|
|
| • EXCH RATES |
|
Baht/$ 33.51/56
Bid/Ask
|
GOLD |
14,350
+ 350
|
|
ASIA FOCUS : CHINA KNOWLEDGE
After weathering the quake, challenges lie ahead for Chengdu
TIGER TONG
One month after the Wenchuan earthquake, the worst since the founding of the People's Republic of China, the focus is shifting from relief work to resettlement and reconstruction in the quake-hit area. The government is also pondering the earthquake's impact on future investment. To a large extent, it hinges on whether investors and travellers' confidence can be restored in Chengdu, the capital city of Sichuan.
Chengdu has been one of the largest economies in inland China and its rapid development has in turn made it one of the country's most popular foreign investment destinations. In 2007, Chengdu's gross domestic product (GDP) reached 332.4 billion renminbi, 15.3% higher than in 2006, and three percentage points higher than the national average. Chengdu's utilised foreign direct investment (FDI) last year reached US$1.14 billion, 50% higher than the year before and 3.7 times the national average.
In June 2007, Chengdu (together with Chongqing) was chosen by the State Council as one of the pilot reform cities targeting co-ordinated rural and urban development. The landmark reform project followed the establishment of comprehensive reform zones in Shenzhen (Guangdong), Pudong New Area (Shanghai) and Binhai New Area (Tianjin). Clearly, Beijing is hoping Chengdu will play an important role in inland China. Now its fate and China's strategic target are being tested.
Though Chengdu was only 70 km from the epicentre, the earthquake had a relatively minor impact on the city, aside from Dujiangyan, Chongzhou and Pengzhou on the outskirts. Spared were Chengdu's three most important economic engines: the central business district (CBD), Chengdu Hi-tech Zone where its booming software and IC industry lie, and Chengdu Economical and Technological Zone where its automobile industry is concentrated.
Buildings in the urban area are by and large intact. In contrast, Beichuan, 90 km from the epicentre, was almost ruined. Geographically, Wenchuan, the epicentre, is in the northwest of Chengdu and Beichuan is northeast of Chengdu. The main reason for the huge difference is that Chengdu was built on a solid stratum and there was no fault line across the city, according to Liu Baojun of the Chinese Academy of Sciences.
Soon after the quake, Chengdu launched a massive programme of building-safety checks. Within three weeks, experts had checked 4,672 buildings, including 190,000 households. Most of these buildings did not suffer any material impact and were rated as safe.
Another big possible threat to Chengdu, the dam of the Zi Pingpu Reservoir, was also declared intact after the quake. Lying upstream of the Minjiang River, which winds through Chengdu, damage to the dam would have put Chengdu in jeopardy. The reservoir, meanwhile, was intended to function as a safety valve if a quake caused downstream flooding. According to He Changrong, a hydraulics professor from Sichuan University, the Zi Pingpu Reservoir could accommodate more than five "quake lakes" the same size as the one at Tang Jiashan.
NInety-seven percent of Chengdu's industrial enterprises have now resumed production, and the city is still viewed as a desirable place for investment. Soon after the quake, multinational companies including IBM, Motorola and SK announced that they would be expanding further in Chengdu. Many reckon that since Chengdu can weather such a quake and the government can react in such an organised way, it could be a good place for investment.
At the same time, despite China's overall tightening monetary policy in the face of rising inflationary pressure, the central bank has adopted a rather accommodating policy toward quake-affected areas. For example, on June 7, when the central bank ordered banks to increase their reserve ratios by one percentage points to draw liquidity from the system, quake-affected areas were exempted.
At the same time, China Development Bank announced it would provide RMB 26 billion in loans for rebuilding work, and the Industrial & Commercial Bank of China will RMB 20 billion for reconstruction.
While the direct damage from the quake is not serious, Chengdu might face some daunting post-quake challenges. First, its property market, one of the hottest in inland China, is likely to suffer a negative impact. But to be sure, the quake was probably just a trigger for an inevitable further fall in China's real estate sector.
In the past few years, China's property prices have been rising. And Chengdu was one of the hottest markets in inland China. Foreign investment flowing into the city's real estate market has exceeded that flowing into manufacturing.
But as prices are rising far beyond the affordable range of ordinary Chinese, the law of gravity is taking a toll on the property market. In fact, even before the quake, property markets in Beijing, Shanghai and Chengdu already showed some weakening signs.
As the recent Vietnam crisis has shown the fragility of the asset bubble and the fickleness of overseas hot money, inland Chinese cities should maintain cost competitiveness for a sustainable growth. A correction in the property market will certainly help boost Chengdu's competitiveness.
Another more subtle problem is the possible misconception of Chengdu. Media coverage on the quake has concentrated the logistical difficulties for the relief workers, which may lead some people to believe that Chengdu is a backward city trapped in a mountainous area. In fact, Chengdu is located in a basin and well connected to other parts of China through railways and expressways, and Chengdu Shuangliu Airport is the largest aviation hub in inland China.
Compared with government efforts to regulate the city's property market, how to change mistaken perceptions could be a more difficult and challenging task for the city.
The contributor is the Research Director and Managing Consultant with China Knowledge Consulting. The firm provides corporate services, financial advisory, marketing strategy and recruitment to foreign businesses seeking business opportunities in China. Opinions expressed are his own.
Prev
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Next
