Govt investment to bridge gap between poorer western regions and prosperous east to bear fruit

Li Xinming is charged with helping create a new economy the size of Chongqing, China's most populous city, within 10 years.

The Chongqing Liangjiang New Area, the economic zone launched last year for which he is deputy director, covers some 1,200 sq km and will have a GDP of 640 billion yuan ($100.4 billion) by 2020.

The initiative is part of the Chinese government's second 10-year phase of its go-west strategy, one of world's biggest-ever economic regeneration initiatives.

The strategy has been compared to the winning of the West in the United States some 150 years ago when Americans took to their wagon trains and sought their fortune in new lands such as California following the end of the Civil War.

The aim of China's initiative, however, is to bring similar levels of prosperity to the less developed western region that are being enjoyed in the eastern parts of the country such as Beijing, Shanghai and the country's eastern seaboard for some time.

The economy of the Liangjiang New Area grew by 23 percent last year and is now around 13.4 percent of the size of Chongqing's, but will increase four-fold in the next four years before it achieves the economic size of the main city within the decade.

"We call it recreating the Chongqing economy in 10 years. Our development zone will be a big city in its own right. It will have 5 to 6 million people living in it, more than 50 percent of the urban area of Chongqing itself," says Li.

Chongqing, which this summer has been reeling under 61-year high record temperatures of 42 C, is one of the major success stories of China's go-west program.

Gleaming skyscrapers now mirror themselves in the Jialing River which divides the city and which only a generation ago had shanty accommodation on its banks.

The ginkgo trees, favored by the city's charismatic 61-year-old Party secretary and former Chinese minister of commerce Bo Xilai, that line the streets are indicative also of the emphasis placed on green development with major parts of the municipality being reforested.

Chongqing is the one municipality covered by the go-west strategy, which also covers six provinces Gansu, Guizhou, Qinghai, Shaanxi, Sichuan and Yunnan; and five autonomous regions, Guangxi, Inner Mongolia, Ningxia, Tibet and Xinjiang.

The aim of the scheme has been to redress the imbalances created by China's earlier economic development following reform and opening-up in the late 1970s.

Then the focus was on special economic zones set up in coastal areas such as Guangdong, which became the manufacturing workshops of the world, as well as Shanghai and Tianjin.

The mainly inland and rural west, far from ports and with poor road links, had been badly left behind.

Successes of the go-west campaign are everywhere to be seen. According to official statistics some $325 billion (224 billion euros) has been invested in major infrastructure projects in the regions, including new roads, rail links and airports.

These have included flagship projects such as the 4,000-km West-to-East gas pipeline project, the second of which has recently opened, the near-2,000-km Qinghai to Tibet railway, which was completed in 2006, and the new extension of the Xianyang Airport in Xi'an, Shaanxi province.

Last year, the Chinese government announced it was to invest a further $100 billion in 23 new infrastructure projects.

Companies relocating also benefit in some areas from lower corporate tax rates of 15 percent instead of the national 25 percent.

David Goodman, professor of Chinese politics at Sydney University, who has written extensively on go-west and is currently on tour of the western provinces, says the impact has been significant.

"Ten years ago you had situations like a group of Hong Kong businessmen would go to somewhere like Xining in Qinghai province. They would take one look at the infrastructure and it would be clear to them it was not somewhere they needed to be," he says.

"I was very skeptical about what the impact of go-west would be. The ability of local governments to attract external investment 10 years ago seemed very limited. But in the intervening period, cities like Chongqing, Xi'an, Lanzhou (the capital of Gansu province) and Chengdu have changed immeasurably."

Despite the successes, the actual gap between the west and the richer eastern cities, particularly Beijing and Shanghai, has got bigger over the duration of the scheme.

According to a report last year by the Center for Studies of China Western Economic Development by Northwest University in Xi'an, the west's GDP was only 17.8 percent of China's total in 2008, compared to the 41.1 percent share of the east.

The average per capital income of Shanghai in 2008 was 8.5 times that of Guizhou, the poorest provinces in the west.

But in the first six months of this year, economic growth in the western provinces was among the strongest in the country as a whole with Chongqing recording 16.5 percent, Guizhou 15.3 percent and Inner Mongolia 15 percent.

Li at the Liangjiang New Area who was part of Bo Xilai's team at the ministry of commerce in Beijing before making the journey to the west himself four years ago, however, admits the gulf has widened over the past 10 years.

"This is still a core issue. Despite this 10-year policy of encouraging development in the western areas, the speed of development and urbanization is still lagging behind the eastern part," he says.

"When I left Beijing before the Olympics there were only three subway lines and now there are 13. That is a big change. Chongqing still cannot compare with that. That is why we need this kind of development area."

One of the major problems for the west has been its remoteness, particularly from the coastal ports. As a result it has often made it very difficult for foreign companies to operate from.

In Chongqing, major companies such as Hewlett-Packard no longer consider that a problem. It now produces laptops on the 37-sq-km Xiyong Micro-electronics Park in Chongqing which are manufactured by Taiwanese companies Foxconn, Quanta and Inventec acting as ODMs (original design manufacturers).

The park is trying to create a number of clusters in other industries as well as computers.

Last year around a third of the park was designated as a Comprehensive Bonded Zone by the central government, which means companies can bring in components and raw materials free of customs duty and value-added tax and also have a fast export processing service through Chongqing customs.

Goods can now also be transported by rail to Europe in 15 days through Xinjiang, Kazakhstan, Russia, Poland and Belarus and then into Duisburg in Germany without having to go through customs borders under the new Safe Smart Trade Agreement China has with the European Union.

Guo Jian, general manager of the Xiyong park, says this puts Chongqing in a very good position to export goods made in the area.

"It gives us all the advantages of an inland port and companies can base themselves here and reach key markets," he says.

Some 200 companies are in the park and the number of employees is expected to double from 50,000 to 100,000 by the end of this year.

Because of the nature of the work, many are recruited from adjacent universities, where there is a potential talent pool of some 300,000 students.

One company that has set up an operation on the park is Simplo Technology, the Taiwanese maker of laptop batteries, which employs 520 in the park.

Jason Su, associate vice-president of the company, says despite all the advantages offered, there are still some problems in developing a business in the west, compared to more established areas like Guangdong.

"I think workers in Guangdong are probably more self disciplined, whereas here they are more used to a leisurely lifestyle. That is part of the management challenge for us.

"The government, however, is highly efficient and has taken many anti-corruption measures which is good for the business environment."

Simplo offers much needed work for local people. Zheng Xuena, 25, who is single and a graduate from Chongqing University, earns 2,000 yuan a month for a 40-hour week as a test engineering assistant.

"The work here matches my major. A lot of my classmates are coming to work for technology companies here.

"I think I would have a comparatively harder life in Beijing or Shanghai. I rent a room at the moment but maybe later I will be able to afford a property here which I might not be able to do elsewhere."

Xu Qiang, deputy director of the Chongqing Development and Reform Commission, says it is these types of opportunities that are attracting 500,000 people back to Chongqing every year.

"Ten years ago there were few opportunities, particularly if you wanted a high paid career in the financial sector. There were just mainly banks and insurance companies. Now there is a whole array of companies, including investment banks, private equity and venture capital companies and those in international settlement and property development," he says.

"You can have a Beijing or Shanghai salary but live in central Chongqing at a third of the price," he says.

Huang Zhiliang, professor and vice-president of Chongqing Technology and Business University, says there is no doubt the go-west strategy has had a real impact on people's lives.

"I think without it there would have been very small and slow progress whereas the changes have been both significant and tremendous," he says.

"The economic success of Chongqing, in particular, has had a multiplier effect on the surrounding areas, particularly Guizhou and Sichuan."

He says that although there are concerns about the level of local government debt in some areas because of the heavy spending on infrastructure it is nonetheless manageable.

"The main problem has been in some of the smaller counties (within the provinces). You have to remember there have been issues with local government debt in other areas where there has been no go-west strategy," he adds.

Nearly 600 km to the north is Xi'an, which too has been one of the success stories of go-west.

Although best known as China's ancient capital and home of the terracotta warriors, it is now emerging as a major industrial city.

Since the western development program began, the city's economy has grown by more than 13 percent annually in the last 10 years. In that time it has also attracted 76 of the top Fortune 500 companies.

Plans are advanced to increase the urban area of the city to 1,329 sq km by 2030; the old city within the city walls is just 13 sq km today.

Central to the development is the Xi'an High-Tech Industries Development Zone (XHTZ), one of six such zones nationally the Chinese government wants to turn into world-class science parks.

Liu Minghua, deputy director of the zone's administrative committee, says the development of the zone has ended a local talent drain.

"Fresh graduates used to prefer to go and work in Beijing and Shanghai but now they want to work here. Many people are returning," he says.

The companies they are attracted to include Applied Materials, the US global technology business, which has the world's largest privately owned solar power research and development center on the zone, employing 350 people.

"Xi'an is ranked No 3 in China in terms of the quality of its students and it has a talent pool to sustain a leading edge research and development center like this," says Gang Zou, the company's vice-president and chief technology officer in China.

Lei Yingjie, director of the Xi'an Development and Reform Commission, says it is the next 10 years in Xi'an that will put the city on the industrial map.

"The first 10 years has been about the basics such as major infrastructure improvements. The next 10 years will be about attracting more and more foreign companies. And it will be up to us to provide the right conditions for them to achieve this goal," he says.

Zhang Zongyi, vice-president of Chongqing University, says he is reminded of the pace of development when he drives to work every morning.

"There are very heavy traffic jams and there is a need for new roads. I contrast this, however, to when I was growing up in Guizhou province in the 1960s. There was no meat in the shops and you had to buy everything with coupons and my two brothers and two sisters and I had to live in a house which was just 40 square meters," he says.

He says it is difficult to calculate whether go-west has been successful by measuring the return on initial government investment.

"The effects are very obvious. It would be difficult to calculate any actual return but I don't think it is just about the initial investment. So much of the success of the strategy is down to the number of companies that have come here and are now involved in the region."