Most Australians haven’t heard of the port city of Tianjin, but tucked away 137km southeast of Beijing is a flourishing metropolis which has been growing at an annual rate of 16.5% since 2007, and is home to over 13million people. Prior to the founding of the People’s Republic of China, Tianjin (meaning, ‘a port for the emperor’) was the economic and financial centre of Northern China. Currently, Tianjin’s architecture is a culmination of its history as a colonial city mixed with its modern Chinese culture, a plethora of colonial buildings, modern skyscrapers and stylish suspension bridges. Now, an ultra-modern bullet train connects the city to Beijing, a journey taking less than half an hour, and plans for the next Beijing International Airport development show that it will be conveniently located halfway between the two cities.
Tianjin is the sister city of Melbourne and is one of the four municipalities that has “provincial status” level and therefore reports directly to the Central Government in Beijing. It is the sixth largest city in China in terms of urban population and the fifth largest by urban land area. Manufacturing represents approximately 60% of Tianjin’s economy and the Binhai New Area development zone has attracted many global giant to its ports, for example, Airbus and Caterpillar. Tianjin is also an important industrial base in China, with its major industries including petrochemical, metalworking, car manufacturing and textiles. Furthermore, the Chinese government has identified the Binhai New Area in Tianjin as the future hub for ‘vocational training’ in China, which is a fast growing industry in China as companies further understand the value of vocational training for the long term development of their organisation.
Tianjin is one of the country’s leading destinations for Foreign Direct Investment. In the first quarter of 2013, the city approved 141 FDI programs which attracted USD5.1billion into Tianjin’s economy and was an 18% increase from the previous year. These figures are even more impressive when compared with the whole of China, which attracted USD29.9billion in the first quarter, only a 1.44% increase on that of the previous year.
Tianjin, the fourth largest port in China, has attracted 110 of the world’s top 500 companies. The Tianjin Economic-Technological Development Area (TEDA) which is located within the Binhai New Area, is located 40km from Tianjin’s city centre and is consistently ranked as China’s best performing free trade zone and has become one of the preferred manufacturing bases for foreign multinationals. TEDA focuses on four key industries: (1) electronics and communications; (2) biomedicine and biotechnology; (3) advanced manufacturing; and (4) food processing. In fact, Scandinavian pharmaceutical company, Novo Nordisk, has selected Tianjin to build the largest insulin production plant in the world, with investments totalling USD400million. In addition, Motorola’s Tianjin manufacturing facility is one of the biggest in the world and Samsung’s current Joint Venture with Central Tianjin Electronics Corp has seen the establishment of the biggest mobile manufacturing and R&D base outside of Korea.
Tianjin’s geographic location and economic significance has seen it become a major communications hub for Northern China. With the largest man-made port in the world, the largest air-freight facility in the region and railways linked in all directions (and into Europe), it is no wonder that the significance and importance of the development of Tianjin is reflected in the nation’s five year plan. Often described as living in the shadow of Beijing, Tianjin workers are actually slightly better off than their Beijing counterparts with a minimum wage that is 4% higher than that of Beijing and a lower cost of living.
An approach that was pioneered in the 1980s, saw Chinese authorities choose Tianjin as a “proving ground” for policy experiments including those surrounding financial services. If successful in Tianjin, the policies may be carried out nationwide. As an example, in late 2006, the Chinese government established the country’s first equity fund heavily reliant on bank lending, the Bohai Industrial Investment Fund, with an initial investment of RMB6billion, which was expected to reach RMB20billion within 15 years. As a result of this experiment, the growth of the funds industry has exceeded many expectations and is forecast to become one of the largest in the region.
With respect to the banking sector, the total credit issued in Tianjin has grown faster since 2009 than anywhere else in China mainly as a result of the post GFC economic stimulus package. In addition, ANZ currently holds a 20% ownership in the Bank of Tianjin and is the second biggest shareholder. The Bank of Tianjin is valued at $2.3billion.
Yujiapu Financial District
The Yujiapu Financial District, which has been described as the “future Manhattan of China” is currently under construction in Tianjin and is set to be the world’s largest financial district (9.5million square metres). The financial district represents a RMB200billion dollar investment by the Tianjin government and will be built in four stages. The city will comprise of 47 skyscrapers that will be constructed on the salt flats in Tianjin. The first dozen buildings constructed in the new financial district will have four times the combined floor space of the Empire State building! The Government has strategically created incentives for businesses to transfer their legal residency and offices to Tianjin. In particular, tax incentives to private equity funds has seen over 50% of the country’s private equity funds relocate their office space to Tianjin. This strategic move has also attracted many of China’s “princelings”, the sons and daughters of current and former senior Chinese officials, who are highly involved in the private equity industry in China.
The Tianjin government provides a great variety of investment incentives to attract companies and their capital to Tianjin. Incentives cover a range of industries including: financial institutions, Agricultural technology companies, Science and Technology R&D and to a variety of incorporation structures including Sino-Foreign Joint Ventures and establishment of Headquarters/Regional Headquarters.
The Tianjin story is a very important one in the past, present and future of China. As a key destination for foreign and domestic investment, as a city with world-class infrastructure that has attracted some of the brightest minds in the country to its opportunities for strong growth and development – it’s time for businesses looked beyond Beijing to the role that Tianjin can play in connecting China with the rest of the world.
I was delighted to appear as a keynote speaker at the recent MEA Conference in Darwin. In my presentation, I provided some insights and observations into the growth of the Meetings, Events and Conference industry in each of the BRIC countries. For a summary, please click here
I leave Moscow today after a week with my friends at East Capital attending their annual Summit with a small group of investors from around the world, mainly from Europe and Scandinavia. Over four busy and packed days, we met, mixed and listened to local analysts, economists, fund managers and the senior Directors and executives of some of Russia’s most iconic and well known companies, including Aeroflot, Lukoil, Sollers, Sberbank, M.Video and Yandex.
I am left with the challenge of trying to make sense of all the views, data, charts, forecasts and opinions expressed to form my own coherent view of Russia’s current and future direction. It is indeed a puzzle, but here’s a summary of my views as I fly out from Domodedovo airport tonight:
Russia is on the move
On the bus sitting next to my friend, Karine Hirn, she gave me fascinating insights into her time living in Moscow in 1991 when she lived and worked here as a young student. In those days, Moscow was a very grim, grey, dark and gloomy city, with drab and nondescript buildings, no cars and only three places to go out to eat and have fun. Everyone travelled by bus or tram, nobody had any money and Russia was only just emerging from the ravages of the cold war.
Contrast this with today, over 20 years later. Now everyone has a new car of the latest model, brand and description, the buildings are clean, colourful and shiny, the night sky lights up with neon lights displaying well known western brands, and there are new restaurants and night clubs everywhere. 67% of Russians are defined as “middle class”, household consumption has grown by over 10% p.a. for the last 10 years, and unemployment is at its lowest level ever (5.3%).
Yet, despite the above, the Russian consumption story still has a long way to go. By western standards, Russia seriously lags in key sectors like air travel, retail banking, logistics, pharmaceuticals, cars, media and online advertising which is 50% or less than the European average penetration. Long term investors, entrepreneurs and business leaders have the opportunity to participate in this long term growth story at a historically low entry price. They will be handsomely rewarded over the next decade or two if they get in now.
Russia has many problems to overcome
There are many short term challenges, and we constantly hear about them. The need to deregulate certain industries, accelerate privatisation, improve corporate governance, boost competition, smash corruption and increase investment in infrastructure were recurring themes over the past 4 days. Economic growth has slowed to 1.1% p.a., inflation is too high (over 7%) mainly due to an increase in food prices caused by a poor harvest in 2012 (food represents one third of consumer spending) and, while the consensus view was for GDP growth in 2013 to improve to 2% to 3% p.a., there is even talk of a possible recession. Russia’s GDP per capita of $16,000 is reaching the point at which fast growing emerging countries typically hit the “middle income trap”, a sure sign that economic growth will slow to lower levels in a band of between 2% to 4% p.a. max.
In my view, the fact that these problems are so widely acknowledged, discussed and aired is a sure sign that they can and will be addressed. Over 800 corrupt Government officials are languishing in Russian jails (a fact which was highlighted by President Putin in his recent National Address) and there are early signs of improving Corporate Governance, increasing dividend payments and the protection of the interests of minority shareholders. There is of course more to do but the trend is in the right direction and, as we were told, Russia usually “surprises on the upside”.
Putin is popular
Boosting growth rates is a hot topic of conversation within Government circles. Despite reports to the contrary in the western media, Putin is genuinely popular amongst Russians due to his commitment to economic reform and the widely held view that he is the first Russian politician to actually deliver on the dream of a real consumer boom.
The average Russian is more affluent, secure and content than in living memory. Much of this is credited to the political stability, increased affluence and greater certainty delivered by Putin over 18 years (in two 6 year terms as President and one as Prime Minister). The search for a successor is now on with many locals predicting that his current term as President (expiring in 2018) will be his last. The recent return of former Finance Minister Kudrin, the architect of many of Russia’s recent economic reforms, was highlighted as a particularly good sign.
Russia has to look East rather than West
From my perspective, many of the more gloomy forecasts were over pessimistic. Russia’s growth to date has been largely due to its relationship with the western European consumer (representing 60% of current exports) which is clearly unsustainable. Europe’s economic and fiscal problems are well known and are unlikely to be resolved in the near term. The future depends, to a large extent, on Russia’s ability to engage with its Asian neighbours for trade, investment and the opening up of new markets, pipelines and channels for its vast supplies of oil and gas. Yet, these opportunities were barely mentioned during our visit.
Russia needs to seriously engage with China (and India) to overcome its short term growth problems. The decision by new Chinese President, Xi Jinping to choose Russia as the destination for his first official overseas visit is a move in the right direction and I expect to see more bilateral engagement in the next few years. Russia is a “BRIC country” for a reason (an abundance of land, people and capital to name three!) and its future lies to its East rather than its West. A more proactive and committed engagement with China would be a good first step.
Please watch the latest issue of "Think Global with David Thomas" which covers my visit to Moscow: