China's Tianjin push: Bright,
but not dazzling By Wu
Zhong, China Editor
HONG
KONG - There are more than a few investors who
missed out on previous opportunities to put their
money in China: for example, in the late 1970s
when the Middle Kingdom had just begun to open its
doors to embrace capitalism; or in the early 1990s
when the Chinese government decided to develop
Shanghai's Pudong New Area, sparking a new wave of
development in the country.
Now, there may
be another good opportunity for aspiring China
investors to get in on the ground floor of a new
development wave: the development of the Tianjin Binhai (Seashore)
New Area in the country's northeast.
Beijing intends the Tianjin Binhai New
Area to become a new pivot
to sustain the relatively
high-speed growth of the national economy over the
next decade or so. And the area could indeed offer
some good opportunities, particularly for
newcomers to China. However, the opportunity may
not be quite as golden as those offered when China
decided to develop the Shenzhen Special Economic
Zone (SEZ) in the late 1970s or Shanghai's Pudong
in the 1990s.
This is because, now that
China is a member of the World Trade Organization
(WTO), the whole country is now, at least in
principle, wide open to foreign investors. In such
circumstances, the incentives Beijing could
possibly grant to boost the development of the
Tianjin Binhai New Area are likely to be limited.
The development of the Tianjin Binhai New
Area is part of China's blueprint for social and
economic development for 2006-10, which was
formally endorsed by the National People's
Congress (NPC), China's parliament, in March. The
area is on the eastern seashore of Tianjin, a
municipality just over 100 kilometers southeast of
Beijing adjacent to the
Bohai Sea, which opens on to the Liaoning and Shandong peninsulas west
of the Korean Peninsula.
The Binhai New
Area consists of the Tianjin Port, Tianjin
Development Zone, a duty-free zone and the three
administrative districts of Tanggu, Hangu and
Dagang, covering 2,270 square kilometers in total
land area and 3,000 square kilometers of
territorial waters.
There are already some
foreign-invested businesses operating in the area.
The most prominent of these may be Motorola
(China) Electronics, which is using the area as
its major manufacturing base for mobile
telephones, two-way radios, and wireless
communications equipment.
In Beijing's
blueprint, the development of Binhai will boost
the Bohai Rim economy, which in turn will help
revitalize the economy of China's "rust belt"
northeast (Manchuria). As such, it is hoped that
the Bohai Rim region, with Beijing and Tianjin in
the center, will catch up with the Pearl River
Delta and the Yangtze River Delta to become a new
engine powering the country's economic
development.
China is a huge country, both
in geographic and population terms, so its
economic development has never been, and can never
be, homogenous. Instead, some regions will
outstrip others from time to time. Fully aware of
this reality, the government has no illusions
about even development across the country.
Instead, its strategy has been to concentrate on
developing a certain region for a given period,
making it a pivot to turn on, or an economic
engine to power, the rest of the nation.
Thus when the late Chinese leader Deng
Xiaoping launched the economic-reform and
open-door policy in late 1970s, he designated
Shenzhen, on the border with Hong Kong, to spearhead
the experiment of building up a capitalist-style
market economy. Hence the Shenzhen SEZ was set up
in 1980.
Amid economic sanctions by
Western countries after the crackdown following
the Tiananmen Square incident in 1989, the Chinese
government, led by Deng, decided in 1990 to
cultivate Shanghai's Pudong as a new stimulant to
sustain the growth of the national economy. The
result of these two decisions was the appearance
of two new, modern cities, Shenzhen and Pudong New
Area, astride what were once paddy fields.
In both cases, however, many overseas
investors remained skeptical of Beijing's plans at
the beginning and therefore missed the best
opportunities to cash in. China launched the
Shenzhen project shortly after the conclusion of
the chaotic Cultural Revolution (1966-76). It was
certainly natural for foreign investors,
particularly those in Hong Kong, to be suspicious
of Beijing's policy, and to adopt a wait-and-see
attitude.
Xu Jiatun was director of the
Hong Kong branch of the Xinhua News Agency from
1983-89. The agency was the de facto Chinese
embassy in the then British colony and as such Xu
was China's chief representative in the territory.
In self-imposed exile in Los Angeles since
1990, Xu recalled in his memoirs that in the early
1980s, since Hong Kong business people were
hesitant to put their money across the border, he
had to urge mainland-invested enterprises in Hong
Kong to reinvest back home. At the same time,
Beijing decided to allow various mainland regions
to set up so-called "window" companies in Hong
Kong, which could then return to invest as
"foreign investors".
These used to be
known as "pseudo-foreign" investments. But with
such "pseudo-foreign investors" setting the
example, genuine foreign capital gradually began
to follow from or through Hong Kong into Shenzhen
and the Pearl River Delta.
Hong Kong's
accumulated investment in Guangdong, mostly in the
Pearl River Delta, now exceeds US$100 billion. The
number of Hong Kong-invested enterprises in the
Pearl River Delta is more than 60,000, with an
annual output equaling half of Hong Kong's gross
domestic product (GDP). For comparison, Hong
Kong's GDP in 2005 totaled HK$1.382 trillion
(US$177.2 billion).
Many foreign investors
were similarly lukewarm about the Pudong project
in the beginning. An apocryphal story illustrates
this. It was said that in early 1990s, when the
Singaporean government decided to invest in China,
Singaporean leader Lee Kuan Yew made an inspection
tour of the country.
The now retired
Chinese premier, Zhu Rongji, who was Shanghai mayor and party
chief from 1987-91 and then was promoted to vice
premier to oversee economic affairs, was eager to
lure foreign capital to start the Pudong project.
So Zhu promised Lee every possible convenience and
incentive if the Singaporean government invested
in Pudong.
But after taking in the vast
paddy fields of Pudong, Lee decided Singapore
should invest in the then more prosperous Suzhou.
Hence there now is the China-Singapore Suzhou
Industrial Park. If the story is true, Lee may
well regret it today, given how fast Pudong has
developed.
Now that the Chinese government
has set a new focus on the Tianjin Binhai New
Area, will it become another Shenzhen or Pudong 10
years from now? Again, there are skeptics and
optimists.
The optimists say that since it
is now Beijing's policy to develop Binhai in
coming years, it will no doubt give the project
its full support as it did to Shenzhen and Pudong.
China's economy is far larger today, allowing
Beijing to give strong support to Binhai, so the
chance of failure is very slim.
But
skeptics argue that times have changed. China's
economy today is increasingly market-oriented and,
as such, very decentralized, so Beijing can no
longer simply develop certain areas by
administrative fiat, or order other regions to
give substantial support to help Binhai's
development.
Moreover, China now is a WTO
member and ought to abide by WTO rules. China is
now considering giving foreign investors the
"national treatment", which would require domestic
and overseas-invested firms to be treated equally.
Hence China can hardly rely on giving tax
incentives to attract foreign capital to Binhai.
During the annual session of the NPC in
March, Pi Qiansheng, director of the Tianjin
Binhai New Area Management Commission, said
Beijing had promised various support measures,
such as allowing the area to pilot various new
reforms, including financial reforms, and to grant
some preferences with respect to finance, taxation
and land acquisitions.
At a meeting
chaired by Premier Wen Jiabao on April 26, the
State Council, China's cabinet, set the blueprint
for the Binhai New Area. The goal for economic
development is to build Binhai into one of China's
bases for "modern manufacturing, research and
development" and "an international shipping hub
and a modern international logistics hub in north
China".
Regarding social development, the
blueprint calls for Binhai to become a "new type
of community of prosperity, harmony, [and
environmental friendliness] that is fit for people
to live in".
To fulfill the plan, the
State Council also formally empowered Binhai to
experiment with "comprehensive reforms". In
Chinese terminology, this means Binhai will have
the autonomy to think creatively of making various
changes in the current economic and social
structures as long as such changes are necessary
to attain the ultimate goal, following Deng's
pragmatic methodology that "it doesn't matter if a
cat is black or white as long as it catches mice".
However, the cabinet did not promise any
financial support, although it has been reported
that the China Development Bank, one of the
country's policy banks, has granted a credit line
of 50 billion yuan (US$6.24 billion) to Binhai.
Moreover, to prepare for the development of
Binhai, the government has lifted a 10-year-old
ban on the establishment of new banks, to let a
new commercial bank, Bohai Bank, be set up in
Tianjin. The British bank Standard Chartered holds
a 19.9% stake in Bohai Bank, which opened for
business in mid-February.
"It is true that
the central government may not be able to give
huge funds to support Binhai's development
following market rules. But Beijing can lend its
support with favorable policies which will create
opportunities that investors can cash in [on],"
said an economics professor with Nankai University
in Tianjin, adding that compared with other major
coastal Chinese cities, Tianjin is much less
developed, making the potential for growth
greater.
According to government
statistics, Tianjin's GDP in 2005 totaled 366.39
billion yuan, which is equivalent to 35,128 yuan
per capita given its permanent population of 10.43
million. The figure is behind nearby Beijing's per
capita GDP of 44,308 yuan with its 15.38 million
permanent population.
Compared with cities
of the Pearl River Delta or the Yangtze River
Delta, Tianjin is even more indigent. Guangzhou's
GDP last year reached 53,580 yuan per capita with
its 9.5 million permanent population, and
Shanghai's GDP totaled 914.4 billion yuan,
equivalent to 51,428 yuan per capita given its
17.78 million permanent population. Even Suzhou,
with a permanent population of 8.7 million,
outperformed Tianjin, with its GDP totaling 402.65
billion yuan last year.
But because of its
comparative backwardness in development, land and
labor costs in Tianjin are lower than in the more
developed cities. For instance, housing prices in
Tianjin are less than half of those in Beijing.
This may be an advantage for investors.
Counter-intuitively, Tianjin's geographical
proximity to Beijing has been a disadvantage over
the past two decades; Tianjin's development has
been overshadowed by the capital area, since big
multinationals interested in the northeast have
gravitated to Beijing.
So a challenge for
the authorities, as they develop Binhai, will be
how to avoid direct competition with Beijing. The
two cities can become mutually beneficial only
when their development can be coordinated to
become complementary. This is a risk potential
investors in Binhai must take into consideration.
Wu Zhong is the China Editor of
Asia Times Online.
(Copyright 2006
Asia Times Online Ltd. All rights reserved. Please
contact us about sales, syndication and republishing
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principle, wide open to foreign investors. In such
circumstances, the incentives Beijing could
possibly grant to boost the development of the
Tianjin Binhai New Area are likely to be limited.
