ECONOMIC ENVIRONMENT:

Foreign Trade & Foreign Investment structure at district level.

FOREIGN TRADE AND FOREIGN INVESTMENT

Fueled by foreign and domestic investment, Chengdu has become more closely integrated with the world. In 2006, its foreign trade surged to US$ 6.95 billion, one of the highest in Central and Western China. From 2001 to 2006, the average growth rate of foreign trade was nearly 30%. And in 2006, its growth rate reached 53.3%, which was more than twice that of China’s national figure.

It is also noted that Chengdu’s net export has surged from a US$ 0.11 billion deficit to a US$ 1.33 billion surplus, a clear indication that Chengdu is playing an increasingly important role in China’s export driven economy.

Figure 2.6 Chengdu Foreign Trade (2001-2006) (Unit: US$ billion)

While Chengdu’s top trading partners include the U.S., Hong Kong, Japan and Korea, China’s traditional major trading partners, Chengdu’s top trade partners also include countries like India, Romania and Pakistan. On the one hand, it shows that Chengdu might have a niche in foreign trade. On the other hand, it also shows that there is much potential for Chengdu’s foreign trade to grow.

Table 2.4 Top10 Export Destinations of Chengdu in 2006

 

Table 2.5 Top10 Import Sources of Chengdu in 2006

The same time, with Intel and Semiconductor Manufacturing International Corporation (SMIC)’s move into Chengdu, IC products have emerged as another important export product line.

For export products, clothing, textile and shoes are the most important product lines, which are the traditional strength of Chengdu’s light industry. At the same time, with Intel and Semiconductor Manufacturing International Corporation (SMIC)’s move into Chengdu, IC products have emerged as another important export product line. In 2006, the export value of IC and micro assemblies reached US$ 361 million, 21 times the value in 2005. With more manufacturing facilities scheduled to commence operation, we expect a further growth in the next few years. Other important products include steel, machinery and electric equipment.

Table 2.6 Major Export Products of Chengdu in 2006

In terms of import products, Chengdu’s IC industry has seen rapid growth in its IC product imports as it is mainly a downstream-testing and packaging location. In 2006, IC and micro assemblies import value reached US$ 655 million, 12 times the value in 2005.

Table 2.7 Major Import Products of Chengdu in 2006

In Chengdu’s top 10 exporters list, it can be seen that most of them are trading companies, which might indicate that Chengdu’s manufacturers are mainly small in size. The three exceptions are Dongfang Electric Coporation, one of the three power plant equipment manufacturers, Intel and Pangang, one of the major steel producers in Western China.

Table 2.8 Top10 Exporters of Chengdu in 2006

At the moment China’s foreign trade is largely comprised of processing trade, which essentially entails the import of raw materials and components, assembling them and then exporting the final products. Hence, an exporter in China is often a big importer as well. Therefore, it is not surprising to see that Intel, Dongfang Electric Coporation and Pangang also topped the Chengdu importers list in 2006.

It is also important to note that since Chengdu is China’s fifth biggest aviation hub (Chengdu Shuangliu Airport ranked the sixth largest airport both by passenger turnover and freight turnover, notwithstanding, there are two airports in Shanghai), two airline related companies are also featured in its top 10 importers list.

Table 2.9 Top10 Importers of Chengdu in 2006

In terms of foreign direct investment, Chengdu has stagnated after China’s entry to the WTO at the end of 2001. The city even witnessed a significant dip in utilized FDI in 2004. But FDI inflows saw a rebound in 2005 and have in fact been accelerating since. In 2006, utilized FDI reached US$ 760 million, 38.2% higher than 2005. Its contracted FDI, an indicator for future FDI inflows, reached US$ 2.05 billion, 41.4% higher than 2005.

Figure 2.7 Chengdu Utilized FDI (2002-2006) (Unit: US$ million)

From 2002 to 2006, accumulated utilized FDI flowing into Chengdu reached US$2.43 billion. Hong Kong, British Virgin Islands, the U.S., Singapore and Taiwan topped the list.

Table 2.10 Top 10 Foreign Countries Investing in Chengdu (2002-2006)

Manufacturing has been the most important sector for foreign investors, followed by real estate. From 2002 to 2006, utilized FDI flowing into these two sectors reached US$ 858 million and US$ 845 million, respectively. They accounted for 39.4% and 38.8% of total utilized FDI, respectively. It is noted that the share of manufacturing
is significantly lower than the national average while real estate is significantly higher than national average.

Table 2.11 Top 10 Sectors with Highest FDI in Chengdu (2002-2006)

 

This trend became more apparent in 2006 when the real estate sector’s utilized FDI reached US$ 448 million, or 59.0% of total utilized FDI, which was more than double the share of the manufacturing sector.

In contrast, the share of utilized FDI in real estate and manufacturing sectors in China’s total utilized FDI inflows (excluding the financial sector) was 13.1% and 63.9%, respectively. With China stepping up efforts to deter "hot money" flowing into sectors, like real estate, we expect FDI flowing to this sector to be more muzzled in the future.

While the much higher-than-national-average share of real estate FDI in Chengdu may hint at the value of its property market, the much-lower-than-national-average manufacturing sector could also point towards potential accelerated growth ahead given Chengdu’s unique competitiveness.

Table 2.12 Top 10 Sectors with Highest FDI in Chengdu in 2006