Changzhou puts itself on investment map

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Changzhou puts itself on investment map
By Janice Fioravante
Sometimes, a decision on where to invest in China might be accidental, as in the case of Flextronics, which discovered Changzhou when executives on a train ride from Shanghai to Nanjing made an unexpected stop in the city and were impressed enough eventually to operate a plant there.
Or it could be through a very formalized evaluation process, as with Ashland Inc, which toured seven or eight sites in China before making a decision to choose Changzhou in
[color=]Jiangsu
province.
Why are foreign companies finding their way to this ancient city on the Yangtze River Delta? There are as many reasons as there are firms - more than 4,100 from all over the world, with more than 600 from the United States alone.
Like Flextronics, headquartered in
[color=]Shanghai
, and Ashland in Covington, Kentucky, many companies establish manufacturing bases in this coastal region of China. Two reasons jump out: extremely low labor costs, as low as 77 US cents an hour for manual labor, often cited as 50% lower labor costs than in such major cities as Shanghai and
[color=]Beijing
, and the opportunity to anchor businesses in the Asia-Pacific region - the size of China's market a motivation in itself.
Benefiting from their geological proximity to Shanghai, the three Jiangsu cities Suzhou, Wuxi and Changzhou have been booming economically, favored by foreign investors. According to government statistics, Changzhou's gross domestic product (GDP) totaled 130.22 billion yuan in 2005, up 15% from the previous year. This was equivalent to 26,000 yuan per capita given its permanent population of nearly 5 million (including rural migrant workers).
These upbeat scenarios need to counter some basic hesitations that especially smaller US companies would naturally consider: the sheer geographical and cultural distance from North America to China and the 12-15-hour time difference, which makes even teleconferencing difficult.
Changzhou business officials are ready to flaunt, for example, the skilled workforce available - scientists, engineers and technicians. But what of the obvious language differences that definitely give some US companies pause?
"The staff in the investment bureau are 100% English-speaking," said Zhang Xiaoping, director of business communications for the Changzhou National High-Tech Industrial District (CND).
He said more and more people in the local community are also learning English. Elementary schools teach basic English, and about 80% of people under 40 years of age speak the language. "In hospitals and other public facilities, families will find people they can communicate."
And this works both ways. Ashland resident expatriates are learning simple Mandarin for daily use, and "not only for work", Zhang said.
Other concerns for global firms looking to move into China include power shortages, widely reported in 2004, when some firms were forced to operate only on the graveyard shift.
"There was one month in 2005 where plants had to shift their working hours to two days a week to allow the power grid to adjust," admitted Zhang, adding that it never affected daily life. But this year, Changzhou is actually expecting a surplus in power due to the opening of a new major power plant and two power stations. And in the surrounding cities in the Yangtze River Delta, three hydro stations are coming on line.
Changzhou and its environs are known for heavy industrial output including agricultural and textile machinery, power relays, plastics and optics/industrial instruments. Where it sees itself becoming much stronger is in electronics - integrated circuits, computer chips, biopharmaceuticals and high-tech research and development.
"Flextronics is among the 100 companies - others include General Electric and Texas Instruments - that are registered in our software park," said Zhang
Ashland's business in Changzhou is a casting foundry. Mike Schwartzlander is the vice president and general managing there. He characterizes Changzhou as a super investment environment with very convenient transportation.
Ashland Inc describes itself as chemical-focused with holdings in transportation construction. Among its early forays into China, Ashland serviced merchant vessels and sold water-treatment chemicals. "We have a presence in the many ports throughout China," said Jim Vitaki, manager of public relations.
A big reason Ashland is in China is quite simple: "We had demand for our services from our multinational customers," explained Vitaki.
Added Schwartzlander: "Our customers, like Shanghai GM and Nanjing Fiat, are close to Changzhou.
"It's an ideal location for suppliers - some of the most world-famous machinery manufacturers are here in Changzhou. And there's foundry resin, which is good for Ashland."
In Ashland's case, outsourcing wasn't the main reason for going to China. "We've had several regional and in-country demands for our products and services," said Vitaki, who mentioned that Ashland is continuing to grow in China. "Our Valvoline motor oil and several other businesses are looking to expand."
While of course setting up shop in China is half a world away from US suppliers and North American customers, with more manufacturing situated all over the world, shipping costs can actually be lower when common sense would have one expect them to increase drastically.
Ashland's Vitaki and Schwartzlander reinforce this and several other key points that Changzhou representatives love to tout: the companies there have customers in China, and sourcing is available from local suppliers.
"Companies that are investing in Changzhou are drawn by the accessibility of its huge market and by their business relations with local suppliers for many years before they actually decide to locate here," said Zhang. "Joint ventures are another step many US firms take on their way to eventually establishing wholly owned facilities here."
Other ways firms tip their toes into the CND include acquiring local companies, which obviously shortens the time and operational costs involved in locating here.
"In this way you'd take advantage of the local sales network as opposed to starting from the ground up," Zhang said. And then there's rent. "Many companies, like Flextronics, for instance, rented their first plant, a 20,000-square-meter facility."
Of course, when a company is ready to construct its own building, the CND is more than ready to assist with standard plants or specialized construction. "We can build to specific-design specs," said Zhang.
Intellectual-property security may also be a concern to would-be relocaters. Here again CND officials are ready to quell such fears. "We have a special intellectual property bureau and courts. We make all efforts to popularize the knowledge of strict enforcement," said Zhang.
And he expanded on Ashland's Schwartzlander's remark about convenient transport. "We've made a conscious effort to support and expand infrastructure in Changzhou. We've just completed an eight-lane highway to Shanghai, we have our amazing Yangtze port, which is extremely friendly to freighters and container ships, and our railway lines connect us with Shanghai and Beijing."
In fact, express trains will be going through the CND by 2010. The express-rail investment is 2 billion yuan (US$250 million), a combination of state and private investments, with equipment and technological involvement from France, Germany, Japan and the United States. The CND has invested 10 billion yuan in infrastructure - roads, water treatments, electricity, gas and telecommunications.
Human resources are of course another big determinant in any company's decision to choose to locate in any city.
"We're a college town," said Zhang. "We've got clusters of colleges from which 50,000 students each year graduate with professional and technical degrees, including middle- and senior-level engineers." There's also an international multilingual school where the faculty uses English.
The more one speaks to CND officials, the more one sees how much attention is given to every aspect of setting up a business in this city. For example, it took only three days for Flextronics to obtain its business license because two administrative service centers and a one-stop investment service center help businesses cut through red tape.
Logical, ecological, pharmacological, technical and design services are available. "And we haven't forgotten the living environment for the people who are relocating, either," said Zhang. Accommodations in Changzhou include three five-star-quality hotels, including the Shangri-la, apartment houses and villas. There are also championship-level golf courses.
In fact, the National High-Tech District is set up to offer preferential policies: technology advantages, environmental protection and extra tax incentives - a tax holiday of two years after the operation is profitable and half of the regular tax rate of 15% the following three years. Foreign companies only are granted the 15% rate instead of the 33% rate for domestic manufacturers. The government rebates up to 15% of value-added taxes (VAT) on exports. While China overall is planning to unify taxes and phase out some incentives, the CND will continue to offer them.
When Flextronics had its chance stop in Changzhou and contacted the business delegation there, these sorts of motivations made the firm choose the CND as an alternative to other Chinese cities it had been considering. It set up in the CND as a manufacturing production base.
"Flextronics began with a $7 million initial investment here," said Zhang.
"And now," put in Wang Zongliang, a manager at the CND department of business communications, "the total dollars it has spent is $27.5 million. Its Changzhou total sales in 2005 were $200 million."
Flextronics, in its second phase of investment, typifies how foreign investors in the CND not only take advantage of their profits from their first investments, but motivate their own suppliers, customers and partners to follow them to China.
Changzhou itself is growing and changing as well, looking to develop such service industries as leisure and tourism, finance, insurance and communications.
The CND decided to focus on three industries - information technology, the manufacture of mechanical, optical and electronic integrated machinery, and biopharmaceuticals, and now can tout that these sectors account for 50% of total industrial output. That kind of concentration and delivery is what the area offers all comers.
[I][B]Janice Fioravante[/B] is a New York-based correspondent.[/I]