China's growth slowly starts to shift inland

By Alan Wheatley, China Economics Editor - Analysis

SHENZHEN, China (Reuters) - Like a spreading ink blot, messy and uneven, economic growth is seeping inland from the coastal provinces that have been in the vanguard of China's phenomenal growth over the past 30 years.

The shift, which has rough parallels to America's westward migration in the 19th century, has the potential to narrow the noxious income gap between China's vast, neglected interior and a relatively well-off seaboard that has hitherto attracted most of the investment by the central government and foreign firms.

Steve Smith's company is part of the ink blot. Measurement Specialities, a maker of sensors used in everything from cars to pacemakers, recently acquired a small firm in Chengdu, capital of faraway Sichuan.

Smith, the general manager of Measurement Specialities' Asian headquarters in Shenzhen, is already thinking of moving some non-core, labor-intensive operations to Chengdu, where all-in pay is about 20 percent lower than in Shenzhen, which abuts Hong Kong and is one of China's richest cities.

"It's certainly in the cards," said Smith, who also sees potential to do more sourcing for his company's worldwide operations using Chengdu as a base.

Intel, the world's biggest semiconductor maker, said in February that it would close a plant in Shanghai to consolidate chip assembly and testing operations in Chengdu.

The experience of thousands of companies like Measurement Specialities buttresses the case that the inland could turn out to be one of the next wellsprings of China's economic growth.

"Although shrinking global demand will affect consumer confidence in export-oriented coastal regions, the majority of consumers in interior regions will be much less vulnerable to the slowdown in exports and property markets," said Qu Hongbin, chief China economist for HSBC.