On a map of China, Urumqi appears as a small provincial city with little to offer foreign investors. First impressions are little more appealing: a grey city in the middle of the pale yellow sand of the Xinjiang desert, bordering central Asia. Remote from the fast-growing coastal provinces, too poor to become a market base and susceptible to ethnic unrest, the entire autonomous region of Xinjiang has long been considered the last wild frontier of China.
Nevertheless, China's impressive economic growth since the beginning of the 1990s has not by-passed the region. Xinjiang posted a nine per cent economic growth last year, after a 10 per cent growth in 1995, which was its best performance during the Eighth Five-year Plan (1990-1995). The regional capital of Urumqi has enjoyed similar progress – averaging 8.8 per cent growth since 1990.
An uneasy calm
But even as tall office buildings and franchise shops spring up along the large avenues of the city, investors wonder if stability and development can ever join hands in the region. It has been a black year for Urumqi. In February, on the last day of official mourning for paramount leader Deng Xiaoping who had died the week before, three separate bombs went off on public buses, killing nine people and injuring around 60. The following month, a separatist demonstration degenerated into a riot in Yining, capital of a prefecture bordering Russia.
More than three months after these events, an uneasy calm prevails in the city. In the daytime, Urumqi is a booming provincial capital, with its modern centre and bustling alleyways. But at night, when the bazaars and the food stalls fill with customers, police patrols take over the streets to check the identity of car drivers traveling into and out of the city.
The regional government loses few opportunities to emphasise the these problems in a short period of time," explains Ablait Abdureschit, President of Xinjiang Autonomous Region. "The separatists involved in the bombings were all arrested. We have a full control of the situation because we have the support of the people. This won't be shattered. There are still terrorists in Xinjiang, but we have the means and the conditions to prevent them from attaining their objectives."
This won't be an easy task because ethnic diversity has long caused tensions in this country-like region of 16 million inhabitants where only 38 per cent of the population is Han Chinese. The Xinjiang ethnic patchwork is striking. According to the 1990 census, there are six million Han Chinese, 7.2 million Uighurs (Moslems of a Turkic minority origin), along with 45 other ethnic minorities such as 1.1 million Kazakhs and a small number of Mongols and Uzbeks.
Paying its own way
Since the beginning of the 1990s, land-locked Xinjiang has found itself bordering the newly independent Asian republics of Kazakhstan, Kyrgyzstan and Tajikistan. The improving economic environment in Xinjiang has developed in tandem with growing separatist tensions. Urumqi reflects all these contradictions. With Han Chinese making up 60 per cent of its 1.4 million population, the city has been struggling to undertake its transition from a dusty backwater into a modern regional capital.
Urumqi is striving to achieve this goal by using its own resources. While the region still depends on central government subsidies (Yn523m in 1995), the city generates a revenue surplus. In 1995, Urumgi's total income of Yn136.5m exceeded its outgoings by Yn3m.
Urumqi is applying its healthy financial situation to improve its infrastructure. During the Eighth Five-year Plan, investment in construction increased by 46 per cent and investment in real estate projects jumped 90 per cent. Major individual projects include the Lanzhou-Urumqi double track railway line; the expansion of Urumqi airport to reach a capacity of one million passengers a year; a four-lane highway connecting Karamay and the construction of the 370km Urumqi-Turpan highway — a US$300m project supported by a US$150m World Bank loan.
To improve its prospects of development, Urumqi has followed the general direction laid down by officials of China's State panning Commission for the whole region of Xinjiang. "Since the beginning of the 1980s, we base ourselves on natural resources to develop the economy of Xinjiang, and we export a part of these resources," explains He Xiaolong, director of the Xinjiang Planning Commission. This strategy has allowed Urumqi to increase its production capacity of important raw materials. For example, during the first half of the 1990s, annual coal output expanded to 60,000 tonnes, petroleum-related products to 210,000 tonnes and cement to 940,000 tonnes.
Government recognition
By improving its infrastructure and speeding up its economic development, Urumqi has created a more attractive environment for foreign investors with the result that utilised foreign investment reached US$365m in the first half of the 1990s. In 1995 alone, US$32.7m of foreign investment found its way to the city. That is testimony to the tenacity of city officials in challenging the stranglehold on foreign investment in coastal regions. "Five special economic zones were created in southern China at the beginning of the 1980s to help open up the country," explains Liu Yaping, deputy division chief of the local Foreign Investment Administrative Office. "But now that we are trying at the national level to strike a balance between the eastern and western parts of China, we hope that Xinjiang can get more preferential treatment for foreign investment. Some would prefer to phase out this system completely, but it seems to us that, according to the degree of development, it is still necessary to adopt these preferential treatments."
Urumqi has made its voice heard at the central government level: one of its two development zones, the Urumqi Economic and Technological Development Zone, has been recognised by Beijing.
"In our country, there are only 32 state-level economic and technological development zones and we are the latest one. We started construction in 1993 and were officially approved by the State Council in 1994," says Li Yuan, assistant director of the zone. Located 10 km from the city centre and 1.5 km from Urumqi international airport, the first phase of the zone occupies an area of one square km out of a total planned area of 4.34 square km.
Investor incentives
Incentives offered to all newly-registered companies include corporate enterprise tax concessions and a five-year 50 per cent reduction in income taxes from the first profit making year. Foreign- funded enterprises already located in the coastal areas are offered additional advantages — a two year exemption and a three-year 50 per cent reduction in income taxes. By 1995, some 234 enterprises had invested in the zone, including 45 foreign-investment enterprises, mostly from Hong Kong, Taiwan and the US. In 1996, contracted foreign capital amounted to US$59m and utilised investment was US$35m.
The biggest investment of US$65m is the joint venture Xinjiang Brewery. The Chinese state-owned company located in the north of the city signed a contract with Hong Kong investors in 1993 to manufacture beer with German equipment and technology in a new location in the south Urumqi economic zone. Today, Xinjiang Brewery holds a 10 per cent stake in the factory which employs 640 workers and exports 60 per cent of its production to Kazakhstan and other neighbouring countries.
Another example is Guang Hui Granite and Stone Development Co., a Taiwan-invested joint venture of US$32m established in 1995 with a mainland majority stake of 65 per cent. "We could have invested in coastal Fujian province where a lot of Taiwanese investors have already settled, but we opted to keep close to natural resources because it cuts our costs," explains Zhao Lian, director of the factory.
Competition for jobs
But despite the gethering momuntum of Urumqi and its region, problems remain apparent. One is linked to the massive Han Chinese immigration into Xinjiang. Better educated, Chinese migrants often get priority for work positions, creating social imbalance and discontent.
In a region where petroleum, petroleum-related products and textiles account for 60 per cent of the economy, trained Chinese staff educated in eastern China universities are in high demand. Little is left for minority workers, besides agriculture and services. The Xinjiang Brewery venture, 40 per cent of whose workforce is recruited from minorities, is trying to give equal opportunity treatment in training. Its Uighur workers study Mandarin until proficient so that later they might join institutes in Xi'an and Beijing for further training. Some 40 of the luckiest trainees are sent to Germany to study. "Knowing the languages and dialects of central Asia, they are essential to market our products in the bordering countries," says vice-director of the beer manufacturer, Ren Dinbao.
Growing links to central Asia might be one of the keys to economic prosperity, and social balance. Along with rich natural resources, it represents Xinjiang's best hope.