Suzhou is eclipsing Shanghai as an investment magnet
FDI trends fuel concerns that the city is losing its competitive edge to provinces with lower costs
Suzhou extended its edge over Shanghai as the most attractive destination in east China for foreign investment this year, fuelling fears that the mainland's financial capital is no longer a competitive location for manufacturing.
According to figures published yesterday, Suzhou attracted US$4.05 billion in actual foreign investment in the first half of this year, an increase of 28.6 per cent over the same period last year, against $3.84 billion for Shanghai, an increase of 15 per cent.
In the first half of last year, Suzhou overtook Shanghai for the first time, with US$3.5 billion against $3.34 billion.
Observers say Shanghai may face the same problem as Hong Kong in the 1980s when factories moved to cheaper locations in Guangdong province.
Shanghai factories are now moving to Jiangsu and Zhejiang provinces for the same reasons. On August 3, United States manufacturing conglomerate 3M, which has invested US$100 million in China since 1984, started construction of its fifth mainland plant, in the Suzhou Industrial Park. It is the company's first factory outside Shanghai.
Unilever will move production of its household and personal-care products from Shanghai to an industrial park in Hefei, the capital of Anhui province by the end of this year, which will reduce its production costs by at least 30 per cent.
'The economy of Shanghai is in a dilemma,' said Zhang Jun, director of the China Economic Research Centre at Fudan University. 'Its labour costs are higher than cities in the Yangtze River Delta. If it wants to compete with them for manufacturing, it must find ways to slow the growth in labour costs. If it does, it will slow the growth in incomes, which will cut the profitability of other sectors.'
In 2002, Mr Zhang sent a report to the government comparing Shanghai and its neighbours Jiangsu and Zhejiang.
His report said that labour productivity was lower in Shanghai and that the city was not competitive in manufacturing.
'I have had no official response from the government,' Mr Zhang said.
Qiu Huayun, an engineer at the China Textile & Industry Design College, said: 'Manufacturing has no future in Shanghai. Over the next 10 years, the trend of the tertiary sector replacing the secondary sector [manufacturing] is irreversible.'
Xie Kang, director of research on multinational companies at the Shanghai Academy of Social Sciences, said that Suzhou, Wuxi and other cities in Jiangsu offered better infrastructure and lower labour costs than Shanghai.
3M said it could lease land at the Suzhou industrial park for $15 per square metre, against $110 per square metre in the Waigaoqiao zone of Shanghai.
