China builds ‘big shoulders’

By Damien Ma

Amid growing fears that China is now shunning foreign investment, Beijing unveiled a new foreign direct investment (FDI) blueprint in mid-April aimed at calming jitters. The policy was short on details but long on message: China has not spurned FDI, but wants to steer it toward the relatively underdeveloped interior of the country to narrow the growing wealth gap between the urban powerhouses along the coast and the western frontier.

Coastal mega-metropolises have served as both emblems of China’s three-decade surge and as magnets for foreign investors. But over the last decade, Beijing has blazed new trails that link Shanghai with the desert entrepot of Xinjiang. This project is already producing a formidable harvest as new cities spring up along the way. When Americans first pushed beyond the Mississippi in large numbers, they created places like Chicago, the city of big shoulders. In China, there will be many more million-plus cities, and foreign investors can now cast their attention from the coast to the rest of China.

Case in point is Chongqing, the "Chicago of China," a municipality in south/central China of more than 30 million people that hugs the Yangtze River. Like Shanghai, it carries the administrative clout of an entire province. Like Chicago, Chongqing has become the country’s crossroads. The city’s GDP climbed to around $70 billion in 2008, and has already attracted some 4,500 foreign-invested enterprises, including a Hewlett Packard commitment to build a manufacturing facility by 2010.

And like Chicago, Chongqing is a place of high political intrigue. The city’s current Party Secretary Bo Xilai, whose charismatic persona is unusual for the typical stolid Chinese politician, has a good shot of returning to Beijing as one of the most powerful players in the Politburo during the party’s 2012 political transition. Bo’s potential ascendance in Chinese politics should bode well for the future development of Chongqing, which will likely continue to draw Beijing’s attention and resources.

Chongqing won’t challenge Shanghai’s No. 1 status anytime soon. (Chicago is still known as "Second City"). Yet it’s already home to China’s biggest motorcycle maker, a major Chinese automaker, ChangAn (joint venture with Ford), and a handful of well-known Chinese appliance companies. The municipality could also become a key logistics artery, as the local government has ambitious plans to expand ports, high-speed rail, and highways. In 2009, Beijing issued a national logistics plan aimed precisely at fortifying the network of linkages between the coast and more remote areas. Chongqing will profit from that, as well.

But new large-scale opportunities for foreign investors in China’s interior are hardly limited to Chongqing. Urban centers — from Wuhan and Zhengzhou to Hefei and Changsha — are driving the growth of "central China." Plans to develop high-speed rail projects, already well underway, will drastically shorten the commute to and from the coast. Wuhan, a "smaller" Chinese city with a population the size of New York City’s, has become a major rail hub from which passengers transfer for west- and south-bound routes. The eventual plan is to connect Shanghai to Chongqing with high-speed rail, routed through Wuhan, which would take just 10 hours.

Like New York’s urban jungle, which captured the futuristic wonders and unique dynamism of America, Shanghai has evolved from symbol of China’s once-mystical Shangri-la to modern monument to the country’s rise. But there’s a lot of country left to develop, and the urbanization trend isn’t going away. China hopes to lift its urbanization rate from below 50 percent today — well below the U.S. level of 82 percent — to about 70 percent by 2040. (To put this in context, China expects to add the equivalent of an entire United States into its cities over the next generation.) These new nodes of growth are trying to prove they can help shape China’s development future. Beijing is fully on board — and wants investors to know it’s time for them to climb on board, as well.

Damien Ma is a China analyst at Eurasia Group.