Enterprises head westward

At the end of this year, the apparel production base in Anhui Province invested by Tedelon Holding Group Co. Ltd. will start operation. According to plans made by Wang Peihuo, President of Tedelon, in the future all the group's production will be transferred to central and western regions.

Tedelon is a large apparel enterprise headquartered in east China's Zhejiang Province. Wang said the reason for the company to go westward is that increasing costs have restricted the development of enterprises in coastal areas.

Guangdong Province is home to a large number of small and medium-sized textile enterprises. After analyzing cost disparities between southeast coastal areas and central and western regions, Liu Yueping, Chairman of the Guangdong Clothing Industry Association, found that costs of apparel enterprises in Guangdong are 30 percent higher than those in central and western regions.

Liu said, affected by labor shortage and increasing costs, textile companies in east coastal areas have been transferring to provinces in central and western regions, such as Jiangxi and Sichuan.

On June 28 this year, China National Textile and Apparel Council (CNTAC) and 16 textile companies jointly released a social responsibility report. Sun Ruizhe, Vice Chairman of CNTAC, said the industrial transfer is self-motivated, since the western region can offer better labor resources, thus reducing labor costs.

Sun said the east-to-west transfer of the Chinese textile industry is not simply a transfer of production capacity, but projects an overall advancement of the industry's technologies, human resources, environment and social responsibilities.

Besides textile and apparel enterprises, labor-intensive companies such as toy manufacturers and shoemakers are also seeking to go westward. Xiong Xiaokun, a light industry researcher with the CIConsulting Industrial Research Center, said these transfers represent a general trend and will effectively promote the economic development in central and western regions.

The industrial transfer was not "omnipotent," Xiong said. Related supporting facilities in central and western regions are not yet sound, which will affect corporate development to some extent.

Besides labor costs, companies also need to take issues, such as market atmosphere, into account. They should also consider the approach of local governments, but most importantly, whether the industrial chains are complete. If the industrial chains are not complete, companies will also face cost pressures.

Xiong said there are three major differences between the eastern region and the central and western regions: completeness of related supporting facilities, market concentration and coverage of marketing channels.

The industrial transfer, which has just started, has received the support of the Chinese Government. In September 2010 the State Council, the country's cabinet, issued Guiding Opinions on the Central and Western Regions' Undertaking of Industrial Transfer, which says that to further improve the investment environment in the central and western regions and guide and support orderly industrial transfer, local governments can grant necessary policy support in aspects of taxation, finance, investment and land use.

East seeks breakthroughs

The eastern region will never accept a slower economic growth rate than its western regional counterpart. It hopes to seek breakthroughs by strengthening integration of resources and innovation of systems to realize new economic growth.

Local officials are fully aware of the difficulties the east faces in its economic development. The Central Government sees this too. To change the situation, the eastern region has been considering an industrial transformation since 2006. In spite of numerous investigations and seminars on this topic, local officials still cannot make up their minds. Since industrial transfer will affect the local economy, no official is willing to suffer these kinds of setbacks during his or her tenure.

The global financial crisis forced central and local governments to switch gears, replacing the 30-year-old strategy that "the east coastal area develops first" with "the eastern region develops better."

In 2009, the Pearl River Delta, where Guangzhou and Shenzhen are located, stepped out the first step of transformation. On January 8, 2009, the National Development and Reform Commission (NDRC) issued the Outline of Pearl River Delta Regional Plan on Reformation and Development (2008-20). New development ideas are offered to this region with a large number of labor-intensive manufacturing enterprises: to become a pilot region for deepening the reform, an important international gateway to expand the reform, a world base of advanced manufacturing industries and modern service industries and an important economic center in China.

The Central Government also repositioned the role of Shanghai. In April 2009 the State Council issued Opinions on Promoting the Development of Shanghai's Modern Service Industry and Advanced Manufacturing Industry and Promoting the Construction of the Shanghai International Financial Center and International Shipping Center. This is a document guiding the transformation of Shanghai, whose economic development pattern will be transferred from investment driven to innovation driven.

After that, a series of plans guiding economic transformation of the eastern region, such as the economic zone on the west bank of the Taiwan Straits, regional planning of the Yangtze River Delta and development planning of coastal areas of Jiangsu Province, have been promulgated.

Two years have passed, and the eastern region has been accelerating its steps of industrial restructuring and transforming the economic growth pattern. In Zhejiang Province, where the textile and apparel industry is mature, traditional industries are being transformed and upgraded as new pillar industries such as photovoltaic and other new energy industries are developed.

In the first half of 2011, the number of invention patent applications and approvals in Zhejiang Province increased by 41.6 percent and 65.4 percent, respectively, contributions of the tertiary industry to the GDP reached 83.5 percent, and the proportion of added value realized by the tertiary industry in the GDP increased by 3.2 percentage points.

"Shoe-making and apparel industries in Zhejiang and other developed coastal areas have begun to transfer to inland areas such as Jiangxi and Sichuan provinces since last year. This also indicates that the slower economic growth in the eastern region is also contributing to a more coordinated development among different regions," said the Development and Reform Commission of Zhejiang Province.

Zhang Zhuoyuan, a researcher at the Institute of Economics of CASS, said transformation of the economic growth pattern is a fundamental issue deciding sustainable and sound economic development in China. The global financial crisis makes it urgent for China to transform its economic growth pattern.

Zhang said, when transforming the economic growth pattern, the priority is to change the GDP-oriented mechanism of assessing the performance of local officials and making them focus on promoting industrial restructuring and improving the independent innovation capability.

He said the transformation is unlikely to be completed within three or five years, and it may need as long as eight to 10 years.

Yao said different from the eastern region, the western region is mainly restricted by the rural-urban development divide.

"The overall standard of living of rural and urban residents is still low and the absolute disparity with that of the eastern region continues to expand," Yao said.

Figures from the Annual Report on Economic Development in the Western Region of China (2011) show that although the growth rate of rural and urban residents' incomes in the western region is higher than the national average, the absolute amount of resident income is still the lowest among all the regions.

"Eliminating poverty and accelerating development are still the biggest challenges the western region faces," Yao said.