Hefei plays an important role in linking central China’s coastal regions due to its convenient location located between the Yangtze and the Huaihe Rivers. In addition to its proximity to these rivers, Hefei is easily accessible by air, rail and metro which effectively make it a centrally-located, commercial hub. 

Alex Tangkilisan and Kassia Halcli from Dezan Shira & Associates take a look at this city that is fast becoming one of China’s most sought after destinations for foreign investment.

Dubbed the ‘City of Science and Education’ due to its more than 200 universities and research centres/labs scattered throughout the city, Hefei is the capital of the Anhui province in Eastern China.

The city itself has five counties and four districts under its jurisdiction, and has a population of over 7.52 million. It is also serves as the political, economic and cultural hub of the province, and houses an administrative area covering 4,372 square miles.

In 2012, Anhui Province recorded a total gross domestic product (GDP) of over CNY 1.72 trillion, of which Hefei’s GDP totalled CNY 416 billion — a 24.2 per cent year-on-year increase — placing it first among the cities in the province.

Economic Overview

Hefei is a comprehensive manufacturing-based industrial city, and the manufacturers located there are capable of producing everything from electrical appliances and daily-use chemical products to specialised automobiles such as forklift trucks.

In addition to manufacturing, the city’s economy is founded on the following key industries:

• Automobiles
• Home appliances
• Chemicals
• New materials
• Information technology (IT)
• Biopharmaceuticals
• Food processing

The combined value of the above industries plus manufacturing in 2012 amounted to CNY 76.2 billion, up 28.5 per cent year-on-year.

The services sector also plays a vital role in Hefei’s economic development, with the service industry accounting for 39.2 per cent of its GDP in 2011. Tourism — which racked up close to CNY 40 billion in 2011 — accounts for a major proportion of the services sector’s revenues, and close to 45 million foreign and domestic tourists visit popular destinations such as Xiaoyaojin Park, Huangshan Scenic Area and Chaohu Lake annually.

Investment and Opportunities

As the most developed city in Anhui province, Hefei already receives a reasonable amount of foreign investment. Foreign direct investment (FDI) to Hefei rose 16.2 per cent year-on-year to USD 1.81 billion in 2011, and another 66 new foreign-funded enterprises were set up that year as well.

Further, the city was named the world’s fastest growing metropolitan economy by The Economist in 2012, due to its abundant human resources, low comprehensive business costs, broad market prospects and strategic economic development position.

Total foreign trade in 2011 equalled USD 12.31 billion — up 20.9 per cent year-on-year — of which exports totalled USD 5.82 billion, up 34 per cent year-on-year.

In addition, nearly 3,000 enterprises from over 58 countries and regions, including 34 overseas Fortune 500 enterprises — which include Mitsubishi, Wal-Mart and Unilever — have already invested in the city, showing not only the ease of investing in the city but also the city’s considerable clout as an investment hub.

The city also maintains trade ties with over 180 countries and regions.

Transportation

Hefei’s transportation infrastructure has been a recent popular target for investment with the city’s first rapid transit system, the Hefei Subway, currently under construction after obtaining National Development and Reform Commission (NDRC) approval in 2010. It is expected to be finished by 2015.

Hefei Xinqiao International Airport, located in Gaoliu Village, replaced the old Hefei Luogang International Airport after it opened its doors in May this year. The airport provides scheduled passenger services to major airports in China and abroad, including Hong Kong, Macau, Taipei (Taoyuan and Sung Shan), Kaohsiung, Seoul, Jeju, Singapore, Osaka and Bangkok.

The city also houses the Huainan railway line, which joins the Jinghu (Beijing−Shanghai) and Longhai (Lanzhou−Lianyungang) lines at Bengbu. The railway also connects to the Wan’gan (Bengbu−Yingtan), Ningwu (Nanjing−Wuhu) and Xuanhang (Xuanzhou−Hangzhou) lines at Wuhu. Further, the planned Ningxi (Nanjing−Xi’an) line will also run through Hefei, making a total of three national railway lines running through the city.

With the city also being well connected to China’s major metro centres in Beijing, Shanghai and Guangzhou, and with Hong Kong only two hours away by plane, Hefei is poised for further growth and additional investment.

Development Zones

Hefei has the following two major state-level development zones that act as investment hotspots:

• The Economic & Technological Development Area (which covers 66 square kilometres);
• The High-tech Industrial Development Zone (which covers 18.5 square kilometres).

The primary industries in the Economic & Technological Development Area are household electronics, automobiles, equipment manufacturing, chemical engineering, and food processing — which brought in CNY 37.97 billion in 2009.

The primary industries in the High-tech Industrial Development Zone are IT, bioengineering, medicine, new materials, advanced machinery and optical mechanical electronic integration — which brought in CNY 13.3 billion in 2010.

With its sprawling catalogue of industries and supporting facilities, Hefei will continue to develop at a high speed to remain one of China’s most sought after foreign investment destinations.

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