Go west: China’s electronics industry moves inland
14 July 2008
The tragic Sichuan earthquake recently brought the western province of China to the world’s attention. The electronics industry has been aware of Sichuan, home of the Chengdu and Mianyang High Tech Parks, since they were established in the early ‘90s. Up until recently these parks have mainly attracted domestic Chinese companies. However, a small but growing number of foreign firms, including Intel, have decided to ‘go west’ as an alternative to investing in China’s traditional coastal regions.
This trend is expected to accelerate as the region is rapidly becoming a more compelling business proposition.
Electronics companies from the US, Europe and Japan have traditionally set up their China operations in three major coastal regions, Pearl River Delta, Yangtze River Delta, and Bo Hai Rim. However, with the levels of investment pumped into these regions over the years, land shortages and rising operating costs are forcing companies to look inland.
Most importantly, competition for talent is heating up. Quite simply, there are no longer enough qualified workers to go around locally, causing rampant poaching and extremely fast wage inflation. In many ways, coastal China has become somewhat of a victim of its own success, and in this regard Western China is well positioned to become the next high growth area for electronics manufacturing.
The China central government launched its ‘Go West’ policy in 1999 as part of the economic revival of interior China, aimed at narrowing per capita GDP income disparities, currently considered among the highest in the world. The government offered preferential policies to the western region in terms of capital input, investment environment, international and external opening-up, development of science and education, and human resources.
As part of this, Chengdu, Chongqing Municipality, and Xi'an, capital of Shaanxi Province, have been designated by the central government as three key municipal economic zones, functioning as an axis to promote development across the whole western area.
The Ministry of Science and Technology approved a program for ‘Western China's Silicon Valley’, a new national-level and high-tech industrial development belt in Shaanxi Province, with the Shaanxi section of the Longhai Railway (Lianyungang-Lanzhou) as the axis.
Sites in the western provinces that have established significant electronics industry bases include Chengdu, Mianyang, Xi’an, and Guiyang.
The Chengdu High Tech Industrial Development Zone, as outlined in a previous column, currently hosts a large number of foreign companies, including west China's largest foreign investment project, Intel Chengdu Chipset Factory.
Mianyang, a sprawling science city with a population of 5.2 million, was one of the worst hit by the earthquake, with a death toll over 20,000. Apart from its high tech industrial park, Mianyang is probably better known as being ‘China’s Los Alamos’ and is home to the Chinese Academy of Engineering Physics, the country’s main nuclear weapons design laboratory. On that note, thankfully there have been no reports of radiation leaks from the facility. The quake lakes formed by a landslide in the mountains west of the city prompted the evacuation of more than 70,000 people from Mianyang.
Mianyang High Tech Industrial Development Zone is home to 27 foreign-capital enterprises and 62 high and new-tech enterprises. It is the largest manufacturing base for so-called electronic information products in southwest China, and in this sector, the Changhong Electronics Group is the dominant force, accounting for an impressive 80% of the total industry output of the zone.
With the readjustment of investment towards the inland parts of China, cities such as Xi’an have re-emerged as important hubs for industrial growth. Located in Shaanxi province, and perhaps best known for its cultural heritage, being the home of the Terracotta Warriors, Xi’an boasts leading-edge facilities in a number of industrial sectors. While the Xi'an National High Tech Industrial Development Zone welcomes all high-tech industries, a cluster of enterprises encompassing electronic information, mechanical, pharmaceutical and new material industries has evolved. So far, Xi'an has attracted Applied Materials Inc., Micron Technology Inc., Infineon Technologies Ltd. and Fujitsu System Engineering. The park has identified ‘creative industries’ as having the strongest growth potential, and in the future it plans to target companies from fields such as digital media and publication, film, TV and digital culture, R&D, intellectual property, and digital entertainment.
Founded in 1992 and located in Guiyang, the capital of southwest China's Guizhou Province, is the Guiyang High Tech Industrial Development Zone, which has hosted more than 2000 enterprises including Snecma SA and Kyocera. In the electronics and information industry, leading Chinese companies represented in the zone include Zhenhua Cell Phone, AMC China, GuiYang Hilum High Tech Technology, Hangyang Computer, and Jinli Computer.
In the western province of Yunnan, the Kunming High Tech Industrial Development Zone has investors from more than 25 countries. The four pillar industries at Kunming are biology & bio-medical, electronics and information technology, opto-mechatronics, and new materials.
According to the latest annual survey from The UN Economic and Social Commission for Asia and the Pacific (ESCAP), China’s western regions have shown significant improvements in trade and investment.
Trade, specifically exports, rose more rapidly than those of the coastal regions. Foreign direct investment, a focus of the 'Go West' policy, increased substantially in a quarter of the western provinces and was backed by research and development. Consumption increased more in a quarter of the western provinces than in the majority of coastal provinces.
The region's trade with Central Asia has tripled since 2002, reaching a record $9 billion in 2006. Significantly, with western provinces bordering Afghanistan, Kazakhstan, Kyrgyzstan, Mongolia, India, Pakistan, Russia and Tajikistan, the region is being seen as China's gateway to Central Asia. Trade links with Laos, Myanmar and Vietnam have also expanded.
With economic and infrastructure pressures mounting in the coastal regions the time appears to have arrived for more electronics companies to ‘Go West.’
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