China Consumer


Land costs explain factory closures in Shanghai


It is no coincidence that Nestlé and Danone have both singled out their Shanghai operations for their recent factory cutbacks. And as it turns out, there is probably a real estate angle to the decision. “There’s almost no suitable land [in Shanghai],” says Gao Jianfeng, a management consultant with BOGO Consultants, who advises foreign clients on property in Shanghai. “A lot of the land seems like wasteland, but, when you make enquiries, you find that it all belongs to someone.” (Businesses are not allowed to actually buy land in China; local governments only sell long-term leases, often to businesses from Zhejiang, Jiangsu and the Yangtze River Delta.)

The lack of suitable land for factories is a headache for businesses located in the city. Those determined to operate there must either settle for one of the smaller plots still available or rent their land from another business already holding the leasehold, says 21CN Business Herald.

“The lack of land makes it hard for Nestlé and Danone to build new plants and expand their production capacity,” says Gao.

Other food manufacturers have also chosen to move to inland locations like Zhenjiang in Zhejiang province. More often than not, these cities are much more inclined to of incentives to lure foreign investment. One manager at a foreign logistics firm told the Economic Observer that the inland cities are much more flexible in hosting new businesses. “In the past, the Shanghai government would offer tax rebates and other incentives to attract businesses. But that’s all gone. Meanwhile, the cost of land is increasing so the cost of operating in Shanghai is higher than ever before,” the manager complained. “Inland cities, on the other hand, offer everything from tax breaks to free land to lure foreign investments!”

“Shanghai is no longer suitable for traditional manufacturing,” says management consultant Gao.

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