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Fortune 500, important engine driving Beijing CBD economic development
 

Manhattan of New York, the City of London, or Shinjuku of Tokyo, all these CBDs occupy the golden section of the city, see numerous high-rises and Fortune 500 corporations, multinationals and agents and accommodate a great number of people and materials, capital and information and is a carrier of the integration of real economy and virtual economy, a core and hub of modern urban economy and a symbol of the economic strength and international competitiveness of a country, a region or a city.


Beijing CBD is an important window of the capital city's opening up, a center of multinationals' regional headquarters and international financial institutions and an ideal community of international commercial activities and cultural exchanges, and plays an important role in showing the image and development prospect of China, Beijing and CBD and introducing international economic and social information to the domestic market. It is an important juncture in attracting foreign-funded enterprises and bringing industrials to the domestic market. Fortune 500 enterprises, as an important factor influencing the global economy and social development, play an irreplaceable role in fulfilling their responsibilities and connecting China with the world.

 

 

I. A Review of Fortune 500 in Beijing CBD

Since the opening was implemented, Fortune 500 enterprises have entered in China and grown for 30 years in Beijing CBD. Today 114 of them have invested in Beijing CBD, accounting for 56% of the Fortune 500 enterprises invested in Beijing, and 76% of those invested in Chaoyang district. The figure keeps increasing. Beijing CBD has become one of the centers for Fortune 500 enterprises in China. Looking back the past three decades, we can see that Fortune 500 enterprises are closely related with the formation and development of Beijing CBD.

1. Early days of reform and opening up: Fortune 500 make debut in China

In the early days of reform and opening up of China, Fortune 500 enterprises set up offices in the country with an eager expectation to learn more about the Chinese market because they were strange to the developing country. In order to acquire the political, social and economic information and facilitate connection with their parent headquarters, most Fortune 500 set up offices in the neighborhood of the embassy area. 

 

 

During the period, a number of foreign-funded enterprises, best represented by Fortune 500 enterprises, gathered around the embassy area of Beijing and drove the regional development. To meet requirements of enterprises on the office buildings, Beijing started the construction of office buildings in the embassy area in the 1980s. International Mansion (1985) and Scitech Tower (1987) enabled Jianguomen Wai Street to be a leading player of office building development in Beijing. China World Trade Center constructed in 1985 even became a landmark of Beijing. The construction of Lufthansa Friendship Shopping Center and the peripheral facilities such as Yabao Road and Silk Market made the CBD to take shape in the embassy area.

2. 1980s: Fortune 500 starts to make overall setup in China

With deepening of the opening up and familiarity with the Chinese market, the foreign-funded enterprises best represented by Fortune 500, started to set up companies and factories in China and transfer production to China so as to take advantage of China's cheap labor. In this stage, the foreign-funded enterprises set up factories in the coastal areas as the CBD was lack of labor and land resources. The original offices in the CBD were upgraded to branches to make united coordination and management of all branches in China.  

3. 1990s: Fortune 500 enterprises set up investment companies in Beijing CBD

In 1993, the State Council approved Beijing General Plan and decided to construct Beijing CBD in the area from Chaoyangmen to Jianguomen, East Second Ring Road to East Third Ring Road. In 1995, the Ministry of Foreign Economy and Trade (Ministry of Commerce now) promulgated the Interim Regulations on Foreign Investors Establishing Investment Companies and Beijing municipal government issued Provisions on Encouraging Multinational Corporations to Set up Regional Headquarters in January 1999. Stimulated by relevant policies of China and Beijing, many multinationals upgraded the offices or branches in the CBD to the headquarters-type investment companies to manage their branches and resources nationwide. The establishment of the investment companies brought along huge market opportunity to the service enterprises engaging in finance, insurance, accounting, laws and advertisement and relevant enterprises speeded up their paces to settle down in the CBD, which enhanced development of the commercial service sector, catering and accommodation sector in the CBD and CBD to develop towards a central business district worthy of its name.

4. After 2000: Fortune 500 set up regional headquarters in Beijing CBD

In August 2000, the municipal government decided to speed up the construction of Beijing central business district and formally initiated the concept of Beijing CBD at the first Beijing Chaoyang International Business Festival.

At the fourth Beijing-Hong Kong Economic Cooperation Symposium, a special promotion meeting for Beijing Central Business District was held to increase popularity and attraction of Beijing CBD. With the promulgation of the Cognizance Methods of Multinational Corporations' Regional Headquarters, Supplement Provisions on Foreign Investors Establishing Investment Companies and the Cognizance Methods of Multinational Corporation's Regional Headquarters in Beijing by the Ministry of Commerce, more and more Fortune 500 enterprises and multinational corporations set up investment companies or upgraded their investment companies to regional headquarters, vigorously enhancing the construction of Beijing CBD.

II. Development characteristics of Fortune 500 in Beijing CBD

With 30 years of mutual enhancement and common development, Fortune 500 enterprises have formed a trend of forming clusters for development in Beijing CBD. They had made obvious economic contributions and stimulated employment and formed core businesses centering on enterprise management and marketing.

1. Fortune 500 enterprises distribute in clusters in Beijing CBD 

In terms of the spatial distribution, Fortune 500 enterprises distribute in clusters in Beijing, mainly in the center of Beijing CBD as shown in Table 2. A total of 98 branches of 55 enterprises are located in the center, accounting for 44% of the total branches of Fortune 500 in Beijing CBD and the density reached 23.25 branches/sq km, exceeding the overall average of the reserve area and CBD function area.

 

 

2. High economic contribution and employment

As of June 2008, Fortune 500 enterprises in Beijing CBD contributed 12.9% of local taxes, or 700 million yuan, with the total number of tax-paying enterprises accounting for only 0.3% of the total. On average each enterprise paid 15.56 million yuan, 41 times of the average taxes per enterprise in Beijing CBD. In terms of employment, the 37 companies of Fortune 500 with statistics, have employed 14,000 employees in their branches; the per enterprise employees reached 384 persons, 43 times of the average in the center. If calculating at 1:24 (direct employment creation factor), these enterprises created 336,000 jobs in China.

In addition to directly creating jobs in Beijing CBD, Fortune 500 enterprises' employment stimulating capacity is also showed in job creation in other areas and relevant enterprises. For example, HP has 4,080 employees in Beijing CBD and 15,000 employees in China, but about 200,000 persons in China involved in serving HP in the upstream and downstream and relevant enterprises.

3. Distinct business division of Fortune 500 enterprises in Beijing CBD

There are 213 branches in Beijing CBD set up by 114 of Fortune 500 enterprises, mainly from companies, branch companies and offices. Like other famous central business distracts in the world, Beijing CBD is a typical representative gaining the highest revenue with limited resources. Only the high-end junctures at the value chain can adapt well to the area. Therefore, branches of Fortune 500 enterprises located in Beijing CBD are mainly regional headquarters engaging in management, marketing and liaison, investment headquarters and companies and office engaging in market exploitation. These three kinds of institutions account for more than 90% of the total.

 

 

III. Development trend of Fortune 500 enterprises in Beijing CBD

The importance of Fortune 500 enterprises to Beijing CBD is self-evident. As these enterprises change their global investment frequently, how can Beijing CBD keep its attraction to Fortune 500 enterprises? Being a CBD needs to learn the development trend of Fortune 500 enterprises and bring the resources and strengths into full play so as to maintain and improve Beijing CBD's attraction and influence. 

1. China will attract more Fortune 500 enterprises and professionals to CBD with excellent economic results under the financial crisis

The financial crisis and the wider economic crisis resulted from the spread of the former to real economy will impact the multinationals best represented by Fortune 500 enterprises and make them reduce investment and lay off employees. However, the financial crisis is only a temporary event in a long run. In China and Beijing CBD as well, the virtual economy only accounts for a small proportion and the real economy is the principal part of the national economy. Therefore, the financial crisis has relative little impact on China, Beijing and the CBD. What's more, the Chinese government has taken measures to cope with the financial crisis and the total investment from the central government and local governments for infrastructure construction and industrial development has hit 18 trillion yuan. These measures will help China's economy maintain a relatively high growth rate in future and increase attraction of the Chinese market to Fortune 500 companies. 

Under such a background, Beijing CBD shall analyze the impact of the financial crisis to Fortune 500 enterprises and their investment trend, and prepare for the consequent investment reduction. At the same time, efforts shall be made to grasp the opportunity when the financial crisis affected the multinationals and relevant professionals and played the role of an important window of opening up of Beijing and ideal community of international business activities and international cultural exchanges to publicize the promising prospect of China, Beijing and Beijing CBD and offer policy and capital support to attract multinationals and outstanding professionals to Beijing CBD.

2. Fortune 500 enterprises will transfer more junctures of the value chain to China to form intra-enterprise work division network.

After many years of development, multinationals best represented by Fortune 500 enterprises expand their businesses to the upstream of the value chain such as purchase, research and development and hub management from simply distribution and production. With expansion of the international operations and increase of overseas branches, multinationals start to form a delicate intra-enterprise international work division network. From an aspect of global economy, multinationals transferred a more complete value chain in the main market such as the US and the EU. Generally, the Chinese market enjoys self-evident importance in the long-term development strategy of Fortune 500 enterprises. With more and more regional headquarters of multinationals in China, more and more corporations will transfer junctures of the value chain centering on the regional headquarters to form the division network in China.  

 

 

However, the resources and conditions are limited for a specific area and could only attract and accommodate one or several junctures of the value chain of Fortune 500 enterprises. Beijing CBD boasts a great deal of strength such as unique political advantages, adjacent to the embassy area, high-degree openness and favorable foreign investment environment, outstanding business environment and developed peripheral businesses. At the same time, Beijing CBD has also obvious weakness, for example, insufficient support from the neighborhood (including Beijing and Bohai Bay Rim), limited regional cooperation capacity, limited area and relative weak spatial capacity and weak R&D base and strength.

Under such a background, Beijing CBD shall give full play to its resources and advantages of being located in Beijing and clearly make regional headquarters, marketing center, settlement center, PR center and office as its target and enhance upgrading of offices. At the same time, it shall give full play to the role of attracting foreign-funded enterprises and making industrial output to the domestic market and help other areas accommodate function departments and branches of Fortune 500 enterprises such as the production factories, R&D base and logistics center so as to achieve the win-win situation of the Fortune 500 enterprises, Beijing CBD and other areas and improve attraction and influence of Beijing CBD. 

3. Spatial distribution of cluster development increases distribution and investment of Fortune 500 enterprises in Beijing CBD

Cluster development is the main characteristics of the multinationals best represented by Fortune 500 in terms of the geographical distribution. Cluster development is an interdependent development strategy of the multinationals based on the customer or alliance relationship according to their core competitive advantages to acquire the mutual-complement assets from their partners, increase utilization of external resources and enforce their competitive positions in the market. 

The cluster development shows in the following forms: (1) one Fortune 500 enterprise sets up several companies or increases investment in and enlarges business scope of existing companies in one area to create the interactive and comprehensive management effect in the group. For example, Toyota sets up three companies and one office while Matsushita sets up four companies and one office in Beijing CBD; (2) several Fortune 500 enterprises of similar industry invest in the same area. For example, Motorola, Nortel, Ericsson and Siemens located their R&D centers in Beijing Wangjing Science Park; (3) the investment of similar industries and relevant enterprises moves in groups.  

Beijing CBD shall follow the principle that Fortune 500 enterprises develop in cluster and give full play to the advantages of Fortune 500 enterprises gathering in the area. By enforcing cooperation with various enterprises, Beijing CBD publicizes and increases popularity of the area and increases willingness of Fortune 500 enterprises to increase investment and drive Fortune 500 enterprises to form a cluster in Beijing CBD. 

Conclusion

In a word, Beijing CBD has become one of the most concentrated areas for Fortune 500 enterprises in China. Fortune 500 enterprises in China not only made huge economic and social contribution, but also lifted popularity and influence of Beijing CBD. The formation and development of Beijing CBD is inseparable with Fortune 500 enterprises. Therefore, Beijing CBD shall, under the current international economic situation, take active measures to study the development trend of Fortune 500 enterprises and give full play to the resources and advantages according to the trend so as to maintain and increase the attraction and influence of Beijing CBD to Fortune 500 companies.

 

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