Chengdu has risen to prominence in the push to open up China's hinterland

----By James Roy

Times have certainly changed for Chengdu. In ancient days, it was the capital of the isolated Shu kingdom, cut off by the region's mountainous geography. The perilous Shu Road was its only connection to the rest of what is now China.

That has changed permanently. The city, now the 10.4 million-strong capital of Sichuan province and the largest urban centre in west China (notwithstanding the massive Chongqing municipality's 30 million people), is now the commercial and financial hub connecting the West with the rest of China, and, increasingly, the world.

Credit goes in large part to the central government's "go west" campaign to encourage the development of the lagging Western provinces. The initiative has put the city on the map, and increasingly into the consciousness of foreign businesses. According to real estate consultancy Jones Lang LaSalle, Chengdu ranks fifth in the country in expansion of multinational companies, behind only Beijing, Shanghai, Dalian and Guangzhou - all powerhouses in their own right. It has also become a popular stop for foreign dignitaries and heads of state on their multi-city tours of China.

For foreign companies, the enticements of "go west" include a two-year tax holiday after profit followed by three more years' taxes at half the normal rate. Larger players can also negotiate generous deals on land leases. Intel, the computer processor giant, received land for its chip making plant - it also has enough land to build as many as three more facilities - free of charge when it came to town in 2003.

Paul Sives, who heads the British Chamber of Commerce in Chengdu, points to low labour costs as the key factor in bringing in foreign business - Chengdu staff can be paid a fraction of their counterparts' salaries in coastal cities. There is a ready supply of skilled labour in the form of university graduates from schools like Sichuan University, the University of Electrical Science and Technology of China and Chengdu University of Technology.

Having one of the widest industrial bases of any major city in China also helps. Heavy, light, and it has added a high-tech string to its bow, as Intel's operations, representing a total investment of US$200 million, attest. Other big firms like Alcatel, Microsoft, Motorola and Sharp also have a presence in the city.

"A lot of companies in that area [high-tech] would typically go down south to Guangzhou, Shanghai, because Guangzhou particularly is more of a high-tech area," Sives says. "But Chengdu has some good technology universities and they're putting out some good high-level students, and of course, being out here, they're cheaper."

While savings may be good, finding the right people for the job can cause headaches. "The problem is getting people with experience," says Sives, "but those people are available, you can get them."

Helmut Sebastian of Siemens notes difficulties in finding personnel with good language skills. "There's the feeling that no one wants to come to Sichuan. It's not easy finding people here who are both qualified and also speak good English."

Time lag

The local government is, on the whole, receptive to input from the foreign business community, says Sives, but some issues like customs still stand out as lagging behind more organised eastern cities. Whereas customs in Shanghai operates 24 hours, seven days a week, he says, Chengdu's bureau runs just eight hours a day, and only on weekdays. "If you want to import something it can be difficult, it can be time-consuming. And that's not so good."

A current issue is the decision by the provincial government to implement a law imposing a 3 percent tax irrespective of any tax-free agreements companies had previously had with the municipal authorities.

Despite the growing interest, Chengdu still has a way to go before it becomes a household name among foreign businesses, says Pascal Hernandesse, who heads the European Union Chamber of Commerce chapter in Chengdu.

"We still need to advertise to foreign investors, because it's not that well-known outside of China, though inside the country it is already very well-known."

Two conferences later this year will help raise the city's profile, he says. The first is the EU Commission-sponsored Asia-Invest Forum in early November, which the Chamber is organising. The second, the EU-China Partenariat in December, will aim to play matchmaker for 200-300 European companies and 500 Chinese ones. "Chengdu is still not very well-known in Europe, so this is a way to attract people here. We expect both of these two major events to bring much more opportunity to Chengdu and Sichuan."

Transport links are improving, though still not ideal. A wide new expressway to Chongqing, 340 kilometres to the east, opened this year. The first direct route from Chengdu to Europe - a twice-weekly KLM flight to Amsterdam - is now in operation. While shipping by air is quick and efficient, transporting heavier goods for export remains prohibitively difficult due to the absence of any large waterways. Slow railroads make it a hassle to send cargo to ports on the coast to be shipped, though a high-speed track to Shanghai is said to be in the works.

Infrastructure within the city is developing quickly as well. "The city has changed dramatically in the last three years," Sives says. Chengdu's concentric ring roads - it now has five, though the second ring is currently the outer limit of the most urbanised area - bring to mind a scaled-down Beijing. Many older concrete roads, which tended to crack easily kick dust into the air, have been replaced with much sturdier tarmac. Tianfu Square, Chengdu's miniature answer to Tiananmen Square, is currently a several-story-deep pit, in which workers busily construct what will be the central station of a subway system.

Some expatriates complain that the city - although not without its charms, and comfortable in many ways - still lacks the amenities to prevent it from being a "hardship" posting. For one, Henandesse says, there is currently no international-curriculum school for managers who come over with their families.

Weather is another frequent grumble. The city, which rests on a plateau surrounded by tall mountains - notably the Himalayas, which begin to the north and west of town - suffers from gloomy overcast skies, made worse by pollution from coal-burning factories and cars. But this, too, seems to be on the mend.

Chengdu's municipal government embarked on a campaign in 2004 to become a "model environmental city". The plan, as practiced in other cities of similar size, has involved moving offending factories farther into the countryside, or else only allowing them to operate during weekdays. An early result was a string of hazy workweeks punctuated by clear blue weekends, but some believe the environment is genuinely getting cleaner, though the city's natural weather patterns are not for everyone.

"Most of the year it's cloudy, you don't see sunshine," says Siemens' Sebastian. "It's not dirty, it's just cloudy. Sichuan is like a huge bowl, and you don't get much wind, so the clouds hang around."

For the time being, Chengdu is still the undisputed leading city of west China, but it may eventually face competition from its neighbour down the road. "We shouldn't forget that, once the Three Gorges [Dam] gets running, Chongqing will start to be quite interesting as a logistics hub," says Sebastian. "But when I see the development here in Chengdu, at the moment I think it has the edge."

Chengdu Stats:

Status: Capital city of Sichuan Province

Land area: 12,390 square km

Population density, 2005: 873 people/sq m

GDP, 2005: US$29.6billion

GDP per capita, 2005: US$2739

Personal income, 2005: US$1619

Contracted FDI, 2005: US$ 1.45billion

Contracted FDI growth 2005: 79.6%

Healthy appetites: Chengdu's leisure culture

Chengdu is sometimes called China's "leisure capital", a reputation in which its residents seem to take great pride.

Lunch breaks can stretch into three-hour affairs (including an afternoon siesta). Young, old and middle-aged while away afternoons and entire days in the city's old-fashioned teahouses - which, until the frenzy of demolition and reconstruction of the last five years, were common within the first two ring roads, but are now mostly found in public parks.

Dining out is particularly big. The city's thousands of restaurants are regularly full and lively with chatter. Chengdu hotpot, a mainstay of the city's trademark spicy cuisine, is particularly heavy with //huajiao//, a pepper that has a slight numbing effect on the mouth. Sichuan opera, a popular diversion, is a noisy, energetic cabaret with colourful costumes, acrobatics and fast mask-changing.

But if the Chengdunese get a reputation for being less than industrious, they are also known as big spenders on the finer things in life - and therefore present an alluring market. A saying goes that people in Chengdu spend nine yuan for every 10 that they earn, while their more frugal counterparts in Beijing spend one-tenth and save the rest.

This is not far off the truth, according to Eddie Ng, general manager of property consultants at Jones Lang LaSalle's Chengdu office. "Chengdu people are very willing to spend their money," he says, despite the fact that disposable incomes, at an average RMB2,830 per month, are nearly half those in the capital. Plus, he adds, people from nearby cities in Sichuan flock to Chengdu to shop.

Chunxi Lu, the city's approximation of Beijing's Wangfujing shopping promenade, remains crowded throughout the week, and its shops are becoming more and more upscale.

A number of Hong Kong property developers have trained their sites on Chengdu, putting up a number of large, eagerly anticipated shopping complexes. "Turnover per square metre is huge for department stores in Chengdu, even higher than some famous shopping centres in Hong Kong," says Ng, who believes the city is on the verge of breaking out as an important commercial market. Fancy apartment blocks are fast springing up in Chengdu's nascent central business district - and are being bought up nearly as fast, says Ng. "A developer can open up a building with 300 units and sell them all within a week."

Residential property is still an attractive buy, he says, as base prices are still low. Apartments can be bought for RMB3,000-5,000 per square metre, he says, while the equivalent in Shanghai and Beijing would be at least three times as expensive.