For­eign firms still look­ing to east de­spite ris­ing costs

The well-de­vel­oped in­fra­struc­ture in the coastal area, with its dense trans­porta­tion net­work and sup­port­ing in­dus­trial fa­cil­i­ties, has been a strong draw for global in­vestors, as Li Ji­abao re­ports

China Daily (Canada) - - BUSINESS -

De­spite ris­ing costs in re­cent years, China’s east­ern re­gion re­mains a strong at­trac­tion for for­eign in­vestors, thanks to its well-de­vel­oped in­dus­trial fa­cil­i­ties and in­fra­struc­ture, as well as easy ac­cess to the do­mes­tic mar­ket, busi­ness­men said. “Back in the 1990s, we saw China as an im­por­tant la­bor force. But now China’s our con­sumer mar­ket as well as a tal­ent pool,” said Li Chengchun, vice-pres­i­dent of Sam­sung Elec­tron­ics (Suzhou) Semi­con­duc­tor Co Ltd.

“China re­mains our top in­vest­ment desti­na­tion, al­though we don’t ex­clude the pos­si­bil­ity of in­vest­ment in South­east Asia to take ad­van­tage of the la­bor force.

“As for high-end in­dus­tries, China, es­pe­cially the east­ern re­gion, still has great scope for de­vel­op­ment,” Li said.

He added that busi­ness in the Chi­nese mar­ket had shown the fastest growth in re­cent years among the South Korea-based elec­tronic gi­ant’s ma­jor mar­kets.

At the same time, the Chi­nese gov­ern­ment’s move to raise house­hold in­comes has been un­leash­ing con­sumer de­mand.

The Sam­sung fac­tory was es­tab­lished in 1994 in Suzhou, Jiangsu prov­ince. Suzhou is about 80 km north­west of Shang­hai, an eco­nomic hub con­nect­ing sev­eral cities via a net­work of high­ways and high­speed rail­ways.

China was the world’s sec­ond-largest re­cip­i­ent of for­eign di­rect in­vest­ment last year. Sta­ble FDI in­flows play an im­por­tant part in the healthy de­vel­op­ment of the world’s sec­ond-largest econ­omy.

The na­tion’s non-fi­nan­cial FDI in­flows edged down 3.7 per­cent year-on-year to $111.7 bil­lion in 2012, amid an 18 per­cent de­crease in global FDI.

In the Jan­uary-Oc­to­ber pe­riod this year, non-fi­nan­cial FDI in­flows to China went up 6.2 per­cent from a year ear­lier to $88.6 bil­lion, ac­cord­ing to the Min­istry of Com­merce.

Dur­ing that pe­riod of 2013, non-fi­nan­cial FDI in the east­ern re­gion went up 5.6 per­cent to $74.2 bil­lion, about 83.7 per­cent of the coun­try’s to­tal.

For­eign in­vest­ment in the cen­tral re­gion rose 12.3 per­cent to $7.84 bil­lion, ac­count­ing for 8.8 per­cent of the to­tal, while FDI in the western re­gion in­creased al­most 6.1 per­cent to $6.6 bil­lion, mak­ing up 7.4 per­cent of the to­tal

Timo Jo­hans­son, gen­eral man­ager of UPM (China) Co Ltd, the Chang­shu, Jiang­sub­ased sub­sidiary of a Fin­nish pa­per maker, said: “In China, pa­per use is still grow­ing, and that’s ex­pected to con­tinue. Mean­while, the pa­per busi­ness is de­creas­ing in the Euro­pean Union.”

“We plan to in­crease in­vest­ment in China. Our busi­ness in China serves the whole Asian mar­ket.

“Al­though la­bor costs are ris­ing about 10 per­cent each year, we are more fo­cused on the mar­ket po­ten­tial and, most im­por­tantly, peo­ple are skilled here,” Jo­hans­son said.

“Hu­man re­source costs not only in­clude wages, but also whether you can get suit­able em­ploy­ees,” Jo­hans­son added.

Im­proved re­search and de­vel­op­ment fa­cil­i­ties in the east­ern re­gion have helped to in­crease in­vestors’ in­ter­est.

“In view of the huge mar­ket size of China, we have a slo­gan:

‘Build­ing a sec­ond Sam­sung in China’. That’s un­prece­dented,” Li said.

“In­creas­ing re­search and de­vel­op­ment in­vest­ment is a ne­ces­sity, be­cause only Chi­nese tal­ent un­der­stands the lo­cal con­sumer mar­ket,” he said.

Al­though the best grad­u­ates from China’s many in­sti­tu­tions head over­seas for fur­ther study, or join gov­ern­ment agen­cies and State-owned en­ter­prises, Sam­sung can still at­tract enough re­searchers be­cause of the na­tion’s huge pop­u­la­tion, Li added.

Zhang Yilin, deputy man­ag­ing di­rec­tor and pres­i­dent of the au­to­mo­tive unit of Scha­ef­fler Greater China, said: “China’s re­search strength is in­creas­ing very fast. The en­thu­si­asm of our re­searchers is stronger than that of their Ger­man peers. In a few years, the Chi­nese re­search center will over­take the Ger­man one, and the group has de­cided to make China the fo­cus of some busi­ness.”

The com­pany set up an R&D center in Shang­hai with about 1,000 em­ploy­ees and an an­nual bud­get of about 4 per­cent of the com­pany’s sales in China.

The well-de­vel­oped in­fra­struc­ture in the coastal area, with its dense trans­porta­tion net­work and sup­port­ing in­dus­trial fa­cil­i­ties, has been a strong draw for global in­vestors.

Alexan­der Wort­berg, di­rec­tor of pro­duc­tion at Qoros Au­to­mo­tive Co Ltd, said: “The east­ern city of Chang­shu is well-sit­u­ated with good com­mu­ni­ca­tions fa­cil­i­ties, and it’s close to Shang­hai and our cus­tomers. The city’s eco­nomic de­vel­op­ment zone is a per­fect place to set up a plant, be­cause it has very good in­fra­struc­ture and qual­i­fied young peo­ple.

“Last but not least, we found very sup­port­ive part­ners. We have a lot of sup­pli­ers here,” Wort­berg said. In­dus­trial trans­fer

Not ev­ery com­pany is re­spond­ing to the chang­ing busi­ness en­vi­ron­ment in the same way. Ni Zu­gen, chair­man of Lexy Elec­tric Ap­pli­ances Co Ltd, said the com­pany may shift pro­duc­tion fa­cil­i­ties to East­ern Europe, rather than move to China’s in­land re­gions.

“The monthly salary of a worker in Suzhou is about $600, while in cen­tral and western re­gions, it is about 500 yuan ($82) lower.

“But it’s not just la­bor. Trans­porta­tion costs are also ris­ing. As the ren­minbi keeps ap­pre­ci­at­ing, we may shift plants to parts of Europe. For ex­am­ple, Tur­key has an abun­dant and sta­ble la­bor sup­ply. Monthly salaries in East­ern Europe are about $500, lower than in China’s coastal area,” Ni said.

Zhu Yongquan, gen­eral man­ager of AU Op­tron­ics (Suzhou) Co Ltd, said that the panel maker won’t re­lo­cate its plants into in­land ar­eas or South­east Asia, at least in the short term.

AU is a Tai­wan-based man­u­fac­turer of liq­uid crys­tal dis­plays and other items.

“The ad­van­tage of in­land re­gions is in ques­tion, as the wage gap [com­pared with the east] has sig­nif­i­cantly nar­rowed from two or three years ago. And it’s much eas­ier to get skilled work­ers in the east­ern re­gions.

“What’s more im­por­tant is in­dus­trial fa­cil­i­ties. East China has de­vel­oped com­plete in­dus­trial chains in re­cent decades, which can­not be du­pli­cated else­where. The prob­lem is the same in South­east Asia, be­cause it does not have suf­fi­cient qual­i­fied work­ers,” Zhu said.

Jarry Ma, plant man­ager of Fu Gang Elec­tronic (Kun­shan) Co Ltd, added that China’s “de­mo­graphic div­i­dend”, or la­bor ad­van­tage, has de­clined in re­cent years. Fu Gang Elec­tronic is short-handed when big over­seas or­ders ar­rive, which has driven the chip pro­ducer to au­to­mate.

Xu Cheng, ad­min­is­tra­tive vice-di­rec­tor of Bosi­deng In­ter­na­tional Hold­ings Ltd and Shang­hai Bosi­deng In­ter­na­tional Fash­ion Co Ltd, said: “We have moved some of our pro­duc­tion to Viet­nam, be­cause the la­bor cost is much lower. But the fun­da­men­tal mar­ket is still in China, which de­serves to be bet­ter cul­ti­vated.”

Zhang from Scha­ef­fler said the com­pany is con­cerned about China’s over­all eco­nomic per­for­mance and ex­cess in­dus­trial ca­pac­ity, as changes in the Chi­nese mar­ket are play­ing a big­ger role in the group’s busi­ness per­for­mance.

“A cou­ple of chal­lenges are re­lated to en­vi­ron­ment is­sues. China does not have ad­vanced tech­nol­ogy, and high-end tal­ent isn’t avail­able,” said Jo­hans­son from UPM. “Lo­cal re­source com­pa­nies can­not meet our safety stan­dards. You have to watch over them,” he added.

China has pledged to make its in­vest­ment en­vi­ron­ment bet­ter and im­prove the use of for­eign in­vest­ment, with the new lead­er­ship fo­cused on eco­nomic up­grad­ing, in­clud­ing the trans­for­ma­tion of man­u­fac­tur­ing.

“Even with­out the gov­ern­ment’s en­cour­age­ment for in­dus­trial trans­for­ma­tion, we’d make the move any­way and use China as a strate­gic base. It may be bet­ter for the gov­ern­ment to in­tro­duce sup­port poli­cies, such as in­clud­ing for­eign en­ter­prises in its tal­ent in­cen­tive poli­cies.

“What’s more, the gov­ern­ment should main­tain a level play­ing field when in­tro­duc­ing new poli­cies,” said Li from Sam­sung. Con­tact the writer at li­ji­abao@ chi­

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