China blazes a trail to tame its west

Buried in Intel’s website is a small section touting Che­ngdu, an important city in China’s west, as a “land of abundance” for its fertile cropland and a centre that is “full of vigour and vitality”.

The world’s largest computer chipmaker’s uncharacteristic eagerness to promote the capital of Sichuan province is driven by its desire to attract top foreign and local engineering talent to its chip assembly and testing facility there. The company is one of a few cash-rich foreign investors hedging bets on western China.

Under Beijing’s long-term western development plan, launched in 2000, an estimated Rmb1,000bn ($129bn) has flowed into numerous infrastructure projects, incl­uding the massive Three Gorges Dam, over the past six years.

Central and local governments have offered many preferential policies to spur investment under the “Go West” strategy. But according to statistics, foreign direct investment in China’s west was only 3 per cent of the country’s total.

Foreign investment in western China has for the most part stagnated because, unlike along the coast, there are few clusters of efficient cities and industry – and little transport infrastructure to bind them together.

Western China includes more than two-thirds of the country’s land mass and has an abundance of natural resources. It is generally defined as 11 provinces and autonomous regions, along with Chongqing municipality.

But most areas are still desperately poor. The annual income of a rural resident or ethnic minority in the west can be much less than even the monthly salary of an eastern city resident.

Beijing hopes concentrated investment, especially in high-technology and some heavy industry, will flow into emerging cities and development zones, and alleviate poverty.

“A very important [factor for western development] will be raising the proficiency of opening to the outside world,” says Wang Jinxiang, vice-minister of the National Development and Reform Commission (NDRC), the economic planning body.

The focus is on a few important locations, including Chengdu, a city in the centre of China. The other main western cities being targeted for fast growth are Chongqing – which is east of Chengdu – and Xi’an in Shaanxi province. Multinationals such as Ford have made Chongqing their production base and Xi’an has become an aircraft parts supplier to Boeing and Airbus. Chongqing in 1997 was carved out of Sichuan province into a municipality that reports directly to Beijing.

There have also been attempts to turn the region of Guangxi, which has access to the sea, into a logistical and trade hub. Both Guangxi and its tourist-heavy neighbour Yunnan province border Vietnam, and are envisioned as a gateway to the Association of South-East Asian Nations.

While they still lack steady FDI inflows, experts believe Sichuan and Chongqing, which are already wealthy compared with other parts of the west, have the most economic potential. Overall, investment in western China is still scarce and scattered.

According to figures compiled by the Chinese Academy of Social Sciences, a government think-tank, FDI in western China as a share of the country’s total slipped from about 4.5 per cent seven years ago to 3 per cent in the past couple years.

So far this decade, the only time annual FDI in China’s west has exceeded $2bn a year was in 2002. These statistics can be skewed by a few large deals during the course of a year.

Rough terrain and local bureaucracy are obstacles to drawing capital. The parts of China further west and north of Chengdu are often remote and mountainous, or even desert. “The most underdeveloped regions – such as Xinjiang, Tibet and Gansu – will still have little opportunity to diversify their industrial mix,” says a Global Insight analysis of China’s current five-year plan for its west.

Railway, road and airport infrastructure in many parts is lacking. Cao Yushu, a western China policy official, says that even though western China has more than 700,000km of roads, some reaching provincial borders are simply “cut off”.

Improving transport might bring immediate benefits. The World Bank forecast in a report late last year that a 50 per cent drop in transport costs could lead to a 5 percentage-point rise in foreign investment for “deep interior” cities such as Urumqi in Xinjiang or Lanzhou in Gansu.

That study, a detailed survey of 120 cities and 12,400 firms across the country, ranked south-west and north-west China respectively as having the worst investment climates; in other words, the most-ineffective local governments. Mr Wang of the NDRC argues the two biggest barriers to developing the west so far have been the shortage of investment and capable professionals, particularly teachers.

But some cities in the west are working hard to foster a more business and tourism-friendly image. In November, Chengdu hosted a trade fair that attracted several hundred small- and medium-sized enterprises from China and the European Union.

Peter Mandelson, EU trade commissioner, described the event – the first of its kind – as a form of “speed dating” that has a chance of leading to at least a few marriages. For the time being, cities such as Chengdu are happy to have a few second dates, so long as the foreigners involved have deep pockets.

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