China's regions fight for investment

By Nick Mackie
BBC News in Chongqing, Western China.

Chongqing is the economic capital of Western China

Across the Middle Kingdom, regional governments are going all-out to attract foreign investment to boost economic growth.

China's economy, steaming along at 8% this year, is churning out some amazing numbers: October's retail sales are up 10.2% on 2002; orders for telephones rocketed 75%; car purchases leapt 48%; and furniture by 40%.

But in the Middle Kingdom, there's no time for complacency.

Close on 500 million Chinese are poor rural workers.

With tens of millions migrating to the ever-expanding cities each year dreaming of a better life, the economy needs annual growth of 10% to put these people to work and avoid social chaos.

Investment drive

So, across the land, regional governors are going all-out to attract foreign investment - which stimulates exports and boosts the internal market.

(Integrating the military sector into civilian production) will bring benefits to national defence and to economic development Wu Zongze Vice Minister of Science and Technology

Competition between regions for cash - any currency will do - is fierce.

Special Economic Development Zones are springing up deep in the interior of China, offering with fancy incentives for companies, following the lead given by the successful zones in the fast-growing cities on the coastline.

And, of course, every big regional authority also has to have its own showpiece trade fair.

Development drive

As Wang Hongju, Mayor of Chongqing, stresses, the strategy to develop his region "could not be implemented without advanced hi-tech and its modern industries."

Chongqing, on the Yangtze River, is the economic powerhouse of Western China.

Defence companies are switching to consumer goods like motorbikes

It is one of only four municipalities in the country that answers directly to the central government.

The sprawling city has a population of 8 million, though the local authority's reach covers a land mass bigger than Belgium, including the Three Gorges Dam.

In total, over 30 million people live here.

For years, it has been a hub for heavy industry, much of it military-related.

But Chongqing is transforming itself, with a Manhattan-style vista and a taste for IT, as defence industries convert to civilian production.

Meet the astronaut

So welcome to the West of China's annual gold ribbon event: The 5th Chongqing Hi-Tech Fair.

China is proud of its space technology

It has something for everyone.

There were queues round the block for a chance to have photos snapped alongside China's first manned space module, the " Shenzhou 5" or a beaming poster of astronaut Yang Liwei, who began his military service here in Chongqing.

Travel on earth may just be for the fortunate few , but Mr Yang's away day in space is a tremendous boost to national pride and is being milked for all it's worth to raise the profile of Chinese technology.

Other popular draws included the world's biggest green haired turtle, more long-neck than hi-tech.

The company, CQ Hongke, claims that its technology can make fluffy hair grow on the back of any water turtle within 20 days - and it will sprout 20 cm in 2 months!

Hairy turtles are supposed to be fun to watch and their bodies are used in traditional medicines.

Deal-making

But aside from the masses turning up to goggle, serious deals are being done and policy is taking shape.

On just the first day, $55 million of deals were done in businesses as diverse as construction materials and communication equipment.

By the end of last year's Fair, over 1,000 contracts were signed at the five-day event, with a volume exceeding $1.25 billion.

Of course, the big prize is to get land another foreign company.

For those prepared to sign the dotted line, the government offers investors the now usual temptations of preferential treatment on taxation, customs duties and land use.

Competing regions

Like other regions, Chongqing's leaders must be super salesmen.

In China in 2003, investors have a lot to choose from.

In the late 1990's, Beijing decided to spearhead growth in this region through its special Western Exploration and Development strategy, with Chongqing as the economic centre.

This unleashed a wave of trade delegations knocking on the mayor's door.

But now, China's President Hu has earmarked the country's "rust belt" in the North East for special treatment.

And Chongqing's businessmen are concerned that investment will follow the latest political lead and decide on settling elsewhere.

However, one of Asia's leading venture capitalists, Chen Youzhong, President of Acer Technology Ventures Asia Pacific, said that many of the enterprises already established in more commercially developed centres like Beijing, Shanghai or Shenzhen are intent on broadening their operations.

"If they want to increase their business, they will focus on the West of China," he stressed. ""This is their second line of production."

Shifting emphasis

Chongqing's leaders also used their hi-tech fair to push for changes to their old production lines.

For the first time, senior Chinese and Russian figures discussed in open forum the need to shift production at the region's military-based factories to making goods for the civilian market.

This process is already underway, with some success stories like motorbike maker Jianshe and car maker Changan, which has a joint venture in with Ford.

Chongqing produces 30% of China's motorbikes and 50% of the country's bike engines. There are over 40 former military factories in the municipality, with assets of $4 billion, employing 130,000 people.

In addition, over 2,000 small private companies rely on the big factories for business.

But many companies that once relied on armaments orders are too inflexible to change.

"Their ideas are not compatible with the market economy," says Xia Guohong, President of China Aerospace Science and Industry Corporation.

He cites poor management and bad geography as key problems.

Factories were often sited in remote areas for security reasons, and road links can be substandard.

Wu Zongze, Vice Minister of Science and Technology says that it's crucial for China as a whole to merge the military and civilian manufacturing sectors so that industry can be more responsive to the market.

"It will bring benefits to national defence and to economic development. It's very important for the reorganisation of the industrial base - very important," Mr Wu told BBC Online.

And it's also a far cry from Communism.

For while one Party charts the overall campaign, the battle for cash is being fought region by region.