China Market Guide

(Zhejiang Province)

(1) General Background

Hangzhou is the capital of Zhejiang province, which lies 180 kilometers on the southwest of Shanghai. It covers a total area of 16,596 square kilometers, with a population of 6.29 million as at the end of 2001.
Hangzhou is the largest economy, in terms of GDP, in Zhejiang. From 1995 to 2002, its economy grew steadily at an average annual rate of 12.1%. In 2002, Hangzhou's GDP reached RMB 178 billion, and per capita GDP reached RMB 28,150, the highest among all cities in Zhejiang province. In the first nine months of 2003, GDP grew by 14.3% while gross industrial output increased by 31.8% in the first eleven months.

(2) Industries

Hangzhou has a strong manufacturing sector, but the relative share of the service sector is increasing at faster pace in recent years.

Hangzhou is the largest industrial center in Zhejiang province, with a total of 65,000 industrial enterprises. Its industrial output rose by 25% to RMB 240 billion in 2002. The major industries in Hangzhou are textiles, electronic & telecommunications, machinery and beverages. Some new industries including high-tech industry, chemical processing and medicine industry are also developing in a fast pace in Hangzhou city.

Hangzhou has long established itself as the home of silk production. It has approximately 300 silk production enterprises at present, leading the country in terms of the number of factories. In 2002, Hangzhou's silk industry has an annual gross output of 2,246 tons (7% of Zhejiang Province), an increase of 14% over the previous year.

Boosted by its textile and silk industries, Hangzhou has developed a strong garment industry and is named the "city of women's wear". Hangzhou government has been putting a lot of effort to establish Hangzhou as a national design, manufacturing and trading center for women's wear. At end-2002, there were a total of 2,456 women's wear manufacturing enterprises in Hangzhou, with an annual output of about RMB 9 billion. Apart from the massive scale of production, Hangzhou has some 260 brands of women's wear, of which some have already established themselves as famous national brands. In general, Hangzhou's women's wear has succeeded in distinguishing itself by its simple and college-look style.

Zhejiang University of Science and Technology and Zhejiang Institute of Science and Technology in Hangzhou are first-class training institutes for fashion designers, contributing to a concentration of young professional fashion designers in Hangzhou. The majority of Hangzhou's women's wear manufacturers are private enterprise, some of which are operated by these young designers producing clothes of their own designs. This allows flexible management and operation to follow the fashion trends closely.

Apart from its garment and textile industries, Hangzhou also has a strong IT sector, especially in the area of software development. Hangzhou High Technology Development Zone is one of the 53 national high-tech development zones in the Chinese mainland, with a total of 1,200 high-tech enterprises located there. The output of IT products in the development zone accounted for one-third of that of the whole Zhejiang province. Sales revenue resulting from software production and related services in the development zone amounted to RMB 4 billion in 2002, an increase of 35% over the previous year, which ranked the fourth in the Chinese mainland after Beijing, Shenzhen and Shanghai.

The development of textile CAD software, securities and financial software and industrial automation control software is particularly strong in Hangzhou High Technology Development Zone, which enjoyed relatively high market shares in the mainland market. For example, Sing Lee Software, Hangzhou Sunyard System Engineering and Handsome Electronics altogether accounted for 70% of the total market of securities and financial software. Similarly, Echo CAD software for garment enterprises achieved a market share of 30%, ranked the second in the Chinese mainland.

In view of the high growth potential, international IT giants have signed up cooperation agreements with Hangzhou High Technology Development Zone to develop various types of software and its related services. For example, the US Microsoft tried to penetrate the China market by developing its information services platforms in collaboration with the Hangzhou High Technology Development Zone. Front Range Solutions has also joined hand with the development zone to develop Customer Relationship Management (CRM) software with an invested capital exceeding US$ 10 million.

(3) Consumer Market

Hangzhou has a robust retail market. In 2002, Hangzhou's total retail sales of consumer goods increased 14% to RMB 52 billion, the largest among all cities in the Zhejiang province. In the first eleven months of 2003, retail sales increased by 11.8% despite the impact of SARS epidemic.

Among various types of retail outlets, chain stores are developing at a fast pace in recent years. In 2002, sales at chain stores amounted to RMB 6.1 billion, an increase of 57% over the previous year, and accounted for some 11% of Hangzhou's total retail sales value. In the first half of 2003, sales of chain stores grew by 57.7%. Major chain stores in Hangzhou include Lianhua, Hualian, Hymart, Metro, and Lotus etc.

Hangzhou is also a key distribution center of consumer products in the region. By the end of 2001, there were 696 commodity markets or wholesale marts, trading different kinds of consumer products and industrial goods. Total transaction of all markets amounted to RMB 71.5 billion in 2001, an increase of 11.7% over the previous year. Among all commodity markets in Hangzhou, 64 had an annual transaction of over RMB 100 million, of which 13 had an annual transaction exceeding RMB 1 billion.

(4) Foreign Trade

Hangzhou's total exports and imports amounted to US$13.1 billion in 2002. Hangzhou has a relatively external oriented economy, the ratio of foreign trade to GDP reached 61% in 2002.

Exports grew by 15.1% to US$8.5 billion in 2002 and increased by 29% in the first eleven months of 2003. Major exports items included electronics, high-tech products, garment and clothing accessories, textiles, silk, etc. Major exports markets were the US, Japan, Hong Kong, Germany, the UK, the Netherlands, Italy, Korea and France. Imports grew by 18.5% to US$4.6 billion in 2002.

Hangzhou received an accumulated US$4.6 billion of actual foreign direct investment as at the end of 2002. Although the majority of foreign investment goes to the manufacturing industry, foreign investment in Hangzhou have also entered into various aspects of trades such as agriculture, transportation, energy, real estate development, tourism, infrastructure, etc. In the first eleven months of 2003, contracted and utilized FDI increased by 90.5% and 50.3% respectively.

Major sources of foreign investment in Hangzhou include Hong Kong, Taiwan, the US, Japan, Singapore, the UK and France. World famous multinational corporations that have significant investment in Hangzhou include the US General Motors, Merck, Motorola; German Bosch, Siemens; French Liquid-Air; Japanese Panasonic, and Toshiba, etc.

Foreign-invested enterprises (FIEs) are playing an important role in Hangzhou's economy. FIEs accounted for 26% of Hangzhou's gross industrial output and 31% of exports in 2002.