Pepsi Makes Big Push in China’s Inland Market : Venture: Officials in vast interior area are gratified bottling company and other firms are looking beyond coastal regions for investment opportunities.
Sixteen years after Communist China opened to the West, the Pepsi Generation is coming to this city of 4 million deep in the nation’s interior.
Although Pepsi has been bottled and sold along the eastern seaboard since 1982, the U.S.-based beverage giant is choosing inland locations for a big new push into the China market. It recently signed a $28-million deal to bottle its soft drinks in Chongqing, a commercial hub of southwest China.
“Inland cities became very attractive to us,” said Miguel Ko, president of Pepsi-Cola International for China, before the Jan. 18 signing ceremony. Local dignitaries packed a hotel ballroom and sipped samples of Pepsi and its sister soft drink, 7-Up, rarely seen in Chongqing before.
“Most multinationals are now looking beyond the traditional cities. They see the growth stretching beyond those areas,” Ko said.
That’s gratifying news to officials in China’s vast interior, who have glumly watched coastal regions attract the majority of the foreign investment that is fueling a national economic boom.
It’s also welcomed by Chinese leaders, who have been concerned that the widening gap between the rich eastern seaboard and the less-developed inland areas could arouse civil unrest. Already, an army of peasants from the interior are flooding coastal cities for work, overwhelming the railways and threatening social order.
Most foreign ventures have been set up along the coast, particularly in the south near Hong Kong, where they enjoyed tax breaks and close proximity to export markets.
But with the east coast wheezing under the sheer weight of that investment, which has triggered land speculation, clogged transportation links and sent wages soaring, the inland is looking increasingly attractive.
“Land costs are low, labor is cheap and the market is good,” said Xiao Zuxiu, executive vice mayor of Chongqing. He says local laborers will work for as little as $23 a month, several times below the going rate along the coast.
There are rich veins of natural resources. Officials in Chongqing and elsewhere in Sichuan province also claim a large pool of skilled workers from military factories and other heavy industry that were relocated inland decades earlier, when Chinese leaders feared a possible U.S. attack.
They are forever reminding foreigners of the potentially vast market here--Sichuan alone has about 110 million people, more than all of Mexico--where more and more entrepreneurs have money to burn.
Although Sichuan’s cities lack the five-star hotels and gleaming office towers of the coast and there are large pockets of rural poverty, Xiao notes that living standards are improving for many.
“Look at the watches and the clothing that our women are wearing,” Xiao said. “They’re not necessarily worse than what you see on the coast.”
In just a few years time, Sichuan’s capital of Chengdu has been transformed from a sleepy backwater to a city of night clubs, trendy boutiques and hundreds of beauty salons, including the Sichuan Haiyun Beauty Center that offers everything from facials to workouts at a state-of-the-art health club.
Foreign investment is behind much of that business. Sichuan Haiyun, for example, was established by a Chinese American.
But what the inland really hungers for are large injections of foreign capital and technology in basic industry and infrastructure that have typically gone to coastal regions granted the greatest leeway in experimenting with capitalism.
Several major U.S. companies--including AT&T;, McDonnell Douglas Corp. and Procter & Gamble Co.--already are in Sichuan or are coming.
Last year, the central government finally approved a Chongqing special economic zone along the Yangtze River to attract foreign investors that offers the same privileges available on the coast. Officials here say they already have signed up 166 projects with foreign investment.
Gan Jiangang, a spokesman for the zone, proudly points to one site where huge concrete girders are beginning to form the shell of a factory that will house a $60-million joint venture to produce Honda motorcycle engines by year’s end.
“The price of our land was very cheap, actually we didn’t make any money,” said Gan, noting that Honda was only charged the cost of relocating peasants who formerly lived on the site.
All this added up to a remarkable surge in foreign investment last year. Sichuan attracted 1,910 foreign-investment projects in 1993, nearly matching the total for all the years since China opened up to Western investors. Total contracted foreign investment for 1993 was $2.4 billion.
This helped Sichuan record an impressive 12.8% economic growth rate last year. Some of its chronically impoverished neighbors did well, too. Yunnan province grew 10%, and Guizhou and Qinghai provinces each grew 9%.
Still, those results didn’t quite match the estimated 13% growth for the entire nation, indicating the interior--far from export markets and weak in infrastructure--is still losing ground to the east.
Economic growth was 25% in coastal Zhejiang province, where average urban per capita income was half again that of Sichuan. Rural incomes were more than twice as high.
Shanghai, a fraction the size of Sichuan, approved nearly twice as many foreign-funded projects last year with $7 billion in pledged foreign investment.
So Sichuan is scrambling harder than ever for foreign investment. Last year, officials went to South Korea, Hong Kong, Thailand and Macao to drum up business. In April, they plan to head for Los Angeles and New York.
Even the provincial governor, Xiao Yang, is preparing a rare trip abroad to convince Siemens of Germany to invest in a thermal power plant.
“I have to go for the important ones, the large-scale projects with big investment,” he said.
