Beyond Beijing

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With 102 cities with a population of more than five million, Rohini Kappadath explains why there’s so much to look forward to if investing in China

The Chinese economy continues to undergo rapid structural change.  The past decade has seen a shift away from low-end manufacturing towards higher value-added manufacturing, particularly electronics.

With year-on-year growth of 10.3% in real terms in 2010, China’s economic dynamism makes it an obvious choice when exploring investment and trade opportunities. However in a country of China’s size, not all cities and regions offer equally good opportunities.

A major turning point occurred in China in 2007, when inland areas started growing faster than the coastal provinces. This trend will continue for a generation. The fundamental driver of growth in these cities is urbanisation. The migration of workers from rural areas to the cities, although slowing, will continue for many decades.  While the scale of urbanisation reduces the potential for major macroeconomic shocks, it makes business operations more complex.

China’s “Go west” strategy is now 10 years old and is really gathering momentum.  There are now 102 cities with a population of 5 million or more. Instead of looking at rich coastal cities like Beijing and Shanghai, investors will need to seek alternatives to the rising cost of labour and land in the Pearl and Yangtze River deltas. A number of inland cities in the west of China, such as Chengdu, Changsha, Wuhan and Chongqing have been on the receiving end of relocation by manufacturers. This has been contributing to faster jobs and income growth in the region. These cities now offer economic growth rates in excess of the national average. However, each of these cities offers potential investors something different.

Now that China is entering a new era of development, its export-led growth model is giving way to one driven more by a domestic consumption, high value-added manufacturing, services and the quality of environment. A country of over 1 billion people living in clean and modern cities, with world class infrastructure and planning, high levels of productivity and economic growth, innovative new industries in IT, sciences, finance and manufacturing, and a thriving services sector.

The good news for Australian businesses is that there are no signs of a slowdown in China. These five-year action plans, which underpin China’s growth strategy, are approved, funded and in development and will keep their economy in good order regardless of what happens in the US and Western Europe. There is no doubt that China is the key market for anyone with a 10 year time frame or more.

The Chinese have created a 30-50 year infrastructure gap between themselves and their other fast-growing neighbour, India. With vastly different political ideologies, social settings and legal backdrop, the two countries can hardly be compared today. One is riddled with bureaucracy, corruption and an indecisive democracy while the other has unquestioned authority vested in a few who have shown they have the foresight and ability to deliver unimaginable outcomes, in the absence of having to fear  opposition from what can only be termed ‘collateral damage’. There is no doubt that we are witnessing the development of our next world leader.  And at this point in history, it does not appear to be India.

The writer, head of cross-border business, Pitcher Partners, joined the official Australia-China 2.0 Trade Mission to the second tier cities of China, led by Trade Minister Dr Craig Emerson to explore the new opportunities identified in China’s 12th Five Year Plan, particularly the anticipated explosion of the services sector in China, in Tourism, Health, Education, Financial Services, Legal and Technology.

Over 7 days in 6 cities (starting in Guangzhou and travelling to Changsha, Wuhan, Chengdu and Chongqing before finishing in Shanghai) the Mission, consisting of 100 Australian delegates, travelled each day by a charter flight to meet and talk with local government officials, businesses, entrepreneurs and investors interested in building connections with Australia.

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