If you are looking to do business beyond China's coastal strip, Chongqing could be the answer. This is a city that has the honor of being the largest municipal territory in the world – 82,000 square kilometers to be exact. Its ambitions don't quite match that magnitude, but that is not saying much. Chongqing is approximately the same size as Austria.
Chongqing (also known in English as Chungking) is encouraged in its ambitions by significant support from the central government in Beijing, which is becoming more and more uncomfortable with the clear gap in incomes and living standards between the prosperous coastal areas and the lagging inland regions.
And the gap continues to grow. The per capita GDP in the western regions, including Chongqing, rose 33% from US$498 in 1998 to US$663 in 2002. But the coastal regions saw an increase of 41% over the same period from US$1,212 to US$1,704.
The latest indication of support for development of the western regions came with a high profile visit by Premier Wen Jiabao to the region in early August. He visited the birthplace of Deng Xiaoping in Guang'an, and met with provincial leaders.
Wen, of course, has to balance off different issues, including the risk of the national economy over-heating. So his encouragement of western growth was tempered with an instruction that the western provinces – including the relatively poor ones – must follow the principles laid down by the central government and not blindly aim for unrestricted growth.
It is unlikely Chongqing will pay much attention to that. At a recent press conference called to promote a local investment forum, Chongqing's vice-mayor Tong Xiaoping said the aim was to turn the city into a magnet for funds by improving the regulatory environment for both foreign and domestic investors. "We want not only dollars, but also renminbi to marry with local resources," she said.
The investment forum is to be held in Chongqing September 5-6, with representatives of China top 500 companies in attendance. "It's a chance for us to show our investment environment," said Tong, adding that Chongqing particularly hopes to become western China's top auto and auto-parts base, and high-tech center.
When you arrive in Chongqing, you realize instantly that there is something different about this city compared to most others in China. It is more three dimensional, more hilly, and historically there were never many bicycles here because of all those gradients. The heart of the city is built on a steep promontory at the confluence of the Yangtze River and another important river, the Jialing, both rivers rushing past muddily on an angle that you can actually SEE – not a common thing with rivers.
Chongqing leapt on to the pages of history in early 1938 when Generalissimo Chiang Kaishek made it the wartime Chinese capital following the capture of Nanjing by the Japanese in December 1937. Refugees flooded into the city from all over China, and it quickly swelled into a metropolis of over two million people. Barbara Tuchman, in her superb book Sand Against the Wind: Stillwell and the American Experience in China 1911-45, described the state of the city and the corruption which sapped the Nationalist government's strength:
"With its extra wartime population stuffed into meagre, overstrained facilities, Chongqing was more uncomfortable, unsanitary and ill-provisioned than ever – and the climate was still the same: humid heat in summer, rain and mud the rest of the time. Bomb-shattered houses were leaky and shaky, filth and smells were increased by the crowding, rats came out at night, clerks and workers were underpaid, giving rise to the article of belief among American correspondents that 'no one ever saw a fat Chinese under the rank of Minister of Finance.?"
That Chongqing is now gone, of course (and thanks to McDonald's there are now many young Chinese who appear to aspire to American obesity). Few of the buildings of that era have survived the incredible rebuilding effort, which has remade Chongqing in the past 10 years in the same way that every other city in China has been reconfigured.
The late Deng Xiaoping, whose birthplace is only five hours' drive from Chongqing, was the city's first mayor after the Communists took power in 1949. A large number of factories were relocated here from other parts of the country during the Second World War, and in the 1950s and 1960s. The heavy industry element of Chongqing's economy was further strengthened as the central government placed strategic industries in inland locations safe from possible invasion by the Nationalists, the Americans and the Soviet Union.
The result was a massive swathe of dirty polluting industry, throughout and around the city, particularly in Jiangbei district. And while many of the factories have closed in recent years due to the fundamental inefficiencies of state-owned enterprises, not to mention the intentional inconvenience of their location, Chongqing remains one of the most polluted cities in the country.
A couple of incidents over the past year related to dilapidated industrial sites pushed Chongqing into the news. First there was a gas well explosion in December of last year, which killed 243 people and injured more than 4,000. It was China's worst single industrial accident in many years, involving a gas well operated by China National Petroleum Corporation; CNPC General Manager Ma Fucai resigned in April over the incident. Within days of his resignation came a chlorine leak from a chemical factory in Jiangbei district which left nine people dead.
Three Gorges effect
Chongqing municipality, 1,500 km west of Shanghai on the middle reaches of the Yangtze River, was carved off from Sichuan province in 1997 to create its own administrative center reporting directly to Beijing. Population: over 30 million.
"Why did the central government decide to set Chongqing as a municipality? Is it because of the Three Gorges Dam Project?" asked Chongqing Communist Party Chief Huang Zhendong rhetorically at a news conference during the annual National People's Congress session in March. "I don't think so. There are more reasons for Chongqing to become a municipality."
The first reason was to allow for more direct control by Beijing of the Three Gorges Dam project, the largest hydroelectric project in the world. Most of the impact of the dam falls in what was then eastern Sichuan and is now Chongqing municipality. The building of the dam, behind which a massive reservoir is now gradually growing, created a huge range of problems, including the relocation of hundreds of thousands of people, massive infrastructure projects, and immense environmental problems.
The second reason for upgrading Chongqing was to allow the city to play a "dragon head" role (to use a Shanghai analogy) in terms of the development of China's western regions.
Having been given the honor of playing a leading role in dragging the generally poor and isolated areas closer to the coast, Chongqing started to benefit from the money flowing into and through the city. The results are plainly in view, not only in terms of the real estate (with prices that are among the highest in urban China), but also in terms of the luxury cars, top-line restaurants and other indications of conspicuous wealth.
Over the past decade, Chongqing has reported an annual GDP growth rate of more than 8%, in the same ballpark as the rest of the country. Foreign direct investment levels, however, have been relatively low, although this is increasing and is offset by substantial domestic Chinese investment coming in from the coastal regions.
The state-sponsored coastal investment is largely encouraged with arm-twisting. The Shanghai city government, for instance, sponsors infrastructure and other projects in various parts of the western regions at the request of the central government; other rich coastal cities are brought into the support process, too. Major state-owned enterprises in the coastal regions are also encouraged to invest, set up subsidiaries, or do M&A at reasonable prices with smaller companies in Chongqing and elsewhere.
Chongqing is already one of China's main centers for motor vehicle production. Of the 123 firms licensed to make cars in China, 17 are here in Chongqing. Changan Automobile, the biggest of the local carmakers, has two big joint ventures in progress, one a 50-50 venture with Suzuki to manufacture small cars and motorcycles, and another with Ford.
Ford was slower than some of its competitors, including GM, to move into the China market and is still in catch-up mode, aiming to profit from the incredible China boom in small cars; Chongqing is a key part of that strategy.
Changan Ford's production began in January 2003, and the 50,000th vehicle rolled off the assembly line on July 28 – a silver-colored Mondeo. The Chongqing Ford plant is also producing Fiesta sedans and will launch the Focus soon.
There are many foreign firms with operations in Chongqing and a surprisingly large number of tech companies, including telecom players such as Samsung, Ericsson and Nokia. Chongqing offered significant tax breaks to encourage investment to help soak up the hundreds of thousands of workers thrown out of work in recent years by shrinking state-owned enterprises. Carrefour, the French hypermart chain that is the clear winner so far in terms of penetrating China's booming consumer market, has three of its monster outlets in Chongqing.
One of the many ironies of Chongqing is that while it is at the center of the massive Three Gorges power generation project, it is facing significant power shortages, like much of the rest of the country. With the use of air-conditioning now as widespread in the growing middle-classified ranks of Chongqing as in the rest of China, summer temperatures in the upper 30s (Celsius) have put a huge burden in existing power supplies. Huge investment is being pumped into expanding power generation capacity.
Poor transportation links have always been a problem, of course, but this is changing rapidly, again thanks to massive investment.
Air service links are growing, the intercity road system is being constantly upgraded, and the river is about to become a much more important economic artery for the city as a result of the Three Gorges Dam.
The lock system that is part of the dam project and the flooding of many shallow parts of the Gorges portion of the Yangtze will allow medium-sized cargo ships of up to 10,000-tonnes to reach Chongqing for the first time in history, making container transport by water a serious option for manufacturers in Chongqing looking to shop goods on the coast or overseas.
To ease growing traffic congestion in the city, there is a monorail system growing, the first of its kind to be built in China. The first phase of the system is 13.5 kilometers in length with 14 stations along the way. The entire length of 19 stations over 19 kilometers is due to be completed next year. The trains running on the system were bought from Japan's Hitachi.
Chongqing is also playing a leading in the roll-out of digital television in place of the current analog cable system.
China Central Television (CCTV) launched six digital channels in August, charging RMB 58 (US$7) per month for bundled service. It is still not clear how the masses are going to respond to this fundamental shift in their TV viewing habits, and there is a huge amount of money riding on precisely how it goes. Chongqing will play a role in determining the direction.
So the momentum now seems to be in place for Chonging to achieve its goal of being an economic hub for China's backward western regions.
The climate of the city may be uncomfortable for much of the year – intensely hot in summer and clammy and cold in winter – but the investment climate is looking up.