Recently, while listening to colleagues in the investment promotion sector share their experiences, I noticed an interesting trend: companies choosing to locate in the south tend to prioritize local policies, while those choosing the north tend to prioritize the local business environment.

To sum it up, it can be expressed in eight words: “In the South, they look at policies; in the North, they look at the environment.”

Why does this difference exist? And what impact do these regional differences have on corporate site selection?

South Looks at Policies, North Looks at Environment

A key reason why companies in the south prioritize policies is that policies in southern cities are relatively transparent.

Cities in the Yangtze River Delta and the Guangdong-Hong Kong-Macao Greater Bay Area, in addition to benefiting from national policy support, are particularly adept at thoroughly understanding policies, exploring new avenues, and driving administrative innovation.

Of course, it’s not just that policies vary significantly between provinces; even between cities and counties, there are different priorities and approaches to fostering industrial clusters and corporate development.

Today, common innovative approaches to investment promotion and land intensification—such as "enclave" investment promotion, output per mu, vertical industrial development, and standardized land plots—have largely originated from southern governments.

In contrast, northern cities—with the exception of economically vibrant regions like Beijing, Tianjin, and Qingdao—have shown relatively little initiative in policy innovation. Consequently, the business environment of each city has become a key competitive factor.

As evidenced by the rankings of the soft business environment, Beijing—the leading city in the north—stands head and shoulders above the rest, ranking first. However, Tianjin, the second-ranked northern city, falls directly to 10th place; among the top 20, only six are northern cities.

This clearly indicates that southern cities maintain a higher overall standard than their northern counterparts, which to some extent explains why enterprises prioritize the business environment when expanding into the north.

Southern cities outperform their northern counterparts in both policy initiatives and overall business environment strength, a disparity that has fueled the phenomenon of businesses, talent, and industrial clusters “flying south.”

Peacocks Fly South, the Gap Widens

Driven by a combination of national policies, the international landscape, and geographical differences, China’s regional economic landscape has shifted from “strong in the east, weak in the west” to “rising in the south, declining in the north.”

Corporate relocations, population flows, and industrial restructuring... Amid this complex web of rising, emerging, and declining forces, the south is gradually widening the gap with the north.

Northern enterprises are migrating south, while southern enterprises remain firmly rooted.

Last year, leading enterprises and institutions in Northeast China—such as FAW-Audi and the Shenyang Aircraft Design Institute—began relocating and establishing operations in cities like Hangzhou and Yangzhou. This has naturally led many to wonder: are enterprises in Northeast China truly “migrating south”?

As is well known, the South has a relatively denser population, higher market demand, and greater vitality. Establishing sales offices in cities with higher economic activity—bringing the sales front-end closer to users—is conducive to driving automobile sales. Therefore, FAW-Audi’s move to Hangzhou aims to create a production and sales network connecting the North and South.

Over the past seven years, more than 7,000 enterprises have relocated out of Beijing. While this is partly driven by policies to relieve Beijing of non-capital functions, many of these relocating companies have also been attracted by the southern region’s market opportunities and business environment.

One high-tech company registered in Beijing’s Yizhuang district, but subsequently established its subsidiaries in the Yangtze River Delta region. Its CEO noted that the south outperforms the north in terms of talent recruitment, team quality, policy support, and market flexibility.

Previously, the spread of the Delta variant led to strict controls in Beijing, making it difficult for people from more than 20 cities across the country to enter. However, in the south, as long as an area is classified as low-risk, business exchanges and travel remain unaffected.

New products and technologies are also easier to promote in the south. The north tends to be more conservative toward new products; often, case studies or compliance with standards are required for promotion.

The South is different. Local experts there rely on their own judgment and often develop solutions akin to expert consultations to help drive technological progress. Consequently, many of this company’s products and technologies have been successfully promoted in regions such as Zhejiang, Fujian, and Guangdong.

The development journey of this enterprise serves as a microcosm of many similar companies. It is evident that the dynamism and openness of the southern market, coupled with its superior business environment, have captured the interest of many northern enterprises.

Although many northern cities are making significant efforts to attract investment and boast a plentiful labor force, it is difficult to lure away companies from the Yangtze River Delta and the Greater Bay Area.

The head of a labor-intensive listed company in Kunshan noted that since their clients are based in Shanghai, it is very convenient to visit the factory to check production progress and conduct spot inspections. Engineers and executives mostly live in Shanghai and work in Kunshan, making the commute relatively easy. However, relocating to the north would affect both clients and engineers, so the company has no plans to move north.

Clearly, the synergy and convenience among cities in the Yangtze River Delta and the Greater Bay Area are also key factors that many companies prioritize.

Corporate “relocation” inevitably affects talent mobility.

Among the top 10 most talent-attractive cities in 2020, Beijing was the only northern city to stand out, and only six northern cities made the top 20. This indicates that northern cities lag behind southern ones in terms of talent appeal.

In recent years, to attract top talent, an increasing number of cities have joined the “talent recruitment war.” Northern cities have shown great sincerity, so why have southern cities achieved better results?

A review of various cities’ talent recruitment policies reveals that most focus on measures related to residency registration, housing, and home purchases. However, southern cities’ policies are more robust and diverse in approach compared to those in the north.

Not long ago, Zhejiang’s “government-backed compensation” policy caused a stir, attracting significant attention from entrepreneurial talent. Han Liming, Secretary of the Nanjing Municipal Party Committee, once extended a sincere invitation to graduates, stating, “You are the lucky ones Nanjing most wants to retain.” Cities like Hangzhou and Ningbo have created numerous employment opportunities and fostered an innovative work environment for talent…

The convergence of enterprises and talent signifies the formation of industrial clusters.

Currently, China’s strategic emerging industries are developing rapidly, and industrial clusters are gradually taking shape.

The biopharmaceutical sector primarily comprises four industrial clusters: the Bohai Rim, the Yangtze River Delta, the Guangdong-Hong Kong-Macao Greater Bay Area, and Central and Western China; the new energy vehicle sector features six major clusters: the Yangtze River Delta, the Pearl River Delta, the Beijing-Tianjin-Hebei region, the Central Triangle, the Chengdu-Chongqing Western region, and Northeast China; the new materials industry includes three major clusters: the Bohai Rim, the Yangtze River Delta, and the Guangdong-Hong Kong-Macao Greater Bay Area...

Power battery companies are primarily concentrated in Guangdong, followed by Jiangsu, Anhui, and Henan, with very few in other regions. Since 2020, the wave of power battery capacity expansion has continued for two years, but most companies ultimately chose southern cities. Support policies for green electricity and lower electricity costs have become the primary reasons for most companies to establish operations there. In this emerging industry, the south has taken the lead, and the north is struggling to catch up.

High concentration of industrial clusters is entirely beneficial to corporate development. The greater number of industrial clusters in the south compared to the north indicates a higher level of inclusivity for both businesses and talent, which further widens the gap in industrial structure and economic development between the two regions.

The South Advances, the North Accelerates

In response to the development gap between the north and south, officials in the north are actively reflecting on the issue and seeking solutions. Learning from the south’s experience and catching up with its pace has become a routine task and goal for many regions.

Among these efforts, transferring officials from the South to the North to provide guidance has emerged as a relatively faster and more ideal solution, giving rise to the practice of “transferring officials from the South to the North.”

Southern officials possess extensive experience in attracting capital, technology, and talent. The infusion of fresh perspectives may open up new avenues for development and prevent regions from becoming insular by remaining in the same environment for too long. At the same time, they bring more advanced and effective management practices, enriching the professional experience of both sides.

Today, northern provinces and cities are also embarking on innovation and reform.

Henan, building upon the “chain leader system,” has innovatively developed the “dual-leader system,” in which both chain leaders and alliance leaders guide investment attraction and development within industrial chains.

Qingdao’s achievements in the transition from old to new growth drivers and industrial restructuring are evident to all; the arrival of companies such as Chery Automobile and BOE has added momentum to Qingdao’s industrial transformation.

Shanxi has recently been implementing a policy of “commitment-based approval + standard land plots + full-service agency,” aiming to improve the business environment and help enterprises settle in and grow rapidly.

It is clear that northern cities are not content to lag behind; they are also stepping on the gas to strengthen themselves and narrow the gap.

Conclusion

Every enterprise is like a seed, while local governments and the market are akin to soil, water, air, and sunlight. Whether a seed is planted in the south or the north is not important; what matters is that local governments provide a favorable business environment, infrastructure, and supporting policies to nurture enterprises and help them grow.

Although there are still certain developmental disparities between the south and the north at present, we believe that as long as northern governments continue to benchmark best practices, pursue reform and innovation, and wholeheartedly nurture local enterprises, northern cities will one day also be traveling on the fast track of development.