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

1
FDI and Local Economic Development the Case of
Taiwanese Investment in Kunshan

• Kang-tsung Chang
• Konstantinos A Melachroinos
• Ching-mu Chen
• June 22, 2007

2
Background

• Chinas 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?

3
Research Tasks

• Verify Kunshans transformations in industrial
  structure and import-export composition
• Explore the initial preconditions for the
  formation of the FDI-fueled IT cluster in Kunshan

4
Map of Kunshan and the KETDZ
5
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• Self-funded industrial zone absorbing outdated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

6
Gross Domestic Product of Kunshan and the KETDZ,
1993-2005
73
13
Source Kunshan Statistics Bureau (various years
1993-2005).
7
The evolution of the contribution of
foreign-owned firms to the Gross Industrial
Output Value (GIOV) of Kunshan, 1994-2005
93
31
Source Kunshan Statistics Bureau (various years
1994-2005). Authors calculations.
8
Evolution of Gross Industrial Output Value(GIOV)
by sector in Kunshan, 1988-2005
27 5
50
Source Kunshan Statistics Bureau (various years
1988-2005). Authors calculations.
9
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
• gt50 of Kunshans fiscal income
• gt60 of Kunshans tax income
• gt70 of Kunshans sales revenue
• gt90 of Kunshans international trade

10
The composition of imports by sector in Kunshan,
1999-2005
81
64
Source Kunshan Statistics Bureau (various years
1999-2005).
11
The composition of exports by sector in Kunshan,
1999-2005
86
65
Source Kunshan Statistics Bureau (various years
1999-2005).
12
Geographical composition of Kunshans imports,
1999-2005
Source Kunshan Statistics Bureau (various years
1999-2005).
13
Geographical composition of Kunshans exports,
1999-2005
Source Kunshan Statistics Bureau (various years
1999-2005).
14
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
• Kunshans industrial and trade composition a
  sequential shift from Taiwan (NIE) to Kunshan
  (China)

15
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
  gt key contractual suppliers gt local suppliers

Global flagships (global brand-name firms)
Key contractual suppliers (OEM, ODM, global
logistic services)
Local suppliers
16
Global flagships (global brand-name firms)
Key contractual suppliers (OEM, ODM, global
logistic services)
Local suppliers
17
HP, IBM, Dell, Apple, Toshiba, Sony
Compal, MiTAC, Wistron, Foxconn
Local suppliers
18

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

WUS PCB ( Wu Li-gan )
19
Taiwanese investments in Kunshan
The Pudong Development Project
Kunshan EPZ
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Compal Electronics China (CRT monitor)
UB China
TG Changjiang Glass (glass fiber)
Fujiwa Machinery Industry Kunshan
Kenda China
Sakura Bath Kitchen Products China
Foxconn Kunshan PC Connector (connector,
barebone)
Kunshan President
Cheng Shin Rubber China
Liufeng Machinery
Giant China
WUS Printed Circuit Kunshan (PCB)
20
Taiwanese investments in Kunshan (cont.)
The Pudong Development Project
Kunshan EPZ
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
EMC Kunshan (Copper Clad Laminates )
Thermos China
Nan Pao Resins China
Sinyih Cermic China
Unicap China (PCB)
Chengdong Machinery Kunshan
21
Taiwanese investments in Kunshan (cont.)
The Pudong Development Project
Kunshan EPZ
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Nan Ya Glass Fabrics Kunshan (Glass Fabrics )
Nan Ya Copper Foil Kunshan (Copper Foil )
Nan Ya Printed Circuit Board Kunshan (PCB)
Altek Kunshan (Digital Camera )
MiTAC Computer Kunshan (GPS, Pocket PC and
Mobile Phone )
Coretronic Kunshan (LCD Monitor )
Compal Electronics Kunshan (notebook PC)
22
Taiwanese investments in Kunshan (cont.)
The Pudong Development Project
Kunshan EPZ
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Wistron InfoComm Kunshan (notebook PC)
Kunshan Kapok (notebook PC)
Twinhead Kunshan (notebook PC)
ScinoPharm Kunshan Biochemical Technology
Taichia Glass Fiber (glass fiber )
PFG Fiber Glass Kunshan (glass fiber )
Nan Ya Epoxy Resin Kunshan (epoxy resin )
Nan Ya Electronic Materials Kunshan (copper clad
laminates )
Micro Unite KunShan (motherboard and display card
)
Nan Ya CO-Generation Kunshan
23
Taiwanese investments in Kunshan (cont.)
The Pudong Development Project
Kunshan EPZ
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
WJ InfoComm Kunshan (notebook PC)
Compal InfoTech Kunshan (notebook PC)
Compal Info Kunshan (notebook PC)
Compal Opt. Kunshan (notebook PC)
WS InfoComm Kunshan (notebook PC)
Vimax Kunshan (Projector and Optical Components )
Getac Kunshan Computer (notebook PC)
24
Chinas 2005 Top 500 with biggest export and
import amount value
They are in Kunshan!

• 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)

25
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

26
Belonging to the second wave of Chinese ETDZ
fever, why and how can Kunshan succeed?

• Kunshans 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

27
Thank you for your listening.