The three capitals of China: which one is right for your Chinese HQ?

Chief Executive, The, Dec, 2004 by Rebecca Fannin

U.S. insurer MetLife set up shop last April in a modern commercial complex in Chaoyang after it received government approval to sell individual life insurance policies in China through a 50-50 joint venture with the state owner of Beijing International Airport. Under current World Trade Organization rules, MetLife can't own a majority stake in the entity. But if and when the rules change, Robin Chi, general manager of the joint venture, wants to be close to the central government decision-makers and insurance regulatory officials.

Chi hired nearly 100 telemarketers and insurance agents last spring, and he expects China to contribute some 5 million of its anticipated 100 million new customers by 2010. Profitability should follow two years later, promises Chi.

Where the People Are

The European conglomerate ABB put its base for ABB China in Beijing's central business district not only for proximity to government decision-makers but also because of access to the right kind of labor. China is seen as a cornerstone of its growth strategy, and hiring and training local talent is key to fulfilling its goals. Chairman and President Peter Leupp says ABB has been adding 1,000 employees annually and out of a total 7,000 staffers, there are only 100 expatriates. "We are earning good money here, and there is no unit anymore that is losing money," says Leupp of the $1.7 billion Chinese entity, now wholly owned by ABB.

The company began investing in China by setting up joint ventures and wholly owned foreign enterprises from 1994 to 1998, and has been building up local sales and distribution channels to take advantage of lower trade duties and increased market opportunities arising from China's entry into the WTO three years ago. One such new opportunity is the Three Gorges Power Project. The firm recently won a $60 million contract to supply power transformers to the huge dam. ABB has a dominant No. 1 or No. 2 position in most of its product lines in China, and most of its products are made with a high percentage of local content, saving import duties and investment dollars.

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As ABB expands, however, it has encountered growing pains in Beijing. Leupp says the company is facing a several-month delay in getting approval to build a new factory on farmland close to the airport. The problem stems from the central government's close control of the ratio of farmland to land used for factories. Leupp expects a decision on the site of the new factory will be reached within a few months, and says he has alternatives in six other Chinese cities. That's the sort of issue that would be difficult to sort out from a Hong Kong headquarters.

Beijing, like its rivals, is home to dozens of high-tech companies, many of them founded by Western-educated and experienced entrepreneurs who have returned to China. Robin Li. CEO of the Chinese search engine company Baidu, put his office in Beijing's northwestern high-tech district, Zhongguaneun, close to China's leading and highly regarded technology schools, Peking University and Tsinghua University, so he can tap young software talent. Li and his staffers have built a Chinese version of Google, and, in fact, Google recently bought a minority stake in Baidu. Microsoft's Chinese headquarters is also located in northwestern Beijing.