Changes in Urban Investment Environment of China

By Audrey Guo

Tianyancha recently issued “Develop- ment Report on Chinas Urban Investment Environment”， which indicates that in recent years the number of corporate legal personnel in China has continued to rise steadily， and that the private economy had an improved operation quality and efficiency. In 2011， there were more than 12 million corporate legal personnel in China， and by 2019， this number exceeded 25 million. Meanwhile， 74.9% of legal personnel were from the private economy in China， up from 43.8% in 2011.

As China maintained steady economic growth and the number of enterprises in China is growing rapidly， these have become the cornerstone of the rapidly developing corporate service market in China. In the last decade， the proportion of corporate service-related enterprises in China has increased by 2.97%， topping all other sectors.

As “smart” technologies such as cloud com- puting， the Internet of Things， smart agriculture， and smart medical care get popular， the digital economy including artificial intelligence and industrial Internet of China is booming， and boosts Chinas high-quality development of intelligent manufacturing industry， by integrating with and upgrading traditional manufacturing industries.

China has a population of 1.4 billion， including a labor force of 900 million， a middle-income population of more than 400 million， and more than 100 million market entities， which together form a super-sized market. In the future， the investment environment in China will achieve high-quality development， under the guidance of new development concepts.

In the new development pattern， promoting consumption and stimulating domestic demand will become a focus， and consumption will be the major stimulus， because， as was reflected in the data from Tianyancha， in 2020， consumption and living-related companies accounted for nearly 30% of total companies， ranking first.

Inter-industry capital flow： mutual investment in the same industry is becoming obvious

There are inter-industry capital flows among 28 industries， with more and more enterprises establishing close relations， especially in the financial industry. According to data from Tianyancha， in the decade between 2011 and 2020， mutual investment between financial-related enterprises made up to 24% of the total investment in this industry. In addition， industries like corporate services， real estate， consumption andliving， materials， and medical and health care all had intra-industrial investment ratio topping 10%.

Taking agriculture as an example， according to Tianyancha， investment from agricultural-related enterprises basically covered all industries including itself， while the agricultural sector also received investment from other 27 industries， such as VR and AR， which can support routine agricultural work. On the 8th Heilongjiang Green Food Industry Expo held in Harbin， there were demonstrations of virtual farms and virtual agricultural management systems based on VR.

Some upstream and downstream industries along the industrial chain made investments. According to Tianyancha， from 2011 to 2020， enterprises from related industries such as environmental protection， materials， chemicals， and household supplies， contributed 8% of total investment in the real estate industry.

The same was true for enterprises along the hardware and manufacturing industry chain. According to Tianyancha， in last decade between 2011 and 2020， robot， drone and artificial intelligence companies contributed 13.3%， 12.1% and 11.8% of the total investment in the above two basic industries respectively.

From the total corporate investment of 36 cities in last ten years， it can be seen that the top ten active investment activities mainly occur in the four industries of corporate services， finance， entertainment and media， and consumption and living. Among them， two industries， corporate services and consumption living， received 16% and 11.2% of the total incoming investment respectively.

In 2014， enterprises in the corporate service industry began to be favored by investors， and both the number of financing events and the amount of investment kept soaring till 2015， establishing various sectors of corporate services.

According to Tianyancha， by 2011 the number of registered enterprises related to corporate services in China was more than 4.45 million， and by 2020 this number rose to 28.87 million. Meanwhile， the corporate service industry also witnessed the largest increase last decade， as it was favored by investors.

The new infrastructure industry sees accelerated development

According to Tianyancha， from 2011 to 2020， the number of enterprises in 36 key Chinese cities increased by as high as 259% in average. In the last decade， the number of enterprises in intelligent manufacturing industries such as artificial intelligence， robots， and drones， had a compound annual growth rate of more than 30%. The number of artificial intelligence-related companies rose by 31.76%. Since 2020， favorable policies for new infrastructure have been issued and carried out which will further boost the market for corporate services， including artificial intelligence， big data， 5G， and industrial Internet.

In recent years， besides traditional financial enterprises， many private companies entered this market. Thanks to technology， demand， policy and other encouraging factors， financial technology has been advancing rapidly in China in recent years， and now it has taken a lead globally. According to Tianyancha， the total number of registered financial-related companies in China by 2011 was more than 1.51 million， which quadrupled to 6.89 million by 2020.

Both the latest 14th Five-Year Plan and the Long-range Objectives throughthe Year 2035 clearly stated that China should aim to establish a financial system to effectively support the real economy， improve financial technology， and enhance financial inclusiveness. The integration between technology and finance deepens daily， and an era of nationwide financial management is approaching. This will bring the financial industry more attention from the capital market.

Over the past ten years， as the Internet got popular， two-dimensional animations， subcultures， the Internet celebrity economy， and mobile live broadcasts as well as short videos gradually occupied peoples social media time. Various sub-sectors of the cultural and entertainment industry flourished and developed rapidly， too.

In 2020， due to the need of pandemic prevention and control， citizens had to spend days and weeks， or even months at home， and a stayat-home economy emerged as required， leading to spikes in online shopping in China， while the new occupation. The e-sports industry also ushered in a good time， and numerous cities have introduced policies to grasp this opportunity to construct a hub of e-sports.

According to Tianyancha， by the end of 2020， there were more than 16，000 newly registered enterprises engaged in Internet celebrities， e-sports， online consumption and so on in China， an increase of 83.1% from a year ago.

China has a super-large market， the largest middle-income population in the world， and a consumption upgrade in China is still under way. All these factors together make it the second largest consumer market. Consumption plays a fundamental role in economic development and has been the first driving force for economic growth in China for years.

Since the pandemic has effectively been brought under control， and pandemic prevention and control policies have become more flexible， offline entertainment activities are gradually recovering. For example， theatres and the movie market will become popular again.

The number of pet owners in China is growing quickly. In 2019， the urban pet market（dogs and cats） in China reached a total value of RMB 202.4 billion. As the pet market becomes more and more specialized and refines itself， related industries are booming too， reflecting huge market potential. According to Tianyancha， nearly 83.9% of pet service-related companies in China were established within the last five years.

City clusters have an obvious investment agglomeration effect

According to the report， there was anobvious positive correlation between the investments from and into enterprises in 36 cities， and the cities with active outflow investments that are often are hot spots for capitals.

Based on data from Tianyancha， Shenzhen， Shanghai， and Beijing were the top three destinations for investments， and Nanjing came fourth， with outstanding performance and more investment activities than other cities. Guangzhou and Hangzhou with strong capital vitality ranked 5th and 6th.

According to Tianyancha， during the five years from 2016 to 2020， more than 12% of new enterprises registered in Nanjing every year， which was higher than that in Shenzhen， Shanghai and Beijing in the last three years.

On February 23， 2021， the Nanjing municipal government released the latest 100 Measures to Optimize the Business Environment in Nanjing （2021 Edition）. It was the third time for Nanjing to renew such measures， of which 8 entries were included that were first to be implemented in China.

Urban agglomerations or city clusters can have great agglomeration effects. Now its aconsensus in China that regional cooperation and interconnection is a need to realize industrial upgrade and innovation， and provide steady policy support. China is now building a new， regionally coordinated development pattern.

The 11th Five-Year Plan made it a national strategy for the first time to build city clusters， and planned to promote urbanization mainly through urban agglomerations.

The 12th and 13th Five-Year Plans had clear layouts for urban agglomerations， namely to base large cities and radiate out from these to medium and smaller cities and towns. The construction of city agglomerations in China is accelerating.

Taking the five urban agglomerations of Beijing-Tianjin-Hebei， the Yangtze River Delta， the Pearl River Delta， Chengdu-Chongqing and the middle reaches of the Yangtze River as examples， these city clusters have a visible effect on attracting investments. According to Tianyancha， in last ten years， more than 60% of investments made by enterprises in the five major urban agglomerations flowed into local cities， and more than 50% of investment receivedcame from enterprises of the same city agglomerations.

In 2019， the Communist Party of China Central Committee and the State Council jointly issued an outline of the integrated regional development of the Yangtze River Delta. As one of Chinas most economically active， open and innovative regions， the Yangtze River Delta boasts strategic significance in the countrys modernization and further opening-up.

According to Tianyancha， in last decade from 2011 to 2020， up to 82% of investmentsby companies in the Yangtze River Delta were for enterprises in the same region， and up to 65.9% of investments for enterprises in the Yangtze River Delta city clusters were carried out by investors of the same region， both ranking first among the five major urban agglomerations.

Promoting the integrated development of the Yangtze River Delta， enhancing innovation capacity and competitiveness of enterprises in this region， and improving economic agglomeration， regional connectivity， and policy coordination efficiency， it is of great significance to realizing high-quality economic development and building a modern economic system in China. According to Tianyancha， in 2020， nearly 5.7 million new businesses were registered in cities in the Yangtze River Delta， nearly four times that of 2011.

Emerging industries bring vitality into urban development

Of the 36 cities， more than half of the megacities hadmore newly registered enterprises than the average， including Xian， Zhengzhou， Chengdu， Jinan and Qingdao. Type II cities recorded the largest growth， averaging 305%. Among them， Lhasa ranked first， with 604% more new businesses registered in 2020 compared to a year ago， and Guiyang ranked second （409%）， reflecting the great potential for development there.

To achieve sustainable development and prosperity， cities need industrial support， while emerging industries can bring new vitality for cities. Insisting on industry-oriented cities may develop stronger core competitiveness.

According to Tianyancha， in terms of the distribution of enterprises from 28 industries in 36 cities， four cities of Beijing， Shanghai， Guangzhou and Shenzhen took the lead. Shanghai leads in industries like corporate services， finance， logistics and so on， Beijing leads in entertainment， media， healthcare， education， Guangzhou in consumption and living products， drones， while Shenzhen in artificial intelligence and hardware.

In Beijing， the entertainment and media industry developed well in the past decade. According to Tianyancha， the number of enterprises related to these industries in Beijing jumped from nearly 290，000 in 2011 to more than 960，000 in 2020， with an average annual increase of over 67，000.

As an international financial center， the financial industry in Shanghai is booming. According to Tianyancha， the number of financial-related enterprises in Shanghai rose from nearly 190，000 in 2011 to more than 830，000 in 2020， up by more than 64，000 every year on average.

From a commercial capital to an international trade center， consumer goods always play an important role in shaping Guangzhou. According to Tianyancha， in 2020， the number of consumption-related enterprises in Guangzhou reached nearly 2.5 million， meaning nearly 1.73 million newly registered enterprises on average per year.

In recent years， the artificial intelligence industry in Shenzhen developed rapidly， attracting a large number of investors. According to Tianyancha， the number of artificial intelligence-related companies in Shenzhen reached more than 67，000 by 2020， up from 2，000 in 2011， marking an average annual increase of over 6，000.

According to Tianyancha， there are now more than 640，000 enterprises engaged in enterprise services in Chengdu， less than that in Beijing， Shanghai， Guangzhou and Shenzhen. In 2018，over 140，000 new corporate service enterprises were registered， marking the largest growth in recent years.

Responding to the need for industrial transformation， taking the opportunity for integrated circuit industry brought by national favorable policies， Xiamen now has a booming integrated circuit industry. According to Tianyancha， there are nearly 30，000 IC-related companies in Xiamen， ranking third among 36 cities， second only to Shenzhen and Guangzhou.

As one of the cities in China that first developed e-sports， Xian promoted the development of this industry by encouraging policies， holding high-end events， constructing e-sports bases， and training e-sports talent. In 2021， the 14th National Games will be held in Xian. As the National Games of China， Asian Cup and many other competitions are held in this historical city， Xian will ushers in a golden period for the sports industry. According to Tianyancha， there are now more than 300，000 sports-related companies in Xian， ranking second among 36 cities， second only to Beijing.

In addition， benefits from the strategy of new patterns for advancing western development， Chongqing， Chengdu， and Xian will have a policy basis for the coordinated development of the sports industry in Western China.