Industrial Parks in Inner Mongolia
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China Knowledge Press Pte Ltd
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© China Knowledge Press Pte Ltd, 2010
China Knowledge Rating System and Year 2010 Rating Results
Rating China’s Industrial Parks
The culmination of years of research, surveys, interviews and site visits, the China Knowledge Rating System assigns ratings to industrial parks based on five broad factors subdivided into 21 attributes with a view to guiding foreign investors looking to set up in China.
The Rating System not only indicates the best industrial parks in China, but also serves as a guide to understanding China’s economy and future directions for development and to finding the hottest investment spots in a vast land of approximately 9.6 million sq km.
The rationale behind this large-scale research project, and the resulting Rating System, lies in the significance of industrial parks to China’s economic development and to the country’s ability to attract foreign investment.
However, the Rating System also offers more to investors; it allows existing and potential investors to gauge investment locations to find the one that will best suit their business needs. The Rating System is based on factors that include location, infrastructural development, contracted and utilized foreign direct investment (FDI), availability of human resources and administrative efficiency, giving investors a good sense for which industrial park is most suitable for their particular industry, product or service.
The importance of industrial parks to China’s economy cannot be underestimated. In 2008, the GDP of 54 state-level Economic and Technological Development Zones (ETDZs) reached RMB 1.53 trillion (US$220.3 billion), accounting for 5.1% of the nation’s total. Meanwhile, the 54 state-level High-tech Industrial Development Zones (HIDZs) contributed 9.7% of China’s total value-added industrial output.
Similarly, in terms of attracting FDI, these industrial parks have played a pivotal role. In 2008 the utilized FDI secured by state-level ETDZs reached US$19.5 billion. This translates to 21.1% of the national total. While data is not yet available for HIDZs and Free Trade Zones (FTZs), estimates based on past data indicate that state-level ETDZs, HIDZs and FTZs attracted an amount equivalent to nearly one-third of China’s total utilized FDI each year.
The ability of industrial parks to attract FDI is an important consideration for many foreign investors. Certainly, areas that attract the most foreign investment are the hottest destinations for subsequent capital inflows; they are also the areas that are developing faster and promising and delivering returns.
With hundreds of industrial parks to choose from, finding the ideal industrial park can be problematic for foreign investors unacquainted with the local context. An evaluation of industrial parks is thus particularly critical to aid such investment decisions. Additionally, as many major industrial players are based in industrial parks, in-depth, detailed descriptions of important industrial parks will guide investors in mapping out the industries they are most interested in.
Scope of Ratings
Industrial parks in China are of varying sizes and are at different levels and stages of development.
Some industrial parks are located within other industrial parks. For instance, Export Processing Zones (EPZs) are subsumed under ETDZs or HIDZs, in order that they may leverage the established facilities and resources of the enterprises in the ETDZ and HIDZ. Hence, some EPZs are not graded individually, but as a part of the larger ETDZ or HIDZ within which they are located.
Likewise, Software Development Parks (SDPs) and University Science Parks (USPs) are usually located within a High-tech Industrial Development Zone or High-tech Park (HIDZ). SDPs and USPs are thus also not given individual gradings. Rather, it is the respective HIDZs or HIDZs in which they are located that are rated, taking into consideration the contributions of these SDPs and USPs.
An even more unique case is that of Guangzhou Development District. It administers four state-level development zones: an ETDZ, an HIDZ, an FTZ and an EPZ. In this case, the district is graded as a whole, rather than as four different zones.
Border Economic Cooperation Zones are specifically designed for border trade and export-processing business. Because they are economically small and located in remote areas, they are excluded from our rating system.
Holiday Resorts are specifically designed for tourism. They are also excluded from our rating system.
The scope of the Rating System hence encompasses ETDZs, HIDZs, EPZs and FTZs.
Selection of Factors
The China Knowledge Rating System for China’s Industrial Parks (henceforth, CK Rating) is based on key factors that each have a significant impact on investment decisions. It asks the question: what are business people most concerned with vis-á-vis possible locations?
Taking into account regional competitive advantage, economic performance, infrastructure and other factors, CK Rating evaluates the various industrial parks.
CK Rating Comprises Five Categories:
Macroeconomic Performance of Local Area;
Level of Development of the Industrial Park;
Local Investment and Operating Costs;
Local Skill Level and Availability of Human Resources;
Quality of Management and Administration.
Of course, the weightings for these categories are not the same for all types of investment. For example, land resources and transportation are more important for manufacturing than for research. CK Ratings allow for this difference.
Weightings tailored to production enterprises and R&D enterprises, the two major types of enterprises that invest in China’s industrial parks, yield ratings that enable a company of either type to find the most suitable park.
Sources of Data
The sources of data used in assessing industrial parks include on-site studies conducted by China Knowledge, surveys prepared by China Knowledge and completed by industrial parks, news related to industrial parks, data released by government agencies that include the National Information Center, the Ministry of Commerce, and the China Torch Program Committee, and the websites and brochures of industrial parks.
Rating Mechanism
A value is assigned to every attribute in each category according to standardized criteria. This value is a figure between 0 and 10 (0 for least desirable and 10 for most desirable). Based on the value assigned and the weighting of the attribute, a figure (e.g., X) is reached. Adding up these figures for every attribute in the same category, a new figure is derived (e.g., Y). Based on the weighting of that particular category, a percentage of Y (e.g., Z) is derived. The final figure, Z, is calculated for all categories, and an overall score is derived. This overall score is then matched against a set of grades, AAA, AA, A, BBB, BB, B and C, which are the possible ratings given for industrial parks.
It is a straightforward matter to assign values for attributes such as GDP and fixed asset investment. The values for attributes such as accessibility and efficiency, which are more difficult to evaluate, rely on China Knowledge’s on-site studies and interactions with the relevant administrative bodies. Media reports are also used as reference points.
Discussion
To determine the overall value in the first category, the most important aspects of the host city are its GDP and transportation system. Most investors invest in cities of high GDP, that have a large market, well-developed infrastructure, comprehensive upstream and downstream industrial chains, a good financial system and a rich talent pool. In addition, they consider the geographic location of the city, the throughput of ports and airports, the logistics volume of the city and the city’s infrastructure for transportation.
Other factors, such as fixed asset investment, are related to GDP. The ratio of fixed asset investment to GDP is used instead of the investment value to exclude the effect of the economic size. The evaluation of foreign trade is similar.
The evaluation of the financial services in a city considers the gross loan balance of its financial institutions and the presence of foreign banks in the city. The natural resource reserves factor is based on the availability of resources such as minerals, energy sources, agricultural products, forest products and marine products in the province in which the city is located.
The value-added industrial output of an industrial park and the amount of FDI attracted are the most important contributors to the overall value of the second category.
The third category, investment costs, recognizes the competitive advantage of cities where land, utility and labor costs are lower. Industrial parks in advanced regions such as Shanghai, Beijing, and Shenzhen have substantially higher costs than parks in other regions.
The value of the fourth category, the availability of university students and workers with high-level skills, can be estimated from enrollment in universities and technical schools. In this category, Beijing, Shanghai, Guangzhou, Wuhan, Nanjing and Tianjin ranked highest.
The last category, management and administration, generally known as the city’s “soft environment,” include four factors: administration, promotion of investment, IPR protection, and environmental protection. Industrial parks in coastal regions generally enjoy more open management styles and tend to be more efficient and transparent. Industrial parks in Shanghai, Shenzhen, Suzhou, Beijing, Tianjin, Guangzhou, Hangzhou and Dalian are among the best in terms of management and administrative factors.
Value-added industrial output, exports and transportation are the most important factors for manufacturing enterprises, but R&D companies have different priorities. The factors they are most interested in are the supply and cost of human resources, value-added output and IPR protection. The difference is reflected in the weights used in the rating system.
Rating Definitions
After all of the industrial parks were evaluated, the results were sorted. Industrial parks are given standard ratings, as follows:
AAA
This is CK Rating’s highest rating. Industrial parks with an AAA rating are the most established and have the best investment environment. These industrial parks are strongly recommended.
AA
Industrial parks rated AA are highly attractive and are highly recommended. However, in comparison with industrial parks given the AAA rating, these industrial parks still lag behind in some areas. The most typical types of disadvantage are small economic size as reflected in the GDP or FDI, high investment costs and limited land resources.
Together with AAA-rated industrial parks, these industrial parks are considered first-tier industrial parks.
A
Industrial parks rated A have above-average investor appeal. Basic conditions are adequate, but improvements are still needed in some areas.
BBB
Industrial parks rated BBB are considered attractive at an average level. They have less-than-adequate investment conditions and may have some flaws. They may be promising industrial parks but there are uncertainties regarding future development.
BB
Industrial parks rated BB are considered attractive at a below-average level. Industrial parks with this rating are typically either in the development stage or are lacking certain important elements.
B
Industrial parks rated B are viewed as poorly established. Much effort is necessary for the creation of an attractive investment environment in these parks.
C
Industrial parks rated C are viewed as least attractive. These industrial parks are not recommended for investment.
Western Regions
Inner Mongolia
Baotou
Major Economic Indicators (2008)
Source: Baotou Economic and Social Development Report 2008
Introduction
Baotou is the largest industrial city in the Inner Mongolia Autonomous Region. Central Baotou has mountains and hills, with plateaus and grassland to the north and plains to the south. The Yellow River runs through the city from west to east. Baotou is rich in mineral resources, especially in metallic minerals; it is called the rare earth capital in China.
Baotou is home to people of 37 different nationalities that include Mongols, Han, Man, Hui, Dawuer and Ewenke.
Economic Features
Baotou has the largest economy of the Autonomous Region. Its GDP was RMB 176.0 billion in 2008, up 19.6% year on year, and accounted for approximately 22.7% of the region’s total.
The city’s five pillar industries, namely iron and steel, aluminum, equipment manufacturing, electricity and rare earth metals, in 2008 realized a combined value-added industrial output of about RMB 65.0 billion, accounting for 84.5% of the city’s total from enterprises above the designated size.
In 2008, the total foreign trade and utilized FDI of the city were US$2.34 billion and US$820 million, up 27.1% and 31.5% year on year, respectively. The city’s major export goods are iron and steel, rare earth metals, aluminum products and yarn, while its key import goods include metal ore, materials and mechanical and electrical products. The major trading partners of the city include South Korea and the U.S.
Cultural Highlights
Baotou is a multicultural city. Tracing back through the history of Baotou, many northern minorities such as the Huzu, the Xiongnu, the Xianpi, the Roran, the Tujue, the Huihu, and Mongols lived in the city. It has been an important place for the military because of its geographical position to the north of Yellow River guarding Beijing and inland China.
Tourist Attractions
There are many tourist attractions in Baotou, including the Wudangzhao Lamasery, which is the largest Tibetan Buddhist Temple in Inner Mongolia, the Great Wall of the Qin Dynasty, the Xilamuren Grasslands, Resonant Sand Bay, Mount Jiufeng and Zhao Jun Island.
Baotou is famous for its comprehensive mix of Chinese cuisines; the northern preference for wheat is offset by Baotou’s many rice dishes, while the western preference for beef and mutton is combined with the southern and eastern fascination with pork.
Baotou National Rare-earth High-tech Industrial Development Zone
Facts and Figures (2008)
Source: Baotou National Rare-earth High-tech Industrial Development Zone
Introduction
Located in Baotou, the largest industrial city in the Inner Mongolia Autonomous Region, the Baotou National Rare-earth High-tech Industrial Development Zone was established in November 1990, and approved by the State Council in November 1992 as a state-level development zone.
The zone has a well-developed transportation network; it is a mere 6 km from the train station and a further 16 km from Baotou Erliban Airport.
Investment Climate
In 2008, the GDP of the zone amounted to RMB 15.0 billion, accounting for 8.52% of city’s total. As of the end of 2008, the zone had 26 high-tech enterprises at or above the designated size related to rare earth metals. These enterprises realized a gross industrial output of RMB 4.45 billion in 2008, accounting for 45% of the city’s output from the rare-earth industry.