China's New Gateway to the Northeast
Yantai's strategic location, modern port facilities, and green environment make it an attractive city for foreign companies
by Hardy Simes
The history of Yantai, Shandong, as an important seaport dates back more than 1,000 years to the Tang Dynasty. As one of China's four designated major ports during that period, Yantai received the first Japanese envoys, and the first Chinese missions to Korea set sail from Yantai. Cell phones and internal-combustion engines may have replaced the silk and paper trade in Yantai, but the city still boasts an impressive port and a strategic location. Focused public investment in transportation infrastructure, energy, and environmental protection have turned Yantai into one of China's most rapidly growing and cleanest second-tier port cities.
A city of 6.5 million, Yantai sits on the northern shore of the Shandong peninsula, across from Dalian, Liaoning, on the Bohai Bay (see map). In 2005, the city's GDP hit $24.5 billion, up 17.6 percent from 2004 (see Table 1). Several big stores are rushing to capture a market in which the per capita urban disposable income is 12,452 ($1,587). Following the opening of Wal-Mart Stores, Inc.'s new store in Yantai, Metro AG and Carrefour SA are negotiating the establishment of their first stores in the port city. In terms of trade in 2005, Yantai's total shot up 43.6 percent from its 2004 level to reach $11.5 billion, with exports growing 44.2 percent to $6.5 billion.
Statistics from the first three quarters of 2006 indicate that Yantai's economy shows no signs of slowing down. By September 2006, Yantai's year-on-year GDP had expanded 17 percent, and total trade had jumped 34.6 percent to exceed $10 billion, nearly 80 percent of which came from foreign-invested enterprises (FIEs). Over the same period, FIE exports had jumped 42.6 percent to $4.5 billion, and their utilized foreign direct investment (FDI) had soared 44.2 percent, according to Yantai's statistics bureau.
By land, air, or sea
One of Yantai's biggest advantages is its integration with both regional and national transportation networks by air, land, and sea. Yantai's airport boasts 140 flights per week on 35 domestic and international air routes, including regular flights to Incheon and Daegu, South Korea; Hong Kong; and Osaka, Japan. Highways connect Yantai with neighboring Shandong cities Weihai, 86 km to the east, and Qingdao, 276 km to the south. Direct trains to Beijing; Ji'nan and Qingdao, Shandong; and Shanghai further enhance Yantai's land transportation.
Ranked the 12th largest port hub in China in 2005, Yantai's 74 berths 34 of which can handle vessels of 10,000 deadweight tons (DWT) and 15 are deep-water ports capable of handling vessels of 60,000 DWT are the centerpiece of Yantai's overall transportation infrastructure. Its ports handled 41 million tons of cargo and 546,000 twenty-foot equivalent units (TEU) in containers in 2005, and cargo and container traffic was expected to double to 80 million tons and 1.1 million TEU, respectively, in 2006, according to the China Ports and Harbors Association.
The central government has taken notice of Yantai's position as a significant port in Northeast China. A plan released in 2004 by the PRC Ministry of Communications and National Development and Reform Commission calls for the development of the Bohai Bay area into a metropolitan coastal port hub that will rival the Yangzi and Pearl river deltas by 2010. The plan also aims to integrate Yantai's development as a container handler with the expanding roles of Dalian, Tianjin, and Qingdao as major port cities in the region. By 2010, Yantai expects to handle 160 million tons of cargo and 3 million TEU of containers.
One of the more unusual transportation projects in the region is the $400 million transoceanic railway project that will feature barges capable of ferrying fully loaded cargo trains across the Bohai Bay between Yantai and Dalian, thus effectively making Dalian an extension of Yantai's railroad network. The four-hour, 147 km ferry route will cut 400-1,000 km from train routes along the eastern coast. The ferry is scheduled to be fully operational this year and is expected to almost double its annual cargo capacity to 12.4 million tons by 2012. The route will become a valuable link connecting Yantai not only to Russia and Northeast China's natural resources and heavy industry but also to Jiangsu, Shandong, Shanghai, and Zhejiang to the south.
Early start on foreign investment
As one of the first cities that welcomed foreign investment, Yantai has already racked up several billion dollars' worth of investment. In 2005 alone, Yantai attracted $1.8 billion in utilized FDI and $6.3 billion in contracted foreign capital, up 36.4 percent and 50 percent, respectively, from 2004. The largest sources of FDI in Yantai were Hong Kong (29 percent), South Korea (20 percent), the United States (10 percent), and Taiwan (9 percent), according to 2005 data from the Yantai Investment Development Board (YIDB). The city's proximity to South Korea has made it a magnet for investment from that country. For example, LG Electronics, Inc. operates its largest overseas production facility in Yantai. As China's biggest mobile phone production plant, the facility churns out 10 million cell phones each year. Although the city hosts fewer US investors, Yantai serves as a base for Shanghai GM Dongyue Automotive Ltd.'s production plant, which has an annual capacity of 600,000 cars. Foreign investment in industrial manufacturing represents 82 percent of Yantai's total, with machinery, food, textiles, and electronics leading the way. Manufacturing dominates Yantai's foreign investment base, but the area's mild climate and relatively good soil have also made agriculture and food processing leading industries in the area. To strengthen Yantai's current advantages in the textile, shipbuilding, foodstuff, and electronics industries, local officials have tapped the city's education centers and talented workforce.
There are areas for improvement, however, particularly in local administration. Foreign investors noted that senior city leaders demonstrated a willingness to listen and respond to investors' concerns and to streamline bureaucratic processes. But as is the case with many rapidly transforming Chinese cities, foreign investors mentioned that lower-level bureaucrats often do not understand the foreign company's business and selectively enforce local regulations. As a result, companies often dedicate more time to local government affairs and less to other business needs.
Powering up
Amid the blackouts, power shortages, and altered production schedules that parts of China have had to cope with in recent years, Yantai enjoys an uninterrupted power supply of 2.1 million kilowatts (kW) a result of Shandong's abundant coal supply. According to local foreign-invested manufacturers, their Yantai facilities have never been asked to shut down or alter production schedules, in contrast to the companies' experiences in other parts of China. Anticipating growing demand for power, Yantai plans to build five new power plants, including a nuclear one, to boost supply by another 9.8 million kW over the next four years. Industry has generally been spared water, gas, or heat shortages.
Retaining talented workers
Average salaries in the city have climbed 11 percent in 2006, but local manufacturers say that wages are still relatively low. With nearly 100,000 college students and another 20,000 students in technical training schools in Yantai, FIEs there are generally satisfied with the skills of local entry-level workers. Although some companies cite difficulties filling positions in advanced finance, information technology, skilled maintenance, and electrical-related fields, FIEs are generally content with the relatively low turnover rate when compared with those of other cities. They also compare Yantai's workforce to those of Suzhou and Wuxi, Jiangsu, a few years ago.
Because the region is perceived as isolated, however, foreign companies often find it difficult to entice upper-level management from other company facilities to Yantai. But the city's smooth traffic, clear skies, and long beaches have won over most local and expatriate staff that have made the move. Some wealthy Beijing residents own apartments and homes in Yantai for seaside weekend getaways a testament to the pleasant living conditions in the city.
A breath of fresh air
In Chinese, Yantai literally means "smoke platform," a name that dates back to the Ming Dynasty, when neighboring hills used to send smoke signals to warn of pirates. Today, a clean physical environment complements Yantai's business environment. In 2005, Yantai's air quality was rated "good" on more than 360 days, and over the last five years, Yantai has invested about $1.9 billion in more than 1,500 environmental protection projects. In recent years, the city has garnered awards from the PRC State Environmental Protection Administration as a national-level Clean City and as a Model City for Environmental Protection. Given the high levels of pollution in other Chinese cities, many investors will no doubt appreciate Yantai's strong emphasis on environmental protection.
Future opportunities
Yantai's business environment has received high marks, including ranking first for business climate and investor satisfaction among 67 cities and development zones in a survey conducted by the Japan External Trade Organization. Although the more economically robust cities of Dalian and Qingdao eclipse Yantai, investment opportunities are booming in this coastal city as it develops its own manufacturing base and emerges as a logistics and distribution hub that connects China's northeast and the coast.
Yantai at a Glance
Yantai by the Numbers, 2005
$ billion % growth over
same period in 2004
GDP 24.5 17.6
Population (million) 6.5 0.2
Urban 1.8 1.1
Rural 4.7 0.1
Total foreign trade 11.5 43.6
Total exports 6.5 44.2
Primary products 1.8 27.6
Industrial/finished products 4.7 51.5
Exports by market
United States 1.7 26.9
Japan 1.5 23.0
South Korea 0.9 15.0
European Union 0.9 14.2
Total imports 5.0 42.8
Foreign direct investment
Contracted 6.3 50.0
Utilized 1.8 36.4
Yantai's strategic location, modern port facilities, and green environment make it an attractive city for foreign companies
by Hardy Simes
The history of Yantai, Shandong, as an important seaport dates back more than 1,000 years to the Tang Dynasty. As one of China's four designated major ports during that period, Yantai received the first Japanese envoys, and the first Chinese missions to Korea set sail from Yantai. Cell phones and internal-combustion engines may have replaced the silk and paper trade in Yantai, but the city still boasts an impressive port and a strategic location. Focused public investment in transportation infrastructure, energy, and environmental protection have turned Yantai into one of China's most rapidly growing and cleanest second-tier port cities.
A city of 6.5 million, Yantai sits on the northern shore of the Shandong peninsula, across from Dalian, Liaoning, on the Bohai Bay (see map). In 2005, the city's GDP hit $24.5 billion, up 17.6 percent from 2004 (see Table 1). Several big stores are rushing to capture a market in which the per capita urban disposable income is 12,452 ($1,587). Following the opening of Wal-Mart Stores, Inc.'s new store in Yantai, Metro AG and Carrefour SA are negotiating the establishment of their first stores in the port city. In terms of trade in 2005, Yantai's total shot up 43.6 percent from its 2004 level to reach $11.5 billion, with exports growing 44.2 percent to $6.5 billion.
Statistics from the first three quarters of 2006 indicate that Yantai's economy shows no signs of slowing down. By September 2006, Yantai's year-on-year GDP had expanded 17 percent, and total trade had jumped 34.6 percent to exceed $10 billion, nearly 80 percent of which came from foreign-invested enterprises (FIEs). Over the same period, FIE exports had jumped 42.6 percent to $4.5 billion, and their utilized foreign direct investment (FDI) had soared 44.2 percent, according to Yantai's statistics bureau.
By land, air, or sea
One of Yantai's biggest advantages is its integration with both regional and national transportation networks by air, land, and sea. Yantai's airport boasts 140 flights per week on 35 domestic and international air routes, including regular flights to Incheon and Daegu, South Korea; Hong Kong; and Osaka, Japan. Highways connect Yantai with neighboring Shandong cities Weihai, 86 km to the east, and Qingdao, 276 km to the south. Direct trains to Beijing; Ji'nan and Qingdao, Shandong; and Shanghai further enhance Yantai's land transportation.
Ranked the 12th largest port hub in China in 2005, Yantai's 74 berths 34 of which can handle vessels of 10,000 deadweight tons (DWT) and 15 are deep-water ports capable of handling vessels of 60,000 DWT are the centerpiece of Yantai's overall transportation infrastructure. Its ports handled 41 million tons of cargo and 546,000 twenty-foot equivalent units (TEU) in containers in 2005, and cargo and container traffic was expected to double to 80 million tons and 1.1 million TEU, respectively, in 2006, according to the China Ports and Harbors Association.
The central government has taken notice of Yantai's position as a significant port in Northeast China. A plan released in 2004 by the PRC Ministry of Communications and National Development and Reform Commission calls for the development of the Bohai Bay area into a metropolitan coastal port hub that will rival the Yangzi and Pearl river deltas by 2010. The plan also aims to integrate Yantai's development as a container handler with the expanding roles of Dalian, Tianjin, and Qingdao as major port cities in the region. By 2010, Yantai expects to handle 160 million tons of cargo and 3 million TEU of containers.
One of the more unusual transportation projects in the region is the $400 million transoceanic railway project that will feature barges capable of ferrying fully loaded cargo trains across the Bohai Bay between Yantai and Dalian, thus effectively making Dalian an extension of Yantai's railroad network. The four-hour, 147 km ferry route will cut 400-1,000 km from train routes along the eastern coast. The ferry is scheduled to be fully operational this year and is expected to almost double its annual cargo capacity to 12.4 million tons by 2012. The route will become a valuable link connecting Yantai not only to Russia and Northeast China's natural resources and heavy industry but also to Jiangsu, Shandong, Shanghai, and Zhejiang to the south.
Early start on foreign investment
As one of the first cities that welcomed foreign investment, Yantai has already racked up several billion dollars' worth of investment. In 2005 alone, Yantai attracted $1.8 billion in utilized FDI and $6.3 billion in contracted foreign capital, up 36.4 percent and 50 percent, respectively, from 2004. The largest sources of FDI in Yantai were Hong Kong (29 percent), South Korea (20 percent), the United States (10 percent), and Taiwan (9 percent), according to 2005 data from the Yantai Investment Development Board (YIDB). The city's proximity to South Korea has made it a magnet for investment from that country. For example, LG Electronics, Inc. operates its largest overseas production facility in Yantai. As China's biggest mobile phone production plant, the facility churns out 10 million cell phones each year. Although the city hosts fewer US investors, Yantai serves as a base for Shanghai GM Dongyue Automotive Ltd.'s production plant, which has an annual capacity of 600,000 cars. Foreign investment in industrial manufacturing represents 82 percent of Yantai's total, with machinery, food, textiles, and electronics leading the way. Manufacturing dominates Yantai's foreign investment base, but the area's mild climate and relatively good soil have also made agriculture and food processing leading industries in the area. To strengthen Yantai's current advantages in the textile, shipbuilding, foodstuff, and electronics industries, local officials have tapped the city's education centers and talented workforce.
There are areas for improvement, however, particularly in local administration. Foreign investors noted that senior city leaders demonstrated a willingness to listen and respond to investors' concerns and to streamline bureaucratic processes. But as is the case with many rapidly transforming Chinese cities, foreign investors mentioned that lower-level bureaucrats often do not understand the foreign company's business and selectively enforce local regulations. As a result, companies often dedicate more time to local government affairs and less to other business needs.
Powering up
Amid the blackouts, power shortages, and altered production schedules that parts of China have had to cope with in recent years, Yantai enjoys an uninterrupted power supply of 2.1 million kilowatts (kW) a result of Shandong's abundant coal supply. According to local foreign-invested manufacturers, their Yantai facilities have never been asked to shut down or alter production schedules, in contrast to the companies' experiences in other parts of China. Anticipating growing demand for power, Yantai plans to build five new power plants, including a nuclear one, to boost supply by another 9.8 million kW over the next four years. Industry has generally been spared water, gas, or heat shortages.
Retaining talented workers
Average salaries in the city have climbed 11 percent in 2006, but local manufacturers say that wages are still relatively low. With nearly 100,000 college students and another 20,000 students in technical training schools in Yantai, FIEs there are generally satisfied with the skills of local entry-level workers. Although some companies cite difficulties filling positions in advanced finance, information technology, skilled maintenance, and electrical-related fields, FIEs are generally content with the relatively low turnover rate when compared with those of other cities. They also compare Yantai's workforce to those of Suzhou and Wuxi, Jiangsu, a few years ago.
Because the region is perceived as isolated, however, foreign companies often find it difficult to entice upper-level management from other company facilities to Yantai. But the city's smooth traffic, clear skies, and long beaches have won over most local and expatriate staff that have made the move. Some wealthy Beijing residents own apartments and homes in Yantai for seaside weekend getaways a testament to the pleasant living conditions in the city.
A breath of fresh air
In Chinese, Yantai literally means "smoke platform," a name that dates back to the Ming Dynasty, when neighboring hills used to send smoke signals to warn of pirates. Today, a clean physical environment complements Yantai's business environment. In 2005, Yantai's air quality was rated "good" on more than 360 days, and over the last five years, Yantai has invested about $1.9 billion in more than 1,500 environmental protection projects. In recent years, the city has garnered awards from the PRC State Environmental Protection Administration as a national-level Clean City and as a Model City for Environmental Protection. Given the high levels of pollution in other Chinese cities, many investors will no doubt appreciate Yantai's strong emphasis on environmental protection.
Future opportunities
Yantai's business environment has received high marks, including ranking first for business climate and investor satisfaction among 67 cities and development zones in a survey conducted by the Japan External Trade Organization. Although the more economically robust cities of Dalian and Qingdao eclipse Yantai, investment opportunities are booming in this coastal city as it develops its own manufacturing base and emerges as a logistics and distribution hub that connects China's northeast and the coast.
Yantai at a Glance
Yantai by the Numbers, 2005
$ billion % growth over
same period in 2004
GDP 24.5 17.6
Population (million) 6.5 0.2
Urban 1.8 1.1
Rural 4.7 0.1
Total foreign trade 11.5 43.6
Total exports 6.5 44.2
Primary products 1.8 27.6
Industrial/finished products 4.7 51.5
Exports by market
United States 1.7 26.9
Japan 1.5 23.0
South Korea 0.9 15.0
European Union 0.9 14.2
Total imports 5.0 42.8
Foreign direct investment
Contracted 6.3 50.0
Utilized 1.8 36.4
