[September 12, 2014]

Transformation a Continuous Process at Suzhou Industrial Park

Last year Singapore became the largest foreign investor in China with more than a third of its investment dollars going to coastal Jiangsu province, and over 50% of that channeled into Suzhou Industrial Park (SIP).

Today every square kilometer in this flagship industrial park of China contributes annually more than 74 million Renminbi (US$12 million) in tax to the provincial government - more than eleven times the provincial average. And while just 278 sq km (110 square miles) or about 3.3% of Suzhou's total land mass and only 7.4% of its population, SIP contributes 15% of the city's gross domestic product (GDP).

"If this was school, Suzhou Industrial Park would be top of the class," says Lim King Boon, vice president of the China Singapore Suzhou Industrial Park Development Group Co. Ltd (CSSD), the first joint venture set up by consortia in Singapore and China after the two countries agreed to develop the industrial park twenty years ago.

What started off as swampy farmland to the east of Suzhou has become an ultra-modern city of more than one million people, thanks to the visionary leadership of China's great reformer, Deng Xiaoping, and Singapore's first Prime Minister, Lee Kuan Yew.

The backing of both men ensured the industrial park's success. With Singapore as a partner, China's first "JV industrial park" attracted international companies and investors from around the world. "Companies felt comfortable coming here because Singapore was involved," says Lim.

At the same time, Deng realized that in order to succeed the industrial park required special privileges that would set it apart from the rest of China and make it efficient and welcoming to foreign investors.

He waived requirements that large projects or those valued at more than US$30 million required government approval - trimming as much as six months to two years off the approval process - and granted SIP other perks like the right to approve passports for the citizens rather than having them wait for approval from provincial government departments.

"If we had had to follow all the normal regulations in China we would never have had the breakthrough we did," says Barry Yang, deputy secretary and chairman of the Suzhou Industrial Park Administration Committee. "We were allowed to approve any kind of investment if it was in line with the central government's guidelines."

The privileges continued over subsequent years. In June of 2014, SIP was given the go-ahead to act as a financial center for Renminbi currency exchanges with Singapore. Yang believes the pilot scheme could be just the tip of the iceberg, with the industrial park becoming a testing ground for future reforms.

"If China wants to open further we could be the place that shows the way," Yang says. "Could we lead the change? This is something we are always aware of - that we might be leading reforms; we could be a pilot area for China. If China wants to do something in fifty years time we could be the ones trying it out first."

Trnsformation is at the heart of SIP's success. The first phase of the park's development involved manufacturing companies like Samsung (News - Alert), the electronics giant, setting up factories to produce consumer goods like televisions.

But as SIP continued to evolve the industrial park climbed the value chain and started to attract more knowledge- and capital-intensive industries.

Today Samsung shifts its focus more on advanced manufacturing in SIP. It produces high-end electronics devices such as liquid crystal panel; the company also makes inroads in service sector, setting up insurance and luxury hotel businesses.

The industrial park is advising many of its older manufacturing tenants to move or upgrade their plants and is focusing on encouraging investment in areas such as nanotechnology, cloud computing and biotechnology.

"This is a constant, continual process," Yang explains. "One can never say: 'We've finished the transformation phase - we'll just stay where we are,' because labor, together with other key productivity inputs, will always flow to lower cost places and the original place has to upgrade and transform, constantly."

Mark Esposito, an associate professor of business and economics at the Grenoble School of Business in France, and an instructor at the Harvard Extension School, one of twelve degree-granting schools of Harvard University in Cambridge, Massachusetts, agrees that upgrading productive output is a must for Chinese companies.

"City planners need to help create the locational capacity for upgraded industry to operate as well as a new industrial configuration, driven by values of collaboration, proximity, sharing of infrastructure and talent, in what is usually called regional clusters," he says.

SIP has already laid most of the groundwork to achieve that goal, including attracting 25 world-class universities and eight institutes and technical colleges. In 2002, SIP launched the Suzhou Dushu Lake Science & Education Innovation District, which spreads over 25 sq. km and is home to 80,000 students. The town is also home to more than 2,000 start-up companies.

"We have combined the schools, anchor projects and the start-up companies in the same area and hope they might prove a catalyst for something innovative," explains Yang.

Bruce Weber, dean of the Alfred Lerner College of Business and Economics at Delaware University, says cities thrive when they can attract clusters of firms that find the people and resources locally that they need to develop and deliver world-class products.

"The joint-venture cities are trying to accelerate the process and will succeed if they can develop all aspects of the ecosystem necessary to thrive as a cluster," Weber says. "These include investment capital, entrepreneurial management and thinking, talented people, access to transportation, and quality of living, which includes higher education, recreation options and cultural diversity."

That is exactly what SIP has created. Not only does the industrial park have all the trappings of a modern metropolis with first-class universities, hospitals, parks, and recreation and entertainment facilities, but it also has a high-tech core of people and companies ready to take the city within a city to new heights.

In 2011 construction got underway on an innovation and commercialization hub specializing in nanotechnology called Nanopolis. Companies that have set up in Nanopolis are already producing systems and equipment for everything from micro-sensors, touch screens and lasers, to nano imprints used in ID cards and paper currency and air purifiers.

Each year Nanopolis attracts 40-50 new companies that want to take advantage of the park's support and incentive plans. "We fully understand this industry and we are trying to gather all the resources and services to what we call a 'nanotech community', where we gather early stage companies, research institutes, promotional organizations, engineering and pilot productions," says Dr. Zhang Xijun, president of Nanopolis, adding that by 2019 Nanopolis will have more than 300 tenants with between 25,000 and 30,000 employees in total.

The flagship industrial park also sees many of its peers are now using the SIP approach as a model. And some of them, like SIP, are starting off as joint ventures between China and Singapore. These include the recently launched Su-Chu Industrial Park in Chuzhou, Anhui province; the Sino-Singapore Nanjing Eco Hi-Tech Island in Jiangsu province, and the Sino-Singapore Tianjin Eco-City in northern China.

"If you look at the initial goals that Lee Kuan Yew and Deng Xiaoping hoped to achieve I think that has already happened," says Lim of the China Singapore Suzhou Industrial Park Development Co. "But completed doesn't mean we stop here ... it has to go on."

Lim also noted that when SIP was first conceived in the early 1990s China learned much from Singapore about investment promotion and development, but today the two countries are much more on par with each other and in fact now share many of the very same challenges such as coping with an aging population, providing social welfare to those in need and making sure development is sustainable.

For his part, Yang sees SIP as more than just the "hardware" of a booming metropolis with all the amenities. It is the "software" that is the essence of SIP's accomplishments.

"People don't see the software - the government, how the place is managed, how we provide a good business environment, how we provide efficient government services, how we look at social issues, and how we help start-up companies develop their business."

Yang is confident that even greater responsibilities lie ahead.

"SIP can be a pilot area for the rest of China," he explains. "There always needs to be someone who can lead development-frame the laws and regulations, develop the economy, manage governance and society. SIP and Suzhou can lead the way."

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