Foreign firms look west to boost success

J&J to invest $3b in Xi'an drug plant

Healthcare giant Johnson & Johnson Services Inc's plan to invest $3 billion in a new production base in Xi'an, the capital of Shaanxi province, is just the latest move among big international companies to expand in China's vast northwest region.

A unit of the United States-based J&J - Xi'an-Janssen Pharmaceutical Ltd - announced in mid-November the project in the Xi'an High-Tech Industries Development Zone. It is J&J's largest single investment in China.

The project will include a 267,000-square-meter building, the largest single such structure among bio-pharmaceutical enterprises in China.

Analysts said that foreign companies come to tap into the natural and labor resources of China's western regions. In the process, they contribute to local growth, which is line with the Chinese central government's goal of developing the western regions into a new growth engine for national economy.

"For 28 years, XJP's Xi'an site has delivered high-quality products to patients in China. This next-generation, high-tech facility will greatly increase our ability to deliver our innovative products to patients," said Jesse Wu, chairman of Johnson & Johnson China.

Investment by foreign companies, and the jobs they create, are badly needed by local governments in light of China's lackluster economic environment.

Li Jinzhu, vice-governor of Shaanxi, hailed the company's significant contributions to the development of the province since the J&J unit was established in 1985.

XJP is the first multinational healthcare company to enter the high-tech zone.

The project will produce the company's new injectable medicines, introduce the Crucell vaccine business (a subsidiary of J&J) to China and help produce more J&J medicines that are now registered and produced abroad.

It will manufacture 5 billion tablets of medicine each year, which will translate into nearly 10 billion yuan ($1.64 billion) of sales. The first stage of the project will break ground in April 2014 and be ready for production in 2016.

Since the Chinese central government implemented its strategy of developing the western region some 10 years ago as an economic, cultural and political center, Xi'an has attracted many Fortune Global 500 enterprises.

Since 2008, the Chinese government has offered a series of preferential policies to persuade foreign enterprises to divert their focus from the eastern coastal areas and into the western regions.

Despite having a smaller economy, western China has seen faster economic growth than the eastern part of the nation every year since 2008.

Yet, it was only after 2010 that investment in western China started growing robustly as labor and environmental costs rose fast in the east.

In the first three quarters of 2013, investment in western China rose more than 23 percent year-on-year, higher than the eastern region's 18.8 percent.

Industrial output in western China rose 11 percent during the same period, higher than the 8.9 percent recorded in the east.

Chinese leaders have often spoken of building the western and central parts of the nation into new growth engines for China's economy. Those regions are also seen as offering an opportunity to pursue industrial upgrading and structural transformation.

"Rich resources, sound infrastructure, cheap labor and preferential policies of governments at various levels will attract more investors from abroad," said Li Zuojun, a researcher specializing in the environment and resources at the State Council's Development and Reform Research Center.

Along with Xi'an, the cities of Chongqing and Lanzhou in Gansu province have become regional industrial centers, thanks to their rich education and research resources.

Li believes western China will focus on environmentally friendly industries, research and development activities and sustainable high-tech projects after seeing the heavy pollution in eastern China.

Analysts also believe that two national "Silk Road" strategies will promote the opening-up of western China. One is based on land, featuring connections between western China and Central Asia.

The other is a series of maritime links between southwestern China and Southeast Asia.