New horizons

According to official classification, China has more than 660 cities, of which 159 are in the 12 provinces that make up western China. Most are unknown to outsiders, even those foreign investors who have piled into the east of the country or those who are taking a new interest now that China has joined the World Trade Organisation.

In part this is because, despite the much publicised national strategy for developing the interior, it is the large provincial capitals that hog the headlines. A select few other cities have high profiles because of their local specialities – for example, Guilin (Guangxi), Dali (Yunnan) and Kashgar (Xinjiang) for tourism, or Baotou (Inner Mongolia) for rare earth metals. However, many major cities pass all but unnoticed to those outside China. Shizuishan (Ningxia), an important industrial base and centre for coal mining and tantalum, with a population of 750,000, is a case in point. So are Neijiang (Sichuan), Qujing (Yunnan), Zunyi (Guizhou), Tianshui (Gansu) and Baoji (Shaanxi), to list just a few of the key urban centres in the west.

Such cities are overlooked because they stand in weak comparison with those in the east. Both foreign and domestic companies see the advantages of eastern cities far more readily, and are reluctant to divert resources to less developed locations. Incomes are lower in such cities and their infrastructure and communications can be poor. All but the largest lack qualified and experienced workforces; they find it hard to tempt labour from outside their region and just as difficult to hold onto the small pool of native talent, which invariably wants to leave for the more prosperous parts of China. The smaller cities lack political clout when measured against the regional capitals, which limits their ability to compete.

Foreign companies eyeing the west tend to home in on the capitals. The UK retailer B&Q, for example, chose Kunming, capital of Yunnan province, as the only one of its seven China bases not located in the east. The company was offered the opportunity to invest in the city by the central government as part of its western development policy.

Many of the 159 cities in the west deserve a closer look, however. For a start, as a consequence of WTO membership, internal as well as external barriers are coming down, opening up hitherto difficult domestic markets. Then there is the amount of new money, much of it allocated by government, which is flowing into projects in western China. Sichuan alone has received Yn23.5bn from central government bond issues since 1998 for almost 250 infrastructure projects. Many second- and third-tier cities in western China are at the same development stage today that their counterparts in the east reached in the late 1980s and early 1990s. Moreover, they are part of a more advanced and prosperous national economy, which offers new opportunities for local industries.

Take Jinchang in Gansu province, for example. China's leading nickel-producing city, situated 300km north of the provincial capital Lanzhou, it posted growth well above national and provincial averages last year, at 12.5 per cent. GDP remains small, at Yn4bn, but the growth trend is impressive. Fixed asset investment reached Yn1.5bn, with a rise of 38 per cent, compared with an increase for the whole of western China of 19 per cent. Retail sales amounted to almost Yn1.1bn, up 20 per cent. Jinchang may be only a small market, disadvantaged by remoteness, in one of China's poorer provinces, but it appears to be making good economic headway.

Emerging markets
In contrast with Jinchang, certain cities are well placed by their location to take advantage of regional growth. Chongqing municipality, for instance, includes a hinterland that embraces four county-level cities, including Wanxian about 300km to the north. Sichuan also has a number of important cities. Neijiang, Zigong and Luzhou lie close together in the east of the province, while Deyang and Mianyang are relatively near neighbours just north of Chengdu. Further-flung are Panzhihua and Guangyuan.

Assessing western cities for potential markets or investment opportunities is difficult. Jinchang would probably come low on the list, the Sichuan cities higher. For most cities, recent data is sparse. National statistics ignore all but the top 35 cities, and only a small minority of these are in the west. The provinces publish annual reports, but access to these (weighty) publications is hard to come by. Using the internet often requires a trawl through a mass of daily news output and information in Chinese. Provincial and lower-level city governments and news organisations maintain sites, though many are overloaded or obsolete. Nevertheless, some are worth monitoring. The Sichuan government site, http://www.sc.gov.cn, has links to other sites including, for example, scxb-hgc.com.cn, which gives information on Luzhou in the south of the province. For Ningxia, http://www.nx.cninfo.net provides useful information.

Even without hard economic data for a given city, there are promising features that should encourage manufacturers, suppliers and investors to pay attention to developments in the west. Many cities are diversifying their industrial and commercial bases, providing the underpinning for emerging consumer, service and financial markets.

Guilin in Guangxi autonomous region, for example, is best known for tourism but the city also hosts an important industrial base. In the case of the Guilin Daewoo Bus Co this has a certain amount of synergy as the company makes coaches. Set up in 1994, the joint venture will move this year into truck production; it is an interesting example of a local automotive industry surviving far away from the main centres of vehicle production in central and eastern China. The story is repeated in Baoji (Shaanxi province), where the Baoji Automobile Corporation supplies armed vehicles to police forces. Guilin and Liuzhou have state-level high-technology development zones, with Guilin's contributing about a quarter of the city's industrial output, Liuzhou's far less. Liuzhou and Beihai have light industries that export to the US, Europe and Asia. Beihai, like Guilin, commands some foreign interest, embarking this year on a major goose liver project with a French company.

Local city economies across the west of China are supported by industrial and agricultural concerns, and especially by mineral extraction. Baoji, for example, is home to the Baoji Titanium Industry Co. Some cities have a specific sector focus. Mianyang majors in science and technology, while Yuxi (Yunnan) has a thriving flower industry and Hepu (Guangxi) serves the local fishing industry.

Location dictates many specialist activities. Pingxiang, Dongxing and Shuikou the Gobi desert. Kashgar (Xinjiang) has a space tracking and control centre and Jiuquan (Gansu) a satellite launch centre. Tongchuan is exploiting its reputation as a centre for the world's steam train enthusiasts. The range and concentration of activities demonstrates that, after 20 years of reform in China, there is a platform for future growth in western cities.

Economic projects are often led by government policies, such as the building of infrastructure, industrial upgrading and environmental initiatives. A number of cities benefit directly from their proximity to reforestation projects and planting programmes designed to combat encroaching desertification – Yn4.2bn went on restoring land to forest and woodland last year. The central government wants to encourage new industries around such projects. For instance, a forest park is being developed in the Gobi desert, close to Shizuishan in Ningxia autonomous region. Private entrepreneurs have set up more than 100 projects in Jiuquan. Shaanxi and Ningxia both have ambitious plans for reforestation. Xinjiang is planting heavily to prevent its 400,000 sq km of desert from advancing any further. Karamay (Xinjiang), a city that is diversifying towards agriculture to reduce its dependence on oil, is also planting for shelter, timber and paper purposes.

Infrastructure is being rolled out at a rapid pace and is key to the western cities' prospects. Some Yn100bn is to be spent on the region's railways over the 2001-05 period, to improve track and extend the network from 16,000km to 18,000km. Beneficiaries will include Baoji (which will be linked with Lanzhou in Gansu province), Shenmu (Shaanxi) and Liupanshui (Guizhou). An 870km fast train route from Neijiang to Kunming, running through Sichuan, Guizhou and Yunnan provinces is now open, following the recent completion of the 360km central stretch between Shuifu (Yunnan) and Meihuashan (Guizhou). New dynamism tends to run ahead of new infrastructure, as happened in Aksu with the opening of the western extension to the Xinjiang rail line in the late 1990s. That line is now planned to run through to central Asia, further boosting the economies of remote urban areas in many parts of Xinjiang.

The west China highway network is also growing rapidly and will extend to a projected 40,000km by the end of this year, of which 2,500km will be expressways. A Shanghai-Burma route passing through the Yunnan cities of Qujing, Kunming, Dali and Ruili should open this year, further firing local economies.

Among the 12 western regions, Guangxi is unique in that it has a coastline. A major project is under way to link its main port cities of Beihai, Fengchanggang and Qinzhou with neighbouring provinces, providing the interior with access to the sea. With the building of a Yn3.3bn, 270km highway, links between the three ports are also being improved, encouraging the expansion of a development corridor.

The scale and pace of development in western China may be slower than in the east, but it should still command attention. The region's 159 cities hold the potential for long-term growth in the interior. On current form, some may soon emerge from the shadows to become powerful new markets, either in their own right or as part of localised regional economies.