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Comparative Analysis of Chinese Western IT Manufacturing Cluster and Its Implications: With Focus on the Chongqing, Chengdu, Xi’an Economic cooperation

Author Oh JongHyuk, Park Hyun Jung Series 14-01 Language Korean Date 2014.08.22

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China’s IT industry ranks high in the world. As the production network expanded during the 2000’s, China emerged as the world’s center for global IT production. In 2013, China accounted for more than half of the world demand for major IT products including mobile phones, computers, and color televisions.
China’s IT industry has been developing mainly along the eastern and coastal regions including the Pearl River Delta, the Yangtze River Delta and the Bohai area. But recently, these areas have experienced a steep rise in factor costs and pressure from industrial advancement due to changes in the methods of economic development. It forced the IT manufacturing industry of China to gradually shift its production base from the eastern coast to the western inland areas. Most IT enterprises have moved manufacturing facilities to cities like Chongqing, Chengdu, Xi’an, with these cities concomitantly emerging as China’s new IT manufacturing clusters. In this regard, this study conducts a comparative analysis on core manufacturing clusters in Chongqing, Chengdu and Xi’an. Based on the findings, this study provides implications for Korean companies seeking to conduct business operations in the area and also for the Korean government in supporting these companies.
In comparison, IT manufacturing clusters in the West are similar in that they are formed around a key industrial complex. Nonetheless, the clusters in Chongqing, Chengdu, and Xi’an possess distinctive features. For instance, Chongqing IT manufacturing industry has seen a rapid annual growth of more than 77% for three consecutive years, starting in 2009. Such rapid growth was a result of an increase in the number of laptop computer manufacturers in the Xiyong micro electronics industrial park, which also led to a vertically integrated production system with computers and the peripherals in the center. Centering around the Chengdu hi-tech industrial development zone, many companies whose business involves IC‧Display‧Computer and related peripheral and communication networking devices made its inroad to Chengdu. The cluster also has a well-established value chain from raw material to product manufacturing. Meanwhile, centering around the Xi’an hi-tech industrial development zone, the sectors of IC and telecommunication devices are highly developed in Xi’an. Xi’an is also noted for RF (Radio Frequency) products and sensor industry within China. Also, R&D sector is one of the Xi’an’s strengths as there are ample numbers of research personnel for electronics and telecommunication sectors. Nonetheless, with the exception of a few products such as computers, production in the IT manufacturing clusters in the West are not fully compatible to those in the Eastern region. Therefore the central and local governments in China are providing various measures for budding IT enterprises in western China. These preferential treatments include deduction in corporate tax, subsidy grants, and support for zero interest loans from the local banks. In practice, these preferential treatments worked as an important motivation for enterprises which made their inroads into the mainstream industry.
The prospect for IT manufacturing clusters in West appear to be positive for the central and local government are providing ample and active support. Nevertheless, companies seeking to invest in western China must thoroughly examine the local market as the level of technology and the extent of development varies by each cluster.
These regions commonly possess high demand for companies specializing in the design and manufacturing of SoC (System on Chip) in the communication and network facilities sector. On the other hand, the Chongqing cluster lacks competitiveness in digital medical system, and the automobile-IT convergence system, while the Chengdu cluster has weakness in IC for display devices and color filter manufacturing. Therefore, Korean SMEs (Small and Middle Enterprisers), noted for high-end technology and innovative idea, have a high chance of promoting successful business in the area. Such SMEs will not only be able to seek their own economic benefit but also will contribute to technological development of the clusters.
On the other hand, the Korean government should step up its collaboration with the local governments in China since the local governments play a pivotal role in the development of the cluster. Also, it is necessary that the Korean government provide support in identifying and developing inter-enterprise collaboration through measures such as business counseling. Since many SMEs experience hardship in acquiring information and network in the region, such opportunities will facilitate the network between the SMEs and the local businesses, eventually leading to increased partnership. In addition, forming a durable base for active technical cooperation is imperative. By launching joint research programs between institutions in Korean and those in Chengdu and Xi’an, we will be able to construct a stable base for technological cooperation. Lastly, the governments could consider collaboration in establishing special industrial zones which provide a favorable environment for Korean enterprise. With their expertise, the Korean companies will be able to complement the growth of the clusters and at the same time take advantage of the abundant labor in the region.

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