China’s Industrial Heartland Aiming to Attract Foreign Manufacturers

As manufacturers continue to leave China due to rising taxes and labor costs, some provinces in the country’s industrial heartland are now cutting red tape to reduce the outflow and attract new investment.

Local government in Liaoning province is now offering discounted factory space, easier company registration, and what many say is a more welcoming business climate. The move is part of a broader effort to revitalize the region as government aims to replace failing infrastructure with foreign manufacturing operations and startup companies.

The New York Times compared the region to the U.S. Rust Belt. As state-owned and inefficiently run enterprises crumbled over the past decade, there hasn’t been enough new private investment to fill the void. The province admitted to faking economic growth figures between 2011 and 2014, and it is the only province in China that went into an official recession in 2016.

And as much as the federal, state and local governments have done to incentivize development in parts of the MidWest, China is now doing the same for its own Rust Belt. Shenyan has set up a $7 million fund to support high-tech industries along with promises of reduced corporate tax rates for companies in favored sectors.

“There’s a lot to catch up on, but now they want to work with us as a team.”

While much is geared toward small innovators, it also has been enough to attract large multinational manufacturers. The province opened up the Liaoning Pilot Free Trade Zone early this year and is constructing the Sino-German Intelligent Equipment Park in Shenyang. The park spans 48 square kilometers and already has tenants such as Siemens, BMW and BASF. China Daily said the park merges advanced German technologies with the production strength of Shenyang to create a hub for innovation and manufacturing.

“Nowadays, there is more government support for foreign business here. There’s a lot to catch up on, but now they want to work with us as a team,” Jason Lee, a director of business development for Eastern America, told IndustryWeek.

A survey by the European Union Chamber of Commerce in China found that foreign firms feel more welcome there than in anywhere else in the country. Harald Kumpfert, chairman of the chamber’s chapter in Shenyang told IndustryWeek that the government offers many benefits, including three-year visas for family members.

It remains to be seen if the new efforts will be enough to attract large foreign manufacturing investments. While China was once a haven for manufacturers seeking cheaper labor, more foreign firms have been leaving in recent years due to rising taxes, rising labor costs and growing competition with domestic companies. CNBC noted that Panasonic stopped all manufacturing of televisions in the country in 2015 after 37 years. Hard drive manufacturer Seagate also closed its factory in Suzhou in early 2017.

Chong Tai-Leung, a professor at the Chinese University of Hong Kong, told CNBC that China doesn’t need foreign companies so badly as it did in the past “so of course, the government is likely to gradually phase out more of these preferential policies for foreign firms.”

Those operating in the region say while there’s hope that investment from foreign manufacturers will build momentum in rebuilding the region, challenges remain as permitting is reportedly holding off more than a dozen potential foreign investments.

PQI Industrial Technology Group opened a factory in the China-Germany Equipment Manufacturing Industrial Park area last year to produce auto parts for BMW. PQI Chairman Liu Qi told the New York Times that while there are great opportunities, development will happen slowly. “Shenyang still has a long way to go. It is like grass that you burn to the ground. It is going to grow back. You just don’t see it at the moment,” Qi said.