Op-Ed Commentary: Chris Devonshire-Ellis
Apr. 26 – As China has developed rapidly over the past two decades, the dynamics of trade and the opportunities have changed. Investors looking at grabbing part of China’s continuing growth should now start to look beyond the main cities of Guangzhou, Shanghai and Beijing and begin to explore ways to learn about and exploit the tremendous opportunities that lie along the border regions.
Having run our firm, Dezan Shira & Associates for the past 18 years and during that time opening eight offices in mainland China, it is becoming apparent that the more dynamic growth that our own business is experiencing is now coming from the second tier cities rather than the traditional markets of Beijing, Shanghai and Guangzhou. The latter, while still essential, are becoming more expensive in terms of labor and rental costs, and this eats into margins. Within a volume business, those same costs are lower in second tier cities and margins consequently more attractive. While this of course relates to the professional services industry, the same situation also applies to other service companies. Here, especially with trade, I spot opportunities that did not exist five years ago.
A little known fact is that China’s largest inland port is at Manzhouli located in Inner Mongolia. A town located next to the Russian border, it accounts for an astonishing 60 percent of all trade between China and Russia/Eastern Europe. China’s National Highway 121 runs through here (continuing on the Russian side to Chita, another major Russian trading city) and Manzhouli is also a terminus for the main Beijing-Moscow railway line which is additionally being earmarked for upgrading and high-speed trains along its entire length.
While the population of Manzhouli itself is only 250,000, opportunities abound for businesses and individuals familiar with both Chinese and Russian languages. The repacking of goods from one side to the other, from Chinese characters to Cyrillic for example, can be undertaken in the massive cross-border free trade zone. Is anyone currently involved in such services? Apparently not, according to our local research. Manzhouli itself has just opened a Shangri-La Hotel, an indication of the new wealth and trade that is pouring into the area.
Manzhouli is just one example, and just one of the several border crossings with Russia. But if all are examined and considered, then multiplied by China’s fourteen neighboring countries, plus adding in close markets such as Japan, South Korea, Malaysia and Thailand, all of whom are not officially neighbors but each of which are easily accessible, then the case for considering a career or investment in cross-border trade services along China’s borders becomes more pressing.
Consider Pingxiang. It’s not a destination often spoken about by expatriates in China, but this is a border city with Vietnam with a population of 2.5 million. It possesses a national highway that then stretches down into Hanoi, as well as the main rail line, which connects Hanoi directly to both Kunming and Nanning. Add in several other incentives, such as the newly signed ASEAN-China Free Trade Agreement, which gathers together all of those Southeast Asian countries down to Singapore, and one can see why Pingxiang is booming. Accounting, at present, for 25 percent of all Sino-Vietnamese trade, cross border trade that is bound for other markets ramps the China regional export figures up even higher. Hire a warehouse and a Vietnamese or Thai translator, and start repackaging. Even English will work for goods going as far as Singapore. The same exists for goods coming into China; the local markets require Chinese characters, not Khmer.
Armed with some imagination, a chunk of holiday time, and the price of a rail ticket, most of China’s borders can be explored relatively easily, even by the less well-funded. Add to that an ability to obtain the required linguistic capabilities, and a study of the projected bilateral trade should indicate the myriad possibilities now open to energetic small and medium enterprises. China’s borders represent, almost literally, the final frontiers, and with increases of bilateral trade, much improved infrastructure, hard work and application, and a good dash of cultural awareness, opportunities certainly exist. As for me? I began my China business 18 years ago on the borders of Shenzhen and Hong Kong, when Hong Kong was under British rule. It did me nothing but good and, if faced with the same opportunities today, I would head again for one of the borders and get started along China’s new frontiers.
Chris Devonshire-Ellis is the founding partner of Dezan Shira & Associates and has been involved with the structuring of foreign businesses in China for the past 18 years. His popular book about how he set up and built a foreign professional services practice across China is available for free download here.
Chris also contributes to India Briefing , Vietnam Briefing , Asia Briefing and 2point6billion
China’s Emerging Second & Third Tier Cities