Chongqing

VIBRANT POWERHOUSE ON THE UPPER YANGTZE RIVER


Designed by the State Council to become the prime economic powerhouse of China’s interior, Chongqing has been showing breakneck growthover the past decade, hence practically opening up and driving forward the development of the country’s vast western regions. This future megacity is a core manufacturing hotspot, reachable by ocean-fit container vessels via the Yangtze River. Chongqing is also on the way to become a top financial center. Under the direct control of the central government, local transition here is serving the broader plan to interconnect China more intensively than ever with the outside world.

Chongqing’s rise began quite suddenly as a wartime capital in the 1930ies, housing refugees from more developed regions who brought with them dismantled machinery in order to set up a functional defense industry. Since those days, when remote location, frequent fog, and a mountainous environment shielded China’s government from the raids by the adversary, heavy industry was this „mountain city’s“ prime pillar. It was Deng Xiaoping, who came from a place not far from this town, who had the far-reaching vision that China’s high growth rate should lead to a sustainable development by moving inland from Shanghai, upstream the Yangtze River. The year Deng died, in 1997, Chongqing was administratively elevated to become the first inland „directly controlled municipality“, joining the coastal, well-developed cities of Beijing, Tianjin and Shanghai in this respect. More and more preferential policies were launched in the following years, triggering a modern urban success story of a kind rarely seen before.

Chongqing has emerged as the pure embodiment of a landlocked East Asian metropolis undertaking its high-fly. Endued with a unique geographical location, its center, Jiefangbei, is located high up a steep hill, above the junction of the Yangtze River with a major contributary, the Jialing River. This specific tongue of land houses a dense accumulation of impressive skyscrapers with significant names like „World Trade Center“ and „World Financial Center“. They look down at myriads of vessels and cruisers which are heading east towards the world’s biggest dam (Three Gorges Dam), one of the main agglomeration areas globally (Yangtze River Delta), and the world’s biggest port (Shanghai). Here, you may be offered a glimpse of what China is aiming for in the future. There are currently about 9 million citizens in „Chongqing proper“, and in the high-speed race against its local competitor, Chengdu, more and more people are flocking in, fuelling the thriving real estate market and satisfying the demands of international companies for a growing workforce in the industrial parks. A full 20 million people are expected to live in this city once the buildup has been completed.

Strong local investments into infrastructure are still on the rise, positioning Chongqing – according to its excellent geographical location – within the fast-growing transportation network of China’s interior. The State Council  administratively broke off Chongqing from Sichuan province, accurately envisioning the advantage of combining the relative closeness to other parts of the Eurasian landmass with improved indirect access to the ocean. Crucially sitting on the upper reaches of the Yangtze River, goods can be shipped from this most important inland port of China to all over the world. International high-speed trains for passengers and cargo are expected to lead into nearly all directions possible (Singapore, Thailand, India, Turkey, Egypt, and Kazakhstan among them). A train to Germany’s Ruhr valley and on to Antwerp and Rotterdam is already in operation. International cargo airplanes fly to some core regions of the world economy, including the destinations New York, Frankfurt, Moscow, Abu Dhabi, Chicago, Delhi, Amsterdam, and Sydney. Passenger air traffic may be lagging behind, ranking only on the 7th place of mainland Chinese cities, but more than just a few international connections have already been established (Helsinki, Rome, Doha, Cairo, and, of course, a long list of East and South East Asian cities). As a part of the „Western Triangle Economic Zone“, there are major national high-speed trains in operation or under construction, leading to Chengdu and Xi’an, but also to Wuhan, Shanghai, Guiyang, and Lanzhou. In town, there are currently four metro lines (more than in any other city in the country’s interior provinces), and further fourteen lines have been planned. These figures highlight the fact that Chongqing began to boom somewhat earlier than Chengdu. Currently, both cities are striving for a similar level of population, GDP, and infrastructural development, hence competing fiercely for the leadership in regional development.

For many years, Chongqing’s economy grew at close to 15 per cent; in line with the country’s overall trend, growth rates slowed somewhat (to about 11 percent in 2014, which is higher than for Chengdu). The already dominant, well-developed secondary sector grew strongest. The two main pillars of the local industry, electronics and automotive manufacturing, contributed more than half to Chongqing’s economic growth. About a quarter of the world’s computer notebooks are being produced in this town. Companies making autos, motorbikes, or industrial parts have abundantly settled here, manufacturing for Ford, Honda, Suzuki, Yamaha, BMW, or Mazda. There has also been considerable growth in the financial service industry that can be seen as the city’s strongest branch in the tertiary sector. A range of business clusters has formed around the city’s industrial parks and central business districts. Heavy industry is still vital, as can be seen in iron and steel, aluminum, and chemical production. Natural resources are being processed in Chongqing (beside huge natural gas reservoirs near the city, a pipeline from Myanmar is delivering more gas and crude oil). The local economy may continue to rise in branches like retail and e-commerce, exhibitions, energy conversation, and, definitely, cloud computing. Moreover, some emerging industries are forecast to attain strategic importance, like shale gas exploitation, robotics, new-energy automobiles, photovoltaic, LED, and the internet of things, driving scientific research and development.

The central government’s focus on Chongqing has proverbially moved mountains in the „mountain city“. Exactly thirteen years after the creation of the Chongqing municipality, the State Council decided to grant Chongqing its own New Area, Liangjiang. In contrast to the former ones in Shanghai-Pudong and Tianjin-Binhai, it also incorporates „old“, that is urban built-up, areas. The creation of Liangjiang exactly 13 years after the adminstrative creation of the Chongqing municipality represented a highlight of economic policy planning, putting together industrial and technology parks for advanced manufacturing with an export processing zone and the first inland free-trade zone as well as the Jiangbeizui Central Business District (CBD). This zone is logically complemented by the city center’s own CBD, Jiefangbei, which is located on the opposite riverside and shows off with impressive multi-level department stores and frontstreet luxury boutiques. And recently, urban development in the vibrant Shapingba district has also made big progress.

More than half of Fortune-500 companies are now to be found in Chongqing. But, while it seems that nothing can really stop this city from high-speed growth, it has to be stated that currently Chongqing relies heavily on its strengths in manufacturing, and on the extensive money lending for infrastructural buildup. High debts are the other side of the coin of the so-called „Chongqing model“. It is characterized by state intervention aiming for pro-developmental reform, and it combines the existence of strong state-owned companies with the development of dynamic international industrial zones. Strong public investment contributes to the very high growth level of the local economy. The central government is striving to prepare Chongqing for walking up the value chain into high technology and knowledge-intensive industry. Yet, the GDP per capita is still below national average, and Chongqing’s rise as a manufacturing center for relocating international companies is not expected to end soon.

From the beginning, the goals of the State Council for Chongqing were clear-cut: The city should „serve west China by opening to the outside world while depending on the economy of the Yangtze River region.“ This was accomplished by combining the overall goal of the „Go West initiative“ with a comprehensive urban/rural reform, and in a manner that built on the experiences of the former SEZs and New Areas. The measures, especially the building of Liangjiang, have been tremendously successful. It’s not only that half of Fortune-500 enterprises can already be found in Chongqing. The economic boom has since passed on to many more cities in China’s western region – so much so that it seemed wise to slow down some of the initial verve concerning Chongqing and rather put more effort into intraregional diversification. For many companies, in the past few years the question has been whether to extend their business inland or to completely relocate from the coastal cities. They came here (as well as to Chengdu) from the Pearl River Delta and the Yangtze River Delta. But should Chongqing still be the preferred option today? Let us compare Chongqing, which had a lot of government support and is situated on the upper reaches of the Yangtze, with a city of comparable size, Wuhan, which is on the middle reaches of the same river, between Shanghai and Sichuan, between Beijing and Hongkong, and closer to many main cities of the country, but has not received such strong support.

The main question we have to answer is: What will be the future intention of the government’s economic policy concerning these two cities? Frankly speaking, Chonqing has already achieved the goals for which it had originally been supported so strongly. Here, China’s central government showed in earnest that it was willing to direct all means necessary to successfully initiate and proceed with its „Go West initiative“. After the pioneer towns Shenzhen and Shanghai, „Chongqing proper“ has played the role of an urban model city, destined to reshape the Chinese economic reform process. At the time, Chongqing had to be strongly supported to become an urban hotspot. It’s administrative area was designed to be as big as Austria’s, and contained 30 million people. Many of them were destined to move to Chongqing proper from an area within the so-called „one-hour economic circle“ around the city. The manifold measures that had boosted Chongqing’s developmental pace were high-edge some years ago, but now they seem kind of outdated, as more and more cities in China’s Western regions are turning into thriving poles of growth. They implement New Areas, grant convincing preferential policies, invest massively in urban infrastructure, attract huge sums of FDI, and connect to an impressive, fast-expanding national transportation network.

Wuhan, instead, although it has been a major urban agglomeration for a long time, seems to be kind of left behind in terms of central governmental support. Situated directly in the middle of the four contemporary core economic regions of China (Pearl River Delta, Yangtze River Delta, Bohai Rim Region, Western Triangle Zone), Wuhan has been growing so moderately that it almost seems suspicious. The truth is, Wuhan’s growth rate is not at the forefront, but between that of cities being behind and ahead. In China’s reform era, this city has neither been a backwater nor a pioneer, but it truly is one of China’s most populous cities and one of those one with a considerably high GDP. Anyhow, the big boom may yet come, or it may not come. Chongqing, on the other hand, has been experiencing a big state-initiated boom, and this boom has lasted now for over a decade. We assess this as a pro-argument: Time is still ripe to come here and join the established preferential policies, to produce high-edge innovation products, or to form a cluster with others. You don’t need to bet on this location, it does not need to prove its importance. But, as always, careful planning is the key to success.

Originally an „invisible city“ on the maps of international investors, Chongqing became an illuminated metropolis full of opportunities, glowing in the center of China’s economic miracle for many years. China’s government certainly surprised many skeptics by the determination of its support for this landlocked, mountainous city on the Yangtze River. They had focused on Chongqing because of its pivotal geographical location for opening up the Western regions. While the goal of China’s „Go West initiative“ is in the process of being achieved, Chongqing is now booming in fierce local competition with its neighbor Chengdu. But the municipality still offers opportunities in the secondary sector and, increasingly, in financial services. It is ideal for those who are prepared to move inland to compete in the global challenge by joining local clusters with innovative products. The rise of Chongqing is not over yet; it is still bound to grow in size and importance within China and within the world.

© China Under Construction, 2016

Links of interest

THE NEW SHANGHAI IN CHINA’S INTERIOR?


A top hotspot for investments in China’s interior, Chengdu, definitely deserves being showered with superlatives.It is a modern transportation hub and a center of high-tech manufacturing with best international connections, and the speed at which the capital of Sichuan province is moving forward is simply breathtaking. The pace of development that once was characteristic only for the coastal areas in the east has now arrived here, in the west of China. According to many think tanks, this metropolis is unstoppably driving towards an even greater economic future. 

For most of its modern history, Chengdu’s strong regional standing has not been in question. But then, China’s central government chose to develop the province’s primary port on the Yangtze River, Chongqing, to become the state’s prime experimental base inland. At a time when the inland lagged behind the coastal areas in terms of development, Chongqing began to show extraordinary growth rates. This could have dealt a fatal blow to Chengdu’s leading regional position. Instead, enormous interregional competition between the two cities developed. While it sometimes appeared that the rival could be the winner of the game, Chengdu has recently fought back with truly impressive figures, earning it overwhelming positive resonance nationwide and internationally.

Being a megacity of approximately 10 million urban citizens, Chengdu heavily profits from its position as the capital city of Sichuan – a political unit with a population as big as that of Germany, situated on the upper reaches of the Yangtze. Deng Xiaoping himself gave out the order that market-driven economic dynamisms should climb up China’s largest river, thereby boosting the economic situation inland. Chengdu’s sub-provincial administrative status allows the city government to freely decide on economic issues (something that has proven to be highly beneficial also for other current boomtowns, like Hangzhou or Qingdao). Attracted by the economic boom, millions of migrants are streaming in, and there is plenty of land to be developed on the vast Chengdu Plain. A dozen foreign consulates in the city (USA, Germany, Korea, Singapore, to name just a few) reflect the importance of the city for the global community whose leading companies are flocking in like birds to a feeder.

Chengdu – in fierce competition with its neighbor Chongqing – is the main transportation hub in western China, connected to a range of other booming cities and regions. It is or soon will be connected by high-speed rail to Guiyang, Kunming, Chongqing, Wuhan, Nanjing, Hangzhou, and Shanghai in the South and to Xi’an, Lanzhou, Zhengzhou, Shijiazhuang, and Beijing in the North. As of now, there are no plans for a high-speed connection to Guangdong and Hongkong. Being already favored to a high degree by infrastructural integration and foreign direct investment, it seemingly has not yet been a high priority to link up with Hong Kong’s ever-running money trail. Chengdu is regionally integrated by national highways leading to the North of China via Shaanxi, to Yunnan in the Southwest, and up to the Tibetan Plateau. Within Chengdu, busses are still very important transport vehicles, as there are currently only two metro lines in operation, but altogether eighteen lines are planned – showing how necessary infrastructural development is deemed for further economic and social development.

Recently, the city has been aiming for more international integration, which can seen by the fact that there is already a train in operation that serves Lodz in Poland three times a week. Lying between the main intersections of the „Belt and Road“ initiative, Sichuan’s capital is an integral part of a strongly expanding transportation and logistics network that is directed at better connectivity and economic impulses between the different parts of Asia as well as Europe. Therefore, Chengdu has a crucial position in a greater plan that is unfolding. While the metropolis does not provide direct access to any kind of port, this fact has not hindered it from booming and attracting international investors. Well-established connections to the province’s ports of Yibin und Luzhou seem to be sufficient for the moment. Chengdu has one of the biggest airports in China that could overtake Shenzhen as the mainland’s number four, and it is well-connected to many international airports like Frankfurt, London-Heathrow, San Francisco, Vancouver, Amsterdam, Doha, and Abu Dhabi.

Many international companies which had initially settled on China’s coast have relocated their business or opened new locations inland in Chengdu where they can profit from lower labor costs and the rapidly improving infrastructure. Sound economic foundations, the strong support of the local government, and the availability of a well-educated workforce have made this city a favorable place for innovative enterprises. Not surprisingly, the city is the major educational and scientific center of South-West China, therefore offering a fine base for R&D. Foreign companies investing here are also attracted by Chengdu’s position as a „model city for intellectual property protection“, which poses less of an investment risk to them.

This megacity where the world’s first paper currency had been invented in the 10th century A.D., has become a top global investment destination and an aggressive driver for economic growth in the region. Impressively, more than half of the Fortune 500 enterprises have already settled in Chengdu. (It should be said that in this respect, Chengdu is in fierce and productive competition with Chongqing.) Here is an incomplete list of some of the well-known companies located in Chengdu: GE, Siemens, Microsoft, Intel, IBM, Lenovo, HP, Dell, Xerox, TexasIndustries, Foxconn, Ubisoft, SAP, Citigroup, JPMorgan Chase, BNP Paribas, UFJ, HSBC, Standared Chartered Bank, Henkel, TNT, UPS, DHL, Maersk, Cosco, Sinotrans, FAW Volkswagen, FAW Toyota, Volvo, Accenture, KPMG, PWC, Ernst&Young. As you can see, Chengdu is a top destination for the IT and telecommunications industry, as well as for automotive manufacturing. Due to the massive build-up of the city, real estate has become an important pillar of the local economy. Two particularly prestigious projects were the construction of the stunning „New Century Global Centre“, dubbed „the largest building in the world“ (in terms of square meters), and the remarkable „New Century City Art Center“, designed by Zara Hadid Architects. Chengdu also is an important regional financial center and a main logistic hub in Western China.

Highly competitive clusters have formed in Chengdu around the four state-level industrial and university-led scientific parks as well as the twenty-three industrial parks, where there are thousands of foreign, state-owned and privately-owned Chinese companies situated. Taiwan and Singapore have entered close economic ties with Chengdu by engaging in the corresponding „Technology Industrial Development Park“ and the „Hi-Tech Innovation Park“, respectively, and Germany is ambitiously engaged in an industrial park for small and medium enterprises. Chengdu’s government even strives to acquire a national Silicon Valley-like rank by providing innovative start-ups by facilitating cooperation between innovative start-up companies and established enterprises, research institutions, and universities. The city has received its own „New Area“, Tianfu, in 2011, in order to leverage its high-tech orientation. Apart from the „traditional“ strengths in manufacturing, some future cornerstones of Chengdu’s economy will be high-edge branches like mobile interconnectivity, 3D-printing, „new energy“, or bio-medicine. Chengdu also is an important center for exhibitions (e.g. Chengdu Modern Industrial Technology Expo, CMIT; Western China International Economy and Trade Fair, WCIF), aiming to achieve more „market-driven exhibition industry“.

Last but not least, there is a lot of tourism in Sichuan, making the capital of this province an important stopover. While there has been depopulation and resettlement of the region more than once in history, the „Red Basin“ has developed and kept its own regional characteristics which feel exotic to many people. They come here to enjoy the very spicy food or the omnipresent tea houses where locals like to play mahjong for hours, and they relax by taking a walk around in the relatively green environment the city offers. There are the Giant Panda sanctuaries, monasteries in the mountains, or scenic spots which are best reached from Chengdu. And if you like to see things from a historical point of view, it may be worth mentioning that in 1911 the local anti-foreign, anti-modernist railway protection movement heralded the preparations of the Wuchang uprising, which triggered the overthrow of the Qing emperors. Later, Chengdu was the last city held by the Kuomintang before their retreat to Taiwan, and today there is still a big Mao statue, „guarding“ the city center.

After reading this introduction, you may wonder if there could be any doubt that Chengdu is „the place to be“? Figures are convincing, and it seems that nearly every company of a certain size has to consider establishing itself in Chengdu. So, is Chengdu the „Shanghai of China’s interior“? Well, things are going especially well here, and all forecasts continue rating Chengdu as a rising star. The city also profits from its reputation as one of the metropolises with the highest quality of life in China. Although the weather is subtropically humid and average yearly sunshine as rare as in Northern Europe, in summer Chengdu is not as hot as Chongqing or other cities along the Yangtze River. And in winter, the climate is milder than e.g. in Shanghai, due to the up to 5.000 meter-high mountains in the surroundings which are shielding the city, located at an altitude of 500 meters, from cold northerly winds.

Chengdu and Chongqing should be compared in-depth. The two main cities of southwestern China have been connected by high-speed rail for many years, and they kind of make up the next core area of China’s economy (being added to the Pearl River Delta, the Yangtze River Delta, and the Bohai Rim Region). Both cities have benefited greatly from the mutual rivalry by showing extremely strong growth rates in GDP as well as a large influx of foreign direct investment and the setting up of international companies. Due to the economic boom, we see huge migration waves of people from the countryside to the cities, and a boom in real estate. There are many differences, though, but, well, does it matter? Chengdu offers many green spaces, while Chongqing is a less relaxed place; Chengdu sits on a plain, partly surrounded by high mountain ranges, while Chongqing stretches over hills and valleys; Chongqing has the Yangtze, whereas from Chengdu you have to go far to reach a port; Chongqing is a directly government-controlled municipality, whereas Chengdu is the capital of populous Sichuan; Chongqing is geographically closer to the center of China, and other provinces and regions are within reach, while the dense high-speed rail network of Chengdu may present especially attractive impulses for regional development.

Chengdu as well as Chongqing are striving for integration within the global economic system, and they are doing particularly well. But while Beijing-controlled Chongqing is more open towards intraregional cooperation, in Chengdu, there is more reluctancy towards the new-born competitor-city that some considered to be the most populous city on earth (which, in fact, it is not). For the officials in Chengdu it may be more beneficial to closely cooperate with a range of smaller cities around Chengdu, in order to gain more positive network effects within their province, and to rather ignore Chongqing. There is no easy answer – not to the question whether Chengdu or Chongqing will be ultimately one step ahead; not to the question whether the two cities will develop together or head into different directions; and not to the question, which city will be better suited for your own investment. It will take time to consider, but when the answer is hard to find, it may be even worthier to come to a conclusion. The choice depends very much on the specific situation of your company; some preferential policies may be especially advantageous for you in this place or the other, or you may find different cooperation partners in the particular industrial park you decide for; and finally, it may help to visit both places and compare the impressions you get.

There can’t be any doubt that Chengdu has been thriving extraordinarily during the last few years. The dimensions of the boom may have even surprised the ones in charge, as can be seen from the current efforts to correct what has been neglected in terms of development in infrastructure. Huge network effects can be reached within a favorable investment environment; clusters of companies in the high-end spectrum of several business branches are arising here regularly. A fourth core region of China’s economy is currently in the process of being established through the competition of Chengdu with its neigbor Chongqing, joining the Pearl River Delta, the Yangtze River Delta, and the Bohai Economic Rim. Especially because it would be all too easy to state „everyone is going here, so we should come here as well“, it is recommended to compare, compare, and – again – compare Chengdu with Chongqing, in order to get the best out of any investment decision, once you have decided on this corner of China as being the best possible for you. Chengdu may well be your best choice, but many factors need to be taken into consideration.

© China Under Construction, 2016

Links of interest

Chongqing ‘Full of Promise,’ Xi Says (China Daily)

Invest in Chongqing (Chongqing Foreign Trade and Economic Relations Commission)

Chongqing Economic Growth Slows in 2017 (Xinhua)

Doing Business in Chongqing (China.org)

Chongqing Rocked by Corruption Probe as Political Survivor Returns (Asia Nikkei)

Xi Envisions Chongqing as Int’l Logistics Hub, Stresses Development (Xinhua)

New Growth Pole for Chinese Economy Discussion on Certain Issues in Building of Chengdu-Chongqing Growth Pole (Regional Studies)

It’s in the Plan: The Chengdu-Chongqing Economic Zone (Chengdu Living)

The Chongqing Economy: An Illustrated Primer (Wall Street Journal)

Chongqing (Britannica)