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China’s Provinces – What lies beneath?

March 18, 2010

China like India cannot be surmised in one sweeping view. Rather, each of the 31 provinces  that make up the middle kingdom varies with respect to laws, taxes, governments, cultures and GDP growth rates. Best viewed as separate countries,  it is important for investors to understand which province is most suited to their industry.

Helping you navigate China’s provinces, Inchin Closer provides an over-arching view on some of the major changes sweeping through China’s hinterlands. We also help you understand why it is important to know China beyond her booming Eastern Coast and what advantages and potential her varied provinces hold. A detailed report on China’s provinces by Deutsch Bank can also be found here.

With Beijing’s “Go West” policy firmly in place SINCE 2000 and competition for  FDI between provinces rife, foreign investors are tempted into China’s central and western regions with large tax incentives and subsidies.  While the already modernized Eastern and Southern coasts of China develop into high-value service, manufacturing and export hubs, trained, low-cost labor, infrastructure and tax incentives are attracting foreign investors further inland.

Below we outline some of the discerning factors that highlight the advantages pf certain provinces over others, helping you make a more informed decision while investing in China –

FDI

Over the last few years, FDI inflows to provinces such as Mongolia, Shaanxi and Shanxi have increased substantially in comparison to the Eastern coastal provinces. China’s Northernmost province Heilongjiang which concentrates mainly on equipment manufacturing, petrochemicals and food-processing achieved an average annual FDI growth of 65.6 percent between 2005 and 2008, according to the Deutsch Bank report.

EASE OF DOING BUSINESS

Furthermore, while, it is easiest to do business in China’s Easternmost Provinces,  the report also points to places such as Shenyang in Liaoning province, Harbin in Heilongjiang, and Chongqing for ease of doing business.

ROOM FOR EXPANSION

While the value of coastal retail sales exceeds the national average by almost 90 percent, retail sales growth is weakest in coastal provinces. As a result, western provinces such as Xinjiang or Qinghai represent a massive potential market for consumer durables in land.

INFRASTRUCTURE

The infrastructural development of China‟s remote regions makes up the essential constituent of the “Go West” strategy and the total length of China‟s expressway network has increased substantially over the past decade making it the second largest In the world. Within the first five years of the initiative, China invested more than RMB 850 bn in key projects in the West. Also, China’s recent RMB 4 trillion stimulus package includes RMB 1.8 trillion earmarked for transportation infrastructure and power grids and RMB 370 billion for rural livelihoods and infrastructure.Milestones are the east-west pipeline, the Qinghai-Tibet-railway, and the new Xianyang Airport in Xi’an, in which Germany’s Fraport AG holds a 24.5 percent stake. In addition, the introduction of high-speed railways between Nanjing and Shanghai in 2008 and between Wuhan and Hefei in April 2009 cut the travel time between Central China and the Yangtze River Delta in half to only four hours and 45 minutes.

With improved infrastructure, a growing talented work force, improving transport, communication and banking channels, as well as support from the central government, high growth is shifting to China’s 2nd and 3rd tier cities. In order to decipher, which province would suit your company best, do contact us at contact@inchincloser.com.

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