Dalian High-Tech Industrial Zone shifts into high gear

Posted by Reading Time: 4 minutes

By Adam Livermore 

DALIAN, Oct. 8 – Standing on a windswept hill overlooking the coastline of southern Dalian and looking towards the distant port town of Lushun, it is hard to visualize how the rolling rural landscape will look after it is swamped by the planned “silicon peninsula,” at least until you turn around and look northwards instead. An area of 27.54 square kilometers that was rural land until the turn of the century is now an extension of Dalian city. Over the coming decade this area, the High-Tech Industrial Zone of Dalian, will spread down the peninsula and become increasingly more important to the city from which it gets its name.

Over the past decade the High-Tech Industrial Zone in Dalian has developed into a community of BPOs, IT outsourcing companies and call centers, primarily for the Japanese and Korean markets. However in the past few years more and more western companies have arrived in the zone and they are involved in a wider variety of operations. Phase I of the project is currently being extended, and Phase II of the project was officially launched in September. This article introduces the current state of the high-tech zone, the plans for its expansion and the rationale behind the ambitions project.

The zone has a few special characteristics that make life here rather different from other areas of Dalian. First of all, the average age of the population living and working in the zone is much younger – the residents are software engineers, IT professionals, web designers or and technicians, many of them bilingual or trilingual. 

Second, rents for apartments in the area now exceed rates in the town center. Not only are the buildings here new and spacious, with all these skilled people average wages in the zone are much higher than in the town centre.

Thirdly, a large proportion of the workers here do not speak using the characteristic accent of Dalianers, much ridiculed by other Chinese. Fifty percent of the current 50,000 workers in the zone actually come from the hinterland of Northeast China – Shenyang, Changchun, Harbin and other inland industrial cities. They represent the best of their graduating classes, and foreign multinationals have recruited them on annual tours of northeastern universities. One day no doubt, many will return to their home cities with a new set of skills to pioneer the charge of IT into inland China. Not yet though, because the local government has instigated a policy to attract and retain highly-skilled workers – individual income tax rebates are offered to software engineers who earn over RMB60,000 per year. This boosts the disposable income of anyone earning over RMB10,000 per month by quite a large amount.

It is a well-known fact that the impending changes to corporate income tax laws in 2008 will remove one of the primary incentives for companies to invest in development zones. Under the new law, companies designated as high-tech will still be able to receive the 15 percent reduced rate of tax, however this policy will no longer apply only to investments in high-tech zones. Despite this policy change from the central government, the local government and several domestic and international real estate developers have continued with plans to aggressively expand the zone. They judge that the existing human and physical infrastructure will attract multinational companies from all over the globe to Dalian, and they are putting their money where there mouth is.

The next stage of the zone is being developed jointly between Dalian Software Park (an existing developer that has been a driving force behind its success so far) and Ascendas, a Singaporean company with rich experience in developing software and industrial parks in locations such as India and Singapore. Together they are pouring US$69 million into the project. The first building – with a floor area of 100,000 square meters – is reaching completion. Multinational corporations such as Konica Minolta are currently moving in. Eventually there will be several more buildings clustered round a central hub. This community will provide all the facilities necessary for the tenant companies and employees based there.

Groundbreaking for Phase II also occurs this month. This longer-term project is even larger in scope, and financing has already been put in place. The ultimate main investor is Shui On Land, which was responsible for the acclaimed Xintiandi project in Shanghai among others. This project is extremely ambitious, with investment expected to reach RMB25 billion over the next ten years. Large swathes of land have already been cleared for development. Shui On also has a formidable team assembled in Dalian to guide implementation of the project. No doubt in the coming months the first buildings will start to rise out of the earth as the project develops.

Dalian’s enthusiasm for developing the high-tech industry stems from its awareness that low-end manufacturing operations are no longer looking to base themselves in the city. Nor does Dalian, a tourist city that treasures its clean environment, want them here. Instead Dalian is positioning itself as a hub for provision of value-added services, a little like a Shanghai of the northeast. Although they cannot be compared in terms of scale there are a few similarities – Dalian is the 4th largest port by volume in China and the most international of the northeastern cities by a long way. Unlike in the south, where cities compete with each other for regional dominance, Dalian’s strengths complement the industrial powerhouse of Shenyang and the automobile capital of China – Changchun. Completion of a new high-speed passenger railway link in 2013 between the major northeastern cities will also improve the flow of people and goods between the cities.

In conclusion, Dalian is building a platform upon which high-tech companies can base large operations. Giants like IBM, Oracle, Microsoft, Dell, HP and Accenture have been here for several years already. A new wave of investment is arriving from the next tier of global companies, and it is diversifying in scope (a good example being the recent arrival of British Telecom). The huge new supply of physical infrastructure will ensure that rental costs do not rise too quickly in the next several years, and the flow of skilled workers from universities all over the northeast of China will suppress wage inflation to a certain extent. For a foreign investor in the technology sector Dalian should be placed near the top of any list of candidates for direct investment in China.

For business advisory services, assistance establishing, structuring or operating a business and contract drafting in Dalian, please contact Adam Livermore in the Dalian office of Dezan Shira & Associates at dalian@dezshira.com, tel. [411] 8255 9061.

Leave a Reply

Your email address will not be published. Required fields are marked *