China Trade Report, July 1999, Volume 37
TEDA tries harder
Tianjin economic zone goes on the offensive to attract new foreign investment
PAUL MOONEY IN TIANJIN
While most of China is reeling from the effects of the Asian financial crises and a resulting economic slowdown, the Tianjin Economic-Technological Development Area has gone on the offensive to attract new foreign investment, and has continued to chalk up impressive economic growth.
In 1998, TEDA’s GDP climbed 19.8% year-on-year to 18 billion renminbi, compared to national growth of just 7.8%. Furthermore, gross industrial output surged 20% for the same period to 54 billion renminbi, exceeding the target for the year by 4 billion renminbi. And while the country’s exports began to slow in the face of the Asian crisis, TEDA saw its exports rise 12.8% in 1998 to 2.26 billion renminbi.
TEDA, which has attracted an accumulated $10.76 billion in foreign investment, pulled in another $1.23 billion last year. While this was about the same amount as a year earlier, close to half of that figure came from existing investors—a welcome vote of confidence.
And there is no sign of slowing down. TEDA predicts GDP will rise to 22 billion renminbi this year, with gross industrial output increasing to 60 billion renminbi.
TEDA owes its ability to side-step the Asian crisis to its strenuous effort to attract new sources of foreign investment and to develop new export markets. Seeing the slowdown in investment from Asia, which accounted for some 73% of total foreign investment in China in 1998, TEDA began targeting Western European and U.S. investors and making an effort to expand export markets to make up for the slowdown in the Asia-Pacific region.
The ratio of investors from the U.S, Britain, Canada, Switzerland and other European countries rose in 1998 as a result of this effort, with investment from these regions accounting for 39% of the total committed investment in 1998, up 5% from a year earlier. TEDA also sought niches in the Commonwealth of Independent States, Eastern Europeoe, Africa and Latin America. Exports tot he U.S. were up 37% to $328 million during the year, while exports to Europe were up 25% to $174 million.
With China’s special economic zones all offering essentially the same tax and other investment benefits to overseas investors, TEDA has looked for ways to stand out.
Ask any of the foreign investors here why they chose to set up shop in Tianjin and they invariably point to the area’s progressive administration, which as built up a well-deserved reputation for cutting through red tape and for its no-nonsense approach to doing business.
When Motorola was searching for a place to set up production in China seven years ago, the U.S. telecoms giant shortlisted a number of cities which it felt offered the right mix the company felt it needed to succeed here. To the surprise of many at the time, the final choice was TEDA, one of China’s less well-known special economic zones.
“Tianjin stood out,” says E.L. Tay, director of Asia operations for Motorola. “It was the pro-activeness of local officials who convinced Motorola that TEDA could provide us with the infrastructure and conducive investment environment that all big companies look for.”
It’s thus no wonder that TEDA has attracted so many top multinational companies. Motorola, Coca-cola and Kodak of the U.S., Panasonic, Mitsui and Itochu of Japan, Switzerland’s Nestle, Korea’s Samsung and Hyundai, Taiwan’s President and France’s Alcatel are just a few of the more than 1,000 foreign projects from 62 countries in the park.
Motorola’s decision to set up in Tianjin was soon proven to be a correct one, when TEDA officials went to bat for the company to get central government approval for a sharp increase in the production of cellular phones.
“When we set up here we drew up a business plan, but the domestic market soon began to outstrip the international market, and we had a huge need to fulfill here,” says Tay. “The TEDA administration was willing to work with us, and played a key role in relaying the situation to the central government.”
As a result, Motorola’s approved output was raised some 100-fold from the original 27,000 units per year set in 1992, when the factory began operation. Since then, output has risen by leaps and bounds to 6 million units in 1998, and an estimated 8 million-9 million this year, making it the company’s largest producer of cellar phones in Asia.
“This large increase has to be approved by the central government and without our help it would have been difficult,” says Li Yong, chairman of TEDA, adding that local officials visited several central government ministries and departments on behalf of the American company. “We helped Motorola to expand in the China market because we believe by doing so we provide a powerful and effective service.”
The move has also paid off for TEDA. Motorola now has an accumulated investment of $1 billion in the zone, where it employs 10,000 staff turning out state-of-the-art cellular phones, pagers, two-way radios, semi-conductor packages and other hi-tech products.
When Denmark’s Novo Nordisk, a producer of envymes for industrial applecations, was trying to decide where to set up a new factory, the company also decided on the 33-square kilometer TEDA.
“It was important to us that the administration was efficient and professional in their approach,” says Klaus Kjeldal, general manager of the company. “The administration has a good understanding of the needs of foreign investors in China.”
Kjeldal says that investor surveys are often carried out to see how things can be improved in the zone, and he says the effort is not just a PR exercises. “They actually use the suggestions to make improvements,” he says.
Pierre Tabary, general manager of Tianjin Merlin, one the earliest investors in the zone, says his company is “on the eve of a new investment,” and is considering also locating it here in TEDA.
Tabary says his company prefers not build its own production facilities, and that he has spoken with TEDA about having the zone make the investment, in turn renting it to the French producer of miniature circuit breakers.
Tabary says that TEDA has so far been receptive to the idea, and that if they agree, the decision to open another factory here in the zone will be an easy one.
“We have had a good experience in TEDA,” says Tabary, who is also the Tianjin representative of the French Chamber of Commerce. “And what I hear from other people is that they are also getting a lot of help from TEDA when they want to things here.”
“Three years ago we may not have chosen to go with TEDA again,” says a European manufacturer who has been in the park for several year, and who is preparing to open a second facility here. “But in the past three years there has been a big improvement in the zone, especially in cleaning up the environment. They are definitely trying harder to attract investment.”
TEDA officials last year launched new reforms to enhance competitiveness. To reduce costs and improve the investment environment, TEDA eliminated all the administrative fees related to the operation of enterprises, with the exception of three fees required by the state.
The zone is now hoping to build on its other advantages to ensure sustainable economic growth in the new millennium.
TEDA has managed to attract—and keep—foreign investors by guaranteeing a steady supply of energy, water, steam and other utilities. Investors say blackouts have been few and far between.
Nov Nordisk’s Kjeldal says this was a key point for his company in deciding to move here, and that “looking back, we believe we made the right decision.”
“We have been operating here for more than one year and there have been no interruptions in these utilities, which means we have been able to carry out production according to our plan,” he says. “We are quite pleased.”
Officials say TEDA, which is just a 1.5 hour drive from Beijing along the fast-moving Beijing-Tianjin-Tanggu Expressway, is one of the best facilities in China in terms of transport. It is connected to the national road network by over a dozen main highways, including the nearby Shanghaiguan-Guangzhou Expressway and the Beijing-Fuzhou Expressway.
It is just 20 minutes from the Tianjin New Harbour, the biggest port in northern China and the second-largest container port in all of China, which is expected to see its handling capacity hit 100 million tons by 2000. Binhai International Airport, the country’s largest airfreightht centre, is just 38 kilometers away, and the Jingshang Railroad, which is linked with the country’s national rail network, is also connected to the rapidly developing Euro-Asia continental bridge, providing a rail link to Europe.
TF Tianjin, a Japanese producer of stainless flexible hose, set up operations here 11 years ago, attracted by the excellent port facilities.
“As we export 90% of our output, and most of this goes by ship, it was extremely important for us to be close to a good port,” says Tatsuo Kobori, general manager of TF Tianjin. “Tianjin also has an international airport, which means we can use air cargo if we have to get out an urgent order.”
The Japanese manager says customs and export procedures are smooth and fast at the port, which he said is more efficient than some of China’s other large ports.
TEDA officials see the area has a bridge for foreign enterprises seeking to break into China’s emerging consumer market.
Within a radius of 500 kilometers of TEDA, the Bahai economic ring covers a land area of 586,000 square kilometers, accounting for 6% of China’s total land area. The zone contains 11 of China’s 32 cities with 1 million or more people, and has a total population of 200 million, or one-sixth of China’s total, providing a sizable consumer base.
“With Tianjin’s excellent transportation network, foreign companies producing here can easily move products to markets around China, including the hinterland,” says Li Yong.
With 23 universities and colleges in Tianjin, the area is also rich in human resources, providing foreign companies with highly qualified staff at relatively low costs. Tatsuo Kobori says local universeties and technical schools have provided his company with well-trained workers and technicians. “Last year were awarded ISO 9002 certification, which proves how much we have improved our technical capabilities,” he says.
The quality of the people is good and they learn fast,” says Motorola’s Tay. “If you are willing to invest in training people here, they will definitely perform up to expectations.”
He says further that his local staff members are comparable to Motorola workers elsewhere in the world, meeting the company’s tough standards. “We are not lowering our own goalposts here,” he says.
Average take-home monthly incomes for Chinese staff and workers is just 812 renminbi. While this is slightly higher than in Guangdong province, which absorbs cheap rural labour from inland provinces, TEDA officials say Tianjin, with a population of 9 million, has a better-educated workforce. Furthermore, salaries for white-collar workers are 40%-50% cheaper than in nearby Beijing, and one-third that of Shanghai, they say.
Also important, TEDA has made a major effort to make life comfortable for foreign investors.
It has opened two international schools for the children of investors here—one in the zone and one in downtown Tianjin—complete with foreign teachers and international curryculums. The development zone also has swimming pools, a golf course, clubs and other amenities to make life away from home a bit easier.
“This is a fairly good place for investment because TEDA is so well-placed,” concludes Tabary. “It’s close to the capital, surrounded by motorways, has a good port, and nearby universities with well-trained people. TEDA is definitely going in the right direction and this is a worthwhile place to invest.”