Macroeconomic case

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CHINA’S JOURNEY TO THE WEST: XI YONG MICRO- ELECTRONICS INDUSTRIAL PARK, CHONGQING

Siriwan Chutikamoltham, Wang Feng & Liu Xiaoxiao

HBP No. NTU051 Publication No. : ABCC-2014-008

Print Copy Version: 1 Jul 2014

Since the opening up of the economy in 1979, China has followed an export-led growth policy and transformed the country into a ‘Factory of the World’ with its labour-intensive manufacturing. Since then, many factories were set up and concentrated mostly in the south-eastern coastal provinces. Although this policy resulted in consistently high annual growth and creation rates, negative side effects such as environmental, economic and social problems became increasingly evident. To address these challenges, in 2012 China’s policymakers changed the policy direction to focus more on domestic consumption-led growth. One strategy to achieve the goal was to expand its manufacturing base into the hinterland. To attract investors to move to the inner regions, the government developed gigantic industrial parks and basic infrastructure to accommodate the new policy.

This case depicts Xi Yong Micro-electronics Industrial Park in Chongqing, the largest municipality in Western China. It discusses the implementation of the government’s development strategy at Xi Yong and presents an opportunity to examine whether Xi Yong and other similar industrial parks would provide the solution that the government is looking for.

Topics covered: Government and business interaction, macroeconomic policy, labour market, country risk analysis.

COPYRIGHT © 2014 Nanyang Technological University, Singapore. All rights reserved. No part of this publication may be copied, stored, transmitted, altered, reproduced or distributed in any form or medium whatsoever without the written consent of Nanyang Technological University.

For copies, please write to The Asian Business Case Centre, Nanyang Business School, 50 Nanyang Technological University, Nanyang Avenue, Singapore 639798, Phone: +65-6790-4864/5706, Fax: +65-6791-6207, E-mail: asiacasecentre@ntu.edu.sg

Dr Siriwan Chutikamoltham of Nanyang Business School and Associate Professor Wang Feng from the School of Economic and Business Administration, Chongqing University, prepared this case with the assistance of Liu Xiaoxiao. It is based on published sources and fi eld visit to Xi Yong Industrial Park. As the case is not intended to illustrate either effective or ineffective practices or policies, the information presented refl ects the authors’ interpretation of events and serves merely to provide opportunities for classroom discussions.

This case is one of a series of cases developed by Asian Business Case Centre of Nanyang Business School, Nanyang Technological University, Singapore. It is sponsored by the Temasek Foundation-China National MBA Education Supervisory Committee’s Capacity Building Programme.

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CHINA’S PAST ECONOMIC GROWTH POLICY

Like several other Asian countries, China pursued an export-led growth development policy for the past three decades. This model created high economic growth for most adopters, especially China and the ‘Four Tigers’, namely Hong Kong, Singapore, South Korea, and Taiwan. China experienced an average annual growth rate of 9.9 % between 1978 and 2012. (See Exhibit 1 – GDP Growth Rates and Composition of GDP.)

There were also several related benefi ts that China received from this export-led growth strategy. Firstly, the most obvious benefi t of this policy was job creation. In populous China, where 215 million new workers entered the workforce between 1980 and 19901, there was a strong need for the government to create jobs for these workers. Factory jobs to produce labour- intensive exports were the solution. Even in recent years when the demographics of China changed to fewer new workers, from 22 million in 2000 to 15 million in 20102, there was still a need to provide them with jobs to prevent political and social instability. Secondly, the production of exports to supply high- income markets in Europe and North America forced these countries to become competitive in the global market. Thus, companies improved their production effi ciency through the use of best practices and best global technology that was embodied in the machinery, production processes for exported items, and foreign investment projects. Thirdly, China accumulated foreign exchanges from current account and capital account surpluses, creating a large national reserve to buffer external shocks. (See Exhibit 2 – China’s Balance of Payments from 2000-2012.) China’s foreign exchange reserve was estimated at US$3.66 trillion in the third quarter of 2013.3

1 LaFleur, R. A. (2003). China: A global studies handbook. Santa Barbara, Calif: ABC-CLIO. 2 Larson, C. (2013, November 19). Scrapping Its One-Child Policy Won’t Solve China’s Worker Shortage. Bloomberg Businessweek.

Retrieved October, 15 2013, from http://www.businessweek.com/articles/2013-11-19/scrapping-the-one-child-policy-wont-solve-chinas- worker-shortage

3 Real Time Economics. (2013, October 15). 4 The World Bank. (2007). 5 Razmi, A. (2010). Is the Chinese Investment and Export-led Growth Model Sustainable? Some Rising Concerns. University of

Massachusetts, Amherst. 6 Frankel, J. A. (2009, August). New Estimation of China’s Exchange Rate Regime. Pacifi c Economic Review, 14(3), 346-360. Wiley

Blackwell. 7 Frankel, J. A. (2009, February). New Estimation of China’s Exchange Rate Regime. NBER Working Papers, no.14700, National Bureau

of Economic Research, Inc. 8 Ferguson, N. (2009). End of Chimerica. Harvard Business School Working Papers, no.10-037.

Inspite of the benefi ts that the export-driven growth policy created, there were several negative side effects.

Firstly, the focus on exports came with a sacrifi ce of domestic consumption. This happened in at least two ways. To keep exports competitive, particularly in the labour-intensive items, real wages were kept low. Evidence showed that nominal wages were raised more slowly than the improvement in labour productivity. (See Exhibit 3 – China’s Labour Income and Income Growth Rate.) In other words, workers were compensated less than the output they produced, effectively reducing labour cost in the production. Over the years, the share of labour income declined from 53% to 41.4% of Gross Domestic Product (GDP) between 1998 and 2005.4 Interestingly, gross savings in China increased to exceptionally high levels during the same period, averaging 42% between 1997-20065, attributed to cultural factors and limited social safety nets.

To keep exports competitive, many research studies concluded that China’s currency or the RMB was undervalued.6,7,8To keep the RMB undervalued, earners of foreign exchanges such as exporters were required to sell their foreign currencies to the authority at the specifi ed rate in exchange for RMB. The more foreign currencies that China earned, the more RMB would enter the domestic economy, despite government efforts to sterilize the money supply by forcing commercial banks to purchase government bonds. As money supply increased, infl ation followed. As a result, the purchasing power of households deteriorated, and thus their consumption. The fi nal consumption (household and government), averaged less than 49% of GDP from 2006 to 2012. (See Exhibit 1.) This was considered low, even compared to the East Asian ‘Four Tigers’

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during the rapid growth period which was typically characterised by high investment, high savings and low consumption.9 In China, private consumption alone was estimated to be even lower and averaged only 12.8% of GDP in the same period.10

Secondly, economic development within China became uneven. Cities in the East and coastal regions that were engaged in international trades became prosperous, and attracted millions of migrant workers who left farms for factories. Inland regions lost workers and were left with an increasing income disparity. The uneven economic development was also visible across sectors, with the rural agricultural sector lagging behind the urban industrial and service sectors.11

The mass migration from rural farming to the urban manufacturing sector was followed by social problems. A large proportion of the estimated 260 million migrant workers were young, less educated, and disadvantaged in work conditions such as working without contract, insurance or housing provisions.12 China’s hukou or household registration system devised in the 1950s with a good intention of equal distribution of land for rural population had unintentionally compounded the inequality for migrant workers. Under this system, migrant workers would not be eligible for housing, healthcare, children’s schooling, and pensions in areas outside their home town. Several suicides at the Foxconn factory in Shenzhen highlighted the plight of young migrant workers who were vulnerable to poor job conditions, crimes and psychological stress13, although Foxconn was considered one of the better employers in China.

In addition, the large concentration of production for exports in the East, especially along the coast, raised land prices and the cost of production in the region. This made it increasingly diffi cult to remain competitive in the world market, especially compared to newly emerging countries such as Vietnam. (See Exhibit 4 – Growth Rate of Wages and Real Estate Costs in Shenzhen.)

Another repercussion of rapid economic growth, driven by manufacturing activities, was the environmental problem. Pollution shortened life span of the average Chinese by 5.5 years in affl icted areas.14 Thousands of lives were therefore lost from pollution-related illnesses and millions of RMB in economic costs.15

Thirdly, China’s success in its export-led growth policy created tensions in international relations. The western economies, China’s main export markets, were unhappy with the ‘global imbalance’, where they did most of the consumption while China did most of the production, hence given the title ‘Factory of the World’. Major trading partners also blamed China partly for their economic problems. It was reported that China’s currency manipulation was responsible for the loss of 2.7 million manufacturing jobs in the US, and more than US$100 billion of worsening trade defi cits from 2001 to 2011.16

As a way to utilise the huge foreign reserves, China invested in US treasuries with a holding of US$1.27 trillion as of August 2013, making it the largest foreign lender to the US.17 While Americans were worried about the possible political infl uence China might have on their country as a result of this, the Chinese were concerned about the risks of investing a sizeable sum in one instrument.

9 Razmi, A. (2010). Is the Chinese Investment and Export-led Growth Model Sustainable? Some Rising Concerns. University of Massachusetts, Amherst.

10 KPMG China (2011, March). China’s 12th Five-Year Plan: Overview. 11 Razmi, A. (2010). Is the Chinese Investment and Export-led Growth Model Sustainable? Some Rising Concerns. University of

Massachusetts, Amherst. 12 International Business Times. (2013, May 28). 13 Hu, Xc. (2012, January 2). China’s ‘New Generation’ Rural-Urban Migrants: Migration Motivation and Migration Patterns. George

Mason University, School of Public Policy. 14 Can China escape its choking air pollution? (2013, October 26). Washington Post. 15 Lobello, C. (2013, October 22). 8 scary facts about China’s ‘smogpocalypse’. Yahoo News. Retrieved October 15, 2013, from http://

news.yahoo.com/8-scary-facts-chinas-smogpocalypse-145300426.html 16 Kurtzleben, D. (2012, August 24). Report: America Lost 2.7 Million Jobs to China in 10 Years. US News. Retrieved October 15, 2013,

from http://www.usnews.com/news/articles/2012/08/24/report-america-lost-27-million-jobs-to-china-in-10-years 17 He, A. (2013, October 23). China’s US Treasury holdings hit 6-month low. China Daily USA.

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China’s Current Economic Growth Policy

The global fi nancial crisis which started with the US sub-prime crisis in 2007-2008, was followed by the Eurozone sovereign debt crisis in 2009. It called into question the sustainability of the export-led economic growth policy. China’s export growth rate which was in excess of 20% per year pre-crisis plummeted to a negative 11% in 2009 before recovering to a low single-digit growth in subsequent years. To mitigate the global economic impact, China launched a RMB 4 trillion stimulus package in late 2008. However, GDP growth rates slowed to high single digits in the following years, a signifi cant decline from the double-digit growth rates enjoyed pre-crisis. On 14 March 2011, China’s National People’s Congress approved the 12th Five-year Plan which laid out a new development model for China.18

Key objectives of the new model captured in Premier Wen Jiabao’s speech on February 27, 2011:

We should not only make the cake of social wealth as big as possible, but also distribute the cake in a fair way and let everyone enjoy the fruits of reform and opening up19

The 12th Five-year Plan laid out the following goals: - A more moderate GDP growth rate of 7%, in contrast

to the planned 7.5% growth per year, in the 11th Plan (the actual average 11% was achieved).

- An ‘inclusive growth’ to solve the wealth disparity problem.

- Sustainability of economic growth by addressing pollution, intensive energy usage and resource depletion problems.

- Development of targeted industries and regions.

Working towards these goals, some specifi c plans were laid out included: - Developing China’s western regions. - Transition from an export-driven to a domestic

consumption-driven economy. - Capping infl ation at or below 4% as measured by

the Consumer Price Index (CPI). - Increasing urbanisation from 47.5% to 51.5%. - Improving the lives of Chinese citizens with 36 million

units of affordable housing, upgrading social welfare such as healthcare, social security and education, with the hope of raising average life expectancy by 1 year.

- Focusing on seven priority industries that aligned with sustainability and innovation to move up the value-chain.

Even before the announcement of the new development orientation, there was evidence of a new development focus in some inner provinces in China. The ‘Go West’ policy initiated in 2000 that attempted to rebalance the growth between the more developed, trade-oriented East and the less developed, inland West. During the export downturn due to the global fi nancial crisis, western inland cities experienced faster growth than the rest of the country.

The six cities of Chongqing, Hefei, Anshan, Maanshan, Pingdingshan and Shenyang, were dubbed ’CHAMPS’, connoting the top emerging cities in China.20 Chongqing alone experienced a consistent double-digit growth rate since 2007 and recorded a 13.6% growth in 2012 and targeted a 13% growth rate in 2013. Driving forces behind the robust growth were industrialisation, urbanisation, and modernisation of the agricultural sector.21 Chongqing, also known as the ‘Chicago of China’, was a gateway to the vast undeveloped area to its west.22

18 Delegation of the European Union in China. China’s Twelfth Five Year Plan. (2011-2015) . Retrieved October 15, 2013, from http:// www.britishchamber.cn/content/chinas-twelfth-fi ve-year-plan-2011-2015-full-english-version

19 Xinhua. (2011, February 28). Government has three policies to ensure stability. Retrieved December 1, 2013, from http://www.china. org.cn/china/NPC_CPPCC_2011/2011-02/28/content_22017883.htm

20 The Rise of The ‘Champs’ – New Report Maps Business Opportunity In China’s Fastest Growing Cities. (2010, November 9). SourceWire News Distribution. Retrieved October 15, 2013, from http://www.sourcewire.com/news/60590/the-rise-of-the-champs-new-report-maps- business

21 Li, J. B. (2013, January 23). Chongqing’s GDP growth No 2 in China. China Daily USA. Retrieved October 15, 2013, from http://usa. chinadaily.com.cn/business/2013-01/23/content_16166443.htm

22 China’s Chicago: A giant city in the south-west is a microcosm of China’s struggle to move millions from rural to urban areas. (2007, July 26). The Economist.

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Being an important military base since World War II, Chongqing had workers and managers with automobile and machinery know-how. This propelled the municipality to become one of the largest centres for motor vehicle production and the largest for motorcycles, with an output capacity of 1.96 million cars and 8.78 million motorcycles in 2012. Besides automobile, Chongqing also housed chemicals, aluminum, steel, and textiles production. There continued to be substantial government support and investment in infrastructure to transform Chongqing into an economic, trade and fi nancial centre, as an inroad to the country’s western interior.23

To follow the model that had worked well for the coastal cities in the past three decades, several industrial parks were built to attract investments, especially Foreign Direct Investment (FDI), into the region. The idea was to create industrial activities to absorb workers from the inland western provinces and to keep them closer to home while creating a vibrant regional economy to rebalance economic growth.

XI YONG INDUSTRIAL PARK

Xi Yong Micro-electronics Industrial Park (Xi Yong) in Chongqing was built in August 2005. This was a plan by the Chongqing Municipal Government to develop an Information Technology (IT) industrial park. Xi Yong was the fi rst micro-electronics industrial park in the western part of China, to be approved by the National Development and Reform Commission. Xi Yong was operated by Xi Yong Micro-electronics Industrial Park Development Company, a government investment company (also named Xi Yong Micro-electronics Industrial Park Management Committee). The Development Company took over the land, developed infrastructure and built standardised workshops in 2005. The Chongqing municipal government invited potential investors to develop new factories in Xi Yong. The Industrial Park Management Committee, together with other government sectors, such as the Tax Bureau and Customs, provided service and support for investors.

Xi Yong was located in a suburb west of Chongqing, in a neighbourhood with a college town and Chongqing railway logistic. Xi Yong occupied 30 square kilometres, and consisted of ‘one area and fi ve parks’; namely, Xi Yong Comprehensive Bonded Area, Software and Service Outsourcing Industrial Park, Integrated Circuit Industrial Park, Basic Electronics Industrial Park, Innovation Industrial Park and Enterprise Service Park. In particular, Xi Yong Comprehensive Bonded Area was founded in February 2010, and is now the largest comprehensive bonded area (synonymous with free trade zones where companies in the area received preferential treatments) among the other 27 Comprehensive Bonded Areas approved by the end of September 2013.24

Since its founding, 172 projects with an investment value of RMB 38.6 billion, including US$3.6 billion in foreign investments, had been established in Xi Yong. Several companies listed in the Fortune 500, such as HP, Foxconn, NTT DATA, Inventec, and Quanta Computer, had set up factories in the park. (See Exhibit 5 – Firms which Invested in Xi Yong Industry.)

To provide incentives for investment in Xi Yong, the park was planned with the following advantages to investors.

Geographical and Logistics Strength

Xi Yong provided several modes of transportation by land, sea and air, to bring products to markets. On 19 May 2010, the logistics channel for international trade by rail and sea freight was completed. This channel started with a railway from Container Central Station at Tuanjie Village, Chongqing, just 3 kilometres away from Xi Yong25, and ended in Shenzhen, one of the busiest container ports in China. From Shenzhen, there were more than 100 shipping routes per week connecting to other continents worldwide. The rail freight from Chongqing to Shenzhen for containers stopped at specifi c locations and had fi xed routes, trains and timings, and even fi xed prices. As a result, the transportation time shortened by half, from the original 116 hours to 53.5 hours. In addition, the sea

23 Sigurdson, J., & Palonka, K. Innovative City in West China Chongqing. Stockholm School of Economics, EIJS. 24 China speeds up the construction of a comprehensive Free Trade Zone to enhance economic openness. (2013, October 1). Xinhua

News. Retrieved October 15, 2013, from http://news.xinhuanet.com/fortune/2013-10/01/c_117579574.htm 25 Xiyong. Chongqing Xiyong Microelectronics Industrial Park. Retrieved December 1, 2013, from http://www.xiyongpark.com/

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freight ‘Chongqing-Shenzhen-Europe’ route took two days less than the traditional ‘Yangtze River Delta- Europe’ shipping route.

To further shorten transportation time, two additional railway routes were under development. One route was north-bound, connecting Lanzhou and Chongqing via Siberia with Rotterdam, the Netherlands. This route took only 13 days from China to Europe, about half the duration of the sea freight. On 12 March 2014, Chongqing New Europe Logistics Co. Ltd. released the public freight trains plan. It would operate 102 scheduled trains from Chongqing to Duisburg, Germany, in 2014. Another route was south-bound, connecting Guizhou, Kunming to Myanmar for China’s port on the Indian Ocean region.

For air freight, Chongqing Jiangbei International Airport was one of biggest airports in the west of China that had nearly 20 million passengers passing through and cargo throughput of 240,000 tons in 2011. The international cargo of 130,000 tons, containing mainly laptops was exported through 19 international air freight routes in 2012.26 Chongqing municipality government has been building Cai Jia Zhong Liang Shan Tunnel since 2012 to connect Xi Yong and the airport directly. The tunnel was scheduled to be completed in 2015.27

For sea freight, the Chongqing Port was one of the most important river ports in China. The handling capacity of Chongqing Port was 1.3 million twenty-foot equivalent units.28

Favourable Policies

Xi Yong, as well as the city of Chongqing, benefi ted from the Development of West Regions Policy that commenced in 2000. Chongqing, as the only municipality city in Western China, developed its own policies regarding tax, finance regulation, foreign investment, land and human resource regulations, to further support the opening up of the economy and economic development. In Chongqing, both domestic and foreign investment enterprises enjoyed a favourable corporate income tax rate of 15%, a full

10% lower than the rest of the country, at least till 2021. Besides income tax, companies also enjoyed several other favourable treatments such as tariff, farmland usage tax, tax on agricultural specialty product and import value-added tax.

Talent Pool and Human Resource Supply

Chongqing had more than 28 million residents and eight million migrant workers which provided more than an adequate labour supply.29 57 colleges and universities, 356 training schools, and more than 1,000 research and technology development institutes in Chongqing produced more than 137,600 undergraduates each year. 30,000 of these graduates were in IT. This large scale of graduates from higher education institutes in Chongqing ensured high-quality human resource pool for companies in the industrial park.

Better Quality of Life

The cost of living in Chongqing was lower than the national average, while wages were higher. (See Exhibit 6 – Average Income and Expenditure in Various Provinces of China (RMB) in 2012.) This should provide financial incentives for workers seeking a better standard of living. The local government built large communities of public rental apartments for workers in Xi Yong Industrial Park. The Xi Yong Micro-electronics Industrial Park Development Company also built many dormitories near the factories.

Besides the hukou household registration system, another strong incentive for workers to remain in their home city was the eligibility for agricultural land ownership, healthcare, education and other social benefi ts. Once they were outside their home city, they were deprived of these social security benefi ts.

Evidence showed that about 13% of migrant workers returned to Chongqing in 2006, citing personal and family reasons that outweighed the lower wages compared to the East. (See Exhibit 7 – Rationale of Migrant Workers Returning to Hometown in Chongqing from a Sampling Survey.)

26 Opening up for Inner land: Jiangbei Airport as the Corridor for Chongqing Exports. (2014, May 9). Chongqing Business Newspaper. Retrieved December 1, 2013, from http://e.chinacqsb.com/html/2013-12/06/content_396438.htm

27 Xiyong. Chongqing Xiyong Microelectronics Industrial Park. Retrieved December 1, 2013, from http://www.xiyongpark.com/ 28 Chongqing Port and Logistics Co. Ltd. (2014, May 9). Retrieved Retrieved December 1, 2013, from http://www.cqg.com.cn/

cqport/648800920829689856/ 29 Xiyong. Chongqing Xiyong Microelectronics Industrial Park. Retrieved December 1, 2013, from http://www.xiyongpark.com/

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Benefi ts of Vertical Integration

In 2005, Hewlett Packard (HP) became the first international technology company to establish itself in Chongqing. It was HP’s second production base in China, following their fi rst one in Shanghai. In 2007, its fi rst large investment at Xi Yong Industrial Park was in software development. According to the company’s statement:

“HP is attracted to Chongqing for its vision and investment in technology, its well- educated workforce and its location to help serve our customers in western China better and faster”, said Apotheker, the HP President and Chief Executive Offi cer in 2011.“We are proud to be an established member of the Chongqing community and we look forward to expanding our close partnership with the city.”30

Subsequently, HP built a second manufacturing facility covering an area of 20,000 square metres with more than 10 state-of-the-art production lines which could manufacture four million personal computers a year. In 2010, HP’s fi rst ‘made in Chongqing’ notebook came off the product line. Currently, HP’s full line of notebook and desktop products were manufactured in Chongqing. In 2013, HP also built an enterprise services Global Call Centre in Chongqing, which serviced customers globally. From January to April 2011, HP accounted for 20% of Chongqing’s imports (US$396.2 million) and exports (US$633.25 million).31

With a dominant producer like HP in Chongqing, other big Original Equipment Manufacturers (OEM) factories realised that they needed to build new factories near

the brand marketers and workers as well. Foxconn, for example, invested in an assembly production line in Xi Yong Comprehensive Bonded Area in 2009. This pattern of investment would create benefi ts from vertical integration with an increase in the effi ciency of the supply chain, thus lowering overall costs.

BUT IS THIS SUFFICIENT?

The development path of China’s western and other inland provinces, to a large extent, followed the concept of labour-intensive, OEM patterns similar to what some East and Southeast Asian countries have used since 1960s. Later, the investments diversifi ed to medium-level technology exports over low value-added exports. The possibility of an increase in production costs in the inland provinces, could erode the low profi t margins for the OEMs. This could prompt investors to leave China for countries with cheaper labour such as in the Association of South East Asian Nations (ASEAN), especially if ASEAN’s planned regional economic integration becomes a reality. Another cause for concern was the ageing workforce in China which was not suitable for labour-intensive production as compared to the growing population and young workforce of Southeast Asia and South Asia.

The ‘Going West’ policy faced the possibility of becoming ineffective and the threat of gradual obsolescence like those experienced by Shenzhen and other coastal production bases. To avoid such a situation and to create a vibrant and sustainable economy without heavy reliance on assembly for exports, what are other major improvements necessary in the western provinces of China?

30 Hewlett Packard. (2011, June 28). HP’s CEO visits Chongqing in support of China’s “Go West” strategy. China News Release Retrieved December 1, 2013, from http://www8.hp.com/cn/zh/hp-news/press-release.html?id=1000790&jumpid=reg_r1002_cnzh_c-001_title_ r0001#.U2dVgaJpcSV

31 ibid.

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EXHIBIT 1

GDP GROWTH RATES AND COMPOSITION OF GDP

Year 1980s 1990s 2001 2002 2003 2004 2005

GDP Growth rate in China 9.3 % 10.4 % 8.3 % 9.1 % 10.0 % 10.1 % 11.3 % Year 2006 2007 2008 2009 2010 2011 2012 GDP Growth rate in China 12.7 % 14.2 % 9.6 % 9.2 % 10.4 % 9.3 % 7.7 %

GDP Growth Rates in China from 1980s to 2012

China’s Economic Growth (1978-2012)

Composition of China’s GDP (1978-2012)

Source: National Bureau of Statistics of China.

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EXHIBIT 2

CHINA’S BALANCE OF PAYMENTS FROM 2000-2012

Current Account *

Capital and Financial Account**

Reserve Assets

Change ***

Net Errors and

Omissions 2000 205.19 19.22 -105.48 -118.93 2001 174.05 347.75 -473.25 -48.56 2002 354.22 322.91 -755.07 77.94 2003 430.52 548.73 -1,061.48 82.24 2004 689.41 1,081.52 -1,900.60 129.67 2005 1,323.78 953.49 -2,506.49 229.21 2006 2,318.43 493.05 -2,847.76 36.28 2007 3,531.83 942.32 -4,607.04 132.90 2008 4,205.69 401.26 -4,795.39 188.44 2009 2,432.57 1,984.70 -4,003.44 -413.83 2010 2,378.10 2,868.65 -4,717.39 -529.36 2011 1,360.97 2,654.70 -3,878.01 -137.66 2012 1,931.39 -168.16 -965.52 -797.71

Source: State Administration of Foreign Exchange of China.

* A positive current account means a current account surplus. ** A positive capital and fi nancial account means a capital and fi nancial account surplus. *** A negative change in Reserve Assets means an addition to the Reserve Assets.

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EXHIBIT 3

CHINA’S LABOUR INCOME AND INCOME GROWTH RATE

Growth Rates of Unit Labour Cost and Labour Productivity in Manufacturing

Year GDP (100

million RMB)

Compensation of Employees (100 million

RMB)

Share of Employees’

Compensation (% of GDP)

Per Capita Output in

Secondary Industry (RMB)

Growth Rate

of Per Capital

Output * (%)

Average Wage in Urban Units (RMB)

Growth Rate of Average

Real Wage **

(%) 1996 68,584.3 36,622.20 53.40 35,488 4.68 5,980 2.77 1997 76,956.6 40,628.24 52.79 39,752 12.02 6,444 4.52 1998 82,780.3 43,988.95 53.14 41,749 5.02 7,446 16.25 1999 87,671.1 45,926.43 52.38 44,784 7.27 8,319 13.20 2000 97,209.4 49,948.07 51.38 52,823 17.95 9,333 11.30 2001 106,766 54,934.65 51.45 58,615 4.68 10,834 15.28 2002 118,021 60,099.14 50.92 70,201 12.02 12,373 15.36 2003 135,539 67,260.69 49.62 88,494 5.02 13,969 11.89 2004 166,664 74,574.36 44.75 110,651 7.27 15,920 10.33 2005 197,789 81,888.02 41.40 120,793 17.95 18,200 12.52 2006 231,053 93,822.83 40.61 165,975 4.68 20,856 12.90 2007 275,625 109,532.27 39.74 198,017 12.02 24,721 13.40 2008 320,464 139,915.99 43.66 243,283 5.02 28,898 10.70 2009 365,304 170,299.71 46.62 257,363 7.27 32,244 12.61 2010 437,042 196,714.07 45.01 319,451 17.95 36,539 9.79 2011 521,441 234,310.26 44.94 373,416 4.68 41,799 8.64 2012 576,552 262,864.06 45.59 399,850 12.02 46,769 8.97

Source: National Bureau of Statistics of China.

* The growth rate of per capita output in secondary industry was adjusted to the real value by Producer Price Index for Industrial Products.

** The growth rate of average real wage in urban units was calculated by Indices of Average Real Wage, which was adjusted considering infl ation rate and corresponding price index.

For the exclusive use of X. Yue, 2021.

This document is authorized for use only by Xiaoxi Yue in ECNM 612-Macroeconomic Analysis SP21 taught by Robert Coscarello, Pepperdine University from Jan 2021 to Apr 2021.

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EXHIBIT 4

GROWTH RATE OF WAGES AND REAL ESTATE COSTS IN SHENZHEN

Year

Average wage per Worker (RMB)

Growth rate* (%)

Average Price of Commercial Property in Secondary Market

(RMB/sqm)

Growth rate (%)

2000 23,039 8.20 5,718 - 2001 25,941 15.10 5,779 1.07 2002 28,218 7.50 6,145 6.33 2003 30,611 7.70 6,215 1.14 2004 31,928 4.20 6,771 8.95 2005 32,476 0.10 7,582 11.98 2006 35,107 5.80 10,039 32.41 2007 38,798 6.20 14,050 39.95 2008 43,454 5.80 12,665 -9.86 2009 46,723 8.90 15,214 20.13 2010 50,456 4.30 20,850 37.04 2011 55,143 3.70 20,674 -0.84

Source: Bureau of Statistics of Shenzhen. *The growth rate for average wage per worker was calculated by Indices of Average Real Wage, which was adjusted considering infl ation rate and corresponding price index.

EXHIBIT 5

FIRMS WHICH INVESTED IN XI YONG INDUSTRY

Industry Firm

Computer

Foxconn Inventec Quanta Computer SMP

Telecom Foxconn Cisco

Software and service outsourcing NTT data Institute of Software, Chinese Academy of Science Hewlett Packard - GDCC

Electronic Parts Beijing Founder Keboda

Integrated circuit China Electronics Technology Group Aviation Industry Corporation of China

Logistics SINC Source: Xi Yong. Chongqing Xiyong Microelectronics Industrial Park. Retrieved December 1, 2013, from http://www.xiyongpark. com/listYQGK.aspx?strmenu=%D4%B0%C7%F8%BC%F2%BD%E9#

For the exclusive use of X. Yue, 2021.

This document is authorized for use only by Xiaoxi Yue in ECNM 612-Macroeconomic Analysis SP21 taught by Robert Coscarello, Pepperdine University from Jan 2021 to Apr 2021.

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EXHIBIT 6

AVERAGE INCOME AND EXPENDITURE IN VARIOUS PROVINCES OF CHINA (RMB) IN 2012

Average Wage of Employed Persons in Urban Private Companies

Per capita Annual

Consumption Expenditure

of Urban Households

Region Total Manufacturing Construction Hotels and Catering Services

National Average

24,556 24,138 26,108 20,882 15,161

Beijing 34,235 30,420 29,934 25,342 21,984 Zhejiang 27,572 26,622 29,689 23,467 20,437

Guangdong 26,621 25,938 25,821 22,737 20,252 Chongqing 26,251 25,955 27,628 20,694 14,974

Sichuan 22,175 21,878 22,122 19,458 13,696

Source: National Bureau of Statistics of China.

EXHIBIT 7

RATIONALE OF MIGRANT WORKERS RETURNING TO HOMETOWN IN CHONGQING FROM A SAMPLING SURVEY

Rationale of Returning Proportion (%)

Care of children 63.89 Care of elderly 44.44 Having and taking care of infants 4.17 Injury and illness 13.89 Unemployment 65.28 Too old for physical work 33.33 Start own business 43.06 Farming for government subsidies 20.83

Source: Zhang, Z., & Yang, J. (2011). Migrant Workers become Residents: Practice in Chongqing. Chongqing, China: Chongqing University Press.

Research fi ndings of ‘Policy Solution for Inequality of Labour Welfare in the Integrated Urban-Rural Labour Market in CQ’, June 2006 were reported in this book and was funded by Foreign & Commonwealth Offi ce, UK and Chongqing municipal government.

Note: The data was collected in June 2006, from three counties, six towns, and six villages in Chongqing. The valid sample includes 8103 individuals from 2010 households, 4.13 individuals per household on average. The working population from the total sample is 5346, amongst whom 56.17% (N=3047) had been working away from their residence. There were 43.9% (N=2347) who were still working as migrant workers. 13.09% (N=700) of the working population returned to their residence.

For the exclusive use of X. Yue, 2021.

This document is authorized for use only by Xiaoxi Yue in ECNM 612-Macroeconomic Analysis SP21 taught by Robert Coscarello, Pepperdine University from Jan 2021 to Apr 2021.