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Last Updated: Wednesday, 4 May 2005, 20:10 GMT 21:10 UK
China's west seeks to impress investors
By Nick Mackie
BBC China business reporter in Chongqing, Western China

Heading south from the airport, first impressions of Chongqing include pot-holed roads, women in wide-brimmed hats sweeping the motorway, and new developments on former farmland with elaborate names like "Palm Springs", "Future City" and "Beverley Hills".

Chongqing
Chongqing's mayor says it is becoming a promising land

Closing in on downtown, whole districts are being flattened, with former residents literally scraping a living - scavenging for building materials to clean up and sell on.

Chongqing today is a huge, messy building site - clearly a project in its early stages of construction as it vies for investment.

Soon, new business and residential zones will emerge and mingle with the other tower blocks in the smog-laden skyline.

Controversial relocation

On the Jialing River's south bank, Hong Kong developer Vincent Lo is tearing down Hualongqiao - a decrepit old Communist era factory zone.

His Shui On Group plans to invest $1.2bn (630m) here to build a commercial area and executive apartments.

Around 30,000 locals are being evicted. A few thousand still remain, either hanging around street corners touting for odd jobs or selling cheap food or clothes from "hole-in-the-wall" shops or makeshift stalls.

Over the past year, some have mounted several big protests, complaining of poor compensation. This is now commonplace in China - and it's a headache for investors.

"Not just for the investors, it's actually [a problem] for the government, for the local people," insists Mr Lo.

"But if you look at the situation, the relocation, particularly in the city centre, will have to happen, otherwise development will stop."

Poor infrastructure

There is no letting up in Chongqing.

Village in Chongqing
China's west is generally poor and backward

The municipality needs to develop fast in order to improve its investment environment if it is to compete with the more mature markets in the east of the country.

Investors don't come here for its beauty.

Untreated waste still flows into the Yangtze - though a $500m sewer network is under construction.

Air pollution is hazardous to health, through the combined effect of the mountain foggy climate, industrial emissions and the dust from demolition and rebuilding.

Another drawback is quality housing; despite the fast growing number of new apartment complexes, most foreign companies house their expatriate staff in a handful of big hotels - for their security and comfort.

These enterprises don't trust the healthcare either - and insist their executives fly to Shanghai or even Singapore if sick.

China's Chicago

Throughout the greater municipality, which is as big as Belgium and has a population of 32 million, the authorities are spending $23bn on 105 major projects, including roads, rail links, a container port and a major environmental cleanup.

The hope is that once the urban and rural infrastructure improves, private sector investment topping $200bn will follow over the next decade.

Chongqing's iron and steel industry
Air pollution is a problem in the Chongqing region

The mayor, Wang Hongju, boasts that Chongqing "is becoming a rising, promising land in western China".

But inward investment of private money is slow to come, having reached just $8bn over the past eight years.

It takes the more far-sighted pioneers to take the investment plunge now. Few investors are convinced by the government's vision of Chongqing becoming China's Chicago.

Simmering discontent

China's west is generally poor and backward, a far cry from the booming eastern seaboard.

Even in the cities, millions still live in cramped, decrepit districts and are resentful of the growing numbers of local nouveau riche with their western cars and out-of-town villas.

That is why China's Central Government launched its Go West policy five years ago. To modernise, attract jobs and investment and to counter threats posed by simmering discontent.

"There are two factors with equal importance for the Go West strategy," explains Professor Pu Yong Jian, vice dean of Chongqing University.

"They are the development of the economy and the national security and stability."

For this to work, Mr Lo cautions those who buy into the hype - all so common at showcase conferences - of specialising in hi-tech.

"They should really do the basic consumer goods to employ the people and also to sell to the local market," he says.

Simple but profitable

That is what Xinfu Food Company does.

The company is 100% owned by a Singapore enterprise that invested $36m in building a soybean processing plant near Fuling on the Yangtze - a one hour drive downstream from the big city.

Chongqing aluminium production
Chongqing is home to Asia's largest aluminium plant

Xinfu ships its beans up China's prime artery on barges from Nanjing and, with 200 employees, produces animal feed for the west's rural economy.

It's a simple but profitable formula.

"With the development of the market, prices are fluctuating and they are still rising," says general manager Yang Ji Ping.

"The total volume of imports is increasing too, as China's demand for soybeans continues to grow."

China now consumes 20% of the global soybean output and the country's share is rising as the urban consumer class expands.

Mondeo man

As for "nuts and bolts" manufacturing, Chongqing already has a key state run local supplier in Asia's largest aluminium plant.

South West Aluminium rolled out 213,000 Tonnes of finished products in 2004 - for companies engaged in building materials, printing, electrical appliances, aerospace, packaging and vehicle production.

Now that Beijing has earmarked this city as China's future car making capital - building on its core motorbikes and engines sector - production is forecast to hit 500,000 Tonnes by 2010.

Ford already produces the Mondeo here with its local partner Changan.

"With the development of the car and motorcycle industries - including the demand for new, lightweight materials - the demand for aluminium products will grow rapidly," says Fan Dai Xing, vice party secretary, South West Aluminium Group.

The management plans fresh investments in new technologies and a new foreign-designed production line.

Overwhelming optimism

In government circles and among the authority's consultants and advisors, there's much unbridled enthusiasm in Chongqing about "growth" - not to mention a "dead-cert" attitude about foreign investment coming here in droves.

Hong Kong developer Vincent Lo
Hong Kong developer Vincent Lo: China is an investor's paradise

Like elsewhere in China, the local government is dangling tax breaks and preferential land use rates. But this is hardly original.

"It is really an investor's paradise," says Mr Lo.

"You can go to any place and ask for very favourable terms," he says, predicting that competition for investors' cash is heating up between different regions.

Increased capacity

Consequently, Chongqing has a fight on its hands to secure a payoff from the massive state sector commitments.

Gordon Wilson, president of BP Acetyls, argues that an investment strategy here should not be a carbon copy of the eastern seaboard.

BP, Chongqing's biggest foreign investor and biggest taxpayer, is arguably the city's best investment success story.

BP's acetic acid plant, a joint venture with the state-owned Sinopec, is due to commission an extension this month to increase capacity from 200,000 to 350,000 tonnes annually.

"Fundamentally, you have to build your business on its own competitive advantage," explains Mr Wilson.

This means really understanding what the Chongqing authorities have in mind for the long term.

Over the next 10 years, with the expansion of new highway and rail links that will connect China's South-West to the East via Chongqing, this city is placed to develop into one of China's main logistics hubs - and this offers a key competitive advantage.

In addition, come 2009, when the controversial Three Gorges Dam project is complete, ocean going cargo ships should be able to load up in Chongqing and supply factories all the way down to Shanghai and beyond.

Work is scheduled to start on the world's biggest ship lift this autumn - a Sino-German project.

Currently, it takes three hours for a ships to pass through the dam's lock. This will reduce to just 40 minutes with the planned 120 metre high lift.

"By using the developing Three Gorges Reservoir and the Three Gorges Dam in Chongqing, and by using the Yangtze River transport, we can deliver the raw materials needed for manufacturing as well as products at comparatively low cost," says Professor Pu Yong Jian.

Risks ahead

It's clearly too early for the city to trumpet success.

Chongqing's economy today, with 12.4% growth, is on a rollercoaster that is powered more by constructing fixed assets than by a boom in new manufacturing jobs.

Although Chongqing has the backing of the central government, if industry investors remain unconvinced with Go West's potential and fail to come in numbers over the next five years, there will be real concerns over this region's viability, not to mention its social stability.

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