Inside the Modern Dragon
China's Roaring Economy
The Strategic Rise of the Services Industry
By Patricia E. Mohr
Sept. 19, 2011--China is rapidly developing its skills-intensive services industries and transforming its economic model. No longer is China solely reliant on its cheap labor and weak currency to export masses of low-end manufactured goods. It still does much of that, but now it is also making high-end goods and selling itself as a services provider. In short, China is moving up the value chain.
Traveling in China in mid-2009, I witnessed this transformation in action. Our group visited a brand new outsourcing center on the outskirts of one of China’s “Tier 2”–or medium-sized—cities.
Hefei, the capital city of Anhui Province, is a modern city with a population of 5 million. Strategically located between the Coastal economic zones and the Western frontier, Hefei is historically recognized as military defense stronghold. Today, it is a center of economic development and innovation. With 200 scientific research institutes, Hefei is known as one of four national science and engineering bases. Though it is located in one of the poorest regions, Anhui Province, Hefei city has a strong economy with a large and growing GDP per capita. It has 59 higher education institutions and three large-scale development zones.
In late 2007, China’s central government—the Ministry of Commerce, Ministry of Industry and Information Technology, and Ministry of Scientific Technology—approved Hefei as one of 20 demo outsourcing cities.
Visiting Hefei’s Outsourcing Park
On the way to Hefei’s outsourcing center, we passed by row after row of brand-new buildings, most of them still empty and others still under construction. Once inside one of the park’s newest buildings, we saw a model of what the entire park would look like in a year.
“We are one of the biggest outsourcing enterprises in Anhui Province,” said a young lady who is a general manager of the Anhui Easy Business Digital Technology Co., Ltd. She said the firm’s largest clients include IBM, HP and the Ministry of Commerce. The company is owned by a small group of shareholders.
Our host, a shareholder and board member of the firm, took us to a large office where workers were busy translating Japanese text to make it compatible with word processing programs. “Very boring,” he said. Other services the park aims to provide include government relations, policy consultation, intermediary services, talent service, financing, technological platform such as data backup and security, international cooperation and marketing.
More Sustainable and Greener Growth
The services industry is attractive to China not only because it helps the country move up the value chain of global production, but also because it enables China to sustain its growth in an environmentally friendly way. The overriding and most obvious goal of developing a high-tech services industry is to create jobs for university graduates.
While visiting the Hefei center, it looked as if positions are filled regardless of the demand for work. Many workers sat idly in front of blank computer screens as their coworkers nearby translated text. They all, of course, looked prim and proper and ready to work. The work was just not ready for them. Other furnished rooms were still empty. At the time, it seemed China was building offices before they had a purpose. But that was anything but the case. Investments may not have been demand driven, but they were magnets to attract demand.
The outsourcing office park came to fruition after much planning and brain storming by China’s public officials and private investors. In China, the planning is intensive and strategic. It appears the planning has paid off. In 2010, more than 200 Hefei outsourcing service providers realized $817 million worth of contracts. And overall, China’s outsourcing service businesses grew by 35 percent in the same year. The central government estimates that the services industry will grow to 65 percent of China’s GDP by 2030.
In 2009, it wasn’t apparent how the park would grow. But even then, it was clear the outsourcing center was significant for its growth potential. It is a living symbol of China’s intent to develop itself, its citizens and its industries. China is not only keeping pace with global trends, it is leading them.
Sources:
Ministry of Science http://www.most.gov.cn/eng/pressroom/200909/t20090928_73466.htm
Hefei’s outsourcing development, http://en.chinasourcing.org.cn/content2.jsp?id=4261
Anhui Province, http://iesglobal.com/index.php?option=com_content&task=view&id=452&Itemid=407
Hefei GDP per capita, http://www.starmass.com/china_review/city_overview/hefei.htm
“Hefei-China, Hometown of Lord Bao, Science and Education Base, New Lakefront City” (booklet)
Anhui Easy Business Digital Technology Co.http://www.chnsourcing.com/outsourcing-news/providers/business/
China Daily 2011 on services industry, http://www.chinadaily.com.cn/bizchina/2011-05/30/content_12601558.htm
About this Project
This is a web-based journalism project about modern China. The goal is to promote an understanding of China's significance and its role in the world today. [Read more...]
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China expects its services industry to account for 65 percent of the country's GDP by 2030.
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Model of the Anhui Service Outsourcing Industrial Park. The key to development in China is intensive and systematic planning.
Private finance, public support: The emerging services industry is privately funded and publically supported. The central government provides 30 preferential policies relating to finance, taxes and intellectual property, according to Wang Chao, vice-minister of the Ministry of Commerce, at the China Sourcing Summit held in Hangzhou. [China Daily in May 2011] The company we visited, Anhui Easy Business Digital Technology Co., Ltd., is owned by five board directors (one with a 90 percent stake) and supported by the Anhui Province Ministry of Commerce, which it also serves.
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The goals of developing the services industry is to create jobs for university graduates and develop sustainable, green growth.
Workers transcribe Japanese script to make it compatible with word processing programs.
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In 2009, most rooms in one of the new park's buildings were still empty. Though even then, it was clear the park had huge potential.
