Chengdu-Chongqing Economic Circle: Service Industries and Logistics
06 June 2022
C H Poon
As China’s western region continues to develop, the local demand for services and foreign trade is bound to surge. With the advancement of the Belt and Road Initiative (BRI), the construction of a high-level gateway from the western region to the outside world is becoming increasingly important. The Chengdu-Chongqing area has the highest tertiary sector value-added in the western region, so this area is the natural choice for constructing a major services and foreign trade hub in the region.
Under the Master Plan for the Construction of the Chengdu-Chongqing Economic Circle (Master Plan), the Chengdu-Chongqing area will be built into a centre of excellence for modern services. Taking advantage of its transport links to the south, west and east, the Economic Circle will develop into a strategic hub for the joint development of the BRI, the Yangtze River Economic Belt and New International Land-Sea Trade Corridor. Hong Kong, as one of the foremost centres for services and logistics in Asia, has great scope for co-operation with the Chengdu-Chongqing area. To provide information for Hong Kong service suppliers targeting the area, this article looks at the policies for the development of the services sector and the pace of growth of the local services industry, with emphasis on the development of the financial and logistics sectors.
Manufacturing and services: integrated development
To help develop the service industry, the Master Plan puts forward the concept of integrating manufacturing with services. The local governments in the Chengdu-Chongqing area will collaborate in creating a number of service brands in sectors such as R&D and design, technology services, business consulting and human resources services. The local governments will also push key players in Chengdu-Chongqing manufacturing industry to develop related services, build and nurture industrial design centres, and support the construction of facilities such as food and drug testing bases and the Chongqing Industrial Design City. In addition, the governments will support the building of a national high-tech service industry cluster for inspection and testing services in the area and an industrial park dedicated to human resource services in the proximity of Sichuan province and Chongqing municipality. Chongqing and Chengdu are striving to become a pilot for the integrated development of advanced manufacturing and modern service industries.
R&D and design, technology services, business consulting and human resource services are all needed by manufacturing enterprises seeking to upgrade. With their help, manufacturers can launch more competitive products onto the market, formulate more workable business strategies, and build a more professional team. In an effort to strengthen supporting industries, the Sichuan and Chongqing governments are introducing different measures. For instance, the Chongqing Municipal Commission of Economy and Information Technology and the Shapingba district government have joined hands with a number of enterprises to build the Chongqing Industrial Design City in Shapingba District. This city opened to business in June 2021 with emphasis on creating an industrial design and R&D industry chain to contribute to the transformation, technological innovation, rural revitalisation, and sustainable development of manufacturing industry in the Chengdu-Chongqing area. At the same time, in early 2022, the Chongqing Municipal People’s Government promulgated the 14th Five-Year Plan for the Development of Human Resources Service Industry in Chongqing (2021-2025) (Chinese only) under which the number of human resources service providers is targeted to reach 3,500 with total revenue amounting to over RMB150 billion by the year 2025.
Meanwhile, Chengdu will leverage its edge in the software industry. According to the Statistical Communique on Software and Information Technology Services Industry 2021 issued by the Ministry of Industry and Information Technology, Chengdu’s software revenue reached RMB445.6 billion in 2021, ranking seventh among all cities in the country (including the 4 municipalities directly under the Central Government) and occupying the top position among cities in the western region. In a move to expedite the growth of the industrial software industry, the Chengdu city government announced the Action Plan for Promoting the Development of Industrial Software in Chengdu (2021-2025) (Chinese only) in 2021 targeting the city’s industrial software industry to turn over more than RMB100 billion by the year 2025. The Chengdu Hi-Tech Industrial Development Zone Tianfu Software Park will evolve into a core cluster to help develop technologies such as system modelling, smart manufacturing systems, and industrial big data. In sum, Chongqing and Sichuan are devoted to diversifying their local services in order to promote the parallel and collaborative development of the services and manufacturing industries.
A western region financial centre
Among the many service sectors in the Chengdu-Chongqing Economic Circle, great importance is attached to the development of the financial sector. According to the Master Plan, Chengdu and Chongqing are to jointly build a western region financial centre and in March 2022 a plan for joint construction of a western China financial centre by Chengdu and Chongqing (Chinese only) was issued. Some of the major policies set out in the plan are as follows:
It can be seen from the above policies that the western region financial centre to be built in the Chengdu-Chongqing Economic Circle will be an open one, with emphasis on opening-up to the outside world, application of technology, environmental protection, and support for the real economy. By building this financial centre, the Chengdu-Chongqing area can attract more enterprises operating in Belt and Road countries and regions to use the financial services available in the Economic Circle. At the same time, the financial centre is expected to boost the development of the local manufacturing industry and green economy which is important to the advancement of China’s western region development strategy and BRI.
Some of the policies mentioned above are already being implemented progressively. The draft proposal to set up the Chengdu-Chongqing financial court was submitted to the 13th National People’s Congress Standing Committee for consideration in February 2022. According to the draft (Chinese only), certain civil cases concerning finance, commerce and financial administration are to be handled by the new Chengdu-Chongqing financial court instead of by the intermediate people’s court as previously. For cases that file for an appeal, they will be heard by the Chongqing Municipality Higher People’s Court. The establishment of the Chengdu-Chongqing financial court aims to centralise the legal resources responsible for trying financial cases in the Chengdu-Chongqing area and boost the confidence of enterprises in using the financial services in the area.
It is worth noting that apart from the above-mentioned policies, the plan for joint construction of a western China financial centre by Chengdu and Chongqing also contains several provisions on direct co-operation with certain countries. For instance, government support will be granted to qualifying non-financial institutions in countries like Singapore and Japan to undertake equity financing or debt financing in the Chengdu-Chongqing area, where these countries already have co-operation with China. The Chinese and Singaporean governments signed the China-Singapore (Chongqing) Demonstration Initiative on Strategic Connectivity agreement in 2015, whereby both parties are to collaborate in the finance, aviation, logistics, and information and communications sectors first before extending the scope of co-operation gradually to other areas. In April 2020 the National Development and Reform Commission (NDRC) granted approval to the establishment of the 36.9-sq km China-Japan (Chengdu) Regional Development Co-operation Demonstration Zone in the Chengdu Hi-Tech Industrial Development Zone. The demonstration zone is dedicated to the development of digital media, cultural business, biological science, information services and modern commerce. The above co-operation arrangements show that while finance is the focus of development in the Chengdu-Chongqing Economic Circle, development of the service sector will follow the principle of all-round development to enlarge the scale of the service industry in this area.
Western region gateway hub
Another development focus of the service sector in the Chengdu-Chongqing area is on transportation and logistics. Taking advantage of its geographical location, the Chengdu-Chongqing Economic Circle is set to build an integrated transportation system and accelerate the construction of transport links to the outside world. Policies set out in the Master Plan that aim to promote trade include the following:
The above policies show the emphasis on raising the standard of the facilities and services of cargo freight by air, rail, water and highway. After years of development, transport infrastructure in the Chengdu-Chongqing area has become more mature. For example, Tianfu International Airport, the second international airport in Chengdu, was opened in June 2021. Henceforth, the governments of the Chengdu-Chongqing area will concentrate on optimising systems and arrangements and forging closer ties in order to enhance the competitiveness of the Economic Circle as a logistics hub in China’s western region.
One important system reform is the creation of the China-Europe Railway Express (Chengdu-Chongqing) brand. In the past, the China-Europe Railway Express trains departing from Chongqing and Chengdu were operated independently. Although the number of train journeys from the two cities continued to rise, price competition remained a problem. In light of this, starting from 1 January 2021, the two routes from Chongqing and Chengdu were merged to form the China-Europe Railway Express (Chengdu-Chongqing) brand. After the merger, the two railway departments began to collaborate in such areas as branding, timetabling and pricing, jointly devising monthly plans and upgrading logistics facilities such as distribution centres. In the first year of the merger, operation was smooth. In 2021, the China-Europe Railway Express (Chengdu-Chongqing) trains made a total of over 4,800 journeys1. Goods exported via this route included electronic products and industrial parts and components, while major imported goods included consumer products, bulk commodities and foods. During the pandemic, in order to ease the hold-up of international parcels, China-Europe Railway Express trains departing from Chongqing took on the responsibility of delivering mail items to Europe.
Another development focus is multimodal transport. The seamless connection of different modes of goods transportation will greatly increase transport efficiency. At the Chongqing Guoyuan Port National Logistics Hub (the Hub) great efforts are being made to link rail and water transport. The Hub is situated in the Chongqing Liangjiang New Area by the Yangtze River. It was established by the NDRC and Ministry of Transport in 2019. With a planned area of about 20 sq km, the Hub comprises three main sections: Guoyuan Port container terminal, Yuzui railway freight station, and a logistics distribution centre. Goods can be unloaded from the container terminal and then loaded onto China-Europe Railway Express trains or trains bound for Southeast Asian countries. The Customs has also set up a centralised supervision office at the Hub to raise the efficiency of customs clearance.
The Hub has reached an agreement with the Shanghai port under which goods from Shanghai can be delivered to Guoyuan Port directly. Export goods from Shanghai to Chongqing for loading onto China-Europe Railway Express trains for delivery to Europe take about 30 days to arrive. The journey from Shanghai via the Yangtze River up to Chongqing takes 12-15 days while the journey via the China-Europe Railway Express (Chengdu-Chongqing) train to Europe takes another 12-15 days. In other words, even though the water route up the Yangtze is slower, goods delivered from Shanghai to Chongqing for export to Europe via the China-Europe Railway Express still take less time than those going from Shanghai to Europe by sea. Since the China-Europe Railway Express passes through many Eastern Europe countries, goods travelled to Eastern Europe via the China-Europe Railway Express can save more time.
The Hub is about to or has already obtained approval from the General Administration of Customs to serve as a Customs-designated inspection site for imported meat, grain and fruit. Currently, Guoyuan Port has taken over all the import-export container business from Cuntan Port, another river port in Chongqing. Cuntan Port, which has been in operation for many years, will be redeveloped into a cruise terminal and consumer centre.
While the Chengdu-Chongqing Economic Circle is currently working to raise the level of joint operation of the existing logistics facilities, the construction of more facilities including cold chain logistics warehouses continues. Local governments of the Chengdu-Chongqing area are planning railway trunk lines, inter-city rail, urban-suburban rail and urban rail transit as a unified network to improve the multi-level rail transit system. A more convenient and efficient transportation network can raise the living standard of the residents in the Chengdu-Chongqing area and propel trade development.
Takeaways for Hong Kong businesses
The Master Plan places the emphasis on coverage and suitability in developing the service sector in the Chengdu-Chongqing Economic Circle. The development goals are to create more economic value-added, grant support to the transformation and upgrading of manufacturing industry and expand economic and trade ties with other regions.
Hong Kong service industry players can capture the opportunities arising from the development of the service sector in the Economic Circle in two ways. First, Hong Kong companies can establish footholds in the Chengdu-Chongqing area to provide the right services to local businesses. For instance, Hong Kong financial institutions can offer wealth management services to local high-net-worth individuals, while Hong Kong business consulting firms can provide consultancy services on ESG to local enterprises.
Meanwhile, Hong Kong companies can also offer international services to businesses in the Chengdu-Chongqing Economic Circle from Hong Kong. At present, enterprises in that area put trust in Hong Kong as an entrepot for their exports. In 2021, the value of goods exported from Chongqing and Sichuan to Hong Kong totalled RMB73 billion (up 69.6% year on year) and RMB48.4 billion (up 18.5% year on year) respectively2. The Chengdu-Chongqing area can serve as an important partner in logistics, and so Hong Kong should provide more high-end logistics services, such as cold chain, electronics products, and luxury goods logistics, to the area.
Hong Kong can also offer financial and other services to enterprises in the Chengdu-Chongqing area wishing to “go out”. According to the Memorandum on The High-Level Meeting & the Second Plenary Session of the Hong Kong/Sichuan Co-operation Conference (Chinese only) signed by the Hong Kong Special Administrative Region Government and Sichuan Provincial People’s Government in September 2021, the governments of the two places will encourage Sichuan enterprises to make use of the Hong Kong platform to raise funds and expand into overseas markets. Actions to be taken include assisting Sichuan enterprises to list real estate and infrastructure projects on the Hong Kong stock market and raise funds in the form of real estate investment trusts (REITs). Hong Kong service providers, by offering their international-level services to help grow the service sector of the Chengdu-Chongqing Economic Circle, are bound to find a host of business opportunities.
1 Source: Chongqing Municipal People’s Government
2 Source: Chongqing and Chengdu Customs
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