Chinese development has always been a tale of two nations. There is the China we read about in the news, a booming 21st century metropolis primed to dominate the world economy and finance the expansion of the Communist Party. But there is also an under-developed rural and Western China, where GDP per capita is practically at 3rd world levels, infrastructure is scarce and growth is nothing spectacular. Statistics released by the Chinese government reveal the per capita net income of rural residents to be just 6,977 Yuan in 2011 (roughly £700 GBP / $1120 USD). Future growth will stem from moving growth into the West of China, and then dispersing it among the rural areas.
Chinese development in major cities is beginning to slow down, prices are rising rapidly with increased growth and international competitiveness is decreasing. The sun is setting on the Eastern Chinese growth spurt, but the time of the West is only just beginning.
It’s well known that the future of Chinese growth lies in increased domestic consumption. The export-led growth model has been a resounding success at ensuring an inward flow of global wealth into China. It encouraged companies around the world to move their manufacturing and services to China, on the promise of ultra-low costs. But the predictable result of inward financial flows has been increased wage and resource costs. China (and wider Asia) still holds the potential for colossal long-term future growth with an increased focus on domestic markets and services provision, but to capitalise on this potential companies and investors will need to look beyond the cities of traditional focus.
Chengdu, the provincial capital of Sichuan Province has begun to capitalise on this reality by offering highly valuable opportunities to foreign firms looking to invest and which might otherwise head to the Special Administrative Region (SAR) of Hong Kong. Whilst to the casual observer Sichuan Province is nothing special (GDP per Capita of around $4,500 and only the 8th largest provincial economy in China), it is leading the fight back against the SARs with an impressive growth rate of 15% per annum. It also has highly impressive green credentials and is aiming to combat the environmental problems suffered in other Chinese cities by building a car-free city, effectively from scratch.
While Western politician’s debate the efficacy and ethics of the current global banking model, and impose ever-more stringent regulations on the financial sector, Chengdu is seeking to become a global financial sector and offers a safe haven for firms concerned about political posturing in established markets.
Ren Ruihong, head of the Chengdu Financial Committee has said:
“We want more British financial firms here in Chengdu…We want banks, insurance companies, private equity, and fund managers. We are turning Chengdu into the most open financial sector in China, and our main focus is on links to Britain and Dubai.”
“We will seize the opportunity to attract more qualify foreign investors to settle down in Chengdu at a time when industries in the east have been migrating inland, driven by rising labor costs and the country’s strategy to further open its interior”.
The province is implementing a radical ‘Go West’ policy, designed to draw companies away from the established market and produce a whole new raft of investment whilst simultaneously slowing migration to the East. Chengdu is at the centre of this policy, offering massive tax breaks to foreign firms, including two years of tax-free profits and a further 3 years at 50% of a corporation tax rate that’s already lower than that available in established financial cities.
It’s because of these policies that Chengdu’s foreign inbound investment rose a highly impressive 35% in just one year (2010-2011) to a noteworthy $6.55bn. Companies are flocking to Chengdu, with over half of the Fortune 500 already having a presence in the city and many more are likely to do so in the near future.
China’s leaders are increasingly looking for new ways to continue the national economic boom, upon which rests their credibility and the continued power of the Communist Party. Communist Party chiefs know that the future lies in increased economic liberalisation and rural development, which explains why the Mayor of Chengdu felt able to say “We tell Beijing in a very down to earth manner what needs to be done.”
As growth wanes in Eastern cities. the Communist Party leadership is likely to allow the West increasing freedoms while they pursue development.
Investors beware: the rise of Western China is about to eclipse that of the East.
- China’s ‘Go West’ boom offers bonanza for British banks (telegraph.co.uk)
- Taiwanese see Chengdu as top investment city in Sichuan: survey (wantchinatimes.com)
- China at crossroad: risk of disintegration (chinadailymail.com)