Central China on the Rise

January 8, 2013 Posted by China Briefing Reading Time: 4 minutes

By Yao Lu

Jan. 8 – Located in the heart of central China, Hubei Province’s capital city of Wuhan has traditionally been one of the country’s most important economic and transportation centers. However, with the introduction of the reform and opening-up policies starting from the late 1970s, Wuhan, like much of Central and West China, fell behind in the wave of economic growth that brought prosperity and development to coastal cities such as Shanghai, Shenzhen, and Beijing.

Now, with implementation of the “Rise of Central China Plan” introduced by Premier Wen Jiabao in 2004, Wuhan has returned to the spotlight. In the first three quarters of 2012, regional GDP grew at 11.5 percent while national GDP growth has slowed to 7.7 percent. At the same time, the city has become a magnet for both domestic and foreign capital. In the first half of 2012, Wuhan attracted total investments of RMB98.8 billion, up 108 percent year-on-year, and introduced seven new projects invested in by Fortune 500 companies.

Wuhan’s return to form only represents part of the story of a rising central China. Besides Hubei, the other five provinces making up Central China (Shanxi, Anhui, Jiangxi, Hunan and Henan) – are currently enjoying similarly optimistic economic outlooks. GDP levels in all six provinces have seen considerable increases since the implementation of the plan in 2004, and all signs point to the region continuing to do so. For example, the GDP of Anhui Province was a mere RMB481 billion in 2004, but in 2011 it amounted to RMB1.5 trillion. Furthermore, the province achieved 12 percent growth in the first half of 2012 to reach RMB 778.2 billion.

Central China is poised to be the country’s next source of high economic growth. Compared with the growing costs of raw materials, labor and land in the coastal areas, Central China, which boasts a strategic location, cheap labor force, and a rising consumer market, is well on its way to become the economic growth engine of the country.

Strategic location

Central China’s strategic location in the heart of the country plays a vital role in linking the wealthy and more developed eastern region with the lesser developed but resource rich western region.

Sitting at the intersection of the Yangtze and Han Rivers, Wuhan in particular has benefited immensely from China’s transport infrastructure boom. Major rail lines and expressways that connect Beijing with cities in Guangdong, and Shanghai with Chengdu pass through the city. Wuhan is also in a relatively central position to the country’s major population centers of Beijing, Chengdu, Chongqing, Guangzhou, Shanghai, and Shenzhen. This unique position has turned the city into a major transportation and logistics hub.

Zhengzhou, the capital of Henan is another key emerging logistics hub in inland China. The city is located at the intersection of the Beijing-Guangzhou and Lanzhou-Lianyungang railways, and has convenient rail links to major cities such as Beijing, Shanghai and Guangzhou. Additionally, Zhengzhou Airport has been connected to most major domestic and international cities, and the establishment of the Zhengzhou International Logistics Park has further added to the city’s attractiveness as a trade hub in inland China. China’s new “Central Plains Economic Zone” is also centered around Zhengzhou.

Cheap labor force

The rising cost of labor in China’s coastal regions has begun to impact on the willingness of investors to locate their businesses there. The current monthly minimum wages in Shenzhen, Shanghai and Guangzhou are RMB1,500, RMB1,450, and RMB1,300 respectively, while the same figures in Central China can rise to RMB1,160 at most, and actually dip below RMB1,000 in many areas. As such, many large multinational companies have shifted inland to mitigate rising business costs.

Dutch conglomerate Unilever, for example, relocated its production base from Shanghai to Anhui’s capital city of Hefei in 2002, and Foxconn, the world’s largest contract manufacturer of electronic goods, has invested heavily in expansion plans into inland China; by the end of 2012, its facilities in Zhengzhou already employed more workers than its famous Longhua campus in Shenzhen.

Rising market

As the government aims to steer the economy’s dependence away from exports and more towards domestic consumption, Central China, which takes up more than one-fourth of the nation’s total population, will provide the country with a large and rising consumer market.

In 2011, total retail sales in Hubei Province and Hunan Province reached RMB792.7 billion and RMB680.9 billion respectively. Those figures represent a growth rate of 18 percent year-on-year for Hubei, and 17.9 percent for Hunan. Similarly, annual urban disposable income per person in Hubei increased by 14.4 percent to RMB18,374 over the same period, while the figure for Hunan grew by 13.8 percent to RMB18,844. All these data suggest a growing market for the retail industry in these provinces.

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia.

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