The primary reason to visit Suzhou a decade or so ago would have been to view its exquisite Ming Dynasty gardens and winding, Venice-like streets. But given its location near Shanghai and the rapid development of its economic zones in recent years, Suzhou is now no longer a destination that appeals only to tourists. The city is becoming an economic power in its own right within China, offering many of the benefits of developed cities such as Shanghai, but with less competition and more room for early growth.

Somewhat surprisingly, Suzhou is now the top FDI hotspot in China  according to the American Chamber of Commerce in Shanghai, with investment outstripping that of Shanghai by more than three times in 2012. One of the key reasons for this is the development of dedicated zones within the area, including the Suzhou National New and Hi-tech Industrial Development Zone (SND) and the Suzhou Industrial Park (SIP).

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SIP is the largest of these zones, and thanks to its collaboration with Singapore offers some of the world’s most innovative companies an area in which to develop cloud computing, biopharmaceuticals and other cutting-edge technology products. Huge amounts of money have been invested to create an infrastructure that can support this development – in recent years the city has gained a high-speed railway connecting it to Shanghai, and a metro line. And despite now being the third largest city by import and export volume in China, economic growth has remained strong in Suzhou, standing at more than 10% in 2012.

Innovation support

Much of Suzhou’s development stems from its commitment to innovation, which is perhaps best evidenced by recent collaborations between Chinese and Western educational institutions in the area. Australia’s Monash University and Nanjing-based Southeast University have created a new campus in SIP, joining other regional campuses on China’s east coast such as the Xi’an Jiaotong Liverpool University and Singapore’s national university.

This backs up the support for innovation in Suzhou’s industrial parks – a far cry from their beginnings nearly 20 years ago when the focus was on heavy industry, waste treatment and other environmentally damaging industries. In the past five years in particular, however, there has been a shift towards hi-tech investment and integration to create an entire ‘smart city’, leading to a wide variety of famous names investing in the area. “The name Suzhou Industrial Park is misleading,” says SIP chairman Yang Zhiping. “It's not an industrial zone, it's a city.”

What makes this perhaps different than other smart city projects throughout China is the influence of Singapore – often seen as a gateway between traditional Eastern business methods and developed Western business practices. “We learned everything – infrastructure, marketing, how to attract foreign capital – from Singapore. It trained our officials and helped us to promote great industries such as semiconductors, pharmaceuticals and precision engineering,” says Sun Yanyan, SIP's vice-chairman.

These ties have been further enhanced in 2013 through agreements to widen bilateral ties between the two countries, including co-operation in the financial sector to increase the flow of renminbi capital between China and Singapore.

Bringing results

This collaborative expertise is clearly bringing impressive results, not just in SIP but also across the plethora of industrial zones in Suzhou. SND saws its profits rise 12.32% year on year from January to September 2013. Well-known Western brands have recently entered the city, with UK retailer Marks & Spencer recently opening its first store in Suzhou – something that has not yet even occurred in Beijing.

The range of industries investing in Suzhou is also diverse. From local companies and foreign investors looking into advanced nanotechnology to large animal health company Zoetis’ recent groundbreaking on a livestock medication plant, Suzhou is seeing multi-sector interest from investors worldwide.

In fact, the model for industrial development in Suzhou, particularly in locations such as SIP, has been so successful and the demand so great that it is gradually being extended to other areas of Jiangsu Province, including the cities of Suqian and Nantong, as well as other regions throughout China. “If we want to keep expanding and developing SIP, we need to find space for the companies here,” says Mr Yang.

Tackling problems 

That is not to say that the region has not faced several challenges. While labour rates and staff retention – often a problem throughout developing China – have eased in recent years, the region’s power supply can still be unreliable during peak hours. Although intelligent grids have started to alleviate this issue, the region’s development could hinge on the continued inpouring of infrastructure investment to keep up with demand.

However, the Suzhou government seems to have recognised many of these problems, and the region is continuing to attract companies on the cutting edge of technology thanks to its strong culture for innovation.

“The government's efficiency and way of doing business is hugely different from other parts of China. The investment environment and the entrepreneurial culture is unique,” says Michael Yu, the CEO of antibody-based biopharma products manufacturer Innovent.

Still, Suzhou has a long road ahead in order to match the most innovative areas for foreign investment in developed countries, such as Silicon Valley in the US. Attracting talent and developing a truly fluid environment for the world’s top companies and minds from abroad will continue to be a challenge, as will continuing to compete with China’s most powerful cities, such as Beijing, Shanghai and Shenzhen. And maintaining the city’s reputation for heritage in the face of such vast economic and industrial changes will also remain a delicate balancing act.

More critically, though, the pace of future development will depend on how wisely money is invested by local authorities, and that ambition does not cloud judgement. This is something that has recently plagued neighbouring Nanjing, whose mayor is being investigated for loss of up to Rmb20m ($3.2bn) in funds on ambitious but flawed infrastructure projects. It seems, however, that with areas such as SIP being further backed by increased bilateral ties between Singapore and China in recent months, Suzhou is less likely to follow such a an aimless path.