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China's glut of new economic zones compete with each other and fuel a buyer's market

Thousands of specialised areas across the country compete with each other for business, writes Wade Sherpard

PUBLISHED : Monday, 08 December, 2014, 9:35am
UPDATED : Thursday, 11 December, 2014, 5:11pm

Several new economic and development zones have been created across China. This means more options, a flood of reforms and new opportunities for investors as the country reorganises its economic strategy. However, is all of this development leading to a climate of inter-regional co-operation and mutual benefit, or competition and mutual loss?

China now has 215 national-level economic and technical development zones in addition to special areas, such as Shanghai's Free Trade Zone, Suzhou's Industrial Park and Shenzhen's Qianhai. These highly touted, prominent zones, though, are just the tip of the iceberg when compared with the vast amount of local zones that are virtually being mass produced across the country. As financial analyst Hao Wu explained: “In fact, every city/county in China has at least one local economic and technical zone. By a rough calculation, China possibly has thousands of economic and technical zones.”

Much of this recent infrastructure  explosion was launched with the 4 trillion yuan (HK$5.05 trillion) stimulus plan the central government injected into the economy in 2008 to counteract the impact of the global economic crisis. This transformed a country that appeared to be on the verge of recession into one that could adapt and expand exponentially. Soon, major new economic zones began appearing on the peripheries of nearly every city and a refreshed network of inter-connected manufacturing, hi-tech, research and development, and logistics hubs were created to enable China's transition from an export to consumption-based economy. This was a boon for investors. When asked what the advantages are for companies to invest in new economic zones, real estate analyst Zhou Huinan, said: “Cheaper land price, more potential. The established economic areas have reached their boundaries and limit.” With these new economic zones, China has successfully found a way to manufacture potential.

The new wave of economic zones are now starting to come to fruition. Many have opened their doors and are now beginning to realise the potential they can offer and what impact they will have. Spanning the coast: Tianjin's Binhai New Area offers world-class financial services; Shanghai's FTZ focuses on international trade and is a pilot zone for reform; the Zhoushan Archipelago New Area is based on shipping; Guangzhou's Nansha is a centre for hi-tech development and Shenzhen's Qianhai is a testing ground for Yuan liberalisation and direct international investment.

Looking westward, there is the massive Zhengzhou New Area, Yunnan's Dianzhong Industrial Zone, Gansu's Lanzhou New Area and Chongqing's Liangjiang New Area, all major new manufacturing areas. This is to name just a small sample of the largest and most important new zones, with thousands of smaller ones that weave a virtually contiguous blanket of development across the country.

The economic layout of China is likewise being spatially reorganised, in large part, because of the creation of new development zones that have very clear specialisations and functions corresponding to their geographic and logistic positions. The previous model of having manufacturing centres based on the eastern corridor, so products could efficiently be shipped overseas, is now fading in preference for new industrial zones located inland. New transport infrastructure, combined with the goal of developing a domestic consumption economy,  has made this transition a logical move. This means that products can be produced in the less developed inner provinces, which have cheaper labour costs and a higher availability of land, while the coastal zones will cultivate global-calibre financial and banking centres, hi-tech research and development institutions, international trade zones and major shipping hubs. While there is certainly an incredible amount of overlap, this broader pattern enables each realm of the country to specialise and make the most of its respective resources.

This pattern of regional role filling and co-operation, however, doesn't mean there isn't competition. The core of China's political and economic systems are based on inter-province, inter-city, inter-zone, and, especially, local versus national competition. This creates a feeding frenzy as each province, city and economic zone vie against each other for investment. Each entity wants to attract top companies into their domains, and they often do so at the expense of others. Functional overlap is one of the biggest problems that this has created. “For example,” financial analyst Wu Hao explains, “Tianjin has been building up its own financial zones, which aim to be the regional financial centre of northern China. However, Beijing already has its Financial Street . . . because these two big cities are rather close to each other, do you think that spending millions of dollars to build up a regional
financial centre in Tianjin is necessary?”

The same goes for new industrial, R&D, hi tech, financial and shipping zones across the country; many are being built where they are not really needed, and the overcapacity provokes fierce competition.

Because many of these new economic areas are essentially competitors, they are often prepared to offer investors and businesses incredibly enticing perks. Tax reductions, exemptions and subsidies are common fare, along with free rent for a period of time and reduced land costs. To attract professionals, many new areas will give potential residents breaks on the cost of housing, free utilities and sometimes even free public transport. If one economic zone offers a better deal than others then companies will often pack up and move. This is market economics being played out on a grand scale, and, as far as investment in new economic zones goes, China is a buyer's market.