U.S. Firms Looks to China for Growth
Business + Economy

U.S. Firms Looks to China for Growth

CHONGQING, China — U .S. businesses are increasingly looking to China’s western hinterlands as the future source of growth and profits, with Ford, Wal-Mart and other companies planning major investment and expansions in cities such as this sprawling metropolis of 32 million people.

With prosperous east coast cities such as Shanghai becoming saturated and too expensive, and growing concerns about a property “bubble,” many firms see boundless potential in so-called second- and third-tier cities such as this one on the Yangtze River. Rising incomes are creating a new consumer class, but the region lags far behind in the number of cars, appliances, luxury brands and Western fast-food meals sold.

“The growth is in the tier-two and tier-three cities, which are inland,” said Joseph R. Hinrichs, chairman and chief executive of Ford China. “The fundamentals of demand and economic growth are there.” Pointing to places such as Wuhan, Chengdu and Chongqing, he added, “There are many cities that people don’t even know.”

Ed Chan, president and chief executive of Wal-Mart China, said at a recent conference in Chongqing that his company has plans “to build out our retail footprint in this part of China.”

Official, centralized statistics on U.S. and foreign firms venturing west are not available, and some moves are in the planning stages. In Sichuan province, for example, there are 1,171 registered U.S. companies, although there is no accounting for their size or whether they are joint ventures with Chinese firms.

When the American Chamber of Commerce China issued its annual “white paper” on business in China this year, it included for the first time separate sections on the business environment in Chongqing and Chengdu — opportunities as well as challenges.

“As China’s thriving economy remains in the global spotlight, an increasing number of enterprises are shifting operations to the southwest, where they are finding an increasingly dynamic business environment,” the Chamber white paper said. But it added that the region was hampered by a lack of infrastructure, including international schools, and a shortage of trained local talent.

Catering to new wealth

The central government in Beijing has been pushing western China as a place to invest, promoting its vast natural resources, huge population centers and growing network of gleaming new airports and highways. The west here is defined as the dozen provinces and autonomous regions beginning with Chongqing and Chengdu and stretching to Xinjiang and Tibet.

Encouraging investment in the hinterlands is a way to increase employment — and ease social tensions — in a region that has long felt left behind as China’s richer coastal cities and the capital, Beijing, have enjoyed three decades of double-digit growth. The effort seems to be paying off. Foreign investment in western China surged 55.8 percent in the first four months of this year, compared with just over 23 percent in the east, according to China’s Commerce Ministry.

Ford illustrates the push west. The company lags behind foreign carmakers who came earlier to China and sells just five brands here, capturing 2.6 percent of the passenger vehicle market. But with its local joint venture partner, Chang’an Ford Mazda Automobile, Ford has two plants in Chongqing and plans for three more, including a state-of-the-art engine facility that had its official groundbreaking in June.

Ford is coming in big, with ambitious plans to introduce 15 all-new vehicles specifically for the China market in the coming years. Many of those will be smaller and cheaper, specifically tailored to consumers in this part of China who are just now tasting the benefits of new wealth and will be looking to buy their first vehicles.

Hinrichs acknowledges that “it’s a bit of catch-up.” But he sees the Chinese car market boom only continuing. Cities such as Beijing, Shanghai and others on the coast might already feel as though they are choked with cars. But nationwide, the car ownership ratio is relatively low, he said, with 45 people out of 1,000 of driving age having their own car. In the United States, the ratio is closer to 1 to 1. And most of those non-owners in China are out west.

Read more at The Washington Post.