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Focus on Ningbo

Home to China's best natural deep-water port, Ningbo has other advantages to offer foreign investors

Around 210 BC, the Taoist court necromancer Xu Fu and his fleet of ships sailed out of Ningbo Harbor to search the uncharted East Sea for the Pearl of Immortality. His boss, Emperor Qin Shihuang, unifier of China and builder of the Great Wall, was not the sort to be particularly forgiving of failure, and Xu Fu wisely vanished. But the geographic logic behind his choice of port at which to build and outfit his fleet remains sound to this day.

Indeed Ningbo, a city of 5.5 million in Zhejiang—a mere 150 km from Shanghai across the Hangzhou Bay—boasts the best natural deep-water harbor in East China (most other ports in the Yangzi River Delta [YRD] are much more exposed to potential damage from storms). Over the past 10 years, domestic private enterprise has exploded in Zhejiang, particularly in light industry and consumer goods. GDP growth in the province has averaged more than 10 percent for each of the past five years, and foreign direct investment (FDI) has risen markedly as enterprises radiate out from the expensive Shanghai area into the rest of the YRD Ningbo, long noted for its dynamic merchant class, is riding this manufacturing investment wave and building strong, export-oriented private enterprises, while also redeveloping its urban areas to cope with a sizzling real estate boom and an influx of new residents. Though it may never eclipse Shanghai's superior logistics services and access to the YRD economy, Ningbo offers foreign investors in the southern YRD a viable alternative and access to a wide range of flexible and vibrant domestic suppliers.

A tale of two ports

Thanks to China's voracious appetite for commodities and Ningbo's unmatched ability to handle large-draft ships, the port is now the world's fifth-largest cargo port, handling 220 million tons of cargo last year. The growth in export-oriented industry in Zhejiang has also boosted container traffic by 44 percent in each of the past six years. As shipping lines build ever-larger ships, some with up to 100,000 tons displacement, both Shanghai and Ningbo ports are racing to expand deep-water berth infrastructure and attract the world's largest shipping lines and corporate clients. Ningbo's natural geographic advantage helps lower infrastructure costs and improves port efficiency, particularly in terms of days lost to inclement weather, but Shanghai's continuing edge in logistics and critical support services remains a huge challenge for the upstart port. Centralized control of docking fees and less-developed internal transport links with the rest of the YRD also limit Ningbo Port's ability to challenge Shanghai on a cost basis. Currently, Ningbo Port remains tightly tied to the Zhejiang export economy, importing commodities and exporting light consumer goods. But the port has ambitions to capture a growing share of the lucrative container trans-shipment business from Shanghai.

Can I get a little service?

Other than commodity-based heavy industries such as petroleum and chemical refining around the port, Ningbo's economy is still focused on fairly low-value-added manufacturing industries, particularly in textiles, home appliances, and light consumer goods. Ningbo has developed a number of nationally prominent private enterprises, including Ningbo Bird Shareholding Co. Ltd. in mobile phones and Ningbo Youngor Group Shareholding Co. Ltd. in textiles. On a recent list of China's top 190 exporting brands compiled by the Ministry of Commerce, 20 belonged to Ningbo-based companies. Manufacturing plants, scattered among Ningbo's numerous enterprise development zones, are staffed by migrant laborers drawn from the Northeast, Sichuan, and nearby Anhui. Ningbo has an estimated 1.6 to 2 million migrant laborers in its urban and rural areas.

Although unskilled labor is still readily available, labor costs for managers and technical personnel are on the rise, with some enterprises reporting annual wage increases of 10 percent or more. Professionals in engineering, finance, accounting, marketing, logistics, and other areas are continually tempted into Shanghai by higher wages and more senior positions. As one local plant manager at a US-invested enterprise groused in a recent interview, "I expect to lose one or two department managers to Shanghai office jobs, but losing my receptionist was a bit much."

The Shanghai effect accentuates the relative weakness of Ningbo's service sector. Services account for only 37 percent of GDP, while manufacturing accounts for 57 percent. This compares with a 50-48 split for Shanghai. As manufacturing begins to migrate further inland because of rising coastal labor and land costs and better transport links with the interior provinces, Ningbo needs to develop higher value-added service sectors, particularly in logistics, to support the port's operations.

Who turned out the lights?

Private enterprises around Ningbo were hit particularly hard by the power shortages in East China last summer. Most factories were restricted to running only three to four days a week in the peak months from June to August. While foreign-invested enterprises received slightly more favorable treatment, and are also generally less wasteful of power, restrictions on their local suppliers had a major impact on operations. Many of these local enterprises imported diesel-powered generators: the value of generator imports to Ningbo rose by a staggering 260 percent last year. Others even added capacity in nearby areas or around the city to meet demand and retain existing clients. (New plants can negotiate preferential access to electricity with districts.) Three new power plants are currently under construction in the Ningbo vicinity and this new generating capacity should alleviate the energy problem over the next few years.

A more significant long-term concern is water. Water supplies to enterprises were cut intermittently during last summer's drought and the Ningbo government has already begun small-scale purchases of water from nearby Shaoxing. Ningbo Jianlong Steel Co. Ltd.'s brand-new 300,000-ton capacity mill sits idle, held back by the central government's curbs on over-investment in the steel sector and limited local supplies of water and power.

Better, if pricier, living

Over the past five years, Ningbo has experienced an unprecedented real estate boom. In a country of spiraling property values, Ningbo had the fastest growth in housing prices of any city from 2001-03, outpacing even Shanghai. With the price of a 100 m2 apartment now equivalent to 35.5 years of the average resident's income, affordable housing in urban areas is hard to find, to say the least. The city has instituted a number of measures to try to cool down the market, with some success. Meanwhile, the number of cars on Ningbo's roads has increased seven-fold in the past four years, leading to serious traffic problems.
To deal with these pressures, the city's 11th Five-Year Plan, currently being finalized, will move government offices further east and closer to the port, easing congestion in the city center. The plan also calls for a light rail system connecting new residential areas with the business district. Already one of the greenest cities in China, Ningbo intends to restore some of its old canals and waterways and line them with parks and residential high rises. Central to the success of these projects will be long-term efforts to clean up the pollution in Ningbo's three main rivers and develop the area around Dongqian Lake, East China's largest freshwater lake.

The giant next door

The centerpiece of Ningbo's future development is the massive Hangzhou Bay Sea Bridge, a six-lane, 36-km bridge that will cut driving time from Ningbo to Shanghai from four hours to two by removing the detour through the provincial capital of Hangzhou (see map of China's ports). Some $250 million of the project's $500 million in capital financing was contributed by 17 Zhejiang-based private enterprises, with the remaining $700 million of the bridge's $1.42 billion cost financed by bank loans. Scheduled for completion in 2008, the bridge will bring Ningbo fully into Shanghai's orbit.

In the long term, Ningbo needs to find ways to complement rather than compete with Shanghai. Fortunately, the city is well on its way to becoming an excellent shipping center, a first-class manufacturing and design hub for consumer products, and a relaxing, green, weekend destination with some of China's best seafood.

Still, if you stand on the unfinished Hangzhou Sea Bridge and look east over the bay, you can almost see the just-opened 26-km East Ocean Sea Bridge, linking Shanghai with its own brand-new deep-water port at Yangshan Island. All friendly talk of cooperation aside, as Ningbo builds links to Shanghai, Shanghai seems set on building its own Ningbo.

Other cities in the east include:
Shanghai
Hangzhou

Source: This is an excerpt from an article originally published in the Jul-Aug, 2005 .issue of the China Business Review. Reprinted with the permission of The US-China Business Council, Washington D.C.

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