In the middle of 2002, I found myself in a pivotal position as the General Manager of Kearney, a prominent global management consulting company based in Shanghai, China. It was during this time that I received an intriguing request for a proposal from the Managing Director of The Development Research Center of Shanghai Municipal People’s Government.
Shanghai had achieved remarkable success in the development of its Pudong area but was now confronted with a pressing concern – how to maintain its status as the premier manufacturing hub in China and across Asia. The solution lay in leveraging the unique geographical advantages of Lingang, an area located in the southeastern part of Pudong, with the aim of establishing it as a thriving base for equipment manufacturing and ensuring sustainable job creation and income generation.
Having recently returned to Shanghai after spending 14 years in Germany pursuing higher education and gaining invaluable work experience with A.T. Kearney in Western Europe, I was entrusted with the responsibility of leading a talented team in Shanghai. Before long, I found myself becoming an integral part of the inner circle of the influential party boss of Shanghai, regularly providing strategic advice on crucial aspects of the city’s development.
After engaging in initial discussions with key decision makers, including the Managing Director of The Development Research Center and the Chairman of the Reform and Planning Committee, I put forth a proposition that deviated from the traditional competitive bidding process. My suggestion was to engage three leading consulting firms for the development of the Lingang Economic Zone, each with expertise in a different geographical area: Kearney for the best practices from Western Europe, McKinsey for American best practices, and Nomura for Japanese best practices.
To my delight, the Shanghai municipality warmly embraced this suggestion, leading to a resounding success in the development of the industry zone that reverberated not only throughout China but worldwide. Our visionary Industry Eco-System Concept has since become the norm for all industry zones and high-tech parks across China, revolutionizing the way these entities are conceived and managed.
Shanghai Lingang Industrial Zone: Pioneering Best Practices in Industry Development
In the ever-evolving landscape of China’s industrial sector, Shanghai faced a pressing challenge as its traditional industry segments, including textiles and consumer goods, began to lose ground on multiple fronts. Labor-intensive sectors gravitated towards regions like Suzhou, enticed by lower labor costs, while multinational corporations dominated the high-end product market. Faced with this dual threat, Shanghai’s municipal leadership pondered a crucial question: How could they sustain existing jobs in the manufacturing industry while simultaneously generating new opportunities in related service sectors?
In December 2002, we delivered a groundbreaking proposal to Shanghai’s decision-makers—a visionary Industry Eco Concept designed to drive regional development in Lingang. Positioned advantageously due to its proximity to Pudong Airport and Yangshan deep water port, Lingang became the focal point of Kearney’s value chain strategy, emphasizing research and development (R&D) and logistics as pivotal elements of each industry ecosystem. Kearney meticulously analyzed over 500 industry segments worldwide and identified a select few for targeted development in Lingang. These included logistics, equipment manufacturing, environmental protection, and innovative technology, each with their own sub-segments. The comprehensive plan also outlined crucial aspects such as an implementation strategy, key performance indicator monitoring, HR considerations, and organizational design.
The Lingang Group, established in 2003, took the reins of implementing Kearney’s recommendations. Under the careful guidance of its Chairman and CEO, the Lingang Group became the sole service provider for industry investments within the designated segments. Their unwavering commitment played a pivotal role in propelling Shanghai’s industrial output to unprecedented heights. Between 2003 and 2022, the city witnessed an astonishing surge from RMB 300 billion to an impressive RMB 10,795 billion—an exponential growth rate of 255%. (Source)
Today, the Lingang Group stands tall as a leading state-owned enterprise, overseen by the Shanghai State-owned Assets Supervision and Administration Commission. Its remarkable success has been reinforced by a flourishing portfolio of brands, including Lingang, Caohejing, and Xinyefang. With a presence spanning over 10 local and overseas parks, such as Lingang Industrial Zone, Caohejing Development Zone, Shanghai Free Trade Zone, and Yangshan Bonded Port Area, the Lingang Group has earned the favor of numerous domestic and foreign manufacturing and logistics giants.
The Lingang Industrial Zone, in particular, has emerged as an unparalleled manufacturing base, boasting a complete value chain for energy equipment, marine diesel engines, excavators, and precision machine tools. Its strategic location, leveraged by the Yangshan Bonded Port and Pudong International Airport, has propelled the growth of both bonded and non-bonded logistics within the logistics park. This, in turn, has led to the development and construction of the Aviation Industry Park and the Lingang Fengxian Park, which promise to provide fresh impetus to the Lingang Industrial Zone’s expansion.
Global manufacturing and logistics players, including CSSC, CIMC, COMAC, AVIC, Shanghai Electric, Shanghai Automotive, Caterpillar, Siemens, Volvo, ThyssenKrupp Burke, Cargotec, Wartsila, COSCO Group, China Shipping Group, Maersk, DHL International, United Parcel Group, and many more, have eagerly established their presence within the Lingang Industrial Zone. These companies have been drawn to its exceptional industry ecosystems, characterized by meticulous planning, policy advantages, a robust transportation network, and comprehensive support functions. Consequently, the Lingang Industrial Zone has emerged as a vital manufacturing and logistics base, not just serving China but also East Asia. (Source)
As innovation continues to drive progress, Lingang remains at the forefront of pioneering breakthroughs within China. It proudly claims numerous “firsts,” including the first national brand of high-end automobiles and engines from Shanghai, the first million-kilowatt-level nuclear power equipment, and the first ultra-supercritical steam technology. Furthermore, Lingang has been the birthplace of cutting-edge advancements such as the largest offshore wind turbine cabin, the longest wind power composite blade, and the world’s most extensive steam turbine rotor high-speed dynamic balance test station. Looking ahead, Lingang Industrial Zone is poised to house the much-anticipated C919 large aircraft engine, solidifying its position as a center for innovation and technological prowess.
Shanghai’s Lingang Industrial Zone stands tall as a testament to ambitious regional development and forward-thinking economic strategies. With a thriving ecosystem that encompasses diverse industries and fosters collaboration, Lingang has not only elevated Shanghai’s manufacturing output but has also earned global recognition as a leading hub for innovation and technological advancements. As China’s industrial landscape continues to evolve, the Lingang Industrial Zone is poised to shape the future of manufacturing and logistics in the region and beyond. (Source)
China’s Ecological Best Practices: Nourishing a Nation, Restoring Landscapes, and Innovating Agriculture
China has long grappled with the formidable task of maintaining food security due to its historical limitations in arable land and water resources. Despite possessing a mere 9% of the world’s arable land in 1949, China has remarkably managed to provide sustenance for its significant 22% share of the global population. However, as industrialization and urbanization continue to surge, the demand for arable land intensifies, exacerbating an already complex issue. Compounding the challenge are the vast deserts that occupy approximately 26.81% of China’s land area. In light of these circumstances, the Chinese government has made it a priority to reclaim desertified land and enhance water resources as crucial measures for ensuring sustainable economic growth.
Since 1986, China has implemented the Land Administration Law, emphasizing the rational use and protection of land. Nationwide monitoring has reduced the loss of cultivable land, while desertification prevention and control efforts have made significant progress. Data released by the State Forestry and Grassland Administration reveals impressive figures: a total of 20.33 million hectares of desertification prevention and control tasks have been completed, with 53% of controllable desertification land successfully treated. The increase in vegetation coverage and forest areas demonstrates the successful transformation from “sand in and people out” to “green in and sand out.” Notably, the comprehensive vegetation coverage of forests and grasslands in the Beijing-Tianjin sandstorm source control project area has seen a substantial boost, climbing from 39.8% to 45.5%. Equally remarkable is the forest coverage rate in the Three-North Project area, which has surged from a mere 5.05% in 1978 to an impressive 13.84%. (Source)
China’s ability to feed its population with limited arable land has made it the largest producer of various crops. However, the increased consumption of animal protein presents new challenges for crop cultivation for animal feed. BASF’s AgCelence®, a registered Plant Health product, has proven effective in increasing corn yield and reducing chemical use. BASF’s dedication to nutrient and water management is further exemplified by their efforts to improve water retention in soils. (Source)
The remarkable transformation of Saihanba Forest Farm speaks volumes about China’s commitment to environmental restoration. Over time, the forested area in the farm has expanded exponentially, from a mere 240,000 mu to an impressive 1.12 million mu. Forest coverage has soared from a modest 12% in the early stages to a remarkable 80%, while the stocking volume has skyrocketed from 330,000 m3 to a staggering 10.12 million m3. The positive impact extends beyond the forest itself, with the microclimate in Saihanba and its surroundings experiencing significant improvement. The frost-free period has lengthened from 52 to 64 days, while the annual average of windy days has decreased from 83 to 53, and average annual precipitation has risen from less than 410 mm to 460 mm. The benefits continue to accumulate, as evidenced by measurements revealing an average temperature difference of 2.5 °C between the forested and non-forested areas, accompanied by a 3.69% increase in average humidity.
The value of the forests and wetlands in Saihanba is estimated at a staggering CNY 20.6 billion, with their ecological services valued at CNY 14.2 billion. The forests play a crucial role in carbon sequestration, storing approximately 814,100 tons of carbon dioxide annually, while also releasing 570,600 tons of oxygen. Notably, they emit about 10,500 tons of terpene, absorb 13,400 tons of sulfur dioxide, 1,200 tons of nitrogen oxides, and filter out 156,400 tons of dust. The impact of the forest goes beyond the ecological realm, attracting over 500,000 visitors each year and generating an income exceeding CNY 44 million from ticket sales alone. The local community has also reaped substantial benefits, with an estimated total revenue of CNY 600 million generated through seedling cultivation, forest tourism, and related industries. Green initiatives, including forest tourism, account for more than 50% of the forest farm’s total revenue.
Once a barren desert known for its “yellow sand and lack of trees,” Saihanba has emerged as an essential ecological barrier for Beijing and Tianjin, transformed into vast forests that provide a vital shield against environmental challenges. (Source)
China’s achievements in ensuring food security and implementing ecological best practices are noteworthy. Strategic land management, desertification control, and innovative agricultural solutions have played vital roles. However, the challenges persist as China strives to balance population needs with resource conservation. Nonetheless, China’s progress sets an example for sustainable practices on a global scale.
Tesla’s Triumph in China Sets a Global Benchmark for Multinational Investors
In a remarkable display of success, multinational giants such as Volkswagen, Apple, and Tesla have underscored the crucial importance of thriving in the Chinese market for their global leadership. Notably, Tesla’s incredible achievements in China serve as a shining example, particularly highlighting the exceptional support provided by the Lingang group and the best practices established in the region.
Recently, Tesla CEO Elon Musk concluded his first trip to China in three years, during which he engaged with government officials and expressed his gratitude to the dedicated workers at the company’s mega factory in Shanghai. In a rousing speech, Musk commended the impressive accomplishments of the Shanghai facility, which commenced operations in 2019, and expressed his desire to strengthen collaboration in various areas with the city. The visit to the Gigafactory on May 31, following his arrival from Beijing, was marked by Musk’s heartfelt appreciation for the workforce’s determination in overcoming numerous challenges. As he addressed the massive crowd of workers, Musk’s words were met with resounding applause and cheers, cementing the significance of Tesla’s presence in China. (Source)
The Shanghai Gigafactory stands as Tesla’s largest car manufacturing plant outside the United States, with over half of the company’s global vehicle deliveries in 2022 (1.31 million) originating from this facility. This strategic reliance on China stems from the supply chain advantages and cost efficiencies it offers (of as much as 20% over EVs made elsewhere), granting Tesla a competitive edge in the global market. Moreover, the Shanghai production site remains immune to the trade tensions between the United States and China, including associated import tariffs, further solidifying its appeal. The Lingang industrial park, in particular, has played a pivotal role in Tesla’s success, exemplifying the remarkable support extended by the Shanghai municipality, encompassing utility access, funding assistance, and recruitment efforts. (Source)
As the primary export hub for Tesla vehicles, the Shanghai Gigafactory assumes a critical role in the company’s worldwide operations. Notably, Tesla China strategically allocates the Gigafactory’s production to cater to international orders in the first half of each quarter before transitioning to domestic demands in the latter half. This flexible system allows Tesla to serve both foreign and domestic markets effectively. Recent footage from drone operators has revealed ongoing upgrade, including the installation of solar panels on its roof. With these advancements, it is foreseeable that other sections of the complex will follow suit in the coming months. Undeniably, Giga Shanghai’s contribution to Tesla’s global vehicle deliveries, accounting for approximately 54% in the first quarter of 2023, underscores its pivotal role in achieving the company’s ambitious goal of selling 20 million cars globally by 2030. (Source)
Inspired by the remarkable best practices established in Lingang, Tesla is now venturing into a new realm in Shanghai by opening a factory capable of producing ten thousand Megapack energy products annually. This additional facility will complement Tesla’s existing Shanghai plant, which focuses on electric vehicle manufacturing. By capitalizing on China’s world-leading battery supply chain, Tesla aims to ramp up Megapack production, lower costs, and meet the surging global demand for energy storage as the world transitions towards renewable energy sources. Earlier this month, the firm reportedly also secured more than $1.4 billion in financing from Chinese banks to help fund further construction of the project and its China operations. (Source)
Tesla’s triumphs, buoyed by Lingang’s support, have generated three crucial strategic advantages on a global scale: above-average cash and net profit growth in the largest electric vehicle market, robust capital market recognition, and limitless funding sources for expanding production capacity. In comparison, facilities in Berlin and Texas look like “gigantic money furnaces”. Tesla’s newest car factories in Texas and Berlin are losing “billions of dollars right now” Elon Musk said in an interview published in June 2022. (Source)
Tesla’s 2022 annual report reveals an impressive global average revenue asset ratio of 2.8, with China contributing an astounding ratio of 6.1, highlighting the remarkable profitability achieved in the Chinese market. The labor productivity at Tesla’s Shanghai factory is equally impressive, with a vehicle capacity exceeding 750,000 and a workforce of just 15,000 employees by the end of 2022. This implies an astonishing ratio of 1 employee for every 50 vehicles produced. In comparison, the global vehicle capacity of 1,900,000 is manned by 128,000 employees, resulting in a ratio of 1 employee for every 15 vehicles produced. The planned figures for Berlin are even more efficient, aiming for a ratio of 1 employee for every 25 vehicles produced.
Recognizing the significance of China to Tesla’s sales and production capacity, experts view Musk’s visit to the country as a pivotal moment for aligning his vision with the Chinese Communist Party and reinforcing the importance of stable political relations for businesses operating in the region. During Tesla’s earnings call in April, Musk identified U.S.-China tensions as a risk to the company’s projections for 2023. Sassine said the visit could also be seen as a “political statement” to China, where business leaders like Musk and JPMorgan chief Jamie Dimon are “telling politicians on both sides of the Pacific that business needs political stability.” (Source)
Tesla’s extraordinary success in China serves as a benchmark for multinational investors seeking to establish a strong foothold in the Chinese market. The Lingang group’s unwavering support and the establishment of best practices in Shanghai have propelled Tesla to unparalleled heights, solidifying its position as a global leader in the electric vehicle industry.
China’s Pursuit of Economic Leverage and the Belt and Road Initiative
China’s extraordinary economic growth since its reform and opening in 1978 has propelled it to new heights, surpassing the GDP per capita of both Germany and the United States during that time. However, as China looks towards the future, it has recognized the need to establish its own macroeconomic leverage to achieve living standards comparable to Germany and America today, without relying on external forces. This realization has been a driving force behind the initiation of the Belt and Road Initiative (BRI), which aims to create economic opportunities and strengthen China’s position on the global stage.
In 2022, China’s GDP per capita reached USD 12,814, outpacing Germany and America’s 1978 levels (USD 9,482 and USD 10,565 respectively). Nevertheless, it pales in comparison to Germany’s impressive USD 48,736 (3.8 times that of China) and the United States’ staggering USD 76,349 (6.0 times that of China). This stark contrast highlights the importance of China’s pursuit of its own economic leverage. By leveraging every dollar increase in Chinese GDP per capita, Germany has managed to achieve a USD 3.1 increase, while America has achieved a USD 5.2 increase. These figures serve as a reminder to Beijing of the need for its own economic leverage to bridge the gap with developed economies. (Source)
The BRI has been instrumental in China’s pursuit of economic leverage. In 2022, trade volume between China and ASEAN countries stood at USD 970 billion, a figure on par with China’s trade with the European Union, which reached EUR 856 billion. Prior to the BRI’s inception in 2013, trade between China and ASEAN was a mere USD 400 billion in 2012. This exponential growth underscores the potential of the BRI to create mutually beneficial economic ties and solidify China’s position as a global economic powerhouse.
While Germany has relied on America for military service and geopolitical security since World War II, China recognizes that such dependence is not a viable long-term strategy for its future development. In 1978, America’s GDP per capita was only 1.1 times that of Germany, but by 2022, it had widened to 1.6 times. The increasing disparity and the associated costs of relying on the expensive American military have prompted China to seek greater independence in its pursuit of economic growth.
China has found cost-effective security solutions in its collaboration with Russia in Central Asia for the BRI. However, tensions with the United States in Southeast Asia, particularly in the South China Sea and the Taiwan Strait, have underscored the importance of relative strength and cost competitiveness in military services. As conflicts such as the war in Ukraine unfold, China has observed the short-term benefits of such engagements and recognizes the greater potential for sustainable growth through peaceful resolutions, such as facilitating dialogue between Saudi Arabia and Iran.
The best prevention of a conflict (like the Ukraine war) between America and China lies in preventing the economic decoupling between the world’s two largest economies. The trade war initiated by the Trump administration had limited impact on China, as every increase in China’s GDP per capita enabled an over fivefold increase in America. Sustaining its global economic dominance requires the United States to embrace a capitalist free market economy and protect the established interests of shareholders in companies like Tesla and Apple. By leveraging China’s cost and market advantages, the United States can enhance its competitiveness in the “Made in America” domain.
As Western economists and analysts focus on short-term forecasts for the Chinese property segment, it is crucial to recognize that the BRI remains the key driver of Chinese economic growth in the coming decades. The ongoing apprehension about China in Washington and London may hinder a comprehensive understanding of the fundamental factors driving the Chinese economy. The BRI’s initial success, as evidenced by the rapid growth in trade volume and economies of participating countries, has instilled strategic confidence in Beijing when engaging with Washington. China plans to apply the best practices it has implemented over the past four decades to all BRI countries, tailoring them to specific contexts, whether or not G7 countries are involved. This approach aligns with the logic of the BRI and its proven success in China, which remains unparalleled among G7 nations.
India, despite its recent accolades in Washington, could benefit from adopting China’s modernization practices. While the accuracy of India’s GDP statistics remains a topic of debate, a more concrete measure of economic development can be found in electricity generation per capita. In 1994, when Narendra Modi assumed office as Prime Minister, India’s electricity generation per capita stood at 410 KWH. By 2022, it had increased by 258% to reach 1297 KWH. In the same period, China experienced a staggering 757% growth, with electricity generation per capita rising from 769 KWH in 1994 to 6205 KWH in 2022—almost three times that of India’s growth. To put these figures into perspective, Cuba had already generated 1278 KWH per capita in 1994, reaching 1755 KWH in 2022, while the United States consumed 12702 KWH in 2022. (Source)
During my visits to India between 2010 and 2013 as the Group Vice President of Lafarge, responsible for Asia Strategy and global manufacturing asset optimization, I encountered first-hand the challenges of inadequate electricity supply. Lafarge, which had a regional headquarters in downtown Bangalore, experienced frequent power outages, forcing the entire building to rely on its own diesel generator every one to two hours.
In contrast to India’s struggles, China has set ambitious goals to peak its carbon emissions by 2030 and achieve carbon neutrality by 2060. In 2023 alone, China is projected to install more new solar capacity than the United States has deployed since the early 1970s. It will produce 80% of the world’s solar panels this year and add five out of every eight panels to its grid. China’s dominance extends beyond panel production, with 85% of global solar cells, 88% of solar-grade polysilicon, and 97% of silicon ingots and wafers, crucial components of solar cells, all originating from Chinese manufacturers. (Source) This supremacy in the solar supply chain highlights the significance of China’s role in green technologies, such as electric vehicles, and underscores the importance of successful implementation of the BRI for global and, specifically, Indian green energy transition.
While the United States and Europe must rely on Chinese-made solar technology to achieve their net-zero emission targets by 2050 during their transition from hydrocarbon to solar power, India and other BRI countries have the opportunity to embrace solar energy and prevent the catastrophic consequences of continued reliance on coal-fired power for their energy needs. It is crucial to recognize that regardless of any system rivalry, we all share a small planet where CO2 emissions from any source can disrupt the climate to the point where it becomes uninhabitable for everyone.
China’s pursuit of economic leverage through initiatives like the BRI reflects its aspirations to attain living standards comparable to those of Germany and the United States, minimizing its dependence on Western nations for job opportunities. Through nurturing economic ties, seeking military independence, and drawing lessons from global conflicts, China is forging a path towards sustained growth and global prominence. As the world witnesses China’s ongoing economic rise, it is essential to comprehend the underlying wisdom behind its strategic choices and the potential impact on the global economic landscape.
China’s extraordinary economic expansion over the past four decades owes its success to an unwavering commitment to conceptual excellence, an open-minded approach to alternative practices, strategic coherence, and meticulous implementation. Contrary to the concerns harbored by skeptics in Washington, military confrontation has not been, and will not be, an integral part of the strategic playbook guiding the key stakeholders propelling China’s industrialization and modernization. This includes private entrepreneurs and investors from Asia, America, and Europe, particularly influential decision-makers on Wall Street. The inexorable triumph of the Belt and Road Initiative (BRI) is a foregone conclusion, while the conflict in Ukraine has proven to be a costly ordeal for Western Europe, paradoxically serving as a catalyst for attracting investments and entrepreneurial talent from the Middle East.