Qingdao seems to have so much in its favor that it's hard to think of an asset it doesn't possess in embarrassing abundance. The city manages to be a desirable foreign investment target, the breeding ground of some of China's most successful private companies and an expanding and increasingly important shipping conduit – all while maintaining a pleasant seaside atmosphere and a thriving tourism trade.
The local government's strategy appears to be to concentrate on its strengths – which for Qingdao means a wide variety of things. It does not appear content to be known as simply an industrial city, a logistics center or a quaint tourist town. It would like to be all of those and more, if possible. Striking a balance between these ambitions represents a considerable challenge for the city as it continues its multi-faceted development.
Qingdao is the wealthiest city in Shandong province, which itself has the second-highest GDP of China's provinces. Despite its cozy position on the Yellow Sea along the outer edge of the Shandong Peninsula, Qingdao is nevertheless lumped with its neighbors on the other side of the peninsula as part of the Bohai Sea Rim economic zone, north China's answer to the Pearl River Delta (PRD) and Yangtze River Delta (YRD) regions.
Though the Bohai Rim could not quite match its two rivals' otherworldly growth rates for most of the 1980s and 1990s, the area has made significant strides toward catching up in the last decade. This has come thanks to its cheaper land, oil and natural gas resources as well as easy access to South Korea and Japan. Qingdao's own GDP grew by a remarkable 16.9% in 2005 to US$33.7 billion.
The city was created in 1891 by the imperial Qing government as a defensive naval base, guarding the entrance to the Bohai Sea. But it did not last long in their hands. After an 1897 incident during the Boxer Rebellion in which two German missionaries were killed in Shandong, Germany invaded and signed a 99-year lease on the territory.
The Germans only occupied Qingdao for 17 years – the Japanese invaded at the start of the First World War – but their influence during that short time has endured. In 1903 they established the first brewery of Tsingtao beer, today China's best-known brand both nationally and globally. The Germans were busy builders, too – Qingdao continues to be known for the characteristic red-tiled roofs of its old colonial buildings. In recent years the city government has tried to recreate this spirit by ordering new buildings to go for similar colors and styles – but from Fushan, the hill that looms behind the east of the city, there is no danger of being deceived.
After the war, the Allies awarded Germany's seized Shandong concessions to Japan at the Treaty of Versailles instead of returning them to China, setting off the May Fourth Movement of 1919, the defining moment of modern Chinese nationalism. The event is commemorated by a large red abstract sculpture at Qingdao's Five Four Square, the waterfront plaza next to the modern central business district.
Historical interest in the area is just one of many reasons so many tourists come to Qingdao – as many as 25.7 million people came in 2005. "Confucius's hometown is nearby, but Qingdao is usually the Shandong stop on all of the tour groups," said Frank Wen, general manager of the Shangri-La Hotel Qingdao.
Visitors, most of whom come from elsewhere in China and Southeast Asia, are attracted by the things they can't find in most other Chinese cities – the beaches, European-style architecture (for which the city is known as "little Switzerland" in China), and, significantly, clean air. "Qingdao is one of the cleanest cities in China," Wen said. "It really is a unique place."
Qingdao's pleasant and clean environment has made it a favorite spot for the well-to-do of Shanghai and Beijing – both an hour away by plane – to buy holiday homes. Expensive seafront villas and condos now stretch all along the shoreline towards Shilaoren district in the east, many of them owned by out-of-towners.
Yet as nice as it is to visit, Qingdao is really a business town through and through. "The tourist market in Qingdao is expanding but business travel is increasing as well," admitted Wen." The Shangri-La, whose clientele was not long ago split evenly between tourists and business travelers, now accommodates the latter almost exclusively, and is expanding its capacity this year to accommodate even more business trippers.
Qingdao has proven its knack for fostering business, boasting an impressive stable of successful homegrown companies, 31 of which own brands ranked in China's top 100. Aside from Tsingtao, easily China's top global brand, there are also high-tech firms like Hisense, which scored a technological breakthrough when it developed its own digital video media processors in 2005.
But the undisputed king of Qingdao's native companies is white-goods giant Haier, whose global revenue in 2005 was nearly US$13 billion, about 38.5% of its hometown's entire GDP. The company, which sprang from the ashes of a deteriorating state-run factory in 1985, is now the world's second-largest maker of refrigerators and is diversifying into such other areas as mobile phones, insurance and pharmaceuticals. There is even a Haier Road in Qingdao, which leads to the company's imposing headquarters complex. "It's like a Haier district," said Wen.
Far from being single-mindedly focused on nurturing its own companies, Qingdao has also received a lot of attention from international firms, who have invested billions in projects in the city. Besides electronics and appliances, apparel and food and beverage are both key industries – Nike and Coca-Cola both have multiple plants in town.
Qingdao enjoys especially close ties with Korean business. There are over 5,000 Korean companies in the Qingdao area, and about 60,000 Koreans live here – by far the city's largest foreign community. Korean restaurants can be found almost anywhere in town, and Qingdao's new airport has daily flights across the Yellow Sea to five cities in Korea – Seoul is less than an hour away by plane.
Indeed, Qingdao's convenient access to Korea, as well as Japan, is an advantage that has helped its fast-growing port in Huangdao District compete with rival Tianjin. Han Zhigang, an importer-exporter in Qingdao, said the port has advantages beyond geography. In Tianjin, all goods are required be warehoused before they are shipped, a step that drives up costs. "But in Qingdao you can transfer cargo to the port directly," Han said.
The container port, already the second-largest in China, is going through a substantial expansion under a four-way joint venture between Qingdao Port Group, Maersk, P&O and COSCO. Operator Dubai Ports World, fresh from its failed attempt to buy ports in the US, announced a US$500 million investment in new container berths in March.
While Qingdao appears to be making great strides in developing its many assets – a current slogan is "larger industry, larger port, larger tourism" – some worry that it is juggling too many priorities. Signs point to tourism as the ball likely to get dropped.
"Frankly, there is a concern that the government is in danger of pushing industrial investment too much," said Wen of the Shangri-La. Traffic is already becoming a problem, he said, and a recently proposed chemical and oil refinery in Huangdao made locals nervous about industry polluting Qingdao's famously clean air.
Hosting sailing and several other water-sport events at the 2008 Olympics will of course provide a big boost for Qingdao's international profile – it will be the only city apart from Beijing to host a medal round in any sport. "Qingdao's basically been given this gift, in the Olympics," said Ian Burns, a longtime local resident and founder of a consulting firm in the city.
Burns wonders how equipped the city is to fully exploit such an opportunity. He points to Fushan Bay, where container ships and oil tankers docked until very recently, but has been converted into a marina complex for the Games. It is already hosting events like the start of a round-the-world boat race, but there are signs that not everything has been quite thought through.
"They've got the Olympics set for August 8, 2008, which is lucky since it's 'ba ba ba' (three eights, as in the date), but the international sailing community is worried that there's not going to be enough wind at that time of year," said Burns.
While nothing as fickle as the winds at a sailing event will determine the future of tourism in Qingdao, Burns sees it as more of a indicator of heedless ambition rather than level-headed planning. "This being China, they're very good at the hardware – everything here is going full speed ahead," he said. "But they don't have the years of experience under their belt that Beijing has. There will be a steep learning curve – practically vertical."