Factors Affecting Foreign Investment in China: A Case of Liaoning Province

Introduction

It is of key importance for foreign investors who are in the pursuit of venturing into new markets to incorporate strategic decisions before and in the process of setting up any operations. Such strategic decisions must embrace various organizational aspects and conditions which vary between various geographic and economic locations. Notably, it is clear that every business entity that indulges in international expansionary development activities must be prepared to face various factors that may either hinder or motivate its entry and business success in a given geographic location. In the study below, the Liaoning sub-national area in the Chinese republic is used to underline some of the factors that business entities such as Wal-Mart and Starbucks would consider leading to either the choice of opening or not opening a branch or a store in that region.

Liaoning is located in the northeast China and is a very important transportation hub, being home to the famous port city of Dalian. This region borders the Bohai Gulf as well as the Yellow Sea in the southern side, and borders the Korean Peninsula to the in its southeast. The Liaoning region’s industrial background is based upon the pillars of food processing, petrochemicals, metal smelting and processing, and production of machinery equipment. Notably, this region has over a quarter of the entire Chinese iron ore reserves with similarly large deposits of crude oil, especially in the Liaohe Oilfield (KPMG Advisory (China) Limited, 2007). Basically, Liaoning stands out as the leader in international trade in the entire northeast China frontier. With reference to recent statistical records, the total foreign trade output for this region reached over 100 billion US dollars, almost half of it resulting from direct imports. In addition, the amount of utilized FDI added up to over 26 billion US dollars, ranking second with reference to all other Chinese provinces (The China Perspective, 2014).

Drawing from the current situation in Liaoning, this is a region that for reasons discussed herein stands out as a good business hub not only for local Chinese firms but also in terms of foreign direct investment. Notably, a good number of successful business firms across the world have had profitable operations in Liaoning for quite some time. This includes international companies such as Goodyear, General Motors, General Electric, IBM, Coca cola and Wal-Mart. Basically, there are a couple of reasons as to why there is such positive business performance in the Liaoning province. Some of the major factors are as a result of the geographic background as well as the developmental framework of this area and they are stipulated below.

The Leading Factors

A Rich Global Interconnection

For a long time in the History of China, the Liaoning region has stood out as a key hub for both interior and international business. With reference to Figure 1, it is clearly visible that the coastline of Liaoning region is relatively irregular thereby providing good docking harbors. For this reason, this region has been a choice maritime port both in the past and in today’s world. It facilitates the trade not only between the northeast Asia countries and China, but also between the entire Southeast Asia countries and the entire world. Notably, Dalian has been in the limelight as one of the world’s significant commercial sea ports since the thirteenth century. In addition, the Liaoning region presently stands out as a region with relatively busy ports across the entire Chinese republic; especially the Dalian sea port (Otieno, 2013). As a result, this factor stands out as a strong aspect for the management of firms such as Wal-Mart or Starbucks to consider in their plans to invest either in stores or branches in the Liaoning region. The ease of access to the area facilitated by its geographic positioning renders this area a good location for the setting up of stores and factories for foreign business firms investing in China.

However, the geographical interconnection is also made stronger by several supporting aspects. A strong Diaspora Community is one of them. Due to the rich history in terms of Liaoning’s exploration and international trade, this region boasts one of the largest and rich Diaspora Population. More so, the presence of such a population creates a positive reason why multinationals such as Starbucks and Wal-Mart should establish foreign stores and branches in Liaoning. The diversified cultural background plays a very important role as underlined in the marketing theory.

Gateway to the Chinese Inland and Its Rich Asian Neighbors

In addition to its geographic positioning, the Liaoning province has a setting of stable market for many products including petrochemicals, steel equipments, automobile and ships. This region is characterized by various Economic Development Zones (EDZs) as a result: Jinshan EDZ, Dandong Tongyuanpu EDZ, Qianyang EDZ, Dandong Dagushan EDZ and Donggang EDZ. In addition, the Liaoning region is guaranteed extended support from the Chinese central government in terms of provision of a stable platform with respect to its long-term growth and economic development in accordance to the provisions of “Revitalize the Northeast” strategy launched by the Chinese Central Government in 2003 (KPMG Advisory (China) Limited, 2007). In light of this, the management of multinationals venturing in foreign expansion of their businesses in China can find the Liaoning location also good due to the possibility of various economies of scale resulting from the presence of government based support policy for the regions business and trade stability.

More so, this location bears a close cultural likeness as well as ethnic ties with Korea and it maintains relatively strong regional connections with the Northeast Asia countries. This leads to the development of various competitive advantages culminating from the large Diaspora Population, close cultural backgrounds and business linkages both in Korea and in the entire Northeast Asia frontier (U.S. Commercial Service, Shenyang, 2013). Foreign investors, such as Starbucks and Wal-Mart can embark on the high possibility and forecast that the next decade will see to it that the cultural integration between this region and the Southeast Asia frontier will increase and result to expansion of economic relations to unprecedented levels, and thus should consider this location in featuring their foreign stores and branches in China. Basically, by setting up stores, branches or factories in the Liaoning region, international firms have the ability to access the prosperous markets across Beijing, Hong Kong, Shanghai, Japan, Taiwan, Korea, West Asia and East Africa.

Vast Growth and Development Potential

One strong point about the Liaoning region is that despite its numerous past years of robust development, it still stands out and remains as one of the most rapidly expanding Chinese coastal economy (Veeck, Pannell, Smith, & Huang, 2006). With reference to the per capita income, market capitalization and household consumption, the Liaoning region ranks highly in comparison with other sub-national areas in the greater Chinese republic. Presently, the manufacturing sector contributes over 50% of Liaoning’s GDP (U.S. Department of State, 2014). The secondary economy depends upon industrial machinery, pharmaceuticals and electronics. In addition, the service industry is also increasing its contribution towards Liaoning’s GDP at almost 40%, with this region aiming at increasing its share through targeting industrials sectors with relatively significant spillovers towards the service industry (U.S. Department of State, 2014). In light of this, multinationals like Starbucks, with a significant aspect of services in their business operations could find this location best suiting their foreign investment endeavors.

In addition, there is a strong consumer demand in the Liaoning region. Notably, this region reaps from the benefits of the continuous growth present under the flourishing consumer base in China. This is basically as a result of the underlying demographic background behind the entire region. With respect to the 12th Five-Year Plan by China, the major priority has been channeled towards regional development of the coastal economic zone of Liaoning (Lu, 2013). The “Five Points, One Line” project also has helped to tap the consumer demands through the acceleration of the development of the regions key industrial hubs through the provision of sustainable interconnectivity especially between Liaoning’s coastal cities though the construction of a connecting highway network. This aspect also motivates the choice of the Liaoning location for business ventures as far as multinational corporations are concerned in foreign investment in the greater China republic.

Another important aspect worth consideration is the fact that Liaoning stands out as a one of China’s regions where the private sector economy is gaining strength. Basically, the larger part of China is characterized by the presence of powerful and dominating state-owned business enterprises. However, Liaoning stands out as a region which goes against this trend, boasting competitive as well as highly privatized markets especially since the “Revitalize the Northeast” plan was launched and started to be implemented in 2003 (Yinglan, Wenxiang, & Xin, 2013). In light of this, foreign investors endeavoring to venture in this region are guaranteed to reap significant benefits culminating from this highly privatized economy through competitive access to both government resources and commercial resources.

Resource Abundance

The province of Liaoning boasts of a very rich background as far as natural resources are concerned. To start with, its capital city alone, Shenyang is endowed with over 25 million tons of iron ore reserves, also is home to two huge coal mines with in excess of 1.8 billion tons of verified reserves. In addition, the crude oil deposits are in excess of 300 million tons (KPMG Advisory (China) Limited, 2007). The key notable point is that this case extends to all its seven satellite cities, with all being extremely rich in the aforementioned natural resources. This province as a result has a relatively strong industrial production capacity incorporating steel in Anshan, coal in Fushun, coal and iron in Benxi, coal and electrical production in Fuxin, and chemical products in Liaoyang. Notably, this region is also rich in bauxite, clay stone, granite and several other industrial raw materials (KPMG Advisory (China) Limited, 2007). More so, as far as resources are concerned, there is also abundance in terms of human capital. The region is home to millions of citizens who bear tertiary education. In light of this, an established multinational would find it fitting to invest in such a location. For instance, Wal-Mart or Starbucks could benefit from the competitive human resource readily available in this region.

Supporting Infrastructure

Liaoning province stands out as a major transportation point of reference in the Northeast China frontier, boasting of a well connected transport infrastructure including rail, air, and road transportation. Notably, the Shenyang Taoxian international airport is the largest and busiest airport in the entire Northeast China region, handling more than 6 million passengers every year. This means that there are direct flights from the region to other important foreign business hubs such as Shanghai, Beijing and Hong Kong in China, as well as internationally in places such as Cheongju, Frankfurt, Tokyo, Los Angeles, Sydney and other key cities across all the continents (Ling, Junsheng, & Yugang, 2012).

In addition, Liaoning boasts as one of the most heavily rail endowed regions in China. Notably, there are six rail lines that intersect in its capital Shenyang, which extend southwards to Beijing, northwards to other Northeast China regions and southeastwards to North Korea. Statistically, over 8.5 billion tons of different industrial products and raw materials were transported through rail in this region in the year 2006 (KPMG Advisory (China) Limited, 2007). As a result, the Ministry of Railways in China declared the capital of Liaoning, Shenyang, as one of the 18 cities across the greater China that were set to be developed and upgraded into state-of-the-art inland ports for containers by the year 2010. Figure 4 shows the railway network in the region.

More so, the region has modern expressways that cross all over the region linking all the cities in Liaoning to other important Chinese cities such as Tianjin, Harbin, Dalian, Beijing and Changchun. The connection within the region’s cities is also greatly modernized. For instance, within the Shenyang city, two subway lines were completed in 2010, thereby connecting commercial areas downtown with the manufacturing zones located in the suburbs (KPMG Advisory (China) Limited, 2007). Basically, with reference to the above information, it then stands out that the geographic positioning as well as topographical aspects of the Liaoning region has made it possible for massive transport infrastructural development. As a result, international investors would find this location very suitable since infrastructural development is a key element necessary in the realization of business successes.

Conclusion

From the information highlighted above, Liaoning stands out as one of the most economically active regions of China, with the vibrancy of its capital city of Shenyang which has over 7 million residents being visible in terms of its GDP level and the amount of utilized foreign direct investment, as indicated in Figure 3 and Figure 5. Currently, the dominating sectors include among animal husbandry, agriculture, auto-mobile industry, high-tech, and heavy machinery. The cities in Liaoning specialize also in special retail and financial services. Notably, the region boasts of a perfectly established economic and industrial infrastructure, incorporated in 15 key development zones, 5 in the state level, 5 in the provincial level and 5 in the municipal development level zones. In light of this, all the underlying factors characterizing the region of Liaoning stand out as motivational factors that would promote the entry of foreign investors into the province since each of the above mentioned factors outlines the Liaoning region as a good factor for international trade in the pursuit of foreign investment in the greater China.

References

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