Jiazhen Di, originally from Xinjiang in the north-west of China, proudly identifies herself with Sichuan’s culture. A successful professional who splits her time between working for one of Chengdu’s largest colleges and moonlighting as a business partner in an English teaching enterprise, Ms Di represents a growing number of young professionals looking to capture Chengdu’s business potential.

For decades, talented and ambitious professionals from mainland China flocked to large commercial cities in the east, as conventional wisdom linked higher economic growth in centres such as Beijing and Shanghai to greater personal wealth. Yet Ms Di represents a shifting mindset. Educated in both China and the UK, she is a typical example of a reverse in migration patterns back to emerging cities in mainland China. "I have lived in Chengdu for more than 15 years," says Ms Di. "I am originally from Xinjiang, and I chose to live in Chengdu as I find the people here to be more relaxed and easier to communicate with than in places like Beijing. Furthermore, it is easier to do business here – I find the commercial environment very dynamic." 

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“Chengdu is growing very rapidly, and it has done so for some time,” says Duncan Innes-Ker, a China analyst at the Economist Intelligence Unit (EIU). Indeed, Chengdu’s economic development has made it a magnet for migrant workers. In addition to the influx from Sichuan province’s rural areas, migrants from other provinces in China are powering Chengdu’s growth and altering its demography. According to the EIU, in the past decade, Chengdu’s population grew by an annual average of 7.8%, reaching 8.4 million people in 2010. The EIU forecasts Chengdu’s population will further expand to 11.7 million people by 2020.

Opening the gateway

The local government of Chengdu’s FDI strategy has been centred on portraying the city as an investors’ gateway to the west of China. In line with the central government’s ‘go west’ initiative that encourages firms to capitalise on opportunities in the western regions of China, the Chengdu Investment Promotion Commission (CIPC) has played a key role in the local government’s efforts develop Chengdu as one of western China’s commercial hubs.

"We performed well in attracting new investment projects, and Chengdu’s growth has been faster than other parts of China,” says Chen Fu, vice-director of Chengdu Investment Promotion Commission. “We have mainly courted large projects involving more than Rmb100m [$15.7m] in investments, and just looking at our performance in the first half of this year, we have already attracted 225 projects. The foreign investment actually utilised by Chengdu has increased by 26.4% compared with last year, and there have so far been 21 projects already initiated by Fortune 500 companies.”

With 50 Fortune 500 companies reported to have invested in Chengdu’s High-Tech Zone alone, according to the EIU, Chengdu’s investment promotion agency (IPA) appears to have experienced some success in attracting multinational companies. A roll-call of firms reveals the city already hosts a sizeable amount of world-renowned firms, including mining and energy companies Shell and BHP Billiton, car makers Mitsubishi and Toyota, and financial services firm ING.

Pillars of growth

Chengdu’s population growth appears to be one of the major factors behind the city’s growing appeal to international companies. With levels of personal disposable income set to rise this decade, Chengdu has become a target for global brands looking to access western China’s retail sector. As the number of migrants settling in Chengdu continues to grow, the demand for consumer goods will concurrently increase. The EIU found the city’s retail sales grew by 18.4% to reach $45.1bn in 2011. As demand for items such as clothing dominates retail sales, global brands such as Burberry, Zara and H&M have established branches in Chengdu to capture the city’s growing retail sector.

However, the CIPC, ever keen to position Chengdu as west China’s economic hub, is selective when it comes to the sectors it wishes to promote. In addition to Chengdu’s retail sector, the CIPC is keen to attract FDI into its six industrial pillars. “We are very selective of what we want and what we do not want,” says Mr Chen. Intent on developing Chengdu’s advanced manufacturing capabilities, the CIPC is focused primarily on promoting its electronic-information manufacturing; pharmaceuticals; food, beverages and tobacco; machinery and automobiles; petrochemicals; and building materials and metallurgy sectors.

Thus far Chengdu has performed well in attracting investment from automotive companies, bringing in 139 automobile enterprises, including 17 refitting and vehicle car manufacturers and 122 spare parts enterprises, according to the CIPC. Volvo’s move to build a 100,000-unit production facility in Chengdu’s Economic and Technological Development Zone was one of the most recent announcements by an automobile company with regards to launching operations in Chengdu.

With Volkswagen,Toyota and Sinotruck Wangpai already operational in the city, Chengdu’s local government is keen to further develop this sector. “There is a satellite town in Chengdu called Long Quan, which is considered as an automobile centre,” says Kyle Wang, the chief representative and manager of China-Britain Business Council’s (CBBC) office in Chengdu. “A lot of global companies such as Toyota have set up there, and some of the local automobile companies are based there.”

With the city’s automobile businesses generating combined revenues worth $7.8bn in 2011, Chengdu’s CIPC predicts that by 2015 the city will reach an annual production capacity of 1.5 million vehicles, generating $43.1bn.

Pharma target

Another more traditional sector that has been earmarked for investment in Chengdu is the bio-pharmaceutical industry. “The pharmaceutical sector [here] is a 30-year-old industry,” says Mr Wang. “Chengdu hosts a lot of big companies, and we have large home-grown companies such as Enwei.” Historically one of China’s first national medicine export bases, Chengdu’s local government has done much to develop the city’s R&D and technological capacity in this sector. According to estimates from the CIPC, in 2011 Chengdu’s bio-pharmaceutical businesses earned approximately $4.9bn.

“Despite the global economic crisis, Chengdu has continued to grow at a much higher level than the national standard,” says Mr Chen. “More and more foreign companies are investing in Chengdu because of the state policy of developing west China. Also, the local government [offers] advanced government services, especially in comparison to our peer cities in China. Companies [have started] seeing Chengdu as a gateway to get involved in the neighbouring markets, plus the labour and logistics costs of operation [here] are roughly 30% lower than in [larger coastal] cities.”

According Mr Wang of CBBC, UK companies are increasingly looking to Chengdu as a platform to gain exposure to western China’s market. “Chengdu has done a good job in attracting foreign companies in the past 10 years because Chengdu has been one of the more proactive cities in China,” he says. “If you compare Chengdu with other tier-two cities, it tops [their] performance.” 

Tier-two limitations

Yet for all of its strengths, foreign companies operating in Chengdu continue to find shortcomings that are typical of a second-tier city in China. “We were attracted [to Chengdu] because of the usual kinds of investment incentives,” says David Grime, vice-president and chief operating officer of US-based AllTech Medical Systems. “Although the business environment over the past few years has improved considerably, it still lags behind tier-one cities. For example, the customs and the taxation system [here] is less set up for foreign investor companies. Customs is a major issue with many delays [and] at this point it has not reached a well-developed stage. [Chengdu is] still five or so years behind similar authorities in tier-one cities.” 

Although Chengdu confers competitive advantages to companies that base their operations in the city, logistics costs can be onerous. “Although daily expenses such as labour and materials are much lower here than elsewhere, the issue [we face] is to do with inland transportation, which is a high cost to us,” says Rick Yuan, Chengdu branch manager for moving and relocation services company Allied Pickfords. “Since we are 2000 kilometres away from a port, transport by railway or airport is the biggest part of our costs.”

Additionally, foreigners looking to do business in Chengdu find a lack of linguistic proficiency in Mandarin can place them at a distinct disadvantage when communicating. Although Chengdu’s younger generation of multilingual speakers is growing as English is taught at all levels in schools, foreigners find business transactions with top decision makers are usually channelled through a translator if they are not fluent Mandarin speakers.

Keenly aware of this, Mr Chen maintains that the CIPC has been active in attempting to address Chengdu’s shortcomings. “We try to see [our] weaknesses as challenges,” says Mr Chen. “We are working actively to address the service areas that still have a long way to go.”

Satisfied customer

“There are a lot of opportunities here,” says James Wang, the chairman of Eli-Hollyhigh International Capital. Founded as a joint venture, the advisory company was established in Chengdu in 1993, and it played a key role in influencing Volvo’s move to establish a production plant in Chengdu. “We brought Volvo to Chengdu, and as a result it decided to make sports utility vehicles in the city.”

With his company’s offices spread across Chengdu, Shanghai, Beijing and Guangdong, the Mr Wang believes Chengdu offers one of the best business returns of the cities Eli-Hollyhigh is active in. “We have more than nine offices, but Chengdu is my favourite place,” he says. “I have always advised foreign companies to come to Chengdu because in Beijing the competition is extremely high, yet the opportunities are far fewer. I advise investors to come to Chengdu, because Chengdu is a very good place to conduct business.”