Agencies
In the decades following China’s opening up and reform, industrial parks flourished across the Yangtze River Delta. Foreign investment poured into the nation’s biggest port city, Shanghai, and overflowed into the surrounding areas.
Eyeing opportunities in China’s huge market, multinationals with a presence in these parks were often lured by local governments’ enticing offers, including free rent and tax breaks.
But today, such incentives are no longer the magic formula for success as Beijing tightens taxation oversight and seeks to build a unified national market.
The parks, which have been pivotal to China’s manufacturing advancements while serving as local economic engines over the years, have had to change the way they attract foreign firms as the external environment became less accommodative amid geopolitical tensions.
Amid the central government’s intensified scrutiny on investment-attraction measures, and with foreign investors’ bearish sentiment regarding China, even the most successful parks in the delta – one of the country’s most economically vibrant regions – are struggling to lure new investors.
“We used to rely on preferential policies, using land and reduced taxes to attract investors, but as the central government emphasises saving resources, this is not workable any more,” said Wang Aijun, director of the management committee of the Jiangning Industrial Park in Nanjing, Jiangsu province.
In a comprehensive reform plan rolled out after their recent conclave known as the third plenum, central leadership vowed to “fully regulate taxation by law and standardise tax incentives”, and to “launch a special campaign to sort out the various types of land being used in industrial parks”.
Now, Wang said, the park is assessing a new approach, including fostering industrial clusters to attract firms along the value chain of major member firms.
The capability of industrial parks, also known as economic development zones, to lure investment is crucial to the world’s second-largest economy amid an ongoing downturn, according to Song Yingchang, a researcher of economic clusters with the Chinese Academy of Social Sciences.
“The lack of new investment results in a shortage in capital and an inability to form big enough industries, without which industrial upgrades and the green transition will be empty talk,” he said.
About 12 per cent of China’s gross domestic product in 2022, and a quarter of its foreign trade, came from the country’s 230 state-level industrial parks, according to figures from the Ministry of Commerce in December.
The Suzhou Industrial Park (SIP), a flagship joint project between Singapore and China dubbed “an important window into China’s reform and opening up”, is focusing more on domestic firms as its appeal to foreign investors fades.
“We’re facing challenges mainly from the complex international situation, geopolitical tensions and risen costs in the domestic market,” Chen Liuying, head of investment promotion under the SIP’s management committee, told reporters during a media visit to the park in June.
Therefore, the park is looking more at home-grown businesses, particularly those in high-end, intelligent and green sectors, she said.Amid a slump in China’s overall exports, the SIP saw a total trade volume of US$86.2 billion last year, down more than 6 per cent from US$92 billion in 2020, when the pandemic started affecting the global economy, according to data provided by the committee.
In the same period, the park’s actual use of foreign investment also slightly dropped to US$1.95 billion from US$1.97 billion.
A frontier for foreign investment, the city of Suzhou has experienced several rounds of exits by foreign investors since the global financial crisis about 15 years ago.
A combination of factors, including rising costs, geopolitical risks and supply-chain adjustments, has led more to follow suit in the past decade, such as Japan’s polarising-film giant Nitto Denko and leading hard drive manufacturer Seagate Technology.
However, “foreign firms still play a big role in the city’s economy, and luring more overseas investors remains an important task for the SIP”, said Zhu Huan, who heads the committee’s commerce department.Those foreign firms account for more than 60 per cent of the park’s trade volume, more than 70 per cent of its industrial output, and more than a half of fiscal revenue, he said.
The Jiangning park in Nanjing is also seeking growth increasingly from domestic companies while encouraging existing foreign member firms to boost their presence, said Ni Lei, deputy head of the investment promotion department under the park’s management committee.
“We’re under tremendous pressure in attracting foreign investors, due to the current international situation,” he said, adding that most of the new joiners now are domestic firms in the supply chains involving electric vehicles and intelligent manufacturing.
Acknowledging the significance of foreign companies, he said that they now account for a third of all firms operating inside the park but account for half of its total gross domestic product.
Persuading the existing ones to stay and expand is one important approach, said the committee’s director, Wang.
“We must grasp what we have now and deepen our relations with them, and then push them [to increase investment],” he said, referring to efforts such as sending masks to their home countries during the pandemic and visiting headquarters upon reopening.
The return of high-end manufacturing industries to developed countries in recent years, led by the United States and Europe, has made it difficult for local governments to utilise foreign capital, said Tao Tao, a professor with Peking University’s School of Economics, earlier this year.
But that’s not all – a combination of new targets set by the central government, not just economic benefits but also supply-side reform, innovation, environmental protection and people’s livelihood, is making the situation more difficult for localities, he wrote in an article for the official biweekly journal People’s Tribune in May.
“Under the new goals and tasks, the traditional local investment promotion model has encountered bottlenecks.
Tax, land and other offers make it easy to attract projects but difficult to retain them,” he noted.
Traditionally, to pull in investors, parks in China have offered a wide range of benefits such as free rent, reduced taxes or no taxes during the first few years of operation, as well as loans paid over several months or years. Some even would throw in rent-free offices or production facilities.
For example, incentives rolled out in 1992 by the Beijing municipal government to encourage investment in its Yizhuang park included no taxes for the first two years and a 50 per cent reduction in the following three years for manufacturers that vowed to operate there for more than 10 years.
