Shanghai in particular major draw for setting up regional headquarters

Despite all the headwinds in global markets, foreign firms' interest in further tapping into the Chinese market seems unchanged, with US life sciences company Danaher Corp being among them.

In mid-March, Leica Microsystems, which became part of Danaher in 2005, signed agreements with Shanghai Jinqiao Group to invest 200 million yuan ($27 million) to expand a manufacturing and R&D base in Shanghai's Pudong New Area. About 60 percent of Leica Microsystems' business will realize localization once the expansion is completed next year.

In addition, Cytiva, a biotechnology company under Danaher, saw its Pudong-based China innovation center inaugurate a new cell culture development base in March with an investment of around 20 million yuan.

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Peng Yang, president of Danaher China, said the reason for the company's recent expansion is simple: "We have never seen the ceiling of reform in Pudong."

Danaher is not the only company showing unchanged confidence in the growth outlook in Pudong, and on a broader perspective, in China.

During a promotion conference held on April 18, which also celebrated the 35th anniversary of Pudong's reform and opening-up, four multinational companies signed agreements with the local administration to land new projects in Pudong.

These include the 600 million yuan headquarters project by Japanese industrial equipment maker Morimatsu Group, 1 billion yuan production base of Japanese biotech firm Daiichi Sankyo, 2.4 billion yuan industrial base of multinational agribusiness conglomerate Yihai Kerry and an information technology company set up by international commodities trader Trafigura Ltd, with an investment of about 50 million yuan.

Likewise, German chemical giant BASF announced on April 14 it would invest 500 million yuan to expand its Shanghai Cellasto plant based in Pudong, which provides noise, vibration and harshness reduction solutions for the auto sector. The plant's annual output will rise significantly by 70 percent once it goes operational in 2027.

Apart from serving the electronics and consumer goods companies, the company aims to better capitalize on China's electric vehicle sector with its continued investments, said Xu Yibin, BASF vice-president and general manager of the Pudong site.

"Our confidence in Pudong derives from the rich talent supply, increasingly expanding industrial ecosystem, the local government's continued efforts and the market-based, legal and international business environment, which can be considered first-rate on a global perspective," said Xu.

But of course, the vibrant entrepreneurship in China, the rapidly evolving NEV sector and, more importantly, the country's massive market size should never be overlooked, Xu added.

The constantly improving business environment in Pudong serves as a major magnet for multinational companies.

Chen Jiayuan, CEO of global agribusiness giant Louis Dreyfus North Asia, said the various investment facilitation policies and financial opening-up measures adopted in the China (Shanghai) Pilot Free Trade Zone have provided much support for commercial expansion.

"Shanghai's government work report released at the beginning of the year touched upon experimental policies concerning offshore renminbi trading, cross-border trade settlement and the cross-border hedging for commodities. These will substantially benefit companies to better serve clients while managing risk," he said.

In early April, Shanghai released its three-year action plan (2025-27) for commodities trading. The measures — such as expanding trading categories and deepening coordination of the spot and futures markets — can effectively manage risks and thus improve companies' profitability, Chen said.

On April 15, Pudong released a set of 14 new measures to better attract foreign investment. Aiming to introduce more advanced foreign manufacturing firms and modern services providers, Pudong will guarantee national treatment of foreign-invested enterprises, explore a management mechanism for easy and safe cross-border data flow and ensure foreign-invested companies' participation in government procurement projects, among others items.

According to the action plan released on April 21 to improve the facilitation of cross-border financial services provided in Shanghai, banks are encouraged to develop deposit products for overseas institutions' free trade accounts. Interest rates for nonresident deposits under the free trade account system can refer to international practices and use market-based pricing standards.

These will not only attract more foreign capital inflow, but also help to retain such capital onshore for longer periods, explained banks with branches in the Shanghai FTZ.

The provisions to promote the development of free-trade accounts in Pudong, which were passed in late March, have addressed companies' frequently raised requests related to areas such as capital businesses, loans provided for overseas entities' mergers and retail businesses under the FT account.

Taking effect on Thursday, the provisions mark China's first local regulation specially promulgated for FT account businesses.

For years, Pudong has served as a pioneer for various groundbreaking cases of reform and opening-up. Among the 300 reform attempts which were first piloted in China's FTZs and then promoted nationwide, half of them were launched in Pudong, said Gu Jun, director of the Shanghai Municipal Development and Reform Commission.

Thanks to the amiable business environment, about 484 foreign firms had set up their regional headquarters in Pudong as of end-February, making up 47.1 percent of the city's total for MNCs' regional headquarters. Pudong is also home to the regional R&D centers of 283 multinational companies, accounting for 47.4 percent of the total number in Shanghai.

Multinational companies' commitment to Pudong is a snapshot of the huge potential of the Chinese market.

Otis Worldwide Corp moved its China headquarters to Pudong at end-March. The US elevator manufacturer's largest R&D center is located in Shanghai.

"China takes the world's lead in terms of the number of elevator installations and usage. There are over 350,000 elevators installed in Shanghai. But at the same time, there were about 1 million elevators which had been used for at least 15 years in China last year, and the number will continue to grow. As China's urban renewal advances and the application of smart urban technologies deepens, the country will show rising demand for the renewal and upgrade of large equipment," said Sally Loh, president of Otis China.

The rapidly developing clean energy sector in China and the huge amount of investment in energy-saving and emission-reducing technologies have led to rising demand for hyper compressors, said Li Simin, China president for Switzerland-based Burckhardt Compression.

At present, about 40 percent of the group's sales revenue comes from China. As for a new order that Burckhardt will take around June, the company will strive for local production, said Li.

"The longer term objective is to realize local R&D and production of hyper compressors in China within the next two to three years. The goal can be attained thanks to China's large market size, adequate talent supply and complete industrial chains. Burckhardt will step up investment in China, from where we will export more," he said.

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But of course, companies cannot turn a blind eye to the impact of the sweeping tariffs. Bai Binyi, executive vice-president of business group electronics China for German auto electronics giant Forvia Hella, said the company will accelerate the localization of chip purchases and applications in China. While they began last year to use as many China-produced chips as possible, such localization will speed up significantly in the next few years.

"China's opening-up is institutional, predictable, on-going and consistent, which is vital for multinational companies to make long-term plans. It is for this reason that we have continued to expand our R&D and production capacity and extend our distribution network in Pudong," he said.

Shen Liangyu, China president of German auto parts supplier Mahle, said the company has seen 90 percent of their production localized in China prior to the recent tariff hikes initiated by the United States. But some products had to be imported either due to patent reasons or to client requests. Under current circumstances, clients are willing to go for localized procurement, which Mahle has been advancing for years.

"China has existing supply chains. Now is a good time for us to make the switch. It is also a good opportunity to transform risks into opportunities," she said.

According to Chen of Louis Dreyfus, companies are looking for the biggest certainty to draft and conduct their long-term strategies in the current complex and highly unpredictable global landscape.

"The large market size of China and the country's pace in technological advancement are the biggest certainties," he said.

shijing@chinadaily.com.cn