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China growth model: Old formula in new regions

Paradigm development has led to multinationals changing their trajectory

Gulf News

China will skate into a consumption economy, but only at its own pragmatic pace.

For the present, it is consolidating its reliable “manufacture-cum-export” model in the vast under-tapped region of western and central China. And the crucible for attracting new foreign investment, technology and expertise is the province of Sichuan.

So compelling is the development paradigm here, that multinationals have changed their trajectory to reap benefits.

The region, which is now home to 238 of Fortune Global 500 companies, is China’s stepping stone to manufacturing high-tech and capital-intensive products.

The central-western region, which has been developed assiduously for just this consolidation, is now a magnet for heavy foreign investment.

The region is wooing strategic industries like electronic information, high-end equipment manufacturing, alternative energy, new material, energy conservation and biopharmaceuticals. Foreign funds are flowing into these advanced industries and research establishments, with multinationals planning deep level of penetration into a vast untapped hinterland.

Many multinationals, however, have been careful to point out that they have brought their most advanced technology and competitive products to the hinterland.

These companies are not just eyeing local or provincial markets, but developing products for the global markets as well. Chengdu, the capital city of Sichuan province, is surging ahead as a powerhouse of the region, receiving the highest amount of non-financial foreign direct investment.

FDI in this crucial western region surged 25.7 per cent year-on-year in the first four months of this year to $3.11 billion (Dh11.4 billion), compared with a 1.1 per cent decline in the erstwhile industrial hub of Pearl River Delta.

Moreover, during a recently concluded Fortune Global Forum, at least 74 business deals worth $18.26 billion were signed between Chengdu and large multinationals, consolidating the credentials of this once low-key region.

Last year, Dupont established a plant in Chengdu, while jointly setting up a research institution with Sichuan University to develop new fire and heat-resistant materials.

Personal computer giant Dell launched its new global operations site at the hyper-modern Chengdu High-Tech Zone, with a desktop production capacity of 7 million units a year.

Semiconductor design and manufacturing company Texas Instruments announced its long-term strategy for manufacturing facilities in Chengdu. TI’s investment in the operation could total $1.69 billion over the next 15 years. Other investors include US-headquartered Flextronics, which will set up a centre making precision instruments and Chinese auto manufacturer Geely, which will establish a production base in the city’s economic and technology development zone.

Schneider Electric of France is planning to establish its first subsidiary here, while Dutch multinational AkzoNobel unveiled its decision to build a production base for paints and specialty chemicals.

With an initial investment of nearly $53 million, AkzoNobel is a prized investor. Adding to the list is French food and beverage giant Danone which has also announced its largest beverage facility in the Asia-Pacific region.

Sichuan is strategically important to companies like Bayer and General Electric which opened its first global innovation centre in Chengdu, focusing on the healthcare market.

The US conglomerate sees huge market potential in rural China. Companies like Bayer, on the other hand, have worked out intensive plans to penetrate the grassroots market. They have a strategic partnership with the Ministry of Health to provide advanced medical training to physicians in poor hamlets, training over 11,000 medical professionals over five years.

A number of healthcare companies are adopting similar grassroots strategies to get closer to rural China, whose purchasing power is on the rise.

If the Sichuan model is successful, the west-central region will soon be an important centre for global manufacturing and trade.

Chinese planners have projected that the total volume of foreign trade in goods will break $100 billion in 2015, and trade in services will reach $10 billion, making Sichuan one of the biggest regions in terms of interaction with foreign markets. There is much to be said for the tried and tested manufacturing model.