The Rise of China's Second Tier, Part I: Henan/Zhengzhou
This is the first in a new series of posts looking at certain trade and industrial 'hotspots' in China.
If you look at trade statistics for Chinese provinces in 2011, it is clear that something is happening in Henan, an emerging central province, and particularly in its provincial capital of Zhengzhou, one of China's 20 fastest growing cities. Zhengzhou is what some might call a typical second-tier Chinese city (Bentley and Louis Vuitton have just set up shop there). Provincial Value Added of Industry growth was a solid 19.6% in the first eleven months of 2011, yet what sets the province apart is the huge jump in foreign trade achieved in 2011. In August 2011, Xinhua picked up on Henan's trade bounty when it reported that Henan had registered total foreign trade of USD 11.7 billion for H1 2011 (this is perhaps an underestimate), with the European Union serving as the main trade partner. The province's main exports were silver, aluminium, vegetables, porcelain, and fur, while main imports were iron ore, lead ore, machinery, and wood pulp.
According to China's National Bureau of Statistics, in the first eleven months of 2011, the y-o-y growth in the province's foreign trade was 78.5%, the second-highest rate of growth (Chongqing registered a full 143%). This rapid growth was from a relatively low base, it now stands at USD 28.4 billion (light years away from the likes of Jiangsu with USD 490 billion and Guangdong with USD 830 billion). Henan still also has a very low GDP per capita as well as average household consumption expenditure of only RMB 7837, the ninth lowest of all China's provinces, and the lowest average wages of all China's provinces (RMB 22,552). Yet the province's rapid growth in trade in 2011 points to the fact that something is stirring in Henan.
From backwater to transportation and manufacturing hub
Although it is often regarded as somewhat of a rural backwater, Henan has a lot going for it. Consider the following. As a province of China, in 2010 Henan:
- had the third-largest population of 94 million people (Shandong had 96 million; Guangdong had 104 million)
- had the second-largest cultivated land area of 7.9 million hectares Heilongjiang had 11.8 million)
- had the second-longest total length of highways at 245,089 km (Sichuan had 266,082 km), and the fourth-longest length of railways in operation at 4,282 km
- had the second-largest freight traffic at 20.0 billion tonnes (Anhui had 22.8 billion tonnes)
In 2011, moreover, Henan very much lived up to its reputation as China's breadbasket: it was China's leading province for Output Value of Agriculture, Forestry, Animal Husbandry and Fishery, with RMB 560 billion. Yet with a large albeit low-earning workforce, good transportation networks and a suitable geographic location close to the eastern seaboard, Henan is well-placed to take advantage of the large-scale relocation of manufacturing to cheaper central provinces.
It comes as no surprise, then, that Foxconn, the original equipment manufacturer for Apple products, plans to hire an additional 100,000 workers at its plant in Henan, doubling its workforce there. Foxconn's Henan factory is itself brand new, only opening in August 2011.
In appreciation of the province's attractive set of advantages for its business, Kerry Logistics in January 2012 announced plans to build a new logistics centre in Henan that will be targeting the electronics and technology, automobile, industrial and material science sectors. Kerry's managing director in mainland China put it well: "China’s coastal provinces have refocused to attract manufacturers of higher value-added products and there has been a migration of production to the central and western regions due to lower land and labour costs, we see the potential to transform Zhengzhou into one of China’s manufacturing and processing hubs."
Foxconn and Kerry are both setting up in Zhengzhou, the provincial capital and rising star of Henan. The city has been included in 29th place in the Top 50 Chinese Cities by Investment Potential list, and Zhengzhou’s imports and exports last year reached USD 13.5 billion, up 196% from 2010. Exports jumped 166% to USD 5.3 billion, while exports increased by 258% to USD 5.3 billion. Another prominent city in Henan is Luoyang, where CITIC HIC, one of the world's leading manufacturers of mining equipment, is located.
The next China
Although its people are still relatively poor, Henan is on the cusp of the next development wave in China. It has a strong agricultural reputation, yet it also has a number of advantages that positions it to become a manufacturing hub in central China, ideally placed in central China close to the eastern provinces.
It all means that you should probably get used to hearing the name 'Zhengzhou.'
Note: All data is from China National Bureau of Statistics, unless otherwise stated.
Listed below are links to blogs that reference this entry: The Rise of China's Second Tier, Part I: Henan/Zhengzhou.
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