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Hundreds of technology-linked firms have set up shop, creating a thriving services hub
Reuters
22 May 2015
Signs that China’s reforms may be paying off have sprung up in the eastern coastal city of Hangzhou, where a booming high-tech and software sector has fired up the local economy in defiance of a nationwide slowdown.
From venture capital funds to Big Data firms, hundreds of technology-linked companies have set up shop in Hangzhou, capital of Zhejiang province, to create a thriving services centre that is picking up the slack from wilting factory growth.
Once home to thousands of makers of household wares, Zhejiang’s transformation is an exemplar of Chinese leaders’ vision of an economy powered less by exports and investment and more by services and advanced industry, as embodied in the country’s “Made in China 2025” strategy published on Tuesday.
The province, which accounted for 6.3 per cent of China’s economy last year, is benefiting from reforms being rolled out across China, such as tax breaks for high-tech firms, more funding for Internet startups, and a better logistics network to aid e-commerce.
A case in point, Kuaidi Dache, part of China’s biggest taxi-hailing app, employs close to 2,000 workers today, compared with fewer than 10 just three years ago. “Kuaidi was founded in Hangzhou, which has a very open economy and is very receptive to new technologies,” said Zhao Dong, Kuaidi’s co-founder and chief operating officer.
At the Internet Finance Building in west Hangzhou, which houses technology startups, Silicon Valley culture is taking root. Young workers stroll about in tee-shirts, jeans and sneakers, and offices are lined with treadmills, ping-pong tables and spaces for Friday night parties.
Growth in Zhejiang accelerated to 8.2 per cent in the first quarter of this year, up from 7 per cent a year earlier, while growth in the rest of China slipped to 7 per cent, a quarterly low not seen since the depths of the 2008/09 global financial crisis.
In Hangzhou, a city of seven million people just an hour’s train ride from Shanghai, local authorities have long allowed private enterprise to flourish.
It is the birthplace of e-commerce giant Alibaba Group, which earned annual revenues of 76.2 billion yuan (S$16.4 billion) in its last financial year, and hired nearly 13,000 employees in the year since March 2014. “There’s a whole ecosystem that has developed around Alibaba,” said Jin Zhongkun, co-founder of Loafer’s Weekend, a Hangzhou events app that promotes activities to subscribers. “It used to be that Zhejiang was supported by small and medium-sized enterprises that focused on exports, but now you see a lot of really good venture capital firms.”
Hangzhou is not unique. The services sector in the southern city of Shenzhen is also expanding rapidly, and growth in other local economies in eastern China has only slowed a shade this year. Countrywide, the services sector is employing an increasing share of the working population, up to 38.5 per cent in 2013, leaving manufacturing behind on 30 per cent.
Kevin Lai, an economist at Daiwa in Hong Kong, said that this would put a floor beneath China’s economic slowdown, though it could only temper the drag on growth from headwinds such as China’s massive local government debt. Eastern provinces such as Jiangsu and Zhejiang are among China’s most indebted local governments.
For Liu Yang, a deputy manager at Hangzhou Efuton Tea Co Ltd, one of China’s top online tea sellers, Hangzhou’s pro-business environment is a model for the rest of China.
Companies here receive “enormous” state support, Mr Liu said. Entrepreneurs get housing subsidies, and companies are invited to networking and industrial design events run by the government. Mr Liu had just returned from a local-government-led tour of Haier Group, China’s biggest household appliance maker, in Qingdao, eastern China. “This is a government that helps companies,” Mr Liu said.
Investment in the communications, software and IT industries was particularly buoyant, soaring 138.5 per cent, compared with spending cuts in some factories. Investment in ferrous metal smelting fell 23.6 per cent.