[November 15, 2012]

Tianjin Economic-Technological Development Area: 28 Years at the Top

China's irresistible rise has been powered by development zones such as the Tianjin Economic-Technological Development Area (TEDA), which at 28 years of age has blazed a trail for the rest of the country to follow and continues to pioneer new economic growth.

TEDA is nearly as old as the reform and opening up policy that led to its creation and its story has been that of the nation - fast growth through industrialization and investment in infrastructure and skills that is now heralding a shift to a knowledge-based economy.

TEDA has also been named China's top industrial zone every single year by the Ministry of Commerce since 1998, seeing off competition from other development zones that have sprung up across the nation.

"TEDA's long journey continues," said TEDA director He Shushan. "From a beginning where the focus was on manufacturing for export, we are now moving into an era of hi-tech innovation targeting markets both inside and outside China."

TEDA has thus far attracted 4,999 foreign-invested projects worth a total of US$69.9 billion, including 188 projects invested in by Fortune 500 companies. There are also nearly 10,000 Chinese firms in TEDA. Among all the companies in TEDA, one is worth more than RMB 100 billion, three are worth more than RMB 50 billion and nearly 100 are worth more than RMB 1 billion.

Job creation continues apace. In the first half of 2012, there were 31,000 new jobs in TEDA. Overall, some 500,000 people work in TEDA, including about 9,000 people who are deemed to be top class executives.

"These zones are extremely important to the development of deep technical skills in the Chinese high tech industry," said Nathan Washburn, assistant professor at the Thunderbird School of Global Management in Arizona, USA.

"I doubt that firms such as Huawei or Lenovo (News - Alert) would be where they are today if not for the concentrated talent development that these zones produce," Washburn continued. "Complex innovation is generated within clusters of businesses and these zones are one way to push the creation of knowledge clusters."

While TEDA was China's first industrial park, Asia's first such zone was the First Export Processing Zone (EPZ) opened in Kandla, India in 1965. India now has 143 such zones and the Philippines has more than 200.

However, China's special economic zones are different because they compete fiercely against each other, which in turn improves their overall investment environment, according to a 2011 research paper by World Bank economist Douglas Zeng. In other nations, special economic zones (SEZ) are often strictly segmented specifically to avoid this ind of internal competition.

Somewhat unlike globewide competitors such as Taiwan's Hsinchu Science and Industrial Park and Singapore's Jurong Town Corporation, TEDA supports a wide range of pillar industries and this wide scope creates economies of scale and business efficiency inside TEDA's own borders. It will also stimulate synergistic learning and enhance overall industrial competitiveness, according to Zeng.

TEDA also focused on innovation by building an innovation park, an R&D centre and industrial clusters. It invited renowned universities to establish campuses in the zone to conduct vocational education and industry-related research.

Innovation and hi-tech industry have helped TEDA stay relevant at a time when costs in China are going up and the traditional manufacturing industry is seeing its already narrow profit margins squeezed. But further development has brought with it new challenges, such as how to attract top talent to Tianjin.

"The biggest risk is attracting and retaining the brightest and best people to those industrial parks in China," says James Berkeley, director of the consultancy Berkeley Burke International based in London. "Without those individuals, multinationals will not be able to turn their strategic objectives into an organizational reality."

"The biggest influence on attracting talented people in the next few years is offering them the opportunity to find gratifying work and careers in close proximity to their families," he added. "To date most industrial parks have been designed with limited regard to the needs of the individual employee or their social preferences. Yet the experience in more mature economies is that with increasing spending power and learning, the brightest and best people give greater weighting to the quality of their lives."

The financial crisis, which has hit western countries particularly hard, has seen an uptick in the number of highly trained Chinese returnees moving back to China after having launched careers abroad. And industrial zones such as TEDA understand that they need to offer more than just a place to work.

"We understand that people want a good and healthy life for themselves and their families," said Shushan. "That's why we are building schools and recreational facilities and also why we are applying the strictest environmental monitoring standards to our companies."

The area now has its own professional football team, a botanical garden as well as the International Cardiovascular Hospital and, since 1995, an international school accredited by both WASC and CIS.

But the financial crisis has also had an impact on China, whose overall GDP growth is down to about 7.5 percent after about a decade at about 10 percent or more.

TEDA has responded to the crisis by focusing less on attracting big-name companies and more on developing entire industrial chains.

The Nangang petrochemical zone was opened in 2009 and covers an area of about 200 square kilometers including a port on the coast of the Bohai Sea. It is an integrated industrial chain ranging from unrefined oil through the refining process and onward to sub-industries such as marine chemicals and derivative industries including synthetic resin and new materials.

Nangang's aim is not just to attract individual companies but to woo entire industrial clusters as a whole. The resulting synergies between companies, which see one company making use of another company's waste products, both reduce pollution and save on raw materials.

Other clusters include IT, with companies such as Motorola, Samsung and more recently HP and Hongfujin, a subsidiary of Foxconn, which assembles products for Apple (News - Alert). TEDA's IT output is projected to be worth RMB 300 billion in 2015.

TEDA is also betting on the auto and machinery sectors, which are projected to be worth RMB 300 billion and RMB 200 billion by 2015 respectively.

"We have to respond to the international situation but also keep planning for long-term prosperity," said Shushan. "Building industrial clusters helps us achieve both goals."

TEDA is also concentrating on development in its projects in Egypt. In 2009 TEDA won an international tender to develop Egypt's first special economic zone to include residential projects, following the Chinese model.

It also won a tender in 2007 with the Chinese Ministry of Commerce and added a new component to the zone based on the cluster model, with a focus on textiles and garments, petroleum equipment, automobile assembly and electrical equipment.

With China at a crucial moment in its development as the old export-led model becomes less viable and hi-tech innovation becomes a necessity, TEDA's past focus on research and development and its development of industrial clusters mean it is well-placed to make the transition and help the country make it too.

"Development areas have been a key engine for China's economic growth," said Shushan. "Over the last 28 years, TEDA has gone from the region's leading development 'area' to a leading development 'partner' for global investors. We are fully aware of our responsibility and we will continue to drive ourselves and the country forward."

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