In the centre of Xining, one of several tiny food and drinks stores is home to a middle-aged couple. Behind a curtain, an unemployed man is lying on a bed while his wife attends to customers. The small profit she can eke out is the couple's only source of income.
"We were workers in the `Third Line of Defence' factories," explains the man. "Now these factories are all closing down and we have found ourselves unemployed."
Few officials are willing to elaborate on the grim social reality of Xining. Less than two decades ago, the provincial capital was a notable industrial centre. Under Mao Zedong's war strategy, it was identified as a place to relocate many factories previously based in eastern China. To prepare against foreign invasion, it was decided that enterprises from Heilongjiang, Liaoning, Shandong and Shanghai would be moved to Qinghai province, where new arms factories and power stations would also be built.
Now, as in many others western cities, Xining is counting the cost of closing down these unprofitable, debt ridden state-owned companies and funding welfare payments to unemployed workers. Officially, out of a population of 1.24m, Xining has a registered unemployed rate of one percent, a definition that doesn't include those unregistered workers out of a job. In 1997 Qinghai province had 38,000 unemployed and was providing social aid to 2,600 people.
Vice governor Liu Guanghe puts a gloss onthe social problems: "According to the plan of the central government, Qinghai province is carrying on state-owned enterprise reform and great achievements have been made, with some enterprises being already restructured. The government is implementing a unified policy – the salaries of the state-owned companies' retired workforce needs to be paid, sufficient food needs to be provided to laid-off workers and their livelihood will be guaranteed by various means."
The heavy legacy of the planned economy drains money that might otherwise be channelled to viable businesses. Corporate investment is harmed by the province's reputation as a penal centre. According to recent work by Western researchers, between 1950 and 1990 a total of 160,000 prisoners were sent to Qinghai from eastern China.
During the first decades of the People's Republic, the penitentiary administration and the People's Liberation Army were virtually the only authorities in charge of the province, with the prisons bureau running food production, mining and industry. It was only during the late 1980s that the penitentiary bureau, perceived as heading a loss-making empire, was weaned from power generation, petroleum, aluminium and chemical industries. It shifted focus by investing in agricultural production.
Nowadays, it is estimated that Qinghai has a prison population of only 23,000, far fewer than the estimated number in Xinjiang autonomous region, for example. Still, the province has been stigmatised as a huge labour reform camp, a reputation it also owes to the fact that most former prisoners stay on to work in Qinghai at the end of their sentence. Like other prisoners from north-west China, they are unable to get residency permits elsewhere in the country.
A poor province in a remote part of China, Qinghai is now struggling to catch up with the rest of the country. Unlike the coastal regions, it has plenty of room for growth. A huge territory of 720,000 sq km with a population of only 5.02m, Qinghai is home to 43 different nationalities.
The scale of environmental degradation and poverty is a barrier to development. There are 14 counties in Qinghai ranked among the most poverty-stricken in the whole country. Six of them, containing a total rural population of 1.33m, are located in the arid mountainous area of the east. Moreover, nearly half of the province, or 330,000 sq km, is suffering from severe soil erosion. Another daunting problem is the rate of desertification, with sand swallowing up 1,312 sq km of land every year.
A more lucrative future could lie in exploiting the province's mineral wealth, centred on the 230,000 sq km Qaidam Basin. It has significant reserves of aluminium, potassium, lithium, magnesium, zinc, copper, natural gas and petroleum.
The output of oil and gas at the Qinghai oil field hit a record 2m tons in 1998, a relatively low level by national standards. But there is much potential for example, local oil scientists are developing a new oil-extraction method, using acidifying technology to increase the oil recovery rate. The method involves using a chemical compound injected deep into the earth with dehydrated crude oil as a carrier, causing a chemical reaction to produce a strong solvent to remove block-ages in the oil wells. The method has already yielded good results in Qinghai where six oil wells have increased crude oil output by 30,000 tons, valued at Yn26m.
Since exploration began there in 1954, Qinghai has produced 15.5m tons of crude oil and 2.1bn cubic metres of gas. According to China National Petroleum Corporation, more than 4bn tons of proven crude oil resources have been discovered in the Qaidam Basin in the past 40 years, and gas reserves of 150bn cubic metres. "The reason why Qinghai has been lagging behind in terms of economic development is the inability to exploit natural resources," says a local official. "The climate is harsh and the transportation system is inadequate."
External investment has been scarce. Every year, the heavily subsidised province receives Yn1bn from the central government through fiscal transfer. "Considering the scale of the provincial economy, it would be difficult to gather such an amount of money [through local tax revenues]," says vice governor Liu. "The fiscal abilities of the province are weak and the central government is providing us with investment to develop our infrastructure."
The province has just completed a 1 km-long road tunnel through Daban Mountain at a cost of Yn156m. The upgrading of the 1,937km Xining-Lhasa highway, built in 1954, with the addition of 13 bridges, was also completed this year at a total cost of Yn1.3bn. This infrastructure work is providing jobs for poor farmers who come down from the mountains during spring months. On the road from Xining to Golmud, most of the workers are peasants from Qinghai's poorest counties. Those not on the roads can find contract work in the mines.
According to local officials, Chinese migrant settlers are often discouraged by the harsh climate of the province and by strict land regulations. For instance, the land around Qinghai Lake is environmentally protected and designed to be kept for herdsmen.
In spite of these restrictions, a steady flow of Chinese businessmen from Sichuan, Shaanxi, Gansu, Zhejiang and Jiangsu travel around the province. "They usually stay one to two years and then they go back home," explains an official.
Foreign businessmen have been just as reluctant to set foot in the province. For a long time, lack of facilities, poor communications and the overwhelming bureaucracy of the inner regions of China have deterred foreign companies. Those prepared to visit tend to concentrate on mining, metal smelting, petrochemicals and power generation.
Notable foreign investments include an Israel-invested 800,000-tonne-a-year potash fertiliser joint venture. Israel's Dead Sea Works has signed a memorandum of under-standing to take a 33 percent stake in the US$486m potash fertiliser joint venture. The deal, however, has not been finalised despite 12 years of negotiation. Should it proceed, the plant will help make Qinghai China's leading provincial producer of potash fertiliser.
The huge hydroelectric capacity of the Yellow River is another area of interest. At present, about 100 electric power stations in the province produce more than 7bn kW hours of electricity a year.
Until now, the biggest joint venture projects remain the Hong Kong-invested US$29m Yellow River Power Generation company. In operation since 1997, this project involves the Hong Kong partners Fu Heng and Fu Shi groups. The next biggest is the US$27m Changqing Aluminium Plant, also invested by a Hong Kong group. But the most important wholly foreign-owned company of Qinghai jointly invested by US and Hong Kong groups is a US$ 154m power generation venture designed to build the Zhiganglaka dam on the Yellow River. The two foreign partners are Solar Star of the US and Hong Kong's True Busy Industrial.
With a growing interest from foreign companies starting to prospect in the province, and with improved direct land and air connections to Lhasa, Qinghai could become a window to the Chinese far west.
World Bank project
Following approval in June 1999 of a World Bank poverty reduction project in western China, Qinghai province has been the focus of much international atten-Lion. The impoverished province plans to relocate 58,000 people of various ethnic groups, including Tibetan, from an arid and mountainous eastern area and resettle them in the western parts of Qinghai, in Dulan county. Most villagers exist on very small incomes and the produce which they grow for their own consumption. They complain of roads which are little more then dirt tracks and a lack of water, schools, medical facilities, transport and electricity. Few have visited Dulan, but all have been told by local officials that life would be better there. It is therefore not surprising that many villagers have volunteered to be part of this exodus.
On June 24 this year the World Bank approved the three-component, US$160m project designed to benefit almost 1.7m of the poorest people of China, living in Inner Mongolia, Gansu and Qinghai.
But the bank's board of executive directors stipulated that no funds should be disbursed for the US$40m Qinghai component of the project, pending the outcome of a review by the bank's independent inspection panel. This is a three-member fact-finding body designed to answer public concerns regarding projects financed by the bank. It was also agreed that the Chinese government would facilitate ?visits to the project site by diplomats, government officials, members of parliaments and the media, before, during and after implementation of the component,? according to an official communique in June.
These measures were taken to answer inter-national concern about the project in Qinghai province. According to opponents, the resettlement project could dilute the Tibetan presence in the ?move-in' area of Dulan. Furthermore, there was concern regarding the lifestyle enjoyed by Tibetans to be resettled outside western Qinghai.
Two of these remote and poor counties in the west, Pingan and Xunhua, are the respective ancestral homes of the Dalai Lama and the former Panchen Lama, and the whole area is considered to hold a special significance to Tibetans.
It was also thought that the resettlement project in Dulan, a county designed to become an agricultural zone aided by irrigation, might endanger the Tibetan herding subsistence lifestyle. Finally, some observers were concerned by the proximity of two major labour camps and the construction of a new dam to irrigate Dulan county.
The project will include building a diversion weir on the Xiangride River and a 28km canal taking water to a regulating dam. A 59km-long canal would then connect the newly built Keri Dam to irrigate more than 16,000 hectares of land.
The scale of the controversy, which has deeply divided the World Bank, has taken Chinese officials by surprise. "It is really something I couldn't expect at all," says Qinghai vice governor Liu Guanghe. "These poor people are left without resources in our province. It is unimaginable that this has become such a political issue."
The defiance of the Chinese authorities towards outside pressure culminated in August when Western researchers visiting the province to conduct what they called an independent investigation, were detained in Dulan county while in the vicinity of a major labour camp. They were released several days later but the event only served to strengthen opposition to the project.
The conclusion of the inspection panel, which was supposed to visit Qinghai province in October, is not yet known. Should approval be granted, the project will take six years to complete, although a pilot scheme involving the resettlement of 1,000 people could start as early as next April.