Not so long ago, Suzhou was known as a sleepy city of gardens, temples, and canals. A favorite on the tourist circuit, it was basically a business backwater. But over the past decade Nokia (NOK), Samsung, Philips(PHG), Dupont (DD), Emerson, Honeywell International (HON), 3M (MMM), Bosch, and Delphi (DPHIQ) have poured billions of dollars into Suzhou, making it one of China's most popular investment destinations and an emerging competitor to Shanghai, Shenzhen, and Beijing.
A confluence of geography—it's close to Shanghai, but land and labor are cheaper by 20% to 30%—well-developed infrastructure, pleasant location and climate, plus an extremely pro-business local government, have all conspired to make Suzhou a raging success. "The major criticism of China—you could come here and it was cheap, but it was always a pain to get things done—Suzhou shows it doesn't have to be that way," says Kent D. Kedl, executive director of Technomic Asia, a Shanghai business consultancy for investors coming to the mainland.
Consider this: Suzhou has become one of the world's most important electronics manufacturing bases, responsible for one-quarter of global notebook production. With Hitachi (HIT), Advanced Micro Devices (AMD), and National Semiconductor setting up chip factories, Suzhou is quickly emerging as a rival to Shanghai for semiconductor manufacturing. It is one of China's biggest exporters, and in 2003 surpassed Shenzhen to become the second-largest city by industrial production on the mainland, trailing only Shanghai. Last year, while foreign investment in China fell 0.5%, in Suzhou it grew 19.4%, reaching $5.03 billion. And while mainland gross domestic product grew 9.9%, the Suzhou economy roared forward 15.3%.
PEARL RIVER ALTERNATIVE. "Suzhou officials have influence in Nanjing [the capital of Jiangsu province], Shanghai, and Beijing," says Michael Barbalas, general manager at the Suzhou plant of Andrew Corp., a Westchester (Ill.) maker of wireless infrastructure equipment. He notes that officials use their pull to ensure that foreign investors face few hiccups in everything from winning rapid approval for large-scale investments and domestic sales to big state enterprises, to getting exports and imports past customs. Barbalas oversees the $100 million Suzhou operation that produces wireless infrastructure gear including antennae, cables, connectors, and power amplifiers for China Mobile and China Unicom (CHU) as well as for overseas telcos. "They see growth as good. This is probably the easiest place in China to do business."
Much of that credit goes to the managers of Suzhou Industrial Park, whose landscaped grounds resemble a community college in Southern California more than a factory cluster. Started in 1994 as a joint venture with the Singapore government, which still owns 28%, it now is home to manufacturing and research and development operations for the likes of Siemens (SI), Alcatel (ALA), and Panasonic (MC). The expansive park's facilities include a Wal-Mart (WMT) and Carrefour for shopping convenience, a luxurious golf course, an international school, and the only international medical clinic in all of Jiangsu province. "Our objective is to create an environment that is not too different from Europe or North America," says Pan Yunguan, vice-chairman of Suzhou Industrial Park Administrative Committee. "Over 8,000 expatriates live here happily."
That has helped Suzhou emerge as an alternative to such Pearl River Delta cities as Shenzhen, Dongguang, and Zhongshan. The city also benefits from significantly less pollution and a much safer living environment, a major impetus behind many recent Taiwanese investors opting for Suzhou and surrounding cities like Wuxi and Kunshan. As China levels the playing field after entering the World Trade Organization by withdrawing special rights to export and preferential tax policies from cities like Shenzhen and Shanghai's Pudong district, cities that are well located and appealing to investors are becoming ever more important. "We all know that China is one of the fastest growing economies in the world," says Suzhou Mayor Yan Li. "Well, the Yangtze River Delta is a hot spot in China's economic development, and that is where Suzhou is located."
COURTING BUSINESS. It's not just location. To help lure more business, Suzhou's industrial park has set up a one-stop service center that allows speedy tax processing, customs clearance, and online registration for new projects. The center regularly holds seminars introducing changes in tax and investment policy coming from Beijing and has instituted a rigorous annual evaluation system for its own officials. When Rogers Corp. (ROG), a Rogers (Conn.) maker of special material products such as electroluminescent lamps for Motorola's (MOT) RAZR mobile phone, decided to place its Asia Pacific headquarters in Suzhou, local officials actually "flew to Beijing to push our package," reports Mike Cooper, vice-president for Asia. He also notes that the local government provided Rogers with temporary office space and helped the company find and hire talent, and navigate central government regulations.
Local officials will do almost anything to nab foreign investors. For example, when power shortages hit all of Jiangsu province two years ago, the local government made local state enterprises operate at night to ensure adequate power for key foreign-owned plants.
COMMON CHALLENGES. One growing challenge for Suzhou is finding enough talented managers and laborers. Foreign factories in Suzhou report turnover rates as high as 40% and 8% annual wage inflation. To deal with that problem, the local government holds regular job recruitment fairs (189 were held just in the first half of this year), has set up a human resources index to monitor supply and demand, and organizes recruitment trips for investors to western China. And to ensure adequate talent, Suzhou has even set up a university city, which houses branches of more than 10 universities, including Shenzhen University, City University of Hong Kong, and Britain's University of Liverpool.
Rising costs in Suzhou and a vast new rollout of infrastructure in the interior of China are creating competition from cities like Hefei in Anhui and Chengdu in Sichuan. "Business costs in inland China are much lower," says Suzhou Mayor Yan Li. "This is beginning to attract investors and enterprises." Even so, don't expect an exodus from Suzhou. "We are technology oriented and export oriented, so we don't see an advantage in moving into the interior," says Jackie Hsu, deputy managing director of AU Optronics (AUO), which has put well over half a billion dollars into Suzhou. "Suzhou's kind of culture attracts people and businesses." By Dexter Roberts