On the last frontier

The foreign investment that continues to flood into China heads almost always for the coastal strip from Shenzhen to Dalian. But there is an argument for avoiding these well-developed regions in favor of Inland China with its lower costs and less competitive environment. The city of Guiyang is part of the proof.

Guiyang is the capital of Guizhou province in the southwest of China – landlocked, mountainous, and poorer than most parts of the country. But growing numbers of investors are looking at such places to build businesses on the big fish-small pond principle.

The city of Guiyang is a surprise. Its reputation as being underdeveloped and poor is not borne out by reality – it has the same highways, shopping plazas, KFC and Giordano outlets, luxury goods and nightclubs as every other provincial city, but prices are significantly lower than most, providing some investment opportunities.

Developing at lightning speed, like so many other cities across China, the last of the old part of Guiyang is currently being demolished. Local people don't seem to mourn its passing – most houses in poor old Guiyang were hovels. But the process of renewal has of course gone further than it should from a tourism perspective, and there is almost nothing to be seen of old Guiyang. Only one cobbled street is left, and only one of the old city gates. But there is a Parkson's department store.

Tourism is an obvious opportunity and the right pitch would seem to be ? ?The Last Frontier.? Guizhou has natural scenery on a par with Guilin and Sichuan, but it is much less developed. There will be foreign tourists who want to see the natural beauty of Guizhou, with rafting and trekking and other activities waiting to be developed. But the main market will surely be the urban middle class Chinese from the coastal cities who want to see China as it was, before it disappears.

"Guizhou is a place everyone has heard of, but no one has been to," said Edward Yan, general manager of the Miracle Hotel, a Hong Kong-born Australian who has been in Guiyang for more than three years and has no plans to leave.

The isolation of Guizhou draws all kinds. One Russian named Eugene shopping for DVDs at 1 am in the morning said he had come to Guiyang to escape from SARS, and had stayed on because he liked the place. A Singaporean trumpet player said he was considering settling down and opening an Indian restaurant.

There are obviously significant business opportunities. Guizhou has very low labor costs, good air transport links, a tradition of manufacturing (thanks to Chairman Mao's policy of diversification in the 1950s and 1960s to prepare for a possible attack by either the Soviet Union or the US), and one of the most pleasant climates of any part of China. Infrastructure in Guiyang is good, the electricity supply (largely from hydroelectric dams) is plentiful and there are many state enterprise factories which are willing to do deals, turning over their productive capacity to other investors. The city stands a good chance of being a hub of Southwest China, and is rich in minerals and pharmaceutical materials. The central government?s Go West initiative to encourage investments in remote western regions of China also means substantial tax breaks for foreign investors.

The private enterprise element of the city is growing, although it is not as obvious as in the coastal areas ? the state enterprise world was well entrenched in Guiyang and is retreating only slowly. But already half of the taxis are privately owned, compared to less than 1% in either Beijing or Shanghai.

?This is a consumer city,? said one taxi driver cruising along streets lined with department stores and thousands of small shops. ?It?s easy to spend money, but not so easy to make it. If I wasn?t a taxi driver, I don?t know what I would do.?

There are problems too, of course. Poverty is still endemic across much of the province, and the road network is still primitive in many places beyond Guiyang's city limits. Low levels of education and training amongst local staff is a problem. Another is a local government structure which could be more responsive and efficient. There appears to be fairly high levels of official gobbledygook. Guiyang's mayor Sun Guoqiang was quoted last year as saying the city would become a "cyclical economy eco-city," which he said "is an economic mode with a feature of being in line with the natural eco-system substances' cycle." Maybe it means they dig holes in the road only when it is not raining.

One Singapore company has succeeded in creating a JV, GS-Magicstor, with one of the traditional Guiyang state firms to build micro-drives. Cosmetics and pharmaceuticals are key, and mining is a major attraction for investment.

Business hotels are opening up all the time, and occupancy rates so far have remained high.

The night markets in the city center are full of Silk Alley/Xiangyang market type goods. But there are few DVDs around, and lots of cassette tapes – an interesting indicator of Guiyang's level of development. It's like going back 10 years in some ways.

The fiery Maotai wine which Guizhou is most famous for is a high margin product, and even in Guiyang prices can be up to RMB 3,000 per bottle of the best brew. It is drunk like water by those who can afford it – officials and rich business people – and local restaurants wisely offer yoghurt to drink with the Maotai to prevent the lining of your stomach being eaten away.

A major draw card for Guiyang is its lively nightlife. Guiyang people proudly refer to the city as "Little Shanghai," and there is at least as much vibrancy to the night scene as in Shanghai, although on a smaller scale.

Golden Age, the upmarket laoban karaoke palace in Shanghai, has just opened a Guiyang branch and business is booming, with prices very reasonable. A smart businessman from Liaoning named Mr. Fang has just opened a live music club called Jiu Ku (a pun on "alcoholic coolness") currently featuring an excellent band from Kunming. He has a pretty unique business model for Guiyang nightspots – no girls in residence except for the waitresses.