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About the Development of China's Western Regions
2004/03/09
All countries with a vast territory face the problem of uneven development in
different regions. The economic development of China, which has a territory of
9.6 million square km, is likened to an eagle spreading only one wing for
flight. This implies that while the eastern area has developed swiftly during
the 20-odd years of reform and opening, the western region has lagged behind.
The Chinese Government has decided to intensify the development of the western
region as a means of enabling the eagle to spread both wings and quicken the
progress of China as a whole.

The Western Region
China's western region embraces the six provinces of Shaanxi, Gansu, Qinghai,
Sichuan, Yunnan and Guizhou, the three autonomous regions of Ningxia, Xinjiang
and Tibet, and the Chongqing Municipality which is directly under the
administration of the Central Government.
The region, covering 5.4 million square km, takes up about 56 percent of the
country's total land area and is home to 23 percent of the nation's population.
Its verified mineral resources account for 50 percent of the national total.
Compared with the eastern region, the west enjoys the advantages of rich natural
resources, plentiful labor power, low investment costs and tremendous market
potential.
Since the early 1980s, the rapid development of the eastern coastal areas
spurred by the reform and opening program has widened the gap between the east
and the west. During the 17 years between 1979 and 1995, the average economic
growth rate for the nation reached 9.8 percent. But during this period, the
growth rate in the east was 12.8 percent, while that in the west was only 8.7
percent. While the east has contributed 65 percent of the national GDP in recent
years, the west has contributed only 15 percent. The per-capita GDP in the west
equals only 60 percent of the national average.
China is known as a country with vast territory and a huge population. In fact,
it is a combination of the vast territory in the western minority areas and the
huge population of the Han nationality. It is estimated that in the 21st
century, some 60 percent of the raw materials and 50 percent of the energy
needed by the east will come from the west. This suggests that the reserve
strength for China's economic progress depends on the development of the
resources in the western region.

Promoting China's Prosperity
While addressing a forum in Singapore last November, Premier Zhu Rongji recalled
that in the 1980s, Deng Xiaoping advanced the strategic thinking of "two major
concerns'' in China's modernization drive. One concern is to expedite the
opening of the eastern coastal areas to let them develop first. The other is
when the country develops to a certain stage, say it reaches a moderate level of
prosperity by the turn of the 20th century, more efforts should be pooled to
quicken the development of the central and western regions. President Jiang
Zemin also attaches high importance to the development of the western region. He
has stated, "The large-scale development of the western region is a major
strategy for China's overall development. Now, the conditions are basically
available and the time is ripe.''
According to Premier Zhu, the large-scale development of the western region with
the aim of expediting the progress of the central and western regions is an
important policy-decision geared toward the new century. The development of the
eastern coastal areas over the past 20 years has promoted the sustained and
rapid progress of China's economy. Likewise, the large-scale development of the
western region, which will provide the eastern and central regions with a
tremendous market and broad prospects for development, will surely bring greater
prosperity to the national economy.
The premier added that in the future, the Government's construction investment
will shift toward the central and western regions, and the western region in
particular. The eastern area will also reinforce its support of the western
region through various means. To help the western region quicken the pace of
reform and opening and improve its investment environment, the Government will
adopt more effective measures to attract domestic and overseas funds, technology
and professionals to the region.

Sustainable Development
Advancing the large-scale development of the western region is a new subject
under new historical conditions. The methods used in the development of the east
certainly will not work in the west. This is because the eastern and western
regions not only differ greatly in natural resources, historical backgrounds and
other factors, but also in the starting point of economic development and the
existing domestic and international environment.
Zeng Peiyan, Minister in Charge of the State Development Planning Commission,
said the western region should take the strengthening of ecological construction
and environmental protection as a basic starting point for its large-scale
development. This point of view has been generally recognized by leaders in the
western region. Deputy Governor of Qinghai Province Su Sen noted that the region
emphasized resource development and neglected ecological construction over the
past years, resulting in serious soil erosion at the headwaters of the Yellow
River.
Compared with the development of the east two decades ago, the large-scale
development of the western region mainly differs in taking the sustainable
development as a principal strategy in a bid to maintain the beautiful landscape
while advancing economic construction.
The western region, as the source of Yangtze, Yellow, Pearl and other large
rivers, plays an important role in maintaining the nation's ecological balance
and the economic security of the middle and lower reaches of these rivers. A
project involving the return of farmland to forested areas, an important
component of the western region's development program and a top environment
construction scheme, has been launched. Under the energetic support of the
Central Government, Yunnan, Guizhou, Sichuan and Chongqing have decided to
invest 120 billion yuan in the coming decade to intensify reforestation along
the upper and middle reaches of Yangtze and Pearl rivers. Northwestern Xinjiang
Uygur Autonomous Region plans to invest 10 billion yuan to treat China's largest
continental river, the Tarim, which is partially dried up. Shaanxi Province will
invest 20 billion yuan in an ecology recovery project.
In addition, the State will further improve its method of assistance in the
development of the western region by intensifying policy guidance and using
market forces to attract domestic and overseas capital, technology and talents.
This year the Government will formulate more preferential policies to attract
foreign capital and use more loans offered by international organizations in the
western region's construction projects. The State also plans to use a fairly
great part of the government debts issued this year and over the next four years
in the region's infrastructure construction, including loans extended to
enterprises participating in the region's construction.
The Ministry of Foreign Trade and Economic Cooperation is formulating the
industrial catalog for foreign investment in the region and is planning the
construction of State-level development zones there. The State Administration of
Taxation will provide foreign-funded enterprises with more favorable tax
treatment in order to encourage them to invest in the western region. The
National Development Bank, China's largest policy-oriented bank, recently
decided to set up five branches in the western region and make the west a key
credit recipient in the coming period.

Warming Up

Xinjiang. The autonomous region has put a 70-billion-yuan investment plan into
practice. In mid-January, the plan, involving 30 key construction projects in 10
fields, including water conservation, agriculture, electric power, coal mining,
oil industry and transportation, formally began.
The funds for these projects will be raised jointly by the State and the local
government, with the majority to be put into operation in the coming five years.
Most of the projects center on infrastructure construction and ecological
improvement, including the 10-billion-yuan Tarim River ecological environment
comprehensive treatment project that is now under way, the 20-billion-yuan
Bulong River water conservation project, similar projects to improve Xinjiang's
irrigation facilities, highways and railways with total investment exceeding 30
billion yuan, and the 10-billion-yuan natural gas pipeline from the Tarim Oil
Field to Shanghai. These projects will push Xinjiang into a stage of rapid
development. Particularly, they will help improve the autonomous region's
backward infrastructure facilities and environment and will have a close bearing
on the region's sustainable development.

Shaanxi. As a bridgehead in the western region, the province maintained an
economic growth rate that exceeded the national average over the past four
years. Recently, it set the goal of raising its annual economic growth to around
9 percent.
After the Ministry of Education allocated the Xi'an Communications University in
the provincial capital 900 million yuan for further development, the Shaanxi
branches of the Industrial and Commercial Bank of China and the Construction
Bank of China signed cooperation agreements with the university. According to
the agreements, the two banks will offer the university 500 million yuan of
credit to support its development as a world-class university.

Chongqing. The municipality will focus on using foreign capital to renovate
State-owned enterprises (SOEs). As a leading industrial base in southwest China,
the city is home to more than 11,000 industrial enterprises that possess nearly
70 billion yuan in fixed assets. Despite their massive reserve strength,
complete variety and high-quality labor force, local industries are plagued by
such problems as irrational structure, obsolete equipment and low management
level. Since the introduction of the reform and opening program, the city has
taken foreign capital as a driving force in invigorating its traditional
industries. By the end of last year, the city had established more than 1,700
foreign-funded industrial enterprises, using US$1 billion in foreign investment.
Recently, Chongqing launched new preferential policies to encourage foreign
businesses to participate in the reform of SOEs. The policies allow SOEs to use
their reserve assets to set up joint or cooperative ventures with foreign
businesses and support foreign-funded enterprises in the capacity of
shareholders or initiators to set up new companies or other economic entities in
cooperation with SOEs. The policies also encourage foreign businesses and
foreign-funded enterprises to purchase the assets and equity of SOEs, support
foreign-funded enterprises in eastern coastal areas in the purchase, contract or
leasing of local SOEs, and encourage businesses in developed countries to invest
in Chongqing.

Qinghai. The province gives priority to highway construction. During his
inspection tour of Qinghai last year, Premier Zhu Rongji stressed that the
province should build roads first. According to Deputy Governor Su Sen, the
province does not have a single expressway, and many of the existing highways
are substandard. The province will expedite infrastructure construction to
facilitate the large-scale development of the western region.
Su said the western region, particularly Qinghai Province, can never compete
with other regions if it does not bring forth its resource advantages. The
province must adhere to the principle of developing what should be developed and
withdrawing from where it should withdraw and should energetically develop
industries with local features and good prospects. Inferior industries should be
firmly eliminated.

Sichuan. Following the implementation of the natural forest protection project
last year, the province launched a pilot project returning 200,000 hectares of
farmland to forest in 120 counties over the next two years.
Meanwhile, the provincial government has decided to build expressways to promote
the economic progress of the cities along these transportation arteries. Last
year, the province invested 12 billion yuan in highway construction, a rise of
105 percent on 1997. It is estimated transportation now contributes 0.56 percent
of the province's GDP.

Foreign Investment Encouraged
According to Zeng Peiyan, construction of transportation infrastructure
facilities in the west, including highways, railways and airports, must be sped
up in advance of other sectors.
To date, China has, to a certain extent, opened more than a dozen sectors in the
west to foreign investors, including banking, insurance and telecommunications,
and has relaxed conditions for foreign businesses to set up enterprises in the
region and on their share of stocks. China welcomes foreign banks to set up
representative offices and branches in the west and encourages foreign
businesses to invest in projects in agriculture, water conservancy,
transportation, energy, raw materials and environmental protection.
In fact, compared with the development of the east, the development of the
western region now faces different subjective and objective conditions. By the
end of 1999, China's foreign exchange reserves had exceeded US$155 billion,
which was inconceivable two decades ago. In addition, after more than 20 years
of investment exploration in China, foreign businesses have both established
confidence and accumulated experience in China's construction and development.
Furthermore, the prospects for China's WTO accession are becoming increasingly
clear. These factors favor foreign investment in the west. By the end of June
1999, the western region had established more than 15,000 foreign-funded
enterprises, involving a total investment of US$70 billion.
By the end of last September, Sichuan Province had used nearly US$13 billion in
foreign capital, ranking the province first among all the provinces and
autonomous regions in the west. Nearly 40 multinational companies have invested
in businesses or built factories in the province, including the Motorola,
Proctor & Gamble, Siemens and Toyota. Motorola's investment in Sichuan has
exceeded US$300 million. A short time ago, Motorola established the Motorola
City in the provincial capital Chengdu, a major step in exploring west China's
markets in the wake of investing 100 million yuan in establishing a network
research and development center in Chengdu. The company's senior Vice-President
Lai Bingrong said the market in west China has tremendous potential. He went on
to say multinationals won't give up the attractive returns on investments in
this market.
Yunnan Province now registers more than 320 projects funded by Taiwan-based
businesses, with combined investment surpassing US$177 million. These projects
are mainly involved in catering service, timber processing and real estate
development.
On January 11, Shi Guangsheng, Minister of Foreign Trade and Economic
Cooperation, met with Siemens Board Chairman Won Pierer, introducing to him the
work the Chinese Government has done or plans to do in attracting foreign
capital to the western region. He suggested Siemens conduct an investigation in
the western region and become a pioneer and realize early successes in the drive
to attract large-scale foreign investment in the region.
A month before, Ernst H. Behrens, President of the Siemens (China) Co. Ltd.
visited Chongqing to participate in ceremonies for the relocation of the
company's representative office in the municipality. He also cut the ribbon
inaugurating the DM500,000-Automatic Training Center at Chongqing University
funded by Siemens. The company declared that the expansion of the company's
Chongqing office indicates that Siemens is actively working in cooperation with
China in its strategy to foster large-scale development in the western region
and that the efforts have laid a foundation for expanding the company's business
in China's central and western regions.
Siemens is now involved in many sectors in Chongqing, including industry,
energy, information. transportation, medical services and household electrical
appliances. The value of projects and sales by Siemens or completed with its
help has topped US$20 million. The company has declared that it will continue to
work in cooperation with Chongqing in various fields. Currently, negotiations on
a number of infrastructure construction and high-tech projects, such as sewage
treatment, light rail transportation and a natural gas network, are under way.
In Chongqing, while primarily remaining engaged in trade and investment
promotion, Siemens has also conducted exchanges and cooperation with local
cultural and educational sectors. In conjunction with Chongqing University, the
company has established the Siemens Scholarship to reward outstanding students
and sponsor those with financial difficulties.
With a population of nearly 300 million, the western region has rich labor
resources, and labor costs are low. More importantly the population density of
scientific and technological workers in such western capital cities as Chengdu,
Xi'an and Lanzhou rank high among China's provincial capitals, and the
proportion of scientific and technical workers to the western region's total
population is above the national average. One expert claims that as long as
investors can make full use of the western region's advantages, they will
definitely achieve remarkable results. He hopes overseas investors can bravely
invest in the west as they have done in the eastern coastal areas.
East-West Joint Development
While encouraging foreign investors to participate in its development, the
western region is also looking for domestic cooperation partners. The courage of
the people in the western region to fight tough environmental conditions and
improve their lives has won the respect of the people in the east and has laid a
foundation for east-west cooperation.
The eastern area, relying on a competitive capital advantage, has initiated
various investment activities in the west, particularly in the fields with good
prospects, such as poverty-relief, SOE reform, the development of superior
resources and the cultivation of new industries. Over the past years, the west
has seen the influx of many large and medium-sized enterprises from Shanghai,
Jiangsu, Zhejiang and Fujian. This has enabled the west to offer a batch of
products with a high technological level and broad market prospects to domestic
and overseas markets. For instance, the Changzhou Diesel Engine Co., a famous
business in Jiangsu Province, has merged with the Ningxia Diesel Plant in
Yinchuan, capital of the Ningxia Hui Autonomous Region. The merged business has
become an outstanding manufacturer in Ningxia's heavy industry.
In addition, while Guangdong, Shanghai and Zhejiang have set up raw materials
bases in Xinjiang, Gansu and Shaanxi, some enterprises in the west have
established their sales outlets or businesses in the coastal areas. Enterprises
in the east and west have purchased stocks or invested in developing mineral
resources or new products in their opposite region. These cooperative projects
have yielded noticeable results. Ningxia, Xinjiang and Tibet alone have over the
past years concluded nearly 20,000 economic and technological cooperation
contracts with coastal provinces and municipalities, introducing more than 10
billion yuan of funds and materials and initially forming cooperation networks
in textiles, sugar refining, machine-building, electronics and mining
industries. The 150 large and medium-sized enterprises in the west newly
established with the help of the east have all grown into backbone enterprises
in the region. Qinghai Province, through east-west cooperation, has constructed
China's largest silicon ferrous, potassium fertilizer, table salt and asbestos
bases, and the biggest hydroelectric power base in northwest China.
In addition, a series of central government macroeconomic policies favoring the
west have provided an effective policy guarantee for narrowing the gap between
the east and the west. In 1995, the State Council designated developed areas in
the east that should grant counterpart assistance to western provinces and
autonomous regions. Tianjin is set to aid Gansu, Shanghai is coupled with
Yunnan, Jiangsu with Shaanxi, Zhejiang with Sichuan, Shandong with Xinjiang, and
Liaoning is with Qinghai. Over the past four years, Liaoning Province alone has
invested tens of millions of yuan in Qinghai, lending the latter a hand in
escaping poverty.


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