FDI and Local Economic Development: the Case of Taiwanese Investment in Kunshan Kang-tsung Chang...

FDI and Local Economic Development: the Case of Taiwanese Investment in Kunshan

Kang-tsung ChangKonstantinos A Melachroinos Ching-mu Chen

June 22, 2007

Introduction

Kunshan’s Industrial Transformation

Driving Forces

Challenges Facing Kunshan

Conclusions

Background China’s Rise: technology transfer

and economic development through FDI since the Open Door Policy in 1978

Kunshan Model: from an poor county-level city to a flourish IT industrial cluster

Research Question Belonging to the second wave of

Chinese ETDZ fever, why and how can Kunshan succeed?

Introduction


Driving Forces


Conclusions

Research Tasks

Verify Kunshan’s transformations in industrial structure and import-export composition

Explore the initial preconditions for the formation of the FDI-fueled IT cluster in Kunshan

Introduction


Driving Forces


Conclusions

Map of Kunshan and the KETDZ

Introduction


Driving Forces


Conclusions

The Pivotal Role of KETDZ

The start-up of KETDZ ‘Self-funded’ industrial zone:

absorbing outdated and heavy-polluting industrial enterprises from Shanghai in the mid-1980s

Provincial economic development zone: approved in 1990

State-level development zone: in August 1992

Introduction


Driving Forces


Conclusions

Gross Domestic Product of Kunshan and the KETDZ,

1993-2005 Gross Domestic Product (billion RMB)

0.0010.0020.00

30.0040.0050.0060.00

70.0080.00

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

KETDZ Kunshan

Source: Kunshan Statistics Bureau (various years 1993-2005).

13%

73%

Introduction


Driving Forces


Conclusions

The evolution of the contribution of foreign-owned firms to the Gross Industrial Output Value (GIOV) of Kunshan, 1994-2005

Gross Industrial Output Value (billion RMB)

0.00

50.00

100.00

150.00

200.00

250.00

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

FDI Enterprises Kunshan

Source: Kunshan Statistics Bureau (various years 1994-2005). Authors’ calculations.

31%

93%

Introduction


Driving Forces


Conclusions

Evolution of Gross Industrial Output Value(GIOV) by sector in Kunshan, 1988-2005

Gross Industrial Output Value (billion RMB)

0.00

50.00

100.00

150.00

200.00

250.00

Others

Raw Chemical Materials and ChemicalProducts

Textile

Communication Equipment, Computersand Other Electronic Equipment

Source: Kunshan Statistics Bureau (various years 1988-2005). Authors’ calculations.

27% : 5%

50%

Introduction


Driving Forces


Conclusions

Taiwanese investment

~2002 1/10 of total Taiwanese investment

in China 1/4 of total Taiwanese investment in

Jiangsu 78 of top 100 enterprises in Taiwan

2003 >50% of Kunshan’s fiscal income >60% of Kunshan’s tax income >70% of Kunshan’s sales revenue >90% of Kunshan’s international

trade

Introduction


Driving Forces


Conclusions

Import Value (billion USD)

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

1999 2000 2001 2002 2003 2004 2005

Others

Textile Materials and Products

Chemicals and Related Products

Plastics and Related Products;Rubber and Related Products

Base Metals and Related Products

Mechanical and electricalproducts

The composition of imports by sector in Kunshan, 1999-

2005


81%

64%

Introduction


Driving Forces


Conclusions

Export Value (billion USD)

0.002.004.006.008.00

10.0012.0014.0016.0018.0020.00

1999 2000 2001 2002 2003 2004 2005

Others

Chemicals and Related Products

Plastics and Related Products;Rubber and Related Products

Base Metals and Related Products

Textile Materials and Products

Mechanical and electricalproducts

The composition of exports by sector in Kunshan, 1999-

2005


86%

65%

Introduction


Driving Forces


Conclusions

Import Countries Composition

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

1999 2000 2001 2002 2003 2004 2005

Japan

Singapore

Korea Rep.

Hong Kong

Taiwan

Association of Southeast AsianNations

United States

Europe Union

Geographical composition of Kunshan’s imports, 1999-2005


Introduction


Driving Forces


Conclusions

Export Countries Composition

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

1999 2000 2001 2002 2003 2004 2005

Japan

Singapore

Korea Rep.

Hong Kong

Taiwan

Association of SoutheastAsian Nations

United States

Europe Union

Geographical composition of Kunshan’s exports, 1999-2005


Introduction


Driving Forces


Conclusions

The Impact of Comparative Advantage Recycling The scenario of comparative

advantage recycling was repeated in the 1990s (Japan to NIE)

The investment environment in Taiwan for export-oriented manufacturing enterprises worsened in the mid-1980s

The announcement of the Act Governing Relations between Peoples of the Taiwan Area and the Mainland Area in 1992

Kunshan’s industrial and trade composition: a sequential shift from Taiwan (NIE) to Kunshan (China)

Introduction


Driving Forces


Conclusions

The Emergence of the IT Cluster

Pressures of IT industry: quality, scale, low cost, flexibility, and speed due to the shorter product life cycle

Asymmetric power relationships: global flagships ＞ key contractual suppliers ＞ local suppliers

Global flagships (global brand-name firms)

Key contractual suppliers (OEM, ODM, global logistic services)Local suppliers

Introduction


Driving Forces


Conclusions

Global flagships (global brand-name firms)

Low production cost, spatial proximity

R/D, marketing, innovation

Local suppliers

Key contractual suppliers (OEM, ODM, global logistic services)

Introduction


Driving Forces


Conclusions

HP, IBM, Dell, Apple, Toshiba, Sony……

Compal, MiTAC, Wistron, Foxconn……

Low production cost, spatial proximity

R/D, marketing, innovation

Local suppliers

Focal firms of the cluster

Introduction


Driving Forces


Conclusions

Network-based benefits to cluster: the externality of reducing uncertainty and risk

WUS PCB ( Wu Li-gan )

GiantOther PCB companies

Introduction


Driving Forces


Conclusions

Taiwanese investments in Kunshan

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

WUS Printed Circuit Kunshan (PCB)

Giant China Liufeng Machinery

Cheng Shin Rubber China Kunshan President Foxconn Kunshan PC Connector (connector, barebone)

Sakura Bath & Kitchen Products China Kenda China

UB China TG Changjiang Glass (glass fiber)Fujiwa Machinery Industry Kunshan

Compal Electronics China (CRT monitor)

The Pudong Development Project Kunshan EPZ

Introduction


Driving Forces


Conclusions

Taiwanese investments in Kunshan (cont.)

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Chengdong Machinery Kunshan

Unicap China (PCB)Sinyih Cermic China Nan Pao Resins China

Thermos China

EMC Kunshan (Copper Clad Laminates )


Introduction


Driving Forces


Conclusions


1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Coretronic Kunshan (LCD Monitor )

Compal Electronics Kunshan (notebook PC)

MiTAC Computer Kunshan (GPS, Pocket PC and Mobile Phone )

Altek Kunshan (Digital Camera )

Nan Ya Printed Circuit Board Kunshan (PCB)

Nan Ya Copper Foil Kunshan (Copper Foil )

Nan Ya Glass Fabrics Kunshan (Glass Fabrics )


Introduction


Driving Forces


Conclusions


1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Nan Ya Electronic Materials Kunshan (copper clad laminates )

Nan Ya Epoxy Resin Kunshan (epoxy resin )PFG Fiber Glass Kunshan (glass fiber )

Taichia Glass Fiber (glass fiber )ScinoPharm Kunshan Biochemical Technology

Twinhead Kunshan (notebook PC)Kunshan Kapok (notebook PC)

Wistron InfoComm Kunshan (notebook PC)

Micro Unite KunShan (motherboard and display card )Nan Ya CO-Generation Kunshan


Introduction


Driving Forces


Conclusions


1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Compal Opt. Kunshan (notebook PC) Compal Info Kunshan (notebook PC)

Compal InfoTech Kunshan (notebook PC) WJ InfoComm Kunshan (notebook PC)

WS InfoComm Kunshan (notebook PC)

Vimax Kunshan (Projector and Optical Components )Getac Kunshan Computer (notebook PC)


Introduction


Driving Forces


Conclusions

China’s 2005 Top 500 with biggest export and import amount value Compal Electronics

Kunshan (21) Compal Info Kunshan

(41) Wistron InfoComm

Kunshan (70) WS InfoComm Kunshan

(111) Getac Kunshan

Computer (125) WJ InfoComm Kunshan

(151) Compal Electronics

China (153) Micro Unite Kunshan

(163)

MiTAC Computer Kunshan (170)

Altek Kunshan (216) LG Electronics

Kunshan (355) SCI Systems Kunshan

(388) Kunshan Kapok (426) Vimax Kunshan (445) Makita Kunshan

Corporation (454) Foxconn Kunshan PC

Connector (487)

They are in Kunshan!

Introduction


Driving Forces


Conclusions

Constraints to Growth

Shortage of available land for construction A deficit of 168,000 acres ( 50%) of non-≒

agricultural land for Kunshan in 2020 Weak connection to local suppliers

Encouraging Taiwanese firms to integrate local private enterprises into their supply chains

Rising labor cost Comparative advantage recycling

IT product life cycle Mature market Industry upgrading

Introduction


Driving Forces


Conclusions

Belonging to the second wave of Chinese ETDZ fever, why and how can Kunshan succeed?

Kunshan’s trajectory Follow the comparative advantage

recycling process Strategic coupling with GPN

Policy lessons to developing countries Fast trajectory of economic growth -

comparative advantage recycling process Importance of local institution building to

“fit” the strategic needs of GPN Side-effects of the policy of comparative

advantage recycling

Thank you for your listening.

FDI and Local Economic Development: the Case of Taiwanese Investment in Kunshan Kang-tsung Chang...

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