Transformation of industrial parks shows the way to the nation’s industrial upgrade
By TONY WANG AND GRACE TIAN 17 October 2008
Since the 1980s, China has benefited from the global industrial division of labour with its relatively low costs. But the situation is changing.
In August, China’s producer price index (PPI) rose by 10.1 per cent, a record high since 1996. Meanwhile, the nation’s consumer price index (CPI) growth dropped to 4.9 per cent. High PPI and low CPI growth have resulted in profits being cut for mid- and downstream manufacturers.
Chinese manufacturers are also faced with other challenges, such as a lower demand for China-made products because of the recession in developed economies, renminbi appreciation, the high interest rate and tight financial policy, the new labour law, land regulation and laws on environmental protection.
These challenges indicate hard times ahead for China’s export-oriented companies. In order to overcome such difficulties, China is in the process of upgrading its industrial base.
Industrial parks in China house many kinds of manufacturing companies. The industrial parks that rely heavily on resources, energy and labour will inevitably suffer from a significant increase in costs and many factories may be forced to shut down.
In the early stages of China’s industrial park development - the 1980s and early 1990s - industrial-park developers tried their best to attract as much investment as possible without considering whether such investments were in labour-intensive, low-technology or high-energy-consuming industries.
About 10 years ago, China cancelled some preferential policies for the industrial parks and started to encourage the development of hi-tech industries in these parks. In time, these parks became a major driver for the development of hi-tech industries. In 2007, the value-added industrial output in hi-tech industrial parks accounted for 40.3 per cent of the nation’s total value-added industrial output in the sector.
Besides hi-tech industries, Chinese industrial parks have found other ways to develop more sustainably. These include concentrating similar industries in parks and the growth of service industries.
The reason for encouraging industrial concentration is that at the early stage of development, there is no plan nor regulations on what industries are allowed in the parks. This resulted in low industrial concentration - many middle and small-sized companies producing completely different types of goods were housed in the same park.
Currently, many parks specify their development goals, as well as their strength in promoting industrial development. Thus, they prefer bringing in investments in industries which they have an advantage, including both the upstream and downstream companies in a particular industrial chain. Therefore, industrial efficiency could be improved and economies of scale would be formed in the parks.
The service sector is also being promoted. In the past, manufacturing had been put at the centre stage in the investment promotion activities of Chinese industrial parks and the service sector was way less developed.
In view of the high value-added products, low resource consumption and little environmental damage in the service industry such as software outsourcing, the services industry has been the development focus for many parks today.
A number of parks such as the Tianjin Economic-Technological Development Area (Teda) and Dalian Hi-tech Park (DHP) show how the process has been working very successfully - the former for concentrated manufacturing development and the latter for its service industries.
Teda is one of the nation’s oldest industrial parks, established in 1984. Now it has become the largest one in terms of value-added industrial output in 2007. Realising its strength, Teda has established its status as the most important manufacturing base in north China, with a clear focus on electronics and machinery, especially advanced manufacturing. Its output of handsets and display sets ranks it the first in the nation. In 2007, the industrial output in the electronics and machinery sector accounted for 81.49 per cent of its total industrial output. This also shows the advantages of high industrial concentration in Teda.
While Teda tops in manufacturing prowess, DHP is a good case in the development of the services industry. Taking advantage of the rich talent pool for hi-tech industrial development, as well as the people who can speak Japanese and Korean in the city where it is located, DHP made software development its major focus. It established a software park in 1998, which helped Dalian to become one of the most important service outsourcing bases in China. In the first half of 2008, the revenue in software and service outsourcing industry of DHP reached 10.7 billion yuan (S$2.3 billion), up 50.1 per cent year-on-year.
Teda and DHP are two typical examples of Chinese industrial parks in manufacturing and the hi-tech sector. The transformation of the industrial parks points the way to the nation’s industrial upgrade, from being the world’s factory to becoming the world’s office.
The contributors are research analysts with China Knowledge Consulting. The firm provides corporate services, financial advisory, marketing strategy and recruitment to foreign businesses seeking business opportunities in China
China sets out to move up the value chain
ReplyDeleteTransformation of industrial parks shows the way to the nation’s industrial upgrade
By TONY WANG AND GRACE TIAN 17 October 2008
Since the 1980s, China has benefited from the global industrial division of labour with its relatively low costs. But the situation is changing.
In August, China’s producer price index (PPI) rose by 10.1 per cent, a record high since 1996. Meanwhile, the nation’s consumer price index (CPI) growth dropped to 4.9 per cent. High PPI and low CPI growth have resulted in profits being cut for mid- and downstream manufacturers.
Chinese manufacturers are also faced with other challenges, such as a lower demand for China-made products because of the recession in developed economies, renminbi appreciation, the high interest rate and tight financial policy, the new labour law, land regulation and laws on environmental protection.
These challenges indicate hard times ahead for China’s export-oriented companies. In order to overcome such difficulties, China is in the process of upgrading its industrial base.
Industrial parks in China house many kinds of manufacturing companies. The industrial parks that rely heavily on resources, energy and labour will inevitably suffer from a significant increase in costs and many factories may be forced to shut down.
In the early stages of China’s industrial park development - the 1980s and early 1990s - industrial-park developers tried their best to attract as much investment as possible without considering whether such investments were in labour-intensive, low-technology or high-energy-consuming industries.
About 10 years ago, China cancelled some preferential policies for the industrial parks and started to encourage the development of hi-tech industries in these parks. In time, these parks became a major driver for the development of hi-tech industries. In 2007, the value-added industrial output in hi-tech industrial parks accounted for 40.3 per cent of the nation’s total value-added industrial output in the sector.
Besides hi-tech industries, Chinese industrial parks have found other ways to develop more sustainably. These include concentrating similar industries in parks and the growth of service industries.
The reason for encouraging industrial concentration is that at the early stage of development, there is no plan nor regulations on what industries are allowed in the parks. This resulted in low industrial concentration - many middle and small-sized companies producing completely different types of goods were housed in the same park.
Currently, many parks specify their development goals, as well as their strength in promoting industrial development. Thus, they prefer bringing in investments in industries which they have an advantage, including both the upstream and downstream companies in a particular industrial chain. Therefore, industrial efficiency could be improved and economies of scale would be formed in the parks.
The service sector is also being promoted. In the past, manufacturing had been put at the centre stage in the investment promotion activities of Chinese industrial parks and the service sector was way less developed.
In view of the high value-added products, low resource consumption and little environmental damage in the service industry such as software outsourcing, the services industry has been the development focus for many parks today.
A number of parks such as the Tianjin Economic-Technological Development Area (Teda) and Dalian Hi-tech Park (DHP) show how the process has been working very successfully - the former for concentrated manufacturing development and the latter for its service industries.
Teda is one of the nation’s oldest industrial parks, established in 1984. Now it has become the largest one in terms of value-added industrial output in 2007. Realising its strength, Teda has established its status as the most important manufacturing base in north China, with a clear focus on electronics and machinery, especially advanced manufacturing. Its output of handsets and display sets ranks it the first in the nation. In 2007, the industrial output in the electronics and machinery sector accounted for 81.49 per cent of its total industrial output. This also shows the advantages of high industrial concentration in Teda.
While Teda tops in manufacturing prowess, DHP is a good case in the development of the services industry. Taking advantage of the rich talent pool for hi-tech industrial development, as well as the people who can speak Japanese and Korean in the city where it is located, DHP made software development its major focus. It established a software park in 1998, which helped Dalian to become one of the most important service outsourcing bases in China. In the first half of 2008, the revenue in software and service outsourcing industry of DHP reached 10.7 billion yuan (S$2.3 billion), up 50.1 per cent year-on-year.
Teda and DHP are two typical examples of Chinese industrial parks in manufacturing and the hi-tech sector. The transformation of the industrial parks points the way to the nation’s industrial upgrade, from being the world’s factory to becoming the world’s office.
The contributors are research analysts with China Knowledge Consulting. The firm provides corporate services, financial advisory, marketing strategy and recruitment to foreign businesses seeking business opportunities in China