Posted by Elena Luk'yanenko
Elena Luk'yanenko
Elena has more than five years of experience in international marketing providing services for the foreign com...
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on Monday, 04 July 2011
in Business in China

Choosing a Location for your Chinese Factory

Establishing a manufacturing or assembly plant in China requires thorough consideration of various factors. Perhaps the most important question is whether one sets up in an Industrial Zone, Industrial Park, or Special Economic Zone and which will give you the best returns on your investments in low initiation costs and operational expenses.

However, other factors can be equally important. The region, size of the nearest city and nature of its industries will determine the availability of inputs such as human resources and energy. Furthermore, distances from suppliers, the nearest international port and potential customers are crucial.

Increasingly, the Chinese government is paying more attention to setting up Industrial Zones or Industrial Parks for investors and industries.

In general, there are three kinds of Industrial investment locations, each with their own benefits and disadvantages:

  • Special Economic Zones (SEZ)

  • Private Industrial Parks

  • Industrial Incubators

In this post, a brief clarification and explanation of the similarities and differences between the three options will follow.

Special Economic Zones

Special Economic Zones have different names in China. They might be called “Free Trade Zones”, “Export Development Areas” or “Technological Development Areas” which differ in form and size. Regardless of the name, they offer incentives and benefits to foreign companies which are supported by the Chinese government. Their goal is to attract (largely foreign) manufacturers by offering them a variety of incentives – tax breaks, no duties, relaxed employment laws and lowered barriers to launch into the local market. The Chinese Special Economic Zones are usually located near transportation hubs and have excellent infrastructures: good roads, easy access to ports, railways and airports, fast telecommunications, plentiful and reliable energy supplies, etc. Your company can enjoy these benefits and also access many potential local employees who are given incentives to relocate to these areas by the Chinese government.

However, many SMEs (small and medium-sized enterprises) complain about being ignored and can not get the same treatment as large companies.

Private Industrial Parks

Currently, private Industrial Parks solve the problems SMEs meet in Special Economic Zones. This kind of Industrial park is suitable for foreign companies which require developed infrastructures, facilities and a management support system which are provided by the site. While Special Economic Zones attract larger multinationals, most of the Private Industrial Parks cater to SMEs by providing more tailor-made services. Furthermore, you don’t have to complete all the complicated procedures of applying as a foreign enterprise and you can still utilise their support and launch into the Chinese Market. Therefore, private Industrial Parks are especially useful for foreign companies which are in the early stages of penetrating the Chinese market.

The Parks are usually managed by English-speaking foreigners and offer high quality facilities and infrastructures. The rent in the Private Industrial Parks is lower than State-owned Industrial Parks, and most of them offer management services, business support and consulting services in addition to office and warehouses sharing. This is why they are very popular – especially for SMEs which are establishing independent manufacturing and marketing operations in China.

When you establish your factory in a Private Industrial Park, your rent includes all the auxiliary services – security, cleaning, maintenance, etc. The Park’s management service will also help you negotiate with the authorities and enjoy the government benefits to which you might be entitled. The bottom line is: The management support provided by the Private Industrial Parks help you focus on manufacturing and sales without all the bureaucratic overhead.

One of the first Private-owned Industrial Parks in China is the Nordic Industrial Park (140,000 square metres).  This Park is located in Ningbo, and managed by an English-speaking team. The park is owned by Chinese residents of Scandinavian origin. This park is meant for small and medium sized foreign companies, and while it provides a high quality service, it is expensive.

Another example is the American Industrial Village (100,000 m2), located in Kunshan’s new Hi-Tech Industrial Zone in Jiangsu Province. The Park mainly targets medium-sized Hi-Tech companies (defined as 20-50 million RMB/CNY in projected sales per annum) or divisions of large multinationals. For example, both Siemens and Corning Glass are members as well as a number of large automotive companies. Many of these Parks have an established track record but are expensive.

Industrial Incubators

Industrial Incubators offer quick, efficient and cost-effective ways of establishing Chinese manufacturing operations. Changzhou Incubation Industrial Initiative (CI3) is one of the examples of industrial incubators.

The CI3 helps to set-up your manufacturing operations in record time and at minimum risk. It is located in a Special Economic Zone located in Changzhou (one hour from Shanghai). PTL Group manages the Incubator which was established with the full cooperation of the local authorities.

The CI3 Industrial Incubator offers you a modular approach, from setting up an assembly line to a fully operational manufacturing plant. The benefits are manifold. CI3 helps foreign manufacturers to:

  • Set up Chinese manufacturing operation in 6 months or less.
  • Provide comprehensive support services: localization and engineering, quality control, procurement, logistics, finances, installation and maintenance of an ERP system.
  • Obtain certificates, permits (ISO, SFDA) and can recruit, train and develop a local workforce, all the while dealing with the local authorities.
  • Obtain Funding and government benefits where eligible.

Are you interested in establishing a Chinese factory?

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