The State Council's approval of the experimental zone for an "airport-based economy" marked a victory for Zhengzhou, a megacity in central China. In just two years the city has shaken off a reputation as a backward region dominated by agriculture and heavy industry, grabbing headlines as the fastest-growing electronics manufacturing centre in the country. In 2012 high-tech exports from the city more than tripled to US$15.9bn, making it competitive against other rapidly growing tech manufacturing centres, such as Chengdu in Sichuan province (US$16.5bn, up 52.2%) and the western municipality of Chongqing (US$14.9bn, up 152%).
Build it up
Policy initiatives favouring these cities reflect long-running efforts to transfer coastal manufacturing to areas that have traditionally served as a major source of migrant workers. Until relatively recently, Zhengzhou's logistics development lagged behind that of other inland cities. However, the rapid development of road and rail infrastructure over the past few years has made the city into a top contender for industrial transfer from Guangdong and Jiangsu. The city is now a central location on China's high-speed rail network, which has freed up older railways to carry more freight. It sits on the Beijing-Guangzhou and the Zhengzhou-Xi'an high-speed railways, linking it to Beijing, Xi'an, Wuhan and Changsha. By 2016 it will be linked to Shanghai via the Zhengzhou-Xuzhou high-speed railway. The city's road connections to other parts of the country have also been overhauled.
Zhengzhou cemented its leading role in the central region in November 2012 with the approval of the Central Plains Economic Zone, which provides government support for the region's automotive, logistics, agriculture and tourism industries. Central to Zhengzhou's logistics strategy is boosting air freight capacity. The city announced in December 2012 that it would raise annual cargo-handling capacity at its Xinzheng International Airport to 500,000 tonnes by 2020. The airport was the fastest-growing cargo airport in the country in 2012, as throughput jumped from 103,000 tonnes in 2011 to 151,000 tonnes. However, the total remained lower than the tonnage handled in Chongqing (269,000 tonnes) and Chengdu (508,000 tonnes). The new Airport Experimental Zone envisions the city turning into a "megahub" by 2025, with the expansion of cargo and mail-handling throughput capacity to a staggering 3m tonne a year by then. This would match the current throughput of Shanghai Pudong International Airport.
The zone is expected to support a Rmb1trn (US$163bn) high-tech manufacturing centre, including a free-trade area. The government is depending on growth in local work opportunities to underpin ambitious urbanisation plans in the province. The city aims to increase the resident population to 15m by 2020, up from 9m currently. In addition to the 4m people that are expected to move into the Airport Experimental Zone, the city aims to double the population of an eastern district, Zhengdong New Area, from 2.5m to 5m. The suburban areas in the west of the city are also slated for development.
Made in Zhengzhou?
But even with national-level support, Zhengzhou still has a long way to go. Its development as a high-tech exporter lags behind that of Chongqing and Chengdu. At the moment exports are overwhelmingly dominated by the local production base of Foxconn, a Taiwan contract manufacturer, for the iPhone, a popular smartphone designed by a US-based technology company, Apple. By contrast, Chengdu and Chongqing already host several other major high-tech companies, such as Taiwan's Asus in Chongqing.
Zhengzhou will be able to draw on a large labour pool to staff new manufacturing capacity. The rural hinterland of Henan remains sizeable, retaining more than 50% of the province's population. More of them are opting to work closer to home; in 2011 the number of migrant workers leaving their hometown to move to another part of the province surpassed the number leaving the province for the first time.
However, manufacturers in Sichuan and Chongqing can also draw upon a comparable local labour pool, and wages in Zhengzhou are rising quickly. According to local hiring managers, monthly wages for new workers at the Zhengzhou Foxconn plant increased from Rmb1,350 in 2011 to Rmb1,800 (US$293) as of June 2013. The company was forced to raise wage rates during a hiring spree that saw the factory triple employment from 100,000 in 2011 to 300,000 by end-2012. The rate has surpassed that offered in the smaller Foxconn plant in Chongqing, which offers Rmb1,550 for starting workers. Hiring managers also report that, more broadly, monthly wages for young unskilled workers in Zhengzhou have grown from Rmb1,000 to over Rmb2,000 as local companies struggle to maintain their workforce in the face of competition from Foxconn.
After the initial boost from Foxconn, the city's industrial development will depend largely on the success of improved logistics in luring in more manufacturing activity. New companies are reportedly delaying investment until the new infrastructure is put in place. In the meantime, this leaves the city particularly vulnerable to changes of strategy at Foxconn, as well as any variation in overseas and domestic demand for Apple's iPhone. A continued upward trajectory is far from a foregone conclusion.
© 2013 The Economist Intelligence Unit Ltd. All rights reserved.
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