Hangzhou: heaven on earth

Hangzhou ImageThe capital of Zhejiang province, Hangzhou has historically been credited as being one of the most beautiful cities in China along with neighbouring Suzhou (上有天堂,下有苏杭 heaven is above, Suzhou and Hangzhou are below). Yao Lu from Dezan Shira & Associates takes a look at this heavenly city and discovers an abundance of fertile land, as well as a financial centre with a thriving manufacturing base.

Economic overview
Over the past decade, Hangzhou has earned recognition for its remarkable economic development. Its economic strength continuously ranks among the top ten medium to large cities in the country.

In 2012, Hangzhou’s GDP exceeded RMB 780.4 billion and grew at an annual rate of nine per cent. The city’s primary industry contributed RMB 25.6 billion (2.5 per cent growth) and its secondary industry RMB 362.7 billion (8.5 per cent growth). The remaining RMB 392.1 billion came from the service sector, which grew 10.1 per cent year-on-year.

For the first time in its history, Hangzhou’s service sector contributed to more than half of the city’s GDP in 2012 at 50.2 per cent. Tourism—which brought in close to RMB 140 billion in 2012—accounted for a major portion of service sector revenue, with close to 84 million foreign and domestic tourists visiting the city last year alone.

Industry also plays a vital role in Hangzhou’s economic development, and the city has constructed a diverse manufacturing system with the following five pillar industries:

  • Electronics and information
  • Medical and chemical engineering
  • Mechanical manufacturing
  • Textile and garments
  • Food and beverage

In addition to manufacturing, the city has a solid agricultural foundation. Thanks to its rich land, subtropical climate, lakes and mountains, Hangzhou is known as the ‘land of fish and rice’, the ‘tea capital’ and the ‘home of silk’.

Development zones
Hangzhou’s main development zones include:

Hangzhou Economic & Technological Development Zone

This was approved as a national development zone in 1993 and has five pillar industries: machinery and electronics, biology and pharmaceutical, high-tech chemistry, textile and chemical fibres, and food processing.

Xiaoshan Economic & Technological Development Zone

Also approved as a national development zone in 1993, it has already built itself into a strong, export-oriented model based on machinery, textile and garment industries. Specialised structures such as a women’s garment industrial park and equipment manufacturing centre have been established in this zone.

Hangzhou Export Processing Zone

Established in 2000, following approval by the State Council, this zone mainly focuses on electronics, telecommunications and home appliance industries.

Hangzhou Hi-Tech Industrial Development Zone

Established in 1990 and approved as a national hi-tech zone in 1991, it has formed eight industrial clusters including software and service outsourcing, e-commerce, internet of things, cultural and creative industry, communication equipment manufacturing, Photovoltaic, IC design and digital television.

Hangzhou Qianjiang Economic Development Zone

Also known as the ‘Hangzhou High-Tech Industrial Park’ and the ‘Hangzhou Qianjiang Science and Technology City’, it focuses on new materials, biotechnology, chemical production and processing, and electronics manufacturing and packaging.

Investment Opportunities
The municipal government has rolled out various preferential policies to foreign investors including tax incentives, financial support and subsidies.

According to the Several Opinions on Better Utilising Foreign Investment, released by the Hangzhou Government in 2011, the city will gradually open the education, medicare and sports industries to foreign investment, and will encourage foreign investors to participate in the development of the city’s culture and tourism sectors.

Moreover, the municipal government will award financial support to investment projects by Fortune 500 companies and foreign investment projects in the following fields:

  • Energy-saving and environmental protection industry
  • New generation information technology industry
  • Biology industry
  • High-end equipment manufacturing industry
  • New energy industry
  • New material industry
  • Modern service industry

In addition, the government will also provide the following preferential policies to foreign investors:

Tax Incentives
Qualified, foreign-invested R&D centres are exempted from import duty, value-added tax and consumption tax for the import of R&D equipment and facilities.

Qualified high-tech enterprises are able to pay corporate income tax rate at 15 per cent, while qualified foreign service-providers are exempted from business tax for the provision of offshore services and may pay corporate income tax at a rate of 15 per cent.

Land Policies
The land use rights may be granted to foreign investment projects at a price no less than 70 per cent of Zhejiang’s lowest price of industrial land.

Foreign Exchange Policies
Upon compliance with national foreign exchange administration policies, foreign investors may use offshore RMB to increase capital, borrow RMB, loan or return RMB foreign debt. For foreign-invested enterprises (FIEs) that fail to pay registered capital on time due to capital shortage, the term of capital contribution can be extended upon approval.

Financial Support
The Hangzhou Government will encourage financial institutions to provide more support to foreign investment projects and will encourage FIEs incorporated in China to issue short- and middle-term financing instruments in the inter-bank bond market.

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.

For further details or to contact the firm, please email china@dezshira.com or visit www.dezshira.com.