The new Dalian: You want to be here

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A letter from Dalian: Chris Devonshire-Ellis

Dalian, China’s third largest port and hometown of Chinese Commerce Minister Bo Xilai, is a city of six million, just across the Yellow Sea from Japan. In fact its proximity to Japan is such that it has for a long time been considered more a Japanese and Korean city of not much interest to other foreigners. That’s about to change.

Intel’s huge investment in the city (actually about a 45 minute drive further north) – a US$2.5 billion dollar wafer fabrication business – is spearheading what will become a renewed interest in investment into Dalian, and possibly Northeast China as a whole. With Intel’s facility also creating the need for an American International School – not to mention a prestigious village development to house all those US expatriate executives and their wives – Dalian is repositioning itself as a destination for Western FDI par excellence.

Shanghai or Beijing this is not. Cramped apartments, dubious air quality, the incessant knocking and thumping of jackhammers, car horns and dubious bars are not quite the new Dalian style. Think more lush air quality, green avenues lined with cherry trees, a magnificent, rugged coastline, fresh oysters and dolphins frolicking offshore and you get the drift. I saw all these, just a ten minute drive from Intel’s executive village, last weekend. For too long, living in China has been a hardship posting. In Dalian, the standards China – with Intel’s help – has set – are so high it is hard to find any expat that wants to leave.

Back in Dalian city, the closest comparison I can think of is Chicago – big skyscrapers and occasional fog spookily drifting through the avenues. It’s relatively quiet, and thankfully free of the much of the pestering of touts, beggars and prostitutes that mar many other Chinese cities. As mentioned, the food is excellent – not just a legacy of Dalian’s location, but also of the past 20 years of Japanese investment – because if seafood isn’t fresh or to the required standard in this most Japanese of Chinese cities, they’ll take their investments elsewhere. So the demographics are changing. Pretty much the crème de la crème of Japanese investors are already here, so investment from the east is slowing down. Dalian now looks to the West to sustain its growth.

The government environment? We visited Tata Refractories, who built a plant in six months on a US$8.2 million investment. They are now reinvesting to double their capacity after just one year, and are already turning over ten times the original investment. Now that’s shrewd business management and pre-investment due diligence working wonders, but it’s also to do with the local government. “Brilliant” is Tata’s opinion. “Where else could we get our factory built and operational in 6 months?” It’s a 17,000 sqm facility, and walking around it, it is kind of awe inspiring. Plus the land value has nearly doubled since Tata bought it. The message seems to be – come to Dalian, build your plant here, and we’ll reward you with co-operation and a tangible asset value increase.

The more people I spoke to, the more the message was clear. Dalian is a good place to do business. There were a few gripes, mainly I suspect from the unwary foreign investors, who didn’t do their homework properly and subsequently found themselves in over their heads. But by and large, local government appears relatively benign, it’s an attractive environment, and it’s half the price of Shanghai.

So who should think of being here? Well, Dalian has a major ship-building industry, so all associated industries – wet units, engines, components, are all successful locally. Add to that China’s Locomotive manufacturing and Dalian’s close proximity to Changchun – China’s Detroit – for auto and auto components – and you have a huge industry base with experienced work force right there. Increasingly, software is making an entrance, Dalian’s new software and IT park has opened, and Intel of course is a major factor in the development of this. Microsoft, it is rumored, are also soon to arrive. Add in drilling offshore, and oil processing, chemical processing and exports, and you have a lot to play around with in terms of activities to conduct.

But in the main, it’s marine and auto component driven, and the many factories, clean as a whistle, steadily turning these out and quietly expanding, are proof positive that Dalian is a bit of an investment secret. Now when was the last time you visited a Chinese city and none of the expatriate population wanted to leave?

Dezan Shira & Associates maintains an office in Dalian, advising foreign investors on legal administration, corporate establishment, due diligence and tax policy in the city. Please contact Adam Livermore or visit the Dalian office website for more information.