Fragen und Antworten

China is a continent. Which regional differences are recognizable in the economic development?

Due to its geographical size, China is characterized by cultural differences and socio-economic disparities. Thanks to the early opening of national markets to foreign trade and the thereby resulting infrastructure, eastern China better developed than central and western China. Even though the orientation towards coastal cities is not decreasing, also provincial capitals and regionals centers within inland areas are becoming increasingly interesting as locations and sales markets. With the “Go-West” campaign, that launched some years ago, the Chinese government tries to accelerate the development of western China through infrastructure expansion and investment incentives. Aims of these measures are to foster balanced social development of the country and enhance the standard of living.

Which areas of focus for the regional development are set in the current five-year programme?

The 13th five-year programme for the economic development until 2020 aims to improve the infrastructure of the western provinces, modernize the northeastern industrial zones and foster the growth of the central provinces. Further, the focus is on three large regional initiatives: The revitalization of the Silk Road and the related economic development, the integration of Beijing, Tianjin and the surrounding province Hebei, as well as the expansion of the economic belt at Jangtse, which spreads over the eleven provinces with 40 % of the Chinese population.

Which regional alternatives will be offered towards the traditional "German" locations in the next years?

Most of the German companies have settled in JangtSedelta around Shanghai, in the Pearl River Delta in the Hong Kong / Kanton region and in the Bohai region around Beijing.  These regions remain attractive locations for German investors. With the development of central and western Chinese regions as sales market, German companies increasingly followthe “Go-West” campaign. Regions like Chongqing, Chengdu or Wuhan in the inland become for instance successively interesting, also due to good availability of personnel. With various measures, the Chinese government tries, for instance, through the “Silk Road Initiative” to make Western and Central China more attractive for foreign investment, including through the expansion of infrastructure, making these regions more important for German companies as an investment location.

Which sectors are especially interesting from China’s point of view?

German companies and brands have a good reputation in China. Chinese investors are especially interested in high-tech companies. Special interest lies currently in the investment of the German “Industry 4.0” sector, which aims to interlock industrial products with modern information and communication techniques. This is also the interest of the Chinese initiative “Made in China 2025”.

What is generally to be considered in the location decision?

The accessibility to user industries as well as the regional availability of suppliers are the most important factors for the location decision. High logistics costs can quickly lead to price disadvantages. Next to stable availability of energy also the offer on qualified personnel is of high importance. Further important aspects are transport connection, living expenses and living quality. The possibility to make use of regional grants and tax incentives should be only a secondary criteria. Each company shall check by itself whether the requirements for incentives are fulfilled. Important are the provisions of the investment guideline catalog from the government, with which help the guidance of foreign investments in certain regions is pursuit. China is working on a shift from previously quantitative industrial growth towards qualitative resource-saving, high-value growth. In comparison to the investment guideline catalog of 2011, in the current version the restrictions for foreign investments are simplified as well as the number of restricted industries reduced. Moreover, legal frameworks, particularly their interpretation and application practice, can change anytime in the short term. Only due to language barriers many difficulties arise in China for the access of fundamental information. To not lose sight, especially mid-size companies are thus strongly dependent on a strong network.

What is the importance of newly emerging free-trade zones?

After the free trade zones in Shanghai, Guangdong (with economic focus on Hong Kong), Fujian (with focus on Taiwan) and Tianjin (to better trade with Beijing and Hebei) were founded in recent years, the State Council approved seven additional pilot free trade zones: In Liaoning, Zhejiang, Henan, Hubei, Sichuan, Shaanxi and Chongqing. Within these areas foreign investors can build company locations for certain sectors, without country specific investment restrictions for the respective sectors (application of the “negative list”. Even though currently only four free trade zones exist, the importance for the Chinese economy to attract foreign investors in new branches is steadily increasing. Further free trade zones are in discussion, to increase China’s competitiveness in the inland area for example. Large city clusters shall emerge in the next years.

What is it about?

In general, it is not about the development of new mega cities, but rather about the creation of synergies for regional and collaborative development. Beijing and Tianhin shall together with the surrounding province Hebei merge to one economic unit: Jing-Jin-Ji ( J)Ut X) with a total population of more than 100 million inhabitants. The objective is to provide to the province Hebei a new boost for sustainable economic development, while Beijing’s functions shall be reduced to the roles as capital. In the course of the development of this city cluster, the “new economic zone” Xiongan will be developed southern to Beijing in the next years. The zone will hold the same range as the special economic zone Shenzhen in the 70s after the opening of China and Pudong in Shanghai since the 90s. Xiongan shall emerge to an example for modern, ecological and smart city development.

Which importance receive cities of the second, third and fourth row?

Many “cities of the second row” possess already a good infrastructure, international airports as well as interesting investment and business opportunities like the metropolitan cities Beijing, Shanghai, Canton and Shenzhen, but often in a yet lower level. These include among others, Chengdu, Chongqing and Shenyang, that are characterized by a relatively progressed internationalization and an increasing number of foreign investments. They benefit from governmental recovery packages and are characterized by fast growth. Many of these cities are compared with the coast attractive as investment locations, as they have lower costs for rent, electricity and labor. Often the local authorities are less familiar with the contact to international companies in the everyday business, which can lead to problems. For consideration to investments in less centrally located regions of China, the conditions of the potential locations have to be carefully examined. Since efforts of the Chinese government are to better distribute wealth in the country, also here an increase of the wage level and the living costs can be expected in the medium-term. In short, growth potential exists, but often the infrastructure (among others international schools and hospitals) is not developed that much and the economic development not as advanced as in Beijing, Shanghai or Canton. Therefore, the direct market entry is often not recommended in the “cities of the second and mainly of the third and fourth row”. These locations are rather suited as additional locations. They are mainly attracting the attention of companies already based in Beijing or Shanghai that want to expand further.

An increasing number of "German-Chinese" industrial parks emerge, as for instance the German-Chinese eco park in Quingdao or the German-Chinese Eco Metal City in Jieyang. Which aims are targeted with these parks and are they interesting for the settlement of German companies?

The “German-European” industrial parks shall among others give German medium-sized enterprises entry to the the Chinese market. An innovative system for industrial parks is planned, in which party, government and companies can work together on the realization of interlinking industrial production with modern information and communication technologies. But also models for energy saving and for the prevention of environmental pollution are considered. Moreover, the Chinese government has permitted a new German-Chinese industrial park in December 2015, which shall be constructed in Shenyang, the capital of the province Liaoning. The industrial park shall merge the Chinese initiative “Made in China 2025” with the German initiative “industry 4.0” and accordingly attract German and Chinese companies. Still it needs to be considered that in the country many different “German-Chinese” industrial parks exist. Some of the zones maintain a closer cooperation with German institutions. While some seem to rather just hold the word “German” as a “brand” in the name.