing’s development, however, has been blunted by the development of the Suzhou-Wuxi-Changzhou Area. In 2003, Nanjing’s added value reached RMB 158 billion while the values for Suzhou and Wuxi were RMB 280 and RMB 190 billion, respectively. There are several reasons for the current situation. The advantages of Wuxi and Suzhou lie in their proximity to Shanghai. More importantly, the involvement of the government and enterprises from Singapore in these two cities’ development has enhanced their management expertise and increased channels of investment promotion, thus positioning them among the top investment destinations in China.

The relatively slow development of Nanjing is attributable to some extent to the crowding out effects of Wuxi and Suzhou’s popularity with investors. Nonetheless, with ever improving investment environments and changing, pro-business attitudes, investing in Nanjing is increasingly worthwhile considering.

The Nanjing Economic and Technological Development Zone (NJETDZ) was established in 1992. It was granted the status of a state-level ETDZ by the State Council in 2002. The development area covers 30 km².

NJETDZ encompasses three national-level development zones. Nanjing Xingang High-Tech Industrial Park was established in 1997 with an area of 5 km². It enjoys the preferential policies of state-level high-tech industrial development zones. The State Cross-Strait Science and Technology Industry Park was approved by the Sate Council in 1997. The main focus of this latter park consists of attracting investments from Taiwanese enterprises. Finally, to tap into its premium geographic location and to boost the export-oriented industry, Nanjing Export Processing Zone (NJEPZ) was set up in NJETDZ. NJEPZ was approved by the State Council in March of 2003, and started to operate under close customs’ supervision later that year. NJEPZ occupies 2.5 km² and has an additional 3.5 km²

90 allocated to the development of a supportive production zone and residential area.

By the end of 2003, 1,400 projects had taken root in NJETDZ with a total investment of RMB 40 billion. Three hundred of these enterprises are invested by foreign owned companies. Contracted FDI had reached USD 3 billion and USD 1 billion was actually used. In that same year, NJETDZ’s GZP reached RMB 6 billion, 30 per cent higher than in 2002. Sharp and LG are the two biggest FIEs in terms of exports. The export value for these two companies exceeded USD 100 million in 2003.

5.2.2.5 Nanjing High-Tech Park

Nanjing High-Tech Park (NJHTP) was approved as a state-level high-tech park in 1991. Its total development area is 16.5 km². More than 2,000 enterprises have been established in NJHTP, of which 190 are considered to be high-tech enterprises. They make up 40 per cent of the total number of such enterprises in Nanjing. NJHTP focuses on industries such as electronics, information technology, bioengineering, new materials, petrochemicals, software development and aviation technology.

NJHTP comprises several subsidiary parks, namely a Software Park, a Biopharmaceutical Park and a Chemical Industrial Park. Located in the southern area of NJHTP, the Biopharmaceutical Park aims to become a quality innovation centre for the bioengineering industry. Nanjing software development park (NJSDP) is the first state-level software development park in Jiangsu. Since it became operational in 2000, it has attracted nearly 200 enterprises. By the end of 2002, 3,000 professionals worked in NJSDP. The total revenue of NJSDP reached RMB 2.2 billion in 2002.

91 5.3 Inland China

5.3.1 Hubei Province

Located in the central part of China, Hubei province has a population of about 60 million. With a favourable geographic position and a well-developed transportation system, Hubei plays an important role in the country’s economic development of the central region. In 2003, the province’s GRP reached USD 65.2 billion, an increase of 9.3 per cent over 2002.

Hubei’s pillar industries include automobile, iron and steel, mechanical and electrical equipment, textile, chemicals and building materials. The share of heavy industry continues to grow. In 2003, the total value-added of the heavy industry was RMB 93.1 billion, while that of light industry was RMB 42.5 billion. Total exports and imports in 2003 reached USD 5.11 billion, an increase of 29.2 per cent over 2000. Exports amounted to USD 2.66 billion, 26.5 per cent higher than in 2002. In 2003, 532 new foreign invested enterprises were approved, 59 of which were projects over USD 10 million. Utilized FDI in 2003 was USD 1.56 billion, 11.1 per cent higher than in 2002.

The capital city of Hubei province is Wuhan. The economic decline of Wuhan has baffled many experts. While Wuhan’s economy today is no match to Shanghai’s, it was not so long ago that the two cities were quite comparable. Indeed, Wuhanguan evokes similar sentiments as the famous Shanghai Bund. Even during the early 1980s, Wuhan remained indisputably a first-tier city, and its importance was second only to Guangzhou, Shanghai or Beijing. In 1980, its GDP still ranked among the top 5 in China. Today, Shanghai has risen as the Dragon Head of the Yangtze River Delta. Wuhan, in contrast, has suffered a sharp decline since its heyday, and has been unceremoniously relegated to mere second-tier city status, which involves an alarming turn of the tide. The importance of Wuhan has been dwindling for decades, however. In Wuhan today,

92 unemployment has worsened as big SOEs in the city struggle to stay afloat. In 2003, its added value ranked 13th amongst China’s major cities. Although Wuhan positions itself as the connecting point between southern and northern China, as well as eastern and western China, and as such remains the most important city in Central China, in reality, Wuhan is fast being marginalized by the rapidly-growing cities in the coastal provinces and the western region, which is being propped up by China’s Western Region Development policy.

The gap between Guangzhou and Wuhan has widened since the implementation of the open-door policy. While in 1980 Guangzhou’s GRP was only slightly more than Wuhan’s, the former’s GRP was more than twice that of Wuhan’s. Likewise, Suzhou and Ningbo, whose GRP were once much lower than Wuhan’s, have surpassed the latter as well. Similarly, Chengdu –a favourite investment destination in the western region in recent years- has also left Wuhan behind.

Prospective investors should, however, note the unique advantages of Wuhan. Like an undervalued stock, Wuhan should not be overlooked, nor should its potential be underestimated. In fact, it would be not at all surprising to see its two state-level development zones, Wuhan Economic and Technological Zone and Wuhan East Lake Park, enjoy accelerated growth in the near future.

5.3.1.1 Wuhan Economic and Technological Development Zone

The Wuhan Economic and Technological Development Zone (WHETDZ) was established in 1991 and recognized as a state development zone in 1993. It covers 31 km², of which 20 km² has been developed. When fully utilized, the zone may be expanded to an area of 90 km². To boost the export-oriented manufacturing industry, the Wuhan Export Processing Zone (WHEPZ) was approved by the State Council in 2000. It was the first EPZ in Central China.

93

The main driving force behind the development of the WHETDZ is the automobile and auto parts industry. In 2002, the headquarters of the Dongfeng Group (the 2nd largest car producer in China) and the headquarters of Donfeng Group’s joint ventures was moved to the WHETDZ.

WHETDZ’s largest project is Dongfeng Peugeot Citroën Automobile (DPCQ), a joint venture between the French PSA Group and the Dongfeng Group. In 2003, it ranked as the 6th largest passenger car maker with a total output of 105,000 cars. Wuhan faces stiff competition from Guangzhou. Donfeng Nissan, another joint venture of Dongfeng, has been doing well in Guangzhou. It should not be excluded that the Dongfeng Group might shift its focus to Guangzhou instead, however. The decision to leave Wuhan will also depend upon the negotiations with Renault about their location. In 2003, several other automobile enterprises (including auto parts producers), such as Dongfeng Nissan and Dongfeng Honda set up plants in WHETDZ.

The fast-growing automobile industry has boosted the economic performance of the WHETDZ. In 2003, its total industrial output and GZP surged to RMB 30.8 billion and RMB 10.6 billion, growing by 25.8 percent and 20.3 per cent, respectively. The automobile industry accounted for about two thirds of the WHETDZ’s economy.

Besides the automobile industry, other encouraged industries in WHETDZ include bio-engineering and new pharmaceuticals, electronics, mechanical electronics, new materials and advanced agriculture.

5.3.1.2 Wuhan East Lake High-Tech Park

The Wuhan East Lake High-Tech Park (WHHTP) is located in the suburbs of Wuhan. It was established in 1988 and was authorized as a state-level high-tech park in 1991. The major industries here

94 include fibre-optical technologies and products, biological engineering, electronics, new materials, software development, laser technologies and other advanced technologies. Optical and laser technologies have become the cornerstone of WHHTP, which are clustered in the China Optics Valley. This is the largest production base for optical-electronic products with key players like Changfei Fibre-optical Cables (the largest fibre-optical cable maker in China), Fenghuo Telecommunications and Wuhan Research Institute of Post and Telecommunications (the largest research institute in optical telecommunication). It also boasts the largest laser industry in China with key players including HUST Technologies and Chutian Laser.

Besides optical telecommunication and laser, software development, bio-engineering and pharmaceuticals have been designated as priority industries. By the end of 2003, there were more than 6,000 enterprises with a total registered capital of RMB 30 billion. In 2003, its total revenue reached RMB 48 billion, 20 per cent higher than in 2002.

The Hubei Software Development Park (HBSDP) is also located in the WHHTP. By the end of 2002, there were more than 200 software companies based in the HBSDP. In 2002, its total revenue exceeded RMB 2 billion.

Large venture capitalists in the park provide important capital support for enterprises with high growth potential. More than 10 enterprises, such as Wuhan East Lake High-Tech Group, HUST Technology and Yangtze Telecommunication have been listed on the two Chinese stock exchanges.

5.3.2 Chongqing Municipality

Chongqing is famous for its natural resources, its agriculture and its light industries. It became the fourth municipality on 14 March 1997, as it received the same status as Beijing, Tianjin and Shanghai. Formerly part of Sichuan province, Chongqing is located on the

95 upper reaches of the Yangtze River in southwest China. Situated at the east of the Sichuan Basin, the land of Chongqing is mountainous and hilly. Together with Wuhan and Nanjing, the city of Chongqing is known as one of the three ‘stoves’ due to its extremely hot weather conditions in summer, although this label could be applied to more Chinese cities.

Chongqing is the largest municipality in China. Chongqing is divided into three economic regions: urban area, western Chongqing and the area of the Three Gorges. In 2003, Chongqing’s GRP reached USD 27.2 billion, with the three regions accounting for 39.2 per cent, 30.6 per cent, and 30.2 per cent, respectively. The urban area has the largest economy and is also the fastest growing area. The means by which the gap between the urban and rural areas needs to be narrowed is a major issue that will have to be addressed by the Chongqing government in the near future.

Transportation equipment is the largest industrial activity in Chongqing. In 2003, 404,500 automobiles (including 120,600 passenger cars) and 4.4 million motors were manufactured in Chongqing. The two representative companies are Chongqing Chang’an and Lifan Auto, respectively. Chongqing Chang’an has set up two joint ventures, one with the Japanese car maker Suzuki and another with the American automobile manufacturer Ford.

Besides transportation equipment manufacturing, other pillar industries include metallurgy, chemicals and energy. Chongqing has become one of the ten major bases for mechanical and electrical equipment in China.

In 2003, total foreign trade in Chongqing reached USD 2.6 billion, 45 per cent higher than in 2002. Out of that number, exports reached USD 1.6 billion, 45 per cent higher than in 2002. Mechanical and electrical equipment are the major exports of Chongqing. In 2003, they accounted for 58 per cent of its total exports.

Under the national policy for the Western Region Development, priority is given to foreign investors engaged in the development of

96 infrastructure, natural resources, agriculture, environmental protection as well as in projects dealing with equipment manufacturing, metallurgy, electronics and light industries. In 2003, 187 new FIEs were approved. Utilized FDI reached USD 261 million, 33 per cent higher than in 2002.

5.3.2.1 Chongqing Economic and Technological Development Zone

The Chongqing Economic and Technological Development Zone (CQETDZ) was set up in 1983, and was approved in 1993 as the first state-level economic and technological development zone in western China. CQETDZ’s first phase was a 10 km² southern zone that has been completed. The southern zone consists of an Information Industrial Zone, Dangui Industrial Zone and Huilong Industrial Zone.

Pillar industries include mechanical processing, chemical and pharmaceutical products, food and apparel, new construction materials and IT and electronics. The zone is trying to establish relevant clusters, by attracting suppliers to the domestic and foreign flagship companies. Mechanical processing has mainly attracted Japanese firms. Four of the five biggest apparel firms in Chongqing have located in the CQETDZ. New materials for construction had mainly clustered around a Taiwanese plant. In total, by the end of 2003, some 250 FIEs had located a plant in the southern zone.

Since the introduction of the Go West policy, an 84 km² area in the north has been selected for development. Seven areas have identified for development, namely four industrial areas and three service areas. The priority industrial sectors are IT, chemicals, environment protection and automotive products, but any high-tech and export- oriented projects are welcomed. The zone administrative committee had subsequently planned the development of the Chongqing Export Processing Zone (CQEPZ), an automobile industrial zone, an environment industrial zone, a technology industrial zone and a central commercial district. The EPZ had attracted seven firms by

97 2004, two American, three Japanese and two Chinese firms, especially in mechanical processing.

In an initial phase 50 km² of the eastern part of this northern area will be developed. Up to 500,000 people will live in the newly developed northern city. At the beginning of 2004, 14 per cent of the area had been developed, and some 50 companies had located in the northern area, most of which were American invested firms, including Ford, Viston, and Coca Cola

The administrative committee has already moved to the northern zone, indicating the new focus of the zone. The northern zone has a planned area of 83.7 km². It is close to Chongqing’s largest container port. A logistics park and a deep water dock was also being developed, with a full capacity of 700,000 TEUs, which should be ready by 2007. As part of China’s western development plan, enourmous infrastructural works were also under way, such as a new railway station, an airport, highways to the East (Shanghai), the North (Xi’an), and the West (Chengdu).

At the end of 2003, there were almost 3,000 enterprises in CQETDZ, among which there were 358 foreign enterprises from 22 different countries with a total investment of almost USD 2 billion. There were 35 large projects with investments of more than USD 10 million. Depending upon the type and extent of the invested operations, land use rights were being sold up to the maximum price of 225 RMB per m², which is less than half of the development cost price.

In particular, the automobile and auto parts industry has been designated as a priority sector in Chongqing. Chang’an Ford, the joint venture between Chang’an Group and Ford has been the focal point of Chongqing. Unlike its competitors, GM, Volkswagen and Honda; Ford chose to base its first production line in Chongqing in order to tap into a lower-cost location in inland China, and to benefit from preferential policies by the local government which is eager to attract the so-called high-end manufacturing players to Chongqing.

98 Established in 2001, Ford’s subsidiary produced its first passenger car in CQETDZ in 2003. According to plan, the capacity of the plant will reach 150,000 cars per year and further expansion is expected. To accommodate the Ford project and other related auto-parts projects, Ford Auto Industrial Park was established within CQETDZ with a total area of 3 km².

In 2003, the GZP of CQETDZ was RMB 6.66 billion, an increase of almost 30 per cent compared to 2002. DQETDZ is quickly becoming one of the most established ETDZs in the western region.

5.3.2.2 Chongqing High-Tech Park

The Chongqing High-Tech Park (CQHTP) is located in the southwest part of Chongqing and covers 80 km². It was approved in 1991. It is divided into a few subsidiary zones. The two most important subsidiary parks within CQHTP are Shiqiaopu High-Tech Zone (1991-1998) and since 1998 the second stage Erlang Science & Technology Zone (ESTZ). ESTZ is still under construction. It aims to become an incubation centre for high-tech ventures.

Recently, a northern zone was approved by the municipal government. According to the new master plan, in the new zone, several production bases, such as for optical-electronics, new materials, software development and medical equipment, will be established.

Shiqiapu High-Tech zone has largely been an incubator for SMEs. The most important industries include electronic information, biological engineering, pharmaceuticals and new materials. The Erlang Science and Technology Zone has been a platform for larger enterprises, especially in the electro-mechanical industry, such as motorcycles, air conditioners and steel casting. The northern zone was focusing on the software industry, biological and pharmaceutical products, chemicals and opto-electronics.

99 Thus far, CQHTP has formed four clusters, namely, IT and electronics, automobile, motorcycle, bioengineering, and medical equipment. At the end of 2001, more than 10,000 enterprises had registered in the park, including more than 400 high-tech enterprises and more than 400 foreign enterprises, mostly SMEs. Major foreign investors include Isuzu, Pepsi Cola and UTStarcom. Major domestic enterprises include Lifan Auto, China’s largest motorcycle maker in China.

Together with the northern Zone of the CQETDZ, the northern Zone of CQHTP forms the Northern New District, which is planned as the new CBD and commercial centre of Chongqing. As other zones in other cities, they aim to develop into a new city. Both zones, however, see each other as their biggest competitor, especially for big industrial projects.

5.3.3 Sichuan Province

Sichuan province is known as the land of abundance as it is one of China’s major agricultural production bases. Chongqing and Chengdu used to be twin cities in Sichuan, and comparisons between these two cities were common, until Chongqing was promoted to the status of an independent municipality.

In addition to heavy industries, such as coal, energy, iron and steel, Sichuan has a light manufacturing sector comprising construction materials, wood processing, as well as food and silk processing. The five pillar industries in Sichuan include mechanical and metallurgy, food and beverage, pharmaceuticals and chemicals, electronic and telecommunication products and energy.

Major exports of Sichuan include chemical and industrial raw materials, steel products, garments and textiles, silk and fabrics, electronics and power generation equipment. Major imports, on the other hand, include aviation equipment, electronics components, electronic appliances, automobile spare parts, chemical raw

100 materials, steel products, non-ferrous materials, and electronics and machinery. In 2003, total foreign trade reached USD 5.63 billion, a quarter higher than in 2002, with exports amounting to USD 3.21 billion.

Sichuan encourages investment in fields like electronics and information technology, machinery and metallurgy (including automobiles), hydropower, pharmaceuticals, and food and beverage industries. In 2003, utilized foreign investment reached USD 412 million. Main development zones include the Chengdu ETDZ, the Minyang and Chengdu HTP and the Chengdu Cross-Straits Science and Technology Industrial Development Park.

5.3.3.1 Chengdu Economic and Technological Development Zone

The Chengdu Economic and Technological development Zone (CDETDZ) was established in 1990 and was approved in 2000, becoming Sichuan’s only state-level ETDZ. Although the CETDZ was established in 1990, it only really took off after the Go-West policy. The zone covers 26 km², 10 of which have been developed. Total investments in infrastructure reached RMB 1.5 billion. At present, more than 500 projects have been established by domestic and foreign enterprises in CDETDZ, among which there are about 100 foreign projects with a combined contractual investment of USD 220 million and utilized foreign investment of USD 70 million.

At the beginning of 2004, 200 firms had started production. Major industries include machinery, electronics, new construction materials, pharmaceuticals and food processing. Clustering is, however, not part of their policy. Investors basically can choose where they want to locate, although some suppliers try to locate near flagship firms, such as, for instance, the China First Automobile Co. Operational costs are rather cheap, with maximum land prices listed at 195 RMB per m².

101 In 2003, the GZP of CDETDZ was RMB 5 billion, up a quarter over the previous year, while industrial value-added was RMB 1.8 billion, up a third compared to the previous year.

5.3.3.2 Chengdu High-Tech Park

The Chengdu High-Tech Park (CDHTP) was authorized as a state level high-tech park in 1991. The total development area is 80 km². It is divided into different sub-zones. The southern zone, with a total planned area of 47 km², is designated as the new town of Chengdu, and township development will be its focal point. The southern part is therefore changing from a manufacturing to an R&D targeted area, while the west is yet to be developed fully. The western sub-zone, which was only started up in 2001, is designated for the development of high-tech industries.

CDHTP has become one of the most reputable high-tech parks in the western region, having experienced fast growth in the past. In 2003, firms within the zone added RMB 21.3 billion value, about a quarter higher than in 2002. The CHTP was also one of the fist high tech zones to provide one stop service, locating the relevant departments in one administrative building.

In the beginning, the zone had no specific specialisation; all industries were not only accepted but also promoted. Three sectors had developed into pillar industries; that is electronics and IT, as well as, bioengineering and pharmaceuticals, and processing machinery have become the most important industries in CDHTP.

There were more than 6000 registered firms in the park, including 500 FIEs, 24 of which were Fortune 500 firms. Total investment was about 1.75 billion USD. Most foreign investors were American and Japanese, but some Europeans had also located in CHTP, such as Carrefour and Alcatel that had invested an R&D centre for optical transmission technology. There are over 550 high-tech enterprises. The biggest and most important project is from Intel, which has

102 decided to invest USD 375 million in an IC packaging and testing base in CDHTP. SMIC, the largest IC foundry in China, is another big catch. It signed a contract in 2004 and will invest USD 175 million.

The park had uncharacteristically not just one but two EPZs. Despite its recent establishment, the southern 3 km² EPZ did not have enough room for Intel’s export activities, and a second EPZ was therefore set up in the West. Most of the 14 firms in these EPZs are foreign, mostly American, firms.

CDHTP has also become a successful incubator. About 400 enterprises have grown out of the 27 incubators in CDHTP, while about 500 ventures are currently being hatched.

Enterprises in the Western Software Development Park (WSDP) mainly specialize in the development of professional application software, education software, entertainment software and office software, such as information management systems. At the end of 2002, there were about 40 enterprises with 3,000 software professionals working in the park. In 2002, the total sales revenue was RMB 3.59 billion, of which software revenue reached RMB 1.3 billion.

In 2000, to further boost export-oriented industries, Chengdu Export Processing Zone (CDEPZ) was uncharacteristically established in the western sub-zone of CDHTP. In turn, CDEPZ is divided into two smaller sub-zones.

5.3.4 Shaanxi Province

Shaanxi distinguishes itself as one of the cradles of Chinese civilization on the one hand and the communist revolution on the other hand. The provincial capital, Xi’an is the biggest business and commercial centre in northwest China. As the north-western transportation hub in China, the province has easy access to the vast

103 hinterland in northwest China. Xi’an is at the centre of the railway, highway and airway networks in northwest China.

Local industries are mainly active in energy production, machinery, food, non-ferrous metallurgy, telecommunication equipment, petrochemical and textile. As an important tourist destination, Shaanxi’s tourism industry has generated spillover effects for the service sector. In 2003 the province reached USD 29 billion GRP, about 11 per cent higher than in 2002. However, the heavy industry remains the predominant sector, accounting for about 80 per cent of total value-added industrial output. Many SOEs in the defence industry are in fact located in Shaanxi province (Zhang and Van Den Bulcke, 1998).

In 2003, total foreign trade in Shaanxi reached USD 2.78 billion, a quarter higher than in 2002. Exports reached USD 1.74 billion. Major trading partners include the EU, US, Japan, ASEAN, South Korea and Hong Kong. Having lagged behind the coastal region for two decades, Shaanxi is now vigorously promoting its strategic location and natural resources in order to attract foreign investors. In 2003, 229 new FIEs were approved. Actual FDI reached USD 466 million, 13.5 per cent higher than in 2002.

Xi’an has an abundant supply of human resources with a provincial population of almost 40 million. There are many famous universities, such as Xi’an Jiaotong University, Northwestern University and Northwestern Polytechnic University in Xi’an. Xi’an itself is ranked top five in China in terms of human resource availability.

5.3.4.1 Xi’an Economic and Technological Development Zone

Xi’an Economic and Technological Development Zone (XAETDZ) was established in 1993 and was approved as a state-level development zone by the State Council in 2000. Covering 23.5 km², XAETDZ is located outside the north gate of Xi’an City. To boost

104 export-oriented industries, Xi’an Export Processing Zone (XAEPZ) was approved for establishment in 2002 with a total area of nearly 3 km². It is the first EPZ in the north-western region.

Thus far, XAETDZ has formed four industrial clusters, namely, mechanical and electronics products, food and other light industries, bioengineering and pharmaceuticals, and new materials.

5.3.4.2 Xi’an High-Tech Industrial Development Zone

Xi’an High-Tech Industrial Development Zone (XAHTIDZ) was authorized as a national high-tech park in 1991. Total development area is 34 km². The development focus is on electronics, information technologies, optical electronic and mechanical engineering, biopharmaceuticals and software development. XAHTP consists of several subsidiary parks, including Electronic Industrial Park, Chang’an Technology Park, Xi’an Software Park, Hi-Tech Export Processing Base, Xi’an jiaotong University Science Park, Northwest Polytechnic University Science Park, Pharmaceutical Park and Advanced Material Science Park.

Since its establishment in 1998, the Entrepreneurship Park for Overseas Chinese Students has attracted over 400 overseas students who have started their businesses in the park area.

The Xi’an Jiaotong University Science Park (JTUSP) focuses on information technonology, biomedicine, new entergy and environmental protection technologies.

The development of XAHTIDZ has been quite rapid. By the end of 2003, the accumulated number of approved projects exceeded 6,000. High-tech enterprises number nearly 1,000, while about 500 FIEs had set up in XAHTP. In 2003, total sales revenue and total industrial output of all member enterprises was RMB 61.6 billion

105 and RMB 39.3 billion, respectively. The GZP of the park was around RMB 16 billion.

By the end of 2003, utilized FDI in Xi’an amounted to USD 644 million. XAHTIDZ accounted for about 40 per cent of total utilized FDI in Xi’an in 2003.

Most of the enterprises in XAHTIDZ are generally small in size, although some big players are also investing. In June 2003, Infineon set up a regional R&D centre in XAHTP.

Box 6 Xi’an Thiebaut Pharmaceutical Corporation Xi’an Thiebaut Pharmaceutical Corporation is jointly established by Shaanxi Pharmaceutical Corporation, Xi’an Gaoke Group Company, Shaanxi Hanjiang Pharmaceutical Company and TS Flanders with a total investment of RMB 125 million in May 1999. TS Flanders is set up by Tubes Souples, a Belgian specialist aluminium tube manufacturer for the pharmaceutical industry.

Both Shaanxi Pharmaceutical Corporation and Shaanxi Hanjiang Pharmaceutical Company are partners of Xi’an Janssen Pharmaceutical Company. Xi’an Gaoke is an enterprise wholly- owned by the Xi’an municipal government and is in charge of the zone administration.

Xi’an Thiebaut is located in the XAHTIDZ. It is equipped with fully automatic production lines imported from Germany and is specialized in the extrusion and printing of collapsible aluminium tubes for the pharmaceutical, cosmetics, food, fine chemicals, and daily chemicals market. It started out with one production line, but has recently added another, with a maximum of six lines. The company wants to become the leading domestic pharmaceutical packaging enterprise with a strong international competitiveness. It mainly targets the international players as customers, first and foremost Xi’an Janssen, but also other MNCs all over China.

106 Located within XAHTIDZ, the Xi’an Software Development Park is divided into an incubation and an industrial zone. More than 400 software companies have joined the park, accounting for 90 per cent of all software enterprises in Xi’an. In addition, there are 40,000 professionals working in the park. Most companies are domestic, but major international corporations have also joined the park, including IBM, HP, Philips, NEC and Fujitsu. Fujitsu, for example, has set up its global R&D basis in this zone and employs more than 1,000 professionals.

Box 7 Xi’an Flanders Innovation Services Centre The Xi’an Flanders Innovation Services (XFIS) company is an equity joint venture between Horsten International, owning 55%, and the Shaanxi Pharmaceutical Corporation (SPC) owning 45%.

This Incubation Centre is located in the Xi`an Pharmaceutical Park of the Xi`an High-Tech Development Zone. The area of the project is 12,000㎡, with a construction area of approximately 4,500㎡ in the first phase. The total investment is approximately RMB 18 million.

XFIS’ multipurpose business centre offers a complete range of facilities (offices, laboratories, production areas, and warehousing) to small and medium-sized high-tech companies in the pharmaceutical industry and in related high-tech areas, looking for a fast, smooth and low-risk entry into the Chinese market. This incubator also offers advanced management services to meet the needs of these companies in their early development stage, such as project management, legal services, regulatory affairs, personnel management, technical services, financial consulting, sales and marketing support, handling of goods and other services. The XFIS also acts as investment partner.

The company has also obtained the exclusive registration and sales rights in China of several Plant & Material Protection products of the Janssen brand.

107 5.4 Bohai Rim

The Bohai Rim is the economic area encircling the Bohai Sea, covering the southern part of Liaoning, eastern part of Hebei, northern part of Shangdong, Beijing and Tianjin.

5.4.1 Beijing Municipality

Beijing is China’s political, cultural and economic centre. Benefiting from its unique position as capital city, Beijing’s economy has been growing rapidly in the past ten years. In 2003, Beijing’s GRP reached USD 43.67 billion, an increase of 10 per cent over 2002. The increase was largely brought about by the rapid development of the urban infrastructure and real estate, and the steady growth in consumption. Unlike other regions, the tertiary sector is the main component of Beijing’s economy. In 2003, services accounted for 61 per cent of the total GRP of Beijing, while the secondary sector accounted for 35 per cent. In the manufacturing sector, high-tech companies have been playing an increasingly important role. In 2003, the value-added of high-tech enterprises accounted for 30.9 per cent of total industrial output. Twenty-six development zones have become the growth engines of Beijing. By the end of 2003, some 25,000 companies were registered in the various industrial parks of Beijing. Total foreign trade in 2003 saw a rapid increase of 30 per cent, reaching USD 68.5 billion. The city approved 1,360 new foreign invested projects in 2003, with a contractual FDI of USD 3.27 billion. Utilized FDI was USD 2.19 billion.

5.4.1.1 Zhongguancun Science Park (ZSP)

The Zhongguancun Science Park, mainly located in the urban northwest of Beijing, with many key Chinese universities and research institutes within its proximity, is the most dynamic area in Beijing for high-tech developments.

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ZSP is China’s first high-tech industrial development zone, and its most developed one. Zhongguancun is home to many prestigious universitities and research institutes, including Tsinghua University, Beijing University and the Chinese Academy of Science (CAS). There are a total of 39 universities and 213 research institutes. A third of the fellows of the Chinese Academy of Science and the Chinese Academy of Engineering work in the area. It boasts the highest concentration of human resource talent in China, which is its biggest asset.

Today, ZSP covers a much larger area than its original size. It comprises seven subsidiary zones: the core part is Haidian Park around Zhongguancun; and the subsidiary zones are Cangping Park, Fengtai Park, Yizhuang Science Park (Daxing county), the Electronics City (in Chaoyuang district), Jianxiang Park (Chaoyang district) and Desheng Park (Xicheng district). Haidian Park is 75 km² and is often referred to as the Silicon Valley of China. It consists of the ZSP West Park, Shangdi Information Industry Base, Environmental Protectino Model Park, Software Park, Life Science Park, Beijing University Science Park and Tshinghua Science Park.

Unlike other high-tech parks, which focus mostly on manufacturing, ZSP concentrates on R&D. After a visit to Silicon Valley, the late professor Chen Chunxian set up a private service department in 1980. This was a revolutionary move. At that time this decision sparked a heated debate regarding its legality. Endorsement from the central government came only four years later. Thereafter, new start- ups backed by universities and institutions began to mushroom in Zhongguancun, which gained the nickname ‘Electronic Street’. Due to the success, the State Council approved the establishment of the Beijing Experimental Zone, the predecessor of the Zhongguancun Science Park, in 1988. It was China’s first state-level high-tech park, aimed at speeding up technological diffusion and creating synergies among the corporations and the academics. The Ministry of Science and Technology (MOST) also initiated the Torch program in 1988, which eventually led to the creation of some 50 high-tech zones as from 1991. In 1999, it was renamed Zhongguancun Science Park.

109 Since 2001, the zone also implemented a one-stop service centre in one building (with 40 departments).

In the past decade, ZSP has maintained a fast growth trend, with its GZP for 2003 increasing by 17 per cent over 2002 to reach RMB 60 billion, and a total revenue of RMB 288 billion. It has been estimated that by the end of 2010, the GZP of ZSP will reach RMB 130 billion. At the end of 2003, more than 13,000 firms had registered, including some 2000 FIEs. Total output in 2003 was 280 billion RMB. More than 50 Fortune 500 firms and 32 R&D centres, including Microsoft, Lucent, Panasonic, Siemens, had been set up. Some well-known domestic enterprises including Lenovo Group (formerly Legend), Stone, Founder Group, Datang Telecom, Tsinghua Unisplendor and Tsinghua Tongfang are also based in ZSP. In fact, most of these enterprises originated in Zhongguancun. The Lenovo Group, backed by the Institute of Computing Technology –which is an institute of CAS-, and the Founder Group, backed by Beijing University, have become two very successful companies since then.

At the same time, some 40 incubators (for example, the Fentai Innovation Center, the Haidian Innovation Center for Overseas Chinese Scholars, and the Tshinghua Innovation Center) have been fostered in the zone for the commercialization of scientific achievements and the development of high-tech enterprises. Fuelled by the Technological Innovation Fund, as many as 3,000 new enterprises were set up in the period 1999-2002. Over 20 venture capital firms are now co-operating with ZSP.

Some of those incubators are located in the Zhongguancun Software Park (ZGCSWP). The ZGCSWP Co. Ltd. was established in 2000. The company is responsible for the planning, development, construction, management and service of the ZGCSWP, the state software industry base of Beijing. SGCSWP hosts software development firms (including integrated chip design), enterprise incubators, training of software professionals, etc. The park will accommodate 50,000 software engineers upon completion; it is anticipated to output RMB 10 billion worth of software by 2005. In

110 the beginning of 2004, about 8,000 people worked for some 100 companies.

ZSP opened an office in 2002 in the Amsterdam Science Park. It is a joint co-operative programme stimulated by the Municipalities of the two-sister cities Beijing and Amsterdam. The activities of Zhongguancun Science Centre in Amsterdam include the promotion of business exchange between Dutch and European high tech firms and the Zhongguancun Science Park in Beijing; the creation of a bridge between business communities, incubators, and academic communities of ZSP and European member states; and the implementation of co-operative research, educational programmes, and technology transfer. It also offers its services to companies of ZSP and Europe in both ways, including information exchange, arrangement of business visits and trade talk. The centre will establish strong links with local business communities as well as academic and technology communities not only in the Netherlands but also in other EU member states.

5.4.1.2 Beijing Development Area

The Beijing Development Area (BDA) was only set up in 1994. It was approved by the State Council as a state-level Economic and Technological Development Zone. The first phase was planned on a 16 km² area. In 1999, when ZSP was renamed by the State Council, 7 km² of the ETDZ was named Yizhuang Science Park and became part of the ZSP. Consequently, this 7 km² offers preferential policies found in the national economic development areas as well as the national high-tech industrial parks. BDA’s second phase development is 39 km². BDA’s Administrative Committee was established by the Beijing Municipal Government to carry out the management of the BDA on behalf of the Beijing municipality. It enjoys the same level of authority in project approval.

As the sole state-level economic and technological development zone in Beijing, it has been a favourite destination for foreign investors.

111 By the end of 2003, cumulative contracted FDI reached USD 4.7 billion and 1382 companies had registered, including 38 Fortune 500 firms. Ninety per cent of firms in BDA are foreign invested. Six pillar industries have been formed, including high-tech, biotech and pharmaceuticals, optical machinery, new energy and materials, software, and the automobile industry.

Subsidiary parks include the Xinguang International Industrial Park for IT, the GE industrial park model for medical companies, and a pioneering park which serves as an incubator for returned overseas researchers. Fourteen R&D centres had been established in BDA.

5.4.2 Tianjin Municipality

In 2003, Tianjin’s GRP increased by 14.5 per cent to RMB 238.7 billion. It is a major industrial base in the north of China. The total value added of industrial output in 2003 was RMB 110.3 billion, mainly contributed by industries such as electronics, automobiles, metallurgical engineering, pharmaceuticals, petrochemicals and new energy. In 2003, these industries accounted for about 70 per cent of the industrial output.

Tianjing’s port handled more than 162 million tons of cargo and 3 million TEUs in 2001. It has regular shipping routes to more than 300 ports around the world. Tianjin International Airport will become the largest freight airport in northern China with a handling capacity of 120,000 tons per year.

In 2003, total foreign trade in Tianjin expanded by 28.7 per cent, reaching USD 29.34 billion. Exports contributed USD 14.35 billion. Foreign investments are also surging in Tianjin. In 2003, Tianjin approved 941 foreign invested projects. Total contracted foreign investment reached USD 3.51 billion while utilized FDI reached 1.53 billion, growing 74.3 per cent and 62.9 per cent, respectively. To facilitate FDI, the municipality has designated a number of development zones to host FIEs, including the Tianjin Economic Development Area (TEDA), Tianjin High-Tech Park, Tianjin Export

112 Processing Zone, Tianjin Port Free Trade Zone, and other sub-level industrial parks.

5.4.2.1 Tianjin Economic-Technological Development Area (TEDA)

TEDA was inaugurated on 6 December 1984. It was one of the first development areas established in China by the State Council. The Beijing-Tianjin expressway cuts across TEDA, dividing the area into two major estates. The expressway leads straight to the port of Tianjin. South of the expressway is the Financial-Trade-Residential Estate and north of it is the Industrial Development Zone.

Tianjin Export Processing Zone (TJEPZ) was approved by the State Council in 2000. TJEPZ is designed to host foreign processing firms. Special policies and incentives are granted by the central government. TJEPZ is located on the north-western part of TEDA with a planned area of 2.54 km², of which 1 km² was developed in a first phase.

At the end of 2003, 3,730 foreign invested enterprises were located in TEDA, and the cumulative foreign direct investment reached USD 18.36 billion. Many renowned enterprises have set up their businesses activity in this zone.

Currently, TEDA has formed four major industrial clusters: telecommunications equipment, mechanical manufacturing, bio- pharmaceuticals, and food and beverage. In 2003, these four pillar industries accounted for 91.5 per cent of TEDA’s total industrial output. Four other industries are also encouraged, namely, software development, bio-engineering, new energy and environmental protection technologies and products.

Motorola is the leading company for the telecommunications equipment industry in TEDA. It is Motorola’s largest manufacturing

113 base. As a result, Motorola plays a crucial role in the development of TEDA.

Another fast-growing industry in TEDA is the automotive sector. Tianjin has long been an important automobile manufacturing base in northern China. Tianjin Xiali, for instance, ranked fourth in the list of the largest passenger car producers in China in 2003. With the location of more than 60 auto parts enterprises in TEDA, a major cluster of auto parts makers has developed. TEDA has also been chosen by Toyota for its main production base in northern China. Out of the three car manufacturing plants of FAW Toyota Co. in Tianjin, two are based within TEDA. It is estimated that by 2007, Tianjin will achieve annual production capacity of 600,000 passenger cars. TEDA is set to play a pivotal role in Tianjin’s automobile and auto parts industry.

TEDA has recently launched its second phase of development to create an even better investment and living environment. It is emerging as a new town in Tianjin.

5.4.3 Liaoning Province

Liaoning is the only coastal province in north-eastern China. It has the largest economy among the three provinces in the northeast. In 2003, its gross regional product reached RMB 600 billion, while the figures for Jilin and Heilongjiang were respectively RMB 252 billion and RMB 443 billion.

The campaign to revitalize the northeast –announced in August of 2003 by Premier Wen Jiabao, a native of Tianjin-, has provided a new opportunity for Liaoning, a province that once had the second largest economy in China. More than 50 of the first 100 projects approved by the State Council campaign to revitalize the northeast, accounting for 72.5 per cent of total investments, were allocated to Liaoning. Compared with other northern provinces, Liaoning has made tremendous progress in foreign economic cooperation. Total

114 foreign trade was USD 26.6 billion in 2003, 22.2 per cent higher than in 2002. It was more than twice the total value of Jilin and Heilongjiang combined.

At the same time, foreign investments have been increasing in recent years. In 2003, utilized foreign direct investment reached USD 5.58 billion, 42.6 per cent higher than in 2002. There are many different types of industrial parks located in Shenyang, Dalian, Benxi, and Fushuan at varied levels, as well as border trade cooperation zones in Dandong.

Dalian has been the biggest beneficiary of the north-eastern renaissance campaign. In 2003, its GRP reached RMB 163.3 billion. It is also the most favoured destination for foreign investment in the northeast. Out of the first 100 approved projects, 17 projects were located in Dalian with total investment of RMB 13.2 billion, or 21.8 per cent of total investments.

5.4.3.1 Dalian Economic and Technological Development Zone

The Dalian Economic and Technological Development Zone (DLETDZ), also known as Dalian Development Area (DDA), was among the first ETDZs authorized by the State Council of China in 1984.

Since 1984, DLETDZ has spent over USD 1 billion on infrastructure and public utilities in order to provide the amenities of a modern urban centre. It has, like most zones, its own power and thermal supplies, telecommunications, wastewater treatment facilities and cable TV, all of which can be easily and efficiently connected to factory premises.

By the end of 2002, 1,581 foreign investment projects had been established in the zone. And by the end of 2003, accumulated

115 contracted and utilized FDI amounted to USD 10 billion and USD 4.5 billion, respectively.

North American and European investors made up about 30 per cent of the total investment. To date, the largest project is WEPEC, a joint ventures petrochemical project with Total Fina Elf. Total investment amounted to more than USD 1 billion. Encouraged industries include petrochemicals, electronics and IT, software, equipment manufacturing, and shipbuilding.

In 2003, the GZP of DLETDZ reached RMB 30 billion, 23.7 per cent higher than in 2002. Exports grew 11 per cent to USD 3.6 billion.

DLETDZ is committed to environment-friendly sustainable development, and it was the first zone in China to be awarded the ISO 14001 certificate in recognition of its achievements in this area.

Dalian Free Trade Zone (DLFTZ) and Dalian Export Processing Zone (DLEPZ) are state-level development zones approved by the State Council in 1992 and 2000, respectively. The development focus of DLFTZ includes processing, storage and international trade. Within the DLFTZ there is an International Logistics Park. The focus of DLEPZ is mainly export processing. The two zones are both under the administration of the DLFTZ Administrative Committee.

The DLFTZ and DLEPZ are adjacent to the Dalian Economic and Technological Development Zone, where a new downtown area is emerging.

The DLFTZ and DLEPZ have made impressive progress in the past ten years. At the end of 2003, a total of almost 4,000 investment projects were registered in the two zones. About 1,500 of these were foreign-funded by investors from 41 different economies and accumulated contracted investment for USD 2.8 billion. The total GZP of the DLFTZ and DLEPZ was RMB 5.33 billion in 2003. The foreign trade volume of the DLFTZ and DLEPZ in 2003 was USD 1.86 billion. Exports experienced an unprecedented strong growth –

116 reaching USD 905 million, growing almost 50 per cent from 2002 onwards.

5.4.3.2 Dalian High-Tech Park

The Dalian High-Tech Park (DLHTP) is located in the south-western part of Dalian city. It was authorized as a state-level high-tech park in 1991. The total development area is about 35 km². The DLHTP comprises Qixianling Industrial Base, Overseas Student Park, Dalian Software Development Park, DD Port and Huanghe Road Science City. Founded in 1998, with an area of about 7 km², Dalian Software Park is one of the ten ‘State-level Software Industry Bases’.

Major industries include software, electronics, new materials, bio- pharmaceuticals, energy saving and environment protecting.

Half of the companies are export-oriented. In 2002, total industrial output reached RMB 950 million, while export value reached USD 40 million.

Total government funds reached RMB 1.3 billion. The first phase projects include a venture centre, residential apartments for software professionals, office buildings, training centre and major infrastructural works involving roads, telecommunications, power and water supply facilities.

According to the park’s master plan, total sales revenue of member enterprises are expected to reach RMB 2 billion at the end of 2005. By now, more than 140 companies are registered in the DLSDP, 30 per cent of these are foreign-funded enterprises.

With a planned area of 20 km², the Dalian DD Port focuses on the development of DNA technology and digital technology industries. The Opticomm Industrial Park, Digital Manufacturing Park, Japanese Digital Port, DD Pioneering Park and other specialized industrial parks have taken shape at the Port.

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By 2004, the Dalian High-Tech Industrial Zone had 1,700 registered enterprises, 583 of which involved foreign investors. After 12 years of development, the DLHTP has grown substantially, especially in the areas of software, information services and biological engineering industries.

5.4.4 Shandong Province

The peninsular province of Shandong enjoys a strategic location on China’s east coast, and separates the Bohai and Yellow Sea. The meandering coastline allows Shandong to have as many as 26 seaports, of which Qingdao is the major one. Shandong is China’s top producer of corn, peanuts, meat, seafood and fruits. Two decades of economic reforms have changed the industrial landscape of the province. In terms of GRP, it is now the third largest province in China. In 2003, Shandong achieved a GRP of RMB 1,243 billion. In the past, the province’s economy was largely driven by the development of the heavy industries and state-owned enterprises. Shandong is rich in mineral resources and crude oil. Shengli Oil Field accounts for about 17 per cent of China’s total crude oil output. The deposits consist of over 59 minerals such as sulfur, diamond, graphite, coal and iron; and rank among the top in the country.

In recent years, Shandong has become an attractive place for foreign investors. By the year 2003, the province was the third largest destination of FDI of the Chinese provinces with about USD 6 billion. In 2003, more than 5,000 new FIEs were approved with a total contractual FDI value of more than USD 13 billion.

The leading industries in Shandong include energy, chemicals, metallurgy, building materials, machinery, electronics, textiles and food. The main products of the province include coal, crude oil, concrete, fertilizers, wine and beer. Shandong has successfully promoted many famous brands such as Hai’er Electronics, Hisense Electronics, Zhangyu Wine, Tsingtao Beer and Qingqi Motorcycle.

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Shandong boasts a well-developed infrastructure. While 24 other provinces were hit hard by power shortages in the first half of 2004, there was still 200 MW additional capacity available in Shandong.

The total foreign trade in 2003 saw a rapid growth of 31.6 per cent, reaching USD 44.66 billion. Major export products of the province are machinery, electronics, chemicals, textiles and garments. Major import products are steel, machinery, wool, chemicals, raw materials, computers, fertilizers and equipment and technology.

Shandong has recently put substantial efforts into attracting FDI to boost the open economy, and has done so with success. Situated near South Korea and a member of the Northeast Asian Economic Rim, and having historical ties with Germany and Japan, the province has drawn foreign investments from Korea, Japan, Germany, but also from traditional sources like Hong Kong, Taiwan and Singapore.

Qingdao is a famous open coastal city characterized by port trade, light chemical industry, financial services, tourism and oceanographic research. As one of the top five foreign trade ports in China, Qingdao is also a famous historical and cultural city with a well-known summer resort. Qingdao port is China’s 5th largest port in terms of freight turnover, while Qingdao container port ranks 3rd in China.

5.4.4.1 Qingdao Economic and Technological Development Zone

The Qingdao Economic and Technological Development Zone (QDETDZ), also known as Qingdao Development Area, was established in 1984. It was among the first group of state-level development zones.

The zone has been growing fast, particularly in recent years. In 2003, the GZP of the GQETDZ reached RMB 21.2 billion. To date,

119 QDETDZ has formed six major industrial clusters, namely, high-tech household electronics, petrochemicals, mechanical products, building materials, steel and pharmaceuticals. In particular, the high-tech industry has become the main contributor to the development of QDETDZ. In 2003, it accounted for 70.5 per cent of total industrial output.

QDETDZ is a favourite destination for foreign investors as well as domestic companies. By the end of 2003, contracted foreign investment reached USD 6.7 billion and USD 3.0 billion was utilized. Qingdao is home to three famous electronic product makers, namely Hai’er, Hisense and Aucma.

Aucma has moved its headquarters to QDETDZ and has established a large manufacturing base in the zone. Following the example of Aucma, Hai’er and Hisense have also built up a sub-park in QDETDZ. Household electonics have subsequently become one of the major contributors to QDETDZ. It now produces a volume of 40 million refrigerators, 1.4 million air conditioners and 1.2 million PCs annually.

5.4.4.2 Qingdao High-Tech Park

The Qingdao High-Tech Park (QDHTP) was approved by the State Council in 1992. The total development area is 58 km². Occupying 16.7 km², the industrial region faces the old urban area in the west, Laoshan Scenic Spots in the east and the Stone Old Man National Tourism Resort in the south.

The QDHTP focuses on consumer electronics, information technology, bioengineering, communication technology, new materials and other advanced technologies. In 2002, the GDP of QDHTP was RMB 12.6 billion. There are three subsidiary zones in QDHTP, namely the Electronic Information Zone, New Materials Zone and Bioengineering Zone. It also hosts colleges such as Qingdao University and the Qingdao Maritime University.

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After ten years of development, IT, biotech and new materials have become the three leading industries of QDHTP. It should be mentioned that consumer electronic products alone accounted for about 65 percent of total industrial output of the QDHTP.

By the end of 2002, 824 foreign enterprises had set up subsidiaries in the park. Among them, 86 had invested over USD 10 million. The total contractual investment was USD 2.58 million and the utilized investment was USD 1.33 billion.

121 5.5 Development zones and clusters: conclusion

It should be clear that the three traditional economic circles, namely the Yangtze River Delta, the Pearl River Delta and the Bohai Rim, are home to most of the industrial parks in China. The industrial parks in these parts of China are on average better in terms of management and administrative service levels. There are, however, exceptions to the rule. One can find excellent zones in inland areas, as well as ‘swampland’ in coastal provinces. Therefore one should be careful of easy generalizations.

Industrial parks in advanced regions, such as Shanghai, Beijing and Shenzhen, are, however, facing the challenge from the lower-cost regions. In terms of land and building costs, industrial parks in Shanghai are substantially more expensive than those in other regions. Fast-growing land costs have got many potential investors worried about the possibility of ‘investment bubbles’ that may have formed in these two cities. Listed prices can differ by a factor of as much as twenty.

With the fast growth of China’s economy, the country currently also faces a serious power shortage that could critically stall China’s economic growth. The Yangtze River Delta, formed by Shanghai and the provinces of Jiangsu and Zhejiang is one region that is particularly stricken by the power shortage crisis. This energy crisis could seriously affect the viability of investments and businesses in the region.

Although most parks seem to be going after the biggest firms, SMEs are by far the most numerous around. They go after big firms, although they also want small firms, because they believe big fish will signal smaller suppliers and competitors and bring them in as well. In short, large investors provide investment opportunities in their upstream and downstream industries for other (smaller) firms.

122 The better zones have recently started to implement a policy of trying to attract firms along the value chain in selected pillar industries. China’s various types of zones are also increasingly developing their own strategies, relying on their respective competitive advantages. As such, clusters are being formed within some development zones. Although this process of value chain upgrading has still a long way to go, some zones are better suited for certain industries than others. Most zones therefore have set up subsidiary parks to cater for certain sectors, such as software, cars, food, chemicals, life sciences, and so on.

On a whole, HTPs are more interested in higher value added activities than ETDZs. Some zones have separate areas that focus on certain functions, such as manufacturing or R&D. Most ETDZs also have EPZs under their wings to cater for export-oriented firms under their jurisdiction.

FTZs are grappling with the gradual erosion of the policy advantages as a result of the WTO agreements. To maintain their competitive advantages, China’s free trade zones are trying to adopt international standards, such as “within the boundaries, outside the customs” and free RMB currency convertibility.

Development zones are also increasingly located outside existing cities, making township development an important part of these new phases in their development. The zones are being developed and managed by government departments or state-owned commercial firms, which are pressured to maintain targets of investment attraction and output goals. This leaves some leeway to foreign investors looking for the best location to fit into existing value chain clusters or help create them.

123 6. Concluding Comments

1. As mentioned in the introduction of this report, the Chinese government issued a special stamp in 2004 to commemorate the anniversary of 20 years of economic zones. The stamp quotes Deng Xiaoping’s comments from 1984: “The economic zones are full of hope” and one has to admit that the expectations of the former Chinese leader have been met. The zoning policy of the P.R. of China has contributed enormously in upgrading the country’s economic development. From the beginning the decision to move towards a more open economy, zones were used to attract companies from abroad which could improve and increase China’s level of technology.

2. Chinese experts, with the help of UNIDO, studied the record of the Export Processing Zones (EPZ) set up in many developing countries -, following the successful example of the Shannon Export Free Zone in Ireland (Bucknall, 1989). Yet, the Chinese government did not want to limit their first measures to open up parts of China to small areas around the harbour or airport where special incentives were given to foreign owned companies to assemble or produce goods for exports. Although there were similarities with the EPZs, China’s Special Economic Zones (SEZ) were not only larger but also more ambitious as they focused on the transfer of technology, modernization and employment opportunities.

Contrary to many other transition economies China did not opt for quick privatization of its state-owned companies, but followed the gradual approach of stimulating the development of private enterprises, including foreign-invested ones. This gradual approach was also typical for the way in which the liberalization process and the development zones spread out over the country. After having launched its SEZs in the coastal area, the Chinese government set up smaller and more focused economic and technological development zones (ETDZs) first in other southern provinces and later more inland and in the western region. Not only were more zones being

124 established, there was also a proliferation in the type of zones. Following the persistent interest of the Chinese authorities with more and better technology, also high-tech zones, science and technology parks, incubation centres, industrial parks and so on were set up. Many of the larger zones were divided in different sections, which were promoted as clusters in specific sectors such as ICT, automotive and biotechnology.

Somewhat surprisingly China finally went back to the concept of free trade zones and export processing zones during the 1990s, to follow up on China’s new role as manufacturer of the world and the increasing export activity of its enterprises, especially the foreign owned ones. Another indication of the ongoing liberalization policy on the basis of development zones is the emergence of ‘border and economic cooperation zones’ where closer collaboration is sought with neighbouring countries and economies. In Fujian province serious consideration is now being given to an economic zone that would intensify the links between this province and Taiwan which lies just across the Straits.

3. This report has not devoted any attention to the working conditions in China’s economic zones. Given the focus on technology, most of China’s recently established zones group companies with more sophisticated production activities and pay a lot of attention to the lay-out of the zones. In many of the zones special attention is given to the development of residential areas and the ecological dimension. In several parts of China, economic zones have even been used as a basis for setting up new townships with provisions of all the necessary amenities for its urban population.

4. Encouraged by the success of state-level ETDZs, provincial, municipal and many county-level ETDZs were also established across China by lower level authorities. While there are some outstanding local ETDZs, they generally pale in comparison with state-level ETDZs in terms of infrastructure, organizational set-up, and more importantly, the continuity of preferential policies or even their mere existence. It was estimated that China counted about 7000 development zones by 2003. According to incomplete statistics from

125 the Ministry of Land and Resources, 70 percent among the 6866 development zones across the country were found to have illegally acquired land or were left unused. China subsequently decided to rationalize this proliferation of so-called zones that did not offer sufficient infrastructure and had only resulted in forced displacement of large groups of farmers. More than 4800 so-called development zones were cancelled, by suspending the establishment of new economic development zones and quashing already built zones.

The proliferation of the zones in China resembled international locational tournaments, where zones in different countries are competing against each other and the only winners are the companies which succeeded in obtaining extra advantages from such bidding up among potential locations. Although most Chinese administrators understand that such competition has sometimes gone too far, the decentralized system of state, provincial, municipal and local industrial zones is not making life any easier for them. The decision by the national government to cut the number of zones dramatically to avoid inefficient and costly use of land and infrastructural investment is therefore understandable.

Yet, it is still rather common to find several development zones within one city. Competition continues to benefit foreign investors, as it forces development zones to maintain their competitive advantages in order to attract foreign investments.

5. Most firms locate in development zones for fiscal reasons. Given the increasing quest for higher value added activities, that is, high- technology, this is becoming increasingly difficult. Most firms have located here or there due to chance events, such as the insistence of their joint venture partner. Most firms do not really use development zones for cluster-based integrated network purposes.

According to a recent article in the Financial Times (March 8, 2005) the Chinese government is submitting a draft law for discussion by China’s National People’s Congress. The purpose of this new law is on the one hand to establish a level playing field between the foreign

126 owned and the domestic firms and on the other hand to increase the government’s tax receipts.

Today, China-based companies are faced with a combined nominal tax rate of 33 percent. Yet foreign-invested manufacturing companies are eligible for a two-year tax exemption, followed by a 50 percent reduction during the following three years. Foreign invested companies based in coastal cities are taxed at a 24 percent rate, while their counterparts in special economic zones or western and central China are eligible for a 15 percent rate. It is well known that a number of Chinese firms have moved funds outside of China to bring them back in via offshore affiliates to benefit from the more advantageous conditions for foreign firms.

There seems to be a growing consensus about a unified 27 percent tax rate, which is considerably higher than what many of the foreign- invested companies are paying. While some experts fear that this will diminish the attraction of China as a host country for FDI, it might also indicate that China wants to move away from a policy of fiscal incentives to measures that will oblige foreign firms to integrate more closely with the domestic economy in order to increase the spillovers. Clustering is likely to become more important, both for foreign and domestic firms and for Chinese administrators.

6. It is clear that the better zones in China strive to attract science and technology-oriented activities. China certainly is not yet the scientific superpower that some Western commentators fear. While much headway has been made, China’s intellectual property development is still at an extremely low level. The research expenditures by Chinese companies do not yet measure up to western standards, even though China has recently convinced several major MNCs to establish R&D centres in the country. China’s interest in major companies should not be interpreted as a policy of grasping the large and neglecting the smaller firms, however. Within the concept of clustering, large MNCs are regarded as magnets to attract smaller firms and develop a complete value chain around such flagship firms. The growing significance of SMEs in China’s economy has gained recognition. It is estimated that SMEs are now

127 responsible for about 60% of China’s industrial output and employ about 75% of the workforce in China’s cities and towns.

7. Economic analysts have become interested in the comparison between China and India, not only because they are large emerging economies, but also because they present intriguing similarities and differences in their economic development and political systems. Since China launched its liberalization policy, it systematically surpassed India as an attraction pole for FDI.

While India was one of the first countries to use Export Processing Zones, for instance Kandla, it did only do so in a limited way and did not introduce government sponsored zones such as the Special Economic Zones in China. The technological Indian clusters around Bangalore and Mumbai came into existence in a more spontaneous way. It comes somewhat as a surprise that only recently the Indian government is proposing the creation of Chinese style special economic zones (Financial Times, March 13, 2005) precisely to attract more FDI and boost employment. According to the opposition parties, the proposed law for such zones is intended to bypass the country’s strict labour laws. The Indian government intends to leave the initiative for the country’s states to opt for such an initiative to establish zones to get the necessary legislation accepted in the near future and to avoid blocking measures by politicians from particular states, however.

It would seem that two of the major newly emerging economies want to use the complete toolbox of economic agglomeration by stimulating zones and clusters with different functions. China started out with SEZs and only decided to incorporate FTZs much later. India, which used the EPZ when they were still relatively new concepts, apparently now wants to turn to special economic zones which launched China on its successful development path at the beginning of the 1980s. While China has accumulated much FDI, especially since the 1990s, the country is steering away from a policy where attraction of new projects was the dominating motive towards measures that should increase the benefits for the Chinese economy and upgrade the technological level of the country even more than

128 before. That is why clusters are becoming more prominent in its pursuit of economic development. Consequently, foreign owned firms will be put under pressure to intensify their links with the rest of the economy especially by participating in cluster formation and participating in value added chains, promoted by the Chinese authorities to upgrade the national economy and local communities.

“To explain the evolution and growth of FDI in China and to draw any lesson from it, an ‘institutional and agglomeration’ approach can better elucidate the process and progress of FDI in China than the traditional western FDI theories. In this connection, it is also anticipated that a more biased spatial distribution of FDI and regional development in China will continue.” While Tuan and Ng (2002) address these comments to academics studying FDI in China, it is equally relevant to foreign investors who want to continue to participate and benefit from China’s economic growth. To be able to do so, they will have to upgrade their links with the local economy, for instance, by becoming more actively involved in the development of clusters.

129

Appendix 1 List of interviewed persons in various development zones, April 2004. NAAM VOORNAAM TITEL INSTELLING STRAAT STAD Yang Xinmin Science & Technology Bureau Rm. 511 No.4 Building Shanghai Information Office 2001 Century Ave. 200135 Intellectual Property Protection Bureau Pudong New Area Pudong People's Government

Zhang Sulong Director Science & Technology Bureau 2001 Century Ave. Shanghai Informatization Commission Pudong New Area 200135 Intellectual Property Protection Bureau Pudong People's Government

Zhang Ye Science & Technology Bureau 2001 Century Ave. Shanghai Informatization Commission Pudong New Area 200135 Intellectual Property Protection Bureau Pudong People's Government

Wang Weiliang Deputy Director Science & Technology Bureau Rm. 509 No.4 Building Shanghai Informatization Commission 2001 Century Ave. 200135 Intellectual Property Protection Bureau Pudong New Area Pudong People's Government

Wu Jie Department of Science and Technology No. 350 Chun Xiao Rd., Shanghai Corporation Zhangjiang High-Tech 201203 Shanghai Pudong Productivity Center Park

130 Xiao Feng Gu Certified The Economic & Trade Bureau of Rm. 321 No. 4 Bld. Shanghai International Shanghai Pudong New Area The Gov. Office Center 200135 Business Foreign Trade & Economic Cooperation 2001 Century Ave. Specialist Pudong

Zhuang Ling Doctor Lujiazui Finance and Trade Zone 981 Ave. Pudong Shanghai Research Fellow Shanghai Lujiazui Group R&D Centre 200135 Director PEMCA General Chinese Enterprise Int. Association Secretary CSSA China Standing FEI State P&R Committee Director IEA Call U.S.A. Research Fellow

Liu Janet Business Ijinqiao Export Processing Zone 27 Xin Jinqiao Road, Shanghai Promotion Dept. Jinqiao Hi-Tech Park Pudong 201206 Vice General Jinqiao Group Manager Shanghai Jinqiao Export Processing Zone United Development Co., Ltd.

Qian Young Business Ijinqiao Export Processing Zone 27 Xin Jinqiao Road, Shanghai Promotion Dept. Jinqiao Hi-Tech Park Pudong 201206 Jinqiao Group Shanghai Jinqiao Export Processing Zone United Development Co., LTD

Wu Ping Assistant Shanghai Zhangjiang Hi-Tech Park 69 Zhangjiang Road, Shanghai General Investment Service Center Pudong 201203 Manager Shanghai Zhangjiang Investment Consulting Co., Ltd.

131 Yin Guangxia Business Business Development Dept. 69 Zhangjiang Road, Shanghai Development Shanghai Zhangjiang Hi-Tech Park Pudong 201203 Officer Investment Service Center Shanghai Zhangjiang Investment Consulting Co., Ltd. Zhangh Hao Deputy Director The Economic & Trade Bureau of Room 410 No. 4 Bld. Shanghai Shanghai Pudong New Area 2001 200135 Century Ave. Pudong New Area Zhu Xu Dong Director General Science & Technology Bureau Century Ave. Pudong Shanghai Ph.d. Informatization Commission New Area 200135 Intellectual Property Protection Bureau Pudong People's Government

Loontjens Kristien General Rnsysta Piping Systems Engineering No. 86 Yuanyang Road, Manager (Shanghai) Co. Ltd. Minhang

Xu Christina Business Investment Service Center 1251 Jiang Chuan Rd. Shanghai Manager Shanghai Minhang Economic & Minhang 200245 Technological Development Zone Shanghai Minhang United Development Co., Ltd. Li Xiaohong Shanghai Waigaoqiao Free Trade Zone Room 313 No. 2 Administration Huajing Rd. Department of Economic & Trade Pudong New Area Administration Wu Rong Vice Section Shanghai Waigaoqiao Free Trade Zone Room 710 No. 2 Chief Policy & Administration Huanjing Rd., Law Department Padong New Area

132 Wei Jim Deputy General Bekaert 555 Riying Road North Manager Building Products Wai Gao Qiao Free Shanghai Bekaert Ergang Co., Ltd. Trade Zone

Zhang Helen Administration Shanghai Caohejing Hi-Tech Park High Tech Building Officer Development Corp. 900 Yishan Road

Lai Howard Assistant Shanghai Caohejing Hi-Tech Park A/17 Floor Shanghai Manager HR Development Corp. 900 Yishan Road 200233 Department Wu Hao Foreign affair The administrative Committee Of 166th No, 1 Keyuan Chongqing officer Chongqing Hi-Tech Industrial Road 400039 Development Zone Zhou Weiwei Chongqing promotion & service centre 6th Flr, Foreign Chongqing for foreign investment economic & trade 400039 Investment promotion department building, 65 Jianxin bei road Jiangbei distric Lee Kitty State-level Chongqing Economic & Jinshan building 521 Chongqing Technological development zone Technological 400039 economic & investment promotion development park bureau New northern zone Li Gang Deputy Director The Chengdu Hi-Tech industrial Chengdu Hi-Tech Sichuan development zone bureau of development zone 610041 investment services Chengdu The commission of foreign trade and economic Cooperation Department of Foreign investment

133 Pi Qing Yuan Vice Director State-level Chongqing Economic and Jinshan building 521 Chongqing Technological Development Zone Technological 400039 Economic and Investment Promotion development park Bureau New northern zone

Li Ming Project manager The chengdu Hi-Tech industrial Chengdu Hi-Tech Sichuan development zone bureau of development zone 610041 investment services Chengdu The commission of foreign trade and economic Cooperation Department of Foreign investment Tang Yalin Vice Director Sichuan Provincial Investment No.56, Duyuan Street Sichuan Promotion Bureau Chengdu 610016 International Cooperation Dept. II (Europ en Africa Area) Qin Tian Project Officer Sichuan Provincial Investment No. 56 Du Yuan Street Sichuan Promotion Bureau Chengdu 610016 International Cooperation Dept. II (Europ en Africa Area) Li Hailu The management office of Chengdu No 1 .,NewCentury Export processing zone, Sichuan W.Road Tianfu Avenue Chengdu

Liu Congjun Project Dept Foreign Investment promotion Bureau 4F, Haichuan Hotel, Chengdu of National Level LongquanyiDistrict, 610100 Chengdu Economic en Technological Chengdu Development Zone Li Yuna Vice Supervisor Developement and research center No. 225 Chaonei Street Beijing of Products (state counsil) 100010

134 Yu Helen Manager Bayer Polymers 20 Hong Da Beilu Beijing Finance, Bayer guangyi panel Co., ltd. 100010 Accounting & Administration CICPA Zhangh Qian International The people's government of Beijing 36 Suzhou street Beijing Cooperation municipality Haidian District 100010 Administrative committee of Zhongguancun science park International Cooperation division Hai Du Project manager Beijing investment promotion bureau R405 4th Fl. Beijing Beijing foreign investment service building F 100027 center Fu Hua Mansion no.8 Bussiness liaison division Chaoyangmen North Avenue Dongchen district

Yan Yaomin Ministry of sience & technology 54, Sanlihe road Beijing International develemnet department 100045 Torch high industry development center

Zhang Fenghai Deputy Director Division of sience & Technology 54, Sanlihe road Beijing Industry Park 100045 Torch High technology Industry development Center Ministry of sience & technology Huang Lydia Director Beijing economic-technological #4 Wanyuan street BDA Beijing Assinstant development Area 100176 Foreign affairs Office BDA administrative commision

135 Gu Bao Hua Deputy research Beijing economic-technological #4 Wanyuan street BDA Beijing fellow development Area 100176 Foreign affairs Office BDA administrative commision Shi Chuck Vice Director Dalian High-Tech Industrial Zone Room 313, 1 Gaoxin Dalian Legal Counsel Foreign Investment Promotion Bureau Street 116025 Qixianling Industrial Base of Dalian Hi-Tech Industrial Zone Sun Rudolf Director Dalian High-Tech Industrial Zone Room 313, 1 Gaoxin Dalian Foreign Investment Promotion Bureau Street 116025 Qixianling Industrial Base of Dalian Hi-Tech Industrial Zone Li Jetty Vice Director Dalian High-Tech Industrial Zone Room 313, 1 Gaoxin Dalian Foreign Investment Promotion Bureau Street 116026 Qixianling Industrial Base of Dalian Hi-Tech Industrial Zone Ma Siulium Senior project Foreign investment service center Administration of dalian Dalian officer region America Europe Oceania Africa development area 116600

Quan Lily Project Trade promotion department Rm 403, Main office Dalian Executive Administration of Dalian free trade zone building 116600 Administration od Dalian export Dalian free trade zone processing zone Qiang Fu Project Trade promotion department Rm 403, Main office Dalian Executive Administration of Dalian free trade zone building 116600 Administration od Dalian export Dalian free trade zone processing zone

136 Zhao Tommy Project Trade promotion department Rm 403, Main office Dalian Executive Administration of Dalian free trade zone building 116600 Administration od Dalian export Dalian free trade zone processing zone

137 Appendix 2 List of documents about selected zones Author: Dalian Economic and Technological Development Zone Year: 2003 Title: Annual Report of Dalian Economic and Technological Development Zone City: Dalian

Author: Dalian Economic Development Zone Year: 2001 Title: Annual Report on the Development City: Dalian

Author: Dalian Economic Development Zone Year: 2002 Title: Annual Report on the Development City: Dalian

Author: Beijing Economic Technological Development Area Title: Investment Guide to Beijing Development Area City: Beijing

Author: Development Planning Committee of the People's Government of Beijing Municipality Title: Beijing Foreign Investment Projects 2002-2003 City: Beijing

Author: Development Planning Committee of the People's Government of Beijing Municipality Title: Beijing Investment Guide 2002-2003 City: Beijing

Author: Beijing Investment Promotion Bureau Year: 2002 Title: Beijing Investment Promotion City: Beijing

138

Author: Shanghai Jinqiao Company Ltd Title: Booming Jinqiao City: Shanghai

Author: Zhongguancun Science Park Title: A Brief Introduction to the Policies on the Development of new and high-tech Industries in Zhongguancun Science Park City: Beijing

Author: Dalian Free Trade Zone & Export Processing Zone Title: Business opportunities for you City: Dalian

Author: Caohejing Hi-Tech Park Title: Caohejing Today 2002 City: Shanghai

Author: The Administrative Committee of Chengdu Economic and Technological Zone Development Title: Chengdu Economic and Technological Development Zone City: Chengdu

Author: Zhongguancun Software Park Title: China Software Industry Base City: Beijing

Author: Chongqing Foreign Trade and Economic Relations Commission Title: Chongqing Foreign Economy and Trade Annual Report 2002 City: Chongqing

Author: Chongqing Hi-Tech Industry Development Zone Title: Chongqing Hi-Tech Industry Development Zone City: Chongqing

139

Author: Chongqing People's Municipal Government Title: Chongqing Investment Guide City: Chongqing

Author: Dalian Development Area Year: 2003 Title: Dalian Economic and Technological Development Area: Foreign Investment Fundamental Information City: Dalian

Author: Dalian International Logistics Parc Title: Dalian International Logistics City: Dalian

Author: Dalian Free Trade Zone & Export Processing Zone Year: 2002 Title: Free Trade Zone & Export Processing Zone City: Dalian

Author: Chengdu Hi-Tech Industrial Development Zone Title: Gathering the Elite to build an International Reputed Park City: Chengdu

Author: Dragon Fly Industrial Park Title: Grasp the Golden Opportunity of the Western Development City: Chengdu

Author: Chongqing Economic and Technological Development Zone Title: Guidance of Investment 2003 City: Chongqing

Author: Chongqing Featured Industrial Zone Title: Guidance to Chongqing Featured Industrial Zone City: Chongqing

140

Author: Dalian High Tech Industrial Zone Title: Guide to Investment City: Dalian

Author: Chengdu Economic and Technological Development Zone Title: In the West of China. Modern Manufacturing Industrial Base (CD) City: Chengdu

Author: Dalian E&T Development Area Title: Investment Guide City: Dalian

Author: Area, Beijing Economic Technological Development Title: Investment Guide City: Beijing

Author: Chengdu Hi-Tech Industrial Development Zone Title: Investment Guide City: Chengdu

Author: Chongqing Export Processing Zone Title: Investment Guide Book City: Chongqing

Author: Sichuan Chengdu State-Level Export Processing Zone Title: Investment Guide. The First Batch in China City: Chengdu

Author: Shanghai Lujiazui Development Company Title: Lujiazui Finance and Trade Zone. Briefing City: Lujiazui

Author: Chongqing Economic and Technological Development Zone

141 Title: Preferential Policy Compilation City: Chongqing

Author: Shanghai Pudong New Area, Press and Information Office Year: 2001 Title: Pudong. Your choice of success. A snapshot of joint ventures in Pudong City: Shanghai

Author: Beijing Municipality Title: Regulations on Zhongguancun Science Park City: Beijing

Author: Chengdu People's Government Title: A Report of Investment Environment of Chengdu City: Chengdu

Author: Shanghai Jinqiao Export Processing Zone Administration Year: 2002 Title: Shanghai Jinqiao Export Processing Zone. Shanghai Jinqiao Hi-Tech Park. Yearbook 2002 City: Shanghai

Author: Shanghai Pudong New Area Statistics Bureau Year: 2001 Title: Shanghai Jinqiao Export Processing Zone/ Shanghai Jinqiao Hi-Tech Park. Annual Report 2000 City: Shanghai

Author: Shanghai Jinqiao Company Ltd. Year: 2002 Title: Shanghai Jinqiao Export Processing Zones. Shanghai Jinqiao Hi-Tech Park. 2001 Yearbook City: Shanghai

Author: Shanghai Minhang United Development Company

142 Title: Shanghai Minhang Economic and Technological Development Zone. Investment Guide City: Shanghai

Author: Shanghai Waigaoqiao Free Trade Zone Administration Title: Shanghai Waigaoqiao Free Trade Zone City: Shanghai

Author: Shanghai Waigaoqiao Free Trade Zone Administration Title: Shanghai Waigaoqiao Free Trade Zone (CD) City: Shanghai

Author: Administration, Shanghai Waigaoqiao Free Trade Zone Title: Shanghai Waigaoqiao Free Trade Zone. Annual Report 2002 City: Shanghai Short Title: Shanghai Waigaoqiao Free Trade Zone. Annual Report 2002

Author: Shanghai Waigaoqiao Free Trade Zone Administration Title: Shanghai Waigaoqiao Free Trade Zone. Annual Report 2003 City: Shanghai

Author: Shanghai Zhangjiang Company Title: Shanghai Zhangjiang Hi-Tech Park. Annual Report 2001 City: Shanghai

Author: Shanghai Pudong New Area Statistics Bureau Title: Shanghai Zhangjiang Hi-Tech Park. Annual Report 2002 City: Shanghai

Author: Shanghai Zhangjiang Hi-Tech Park

143 Title: Shanghai Zhangjiang Hi-Tech Park. Investment Guidebook City: Shanghai

Author: Shenzhen Overseas Chinese High-Tech Venture Park Title: Shenzhen Overseas Chinese High-Tech Venture Park City: Shenzhen

Author: Chengdu Xingye Advertisement Company Title: Sichuan Investment Guide 2004 City: Chengdu

Author: Sichuan Provincial Development Planning Commission Year: 2003 Title: Sichuan Provincial Projects Lists for Foreign Investment City: Chengdu

Author: Zhongguancun Science Park Title: Zhongguancun Science Park City: Beijing

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