On April 1, 2012, China’s then Premier Wen Jiabao and then Malaysian Prime Minister Najib Razak took part in the opening ceremony of the Qinzhou Industrial Park with the ambition of building up a “hi-tech, low-carbon and international” town of half a million residents from scratch.
Seven and half years later, the first phase of the park, which covers an area about a tenth the size of Hong Kong Island, is still struggling to find enough business to fill its largely empty units. Few investors in “biomedicine, electronics and new energy” sectors have been lured to the park, and focus has shifted to “an international value chain of edible bird’s nest”. This involves importing bird nests from Southeast Asia and processing them into materials ready to be made into Chinese soups.
On a recent visit to the park, which is about an hour’s drive from the border with Vietnam, the promised new hi-tech town had not materialised and the area is still a remote, muddy wasteland. Few businesses were operating and the traffic was minimum. The only visible business, a restaurant called Three Brothers Fast Food that serves fried vegetables and sells cigarettes and drinks, targets a small group of construction workers in the park.
The development of such industrial parks is often regarded as a key factor in China’s integration into global industrial supply chains, as well as its rapid economic development.
Since the first industrial park was opened in the Shekou area of Shenzhen in 1979 to accept investment from Hong Kong, the model, which usually involves preferential tax rates, land and industrial policies for investors in a designated area, has become so popular that tens of thousands have sprang up across the country. Of these, only around 600 were approved by Beijing, with the vast majority set up by provincial and municipal authorities.
The industrial parks are often designed to boost exports and develop hi-tech or specific industries such as cars and electronics, but it is an increasingly uphill battle to lure limited investment with an army of such designated zones offering identical incentives.Beijing’s latest solution is to upgrade the parks into free trade pilot zones. Since Beijing started the pilot scheme in Shanghai in 2013, China has approved six batches of free trade zones in 18 provinces. With the exception of the island of Hainan, which is itself considered to be a free-trade zone, each province has designated areas of about 120 sq km, or the area of Hong Kong Island and Kowloon combined, to woo investors by offering incentives including tariff exemptions, reduced customs costs, lower market entry barriers and easier access to cross-border payment services.
Beijing hopes that the free trade zones can keep the country embedded in the global trade flows and value chains to secure China’s role in the global economic landscape with decoupling risks with United States on the rise and its status as the world’s workshop quickly disappearing in favour of Southeast Asian countries.
In the latest list released in August, China approved six new free trade zones, including one in Guangxi with a mission of becoming “China’s gateway to the Maritime Silk Road of the 21st Century”. The China-Malaysia Qinzhou Industrial Park falls within Qinzhou’s free-trade zone, which along with Nanning, the provincial capital, and Chongzuo on the border with Vietnam, make up the Guangxi free-trade zone.
The problem for Guangxi, officially known as the Zhuang autonomous region – with an area as big as Cambodia and a population of 48 million – is the competition for international investment from thriving neighbour Vietnam.Vietnam is blessed with a bilateral trade agreement with US and a free trade deal with the European Union signed in June, while manufacturers in China are subject to tariffs and tariff threats from US President Donald Trump, with negotiations over the EU-China Investment Agreement ongoing.
“The detailed incentives policies are not ready yet … we also don’t know what will be different from the existing preferential policies,” said Chen Jian, an executive with Qinzhou Industrial Park’s investment promotion department.
On a normal working day, the public service centres at Qinzhou, Chongzuo and Nanning were all largely empty with only a few potential investors. A staff member at the Nanning centre said that over a dozen of new businesses had registered since the free-trade zone status was granted at the end of August, but all were Chinese businesses.
The centre itself is hardly an attractive setting for potential investors to take up the one-to-one tailored investment services offered, with just a map and a plaque pledging dedication to serve investors to be seen.
Joe He, who provides logistics service in the border town of Pingxiang in the city of Chongzuo, said Guangxi’s strategy to act as bridge between China’s traditional manufacturing hub in Guangdong and Southeast Asia is failing as there are little incentive for investors to chose China over Vietnam.Foreign direct investment inflows into Guangxi were US$570 million in the first seven months of 2019, a hefty increase of 75 per cent from a year earlier. In Qinzhou, however, foreign direct investment inflows plunged 71 per cent to just US$22.8 million. Foreign investment inflows into Vietnam, meanwhile, rose 6.6 per cent to US$11 billion.China’s trade war with the US is pushing many local and overseas investors to consider relocating to places out of the reach of Trump’s wrath, and Guangxi is bearing the brunt on the frontline. According to a report published by the Guangxi statistics bureau in August, businesses involved in the processing trade, especially electronics, are accelerating their exodus to Southeast Asian countries “to minimise impact from the China-US trade disputes”.
Nanning Fugui Precision Industry, a subsidiary of Taiwanese manufacturer Foxconn, moved 3.1 billion yuan (US$436 million) of orders to Vietnam in the first four months of 2019, with another 10 billion yuan set to to follow, according to the report.
Jianxing Photoelectric Technology (Beihai) has also moved four production lines making computer drives to the Philippines since the trade war broke out, while fellow Taiwanese company Ktec has already set up a factory in Cambodia and is expected to move all production of its power supply devices from Guangxi.
Guangxi has attempted to create border trade zones, in which products can be marked as being made in Vietnam, as shelters for Chinese exporters, however, Hanoi is not keen to entertain the plan.
China quickly built new roads, bridges, industrial buildings and warehouses, but on the other side of the border, Vietnam has made little progress, with one official from the Chinese city of Pingxiang, who declined to be named, saying that the “Vietnamese peasants are not willing to sell their private land”.
Gao Jian, a Chinese agent who helps businesses in China set up factories in Vietnam, said there is little point for manufacturing exporters to relocate to Guangxi when they can just go to Vietnam directly.
“Vietnam’s tax, land and employment environment is more tempting, and Vietnamese authorities are believed to be more open up in the coming years,” Gao said.
While in theory, Chinese manufacturers who are unable to afford the high land and labour costs in the Pearl River Delta can seek lower cost production in places like Guangxi, the picture on the ground is much more complicated.
Tan Xinggang spent 5 million yuan (US$700,000) last year to relocate a shoe factory from Dongguan in Guangdong to Nanning to cut costs, but he failed to make any savings as Guangxi’s transport infrastructure is poor and the labour-force is unskilled.
“I moved to save costs, but in the end I had to pay three million yuan extra to train local workers, and I had to send finished products back to Shenzhen and Hong Kong for export,” Tan said.
Simon Zhao, a professor at the United International College, a school jointly founded by Beijing Normal University and Hong Kong Baptist University, in Zhuhai, said inland Chinese regions like Guangxi, despite the free trade status, will find it “more difficult than ever” to woo foreign investments because even places like Shanghai and Guangdong have to go the extra mile to roll out the red carpets for investors.
“Only if granted efficiency and power in running like a free market, with rule of law and financial system that match top world standards, could it become a true free-trade zone and create a new system that was worth the experiment, Zhao said.
For now, there is little excitement about the free trade status granted by Beijing. Xie Sange, who runs the Three Brothers Fast Food restaurant in Qinzhou industrial park, said he remains doubtful whether a change of label will simply be enough to help his struggling small business.
“Guangxi already has many such economic zones with names like free trade areas, cross-border trade zones and so on, but all seem not very effective [in attracting investment flows or boosting local gross domestic product],” he said in his empty restaurant. (Source: SCMP.com)