Intel, the world’s largest semiconductor manufacturer that has significant presence in China (the world’s second semiconductor market), recently announced that it plans to move in 12 to 15 months its facility in Pudong, Shanghai, to the inland Chinese city of Chengdu in Sichuan province.

Amid the global financial crisis, Intel, along with other multinational corporations, needs to align its manufacturing capacity to the current, weak, market demand.  Therefore, it is rational for the company to wind down a redundant operation in Shanghai and consolidate it into its Chengdu facility.

The move also makes sense because labor costs in Shanghai are about 30 to 50 percent higher than in Chengdu.  One city’s loss is another city’s gain – Intel’s move is a welcome signal to China’s second-tier provinces and cities.

Indeed, one of China’s distinctive attributes is its second-tier regions, which, costs aside, are not necessarily inferior to coastal regions in terms of economic development as well as development of local talent and technical infrastructure.

Shandong, for example, is geographically close to the Yangtze River Delta, one of China’s current growth engines, and Hebei is close to Beijing and Tianjin, China’s newest development hot spot.  Hefei city in Anhui province is home to the famous University of Science and Technology of China, under the Chinese Academy of Sciences, one of the strongest technical talent training centers in the country.

With the investment in the national defense industry since the mid-1960s, Shaanxi and Sichuan still maintain significant science and technology infrastructure and turn out high-quality graduates.

Dalian of Liaoning province, located in northeast China, recently has attracted worldwide attention.  In his 2004 bestseller, The World Is Flat: A Brief History of the Twenty-First Century, the New York Times columnist Thomas L. Friedman sees the rise of Dalian as the “Bangalore of China,” a key software and outsourcing base in China and Asia.  In 2007, Dalian hosted Summer Davos, the first World Economic Forum event held outside Switzerland.

Also in 2007, Intel, the very company that later would pull out of Shanghai, broke ground in Dalian on its new 300mm wafer fabrication facility, Fab 68.  It is the first advanced plant of its kind that Intel built in a developing country and, in fact, the first fab at a new site in more than 20 years. By 2010, it is expected to reach annual sales of RMB20 billion (US$2.9 billion).  Of course, it would be no surprise if the company delays its construction under the current economic downturn.

While the first 30 years of China’s reform and opening up mostly benefited the coast, from the Yangtze River Delta to the Pearl River Delta, it is the time for the impact to be felt beyond China’s existing economic and technological hubs.

Ultimately, it is critical to China for its second-tier, mostly interior, provinces and cities to become a new driving force for growth in investment, manufacturing, and trade as well as the demand for talented personnel.  They will not only represent China’s leverage to continuously benefit from the trend of globalization, but also help to propel forward the overall Chinese economy to a new level.