The cities located on China’s coastal areas have long been the most accessible and prosperous in the country when it comes to investment, but as the Chinese economy develops, its inland areas are beginning to catch up. Nowhere is this truer than the municipality of Chongqing, a huge metropolis in western China that is quickly becoming one of the most important areas of growth for China’s economy. With a population of more than 30 million and a whole variety of government policies and new infrastructure put in place, the municipality offers myriad opportunities for foreign investors.
Chongqing’s rise was ignited in 2007, when the now-disgraced former secretary of the Chongqing Committee of the Communist Party of China, Bo Xilai, launched what is commonly referred to as the ‘Chongqing Model’. Along with a series of social and political reforms to promote Maoist ‘red culture’, the Chongqing Model also included ambitious plans for foreign investment, with the lowering of corporate tax to 15% (compared with the 25% national average) running alongside rapid urbanisation and industrialisation.
This led to an influx of foreign companies and a rapid GDP rise, which stood above the national average for several years. Large multinational corporations such as Hewlett-Packard, Foxconn, Ford and BASF opened manufacturing centres in the municipality, and it seemed Chongqing was destined to become China's latest economic success story.
However, with Mr Bo’s political fall and allegations of corruption, Chongqing appeared to have hit a significant bump in the economic road in 2012. A former head of a Chongqing business association told UK newspaper the Daily Telegraph that during the Bo regime, "lots of officials were not getting their salaries on time, getting an IOU instead. Eventually the economy was going to break."
Despite the controversy, the huge amount of money pumped into infrastructure and development has seen Chongqing continue to prosper. According to official statistics from the Chongqing Foreign Trade and Economic Relations Commission, foreign capital in use in Chongqing reached $2.13bn in the first quarter of 2013, up by more than 20% on the same quarter in 2012. This included investments from SK Hynix, a South Korean semiconductor manufacturer, and Hong Kong-based Bestride Group.
Total foreign trade, according to the Chongqing Administration of Customs, was up 28% year on year in the first quarter of 2013 to $11.51bn. While some question the accuracy of these figures, it would seem that the municipality is experiencing growth in foreign trade that is at least 10 percentage points higher than the national average.
One reason for this growth is the establishment of new economic zones in Chongqing in recent years to encourage foreign investment. The creation of the Liangjiang New Area and Chongqing New North Zone (CNNZ) in the past three years has provided a major fillip for investment for the region. The doubling of GDP in just two years at Liangjiang New Area is particularly impressive; it took Pudong New Area (Shanghai) or Binhai New Area (Tianjin) more than a decade to match Liangjiang's statistics since just 2011. Fortune 500 companies present in the area include General Motors, General Electric, Honeywell, Mazda, Fiat and Hankook Tire.
CNNZ has experienced similar success, and its focus on creating a strong residential as well as business environment has attracted foreign residents to live and work in the zone.
On a roll
This string of successes seems to suggest that Chongqing’s rise is set to continue. The Economist Intelligence Unit predicts that it will overtake Tianjin and Shanghai in 2014 to become China’s fourth largest overseas investment draw. Given such predictions, it comes as little surprise that some of the world’s biggest companies are planting their flags in the area.
Microsoft is set to establish a global service delivery centre in Chongqing city – only the second of its kind in the world. Employing more than 500 people and bringing in about $200m in sales over the next three years, the announcement from such a big industry player shows the growing importance of Chongqing for outsourcing and high-tech industries.
Changan Ford Mazda has also signed a deal with the CNNZ to open its third production plant in the zone. With total investment of $600m and a planned annual capacity of 350,000 vehicles, is expected to be operational by October 2014. The rising power and wealth of more than 30 million consumers in the municipality is also attracting a wide variety of retail brands – Ikea has recently broken ground on its 100,000-square-metre flagship store in the region.
Way of the west
These are significant developments, given that Chongqing’s huge growth in the past few years has mostly been driven by investment from other parts of Asia, rather than flagship Western brands. Investment from Asia accounted for 80% of total FDI in Chongqing in 2012, with a large proportion of that coming from Hong Kong, meaning that many Western brands will be eyeing the municipality as untapped. It seems that this growth will continue over the coming years, too, as part of the Chinese government’s ‘Go West’ policy that includes Chongqing as well as other parts of China’s previous less developed western region.
It must be remembered, however, that the growth seen in recent years in Chongqing was from a lower base than many of the coastal regions, and because of the greater leeway offered under pilot reform schemes to help inland areas catch up with the more developed areas of China. Much of the growth so far has been driven by infrastructure investment, debt-driven policies and manufacturing. But with such a rapidly growing population, and with increasing wealth available, opportunities in the service and retail sectors are likely to rapidly increase.
Chongqing has shown that even major political scandal cannot derail its impressive growth, and it seems that China’s policy of opening up inland and western regions will only be strengthened over the next decade, making Chongqing a likely candidate as China's next 'big thing'.