Excellent Wall Street Journal story by Ian Johnson on Dalian, entitled, China’s Second-Tier Cities Catch Investors’ Eyes: Dalian Wins Intel Chip Plant With Cheaper Labor, Fresh Air.

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 is hot right now. Intel just broke ground in Dalian 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. And 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.” Dalian’s 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 its expat 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.

Photo of Dan Harris Dan Harris

Dan is a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

He primarily represents companies doing business in emerging market countries, having spent years building and maintaining a global, professional network.  His work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

He was named as one of only three Washington State Amazing Lawyers in International Law, is AV rated by Martindale-Hubbell Law Directory (its highest rating), is rated 10.0 by AVVO.com (also its highest rating), and is a recognized SuperLawyer.

Dan is a frequent writer and public speaker on doing business in Asia and constantly travels between the United States and Asia. He most commonly speaks on China law issues and is the lead writer of the award winning China Law Blog. Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed Dan regarding various aspects of his international law practice.

Dan is licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at his firm, Dan focuses on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.