Multinationals Lay Eyes on China’s Lesser Cities

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  Microsoft laid five new projects in the XiXian new area between Xi’an and Xianyang in December 2013. Prior to that, Johnson& Johnson began to build the largest vaccine manufacturing base in Xi’an. Suddenly, this city known for the TerraCotta Warriors became quite popular for the foreign investors.
  There are more cities than Xi’an that can attract foreign investors out of Beijing, Shanghai, Guangzhou and Shenzhen. In recent years, more and more multinationals, which started their development in the coastal areas of East China, laid their eyes on the fast growing second- and third-tier cities in China. They want take the lead in seizing the rising market.
  “This is a trend for the foreign investors to move their money from major cities of China to the second- and thirdtier cities of China,” Lan Peiwen, vice chair of the U.S.-China Business Council. Many U.S.-based multinationals sensed the opportunities in lesser cities of China and already moved there years ago.
  “Undoubtedly, no leading enterprises will ignore the opportunities in the cities with such amazing growth rate and important positions,” said Yan Ci, president of Maersk Line China. This Denmark-headquartered shipping and logistics company set up a branch in Xi’an early in 2000.
  Siemens, IBM and General Electronics (GE) are also the frontrunners to have branches in Xi’an. They were followed by Schneider, Mitsubishi and others. In 2012, Samsung spent US$7 billion building a memory chip plant in Xi’an, taking the championship of foreign investment in Northwest China in terms of investment volume.
  By the end of 2012, there had been foreign investors from 63 countries and regions making investment into this second-tier city of China. 80 of the Fortune 500 have set up subsidiary companies or branches there.
  Apart from Xi’an, Chengdu, Hefei and other second- and third-tier cities of China are attracting foreign investors as well. Ikea from Sweden set up its first shopping mall in West China in Chengdu six years. Navistar, a U.S. commercial vehicle and engine manufacturer, and the beverage giant Coca Cola also initiated several projects in Hefei.
  According to the data, Kunming, Hefei and Chongqing were the fastest growing cities among all secondand third-tier cities of China in 2012 with the growth rate of 14.1%, 13.6% and 13.6%. The growth rate was much higher than major cities of China. In addition, there are more than ten secondor third-tier cities in China that that saw their growth rate surpass 10%, including Changsha, Xi’an, Wuhan, Xuzhou, Qingdao and so on.   Shaanxi, Gansu and other inland provinces have collective resources of petroleum, energy, nonferrous metals.
  This is the advantage of inland citie of China. In Anhui, where there are enough workforce with lower salary requirements than the coastal cities, the multinationals investing there can save a certain amount of HR cost.”


  “The dramatic increase in HR cost and real estate rents increase the operating cost of enterprises,” said an anonymous director of a multinational in Hefei. “In comparison, the cost in second- and third-tier cities is lower and they have more favorable conditions to attract foreign investment.”
  Prof. Xu Yaping from Anhui University said that the low land cost in second- and third-tier cities of China makes these cities more appealing for foreign investors when the major cities have entered the age of increasing cost. Some “pioneering” foreign companies took the lead in getting into these cities and saw good results. Then more and more will fowllow suit.
  “The investment of multinationals there must increase in these cities,” Yan Ci said affirmatively.
  On the other hand, foreign companies want these second and thirdtier cities to improve their investment environment. “The logistics conditions of these cities must be connected to the international level. In addition, training professional talents is very important too,” said Ruey-Bin Kao, president of Applied Materials China. This U.S. com- pany began the strategic investment into Xi’an in 2006.
  “The second and third-tier cities of China will be the new stage of competitions among multinationals based on the economic development trend and the requirement of regional balance. This is good for reducing the gap between the eastern and western parts of China and will bring more development opportunities to the lesser cities of China,” Xu Yaping said.
  The experts pointed out each city should foster the industries with their own advantages and build a complete supporting industrial chain to improve the investment environment and to attract more investment from multinationals.
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