China heads west to establish newest powerhouse region

Chongqing has a serious taxi problem.

Join the queue at one of this bustling city's taxi stands and you could wait as long as an hour for a hack.

Residents say most taxi drivers are new to the region and stick to areas they know or close to where they live - creating a dearth of cabs in the pricey downtown core.

But there needs to be a lot more than taxi drivers flocking to Chongqing. An explosion of manufacturing and construction activity draws as many as 500,000 new residents to the inland mountain city each year. The municipality of Chongqing covers an area the size of Switzerland, and is by some estimates now the largest in the world, boasting a population close to 33 million people.

Welcome to the boomtown.

The strong growth in rural and inland areas such as Chongqing is a crucial element to China's continued economic success. While coastal regions have been the main drivers of growth for the past two decades, their expansion is slowing and so-called second and third-tier cities in the interior must pick up the slack. As policy makers attempt to rebalance China's economy to become more driven by domestic consumption, income levels in the less developed but heavily populated west will need to increase.

Chongqing is undergoing a radical transformation from a dusty industrial outpost to a city brimming with opportunity. The shift began in 1997 when the region was carved out of Sichuan province as a standalone municipality and economic zone under the control of the central government.

Under the leadership of the ambitious and controversial local Communist Party secretary Bo Xilai, Chongqing has cracked down on crime and corruption and slashed corporate taxes in the municipality to 15 per cent in a bid to attract business. Upgrades to the city's logistics infrastructure have spurred a gaggle of foreign and Chinese companies to set up operations in the city where the Yangtze and Jialing rivers meet.

Spiking labour costs in China, caused in part by a shortage of migrant workers in the traditional manufacturing hub coastal cities, is proving a boon for Chongqing. Businesses here can draw on a massive labour pool, not only from Chongqing, but also from the 80 million people living next door in Sichuan province.

Labour costs in Chongqing are (at least for now) as much as 30 per cent cheaper than in Guangzhou or Shenzhen.

Known for its spicy cuisine and stifling summer heat, the city has traditionally been a centre for engine, motorcycle and automobile manufacturing. But that's not the future envisioned for Chongqing.

Major electronics manufacturers including Foxconn, Hewlett-Packard, Asus and Acer are now setting up shop here. By 2015, government officials predict that Chongqing will be the world's top producer of laptop computers.

"Chongqing is not going to be Detroit," says Zhou Shulin, the vice-director for the Chongqing Logistics Co-ordination Office.

"That's why we have introduced PCs to Chongqing," he adds.

As a city and economic zone, Chongqing is ground zero for the Chinese central government's "go west" push. The program aims to shift economic expansion from China's fast-growing eastern coastal regions to the rural western interior.

The strategy, if successful, will reverse 30 years of labour migration patterns in China. Traditionally, China's manufacturing labour force has been drawn from a massive, young and poor population from the west who migrated east for jobs where they were housed in dormitories and temporary facilities for factory workers.

While that model has worked very well for the past few decades and been instrumental in China's ascendance to become the world's fastest growing major economy, a host of problems have also begun to emerge. In the coastal manufacturing hubs, factory owners must scramble every year to replace workers (anywhere from 10 per cent to 20 per cent) who choose not to return to their jobs after going home for a family visit during the annual Spring Festival.

Taiwan's Foxxcon, which produces Ipads, Ipods and other Apple products in China, was hit with a raft of employee suicides last year that were blamed in part, on the difficult working conditions endured by migrant workers living thousands of kilometres from home.

In response to these emerging social issues, a series of labour strikes and a worsening worker shortage, wages for factory workers in places like Guangzhou have spiked, rising as much as 30 per cent in the last year.

For manufacturers, inland areas like Chongqing offer a respite to many of these challenges. Workers are paid less, but reside much closer to their families, and the cost of living remains far cheaper than on the coast.

In addition to electronics makers, the Chongqing region is attracting other manufacturers including BASF, Nokia and Ford Motor Co., who are setting up or expanding. Despite its inland geographical location, Chongqing offers many options for producers to get their goods to market.

Products can be loaded onto a ship and sailed down the Yangtze river to coastal ports where they are then transferred to vessels heading to Europe, North America or other parts of Asia. They can be sent by directly by rail to those same ports. Or, in a new option, whose economic viability has yet to be proven, they can be loaded onto rail cars in Chongqing and shipped directly to Europe through a series of rail line transfers that cross Central Asia, Russia and finally into Western Europe.

Edmonton native Adam McWhirter moved to Chongqing four years ago, drawn by the city's rising fortunes. It's a decision that appears to have paid off. While one of the friends he came to China with is still teaching English in Shanghai, Mr. McWhirter is now a partner at a property and investment company called Maxxelli Real Estate. The firm boasts annual revenue of more than 1 million yuan.

"This is an area in China where the growth is simply more noticeable. With the central government's whole "go west" policy, this was where I wanted to be," Mr. McWhirter says.

Property prices in Chongqing have been among the strongest in China's piping hot real estate market. Housing prices have increased about 300 per cent in the past four years, Mr. McWhirter says. Apartments in the central business area that used to cost between 6,000 and 8,000 yuan per square metre now command 15,000 yuan per square metre. In response to the soaring prices, Chongqing has implemented a property tax and limited buyers from outside the region to just one property.

Mr. McWhirter predicts that Chongqing's skyline and business growth will rival Shanghai's within five years. But he also expects Chongqing will always maintain the bulk of its more rural personality traits.

"You can change the face but you can't change the heart," he says.

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ECONOMIC GATEWAY TO CHINA'S WEST

Since Chongqing's creation as a standalone economic zone in 1997:

- gross domestic product has increased by 300 per cent

- industrial output has risen by 1,000 per cent

- financial income has jumped 1,460 per cent.

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10.3%

China's 2010 GDP growth

17%

Chongqing 2010 GDP growth

$4,000 (U.S.)

Chongqing's per capita annual income

13.5%

Chongqing's 2011 GDP growth target, highest of any municipality or province in China