China industrial parks whip up new formula for success as foreign firms balk at old recipe - Independent News

by Mandy Zuo at scmp.com

In the decades following China’s opening up and reform, industrial parks flourished across the Yangtze River Delta. Foreign investment poured into the nation’s biggest port city, Shanghai, and overflowed into the surrounding areas.

Eyeing opportunities in China’s huge market, multinationals with a presence in these parks were often lured by local governments’ enticing offers, including free rent and tax breaks.

But today, such incentives are no longer the magic formula for success as Beijing tightens taxation oversight and seeks to build a unified national market. The parks, which have been pivotal to China’s manufacturing advancements while serving as local economic engines over the years, have had to change the way they attract foreign firms as the external environment became less accommodative amid geopolitical tensions.

Amid the central government’s intensified scrutiny on investment-attraction measures, and with foreign investors’ bearish sentiment regarding China, even the most successful parks in the delta – one of the country’s most economically vibrant regions – are struggling to lure new investors.

“We used to rely on preferential policies, using land and reduced taxes to attract investors, but as the central government emphasises saving resources, this is not workable any more,” said Wang Aijun, director of the management committee of the Jiangning Industrial Park in Nanjing, Jiangsu province.

In a comprehensive reform plan rolled out after their recent conclave known as the third plenum, central leadership vowed to “fully regulate taxation by law and standardise tax incentives”, and to “launch a special campaign to sort out the various types of land being used in industrial parks”.

Now, Wang said, the park is assessing a new approach, including fostering industrial clusters to attract firms along the value chain of major member firms.

The capability of industrial parks, also known as economic development zones, to lure investment is crucial to the world’s second-largest economy amid an ongoing downturn, according to Song Yingchang, a researcher of economic clusters with the Chinese Academy of Social Sciences.