Opportunities in2nd and 3rd tier Cities

Netherland Business Support Offices

Bas OvetooomChief Representative of the

NBSO in Dalian

May, 2014

Living in the city

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The Economist 26 April 2014

Source: Economist Intelligent Unit

Upcomings regions

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WHY – 2nd TIER

- Focus of Urbanization - Lower costs

- Less competition- Different needs- Fastest growth

Pos Province Avg. GDP growth (08-12)

1 Shaanxi 14.59%2 Chongqing 14.52%3 Hubei 14.45%4 Ningxia 14.23%5 Anhui 14.23%6 Guizhou 13.98%7 Tianjin 13.92%8 Hunan 13.90%9 Hainan 13.70%10 Sichuan 13.63%11 Inner Mongolia 13.33%13 Jilin 13.19%16 Fujian 12.73%17 Liaoning 12.70%22 Jiangsu 11.78%27 Shandong 10.09%28 Zhejiang 10.06%29 Beijing 9.97%30 Guangdong 9.17%31 Shanghai 7.48%

National average 11.58%

Source: National Bureau of Statistics of China Source: Economist Intelligent Unit

China’s new ‘hubs’

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*Logistic hubs* Knowledge hubs* Retail hubs (middle-class)

* Different timing / stages of development* Overall challenges: Transportation, Education,Pollution & Healthcare

Source: Economist Intelligent Unit

Pro’s and Con’s – 2nd tier vs 1st tier

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Advantages

• “Chinese” investment environment• Even small/medium company receives attention• Lower salaries• Less restrictions on production/manufacturing projects• Lower costs for purchase and rent of land and buildings• Less competition

Disadvantages

• “Chinese” investment environment• Less “foreign-investment friendly” • Less established administration• Less knowledge of law and complex transactions• Higher risk of corruption• Lower qualification of staff• Less legal certainty• Living environment expats

Pro’s and Con’s – 2nd tier vs 1st tier

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Advantages

• “Chinese” investment environment• Even small/medium company receives attention• Lower salaries• Less restrictions on production/manufacturing projects• Lower costs for purchase and rent of land and buildings• Less competition

Disadvantages

• “Chinese” investment environment• Less “foreign-investment friendly” • Less established administration• Less knowledge of law and complex transactions• Higher risk of corruption• Lower qualification of staff• Less legal certainty• Living environment expats

WHERE IS YOUR MARKET

China – Netherlands Business Support Offices

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NBSOs- Hands-on support in new areas- Part of Embassy network- Local government contacts- Local business network- Market knowledge- Language & culture expertise

Location NBSOs in China- Chengdu, Sichuan (8th pos GDP)- Dalian, Liaoning (7th pos GDP)- Jinan, Shandong (3rd pos GDP)- Nanjing, Jiangsu (2nd pos GDP)- Qingdao, Shandong (3rd pos GDP)- Wuhan, Hubei (9th pos GDP)

Liaoning – the North East

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The old industrial baseRevitalization of the North-East program (2003)

Sectors• Equipment manufacturing / heavy industry• Shipping building• Mining• IT Outsourcing• Agri-food • Luxury market (Shenyang & Dalian)• Automotive• Petro-chemical

Current developments• High-speed train• Airport developments• 5 points-one-line program• Shenyang bigger metropolitan area

Heilongjiang

Jilin

Liaoning

Dalian

Shenyang

Changchun

Harbin

400km

300km

250kmPopulation: 27 m

GDP : Eur 138b

Population: 38 mGDP : Eur 158b

Population: 44 mGDP : Eur 287b

Manufacturing – new trends in this sector

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- Focus on development High tech- Up the value chain - Environmental issues start to play a stronger

role- Strong increase labor costs

- Growing automation in manufacturing processes - More focus on the domestic market

- More international collaborations- Collaboration/ownership European R&D

- ‘Branding’ is becoming more important (slowly)

China PMI 2012-2014

Source: Economist Intelligent Unit Source: Markit Economics