Chengdu: The city of opportunities

by | September 17, 2020

Chengdu: The city of opportunities

September 17, 2020

Many inbound companies face the overbearing question of which city in China to settle in for their company’s expansion, growth or market entry. Usually, traditional tier 1 cities such as Beijing, Shanghai, Guangzhou, and Shenzhen would be the first ones to consider. However, an emerging tier 1 city has been increasingly attractive to startups and investments with its great opportunities.

Chengdu, “the next financial hub of China,” has become the incubator of businesses alongside the traditional first-tier cities in China. Chengdu’s fast economy growth, government stimulus policies, solid industrial base, and extensive high-tech infrastructure have enabled it to secure the 1st place in the “Best-Performing Cities China Report of the Milken Institute” for the third year. Being elevated to tier 1 in year 2019, Chengdu strives to be a city of opportunity.

 

Strategic Location and Stimulus Policies

Chengdu is the capital of the Sichuan province and is situated on the Western edge of the Sichuan Basin. This capital city serves as the economic, financial and commercial center of Southwest China. Due to its strategic location, Chengdu is known as the gateway to Western China. However, this gateway works two ways, Chengdu also is the gateway to Europe from China, as many goods flow through the city.

Being the financial hub of the region, Chengdu plays a central role in multiple major government initiatives such as the “Go West Policy” and the “Belt and Road Initiative (BRI).” To date, there have been tens of billions of RMB in imports and exports generated through the BRI, many of which have flowed through Chengdu. To distribute the benefits of the central government initiatives, the city has implemented stimulus frameworks which are well-funded, organized and sophisticated.

 

The “5+5+1” Strategy: Focus on Key Industries

Chengdu is future proofing its success through establishing its unique “5+5+1” framework. The framework aims to ensure that the economy is diversified in terms of industries, so that a balanced development can be achieved.

The “5+5+1” framework is designed to develop 5 key industries and 5 key fields under 1 cohesive goal: building an open and high value-added industry system through tech innovation. These key industries are:

  1. The electronic information industry
  2. The equipment manufacturing industry
  3. The healthcare industry
  4. New material production
  5. Sustainable agriculture industry

While the key fields of Chengdu are:

  1. The MICE Economy
  2. Financial Services
  3. Modern Logistics
  4. Cultural and Tourism
  5. Living services with a focus on the Internet of Things

As one of the most innovative cities in China, Chengdu has successfully incentivized private and public investments in these key fields and industries. The framework will contribute to fostering industrial clusters and accelerating the construction of a modern industrial system in Chengdu, while creating higher efficiency and subsequently a strong global competitiveness.

 

Free Trade Zones Chengdu

A Free Trade Zone (FTZ) is a specific class of Special Economic Zones (SEZs) in China that are directed by national strategy to boost the economy through market-oriented policies and flexible governmental measures. Foreign enterprises that understand the district goals of the FTZs will have access to better opportunities and be able to capitalize from the strong infrastructure in place.

Chengdu is part of the Sichuan Pilot FTZ that yields 162 billion GBP a year. The Sichuan FTZ was launched in 2017 and consists several key areas: the Tianfu New Area, the High-Tech Development Zone, the Qingbaijiang Railway Port Area, and the Shuangliu Airport Area. The first two areas have a strong focus on technological innovation, R&D, and financial services, while the latter two focus more on logistics and international trade. However, these categories should not be taken to strict, and which location to settle in depends on the specific situation and goals of your company.

The Sichuan FTZ provides tremendous support to foreign enterprises that align their business with its objectives and use their knowledge to solve the technological bottlenecks in the local environment. Therefore, Chengdu is a great market for foreign enterprises, especially SMEs, to explore and enjoy the mutual benefits of an FTZ. Intel Chengdu, the fastest growing plant of Intel on the globe, is a benchmark example to refer to.

 

Opportunities in Chengdu

In addition to the benefits of the FTZ and the city’s fast-growing economy, there are more factors that contribute towards Chengdu’s nature of city of opportunities.

When expanding their businesses to a new market, SMEs usually face difficulties in financing, intellectual protection, and talent recruitment. However, Chengdu has a friendly and forward-thinking environment for foreign enterprises. Below we have highlighted some policies, which are beneficial to foreign enterprises:

  1. establishing an intellectual property demonstration zone;
  2. promoting IP financing to solve corporate financing difficulties;
  3. seeking out SMEs and ensure the longevity of companies’ survival, and
  4. gathering and nurturing top talents through government initiative entrepreneurship platforms.

 

Alongside the general benefits, the multi-faceted approach above have allowed Chengdu to continuously advance its key industrial sectors including biomedicine, e-commerce, and 5G networks.

 

Biomedicine

The development of biomedicine sector in Chengdu is supported by national level policies such as the 13th Five-Year Plan, citywide development initiatives, and a private sector push to streamline the supply chain for biomedical products. In 2016, a plan was unveiled to build a center focused on the import and export of biomedical products from Chengdu’s Tianfu Business Zone. The plan has been officially implemented in late 2019 and will see continued growth and development over the coming years.

Chengdu Customs will bolster its capacity by building a port for drug inspection and storage base to support the commercial and sector development of this field. This Bio-Town has already attracted more than 70 projects worth 90 million RMB.

 

E-Commerce

Chengdu launched its pioneering project by creating cross border e-commerce service resource center, helping over 10,000 enterprises with their e-business. Chengdu acts as a hub to consolidate manufactures, suppliers, logistics companies, and end-buyers. It has streamlined supply chains and made logistics easier partly because of favorable and higher efficiencies. Its strategic location in the west of China is not only good to explore and serve a relatively unknown part of the Chinese market, it also allows for business with surrounding countries.

Furthermore, Chengdu is starting point of several important freight connections between Europe and China. In recent years the number of freight connections between Europe and China has been increasing due to the BRI. Within two weeks goods from Chengdu can arrive in Tilburg, Duisburg, Luxembourg, or Nuremberg to name a few. Many of the freight connections have stops along the route, so multiple countries can be serviced.

 

5G Smart City

In 2019, Chengdu became the first city in the world to implement 5G networks on public transit systems. Huawei and China Mobile teamed up to develop these 5G networks throughout the various business zones to increase speed and efficiency for travelers throughout the city. Working together, all these elements have made Chengdu’s network the most advanced and interconnected 5G network in the world.

 

Why do business in Chengdu?

Specifically for SME’s Chengdu offers one of the best opportunities to do business now and for the future. The city offers a vast domestic consumer market, supply of relatively affordable skilled labor and lower set up costs. Furthermore, competition amongst foreign companies in Chengdu is relatively lower as many initially settle in the East of China. It makes the environment suitable for companies that seek lower barriers of entry at more affordable cost base. Such industries such as Start Ups and SMEs are more likely to yield higher rates of return on investment then traditional well-established cities. The city is already very well established, however almost everyone will know its name in a similar manner as Shanghai, Beijing, or Shenzhen.

Its continued innovation drive and linkages of resources creates a progressive infrastructure for companies to upscale. The upscaling process can be from the rise in demand, creation of new opportunities and a rise in export production, particularly with Chengdu key position at the gateway to Europe.

With realignment of logistics moving from Hubei as a diversification strategy, Chengdu is in line to take even more business in the coming years, starting in 2020. Obviously, deciding to start your business in Chengdu depends on a lot of factors. The location of establishment should not be picked haphazardly. Having a market penetration strategy is ideal for the South West China which can also be then scaled up nationwide once businesses have matured into the growth phase of this business.

If you are interested in Chengdu, or if you are looking for a party to discuss your business plans, feel free to reach out to us at info@1421.consulting, or schedule a meeting here. We will give you initial advice without strings attached and promise to make sure we strive for your business success.

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What happened in the year 1421?

From 1421 to 1423, during the Ming Dynasty of China under Emperor Zhu Di (朱棣) the fleets of Admiral Zheng He (鄭和), commanded by the Chinese captains, discovered Australia, New Zealand, the Americas, Antarctica, the Northeast Passage; and circumnavigated Greenland.

Due to this endeavour we can conclude that “1421 is the year that the Chinese discover the world”.