International Business News – Behind China’s strong manufacturing capabilities are a large number of traditional and emerging industrial cities, including Shenzhen, Shanghai, Dongguan, Suzhou, etc.
In 2021, the added value of China’s manufacturing industry will account for one-third of the world’s, and the output of more than 220 industrial products will rank first in the world. According to the Global Manufacturing Competitiveness Index released by the United Nations, China ranks second after Germany. Behind China’s strong manufacturing capabilities are a large number of traditional and emerging industrial cities, including Shenzhen, Shanghai, Dongguan, Suzhou, etc. We focus on industrial cities of a certain size and rank their manufacturing strength. In fact, many small counties in China have monopoly positions in certain industries, such as Danyang (Jiangsu) in eyeglass production, Dezhou (Shandong) in fitness equipment, or supplying certain key components to the industrial chain, such as Kunshan and Jiangyin. However, due to the small scale of these cities, although they are very distinctive, it is difficult to form a larger cluster effect, and the additional investment that can be undertaken is limited.
Since there is no official data on the added value of the manufacturing industry at the city level, we use the industrial added value above designated size of 75 billion yuan in 2020 as the dividing point to study prefecture-level cities above this level. The number of cities included in the final ranking was 115. According to provincial data, the added value of the manufacturing industry accounts for about 70-90% of the industrial added value, so the industrial added value can roughly represent the local manufacturing strength. Here I will personally focus on discussing the top 20 manufacturing cities and compare their macroeconomic structures and levels of green transition.
Top 20 Manufacturing Cities
In the ranking of manufacturing cities, we selected five indicators: the number of local specialized, specialized, and new “little giants” enterprises, the number of top 500 private manufacturing enterprises in 2020, the number of state-owned enterprises among the top 500 national manufacturing enterprises, and the density of manufacturing enterprises ( the number of registered manufacturing enterprises per unit area) and the five-year average growth rate of the local industrial added value from 2016 to 2020. Cities in the Pearl River Delta and Yangtze River Delta accounted for 60% of the top 20 industrial chains. In addition to cities in the Yangtze River Delta, the Pearl River Delta and the Beijing-Tianjin-Hebei region, the finalists include Xiamen and Fuzhou in Fujian, Qingdao and Jinan in Shandong. The western cities included Chongqing and Xi’an.
Specialized and special new “little giant” enterprises cover small and medium-sized enterprises in key industrial chains. “Small and medium” here is a relative concept. Although it is slightly smaller than the leading companies in various industries, in absolute terms, the market value of many such companies has reached tens of billions. In the “14th Five-Year Plan” (2021-2025), it is proposed to cultivate 10,000 specialized, special and new “little giant” enterprises by 2025. Companies want to be included in this category need to meet some hard indicators. For example, the average growth rate of main business income or net profit in the past two years has reached more than 5%, the enterprise’s asset-liability ratio is not more than 70%, the proportion of R&D expenditure in revenue is higher than 6%, and the market share of leading products is in the top three in the province position, with at least 2 invention patents or 5 utility model, software copyright and other patents. By the end of 2021, there will be 4,762 specialized, specialized, and new “little giants” enterprises, of which 90% are in the manufacturing industry and most of them are private enterprises. Zhejiang, Guangdong and Shandong have the largest number of enterprises, accounting for a quarter of the total. The government will provide fiscal, taxation and financing credit enhancement support. One of the important functions of the Beijing Stock Exchange is to meet the financing needs of these companies.
The level of urban manufacturing is usually reflected in the market influence of leading enterprises. We use the number of top 500 private manufacturing enterprises and the number of state-owned enterprises among the top 500 national enterprises as indicators. The distribution of manufacturing enterprises has regional characteristics. For example, Shenzhen’s leading enterprises are mainly private enterprises, mainly in the electronic information industry, represented by Huawei and ZTE. Jinan is dominated by state-owned enterprises, focusing on strategic industries such as steel and heavy machinery. Beijing is a typical state-owned enterprise headquarters economy. 23 of the registered enterprises are among the top 500 companies in China, most of which are in the fields of petrochemical and military industries. By contrast, the number of SOEs in the South is small. Dongguan, Foshan, Wenzhou, and Changzhou do not have any manufacturing state-owned enterprises on the top 500 list, and their main advantages lie in the private sector. In practice, for the same state-owned enterprises, the efficiency of the state-owned enterprise sector in the south is usually better than that in the north, which is related to the local business environment, government efficiency and talent flow. The market in the South is highly open, and many private and foreign talents will flow to the government and state-owned enterprises, thereby improving management efficiency.
From a macro perspective, the five-year average industrial growth rate from 2016 to 2020 reflects the local industrial activity. Industry includes manufacturing, mining and gas manufacturing, among which manufacturing accounts for about 70-90% (the proportion is inferred from provincial data, because this indicator has no public data in some cities). In the past five years, Dongguan has the highest average growth rate of industrial added value. In the beginning, Dongguan was mainly engaged in processing trade, and it mainly received capital from Hong Kong and Taiwan, using cheap local land and labor. Then, with the rising cost of manufacturing in Shenzhen, some industries began to turn to the neighboring Dongguan. Compared with the “three-in-one and one-subsidy” manufacturing industries of Hong Kong and Taiwan-funded enterprises, the quality of the industries transferred from Shenzhen to Dongguan is much higher. Because these companies from Shenzhen often have high technological innovation capabilities. At the end of 2020, there were 2,124 high-tech manufacturing enterprises in Dongguan, an increase of nearly 90% over 2015. Dongguan’s high-tech industry is dominated by electronics and communication equipment manufacturing, accounting for 85% of the total. Among them, the communication equipment manufacturing industry gathers companies such as Huawei, OPPO and VIVO, and the production of smartphones accounts for about 1/3 of the country’s total. Similar is the transfer of manufacturing industries from Guangzhou to Foshan.
In contrast, industrial value added in Tianjin and Qingdao has contracted over the past five years. Tianjin had the biggest contraction, with an average annual drop of 11%, which partly reflects the result of “squeeze water” in statistics, because Binhai New Area used to count the industrial value added of registered companies as local GDP, even if the factories of these companies were not located locally. Another reason is that in the past decade, the integration of Beijing-Tianjin-Hebei has greatly improved infrastructure such as intercity railway transportation, and Beijing’s siphon effect on surrounding talents has become more and more obvious. Although Tianjin’s education and medical level are among the top in the country, there is still a big gap between Tianjin and Beijing. Tianjin’s advantages are mainly in high-tech enterprises in subdivided fields. There are 134 “little giant” enterprises in the local area. As an important port city, Qingdao has both advantages and difficulties in the manufacturing industry. Its coastal geographical advantage will reduce the transportation cost of imported raw materials and exported finished products, thus attracting heavy industry and processing industries with materials to customers, but this also leads to the port industry is mostly in the upstream industry, low added value. The reduction of overcapacity in 2016 hit the heavy industry. Since then, Qingdao has made great efforts to upgrade and transform. The equipment manufacturing industry has improved significantly in recent years. Its added value accounted for 56 percent of the total industry in 2021, up 11 percentage points from 2015.
To a certain extent, the density of manufacturing enterprises reflects the status of local industrial clusters and the activity of the private economy. The Pearl River Delta and the Yangtze River Delta have the highest manufacturing density and the fastest industrial growth. An exception city is Chongqing, which may be related to the local reliance on real estate. There are not many large-scale listed companies in Xiamen, but there are intensive “little giant” companies and manufacturing small and micro enterprises. Xiamen’s industrial clusters are mainly concentrated in computer and communication equipment, tungsten materials, biomedicine and mechanical equipment. The difference with other manufacturing cities is that although they are located in Fujian, the supporting industries of Xiamen enterprises are either in this city, or in the Yangtze River Delta or Pearl River Delta, and the degree of cooperation with surrounding cities such as Quanzhou and Zhangzhou is not as good as that of Shenzhen, Dongguan and Huizhi in Guangdong Province closely. There are historical reasons behind this. In 1980, Xiamen established a special economic zone, and the subsequent implementation of the free port policy promoted the free flow of international trade, finance and personnel. In the early years of reform and opening up, there was a huge gap between it and surrounding cities and counties. The upstream and downstream industrial chains depended on the Pearl River Delta and the Yangtze River Delta. has continued. Its surrounding city, Quanzhou, also has a high level of manufacturing (ranked 26th in our ranking), but it is not integrated with Xiamen, but developed independently. In Quanzhou’s “14th Five-Year Plan”, traditional industries such as textiles, chemicals, building materials and food processing are listed as the main growth drivers, which will contribute 80% of the total industrial output value in 2025.
Guangdong’s fundamentals are the best among the provinces: high investment in science and technology, and a young population structure. Technology spending in Shenzhen and Guangzhou accounted for 8% of government spending, and corporate R&D investment was the highest in the country. Dongguan has the highest foreign trade dependence in the country: the export value accounts for 85% of GDP. In recent years, part of Guangdong’s industrial chain has migrated to inland or Southeast Asian countries. High-end manufacturing is the most affected by the trade war, such as Shenzhen-based Huawei, whose smartphone and 5G orders both shrank sharply after the Sino-US trade friction in 2016. A big advantage of Guangdong’s manufacturing industry is a young population and a constant influx of immigrants. Shenzhen’s aging rate is only 6%. For comparison, the aging rates in Beijing and Shanghai are 19% and 23% respectively. In 2021, Shenzhen will attract the largest population inflow among all prefecture-level cities, reaching 11.79 million.
Suzhou is the business card of China’s manufacturing industry. Compared with Zhejiang and Guangdong, Jiangsu has attracted less net inflows from outside the province. Due to the obvious gap between the north and the south in the province, the population flow mainly flows from northern Jiangsu and central Jiangsu to southern Jiangsu, and part of it flows to Shanghai and other places. The manufacturing output value of Suzhou accounts for 98% of the industrial output value above the designated size, which is higher than that of Shenzhen and Shanghai. Suzhou has formed industrial clusters in communication equipment, general equipment, electrical machinery and automobile manufacturing, while Shenzhen has a relatively single industrial structure, focusing on communication and electronic equipment manufacturing. In recent years, the proportion of manufacturing in Shanghai has declined. Suzhou is geographically close to Shanghai and has lower production costs, making it the main recipient. Suzhou Industrial Park has three major national and innovation centers, namely biomedicine, semiconductor and artificial intelligence. Kunshan focuses on the electronic information industry.
At present, the main policy means for reducing carbon emissions in my country are administrative orders and market-based price policies. Administrative orders include output control, energy consumption control and carbon emission control; market-based pricing means include carbon tax and carbon emissions trading. The extent to which each region is affected depends on the type of central emission reduction targets for each region and how local policies are implemented. However, generally speaking, the economic development of regions with large total carbon emissions, high intensity, fast growth rate, or industrial structure that is too dependent on high-energy-consuming industries will be greatly affected by policies. Cities with high energy consumption per unit of industrial added value, such as Jinan and Tianjin, have industries dominated by high-energy-consuming industries such as petrochemicals and steel. Judging from the energy structure of electricity consumption (city data is not available), the provinces with a high proportion of renewable energy consumption in 2020 are Shanghai and Guangdong, reaching 36% and 33% respectively, while Shandong and Tianjin are at a lower level, only 12% and 16%.