In China, inland cities target high-tech manufacturing

Several of China's inland cities are skipping over the manufacture of dollar store goods and aiming instead to make the high-tech products you covet the most.
Written by Andrew Nusca, Contributor

"Made in China" has long been derogatory in the United States, but several of China's inland cities are skipping the dollar store goods and going straight for the products you covet the most.

In a recent report, The Economist Intelligence Unit highlights cities such as Xi'an, Chongqing and Hefei as examples of a new class of manufacturing hub in China -- burgeoning centers for automotive, solar panel and semiconductor manufacturing that have little or no history in high-volume, cheap goods manufacturing that "Made in China" is known for.

The authors write:

Typically, industrialisation is a process that begins with labour-intensive light industries such as garments manufacturing, followed by capital-intensive heavy industries and ultimately technology-intensive manufacturing. That was the path followed by China's most developed provinces—Guangdong, Zhejiang and Jiangsu all cut their teeth in the production of cheap goods such as toys, lighters, watches and clothing. Given today's trend of manufacturers seeking out lower-cost inland locations away from the expensive coastal regions, one would expect cities such as Xi'an, Chongqing and Hefei to follow a similar path.

That, however, has hardly happened. Chongqing and Anhui have climbed to fourth and sixth place (out of 31 provinces) in provincial passenger car production in 2010. Chengdu, after securing its first major investment from Intel, a US-based chipmaker, in 2004, consolidated its high-tech hub status after the firm relocated its Shanghai plant there in 2009. Xi'an became home of the world's largest private-sector solar panel research facility, set up by US-based equipment firm Applied Materials in 2009.

The key phrase here: "foreign direct investment." China is becoming the export capital of the world for electronics and other highly technical products.

For those who read the news regularly, that's no surprise. Your iPhone is designed in California but manufactured in Chengdu. Your HP laptop is assembled in Chongqing, not Palo Alto.

What made it possible for China to scale up its manufacturing ambition?

The Economist makes two suggestions:

  • Infrastructure. "The completion of a national highway network in the short space of half a decade has helped, as has new port logistics facilities for cities with waterway access." Not to mention all that high-speed rail.
  • Cheap labor. "With much lower rates of urbanisation, inland provinces have a larger reserve of rural workers ready to be employed in factories." Moreover, inland educational institutions are producing many graduates who seek employment.

And I'll add a third: political support. Because when you have a relatively authoritarian state -- as opposed to a multi-party federation -- it's easier to clear the way for action. (And clear they did: the inland cities' success is the result of strong support going back at least a year.)

It's no surprise that China continues to improve its economic standing. The question: can it, and does it want to, innovate?

Illustration: The Economist Intelligence Unit

This post was originally published on Smartplanet.com

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