China continues to demonstrate its sustained ability to attract FDI with the news that in the first four months of 2014 it managed to attract $40.3bn, representing an increase of 5% from the same period of the previous year. China’s Commerce Ministry expects the flow of FDI to continue at this rate for the remainder of 2014. With a country and economy as large and diverse as China’s, the country’s provinces should warrant the attention of investors.

In fDi’s inaugural ranking, Shanghai has been named Chinese Province of the Future for 2014/15, with particularly impressive performances in the Business Friendliness and Connectivity categories, as well as placing second in the Economic Potential and Human Capital and Lifestyle categories. 

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Shanghai also lays claim to being the current most attractive province in China for FDI, receiving about one-fifth of all FDI projects for the period from January 2009 to December 2013, according to the greenfield FDI monitor fDi Markets.

Shandong opens up 

While China’s economy has seen some slowdown in the past couple of years, for the province of Shandong, the economic waters have remained relatively smooth. The city of Qingdao saw its GDP rise by 10% in 2013 to Rmb800.66bn ($129.88bn), while the provincial capital, Jinan, also experienced strong growth.

The US remains the leading trade partner for the province, and FDI is quite focused on the manufacturing industry. However, that is not to say that the variety of investment opportunities is narrow. Indeed, as Shandong’s industries grow, a new set of opportunities are presenting themselves.

For example, one of the province’s largest industries is wine production. And as companies such as wine producer Changyu look to innovate and perfect their products, foreign investment and talent are becoming ever more important to expanding these brands.

However, it is the opening up of the economies throughout the region that is really spurring growth. “Leveraging its marine economy… Shandong province has embarked on a new venture to develop itself to a greater international metropolis with high-energy efficiency, an eco-friendly environment and deep co-operation with experts from across the world,” said Qingdao party chief Li Qun in an open letter published in China Daily last year.

And as these goals are realised, more and more attractive investment projects are coming to the fore. A high-speed rail line was recently announced to link Jinan and Qingdao, with more than 20% of its funding slated to come from foreign investors such as Singapore's sovereign wealth fund, Temasek Holdings.

Qingdao will also continue to push a strategy of ‘six innovations’ to attract further growth and investment over the coming year. These innovations are the ‘going global’ policy; the transformation from traditional foreign trade to modern international trade; ensuring that domestic trade operates to the same standards as foreign trade; the optimisation and improvement of modern investment promotion mechanisms; the transformation and upgrading of economic parks; and the fusion and improvement of commercial development.

And if the figures of growth from the past few years are anything to go by, it seems that Shangdong is more than capable of meeting these goals. 

Zhejiang shows innovative spirit 

China’s Zhejiang Province has seen its economy grow significantly in recent times, pushed forward by a commitment to innovation and new industries in its capital Hangzhou, as well as other large cities such as Ningbo and Wenzhou.

Hangzhou is often known outside of China for its natural beauty – its name translates as ‘Heaven of the Earth’ – but thanks to its favourable FDI policies in industries such as electronics, environmental protection, biopharmaceuticals, new energy and modern services, its GDP rose 8% to Rmb834.35bn ($135.4bn) in 2013. Although this is not quite the double-digit growth that some areas in China are experiencing, like the rest of Zhejiang, the city is trying to invest in its future by building up new industries.

“Our competitiveness comes from our ability to present a comprehensive package of services, resources and opportunities to foreign investors,” said Xie Shuangcheng, vice-mayor of Hangzhou, while filming a recent documentary about the city. Preferential business policies and an attractive working environment mean that about 12,000 foreign firms have now invested in the city. 

Of the other cities in the province, Wenzhou has a reputation for being the home of entrepreneurial spirit in China, while its second city, Ningbo, is also doing its bit to boost foreign trade.

Ningbo has seen its economy grow in recent years, and its reputation a hub for investment collaboration has risen. One example of this collaboration is the China-UK education project for the development of the University of Nottingham Ningbo China, while this year’s Investment and Trade Symposium in the city saw delegations from 17 countries, including Germany, France, Russia, Japan and Israel, discuss further avenues for investment and the province’s willingness to attract more companies and foreign talent to the region. 

While the province is not necessarily recording the strongest growth numbers in China’s developing areas, the commitment to innovate and re-invest means that Zhejiang’s prosperity looks set to continue.

Shanghai’s power of knowledge

Shanghai attracts a more concentrated type of FDI than other provinces, with a higher level of tertiary investment than other provinces. According to fDi Markets, in the period between 2009 and 2013, Shanghai accounted for more than one-third of China’s total FDI in the business services sector, as well as about one-quarter in both financial services, and software and IT services. This is reflective of a modern and knowledge-based economy similar to those found in other Asian FDI hubs, such as Hong Kong and Singapore.

The opening of the Shanghai Pilot Free Trade Zone, the first in mainland China, will further encourage FDI into Shanghai if the impact of the zone replicates others across Asia. This seems to be the case with more than 7200 businesses now registered in the free trade zone, including more than 500 foreign businesses. One such firm is bearings company SKF Group, which in June this year opened a $14.95m distribution centre that has an annual processing capacity of more than 510,000 orders.

Beijing takes second

Beijing’s indicators in the Economic Potential and Human Capital and Lifestyle categories helped the province secure second place. The municipality places a strong emphasis on tertiary education, having the highest percentage of working population educated to university level in China, as well as housing six of the world’s top 500 universities. This contributes to Beijing’s low unemployment rate of 1.27%, resulting in a population with considerable disposable income. Beijing continued to register strong retail sales of consumer goods, increasing 8.7% in 2013 from the previous year, reaching a total of Rmb837.5bn ($132.75bn).

Chongqing rules the middle ground

Chongqing was the only middle-income province to feature in the top 10 of the overall rankings, thanks in part to strong performances in the Connectivity and Economic Potential categories. Chongqing benefits from high passenger and freight traffic as a result of investment in roads, railways and other infrastructure projects, in addition to high levels of inward FDI, with more than 200 of the world’s top 500 companies having already established operations in the city by the beginning of 2013.

Sichuan leads in lower-incomes

Sichuan came out on top of the lower-income provinces. Sichuan in particular benefited from a strong performance in the Cost Effectiveness category, with the province finishing overall in sixth position for this category. When benchmarked against other provinces in the lower-income category, Sichuan excelled across all categories, topping three of the five categories (Economic Potential, Business Friendliness and Connectivity) and finishing third in the other two (Human Capital and Lifestyle, and Cost Effectiveness).

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