Chengdu casts itself as the high-tech gateway of west China

CHENGDU — China’s western hinterland has long been seen as a low-cost manufacturing hub and a source of migrant workers for coastal cities.

But the city of Chengdu, the capital of Sichuan province in the west, is seeking to change that perception, casting itself as a high-tech investment zone and a pivot point to Eurasia.

In an effort to change its image, the sprawling city of 14 million has been assiduously cultivating high-tech start-ups, as well as expanding its infrastructure.

At the same time the Chinese government — whose economic focus has long been on Beijing and coastal cities such as Shanghai, Guangzhou and Shenzhen — has begun to lavish investment and infrastructure effort on its under-developed west, with cities such as Chengdu, Chongqing and Xi’an finding themselves the main beneficiaries.

In tribute to the ancient Silk Road, China’s President Xi Jinping recently named the strategy One Belt, One Road. Aimed at reviving ancient routes to central Asia, Russia and Europe, the policy is channelling investment to the regions they pass through.

As a result, Chengdu finds itself in the right place at the right time. Known in China mainly as the home of panda bears and spicy hotpot dishes, and famed for a relaxed, mahjong playing lifestyle and thousands of tea houses, the city is now being given a chance to join the elite club of so-called top-tier cities of China and be the economic engine of the western region.

“Thirty years ago, we were following in the footsteps of the coastal cities but now with One Belt, One Road it’s the other way around — they’re following us,” says Mr Liang Qizou, the deputy head of Chengdu municipal finance department.

However, some economists are cautious about how quickly the west can catch up with the coastal cities. “Western China grew a lot faster than the east during the commodity and housing boom, but that outperformance has tailed off quite noticeably in the last couple of years,” says Mr Andrew Batson of Gavekal Dragonomics, a Beijing research firm.

It will take a few years to see whether Mr Liang’s boast becomes reality, but progress has been impressive — about 300 Fortune 500 companies already have some form of operation in Chengdu, according to the American Chamber of Commerce in the city.

Two shopping complexes, the IFS and the Taikoo Li malls, have recently opened — both built by Hong Kong developers — and gleaming skyscrapers line Tianfu Avenue, the city’s main arterial road.

Thanks to the One Belt, One Road policy, Chengdu already has a rail link with Lodz in Poland, as well as industrial parks for French, German and South Korean businesses.

“If it weren’t for One Belt, One Road, these industrial parks wouldn’t be located in Chengdu,” says Mr Liang.

The city had been applying to build a second airport for years and finally received the go-ahead after Obor was announced in 2013. Chengdu will be China’s third city to have a second airport. Once completed, the authorities expect the airport to handle 90 million passengers a year.

Construction of the new airport follows a building boom over the past decade for which Chengdu has become famous. The city’s then-Communist Party secretary, Li Chuncheng, acquired the nickname “Demolition Li” for his approach to redeveloping the old city.

Then in 2012, a political reshuffle saw much of the leadership of the city sacked or thrown in prison in a harsh crackdown on corruption. In December that year, Li was sacked and then prosecuted for bribery, and is now serving a 13-year prison sentence.

The pace of decision making on new projects has been slow following the political upheaval and anti-corruption campaign, says one foreign businessman in Chengdu.

Analysts say privately that members of the former city leadership were too closely tied to ousted chief of security, Zhou Yongkang, and the fallen party secretary of nearby Chongqing, Bo Xilai, both of whom were purged by Mr Xi.

Chengdu seems to have shrugged off the bad news associated with the corruption scandals. Mr Liang says that last year’s growth of 7.9 per cent was above the national average.

But despite the strong economic performance, rents are cheap.

Although it is the seventh-largest city in China by population, the city ranks 36th in property prices, according to a list produced by Sohu.

That is partly because Chengdu, like most Chinese cities, has built too many buildings, with some of the excess being converted into industrial parks — the city has 21.

Low wages and a highly educated workforce have already attracted high-tech manufacturing.

Chengdu’s government says that Apple contractor Foxconn makes half of the world’s iPads in Chengdu — although Foxconn refuses to comment on this claim. The government also says that half of Intel’s laptop computer chips are made there as well. Intel would only say that “some good percentages” of its chips are made in Chengdu.

While the availability of a lower-cost workforce has proved attractive, some managers say the hardest thing about being in Chengdu is recruitment — at 2.8 per cent last year, the unemployment rate is one of China’s lowest for a major city.

Mr Benjamin Wang, chairman of the American Chamber of Commerce in Chengdu and a coffee merchant, says that retaining trained staff is hard in his coffeeshop businesses. “They stay one year and then move on,” he says, adding that the low unemployment and the tight labour market “is great for the government but bad for us”.

Mr Wang has seen competition for workers increase. Since 2011, he says, the number of coffeeshops in Chengdu has ballooned from 35 to 700.

Many residents say that government aid to the Sichuan region following the devastating 2008 earthquake was the determining factor behind the city’s growth over the past decade.

Nowadays, Chengdu’s prospects are also being lifted by the government’s efforts to attract companies. Mr Liang estimates that 70 per cent of investment in the city was attributable to the development of those 21 special industrial parks in Chengdu where infrastructure and financing are subsidised by the government.

The most famous such zone is theTianfu Software Park which offers 100 million yuan (S$20.2 million) in annual subsidies to early stage start-ups, according to its management.

The project is the centrepiece of an effort by Chengdu’s local government to challenge the notion that high-tech innovation can only happen in established zones in cities such as Beijing, Shanghai and Shenzhen. It is also part of the government’s aim to change the image of the city as a source of cheap labour and low-cost manufacturing. “They want a certain type of investment … they don’t want to be known for low-wage, low-skilled manufacturing,” says Mr Wang. FINANCIAL TIMES