By Cory Lam
SHANGHAI, Mar. 3 – Large scale industrial parks play a vital role in foreign investments in China. Not only can foreign businesses benefit from the financial incentives offered by the government to invest at these locations, but the parks are often centrally located – making it convenient for employees and clients alike in terms of its daily operations.
As labor and operational costs continue to rise in traditional investment locations such as Beijing, Shanghai and Guangzhou, investors are looking further afield to second-tier cities where costs are significantly lower and resources are comparable. Zhejiang Province, situated just beside the municipality of Shanghai, is such an example.
Currently the province boasts of 13 national-level industrial parks and more than 50 provincial-level economic development zones, many of which are located in major trading cities such as Hangzhou, Ningbo and Wenzhou. With so many choices to offer, it is not always easy for investors to decide which industrial park to set up factories or offices in. This article compares a few of the industrial parks in the area and explains some of the key factors to consider when picking an ideal investment location.
The government ranks each park annually based on four aspects: financial capacity, development quality, overall efficiency and growth rate. These are further split into several subcategories, most of which are based on revenue or investment-related statistics, with only a few subcategories relating to non-financial factors such as environmental impacts and human resources.
According to the latest government statistics, the best industrial park in Zhejiang Province is currently the Hangzhou Economic and Technological Developing Area (HEDA), which recently overtook the Ningbo Economic and Technical Development Zone (NETD) in the overall ranking as the top economic development zone in the province due to HEDA developing more advanced technological products and being the more efficient site.
Located in the key manufacturing hubs of Ningbo and Hangzhou, respectively, and both within a 3.5 hour drive from Shanghai, it is not surprising that these two industrial parks have attracted the most foreign investments over the last decade. In 2009, the GDP for HEDA was around the RMB31 billion mark while for NETD it was around RMB38 billion. In fact, the production rate in the province has increased so much in recent years that in 2010, five of its provincial-level industrial parks were promoted to enjoy national-level status. Jiaxing Economic and Technological Development Zone (JETDZ) and Changxing Economic Development Zone (CXEDZ) were the latest additions to the list with an annual GDP of around RMB17 billion and RMB10 billion, respectively.
It is, however, not always sensible to invest purely based on government statistics, as the rankings do not necessarily reflect the type of industries that each industrial park is designed for. Industrial parks tend to target specific investors and privileges are usually given for businesses in their preferred industries. For example, due to its tactical location at the deep water coastline at Ningbo’s port, the Ningbo Daxie Development Zone (NDDZ) is perfect for petroleum, port logistics and energy transhipment industries, while at Xiaoshan Economic and Technological Development Zone (XETZ) based in Hangzhou, privileges are given to businesses in the electronic, IT, and software industries as well as new material and optical mechatronic industries. As a general guide, investors should therefore select a site based on their business needs.
There are currently three national-level industrial parks each in Hangzhou and Ningbo, one in Wenzhou, with the rest located in smaller towns around the Yangtze River Delta, such as Jiaxing, Huzhou and Shaoxing. The only two national-level industrial parks not within the Yangtze River Delta area are the sites at Jinhua Economic and Technological Development Zone (JETDZ), which is 188 kilometers from Hangzhou, and the Wenzhou Economic and Technological Development Zone (WETDZ), around 370 kilometers away from Hangzhou. Although further away from Shanghai, logistically speaking the WETDZ is just as convenient, being only 15 kilometers away from the nearest port and only 7 kilometers from the airport. JETDZ, however is less accessible being 56 kilometers from the nearest airport.
There are other industrial parks which are worth mentioning due to recent interests from foreign enterprises. The European Industrial Park at Cixi, backed by the Spanish ITC Group and Corusland Company, has received some good feedback from its foreign tenants. Designed with a view for foreign investors, the setup of the park and the infrastructure may be more transparent and therefore more popular with western investors.
Over to the southwest in Yiwu, there has been a significant amount of interest from Indian investors. Due to the large textile industry in the Yiwu area, a large number of Indians have also moved into the area.
Zhejiang Province has also seen a number of Turkish enterprises setting up in the industrial parks in the area, particularly in Wenzhou. By the end of August 2010, 61 Turkish enterprises had set up in Zhejiang with total investment nearing US$28 million and involving major industries producing textile, communication equipments, computers and other electrical equipments.
Dezan Shira & Associates is a boutique professional services firm providing foreign direct investment business advisory, tax, accounting, payroll and due diligence services for multinational clients in China. The firm maintains three offices in the YRD region, namely in Shanghai, Hangzhou and Ningbo, and can advise clients on what development zones best suit their needs. To contact the firm, please email email@example.com or download the firm’s brochure here.
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