Investment in China is shifting. It was only a matter of time before that was destined to be true. The high-tech industry's insatiable lust for finding the “next great low-cost innovation hub” — affordable cities with nearby and abundant skilled talent pools and good infrastructure — keeps companies moving around.
For a long time now, the electronics industry has been setting up operations along China's eastern and southern coastlines. Areas around Beijing, Shanghai, Shenzhen, and Guangzhou, for instance, have been sweet spots because of their port-road-logistics infrastructure and access to large markets.
As costs rise in those areas, inland places like Chengdu and Xi'an are winning more international attention and foreign investment.
The China Daily newspaper recently reported that Chengdu, which has the fourth busiest airport in the country after Beijing, Guangzhou, and Shanghai, is becoming known as a major logistics hub and is starting to be seen as a choice destination for global financial services firms and manufacturing companies.
Its popularity is also playing out in a monetary way. Chengdu is seeing a consistent increase in foreign direct investment and it is the only inland Chinese city listed in the 2011 and 2012 “Annual Top 10 Best Foreign Investment Strategy Cities in Asia and the Pacific Region” report published by FDI — a magazine published by the UK-based Financial Times, according to the newspaper. In 2013, Chengdu will be the host city for the Global Fortune Forum, a conference that draws Fortune 500 executives, industry leaders, and heads of state.
The same China Daily article also states without citing a source for this data that “The cumulative investment made by 215 Fortune 500 Global enterprises in Chengdu during the first six months of the year was 50 billion yuan ($8 billion), 28.7 billion yuan more than the same period last year.” It also says that companies in the region represent the high-tech, IT, new energy, new materials, bio-pharmaceuticals, aviation and aerospace, automobile, equipment manufacturing, and petrochemical industries.
Like other parts of China, what seems to be another appealing draw (in addition to the fact that it's probably cheaper than the more developed coastal cities) is the 50 or so educational institutions located in or around Chengdu, meaning that companies have access to a skilled workforce. The newspaper reports that “every year the city adds more than 150,000 graduates and more than 100,000 professional skilled workers to its labor pool.”
Undoubtedly, this is good news for companies charged with keeping costs down. It gives them another option as they scout out alternative sites. Going hand in hand with that, we see how potential hot-spot cities ramp up marketing efforts and offer lucrative tax incentives to get companies to move there. As China matures, we'll surely see many other inland cities trying to attract more companies.
But the question one always wonders about is how much does it cost to start a greenfield operation? Is it more cost effective to build a new site or invest in an old one? What really influences a big move? Is it all about cost or is there some formula for calculating varying factors like access to labor, entry into new markets, tax breaks, or logistics costs? Will inland China offer competitive advantages like Eastern China does?