Higher costs force firms to look elsewhere
SHANGHAI: The high land and labour costs of China's key cities are forcing multinational companies (MNCs) to move their industrial facilities to second-tier areas. Shanghai, Beijing and Guangzhou should rethink their role, said Jones Lang LaSalle, the world's leading real estate consulting firm.
In Shanghai yesterday, the company released its new China Industrial Guide that validates the movement of industrial sites to second tier cities. The guide gives executives in the property market an oversight to the rapidly changing industrial market in China.
"Our clients have noted the increasing cost of labour and land in Beijing, Shanghai and to some extent, Guangzhou. This means that industrial investment will be pushed further inland. In the Yangtze River Delta area, this means going beyond Suzhou to Hefei, Nanjing and Wuxi," noted Hart, head of research at Jones Lang LaSalle China.
"This is true for the other key areas as well, we see a potential trend among MNCs to consolidate their industrial resources in China, which presents both opportunities and challenges for China's young yet vibrant industrial real estate (market)," he said.
In addition to providing a thorough overview of China's industrial property landscape, the industrial guide also focuses on six major economic regions, namely the Greater Bohai Bay, the Greater Yangtze River Delta, Southern China, Western China, North-eastern China and Central China.
Among the six major economic regions, the Greater Bohai Bay Area, the Greater Yangtze River Delta Area and Southern China are the industrial hubs that continue to power China's robust economic growth. Together, these three regions contribute more than half of the national GDP with only 34 per cent of the population and 10 per cent of China's land total.
However, the cost of doing business in these regions is relatively high. The recent more favourable investment policies, adopted by the central and local governments pertaining to investing in northeastern and western China, have resulted in attracting significant foreign investments.
The level of overseas investment in China has grown dramatically in recent years, with actual foreign direct investment topping US$60 billion in 2004. A significant component of this investment has been in the establishment of factories, warehouses and research & development (R&D) centres.
Kenny Ho, Senior Manager of at Jones Lang LaSalle China said the industrial land price in key cities is 30-40 per cent more than that of the second-tier cities in China.
It is difficult to find good quality industrial space close to Shanghai due to supply constraints and high land, utility & labour costs. As with other areas, the central government's tightening of industrial land supply in 2004 has added to the supply constraints, the Guide said.
As the industrial facilities move inland, the leading cities need to develop and grow into strong bases for MNCs' regional headquarters and provide centres for R&D facilities, Ho said.
The major industrial cities including Beijing, Shanghai and Guangzhou will still be the choice destinations for more sophisticated manufacturing, including some aerospace and pharmaceutical operations, the guide said.
Jones Lang LaSalle's Guide also provides China's more than 4,500 industrial parks with an overall picture of the lay of industrial land, thereby helping them to find advantageous footholds.
Ho said whilst MNCs are finding locations for industrial facilities outside the main cities in China, second-tier cities are also facing competition from foreign cities, such as those in Brazil and India.