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Graphic China: Foreign Direct Investment Clusters

The World Bank showed in its 2006 report “China Governance, Investment Climate, and Harmonious Society: Competitiveness Enhancements for 120 Cities in China” that a great deal of Foreign Direct Investment (FDI) in China clusters in areas in which the GDP per capita for the location is about rmb8,000 (US$1,100) (see graph above). In general, Chinese cities with these levels of per capita wealth are quite small – at or just below populations of one million - typically outside the band of wealth along the east coast. The cities would rate as fourth- and fifth-tier cities like Anqing, in Anhui Province (US$1,095); Hengyang, in Hunan Province (US$1,260); and Jingzhou, in Hubei Province ($1,625), among others. Industries in these towns and townships include plastic injection molding – for toys and household appliances, for instance – textile industries that were once the domain of more wealthy neighbors, and chemical plants whose lack of capital base made them too hazardous to be in wealthier areas.

The value of FDI per capita in these lesser known areas is relatively low, less than US$50 per capita. Typically, the kind of foreign investment that flows into such locations derives from Asian countries: Taiwanese looking for bargains in land-purchase and operator-salary costs; Hong Kong investors escaping rising costs in the Hong Kong territories and Guangdong province; Wenzhou entrepreneurs from Zhejiang province and other Chinese that set up offshore entities that then invested in China as foreign enterprises to take advantage of the preferential tax treatments foreign companies enjoyed until the end of 2007.

At roughly twice the GDP per capita another cluster of FDI appears that is about two to three times the value per capita of the first cluster, in the fourth- and fifth-tier cities. The value of foreign investments in the third- through second tier cities is more dispersed than in the fourth- and fifth-tier cities, with anywhere from two to four times the value of the first group. Cities at the GDP per capita inflection point include: Hefei and Wuhu, in Anhui Province; Nanchang, in Jiangxi Province; and Huzhou, in Jiangsu Province.

A final FDI data point indicates that high-value FDI investments typically reside in wealthy areas, in which GDP per capita is upwards of US$6,000. High-value investments appear in the first-tier cities like Beijing and Shanghai, and are associated with high-technology sectors such as semi-conductor fabrication facilities and telecommunications equipment production. A fair number of cities rank as second-tier cities because of their size, but are first-tier in their GDP per capita, including Suzhou, Wuxi, Dalian and Qingdao. The overwhelming majority of investment from Western companies is bound up in cities around this single statistical dot, and is just bursting to divest to other regions throughout China and Southeast Asia.

Bill Dodson
SUZHOU, China