Chinese Commerce Minister Bo Xilai has been at the forefront of negotiations with both the EU and US over textiles quotas, but in a former life Bo was the mayor of Dalian, and his rise to his current position suggests he probably got something right in the northern town.

Indeed, walking through Dalian, Bo seems to have gotten a lot right. Becoming the city.s acting mayor in 1992, Bo launched a new mu-nicipal policy called "Aiming at the best instead of the largest" that same year to turn Dalian into not simply a trading center for northeast Asia but also somewhere pleasant to live and work. At that time, much of Dalian was shrouded in factory smoke, but Bo took the European cities he had visited as models for a new Dalian and even introduced several anti-social behavior laws . including a heavy ban on spitting in public. Bo.s civic sensibilities have lent Dalian a more ordered and measured feel than many of its east coast counterparts, and the city is therefore more attractive to China.s young middle class.

In October this year, the Economist maga-zine.s Economist Intelligence Unit rated Dalian the world.s 85th most livable city . and for Chi-na, that is saying a great deal, given that effec-tive infrastructure was one of the three criteria (the other two were the widespread availability of goods and services, and low personal risk).

Dalian has much else to offer in terms of lifestyle and environment. It is the heartland of Chinese football, to which the iconic football sculpture in the city.s Labor Park attests, and Dalian.s Shide football club has won the national championship eight times since the competition began eleven seasons ago. It is also a destina-tion for golfers . a few of its attractive seaside courses are to international standards. There are many students in the city, which is home to six universities. Dalian Medical School has more than 6,000 professors and just short of 10,000 students. Above all, it.s an attractive place.

"Dalian is actually a very green city," says Daniel Steinke, general manager of the recent-ly-opened Kempinski Hotel in Dalian. "You have a lot of parks and trees, you have a long coastline, and the coastline has a 40-kilometer long street lined with trees and parks . a com-plete resort area," says Steinke.

Big business

Kempinski, a German company owned by the Thai royal family with headquarters in Gene-va, has hotels in Beijing, Shenyang, Chengdu and Dalian . a hodgepodge list given the lack of a solidly developed middle class in all but Beijing.

"We're very con.dent about the market," says Steinke. "Dalian has had a growth rate for the past couple of years of over 13 percent. With the IT park that has been set up and the new economic zone, there has been a very nice support system put in place for international companies to set up. We have currently over US$12 billion worth of foreign investment in Dalian, and it is a very prosperous place."

Dalian has historical links to both Japan and Korea, and much of the investment comes from those regions. Dalian was ruled by Russia at the beginning of the twentieth century, but Japan governed the city from 1905 until 1945, when it became part of China. Steinke says 30 to 40 percent of his guests are Japanese. Nowadays, Japanese companies are even planting call cen-ters in Dalian . Livedoor Communications has run one such center in Dalian since May last year. Hewlett-Packard, IBM and Dell have also set up call centers in the city.

"Japanese make up about 50 percent of in-ternational investment in Dalian," says Kem-pinski.s Steinke. "We get quite a few Koreans, and they have set up a number of factories here . I would think that 20 percent of the foreign investment here is actually Korean."

Dalian is the gateway to northeast China, a region relatively cut off compared to China.s eastern seaboard. Northeast China.s economy is dominated by heavy industry and the re-gion is known as China.s .Rust Belt. . it cen-ters on Shenyang, which feeds exports directly to Dalian port. In fact, Dalian is currently the only gateway worth mentioning. China re-cently signed a 50-year deal with North Korea to develop North Korea.s east coast Rajin port . boats leaving Dalian to cross the Paci.c cur-rently have to circumnavigate the Korean penin-sula. But deals with North Korea are not the best basis for global trade routes, so Dalian is hardly under threat yet.

Passing the port

"The northeast is a very important industrial base," says Joseph Yang of Liaoning Air Sea Worldwide, a global logistics company with of-.ces in three continents. "The Chinese govern-ment has special rules in the area, so lots of for-eign companies invest in northeast China. For export, lots of business is from Dalian to Japan. They also export products to Europe and world-wide," says Yang.

Dalian is mainland China.s second port. In fact, Dalian is surrounded by six large ports . Dalian (the largest), Dayao Bay (deep-water container port), Bei Liang (for grain), Cat.sh Bay (China.s largest oil port), Heshangdao Coal Port, and Dalian Bay Fishery port. In 2003, new freight shipping routes from Dalian to Fukuoka, Osaka and Hiroshima were opened, along with ocean liner routes to America and Europe. Ac-cording to market research group Asia Pulse, Dalian port.s throughput was 60.032 million tons of cargo between January and June 2005, 32.2 percent more than for the same period in 2004. In June alone, Dalian.s ports handled 1.479 million tons, a 17.3 percent increase on June 2004, according to Asia Pulse. Most of this growth was thanks to two new, 30,000-ton wharves which opened last year . one for iron ore and the other for oil.

"Foreign investors can buy a stake in the port more easily than they can elsewhere," says Yang. "A lot of goods are go-ing to Korea too . and Beijing and East China is crowded for cargo ships," says Yang.

Crowding . and delays . is certainly problematic for China.s ports, and the World Bank chose to press China on the issue at its re-cent summit. But there is plenty of investment being made in Dalian port too. Hutchison Whampoa, the world.s largest port opera-tor, announced a new JV with Dalian port in Oc-tober to build two vessel berths with a length of 886 meters in Dalian Ore Terminals . Hutchison.s to-tal investment will be US$272 million.

There are problems with northeast China.s exports, however. The restructuring of SOEs is not always smooth and there have been cases of labor unrest, even in Dalian. Besides, not all products from the northeast are enjoying a growing demand from abroad.

"Most export products from China are light industry and electronics products," says Yang. "But in north China the majority of export prod-ucts are cereals and machinery . the increase in volume is not as good as south China, so the export business volume is not moving as fast."

Does this mean Dalian is losing out to Shanghai and other ports further south? "Yes, I think so," says Yang. "But companies in Da-lian have special products and services," says Yang. "Forwarding companies can enlarge their service scope, customs clearance, logistics ser-vices . also electronic products. IT companies use our air business, but not much c Dalian port still has a bright future."

Getting technical

If Dalian.s shipping business is on an even keel, then it will take a lot more than a big harbor to keep the population of 5.5 million prosperous. Fortunately, Dalian woke up to that fact early on and has since become China.s software center par excellence . so says Baidian Shan, Microsoft.s ac-count manager in Dalian.

"In this city," says Shan, "the government has made the decision to develop and support the software industry . put some resources in and built some of.ces and apartments for the em-ployees of the software companies to support them and make them live comfortably" Microsoft has had a presence in Dalian for .ve years. In October it invested US$15 mil-lion in a local company, Huaxin, in order to better penetrate Dalian.s soft-ware industry.

"Dalian has the software park which has now become very big and famous . many Japanese companies have moved their software busi-ness or some of their people to Dalian," says Shan. "Huaxin, the biggest company, has 1,200 people in the park . the total number is around 30,000."

The Dalian Software park, China.s largest, has been named "National Software Industry Base" by China.s State Development Planning Commission and Ministry of Information Indus-try. It is an enormous project.

But the park needs IT engineers, and just two years ago state media reported that Dalian was short of staff for the IT center. That problem is disappearing fast though, says Shan.

"There are lots of students from Harbin, Shenyang and Changchun who move to Dalian once they .nd a position in the software park af-ter they have graduated," says Shan. "Local uni-versities have trained a lot of software engineers in recent years, like Dalian University of Tech-nology . one of the four colleges in the city."

Looking good

Yang says Dalian.s future is in IT, shipping and manufacturing. He also stressed that Da-lian.s manufacturing emphasis on electronics and chemicals . oil is brought to Dalian from abroad for re.ning . means it need not compete with manufacturing hub Shenyang to the north, which focuses on other industries. But if shipping, IT and manufacturing are the industries of Dalian.s future, they will prob-ably attract China.s middle classes to the city as much for the location as for the jobs.

"The climate and environment are good - it.s very comfortable," says Yang, who has lived in the city for ten years. "And it.s a famous har-bor," he adds. Kempinski.s Stenike agrees that Dalian has its bene.ts. "It.s a very nice city . you have old buildings here. For domestic tourism it is very popular, and for foreign companies to settle their expats here it.s a very good place to be."

But Dalian must have its stock of urban problems too, right?

"No, I wouldn.t say so," Stenike says. "In other cities you would say it was the traf.c or the air pollution or the climate because it.s an industrial city. All of this is absolutely .ne here, and you have a very organized government setup also. The city is doing a lot to attract tour-ism, so the tourism board is very professional . they have loads of activities to bring in people. There is good cooperation on that side . Dalian is actually a very positive city. It.s probably one of the model cities in China."