Two-speed China

Updated: 2012-08-24 08:25

By Andrew Moody and Hu Haiyan (China Daily)

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Divergent trends

The divergence in growth between China's coastal regions, which have been at the vanguard of China's economic growth since reform and opening up in the late 1970s, and the inner regions is now certainly marked.

According to an Economist Intelligence Unit survey, which incorporates data from the National Bureau of Statistics, growth in Beijing last year was just 8.1 percent, Shanghai 8.2 percent and in Guangzhou, a key center for China's exports, although holding up at 11 percent, was down from the 2010 level of 13.2 percent.

By contrast, the inner and western regions are motoring ahead. Growth in Chongqing, the huge metropolis in the west of China, was 16.4 percent, Sichuan 15 percent, Yunnan province in Southwest China 13.7 percent and Changsha, the capital of the central province of Hunan, 14.5 percent.

Liu Qian, deputy director of the China Forecasting Service at the Economist Intelligence Unit in Beijing, says the faster growth in part reflects that many companies are relocating there.

"With wages increasing in many of the coastal provinces, manufacturing companies have been looking for alternative locations and have been particularly attracted to some of the inland provinces. Not only are wages cheaper there but also many of them have pretty good universities," she says.

"An additional advantage for provinces like Hunan, Henan and Anhui, for example, is that they are not very far away from the coast. So with improving infrastructure, it is relatively easier to ship goods out."

Galloping FDI

Foreign direct investment in the interior regions by multinationals and others has also picked up, according to statistics.

FDI in Chongqing increased by 66 percent from $6.34 billion (5 billion euros) in 2010 to $10.52 billion last year whereas in Guangdong the increase was a mere 7 percent from $20.26 billion to $21.79 billion over the same period.

"Foreign companies seem to be targeting particular areas and pinpointing where it is best for them to go inland, " Liu says.

Sander van't Noordende, group chief executive of Accenture Management Consulting, on a visit to the company's Beijing offices in the World Financial Center, says China's fast-growing regions are of interest to multinationals as a result of a scramble for signs of life anywhere in the global economy.

"Everyone in business, particularly these days, is looking for growth. If you are in Europe these days, it is not a pretty picture. North America is somewhat better but clearly all clients I speak to are looking to invest or get a bigger percentage of their business from emerging markets. That is almost a universal objective."

He says there are obvious attractions of moving into China's new emerging regions, but also pitfalls.

"If you want to focus on more mature parts of China, the competition will be intense, and every position has been taken," he says.

"But if you go to the high-growth areas, which might be second-tier cities, it might be more complicated in terms of how to do business. It is certainly not immediately straightforward."