Chongqing: Taming Southwest Wilderness

chongqingcitypicIn a densely populated but scenic region of Southwest China, generous government investment is transforming the bustling city of Chongqing into an economic dynamo

By Maurits Elen

Besides astonishing natural scenery of weathered karst hills, deep gorges and mountain landscapes, Chongqing is increasingly known for its roaring economic expansion. According to Philip Wu, Managing Director of property consultant CBRE Western China, Chongqing’s GDP reached some Rmb1.4 trillion in 2014, up 10.9% year-on-year, making it the sixth largest economy on the Mainland. Even more striking, Chongqing is now China’s fastest growing city.

Traditionally an industrial city with the pillars of heavy industries and manufacturing, Chongqing’s economic profile is rapidly maturing. At the behest of the government, large-scale infrastructure investments are steaming the city’s transportation veins open. “As highways and high-speed railways are constructed, international routes open, and convention centers are built, Chongqing’s business environment is charting a new chapter of economic significance,” remarks Jerry Miao, General Manager of the city’s five star Marriot Hotel.

Chongqing’s new chapter may entail the transformation of the city into a prominent commercial center and logistics hub – but not just yet. Wayne Huang, General Manager of Operations, China at Goodman, an Australian industrial property group, notes that, “While progress has been made, the city’s transport infrastructure is far from perfect and development must continue for some time to come.”

New Chapter
The need for continued infrastructure development may not be an issue in the short-term. Chongqing’s recent development is part of the attraction for some of those living and doing business there. Larry Li, Associate Director of recruitment firm Robert Walters, believes some expats are attracted to the cultural background, benign environment and slower pace of life in West China. More broadly, an increase in opportunities is one of the key reasons why more job seekers are looking at cities such as Chongqing and Chengdu, in lieu of Shanghai or Beijing. “As operating costs surge in southern cities, more companies are moving plants to cities in the West,” Li remarks. “We see an increase in the number of shared service centers in West China, especially for the HR and finance functions, as salaries are still relatively low there.”

It is in this direction that Chongqing’s economic resurgence can be understood, as not long ago the city toiled in the shadow of sophisticated coastal manufacturing areas, like Shanghai. Since China initiated its “Go West” development strategy, aimed at spreading prosperity to less developed hinterland provinces, wide-scale infrastructure projects and economic incentives were put in place to woo business. This, in combination with relatively low wages and production costs, has buoyed Chongqing’s overall growth story.

“The development so far has been impressive,” says Christian Haug, Managing Director of Lufthansa Cargo North & Central China, noting that Chongqing’s potential remains huge, with the manufacturing industry providing a solid economic foundation. Haug adds Chongqing’s large population of 30 million, due to the city’s staggering urbanization rate, serves both sides of the chasm. Not only is there a sufficient pool of cheap labour, but also there is a huge consumer base, a key to the city’s further consolidation as a major commercial center.

Commercial activity is swiftly picking up steam, as is visible through the growth of the commercial property market. According to property consultant CBRE, office development caught up quickly with stock mounting to 3.47 million sq. m. in H1 2015, the sixth largest property market on the Mainland. The Jiefangbei district enhanced its role as the central business district (CBD), with multinationals gravitating to newly completed premium office buildings. “Jiangbeizui is positioned as a financial center in inland China,” says Wu, “and a number of banks and insurance companies have set up offices in the area.” Wu explains that as the largest economy in Central and Western China, the tertiary industry of Chongqing has improved remarkably with the aim of becoming the region’s financial center. Accompanied by the “One Belt, One Road” strategy, and the support of rising export processing and offshore settlement business, Chongqing has attracted financial operating offices, financial settlement centers and back-office service centers. By H1 2015, 17 foreign banks set up offices in Chongqing, which marks the largest presence in Central and Western China.

Buzzing Activity
Furthermore, commercial banks added momentum to demand in Chongqing’s office market. Some domestic banks acquired or leased large-size office space in prime office sub-markets, a demand driver for the leasing and sales markets. CBRE expects a total of 600 finance firms to set up offices in the CBD in 2015. “Firms include names such as Huaxia Bank, PICC, China Development Bank, Bank of Communications, and China CITIC Bank. According to the local government’s plan, 80% of the financial firms will be located in Jiangbeizui by 2017,” notes Wu. “Due to limited available land, many high-rise buildings have sprouted up, and the completion of quality buildings should trigger relocation or upgrade demand from domestic and foreign occupiers.”

CBRE's Philip Wu looks to the suburban market for future growth in the city.
CBRE’s Philip Wu looks to the suburban
market for future growth in the city.

In the retail market, the city harbours two prime markets: Jiangbeizui and Guanyinqiao. Restricted by geographic isolation, Chongqing has formed a multi-core commercial market rather than a hub-and-spoke type, making for a broader coverage for retail sub-markets. The retail landscape changed rapidly upon the arrival of international retailers, with more mall developers expanding into suburban areas. Stock topped 3.98 million sq. m. in H1 2015 and retail sales of eight major sub-markets hit Rmb84.7 billion, up 14.5% year-on-year. Meanwhile, a number of international brands such as Prada, Louis Vuitton, Apple and Forever 21 debuted in Chongqing, and opened their first stores in the prime sub-markets of China.

One of the main thrusts behind the development of multi-region commercial centers is Chongqing’s high urbanization rate, which rose from 51.6% in 2009 to 59.6% in 2014. “Against the backdrop of a large population and more mature transport system, the city’s landscape has extended into suburban areas,” Wu says, further noting that several tertiary sectors have been pushed for growth. “They include cross-border e-commerce, bonded trade, cloud computing and cross border settlement and financing. We strongly believe these industries will be most vibrant in pushing forward the office and retail markets.”

Speed Bumps
“There are several reasons behind why Chongqing has the potential to become a logistics hub,” notes Huang of Goodman, which recently opened the Chongqing Airport Logistics Park, thereby providing an additional 190,000 sq. m. of logistics space to the city.

First, railway transportation is cost-efficient, environmentally friendly, punctual and fast. For that reason Chongqing is one of China’s 12 railway container hubs. Second, Chongqing is a pivotal station along the Sichuan-Xinjiang-Europe Railway, which trails across Asia to Europe. Third, Chongqing is a mega city, China’s most populated, with the highest GDP growth rate among all cities. This gives secondary and tertiary industries substantial growth potential.

Thomas Lindy Sorensen of DB Schenker believes China’s Silk Road initiative will further strengthen Chongqing’s logistic capabilities
Thomas Lindy Sorensen of DB Schenker believes China’s Silk Road initiative will further strengthen Chongqing’s logistic capabilities

A final reason is added by Thomas Lindy Sorensen, Managing Director of logistics firm DB Schenker, who states China’s Silk Road initiative will further strengthen Chongqing’s logistic capabilities, “It is the less developed Western provinces that will benefit from this initiative. Many cities are isolated, owing to a limited infrastructure set-up. Thanks to the program, they will get enhanced access to the national and global market. Most goods from West China will be funneled via Chongqing, the region’s main gateway.”

According to Sorensen, Chongqing continues to invest in different modes of transport. While traditionally the majority of trade products from and to Chongqing have been transported via the Yangtze River, more and more freight moves overland by truck and railways. Rail freight, for example, has seen significant growth in recent years – mainly due to heavy investments and subsidies by the government – and the connection to Europe and the Commonwealth of Independent States (CIS) countries is used by a continuously growing number of customers.

Sorensen adds that Chongqing has gained more importance as an airfreight hub, offering more direct f lights to national destinations, Southeast Asia, the Middle East, Europe and the United States. “Considering that Chongqing’s manufacturing base is moving up the value chain, going more into high-end technology products, the focus is increasingly on air and rail freight as the transport mode to shorten the supply chain for high value-added goods.”

Air Cargo Expansion
According to Lufthansa’s Haug, the growing speed of Chongqing’s air cargo market is incredible. In 2014, Chongqing airport’s total cargo output was over 300,000 tons, representing a 7.9% increase. International cargo increased by 13.6%, totaling 100,000 tons. Airport passenger throughput increased by 15.8% in 2014 to 29.26 million, ranking number eight among China’s top ten airports.

For Lufthansa Cargo, Chongqing is the most challenging market of their China freighter network, although there is a strong belief that serving the market is essential to development. “Besides IT and automotive, there are not many stable commodities which demand airfreight services in this market,” says Haug. “We face traffic imbalances and the exports are quite stable, although we face difficulties to find sufficient inbound loads. Last but not least, the business to the US and India is growing faster compared to our core business to Europe.”

Among industry experts, there is a consensus that Chongqing’s infrastructure faces a string of bottlenecks. “Connectivity between other, smaller cities in Western China and Chongqing needs improvement,” adds Sorensen. “Rugged roads and heavy traffic congestion cause longer transit times and increased logistics costs. Yet, this is likely to be improved by the One Belt, One Road initiative.”

Another area of improvement is in the gap between available “hard” and “soft” (“smart logistics”) infrastructure. Chongqing’s has focused on the development of ports, distribution centers, roads and railways (hard infrastructure) to offer optimized supply chain solutions to targeted industrial sectors and attract investments in the manufacturing industry. At the same time “smart logistics”, including advanced IT solutions and human resources, lags behind. There is room for further improvement in areas such as customs operation, IT infrastructure and human skills. Closing the gap between hard and soft infrastructure can optimize the supply chain efficiency in Chongqing and bring it closer to being a “real” logistics hub for Western China.

To grow into the role of a hub and manage the increasing volume of cargo, Chongqing needs to establish better national and global connectivity in terms of routes and frequency for all transport modes. For example, there are already regular rail freight departures from Chongqing to Europe in place, but not yet for eastbound trains coming from Europe to Chongqing. The connectivity between Chongqing and Southeast Asian countries by road has not yet reached its potential in terms of capacity utilisation. Lastly, improving the lacking transit processes should make it more attractive to channel goods via Chongqing’s highly developed interconnected transport systems.

Han Hospitality

Local culture and spicy food are two important reasons why nearly 350 million tourists visited Chongqing last year.
Local culture and spicy food are two important reasons why nearly 350 million tourists visited Chongqing last year.

“As Chongqing is set to economically become the leading city of West China, there is a developmental focus on infrastructure as well as the city’s landscape design. This has made it more convenient to commute and added glamour to the city,” says David Liu, General Manager of Hyatt Regency in Chongqing. “First time visitors are amazed by the exceptional landscape, as the city sits on a bed of small green mountains and is situated at the intersection of the Jialing and Yangtze rivers. Modern high-rise are elegantly contrasted by traditional buildings, and when going for a stroll you can smell the spicy food in the air while seeing hot pot restaurants everywhere.”

Liu points to a recent report that ranked Chongqing as China’s most attractive tourism city, surpassing Shanghai, Beijing and Chengdu. In fact, Chongqing had everyone surprised last year by hosting over 349 million visitors.

According to Mariott’s Miao, the city offers history and modernity; the latter exemplified by buzzing city lights during the night, “History savvy visitors are intrigued by the historic city of Chaotianmen, Ciqikou Ancient Town and Hongya Cave. They see a myriad of ancient buildings and docks remaining on the scene, all in unique traditional character. One may find peace in the serenity of Chongqing’s natural hotspots, such as Three Gorges or Wulong and Dazu Rock Carvings. One of the most significant monuments is the Chongqing People’s Liberation Monument, built to commemorate the victory over the Japanese during WWII.”

Dany Luetzel, General Manager of Kempinski Hotel in Chongqing, notes demand for hotel rooms has not kept up with excess supply, making Chongqing’s hotel industry one of the country’s most competitive. “Despite growing attention, demand is not here yet,” notes Luetzel. “According to TripAdvisor, we have more than 1700 hotels. Some 95% of hoteliers are of Chinese descent. International society has increased with new firms settling down, but there are only two international flights, a poor record compared to Chengdu, which has more routes. International travellers are not aware of what Chongqing can offer besides the Yangtze River cruise, which is dominated by the domestic and local Chinese travelers.”

Promising Outlook

Kempinski's Dany Luetzel believes the city has much to offer tourists.
Kempinski’s Dany Luetzel believes the city has much to offer tourists.

Luetzel has a strong belief that Chongqing’s outlook is promising, with the city having much to offer international tourists. In his view, there are two developments that can spur tourism and combat the hotel oversupply issue. A new railway station will lower travel time from Chengdu to Chongqing from two hours to one and a new airport will open next year. Chongqing will then welcome 70 million tourists via the skies each year, compared to the 36 million at present. Luetzel concludes, “At the end of the day, we have to understand that on an international level Chongqing is not as famous as Chengdu, Shanghai or Beijing – just yet.”


A version of this article appeared in print on November 1, 2015, on page 40-43 of the Shanghai Business Review. Click for PDF

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Shanghai Business Review is the leading English language website and print magazine for business leaders conducting business in China.

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