Zhuhai, foreign investors prosper in decades after Deng Xiaoping’s tour

By Chen Qingqing in Zhuhai Source:Global Times Published: 2017/2/19 19:18:39

A visit to remember

Zhuhai, South China's Guangdong Province, was among the first Special Economic Zones set up by the central government in 1980 to test out economic reforms. Over the next 36 years, the city's GDP grew to 222.6 billion yuan ($32.4 billion), among the top 10 in the province, thanks to a visit by former leader Deng Xiaoping. Sunday was the 20th anniversary of the death of the Chinese statesman, who visited the city in 1992 during his second southern tour to highlight economic reforms. To mark the anniversary, the Global Times visited Zhuhai to look into the aspects of the city's development. This story is the first in a two-part series.

Workers are busy on a production line at Panasonic Motor (Zhuhai) Co, the first wholly-owned subsidiary of Panasonic Corp in China, in Zhuhai, South China's Guangdong Province. Photo: Chen Qingqing/GT

The Nanping Industrial Park in southern Zhuhai, South China's Guangdong Province, where Japanese electronics manufacturer Panasonic Corp's factory is currently located, used to be a remote village that few people could find on a map two decades ago.

A year after former leader Deng Xiaoping launched his second southern tour in 1992, which is considered as a symbolic move to open up Zhuhai's economy, Panasonic invested $142.5 million in its first wholly-owned subsidiary in China - Panasonic Motor (Zhuhai) Co. 

In 1980, the central government chose Zhuhai as one of the four Special Economic Zones designed to pilot reforms for the country's transition from a planned economy to a socialist market economy.

At Panasonic's Zhuhai manufacturing complex, two photos hang on the wall on the left side of the reception desk. One is of company founder Konosuke Matsushita. The other is a photograph of Matsushita speaking with Deng.

Panasonic established the complex in Zhuhai for two reasons: to develop China's manufacturing industry and get closer to its customers, said Kimura Yoshitsugu, managing director of Panasonic's Zhuhai division. "The local authorities have given us a lot of support in aspects such as lending facilities and facilitating custom clearance," he told the Global Times on February 13.

Although Zhuhai was among the coastal cities first set up as special economic zones in 1980 when China opened up its economy, it initially received less foreign direct investment (FDI) than nearby Shenzhen, said a  research fellow specialized in Zhuhai's economic reform, who preferred not to be named.

 "There were two main reasons. Shenzhen is closer to Hong Kong and could take advantage of the latter's 'economic radiation' effect," he told the Global Times on February 13.

The other reason was that the Zhuhai local government had initially focused too much on developing its fishing and tourism industries, rather than the manufacturing and high-tech industries, the research fellow said.

Things began to change after Deng conducted his second southern tour in 1992, when he pushed for officials to accelerate economic reforms.

"After 1992, local authorities invested heavily in expanding transportation, including building roads, bridges and ports, and welcomed more FDI in high-tech industries," the research fellow said.

As of July 2016, there were 3,293 foreign investment projects valued at $12.1 billion in Zhuhai, according to an e-mail sent by the Zhuhai Bureau of Commerce to the Global Times over the weekend.

Attracting foreign capital

Manufacturing services and solutions provider China 2 West Services has been operating in Zhuhai for 12 years, said Mark Clayton, the company's chief financial officer.

"I lived in Guangzhou for two years prior to moving to Zhuhai, and 12 years ago both it and Shenzhen were much more developed than Zhuhai in every respect such as infrastructure and business," he told the Global Times on Tuesday.

Over the past few years, the Zhuhai government has been encouraging investment in infrastructure, such as in roads and bridges, and some manufacturers are expanding into newer and larger facilities. It's progress you can see, Clayton said.

About a half-hour drive from the city center, there are dozens of foreign manufacturing companies inside the Zhuhai Free Trade Zone (FTZ) that have been thriving since the reform. EPCOS (Zhuhai FTZ) Co, a TDK Group Company, is one.

EPCOS built the factory in the Zhuhai FTZ in 1998. Production began a year later.

Currently, TDK manufactures a wide range of EPCOS DC and power capacitors, protection devices and temperature sensors at the Zhuhai FTZ plant, not just for the rapidly growing Chinese market but also for the rest of the world, said Frederico Knorr, president and CEO of the plant.

He noted that the company has received a lot of support from the FTZ administration. For example, the administration has improved the road to the zone to make it easier for employees to get to work. "With the improvement of FTZ infrastructure, the FTZ has its own primary path, with very convenient access for people and goods," Knorr told the Global Times on Tuesday.

At the beginning of 2011, the plant began to upgrade its production lines with the introduction of fully automated lines. The full modernization of the equipment was completed in 2016. The added production capacity turned into sales of 1.5 billion yuan ($218.53 million) in the last fiscal year.

"And this fiscal year, which is from April 2016 to March 2017, we expect to achieve 1.6 billion yuan," Knorr noted.

Investment hurdles

Not every foreign company sees investing in Zhuhai as smooth.

Tai-Long (Zhuhai) Machinery Manufacturing, is a subsidiary of Emak Group, which designs and makes equipment for gardening and other outdoor uses. After it opened the plant, the company received a 100 percent tax abatement for three years and a 50 percent abatement for the next two. 

Setting up the plant in 2005 was primarily a way to cut costs, said Guido Bergonzini, the plant's general manager.

More than 90 percent of the company's products were exported before 2008, but it has since shifted its focus to the Chinese market. "We are now selling more than 20,000 units per year within the domestic market," Bergonzini told the Global Times.

However, the recent drop in global trade has hurt the company's growth. "And the bigger problem for us is Chinese manufacturers have learned how to make our products and now we have many competitors in China," he claimed.

Some "aggressive" competitors have copied the designs of Tai-Long products and now sell to the European market, which has led to complaints from the company's customers overseas, he said.

Bergonzini noted that the company could spend a lot of time and money taking these types of cases to court. The situation has become a burden for foreign companies.  

Among several setbacks listed by the city's bureau of commerce, more needs to be done to establish a fair and ho nest business environment in Zhuhai to attract more foreign capital, according to the bureau's e-mail. For example, local authorities and industry associations should more actively respond to the companies' requests.

"Facing uncertainties in the macroeconomic situation, we need to create mid- and long-term plans for investing in China," said Yoshitsugu, the general manager of Panasonic's Zhuhai subsidiary.

"We hope to hear more from local authorities on questions like environmental protection policies and possible favorable policies for us to introduce more high-end technologies in the future," he said. 

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