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16-10-2014, 07:20 AM
China’s opportunity seekers go west
PUBLISHED: 8 HOURS 58 MINUTES AGO | UPDATE: 3 HOURS 19 MINUTES AGO
China’s opportunity seekers go west
Chongqing was upgraded to municipal city status in 1997 in a government push to develop the west of the country. Photo: Bloomberg
ANGUS GRIGG
I’ll take the Borsch: Dining out western style in China
China’s farmers face reform push
China’s western regions hold potential
| At a warehouse on the edge of this western Chinese city, employees are rushing to fill an emergency order.
The nearby Volvo factory has run short of seat belts and needs the parts sent over immediately.
Directing the forklifts and shouting the occasional order is Li Weiyi, who took a job with the Sino-Swedish car maker back in July.
The recent university graduate is one of thousands of young people recently hired to work in the city’s booming auto sector, but Li is somewhat unique as she has reversed a two-decade trend of young people leaving China’s west to find work in the east.
Li has migrated in the opposite direction. After graduating from a teachers college in the eastern province of Anhui, she moved west to Chengdu for the job with Volvo.
“This is where the opportunities are,” she says while overseeing the loading of a truck.
Her experience typifies the change under way in this city of 14 million, which is fast becoming a rival to the so-called first-tier centres of Beijing, Shanghai and Guangzhou.
DEVELOPMENT OF WEST CHINA
The Chinese government has been pushing for greater development of the country’s western regions for decades, but was seen to get serious in 1997 when it designated Chongqing a municipal city.
Prior to this it was part of Sichuan province and for the decade following its elevation, Chongqing was seen as the centre of development in western China.
But the balance of power swung back towards Chengdu in recent years after the scandals surrounding former Chongqing Party Secretary Bo Xilai, who was jailed for life last year for abuse of power.
As the first-tier coastal cities face shortages of labour and land which has driven up prices, the likes of Volvo and many others have moved west to Chengdu.
At the airport, which will soon boast a futuristic new terminal to accommodate a doubling of traffic over the next 15 years, travellers are constantly reminded that half the world’s Fortune 500 companies have a presence in the city.
“We see Chengdu as the business capital of western China,” says Philip Pearce, the Greater China managing director of property group Goodman.
“And western China is a big focus for us.”
Goodman is looking west as that’s where its clients are moving.
GOODMAN EXPANSION
It opened its first Chengdu warehouse in August and has a further three projects slated for completion over the next two years.
Goodman’s expansion is partly a function of improved road, rail and air links with the coast, which make it viable for manufacturers to move their operations inland to take advantage of cheaper land and labour.
Volvo is a good example.
It is in the process of tripling production at its Chengdu plant to 300 cars a day. As part of this expansion it has outgrown its own warehouses and has leased space from Goodman in its newly opened logistics park.
But it’s not only the manufacturers moving west.
In the same logistics centre, IKEA will soon begin a pilot project allowing customers to buy furniture online and pick it up from the warehouse.
This suggests the consumer story has also moved west, as higher-value industries follow the manufacturers.
STRONG EconOMIC GROWTH
High rates of economic growth partly explain this evolving story, but not all of it.
Chengdu received a huge flow of funds from the central government to develop its infrastructure after the 2008 Sichuan earthquake, and this continued during the global financial crisis when China rolled out its 3.3 trillion yuan stimulus package.
In 2013 Sichuan grew at 10 per cent, compared to the national rate of 7.7 percent.
Taking advantage of these growth rates is part of the motivation for going west. But there is also an acknowledgment that China is a large continental economy and companies need a presence in its western regions.
This realisation has seen Goodman open a corporate office in Chengdu, to service its warehouses in the city and those in the neighbouring centres of Chongqing and Xian.
It was this philosophy that also saw General Electric make Chengdu the base for its first Innovation Centre globally.
ENERGY AND HEALTHCARE FOCUS
The centre opened in 2012 and is focused on the energy and healthcare sectors.
“We felt that GE did not have the presence in western China that we should have,” general manager of the Innovation Centre, says Godfrey Firth.
“It’s part of a realisation that China is multiple markets at different stages of development.”
It’s not a case of east versus west so much, as a realisation that companies need a presence in both geographies.
Yet at the same time companies are increasingly realising that they are very different markets.
For starters, Firth from GE says the starting wage is around 20 per cent cheaper for new graduates in Chengdu compared to Shanghai or Beijing, although this gap closes as employees become more senior.
But he’s keen to stress this was not the motivating factor for GE.
“This is not a wage arbitrage play for us. We are here because our customers are here,” he says.
TEN YEARS BEHIND EAST SIDE RIVALS
Those customers are trying to extract shale gas from the surrounding hills and also provide better healthcare for the province’s 80 million people.
But while Chengdu might have less pollution than Beijing and cheaper property than Shanghai, it is on some estimates at least 10 years behind its eastern rivals.
Ching Li, the general manger of Rheem’s hot water heater factory, says while wages are lower in Chengdu so is the productivity.
“The productivity is far higher in the coastal areas,” he says.
“And while getting factory workers is not a problem, finding a skilled engineer is quite hard.”
Saying that, Ching marvels at how far the city has come.
“When I came here 20 years ago, you couldn’t even buy a bottle of fresh milk,” he says.
“Now we’ve even got a St Regis Hotel,” he says of the upmarket chain that opened last month.
The Australian Financial Review, in commercial partnership with ANZ Banking Group, is looking beyond the economic numbers to the real business opportunities in the rise of Asia. Opportunity Asia will examine some of the key challenges for business, as both partners view the changing Asian economic outlook as central to the future of Australia.
The Australian Financial Review
BY ANGUS GRIGG
Angus is a China correspondent, based in Shanghai.
PUBLISHED: 8 HOURS 58 MINUTES AGO | UPDATE: 3 HOURS 19 MINUTES AGO
China’s opportunity seekers go west
Chongqing was upgraded to municipal city status in 1997 in a government push to develop the west of the country. Photo: Bloomberg
ANGUS GRIGG
I’ll take the Borsch: Dining out western style in China
China’s farmers face reform push
China’s western regions hold potential
| At a warehouse on the edge of this western Chinese city, employees are rushing to fill an emergency order.
The nearby Volvo factory has run short of seat belts and needs the parts sent over immediately.
Directing the forklifts and shouting the occasional order is Li Weiyi, who took a job with the Sino-Swedish car maker back in July.
The recent university graduate is one of thousands of young people recently hired to work in the city’s booming auto sector, but Li is somewhat unique as she has reversed a two-decade trend of young people leaving China’s west to find work in the east.
Li has migrated in the opposite direction. After graduating from a teachers college in the eastern province of Anhui, she moved west to Chengdu for the job with Volvo.
“This is where the opportunities are,” she says while overseeing the loading of a truck.
Her experience typifies the change under way in this city of 14 million, which is fast becoming a rival to the so-called first-tier centres of Beijing, Shanghai and Guangzhou.
DEVELOPMENT OF WEST CHINA
The Chinese government has been pushing for greater development of the country’s western regions for decades, but was seen to get serious in 1997 when it designated Chongqing a municipal city.
Prior to this it was part of Sichuan province and for the decade following its elevation, Chongqing was seen as the centre of development in western China.
But the balance of power swung back towards Chengdu in recent years after the scandals surrounding former Chongqing Party Secretary Bo Xilai, who was jailed for life last year for abuse of power.
As the first-tier coastal cities face shortages of labour and land which has driven up prices, the likes of Volvo and many others have moved west to Chengdu.
At the airport, which will soon boast a futuristic new terminal to accommodate a doubling of traffic over the next 15 years, travellers are constantly reminded that half the world’s Fortune 500 companies have a presence in the city.
“We see Chengdu as the business capital of western China,” says Philip Pearce, the Greater China managing director of property group Goodman.
“And western China is a big focus for us.”
Goodman is looking west as that’s where its clients are moving.
GOODMAN EXPANSION
It opened its first Chengdu warehouse in August and has a further three projects slated for completion over the next two years.
Goodman’s expansion is partly a function of improved road, rail and air links with the coast, which make it viable for manufacturers to move their operations inland to take advantage of cheaper land and labour.
Volvo is a good example.
It is in the process of tripling production at its Chengdu plant to 300 cars a day. As part of this expansion it has outgrown its own warehouses and has leased space from Goodman in its newly opened logistics park.
But it’s not only the manufacturers moving west.
In the same logistics centre, IKEA will soon begin a pilot project allowing customers to buy furniture online and pick it up from the warehouse.
This suggests the consumer story has also moved west, as higher-value industries follow the manufacturers.
STRONG EconOMIC GROWTH
High rates of economic growth partly explain this evolving story, but not all of it.
Chengdu received a huge flow of funds from the central government to develop its infrastructure after the 2008 Sichuan earthquake, and this continued during the global financial crisis when China rolled out its 3.3 trillion yuan stimulus package.
In 2013 Sichuan grew at 10 per cent, compared to the national rate of 7.7 percent.
Taking advantage of these growth rates is part of the motivation for going west. But there is also an acknowledgment that China is a large continental economy and companies need a presence in its western regions.
This realisation has seen Goodman open a corporate office in Chengdu, to service its warehouses in the city and those in the neighbouring centres of Chongqing and Xian.
It was this philosophy that also saw General Electric make Chengdu the base for its first Innovation Centre globally.
ENERGY AND HEALTHCARE FOCUS
The centre opened in 2012 and is focused on the energy and healthcare sectors.
“We felt that GE did not have the presence in western China that we should have,” general manager of the Innovation Centre, says Godfrey Firth.
“It’s part of a realisation that China is multiple markets at different stages of development.”
It’s not a case of east versus west so much, as a realisation that companies need a presence in both geographies.
Yet at the same time companies are increasingly realising that they are very different markets.
For starters, Firth from GE says the starting wage is around 20 per cent cheaper for new graduates in Chengdu compared to Shanghai or Beijing, although this gap closes as employees become more senior.
But he’s keen to stress this was not the motivating factor for GE.
“This is not a wage arbitrage play for us. We are here because our customers are here,” he says.
TEN YEARS BEHIND EAST SIDE RIVALS
Those customers are trying to extract shale gas from the surrounding hills and also provide better healthcare for the province’s 80 million people.
But while Chengdu might have less pollution than Beijing and cheaper property than Shanghai, it is on some estimates at least 10 years behind its eastern rivals.
Ching Li, the general manger of Rheem’s hot water heater factory, says while wages are lower in Chengdu so is the productivity.
“The productivity is far higher in the coastal areas,” he says.
“And while getting factory workers is not a problem, finding a skilled engineer is quite hard.”
Saying that, Ching marvels at how far the city has come.
“When I came here 20 years ago, you couldn’t even buy a bottle of fresh milk,” he says.
“Now we’ve even got a St Regis Hotel,” he says of the upmarket chain that opened last month.
The Australian Financial Review, in commercial partnership with ANZ Banking Group, is looking beyond the economic numbers to the real business opportunities in the rise of Asia. Opportunity Asia will examine some of the key challenges for business, as both partners view the changing Asian economic outlook as central to the future of Australia.
The Australian Financial Review
BY ANGUS GRIGG
Angus is a China correspondent, based in Shanghai.