Business Tianjin Magazine

China's largest private steel company, Shagang Group, plans to move away from steel as its primary business in as little as three years. The seismic shift being considered by the steel stalwart, unthinkable during the boom a decade ago, is the clearest indication to date of the mounting pressure traditional manufacturing sectors in China are facing to stay viable in a rapidly changing domestic and global market.

But in the city of Zhangjiagang in Jiangsu province, the base for Shagang's steel mill operations, some domestic and foreign companies see opportunity in the challenges besetting traditional industries.

They are the flag bearers of the so-called emerging industries, and they have begun to set up production facilities across the city.

Among those prepared to take a punt on what they perceive to be huge potential in the evolving Chinese market are German solar energy material manufacturer Krempel Group and Japanese machining and robot manufacturer Nachi Group, both of which set up operations in Zhangjiagang last year.

It is no coincidence that these companies chose to do business in the small but economically dynamic city on the Yangtze. Often held up as a success story of China's rapid industrialization and urbanization, Zhangjiagang has implemented a number of progressive development policies to attract investment from emerging industries.

Success, or failure, is likely to be viewed as a weathervane for other economic zones across the country.

"If we want to keep economic growth and also leave a beautiful city for generations to come, we have to transform the city and reduce our reliance on traditional industries and increase our innovation in emerging industries," says Yao Linrong, Party chief of Zhangjiagang. "We need to develop an economy with low resources, low energy consumption, and low emissions."

While China maintains pride of place as the world's manufacturing hub, industrial transformation has been a strategic objective for the country in recent years as it seeks to mitigate expected cuts to employment and to government revenue that follow further decline in the profit margins of traditional sectors.

The old bastions of business are being encouraged to diversify, or at the very least to operate in a more fiscally sustainable fashion way. On October 15, the Government announced it would block new projects in a number of sectors suffering from overcapacity, including steel, aluminum, shipbuilding and cement.

Zhangjiagang, ranked in the top three of China's 100 county-level cities in terms of comprehensive competitiveness, needed little prompting to embark on a program of industrial reform.

Traditional businesses, such as printing and dyeing, have been moved out of the city's 120 square kilometers of prime industrial land and into less developed regions to make way for new projects.

Bigger companies in traditional industries have been encouraged to introduce new technology and diversify their brands, and companies that deal in cutting-edge technology, new energy and new materials have been courted and assisted in setting up shop.

Ma Xuefeng, deputy director of the Zhangjiagang Bureau of Commerce, says the city has picked companies with strong prospects. Between January and August this year, Zhangjiagang gave the green light to 29 new projects from companies from the emerging high-tech industries, reaping an investment bonanza worth 750 million USD , or 85.2 percent of the total investment during that period.

"Companies or projects that create pollution and use a lot of energy are finding it more difficult to do business here, even if it means a lot of money and job opportunities for the city in the short term," she says. "We prefer companies that are environmentally friendly, especially those dealing in new equipment, new energy and new materials."

Krempel Solar Material (Jiangsu) Co Ltd, a solar materials manufacturer and subsidiary of Krempel Group of Germany, is among the new breed of businesses to set up in Zhangjiagang.

Its general manager, Marius Stuckenberger, says it decided to invest after exhaustive research to find a location that would fulfill key criteria, including a stable workforce, support from local authorities, and customer satisfaction in terms of logistics.

His sentiments were echoed by Satoshi Hamamoto, vice-president and director of Nachi (Jiangsu) Industries Co Ltd, which makes precision cutting tools, hydraulic equipment, industrial robots and automotive solenoids.

"It is not a big city, but it is clean and quiet, with a good security environment," he says. "Also, the support facilities are quite good, and it is close to Shanghai and other cities of Jiangsu province, where we have longstanding suppliers and clients."

Gu Weibin, director-assistant of the Zhangjiagang Economic and Technological Development Zone administration commission, says the city's economic hotspot now boasts more than 3,000 companies and an output value last year of 75 billion CNY.

Textiles manufacture, which used to account for half of the region's total output, now only accounts for 30 percent. In its place, the city's development zone has six companies that make robots and robotic components. To cater for the rise of this sector, a specialized industrial and research park is being built that officials predict will generate 6 billion yuan by 2016, and 20 billion CNY by 2020.

Hamamato says Nachi (Jiangsu) has opened a research division that aims to create cheaper robots, specifically tailored to the Chinese market. But one of the big hurdles, he says, is attracting and retaining skilled talent.

Yao, the city's Party chief, says about 90 percent of Zhangjiagang's 3,000 graduates every year choose to stay in the city, but some specialized skills still need to be imported.

Yao concedes the long road to industrial transformation is paved with difficulties, but the alternative route is the short one to ruin.

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