China Spreads Prosperity with Western Boomtowns

Go-West Strategy: China is erasing the prosperity gap between east and west.

Erasing the glaring economic disparity between the prosperous coastal regions and the vast western inland regions has been the focus of an ambitious long-term development program covering 12 regions. China likens it to the expansion that led to the rise of the American west.

China’s go-west strategy covers six provinces — Gansu, Guizhou, Qinghai, Shaanxi, Sichuan and Yunnan — five autonomous regions — Guangxi, Inner Mongolia, Ningxia, Tibet and Xinjiang — and the municipality of Chongqing.

The imbalances originated with China’s early efforts at economic development following the reforms of the 1970s which focused on special economic zones in coastal areas like Guangdong, Shanghai and Tianjin. That left behind the inland regions which, at that time, were poorly connected by road and rail links.

Now entering its second decade, the go-west campaign has already produced impressive results from the $325 billion invested so far in major infrastructure projects like the two 4,000-km (2,500-mile) West-to-East gas pipelines, the 2,000-km (1,250-mile) Qinghai to Tibet railway and the new extension of the Xianyang Airport in Xi’an in Shaanxi province. Last year the government revealed plans to invest $100 billion more in 23 new infrastructure projects.

A major incentive for companies to relocate to the western regions is a corporate tax rates of 15 percent instead of the national 25 percent.

So far this impressive push has not been able to bring the west up to speed with the spectacular boom that eastern cities like Beijing and Shanghai have enjoyed over the past decade, widening the prosperity gap. In 2008 the per capita income of Shanghai was 8.5 times that of Guizhou, the west’s poorest province. The west’s combined GDP was only 17.8 percent of China’s total in 2008, compared with the east’s 41.1 percent share, according to a report last year by the Center for Studies of China Western Economic Development by Northwest University in Xi’an.

But there are signs that the push to develop the west is accelerating. In the first six months of this year, the western provinces led the nation in economic growth. Chongqing grew 16.5 percent, Guizhou 15.3 percent and Inner Mongolia 15 percent.

The Chongqing Liangjiang New Area (CLNA) is a special economic zone launched in 2010 with the goal of duplicating the size of the city of Chongqing. The CLNA covers about 1,200 sq-km (470 sq-mi). Currently its economy is just 13.4 percent the size of the city of Chongqing proper. But the government’s development efforts helped it enjoy a 23 percent surge last year, putting it on track to increase four-fold in the next four years. By the end of the decade it is expected to attain economic parity with the main city, with a total GDP of 640 billion yuan ($100.4 billion).

“We call it recreating the Chongqing economy in 10 years,” says CLNA’s deputy director Li Xinming. “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.”

“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.”

Today Chongqing’s 37-square-km (14.5 sq-mi) Micro-Electronics Park is a manufacturing center for companies like Hewlett-Packard and Taiwan’s OEM giants OEMs Foxconn, Quanta and Inventec. Last year around a third of the park was designated as a Comprehensive Bonded Zone, allowing companies to bring in components and raw materials free of customs duty and value-added tax and with access to 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. The impact has been to turn Chongqing into a kind of inland port that rivals China’s coastal cities.

Already the park has attracted 200 companies, with the number of employees expected to double from 50,000 to 100,000 by the end of this year. Nearby universities provide a talent pool of some 300,000 students. The manufacturing activity has also provided an alternative to workers who might otherwise have migrated to the coastal regions. In fact, about 500,000 people are returning to Chongqing each year from the east, according to Xu Qiang, deputy director of the Chongqing Development and Reform Commission.

“Ten years ago there were few opportunities, particularly if you wanted a high paid career in the financial sector,” Xu says. “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.”

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

“The economic success of Chongqing, in particular, has had a multiplier effect on the surrounding areas, particularly Guizhou and Sichuan,” observes Huang Zhiliang, professor and vice-president of Chongqing Technology and Business University.

Another success story from the go-west strategy is Xi’an about 600 km (370 miles) to the north. The city known as China’s ancient capital and home of the terracotta warriors, is emerging as a major new industrial center. In the decade since the western development program began, the city’s economy has grown by more than 13 percent annually while attracting 76 of the Fortune 500 companies. By 2030 a city that is just 13 sq-km (5.1 sq-mi) today is expected to expand to 1,329 sq km (520 sq-mi).

The growth has been led by the Xi’an High-Tech Industries Development Zone (XHTZ), one of six zones nationally the government aims to turn into world-class science parks. It has attracted firms like Applied Materials, which operates the world’s largest privately owned solar power research and development center, employing 350 people.

“Fresh graduates used to prefer to go and work in Beijing and Shanghai but now they want to work here,” says Liu Minghua, deputy director of the zone’s administrative committee. ”Many people are returning.”

“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.

“The first 10 years has been about the basics such as major infrastructure improvements,” says Lei Yingjie, director of the Xi’an Development and Reform Commission. “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 expects what happens in the decade to put Xi’an on the world’s industrial map.