Globalaffairs

Issue 5/ October - November 2007
By Moises Bolekia

Tianjin Economic-Technological Development Area has become one of the major industrial centers in Northern China, achieving a similar importance as the Special Economic Zones as Shenzhen, or Shanghai’s Budong. Over 60 enterprises and multinational of the top-500 global Fortune have set up 129 enterprises in TEDA; the most remarkable are, for instance, the Americans Motorola, IBM or Coca-Cola, the European Schneider, Wella or Nestle, but the Asian companies have a major presence: Samsung, Panasonic, Toyota, Yamaha, Hyundai, Fujitsu and many others. Accumulatively, TEDA had approved 4,299 enterprises founded by foreign capital, including Hong Kong, Macau and Taiwan by the end of 2006 (1).

The present paper wants to focus on TEDA’s key role in regional and Chinese national economy due partially to its geographical privileges. First, we will discuss the main features of Free Economic Zones (FEZ) as TEDA is. Secondly, we will provide some interesting economic statistics from the official sources like the annual report of TEDA, focusing our attention on Information Technology’s (IT), probably the pillar and key industry for TEDA.

TEDA’s geographic advantage

Approved in 1984, nowadays TEDA is one of the three “functional zones” of Tianjin New Coastal District (Tianjin Xindanqu), sharing the same status as Tianjin Port Free Trade Zone (abbreviated as TPFTZ) and the port of Tianjin. TEDA is spread out in three principal areas known as TEDA Original, TEDA West and TEDA North. There are also three major industrial parks settled in TEDA: Microelectronic Industrial Park (MIP), Yat-sen Scientific and Industrial Park and Chemical Industrial Park, all of them represent the three leading industries.

In 2006 the Chinese State Council, the Central Committee of CPC and the most important Tianjin’s Committees made the strategic decision to enhance the TNCD. This challengeable and ambitious project was included in the Tenth National People’s Congress as a national development strategy. Moreover, the TNCD had been officially granted a state-level status (2). Recently, Airbus the big European aircraft-maker enterprise, is already constructing its first assembly plant abroad Europe in Tianjin New Coastal District. The plant is a joint venture between Airbus and Tianjin Zhongtian Aviation Industry Investment Co., a Chinese alliance of China Aviation Industry Corp I, China Aviation Industry Corp II and Tianjin Bonded Zone Investment Co. The assembly of the first plane is expected to initiate in August of 2008 (3).

This enormous area is located in the Eastern Tianjin coast and comprises three administrative regions (Tanggu, Hangu and Dagang Districts). The Tianjin New Coastal District covers a huge area of 2,270 km2 and 153 km of coastline and it is located approximately 50 km from Tianjin city. It is quite easy to realize the TNCD and TEDA’s importance in terms of geographic advantages. Both are lying in the center of the circum-Bohai Region, “acting as the gateway to the three northern regions (China’s North-East, Central North and North-West) with the support of Beijing, Tianjin and Hebei Province and facing the Northeast Asia, especially Japan and South Korea”. In addition, TNCD and TEDA have such strategic importance as the Chinese Special Economic Zones (4) like Shenzhen, of Pearl River Delta and Pudong of Shanghai, whose initial main purpose was to attract foreign capital, science and technology to China carrying on the “opening up policy” and an outwardly-oriented economy since 1978. (5)

There is no doubt that Tianjin port has a key role in TNCD as well. Official sources pointed out that this port is “the largest international trade port [and] has its cargo handling capacity listed in the world’s top ten”, linking Northern China with more than 300 ports in over 170 countries and regions having trade relations. Following official documents, in 2005 Tianjin Port handled 241 million tones of cargo, 4.8 million TEUs (6). Nearly 70% of imported and exported cargo from the port comes mostly from Beijing, Hebei Province, Shanxi Province and the Inner Mongolia Autonomous Region. (7)

TEDA as a Free Economic Zone (FEZ)

Following researcher Guanwen’s arguments, the PRC started up the coastal regions opening process in Southern China at the beginning of the 80’s and have spread out to Northern China since middle 80’s, and from the coastal regions to interior since the 90’s. However, most of them are still located in coastal regions. Not only the main reason to create these FEZ was initially to attract foreign direct investment (FDI) but also to create an exceptional area as experimental base and tool for the reform and opening-up policy.(8)

Guanwen makes a classification of FEZ depending on their industrial main sector and locations. He distinguishes, for instance, comprehensive, manufacture-based, science and trade-based, and cross-border FEZ and also differentiates some other sub-typologies as Special Economic Zones (SEZs), New and High Industrial Parks (NHIPs), Export Processing Zones or Technologic and Economic Development Zones. TEDA would fit into the last one.

As Guangwen says, FEZ have turned out from their initial model called “Window-Base-Bridge” in the 80’s into “Growth Pole” model in the 90’s. The first model presented FEZ as a China’s window to foreign investment, management experience, and High Technology. Thus the Chinese government wanted to establish the socialist market-oriented economy trough this “bridge”, linking national and international economies. The second model, which FEZ are turned into, also emphasizes FEZ’s direct role as a regional development trailer. Among the major objectives, one of the key topics is the “Aid to the interior” which implies FEZ have the responsibility to provide help to the interior due to the fact that they enjoy privileges and preferential policies, being their final objective to achieve common prosperous life in the whole country. Due to the increasing labor cost, some FEZ’s labor-intensive industries moved to inland and even some FEZ arranged joint-ventures with inland enterprises. Even though in this paper we will not discuss the real success of this system, we want to cite a Guanwen Meng’s example of Shenzhen Special Economic Zone, which in 1995 invested 14 billion Yuan in the interior. (8)

Finally, since the late 90’s FEZ have truly lied over High-Tech, capital-intensive and tertiary industries, changing from Labor-Intensive to Technology Intensive Industries. The preferential policy, as Guanwen argues, “It has been oriented to the new and high-tech industries” (9). The following sections will show some interesting TEDA‘s economic general data, paying special attention to the importance of Electronics and Information Technology Industry.

Economic general data

TEDA’s Development Planning Bureau (DPB) offers a wide range of data, statistics and very useful tables. However, we are going to point out those that we believe are more relevant. First of all, let’s see the major indicators. TEDA’s GDP has been amounted to 78.056 billion Yuan in 2006, 28.8% over the previous year. Breaking down this variable into sectors, the secondary sector amounted more than 65.46 billion Yuan, by 30.2% over 2005: within this sector, industries are the most important adding almost the 99% over the total. The rest belongs to construction sector.

The tertiary sector reached 12.59 billion Yuan, growing 21.58% over the previous year. Inside this sector, Wholesale and Retail, and Real Estate are the most important and both grew over 2005.

The same sources of statistics show us the Total Value of Industrial Output reached 303.016 billion Yuan. If we break down these data, the importance of foreign companies including Hong Kong, Macau and Taiwan funded enterprises is absolute. For instance, their Total Value of Industrial Output amounted 295.223 billion Yuan, that is almost 97.3% over the Total before mentioned. The Sale Income of Industrial Products also grew up 26.3 over the previous year. The Total Value of Exports also grew over 2005 (22.7%) and reached the amount of 17.144 billion US dollar.

The proportions of Major Indicators of TEDA have been also compared to those of Tianjin Municipality by the DPB. TEDA’s industrial sector has become 28.3%. It is really surprising how TEDA’s Total Value of Industrial Output is, proportionally 25% of the whole Tianjin Municipality. On the other hand, TEDA’s Total Export Value, that reached the amount of 17.145 billion US dollar, is slightly higher than the half Municipality’s Total (51.1%). Moreover, the Contracted Overseas Investment in 2006 has been growing in Tianjin Municipality too, reaching the proportion of 40.1%. These data can clarify the important role of TEDA within the Municipality. (10)

TEDA’s Electronic and IT Industry: a key sector

As we said above, TEDA has three major Industrial Parks. Let’s see briefly the comparison among their major economic indicators, made by the DPB.

The results of 2006 show out a very important statement: almost every economic indicator of Microelectronic Industrial Park surpassed the others. For instance, the Total Value of Exports in 2006, accounted in US dollars, has been 4.159 billion, being 0.294 billion the amount that has reached by Yat-sen Scientific and Industrial Park and 35.07 million reached by Chemical Industrial Park, in the same period.

This is quite normal if we realize that the number of accumulative projects of microelectronic founded by foreign companies, Hong Kong, Taiwan and Macao investors together is, in microelectronics field, higher (57) than those project set up in Yat-sen Scientific and Industrial Park and Chemical Industrial Park (30 and 31 respectively). Logically, the accumulative investment in those projects by this set of countries is also the highest over the other two industrial parks and, in addition, the number of employees in Microelectronics Industrial Park is four times bigger than Yat-sen Scientific and Industrial Park, and almost twenty-five times Chemical Industrial Park’s figure. However, this does not mean that the other industrial fields are underestimated; we only want to point out that a very important proportion of the investing flow is going towards microelectronics industry and IT becoming the first pillar industry of Tianjin.

Let’s see now the output of Major Industrial Products to confirm this statement; the major output belongs to “Digital Mobile Phones” (104.723 million sets in 2006, growing 53.3% over the previous year). “Semiconductor Separate Parts” and “Electronic components” had also a big output amount and growing average (14.662 billion pieces / 52.1% - 147 billion pieces / 35.1%, respectively). We should emphasize that those products which achieved the highest growth over the year 2006: among them, “Digital Cameras” (up by 448%), “Mobile Phones LCDs” (up by 156%) and “Mobile Phone Cameras” (around 438%). However, some other electronic devices have decreased their demand, as “Walkie-talkies” (-64% over 2006), Base Stations (-16%) or “Color Monitors” (over 10%).

Of course there are more other no-IT products that they can also been pointed out as chemicals, paints, furniture, plastics but, actually the top-10 of major exported products from TEDA are related to Information Technology and Electronics. So, we might affirm that nowadays this field has become TEDA’s central industry.

Finally, the main countries that TEDA exports its products are the United States, totaled in 4.816 billion US dollar (up by 2.7% over 2005) followed by Germany (decreasing by -6% over 2005) and the three “Asian Tigers”: Singapore, Hong Kong and South Korea, all of them increasing their proportion over the last year. The following, Japan, almost has kept the same level as an export destination. Spain ranks position number 20th, has reached 113.1 million US dollar in 2006, increasing in 83.2 over 2005. (11)

General conclusion

TEDA, within the New Coastal District in Tianjin town, enjoys an excellent geographical position. The growing success of TEDA is in our opinion due to the following reasons: TEDA’s location is facing Japan and South Korea, both regarded as big IT and Electronics markets. Moreover, TNCD is a coastal area with such important port and airport and connects Beijing, Hebei Province and other inland provinces to International Markets and TEDA has become an excellent place for foreign investment. Over 60% (1,037 enterprises) of those foreign companies (including Hong Kong, Taiwan and Macau) are mainly “Solely Funded” while 725 enterprises (40.5%) are “Joint-ventures”. The number of foreign enterprises related to Telecommunications Equipment, Computer, Microelectronics and other Electronic Equipments is the biggest, being the total Project Investment amounted in 7.840 billion US dollar (36% over TEDA’s Total Project Foreign Investment). In that regard, we might consider the IT as the most profitable and attractive industry at present.

Moises Bolekia
Journalist

Notes

(1) See TEDA download center at http://en.investteda.org/informationcenter/downloadcenter/

(2) Ibidem

(3) Xinghua News Agency, June 28th, 2008

(4) Rrnst and Young, “Special Economic Zones and Tax Exemption in China”, available at www.ey.com/ch/china

(5) TEDA Information Center http://en.investteda.org/informationcenter/downloadcenter/

(6) A unit of cargo capacity, especially for container ships. One TEU equals about 34 cubic meters.

(7) TEDA Information Center http://en.investteda.org/informationcenter/downloadcenter/

(8) Meng Guanwen (Yingnan Sun and Cici, ed.), “Experiences and Prospects of China’s Free Economic Zones”, Chinese Business Review, Vol.4, Nº 9, September 2005.

(9) Ibidem.

(10) Development Planning Bureau, Annual Report of TEDA (2006), available at http://en.investteda.org/informationcenter/downloadcenter/default.htm

(11) Ibidem

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