Government investment and policies are helping the sparsely-populated western regions achieve growth. Photo / iStock
Government investment and policies are helping the sparsely-populated western regions achieve growth. Photo / iStock
Far beyond the big cities, growth in China's west is creating opportunities for New Zealand companies.
Abulaiti Aijinmaiti shrugs when asked about the spectacular sharemarket crash that has become a major talking point among China's middle class.
The local party chief in Jiaohe Town, near the city of Turpan in China's far western Xinjiang region, hasn't heard about it.
To be fair, we're a long way from the booming eastern seaboard, and gleaming financial and commercial centres such as Shanghai, Guangzhou and Shenzhen.
Of much greater importance for Aijinmaiti, an ethnic Uighur, are the grapes that hang heavily on the vines outside, ready for the harvest which is a major source of income in the oasis town set among the sands of the Taklamakan Desert.
His ignorance about the recent stock market carnage highlights the east/west divide that remains a feature of China, despite its meteoric economic rise over the past few decades.
But the country's vast, sparsely-populated western regions — which also include Tibet, Sichuan, Qinghai and Yunnan — are on the rise, thanks to Government investment and policies introduced over the past 15 years aimed at closing the development gap. That growth is now creating opportunities for some New Zealand companies.
Plans to build a network of high-speed railway lines, roads and pipelines across western China are ongoing. Photo / Getty Images
In 2013, Chinese president Xi Jinping announced the Silk Road Economic Belt strategy, which includes a push to build a network of high-speed railway lines, roads and pipelines across western China.
The central Government is also pushing to urbanise the west in the hope of creating more consumers — a key plank in the country's efforts to re-balance the economy towards domestic consumption.
In Jiaohe Town, for example, there are plans to build 180 houses for the resettlement of rural families.
"Our economy is developing rapidly," Aijinmaiti says. "We have subsidies for planting cotton, building houses and also for animal husbandry and medical insurance."
The central Government is also pushing to industrialise Xinjiang by establishing 20 special industrial zones across the region, similar to those that contributed to the rapid rise of coastal provinces in the late 20th century.
Urumqi, Xinjiang's capital, is expected to become the administrative hub of the "new Silk Road".
As well as providing all-important economic growth, China sees its "Go West" strategy as a way of taming its restive western regions.
Separatist violence has flared in Tibet and Xinjiang in recent years, as their indigenous people oppose Chinese rule and the arrival of large numbers of Han Chinese migrants from other parts of the country.
Soldiers of Xinjiang Armed Police Frontier Corps perform drills in the Gobi desert of Yecheng County, Kashgar, Xinjiang. Photo / Getty Images
The development push in the west is opening up fresh opportunities for New Zealand companies at a time when China's overall economic growth is slowing.
Auckland-based freight and logistics operator Mainfreight recently opened a branch in Chengdu, capital of the southwestern Sichuan province.
The rest of the company's branch network stretches largely along the east coast, from Guangzhou in the south to Qingdao in the north.
Managing director Don Braid says the company set up shop in Chengdu in response to the westward move of industry.
"What might have been - five or 10 years ago - small cities, have become large manufacturing areas," Braid says. "Manufacturers have moved west to take advantage of cheaper labour and tax subsidies and other incentives from regional governments to attract business to their area. For us, in logistics, we need to be in those regions."
Braid says Mainfreight is now using a weekly rail service that allows freight to be sent across western China into Europe.
The transit time, at 15 days, is about 11 days faster than sea freight, he says.
"We're taking advantage of being able to service Europe from China, not just by sea freight but also with rail freight."
Today, Chengdu is Mainfreight's western-most branch in China and Braid says any moves further west will be "customer driven".
"We could well see customers moving west from some of those eastern seaboard cities and if they do then we'll have to move with them."
Chengdu's retail market has been developing rapidly. Photo / iStock
However, Simon Page, managing director of New Zealand infant formula exporter and retailer Biopure Health, says Kiwi firms are failing to make the most of the business opportunities in western China.
His company has been operating New Zealand Milk Bar retail stores in Sichuan for several years and opened a flagship outlet in Chengdu, the provincial capital, at the weekend.
It is the company's 30th Chinese retail site and by next year it aims to have 100 outlets.
Page says Chengdu's retail market has been developing rapidly.
"Starbucks is on just about every corner now and they're all busy," he says. "That's a really good sign that you've got middle-class consumers."
Page says New Zealand companies need to "come out of their shell a bit more" and have a closer look at western provinces.
"Once they visit places like Chengdu and others, they'll realise it's actually pretty easy to set up here."
However Page adds there are some drawbacks to doing business in the west, including the challenge of serving consumers who can be less sophisticated than those further east.
Still, Biopure is eyeing expansion into another western province, Yunnan, where the company is considering opening a store in the provincial capital, Kunming.
Last month, Finance Minister Bill English travelled to the western cities of Xining, Chengdu and Chongqing in a tour that focused on economic development in China's inland regions.
Biopure is considering opening a store in Kunming, capital of Yunnan province. Photo / iStock
"The Chinese Government's focus is shifting further west," he told
this week. "As wages (in eastern regions) rise, a lot of the development focus is shifting that way."
English reckons the fact that western China and New Zealand share a strong reliance on agriculture means there is scope to develop business links.
Some links already exist between New Zealand and western Chinese universities, including a tripartite partnership between Massey University, Peking University and Xinjiang's Shihezi University involving sheep genetics.
English says it is understandable that New Zealand companies tend to focus on China's heavily-populated, coastal regions.
"This is a huge economy and just focusing on one city can be more than enough for an average New Zealand business," he says. "In western China, it's just a bit further to travel and there's a bit less English-speaking capacity and so on."
In Xining, the capital of Qinghai province, English visited the Shengyuan carpet factory, which uses 100-per-cent New Zealand wool to manufacture high-end, hand-tufted rugs and carpets that are sold to five-star hotels and offices around the world.
The factory has received technical assistance from Wools of New Zealand, a sales and marketing firm owned by Kiwi sheep farmers that has a representative based in Xining.
"(Shengyuan) is keen to buy all the New Zealand wool it can get," says English. "It's looking to increase its throughput of New Zealand coarse wool by four or five times over the next two or three years."
While Xining is going through a development boom — cranes and half-built tower blocks dot the city's skyline — Qinghai remains one of China's poorest and most underdeveloped provinces.
Zhang Ximing, Qinghai's Minister for Publicity, openly admits that poverty is one of the biggest issues facing the province, which is one of China's biggest, but has a population of only 5.8 million.
Qinghai is one of China's poorest and underdeveloped provinces. Photo / iStock
Qinghai is taking a two-pronged approach to economic growth, involving investment from more wealthy eastern provinces and "the efforts of our own people", Zhang says.
However, the sources of three of Asia's great waterways — the Mekong, Yangtze and Yellow rivers — are located in Qinghai and environmental concerns have prompted the local government to introduce a "red line" zone.
New industrial development is prohibited inside the zone, which accounts for about half of the province's land area.
"We need to strike a balance between economic development and the protection of the environment," Zhang says.
He says economic growth in Qinghai slowed to 7.9 per cent last year, just ahead of the 7.4 per cent national rate. "It's what we call the new normal." Tibet and Xinjiang's economies grew by 12 per cent and 10 per cent, respectively, in 2014.
But while those are impressive growth rates, both regions face the potential for instability stemming from separatist unrest.
Knife and bomb attacks have become increasingly common in Xinjiang, where there is opposition to Chinese rule among the region's Muslim Uighur population. Eighteen people were killed at a checkpoint near the city of Kashgar in June.
Security has been stepped up, following recent attacks, and an edgy atmosphere pervades Urumqi.
Police officers stand with riot gear at the ready and, unlike other major Chinese cities, the shops shut early — apparently due to security concerns — and the streets become eerily quiet after dark.
Wang Wulong, deputy director of Xinjiang's Publicity Department, insists that "social stability" in Xinjiang is "under control".
"The capabilities to detect, prevent, strike and (react to) terrorists' attacks and emergencies have been greatly improved," he says.
The Chinese government claims it has the majority of Xinjiang's Muslims on side in the fight against terrorism.
Meanwhile, Beijing is addressing the potential for ethnic unrest in Tibet and Xinjiang by pouring in subsidies for things such as health and education.
State subsidies to Tibet were ramped up after fatal riots in 2008. In 2010, those subsidies exceeded 100 per cent of the region's gross domestic product for the first time, according to Andrew Fischer, of the Institute for Social Sciences in The Hague.
A "comfortable housing" programme has reportedly shifted millions of rural Tibetans into new residences, although there have been accusations that some of the relocations have been less than voluntary.
For New Zealand firms looking to target newly urbanised populations in China's far-flung western regions, logistics are a major challenge, says New Zealander Alex Worker, of Beijing-based food and beverage consultancy Highground Brands.
He says the far west remains well off the radar of most Kiwi firms.
"When we talk west at the moment, it's still very much Sichuan and Chongqing and those areas," Worker says. "Xinjiang is an area that I only hear good things about ... but it's still quite hard to reach."
• Christopher Adams travelled to western China as part of a media tour hosted by China's State Information Council.
Go west works for Fonterra
Fonterra has milk products available in major western Chinese cities. Photo / Getty Images
Western China's economic rise is providing new growth opportunities for Fonterra.
The business development manager for Fonterra China, Manoj Namboodiri, says the dairy co-operative is particularly focused on expanding its consumer and food service businesses in the west.
Anchor UHT milk, Anlene high-calcium milk powders and Anmum maternal milk and infant formula products are available in major western Chinese cities, including Chengdu in Sichuan province and Chongqing Municipality.
"We also reach consumers in the wider area through e-commerce channels including Tmall, JD and Yihaodian," Namboodiri said.
Fonterra China's general manager for marketing and business development, Kefei Bu, said Sichuan province and Chongqing had developed rapidly because of China's "open up the west" strategy.
"With this economic growth, we've seen a subsequent evolution in consumer behaviours as spending power has increased," he said. "People in these markets are looking for safe, high quality and nutritious food and have a growing appetite for Western cuisine, including pizzas and pastry products."
Bu said Fonterra would soon open an application centre in Chengdu, where recipes would be developed to suit local consumers' tastes.
"Our full range of Anchor Professional products is available in Sichuan, Guizhou, Yunnan, Shaanxi and Gansu provinces, Xinjiang Autonomous Region and Chongqing Municipality."
Namboodiri said Fonterra had no immediate plans to set up farming operations in western China.
Fonterra's Chinese sales plunged to $1.2 billion in the six months to January 31, from $3.1 billion in the same period a year earlier.
At the time of the half-year result, Fonterra chief financial officer Lukas Paravicini attributed the slump to a combination of lower dairy prices and weak demand.
