Flight of the laptops

The economic fortunes of Kunshan have long lain at its fingertips. Now it has to think of other ways to maintain growth

Guan Aiguo is a haunted man. These days the stuff of his nightmares might well be laptop computers that fly madly and relentlessly out of windows.

"Lately I have been haunted by the question of how much longer we can count on laptop manufacturing if the industry is coming to the end of its life cycle," Guan says.

The concerns over laptops by Guan, the Party secretary in the city of Kunshan, hinge on the fact that they have had a key role in making Kunshan one of the most economically developed cities in China.

A slump in demand for laptops partly as a result of the European debt crisis has put question marks over whether the city, in Jiangsu province, can sustain its growth of recent years.

"People in Kunshan used to take pride in the fact that Kunshan produced half of the world's laptops, but the situation is different now," Guan says.

Underlining his worries, competition in the laptop market has intensified in recent years, and laptops are now giving ground to tablet computers.

In 2010 more than 90 million laptops were made in Kunshan. But in the first half of last year the value of laptop exports fell 12.3 percent, dragging down the city's total exports by 7.6 percentage points, China Business News reported.

Furthermore, 1,500 km or so to the west, Kunshan now has a hulking adversary: Chongqing.

The western metropolis has supplanted Kunshan as China's laptop manufacturing center, having enticed many big-name laptop makers and OEM makers to relocate their manufacturing bases there.

Last year three of the world's leading laptop brands, Acer, Asus and Hewlett-Packard, all set up their manufacturing bases in Chongqing, whose market share now accounts for 46 percent of the world's total, the Hong Kong Wen Wei Po reported.

Guan says laptop manufacturing in Kunshan has been expanding at a rate of between 20 and 30 percent a year since 2005.

"If an industry grows at such a rate, the killer question is: how long can the industry last?"

Guan says decisions are needed, but they cannot be rushed because "a wrong move may be fatal to the city's development".

But developing a second-pillar industry for the city is an urgent task, he says.

"I don't know how much time I have to get prepared, but we will try our best to extend the life of the laptop industry."

Guan says Kunshan has started to develop other industries such as new liquid crystal display technology, heavy machine manufacture, new energy and biological technology.

As the new industries develop, laptop manufacturing will continue to be Kunshan's key industry, and for a long time, he says.

Chen Wei of the Shanghai Academy of Social Sciences, who does research on the regional economy of the Yangtze River Delta, says that early on the city's leaders realized the dangers of putting all of its eggs in one basket.

As a result it made plans to develop new industries such as manufacturing mechanized equipment, new materials and pharmaceuticals. It also started transforming and upgrading its IT industry.

"These new industries are growing fast, and have an increasingly important role in the city's economy," Chen says.

Over the past few years Kunshan's reliance on exports and imports has gradually declined. While China's export and import volume rose 22.5 percent year-on-year in 2011, Kunshan's rose 8 percent. That reduced reliance on exports and imports highlights the city's industrial transformation, says Zhang Erzhen, a professor at Nanjing University.

"Many cities are striving to develop services and finance, but I don't think a city can live on the virtual economy alone. There must be some large-sized industries, manufactures to support the development of a city," Guan says.

The city plans to double its GDP to 400 billion yuan ($63.5 billion, 48 billion euros) by the end of the 12th Five-Year Plan (2011-15). Its GDP was estimated to be 240 billion yuan last year.

Economic growth was estimated to be about 14 percent higher than the previous year, said a report by Xinhua Daily, a newspaper in the province.

While industrial restructuring is needed, Zhang says, simply ditching an industry that was once a leader is out of the question.

"As long as (it) is still making money and keeping people in work, it is worth upgrading instead of replacing it with a brand new industry."

The industrial restructuring should be in line with the speed of local economic development, and with local labor, natural resources, and technological innovation, Zhang says.

In recent years the city government has invested 6 percent of the budget in promoting technological innovation, which means about 1 billion yuan was spent on innovation last year.

Taking into account funds from districts and from industrial development zones, that figure was as high as 1.7 billion yuan, Guan says.

Kunshan's research and development capabilities mean it can launch new laptop models every three months, he says.

But Zuo Xuejin, executive vice-president of the Shanghai Academy of Social Sciences, says the city should pay more attention to research and development, as well as brand management and marketing.

Unlike Shenzhen, where well known big domestic companies such as Huawei Technologies Co Ltd and ZTE Co Ltd are located, Kunshan is based on low-end manufacturing, so the city is in urgent need of developing its own large companies, Zuo says.

(China Daily 02/24/2012 page15)