Foreign companies set course for 'journey to the west'

In the second in a series on China's 'new normal' economy, Zhong Nan reports that overseas firms are cashing in on government initiatives.

After 35 years of rapid revenue growth in China, foreign companies are broadening their business networks by expanding in the western part of the country. There, they aim to take advantage of the country's drive to revitalize the ancient Silk Road and upgrade its industrial base.

Many of these opportunities arise from China's initiatives and national strategies such as the Silk Road Economic Belt and the Yangtze River Economic Belt, which are intended to put the nation's economic growth on a firmer footing after two years of slowing expansion.

The Silk Road Economic Belt is to be established along the ancient Silk Road trade route, stretching northwest from China's coastal area through Central Asia, the Middle East and on to Europe. The Yangtze River Economic Belt spans nine provinces and two municipalities, starting in Southwest China's Yunnan province and terminating at the coast in Shanghai.

Gefco Group, the international arm of Russian Railways specializing in automotive and industrial goods logistics, is preparing to cooperate with a Chinese State-owned infrastructure construction provider to transport giant project machinery and equipment to its worksite in Belarus through the Silk Road Economic Belt before the second half of this year.

The company launched a door-to-door route between China and Europe in 2014, aiming to expand into more industries.

The service allows overland cargo and ocean freight collected at China's major ports to be delivered via Alataw Pass or Manzhouli, in China's Xinjiang Uygur and Inner Mongolia autonomous regions, to countries like Russia, Belarus, Poland, Hungary and Germany.

Christophe Poitrineau, Gefco's Asia president, said the Silk Road Economic Belt will create new market growth points for foreign companies in China.

"With trade volume rising between China, Central Asia and Europe, China is rebuilding the ancient Silk Road and pursuing a new trading model that is focused on product quality and logistics efficiency - a shift away from the previous speed - and quantity-centered model with slow delivery," said Poitrineau.

It takes about 15 days from China to Europe by rail compared with up to 45 days by sea, so rail cargo service is a better choice for high-value products.

With investment of 40 million euros ($42.39 million), consumer goods giant Unilever Plc, the Anglo-Dutch company, completed the construction of a manufacturing facility to produce laundry detergent in Sichuan province at the end of January.

The factory will have an annual capacity of nearly 200,000 metric tons, and its products will be mainly shipped to markets in China's western regions. The factory will eventually manufacture the full product line of Unilever China.

Marijn van Tiggelen, president of Unilever North Asia, said the construction of the plant was a strategic step in the expansion of the company's global manufacturing base.

With progress in the development of the two economic belts and the operation of the Chengdu-Europe express railway, the geographical advantages and strategic position attracted Unilever to choose Sichuan to set up its third global production base in China, said Tiggelen.

Given the proximity of China's western regional markets, transportation costs will be slashed: the trip to Europe will be about 1,500 kilometers shorter for each shipment than for goods sent from Unilever's Hefei plant in Anhui province.

Eager to enhance its earnings ability in China, Solvay SA, one of Europe's largest chemical groups by revenue, plans to establish a number of offices in western China this year, as well as deploying more resources to grab share in China's vehicle market over the next three years.

The Belgian company hopes this could fuel the industry's robust and ecologically sustainable growth and make transport safer and more efficient. It will focus on four priorities: new materials for lightweight vehicles, electrification, powertrain efficiency and green technology.

China is the largest vehicle market in the world in terms of production, and the electric vehicle segment is one of the nation's seven emerging strategic industries. The country is forecast to have more than 5 million EVs on the road by 2020.

As they transform their economies and upgrade local industries, many Chinese cities and automotive enterprises want to solve problems such as air pollution and energy consumption caused by heavy automobile use.

Since China became a revenue powerhouse for global automakers, an increasing number of overseas auto companies have set up joint ventures in China, said Martin Laudenbach, Solvay's Asia-Pacific region president.

"They have synchronized the launch of new models in China with those in the United States and Europe, and started shipping them to China's neighboring countries through the Silk Road Economic Belt to further expand their export channels."

Huang Yiping, a professor at Peking University's national school of development, said that for the majority of foreign companies, even though there are some concerns about operating costs and market access, their revenue growth has remained stable and has been even faster than in other regional markets since the global financial crisis in 2008.

"As China continues to diversify its trade channels and investment categories in its neighboring markets through new trading routes and regional connectivity programs, foreign companies want to seize the opportunities to offset slower business growth in other parts of the world," said Huang.

Contact the writer at zhongnan@chinadaily.com.cn