The darling of China’s Southeast Seaboard: What Foreign Companies should know about Xiamen’s Economy
With three and a half million citizens in the city proper and roughly four million in the built-up area of the city, Xiamen is only the thirtieth most populated city in China. However, the city had a GDP of 600 billion yuan and a GDP per capita of 142,000 yuan in 2019. This makes Xiamen one of the most prosperous and wealthy cities within China. What’s more, with a GDP growth rate of 7.9% in 2019, the city is outperforming most other Chinese cities. Let’s find out why Xiamen’s economy is outpacing the growth of other prosperous Chinese cities.
Located in southeast China across the strait from Taiwan, Xiamen is about halfway between Hong Kong and Hangzhou. Even though it is not the capital nor most populous city in Fujian province, it is arguably one of the most important. With a reputation for doing business, Fujian has been one of the best performers economically in China’s history. With an economy the size of Sweden or Thailand and a population comparable to the US state of California, or the entire nation of Canada, the province of Fujian is an important asset to China. Furthermore, Fujian’s economy is one of the fastest growing in China, overtaking that of Taiwan in size this year, a meaningful milestone in Cross Straits affairs.
The location of Xiamen in the southeast of Fujian Province between Quanzhou and Zhangzhou, two other economically successful coastal Chinese cities. Fujian’s desirable location along the coast and across the strait from Taiwan have helped Xiamen’s economy and that of the province as a whole. Source – China Highlights.
The Legacy of Xiamen’s SEZ Status continues to benefit the city
Setup as a Special Economic Zone in 1980, Xiamen enjoyed early access to international markets and as such has built up a strong business standing among other Chinese cities. In recent years, Xiamen has emerged as one of the most competitive markets in China, ranked eight nationally in terms of intellectual capital and innovation in 2018 by the China Development Research Foundation. In 2019, the city was ranked as one of the top ten best performing cities in China by Milken Institute. The city’s history of being a city of business has no doubt contributed to it being the birthplace of national champions such as Luckin Coffee and Meitu, a photo beautification app.
To best understand the economy of Xiamen, foreign companies will need to be aware of Xiamen’s special role in Fujian’s economy and how the economics of urbanization have helped the city achieve such rapid economic success. In addition, companies will need to be aware of how Xiamen’s aviation industry and tourism in Xiamen have played a role in the city’s economic growth. Finally, foreign companies will need to look to Xiamen’s Cross Straits Business to understand what is driving outside funding to the city.
Animation of urbanization of Xiamen Island and surrounding regions between 1984 and 2012. Not only is the rapid construction of infrastructure and urban amenities during this period visible, but it is also clear how much Xiamen’s economy was transformed by land-reclamation projects. Source – Business Insider
How the Economics of Urbanization are positively affecting Xiamen’s Economy
In the last 40 years, Xiamen’s economy has exploded in growth as the city enjoyed the effects of urbanization. China’s opening up reforms and the city’s designation at a special economic zone. However, some of the city’s most rapid economic growth has occurred within the last fifteen years, with the city’s urban development spreading from Xiamen Island across to the mainland coastal area.
With the construction of numerous expressways and high-speed rail lines crisscrossing Fujian in recent years, Xiamen has become increasingly connected to nearby cities in recent years. Zhangzhou, a city of nearly 5 million people is located merely 40 kilometers from Xiamen Island. A high-speed rail now connects the two cities in 20 minutes. Quanzhou, which has more than 8 million citizens, is located 55 kilometers from Xiamen Island. A thirty minute high-speed rail trip connects the two cities. These three cities make up a metropolitan area of more than 10 million people.
A glittery night skyline reflects the prosperity of Xiamen’s economy, which has become one of the most competitive and innovative cities in China in recent years. Source – China Daily
Specialization has significantly increased as Xiamen grows outward
The urbanization in Xiamen have not only contributed to a larger population and higher economic growth, but it has also helped the city further specialize its markets. The development of numerous industrial zones across the Greater Xiamen area has given the city a leading edge over others in terms of competition. This leading edge has given the city another economic boost.
Map of Xiamen Metro, with completed and under construction lines. The rapid expansion of metro construction has added not only to the effects of urbanization in Xiamen, but also to the growth of the economy of Xiamen. Source – Wikipedia.
The city’s internal transport connections have also developed quickly as the city expands outwards. The Xiamen Metro opened in 2017 with one line that connected communities on the island to the city’s northern train station. In 2019, a cross-island metro line opened, connecting business districts on the island. In the coming years however, multiple lines will open that will connect the island with businesses and industries on the mainland coastal area. Two of these new lines will connect the network to Xiamen’s new airport, which will open in late 2020. These connections will provide quicker transport around the city and will also increase land values near metro corridors. These benefits will further benefit Xiamen’s economy.
Companies examining Xiamen would do well to keep in mind how the economics of urbanization are creating a healthy business environment in the city. This is happening as urbanization creates a large metropolitan market, increases specialization and improves transport around the city.
Founded in 1984, XiamenAir has become one of the largest airlines in China, with over 70 domestic and international destinations. With Xiamen’s Gaoqi Airport serving as the airline’s hub, XiamenAir has greatly contributed to Xiamen’s economy over the years. Source – China Daily
How Xiamen’s Aviation Industry and Role as Logistics Hub propel its economy
With more than thirty years in service, XiamenAir has put Xiamen on the map. With more than twenty international destinations, the airline has connected Xiamen to multiple foreign markets. This has in turn led to a decrease in the amount of time it takes to travel to Xiamen, which increases the economy’s competitiveness. In addition, the growth of passenger throughput at the city’s airport has led officials to call for the construction of a new airport. The new airport is expected to cost more than 7 billion yuan and provide double the flight capacity of the current airport. In addition, it will undoubtedly give a growth boost to the economy of Xiamen.
Xiamen’s Aviation Industry coupled with the city’s booming logistics industry are fueling each other’s growth. Promoted by the central government in Beijing, Xiamen’s logistics industry is one of nine important logistics hubs in China. As such, the city enjoys increased support for the development in this sector. In recent years, the city has opened new logistics parks across the city, such as Haicang Logistics Park and Xinlin Logistics Park.
A historical connection with foreign merchants
Called Amoy by European merchants for hundreds of years, Xiamen has a long history as an entrepot with foreign merchants. With a long history as a major seaport, it is no surprise that shipping still takes up a large portion of the city’s economy. Xiamen’s seaport is the 8th largest container port in China and the 17th largest in the world. The port of Xiamen handled 217 million tons of cargo in 2018, which was a 3% increase on 2017.
Foreign companies would do well to realize that Xiamen punches way above its weight when it comes to aviation, logistics and shipping. Due to historical and geographic reasons, the city will likely continue to attract a large amount of cargo and passenger throughput.
An advanced innovation and manufacturing hub that opened in 2018. Complexes like these in and around the city are propelling Xiamen’s economy as one of the most advanced manufacturing markets in China. Source – ABB
How high-tech manufacturing in Xiamen has boosted the city’s economic standing
Xiamen’s high-tech manufacturing industry has High-tech components: LCD displays, communications equipment and semiconductors. In addition, the city government has established multiple high-tech industrial zones across the city. These include the Xiamen Torch Hi-Tech Industrial Zone and
High-tech manufacturing in Fujian’s economy has had a huge impact on the economy of Xiamen, adding a reported $61 billion to the city’s economy in 2018. The graphene and tungsten metals industries have shown strong potential in recent. What makes high-tech manufacturing in Xiamen so successful however is the city’s treatment towards the industry. With countless incentives and subsidies, it is no wonder many high-tech manufacturers are flocking to the city.
Foreign companies can benefit from Xiamen and Fujian’s high-tech manufacturing industry by observing how state policies are favoring certain productions in Xiamen. It is worth noting how the development of high-tech manufacturing has had such a huge impact on the city’s economic growth over the past few decades.
Tourists flock to the tropical beaches of Gulangyu, a historic island destination adjacent to Xiamen Island. Tourism is one of the main pillars of the economy of Xiamen. Source – CFP
How Tourism in Xiamen is helping boost the economy
Gulangyu Island is one of the most popular domestic tourist attractions in Mainland China. Once a colonial entrepôt off the coast of Amoy, the island developed a strong heritage of global refinement during the heyday of Xiamen’s maritime boom. Nowadays, the island is still full of colonial architecture, trendy shops and sweeping vistas of the city across the bay. In recent years, Gulangyu has become a couples destination, especially among younger Chinese tourists. All in all, the island attracts more than 10 million tourists each year, bringing a boost to Xiamen’s tourism industry.
Besides Gulangyu and other attractions within the urban area, Xiamen is also a base for tourists going to other nearby destinations. Tourists flock to Xiamen as a starting point when visiting the Tulou circular houses in rural Fujian province. In addition, many tourists visiting nearby Kinmen Island transit via Xiamen. The city welcomed 96 cruise ships in 2018, with many ships bringing international tourists. It is estimated that tourists visiting the city add nearly $20.6 billion to Xiamen’s Tourism Industry every year.
Photo of tourist replicating internet celebrity poses in Xiamen. Photos like these are appearing all over social media and tourism websites. Source: Douguo Meishi
Xiamen is filled with photo-opportunities for tourists
In addition to the obvious attractions, Xiamen attracts a large amount of tourists looking to replicate photos taken by internet celebrities. Tourists and millennials alike flock to cafés and boutiques in the city, especially those where a Chinese celebrity once appeared on social media. These otherwise un-noteworthy locales have are appearing all over the city, from Xiamen University to Gulangyu to the city center. These wanghongdian, as they are called by trendy Chinese youth, are a boon to Xiamen’s economy.
89 million number of tourists visit Xiamen each year, with most of those tourists coming from other parts of China. This number has increased by more than 13% from the previous year, as Xiamen becomes an increasingly popular destination. Foreign companies looking to benefit from tourism in Xiamen would do well to keep in mind that tourists go not only to Gulangyu Island, but also to other places in the city and greater Fujian. Foreign companies would do well to note that young tourists are also visiting quaint corners of the city popularized by internet celebrities.
A view of Taiwan’s Shi Islet with the skyline of Xiamen’s skyline in the background. Due to the geographical and cultural proximity of Xiamen to Taiwan, Cross Straits business has been a boon to Xiamen’s economy. Source – Reuters
How Xiamen’s Cross-Straits Business drives economic growth
Visible from Taiwan, Xiamen has long had strong ties with the island of Taiwan. Xiamen has had continuous maritime trade with Taiwan and also witnessed a diaspora of Fujianese to the territory. In addition, Xiamen’s proximity with Kinmen and Lieyu Islands, which are a part of Taiwan, adds to Xiamen’s Cross-Straits Business. The strong connection between the city and Taiwan have had a lasting impact on the economy of Xiamen.
Established in 2015, the China-Taiwan IC Free Trade Zone became a new free-trade business zone with the goal of increasing business between Xiamen and Taiwan. The zone. Companies that set up in the zone have access to a wide range of incentives. A year before in 2014, there were a reported 4,300 companies started by Taiwanese entrepreneurs in Xiamen. Besides the free-trade zone, Xiamen also holds a yearly business conference that specifically targets Taiwanese entrepreneurs. In 2018, the Straits Forum attracted more than 10,000 people, the largest number in many years.
A connection to Taiwan
In addition, the city of Xiamen as well as the province of Fujian offer special incentives to Taiwanese entrepreneurs looking to set up shop in the city. These range from recognition of vocational certificates to living stipends. In addition, subsidies have been offered to Taiwanese entrepreneurs with higher education. These range from subsidies for those with masters degrees to subsidies for on-site job training.
Foreign companies can get a slice of the pie by paying attention to what kinds of Taiwanese businesses are lured in by Xiamen’s generous policies. In addition, foreign companies would do well to watch trends in the movement of Xiamen’s diaspora in Taiwan, some of whom have returned to the island.
Container ships being unloaded in the port of Xiamen, which has grown significantly in recent years to become one of the busiest in the world. The economy of Xiamen has benefitted from the city’s role as an international shipping port throughout the city’s history. Source – China Daily
Takeaways for Foreign Companies watching Xiamen’s Economy
Cities along China’s southeast seaboard provide many opportunities for foreign companies, but few offer as many advantages as Xiamen. From its long history as an international seaport to its strategic location on the southeast coast of China, Xiamen’s economy has a lot to offer foreign companies.
When considering Xiamen as a possible city of business, foreign companies should keep in mind Xiamen’s pivotal place within Fujian’s Economy as well as how the economics of urbanization have created a large metropolitan region surrounding Xiamen. In addition, companies should remember how Xiamen’s Aviation Industry, Xiamen’s Logistics Industry and Xiamen’s High-tech Manufacturing Industry are regional leaders in their respective fields. Companies also must not underestimate the domestic power of tourism in Xiamen and how it is boosting profits across the city and region. Finally, foreign companies must understand how cross-straits business ties and the Fujian Diaspora in Taiwan continue to benefit the economy of Xiamen.