x Abu Dhabi, UAEFriday 28 July 2017

Inside the Chinese economic revolution

Wuxi New District, a free zone in the Yangtze River delta, is a winning investment model that Gulf nations are looking to make work just as well in the region.

Technicians work in the high throughput purification laboratory at the WuXi PharmaTech facility in Wuxi, China.
Technicians work in the high throughput purification laboratory at the WuXi PharmaTech facility in Wuxi, China.

Wuxi New District, a free zone in the Yangtze River delta, is a winning investment model that Gulf nations are looking to make work just as well in the region. The shiny new skyscrapers stretch into the distance, the graphs of investment and GDP show an inexorable upward trend and the list of foreign investors reads like a who's who of the world's top blue-chip companies. In nearly two decades of breathless expansion, Wuxi New District has attracted Toyota, Coca-Cola, Epson, Bosch, Agfa and Sharp, which have put their money into some of the more than 1,500 enterprises funded through foreign investment in this little Shanghai.

The ultra-modern metropolis now has few reminders of an illustrious 3,000-year history that included a flourishing silk industry, tin mining and textile production. Today the focus is on pharmaceuticals, electronics and other high-tech production and research and development, and the Wuxi New District's visitor centre proudly shows off the cameras, washing machines and car components manufactured locally.

More than 36,000 companies based in Wuxi have lured in 1.5 million migrant workers, swelling the population of this city in the Yangtze River delta to more than 6 million. "We started to develop this area in 1991 and at first it was only an industrial area and at that time it was about a fortieth of the present area," says Hong Weng Wai, the vice president of Wuxi New District. "It was very small. Our aim [was] to establish this development zone to attract foreign investment."

Local officials are keen to trumpet the city's attractions: good transport links with daily flights to Beijing and other cities, a highly skilled local workforce and an abundance of local companies keen to supply or form partnerships with foreign firms, thereby cutting their costs. More than 70 of the world's top 500 companies have invested in Wuxi, helping to put the city in sixth place among China's cities in terms of per capita GDP, with the city registering a figure of 70,000 yuan (Dh37,635). Ben Simpfendorfer, the chief China economist for the Royal Bank of Scotland, says centres such as Wuxi demonstrate that China does so well in creating "pockets of excellence" by offering a more liberal regulatory environment, especially with respect to foreign investment.

"This allows them to push ahead," he says. There are more than 50 high-tech zones such as Wuxi New District across China, says Mr Hong, and many of the country's economic development areas were established well before Wuxi, with more than a dozen Chinese cities having been opened up to foreign investment in the 1980s. China's development of such free zone-type areas, which began with the Shenzhen Special Economic Zone in 1980, has been echoed by similar initiatives globally, including in the UAE with the setting up Jebel Ali Free Zone and other free zones covering sectors such as IT, media and education.

However, Mr Simpfendorfer, the author of The New Silk Road, a book that charts the growing economic ties between China and the Arab world, says the Gulf region will "struggle" to create the level of growth seen at Wuxi in high-tech fields such as electronics. The Gulf will find it easier in heavy industries such as aluminium, he says. "They seem to be building up industrial plants all across the region. That's important to the whole clustering effect."

This year, Emirates Steel Industries announced plans to invest Dh10 billion (US$2.72bn) over the next five years to triple production, part of a wider effort to develop heavy industry to diversify the economy away from oil. Even before this planned expansion, the non-oil industrial sector accounted for 12.5 per cent of the UAE's economy last year. In Kuwait the figure is much lower at 3 per cent, but to help increase this to 12 per cent the country's Public Authority for Industry recently said it would allocate more than 1,000 plots of land to industry in the coming year.

While Wuxi New District may have had success in attracting investors and been part of a Chinese economic model that has inspired copies elsewhere it has not been immune to the global recession. Mr Hong acknowledges that "one of the most difficult problems" faced by Wuxi New District this year has been a drop in the demand for exports from North America and Europe. There has also been a reduction in the prices paid for exports.

"The reduction directly impacts the profits of the factories in Wuxi New District," he says, adding that foreign investors are more cautious about opening facilities in the district. However, he says the area's economic prospects remain "very good" because the potential impact of the recession has been mitigated by several factors. Chief among these is increased government investment as part of the Chinese authorities' 4 trillion yuan economic stimulus package, which has helped the world's most populous nation to retain economic growth that is expected to average 8 per cent this year. Total output from plants in the Wuxi New District in the third quarter of this year was almost the same as during the same period last year, Mr Hong says.

"We're affected by the international financial crisis in terms of exports today, but [there is] still so much domestic demand," he says. "Wuxi New District is continuing to expand. There are a lot of companies willing to come. There are some factories having problems during the crisis, but 99 per cent of them are OK." Other concerns centre on the potential environmental and lifestyle effects of rampant development in a former farming region.

Mr Hong insists that measures are in place to minimise pollution and avoid the poor air quality and other environmental blights that have affected many of China's other major cities. "We have evaluation before the introduction of a programme," he says. "If the programme will be bad for the environment, we say we'll not introduce it to Wuxi New District." For example, some textile printing and dyeing operations have been vetoed because of their potential environmental effects.