The once poor center of a mainly rural economy now boasts huge advances in upgrading industries and R D

It came as no surprise when The Economist magazine named five Chinese cities as the fastest-growing metropolitan economies in the world in 2012. What was unexpected was who they were. Not Guangzhou, Shanghai or Chongqing, but places such as Baotou, Anshan and - topping the list - Hefei, the capital of Anhui province.

Much of this success is due to the Hefei Economic and Technology Development Area set up 20 years ago.

Hitachi Construction Machinery from Japan, one of the area's first tenants, set up its China headquarters there, which is rarely seen among multinational companies who usually choose the economic or political center of a country.

Urbanization and industrialization have created several cities in China comparable with Western capitals, but the growing cost of land, heavy traffic and rising labor costs make them less competitive as production bases. Neighboring India and Vietnam are catching up in that respect.

However, China still remains the world's manufacturing hub, and its urbanization drive has created new cities that are eminently suitable for industry transfer. Hefei is one such city.

Eleven years ago, Unilever, one of the world's leading consumer goods suppliers, moved its manufacturing base from Shanghai to HETDA.

Industry sources say Unilever's production costs were cut by at least 40 percent when it moved to Hefei, and this has helped keep its product prices competitive in the Chinese market.

Zeng Xiwen, vice-president of Unilever North Asia, told China Business newspaper how the company came to choose Hefei, even though it considered building its plants in cities that have well-developed economies, such as those in provinces of Zhejiang and Jiangsu near Shanghai.

When Zeng went to Huzhou, in Zhejiang, he was surprised when officials there said that if a large Unilever plant came to the city, dormitories would have to be built for its employees. Later he learned that most of the workers in Huzhou were migrants from Anhui province. Why not site the plant there, he thought.

The Hefei plant has grown into the largest production base for Unilever worldwide, says Harish Manwani, chief operating officer of Unilever.

Unilever has a long history in China. As early as the 1920s, Lever Brothers set up a company producing soaps in Shanghai. Its Lux brand has been a household name since.

But it is only in the past decade that the company has seen its Chinese business boom partly due to the move to Hefei. With raw material and labor costs increasing, other foreign and domestic companies are following suit.

Currently, there are dozens of inland economic and technological development zones in China, with advantages in land and labor, to welcome new companies and those transferring operations.

Hefei's HETDA was opened in 1993 and now ranks 13th among the country's 131 national zones of its kind.

"A solely preferential policy is no longer the magic key for attracting investors," says Yao Weidong, Party chief of HETDA.

In December 2012, LCFC, a joint company of Lenovo and Compal Electronics, was set up in record time in the area. From signing to production, the plant covering an area of 400,000 square meters was completed within 14 months.

Yang Yuanqing, CEO of Lenovo, acknowledged it was "the support of local government that helped create such a miracle".

"Aiming for better development, many investors come to us," says Yao. "If the government is not efficient, the operating cost of enterprises will increase.

"We have made a study on corporate investment behavior. Cost is the major factor affecting investment and it can be divided into two parts: setting up and operation. Wise investors will choose somewhere that is cost-effective in both parts."

Seated in the southern suburbs of Hefei, HETDA is the "bridgehead" of Anhui's opening-up. By the end of 2012, there were 1,275 enterprises in the zone, of which 340 were foreign-funded. Foreign direct investment in the first half of 2013 was $313 million.

Equipment manufacturing, household appliances, motor vehicles and parts and consumer goods are the four main industries represented. Haier, Mitsubishi Heavy Industries, Gree, JAC, Navistar, ABB, NIPRO and Kao are also among those located in the zone.

"HETDA is established on the foundation of large-scale mechanized industry, and consolidated by high-tech industry," Yao says.

In 1995, Hitachi Construction Machinery set up a plant in the zone, with an output of 300 units in the first year.

Although recent years have seen a slowdown in expansion, it remains the highest-performing overseas branch of Hitachi, with an output value of 10.6 billion yuan ($1.74 billion; 1.28 billion euros) in 2012. It is estimated that the value will be more than 20 billion yuan by 2015.

Due to Hitachi's performance, Hefei is now known as the world's largest producer of excavators.

"It is our belief that every company can earn a profit if they come to us," says Yao. And the development of those companies, he adds, should bring benefit to the local economy and people's wellbeing.

"We are quite frank when asked by investors what preferential policies can be offered. We cannot guarantee the most preferential policies or the cheapest prices for certain production factors, but we have every confidence that HETDA is a destination that provides the richest returns to companies."

It is said that Hitachi's success has inspired many Japanese companies to invest in the area. Nine supporting enterprises followed and are now referred to as the Hitachi assembly.

"The management committee of HETDA has been our close cooperation partner, whether in prosperity or hardship," says Xian Feng, vice-president of Hitachi China.

Yao suggests investors come in groups rather than alone. Now that a complete industrial environment is taking shape, it is getting easier for companies to find a chain of partners, suppliers and customers. "This is our greatest strength," he says.

As well as excavators, HETDA is the largest production base in China for forklifts, marine low-speed diesel engines and numerically controlled machine tools.

It is also the first national demonstration base for the home appliances industry. Of every five refrigerators sold in the domestic market, one is made in HETDA.

Since industrial transformation has been a strategic objective for the country in recent years, HETDA has been seizing opportunities brought by this policy. It is also devoted to advanced manufacturing and emerging industries.

But as in any era of change, there have been casualties. Wu Wei, owner of a Hefei toy factory, says the arrival of advanced manufacturing companies has caused a labor shortage in more traditional businesses like his.

"Compared with manual workshops, people prefer to work in factories which are mechanized," Wu says. "Of course, those factories have a better working environment than ours."

Yang Chunhua, an expert from the Ministry of Agriculture, says: "The new generation of migrant workers, born in the 1980s, places greater emphasis on the working environment than on payment. In choosing careers, they prefer decent jobs."

In 2012, about 9.14 million Anhui people migrated to other provinces for work for at least six months. Eighty percent of them work in Zhejiang, Jiangsu and Shanghai, according to the statistics bureau of Anhui province.

Hefei no longer exports so much of its labor, says Wang Shibao, an official from Hefei government, and indeed even needs to supplement its own from neighboring cities such as Fuyang and Lu'an.

Lontium Semiconductor is a rising high-tech company based in HETDA. Its registered capital has risen to 14.9 million yuan from the original 1.5 million yuan in 2006.

"If everything goes smoothly, Lontium's yearly revenue will triple year-on-year in the coming two to three years," says Chen Feng, CEO and president of the company.

Chen, a Chinese-born American, moved back to China in 2006 and started up his own high-tech company with a three-man team.

"I once thought of giving up," says Chen, a former engineer at Intel for 10 years, when he found it hard to recruit qualified employees for his enterprise.

After some sleepless nights, he decided to take graduates from local universities and train them from scratch. As one of China's four science bases, Hefei is home to some renowned research centers and higher-education institutions.

The first three years were extremely hard, Chen says.

"It is almost unavoidable that a high-tech start-up will experience such a period if they are not financially strong, especially in the semiconductor business, where the product cycles are long and the marketing effort is time consuming," he says.

In 2009, government officials at HETDA decided to buy 5 percent of Lontium Semiconductor for 5 million yuan, after investigating Chen's business and determining its future was bright. The venture capital was provided by the local government.

"For high-tech design companies, there is an endless race between our designs and competitors' to meet potential demand," says Chen. "That keeps us inventing and developing new technology."

Local government statistics show that in 2012 high-tech enterprises accounted for 70 percent of the output value of the zone.

"We have always been making efforts in providing a good platform for investors and business-starters," says Party chief Yao, who heads the zone.

In the past two decades, investors from the United States, Britain, Japan, Germany and other countries and regions have invested a total of $3.68 billion in Hefei.

"Overseas enterprises have raised the technical level of industry and accelerated the upgrading of industrial structure, and brought us advanced managerial experience," Yao says.

geman@chinadaily.com.cn