China’s Tier 2 and Tier 3 Cities, Part II

Maps of Zhejiang Province of China

Image via Wikipedia

As mentioned in China’s Tier 2 and Tier 3 Cities, I visited Yizheng, one of China’s so-called Tier 3 cities, last Monday. After leaving Jiangsu Province, I had an opportunity to visit the equivalent of another Tier 3 city, this time in neighboring Zhejiang.

With a population of approximately 400,000, Yuhuan County is about one-half the size of Yizheng and has yet to be granted city status. However, it is no less prosperous. Yuhuan’s gross domestic product, according to the people I visited, is approximately RMB 100 billion ($15.4 billion). If that’s true, and I have no reason to doubt the accuracy of their numbers, then per capita income at RMB 250,000 ($38,000) has to be one of the highest in the country. That’s the reason why average apartment prices are RMB 15,000 ($2,308) per square meter.

Ringed by mountains and surrounded by water, Yuhuan County is literally an island and is cut off from the rest of China. After flying into Wenzhou from Shanghai, we had to take a ferry during one part of our hour and a half car journey.

Yuhuan is part of the prefecture of Taizhou, and symbolizes the entrepreneurial spirit that has come to characterize all of Zhejiang province, itself considered one of the most entrepreneurial provinces in the country. Yuhuan is known for its production of valves, automobile parts and furniture. When I was at ASIMCO and we gave quotes to potential export customers, often they would tell us that our quotes were much higher than others they had received in China. More often than not, they had gotten their lower quotes from companies in Zhejiang province.

Now I understand why. Companies in cities and counties like Yuhuan are very innovative and entrepreneurial. When asked how Yuhuan had gotten into the automotive parts business, the answer was that Yuhuan’s physical isolation from the rest of China meant that the local citizenry had to become self-sufficient and learn how to repair the motors for the city’s many fishing boats. Makes sense to me.

One of the companies I visited was Kailing, a manufacturer of brake systems for high end bicycles, motorcycles and passenger cars. Kailing not only makes all of its own components, it has also designed entire brake assemblies that it sells to original equipment manufacturers in China, Italy, the United Kingdom, Spain and India. Approximately 40 percent of Kailing’s RMB 150 million ($23 million) of sales is exported. The company is now beginning to manufacture brake systems for wind turbines because it sees a big opportunity due to the emphasis on alternative energy by the central government and the fact that all of these products are now imported.

When asked how Kailing combats rising labor costs in China, the chairman explained that labor is only one cost involved in making a product. Kailing focuses on total cost, which includes engineering overhead and other expenses. That, and the company’s emphasis on quality, is how Kailing maintains its competitive edge and can export its products to other low-cost countries like India.

Approximately one-half of Yuhuan’s GDP comes from the 2300 automotive components companies that are registered in the county. Yet, very few of the components companies are foreign-invested, and there are no vehicle assemblers in the county. The entrepreneurs of Yuhuan have developed their products and technologies completely on their own, and without a visible customer in site.

With average sales of RMB 21.7 million ($3.3 million) per company, and fewer than 50 companies with sales greater than RMB 150 million ($23.0 million), Yuhuan demonstrates once again just how fragmented China’s industries are. The county itself also demonstrates that prosperity is not only found in China’s Tier 1 cities.

Enhanced by Zemanta

No comments yet... Be the first to leave a reply!