Foshan’s Changing Economy: Opportunities for Foreign Investors

May 3, 2017 Posted by China Briefing Reading Time: 5 minutes

By Antonio De Michele

Foshan is the third largest city in China’s wealthy Guangdong Province, and part of the immense Pearl River Delta Economic Zone.

In 2015, Foshan’s GDP reached RMB 800 billion (about US$123 billion). That year, it attracted US$2.4 billion in foreign direct investment (FDI), with an average investment size of around US$10 million – also the third biggest in Guangdong.

The city’s economy revolves around manufacturing, including the production of various types of machinery and equipment. Particularly relevant is the consumer electronics industry, which manufactures half of the world’s air conditioning units and refrigerators.

However, in alignment with China’s broader efforts to overhaul the country’s manufacturing industry, Foshan’s economic structure will pivot on the so called ‘Made in China 2025’ program, leading to new opportunities for foreign investors in the city.

The Foshan High-Tech Industrial Development Zone

Approved in December 1992 by the State Council, the Foshan High-Tech Industrial Development Zone (hereinafter referred to as FHIDZ) covers an area of about 48.6 km and is located close to the centre of Foshan, benefiting from the city’s proximity to Guangzhou, Shenzhen, Hong Kong, and Macau.

The area has become one of the most important spots for China’s tech industry, and has developed a complete industrial chain for equipment manufacturing integrating R&D, engineering design, core components, precision machining, system integration, brand promotion, and high-end exhibitions.

The main industries in the FHIDZ include home appliances, pharmaceuticals, auto parts, electronics, new materials, optoelectronics, and the more traditional food and beverage, ceramics, and textile businesses.

Nanhai Park, in particular, is the biggest park of the FHIDZ. The park has rich land resources, is well located, and is equipped with plentiful infrastructure and facilities.

Nanhai Park is also the first comprehensive experimental zone for finance, science and technology, and industrial integration innovation in Guangdong. Chimei, Honda, and Toshiba are some of the most important investors in Nanhai Park. HSBC has also opened its mainland service center in the area, proving the growing interest for investments in the banking, security, and insurance sectors.

Other important zones in the FHIDZ are the Shunde District, in which Toyota and Nortel are located, and Chancheng District, which was designated the “National Torch Plan Foshan Precision Equipment Manufacturing Base” in 2008, and has many businesses operating in electronics, machinery, and construction materials industries.

Investment policies

Though Foshan’s economy is reliant on the secondary industry, the local government has made efforts to encourage the growth of the tertiary industry.

In particular, the Guangdong Finance High-tech Service Zone, located within Nanhai Park, promotes the growth of financial services and attracts foreign investments in the area.

The latest figures from June 2015 show that the Guangdong Finance High-tech Service Zone has attracted 237 enterprises with a total investment amount of RMB 51.8 billion (about US$7.43 billion). The projects cover many financial business sectors, such as banking, security, private VC, financing and renting, and internet finance.

The Foshan government aims to build a Financial Silicon Valley to provide financial support for the development of high-tech industries throughout Guangdong province and the rest of China, and to attract top talents from both China and abroad.

Made in China 2025

In 2015, the central government launched the ‘Made in China 2025’ program, with the goal of turning China into one of the leading industrial countries by 2049, drawing direct inspiration from Germany’s ‘Industry 4.0’ plan.

As part of the strategy, the government will utilize financial and fiscal tools, support the creation of manufacturing innovation centers, strengthen intellectual property (IP) rights protection, and promote a more effective use of IP in business strategy.

Thanks in part to Made in China 2025, Foshan’s GDP is forecast to grow above 7.5 percent annually, to reach RMB 1.15 trillion in 2020. The city’s total volume of foreign trade is projected to growth by an average of three percent each year, amounting to US$80 billion in 2020.

The plan is poised to change Foshan’s economic structure. The service Industry will account for more than 40 percent of local GDP in 2020; 40 percent of industry added value will come from advanced manufacturing; high-tech products manufacturing will make up 60 percent of total industrial output value; and R&D expenses will take up 3.2 percent of GDP The local government also intends to develop a strong cultural and tourism industry, aiming for the industry to represent 12 percent of GDP by 2020.

Opportunities in Foshan’s changing economy

Foshan is a fast-growing area that still relies mainly on its manufacturing industry. However, the tertiary sector is growing rapidly, and the Made in China 2025 program will support this growth.

The Foshan government is actively making efforts to change the city’s economic structure by promoting the service industry, and leveraging it to attract investment and support the upgrade of manufacturing. Although the city’s economy is pivoting from its traditional foundation, Foshan’s economic transformation presents new opportunities for foreign investors.

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