China 2.0

Inside The Global Expansion Of Chinese Industrial Parks

A key component of the growing "Chinese-style" international capitalism.

Chinese President Xi Jinping at the China-Belarus Industrial Park with Belarusian President Alexander Lukashenko on May 12
Zhang Yanlong, Zeng Jianzhong and Shen Nianzu

BEIJING â€" It was in the late 1990s that the first batch of Chinese businessmen launched the idea of building overseas industrial parks, also called "economic zones," where they could both better sell their goods locally and capitalize on lower labor and transport costs.

Over the last dozen years, the model has proven to be one of the most successful features of the Chinese economic reforms and opening-up to the world.

From India’s Deccan Plateau, to the coast of the Red Sea, to the heartland of America, Chinese industrial parks can be found almost everywhere that Chinese goods are sold. Li Zhipeng, deputy director of the Overseas Investment Advisory Centre of China’s Commerce Ministry, says more than 100 types of Chinese industrial parks have been built abroad, "the six largest ones of which account for a total investment of over 10 billion RMB ($1.6 billion), more than 400 companies creating over 40,000 jobs locally."

The best way to go abroad

Industrial parks are by no means a Chinese invention, having begun decades earlier in developed countries. But China has been efficient in adopting the model, and the pace of new construction is an impressive showing of China's economic progress. To such extent that other developing countries are turning to China to help them follow the same path.

Tianjin Teda, a state-owned conglomerate, set up the Egypt Suez Economic and Trade Cooperation Zone project with the Egyptian government. Egyptian executives declared that their goal was “to copy the model used by Teda to run its economic zone back at home.”

The original vision for setting up an economic zone was for the purpose of manufacturing convenience â€" the leading industry would attract and gather support industries, thus forming a complete industrial chain. It can also avoid the risks of struggling alone abroad.

For instance, in 1999, Haier, a home appliance and consumer electronics multinational, built its first production facility park in South Carolina, in the United States. Two year later, there followed its second park in Pakistan. This also marked the beginning of Haier’s brand-building abroad.

Haier's HQ in Qingdao, eastern China â€" Photo: Brücke-Osteuropa

Li Zhipeng notes that the large and systematic establishment of Chinese industrial parks began around 2006, in line with the country’s "Go Out" policy to building overseas economic zones. “Before that, these parks were set up by enterprises themselves at a relatively small scale. They were fragmented and overall not very big."

The Holley Group, a conglomerate with diversified investments, set up the Rayong Industrial Park in Thailand, and attracted more than 20 Chinese enterprises. The success of the park changed the Thai government’s weary attitude toward China, says Hu Hai, Holley’s general manager for overseas businesses, who took part in the establishment of the Rayong Industrial Park. “They discovered that they had spent years themselves trying to attract Chinese investments without success while it was much easier for us," says Hu. "Since then, the Thai authorities make the approaches for joint ventures with us.”

Hu also pointed out that Chinese companies weren’t really set up for foreign direct investment a decade ago, which made building out an economic and trading zone the logical way to begin expanding abroad.

Since then, Chinese parks have mushroomed on every continent. They have also become more and more integrated locally. “Our first generation parks were just to meet Chinese firms’ manufacturing needs," says Hu. "But our second generation parks are not just about sending in bulldozers, building roads and equipping them with water and electricity. We also have to consider how we integrate with the local community more harmoniously.”

The many differences in laws, policies, culture and customs are among the biggest challenges these overseas Chinese parks all face. In order to be better accepted by the locals, Holley chose to cooperate with Thailand’ largest real estate company AMATA.

In Mexico it works with an influential local family business in the telecommunication industry. Meanwhile Haier is obliged to adjust its operation and management mentalities according to local conditions in India and Pakistan.

While adapting themselves locally, these Chinese industrial parks are quietly changing the locals. In a garment factory of the Suez Economic and Trade Cooperation Zone one slogan, in Arabic and in Chinese, reads: “If you don’t work hard today, you’ll be looking hard for work tomorrow.”

A national strategy

The success stories eventually attracted the interest of higher authorities and the fragmented action was integrated into a national strategy. The China-Belarus Industrial Park is one such product. During his recent visit to Belarus in May, Chinese leader Xi Jinping visited this park and called the project a model of China’s new Silk Road initiative and international cooperation.

Meanwhile, the Sino-Russia Silk Road Innovation Park is being put forward with the “One Park Two Places” model, meaning that two innovation centers are to be built respectively in China’s western city of Xian and Skolkovo in Russia, with a unified management. The goal is to promote each other’s enterprises by investing mutually in the other country and sharing resources reciprocally.

Chinese-style economic zones are going abroad. In history, large scale commercial communication has always led to far-reaching cultural and ideological fusion. Whether successful or not, the experiences of Chinese economic zone exploration will also become part of the history of China opening up to the world.

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Economy

European Debt? The First Question For Merkel's Successor

Across southern Europe, all eyes are on the German elections, as they hope a change of government might bring about reforms to the EU Stability Pact.

Angela Merkel at a campaign event of CDU party, Stralsund, Sep 2021

Tobias Kaiser, Virginia Kirst, Martina Meister


-Analysis-

BERLIN — Finance Minister Olaf Scholz (SPD) is the front-runner, according to recent polls, to become Germany's next chancellor. Little wonder then that he's attracting attention not just within the country, but from neighbors across Europe who are watching and listening to his every word.

That was certainly the case this past weekend in Brdo, Slovenia, where the minister met with his European counterparts. And of particular interest for those in attendance is where Scholz stands on the issue of debt-rule reform for the eurozone, a subject that is expected to be hotly debated among EU members in the coming months.

France, which holds its own elections early next year, has already made its position clear. "When it comes to the Stability and Growth Pact, we need new rules," said Bruno Le Maire, France's minister of the economy and finance, at the meeting in Slovenia. "We need simpler rules that take the economic reality into account. That is what France will be arguing for in the coming weeks."

The economic reality for eurozone countries is an average national debt of 100% of GDP. Only Luxemburg is currently meeting the two central requirements of the Maastricht Treaty: That national debt must be less than 60% of GDP and the deficit should be no more than 3%. For the moment, these rules have been set aside due to the coronavirus crisis, but next year national leaders must decide how to go forward and whether the rules should be reinstated in 2023.

Europe's north-south divide lives on

The debate looks set to be intense. Fiscally conservative countries, above all Austria and the Netherlands, are against relaxing the rules as they recently made very clear in a joint position paper on the subject. In contrast, southern European countries that are dealing with high levels of national debt believe that now is the moment to relax the rules.

Those governments are calling for countries to be given more freedom over their levels of national debt so that the economy, which is recovering remarkably quickly thanks to coronavirus spending and the European Central Bank's relaxation of its fiscal policy, can continue to grow.

Despite its clear stance on the issue, Paris hasn't yet gone on the offensive.

The rules must be "adapted to fit the new reality," said Spanish Finance Minister Nadia Calviño in Brdo. She says the eurozone needs "new rules that work." Her Belgian counterpart agreed. The national debts in both countries currently stand at over 100% of GDP. The same is true of France, Italy, Portugal, Greece and Cyprus.

Officials there will be keeping a close eye on the German elections — and the subsequent coalition negotiations. Along with France, Germany still sets the tone in the EU, and Berlin's stance on the brewing conflict will depend largely on what the coalition government looks like.

A key question is which party Germany's next finance minister comes from. In their election campaign, the Greens have called for the debt rules to be revised so that in the future they support rather than hinder public investment. The FDP, however, wants to reinstate the Maastricht Treaty rules exactly as they were and ensure they are more strictly enforced than before.

This demand is unlikely to gain traction at the EU level because too many countries would still be breaking the rules for years to come. There is already a consensus that they should be reformed; what is still at stake is how far these reforms should go.

Mario Draghi on stage in Bologna

Prime Minister Mario Draghi at an event in Bologna, Italy — Photo: Brancolini/ROPI/ZUMA

Time for Draghi to step up?

Despite its clear stance on the issue, Paris hasn't yet gone on the offensive. That having been said, starting in January, France will take over the presidency of the EU Council for a period that will coincide with its presidential election campaign. And it's likely that Macron's main rival, right-wing populist Marine Le Pen, will put the reforms front and center, especially since she has long argued against Germany and in favor of more freedom.

Rome is putting its faith in the negotiating skills of Prime Minister Mario Draghi, a former head of the European Central Bank. Draghi is a respected EU finance expert at the debating table and can be of great service to Italy precisely at a moment when Merkel's departure may see Germany represented by a politician with less experience at these kinds of drawn-out summits, where discussions go on long into the night.

The Stability and Growth pact may survive unscathed.

Regardless of how heated the debates turn out to be, the Stability and Growth Pact may well survive the conflict unscathed, as its symbolic value may make revising the agreement itself practically impossible. Instead, the aim will be to rewrite the rules that govern how the Pact should be interpreted: regulations, in other words, about how the deficit and national debt should be calculated.

One possible change would be to allow future borrowing for environmental investments to be discounted. France is not alone in calling for that. European Commissioner for Economy Paolo Gentiloni has also added his voice.

The European Commission is assuming that the debate may drag on for some time. The rules — set aside during the pandemic — are supposed to come into force again at the start of 2023.

The Commission is already preparing for the possibility that they could be reactivated without any reforms. They are investigating how the flexibility that has already been built into the debt laws could be used to ensure that a large swathe of eurozone countries don't automatically find themselves contravening them, representatives explained.

The Commission will present its recommendations for reforms, which will serve as a basis for the countries' negotiations, in December. By that point, the results of the German elections will be known, as well as possibly the coalition negotiations. And we might have a clearer idea of how intense the fight over Europe's debt rules could become — and whether the hopes of the southern countries could become reality.

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