The power province

Location

Shaanxi province is situated in north western China, bordering to the west, Gansu and Ningxia, and to the east the provinces of Shanxi, Henan and Hubei. It stands squarely in the centre of the Loess Plateau (an area of fine wind blown material and the largest of its kind in the world). In the west and the south the borders of Shaanxi follows the Huanghe River (the Yellow River).

Xi'an

Its capital, Xi'an, best known for the Terracotta Warriers, was the capital of chinese civilisation for most of the period between the 3rd century BC and the end of the ninth century AD. More recently, Yan'an in northern Shaanxi was the revolutionary base from which Mao Zedong fought and ultimately won the civil war with the Nationalists. It is now a centre for light industries including textiles, the Changan automotive plant and is the leading aircraft manufacturing centre producing both aircraft and a wide range of support equipment (fuel control systems, brakes etc).

Natural resources

Shaanxi has lagged behind somewhat in China's recent opening to the outside world, due to its geographical position ? it is almost a thousand miles from the booming coastal strip through which most of China's foreign trade is conducted.

However, in common with many of the most forward-looking inland regions of China, the province has made considerable efforts to use its inbuilt advantages and strong industrial base to attract foreign trade and investment.

The province for instance, is rich in minerals. With the largest reserves of coal in China (estimated at 157.8bn tonnes) and hydro-electric power generating capacity, it is able to export electricity to neighbouring provinces.

The recently discovered coalfields at Shenmu and Fugu in the north of the province will be China's biggest supplier of fine quality coking coal. There are plans to build a pipeline to Hubei province for the transportation of liquefied coal. There are also rich natural gas reserves.

Other minerals include molybdenite, mercury, antimony, lead, zinc and kaolin. Recently discovered high quality kaolin has been found in Fugu county with reserves of 360m tonnes (the Chinese paper industry uses 60,000 tonnes of kaolin per year, 50,000 tonnes of which has to be imported.) Gold deposits, discovered in the Qinlingbashan region, are expected to account for nearly one-third of the gold deposits in the country.

Industry

Apart from tourism, Shaanxi's industry is varied but undeveloped. Heavy industry is located in the remote north where there are large reserves of coal and oil. Machinery manufacture, textiles and electronics are important and the province also manufactures oil-prospecting equipment and related instruments. Petrochemicals are important covering: ore dressing, fertilizers (2m tonnes), pesticides, basic chemical materials (sulphuric acid ? 350,000 tonnes, sodium carbonate ? 80,000 tonnes, caustic soda ? 50,000 tonnes), synthetics, rubber products and mechanical processing.

Sales by the aerospace industry in 1991 were 1.44bn RMB, including exports of the "Yun-7" and "Yun-8 aircraft. Xi'an contains China's major air-craft producer (Xi'an Aircraft Factory) and is a major satellite technology centre. It is also the base for China Northwest Airlines, a major buyer of British aircraft (BAe 146-300) and European Airbuses. Xi'an Aero-Engine Factory has a long history of cooperation with Rolls-Royce.

Foreign investment

Existing foreign-invested enterprises in Xi'an include the large Janssen (of Belgium) joint venture, producing pharmaceutical products for retail on the domestic market. This is rated as one of the four most successful JVs in China, and paid back its initial investment from its first year's profits.

Setting up a joint venture in the interior of China is still something of a pioneering venture, as the infrastructure for expatriates leaves something to be desired. There is however, a railway passing through Xi'an, Xianyang and Baoji and the tourist industry has provided a stimulus for improvements to the road infrastructure around Xi'an. Communications in the northern and southern parts of Shaanxi, however, remain very poor.

Although there is not such a large pool of locals with experience of exposure to western management techniques, Xi'an has an excellent reputation as an educational centre, containing some of China's best universities, and so it should not be difficult to find good scientists, technicians and engineers.

Incentives
Recently, the province announced new regulations aimed at making Shaanxi still more attractive to foreign investors.

These include tax exemption of two years for productive enterprises, followed by tax at 15 per cent instead of the normal 30 per cent for the next three years (six in the case of high-technology enterprises). Taxation is halved for those enterprises exporting over 70 per cent of annual production value. Tax is set at 15 per cent in any case for new and high-technology enterprises in Xi'an's New and High Technology Development Zone, reduced to 10 per cent if 70 per cent of the year's total production is ex- ported. These rates parallel those in force in the network of new and high-technology development zones across China.

It should be pointed out, however, that the central government is considering measures to standardise the investment environment, to prevent the tax base being whittled away by local authorities' unauthorised tax concessions to foreign enterprises.

Projects

Projects in the province include the Loess Plateau improvement project, funded by UN agencies to halt soil erosion and improve land fertility. Afforestation, terracing and other work has brought 40 per cent of the affected area under control and farmland has been re-claimed. By 1990, over 10,000 sq km of eroded areas in northern Shaanxi and between 1990 and 2000, a further 15,000 sq km, will have been treated. On the borders with Inner Mongolia, the Shenfu Dongsheng coalfield, which has stated reserves of 230bn tonnes of high grade steam coal, is being developed and annual coal production is planned to be 30m tonnes by 1992, when the first phase is completed, and 100m tonnes in the 21st century which will make it the largest coal producer in China. A 600km pipeline is planned to carry 5m tonnes of coal a year to the coast in Shandong. Feasibility studies on the scheme have been completed. *