I Heart Dalian, China

Excellent Wall Street Journal story on Dalian, entitled, "China's Second-Tier Cities Catch Investors' Eyes: Dalian Wins Intel Chip Plant With Cheaper Labor, Fresh Air." [subscription may be required].

The article starts out by describing Dalian as a northern port city formerly known mostly for its spectacular seaside scenery -- and rust-belt industries, with about 200,000 workers a year losing their jobs. But Dalian certainly appears to be hot right now.

Intel just broke ground here on its $2.5 billion factory that will employ 1,200 and make chips for domestic use and export. It is Intel's first such plant in a developing country. Last week, Dalian hosted the World Economic Forum.

The article talks about how China's early winners like Beijing, Shanghai and the Guangzhou-Shenzhen area "offered a steady stream of qualified employees, relatively good transportation links and more experience in dealing with foreigners" but are now facing eroding appeal:

Labor costs have risen, local officials are more jaded about investment, and transportation problems are sometimes staggering. Cities like Beijing are so congested that executives sometimes can't manage more than two or three appointments a day.

These problems -- plus efforts by smaller cities to make themselves more attractive -- have caused a shift in some investors' attitudes. Cities that most foreigners didn't know existed have been gaining ground.

Dalian is at the "forefront" of this, "with ambitions of supplanting India's Bangalore as an outsourcing and information-technology center." Dalian has 20 postsecondary institutes of learning, many in technology and engineering and it has been making changes to appeal to foreign business:

Dalian added to the European-style broad boulevards and public squares left by Russian colonizers. The city planted trees and built huge traffic circles to ease congestion and showcase public art. The city also sought to exploit its Japanese past, in part by making contacts with Japanese businesses.

Before choosing Dalian, Intel looked at Shanghai, where it already has an assembly plant and research center and where it would have been easy for it to find suppliers. Shanghai's extensive expatriate population also would have meant Intel would not need "to worry about services for the roughly 400 foreigners it would need to bring in to set up the factory." Intel ended up choosing Dalian because its local universities guaranteed a steady flow of workers, its "relative lack of other foreign investors meant workers wouldn't be as likely to jump to another company," and its "city officials were sophisticated and energetic." Its environment also played a big part:

For Intel and other information-technology companies, another significant advantage was the city's environment. Unlike smoggy Beijing, where blue skies have become a rarity, Dalian has sea breezes that guarantee it relatively fresh air. That will make it easier for Intel to attract expats....

"The downside for Intel was Dalian's lack of amenities for foreign workers. Beijing, Shanghai and other big coastal cities have districts where visitors can get by with English, and many diversions for their trailing spouses."

This article is right to highlight Dalian as a good place for tech companies, but Dalian is more than just that. It is still a big-time maritime center and Russian fishing vessels are more and more often choosing to go there to offload their fish and have their vessels repaired. Its port has a good reputation and last I knew (unlike so many of China's ports) it still had plenty of additional capacity. It is also well located for manufacturing businesses. Dalian does not have the large Western expat community of a Shanghai or Beijing, but I get the sense the community is growing and the city is very open to foreigners.

Now that Intel, Davos, and the WSJ have given Dalian their imprimatur, the sky would appear to be the limit.