Q+A | Tong Guili

SHANGHAI - Amid increasing calls from the Chinese government for more environmentally friendly growth to transform its economic structure, Hangzhou, the capital city of East China's Zhejiang province, is aggressively promoting its outsourcing service industry.

It's a sector that requires minimal capital investment and generates no pollutants.

Hangzhou, one of the first 21 pilot cities designated by the central government to develop outsourcing services at the beginning of the 11th Five-year Plan (2006-2010), seems to enjoy little advantage against the other larger and well-developed cities, including Nanjing in East China's Jiangsu province and Chongqing municipality in Southeast China.

Geographically, coastal cities such as Tianjin and Dalian, also among the pilot cities, have a clear competitive edge because they are closer to Japan, one of China's largest offshore service outsourcing markets.

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What's more, Hangzhou's high cost of living and soaring residential prices, comparable with those in top-tier cities such as Beijing and Shanghai, have scared away many professional skilled service industry workers.

Despite the odds, Hangzhou has made significant progress in growing its services sector. In 2010, the contracted value of Hangzhou's outsourcing services amounted to $2.3 billion, up 69 percent from 2009, making it the fourth biggest base for outsourcing services in China.

The total output of outsourcing services in Hangzhou is expected to double in the next five years forming the largest share of the city's services sector, which will account for half of the city's gross domestic product (GDP).

As delegates from around the country arrived in Hangzhou for the third China Sourcing Summit late in April, Tong Guili, deputy mayor in charge of foreign trade and the economy in Hangzhou, outlined the various factors that have contributed to the growth of the outsourcing industry, in an interview with China Daily.

Tong Guili, deputy mayor in charge of foreign trade and economy in Hangzhou.

Dubbed as one of the most charming female leaders in China, Tong, elegantly dressed in a white suit, talked in a soft yet firm tone, quoting frequently from books including The World is Flat. She said she believes that Hangzhou has its own charm to attract both companies and professionals. And, of course, it is more than the majestic West Lake that draws 65 million visitors a year.

How has the outsourcing service industry in Hangzhou been performing over the past few years? What's the real incentive for the city to promote the industry?

In 2006, the central government kicked off a new project to "establish several outsourcing bases as the destinations for global outsourcing services". Like many other pilot cities, Hangzhou sees the call as a great opportunity to realize the goal of transforming our economic structure, and thus achieving a green growth.

From 2007 to 2010, the total contract value of offshore outsourcing services reached $2.82 billion, with an annual increase of 122 percent on average. More generally, the entire outsourcing services industry has maintained a two-digit growth rate in recent years, becoming the most rapidly developing industry of all in the city.

With so many cities also eying up the outsourcing services industry, what is Hangzhou's biggest advantage in developing this sector?

As a capital city, Hangzhou has the most and the best educational resources in the area. Now there are altogether 37 universities and colleges in the city with more than 430,000 students, and 247 majors related to service outsourcing. More than 18,000 graduates provide the city with adequate talent in software engineering, design and language every year.

Besides, with the construction of the high-speed railway between Shanghai and Hangzhou, which makes it possible to travel between the two cities within an hour, we see ourselves as a perfect destination to provide Shanghai, the international financial center, with strong service support.

In fact, the financial industry in Hangzhou has developed pretty well in the past decade, with more than 200 financial institutions here, accounting for 60 percent of Zhejiang province. The latest numbers show that Hangzhou's finance scale now ranks fifth among all cities in China, and the second in the Yangtze River Delta, after Shanghai.

Talent and computers have been considered the two most important factors for the service outsourcing industry. But the high living cost in Hangzhou may have scared away many potential skilled workers. What do you think of that?

Yes, we have fully realized that, and that's why we target the medium to high-end market only. We don't want to compete with some inner cities for the low-budget market. Instead, we see ourselves as the backstage for Shanghai to take care of all the supporting services for it. That's where we focus, beyond the low and behind the high-end.

And we have been doing pretty well in our "comfort zone". International giant enterprises such as Nokia and Siemens have all established their research centers in Hangzhou, and we are attracting more by creating a good investment environment.

What is the biggest obstacle for Hangzhou to further develop services outsourcing now? And what is the solution?

A shortage of talented people, especially the high-end and experienced ones, is a big problem currently. We have laid down various plans to attract talented people from all over the country, even around the globe.

Last year, we kicked off a project to provide high-end talented people and fresh graduates who cannot afford to buy homes in Hangzhou with 700,000 square meters of apartment space every year. In addition, we have set aside a special fund, up to a maximium of 5 million yuan ($769,230) for each person, for those who come here with projects.