King of the west

Times have certainly changed for Chengdu. In ancient times, it was the capital of the isolated Shu kingdom, surrounded by mountains. The perilous Shu Road was its only connection to the rest of what is now China.

Fast forward 1,800 years or so and the city has become the 10.4 million-strong capital of Sichuan province. As the largest urban center in west China (notwithstanding Chongqing municipality's 30 million people), it is now the commercial and financial hub connecting the west with the rest of China, and, increasingly, the world.

Credit goes in large part to the central government's "go west" drive to encourage the development of the lagging western provinces. The initiative has put the city on the map, and increasingly into foreign businesses' consciousness.

According to real estate consultancy Jones Lang LaSalle, Chengdu ranks fifth in the country in expansion of multinational companies, behind only Beijing, Shanghai, Dalian and Guangzhou. It has also become a popular stop for foreign heads of state on their multi-city tours of China.

For foreign companies, the enticements of "go west" include a two-year tax holiday after profit followed by three more years' taxes at half the normal rate.

Larger players can also negotiate generous deals on land leases. Computer processor giant Intel received land for its chip making plant – it also has enough land to build as many as three more facilities – free of charge when it came to town in 2003.
Paul Sives, who heads the British Chamber of Commerce in Chengdu, points to low labor costs as the key factor in bringing in foreign business – Chengdu staff can be paid a fraction of their counterparts' salaries in coastal cities. There is a ready supply of graduates from schools like Sichuan University, the University of Electrical Science and Technology of China and Chengdu University of Technology.

Having one of the widest industrial bases of any major city in China also helps. It has added a high-tech string to its bow to go alongside well-established heavy and light industries, as Intel's operations, representing a total investment of US$200 million, attest. Other big firms like Alcatel, Microsoft, Motorola and Sharp also have a presence in the city.

"A lot of companies in that area [high-tech] would typically go down south to Guangzhou… because Guangzhou particularly is more of a high-tech area," Sives said. "But Chengdu has some good technology universities and they're putting out some good high-level students, and of course, being out here, they're cheaper."

Skills shortage

While savings may be good, finding the right people for the job can cause headaches. "The problem is getting people with experience," said Sives, "but those people are available, you can get them."
Helmut Sebastian of Siemens noted difficulties in finding personnel with good language skills. "There's the feeling that no one wants to come to Sichuan. It's not easy finding people here who are both qualified and also speak good English."
The local government is, on the whole, receptive to input from the foreign business community, said Sives, but some issues like customs still stand out as lagging behind more organized eastern cities. Whereas customs in Shanghai operates 24 hours, seven days a week, he said, Chengdu's bureau runs just eight hours a day, and only on weekdays.
"If you want to import something it can be difficult, it can be time-consuming. And that's not so good."
Further inconvenience has been created by the provincial government's recent decision to implement a law imposing a 3% tax irrespective of any tax-free agreements companies had previously had with the municipal authorities.

Despite the growing interest, Chengdu still has a way to go before it becomes a household name among foreign businesses, said Pascal Hernandesse, who heads the European Union Chamber of Commerce chapter in Chengdu.

"We still need to advertise to foreign investors, because it's not that well-known outside of China, though inside the country it is already very well-known."
He believes the EU Commission-sponsored Asia-Invest Forum in early November, which the Chamber is organizing, will help raise Chengdu's profile. The EU-China Partenariat is to be held the following month, an event designed to play matchmaker for 200-300 European companies and 500 Chinese ones.

"Chengdu is still not very well-known in Europe, so this is a way to attract people here," said Hernandesse.

Transport links are improving, though still not ideal. A wide new expressway to Chongqing, 340 kilometers to the east, opened this year. The first direct route from Chengdu to Europe – a twice-weekly direct KLM flight to Amsterdam – is now in operation. While shipping by air is quick and efficient, transporting heavier goods for export remains prohibitively difficult due to the absence of any large waterways. Slow railroads make it a hassle to send cargo to ports on the coast to be shipped, though a high-speed track to Shanghai is said to be in the works.

Infrastructure within the city is developing quickly as well.

"The city has changed dramatically in the last three years," Sives said. Chengdu's concentric ring roads – it now has five, though the second ring is currently the outer limit of the most urbanized area – bring to mind a scaled-down Beijing. Many older concrete roads, which tended to crack easily, have been replaced with much sturdier tarmac. Tianfu Square, Chengdu's miniature answer to Tiananmen Square, is currently a several-story-deep pit, in which workers busily construct what will be the central station of a subway system.

Although not without its charms, and comfortable in many ways, some expatriates complain that the city's lack of amenities means it remains a "hardship" posting. For example, there is currently no international-curriculum school for managers who come over with their families.

Gripes about gloom
Weather is another frequent grumble. The city, which rests on a plateau surrounded by tall mountains – notably the Himalayas, which begin to the north and west of town – suffers from gloomy overcast skies, made worse by pollution. But this, too, seems to be on the mend.

Chengdu's municipal government embarked on a campaign in 2004 to become a "model environmental city".
The plan, as practised in other cities of similar size, involves moving coal-burning factories further into the countryside, or restricting them to weekday operation. An early result was a string of hazy workweeks punctuated by clear blue weekends, but some believe the environment is genuinely getting cleaner, though the city's natural weather patterns are not for everyone.
"Most of the year it's cloudy, you don't see sunshine," said Siemens' Sebastian. "It's not dirty, it's just cloudy. Sichuan is like a huge bowl, and you don't get much wind, so the clouds hang around."

For the time being, Chengdu is still the undisputed leading city of west China, but it may eventually face competition from its neighbor down the road.

"We shouldn't forget that, once the Three Gorges [Dam] gets running, Chongqing will start to be quite interesting as a logistics hub," said Sebastian. "But when I see the development here in Chengdu ? at the moment I think it has the edge."