Seeking Gold in Western China

It should be a perfect fit: the know-how and wealth of world-wise Hong Kong, harnessed to develop China’s poor, remote and seemingly boundless western areas.

Encouraged by Beijing to take a look at China’s “wild west,” Hong Kong Chief Secretary Donald Tsang in May put together an impressive delegation of about 150 prominent business leaders, then accompanied them on a 10-day swing through the vast region.

The net corporate worth of the blue-ribbon group amounted to several times the annual output of some of the areas visited, and media speculation about the trip’s outcome was intense. But when Tsang’s group returned with just 27 contracts worth about $250 million, many analysts were quick to dismiss the tour as a high-profile political gesture.

Three months later, however, there are signs it may be more, as the journey appears to have sparked a genuine interest among investors here in a part of China many had earlier only read about in books.

One example: Officials at John Swire & Sons, a Hong Kong-based conglomerate whose holdings include Cathay Pacific Airlines, say the region now has boardroom attention, even though the company made no commitments on the trip.

“It’s now an area we’re watching with interest,” said Maisie Shun Wah, the Swire spokeswoman, noting that senior executives, including Chairman James Hughes-Hallet, “found it an eye-opener.”

She said the company signed no contract on the trip, mainly because its idea of shipping the distant region’s luscious fruits to Hong Kong was, well, not yet ripe.

“There’s so much farm produce there, but the logistics side hasn’t been resolved, so it all sits and rots,” she said.

A follow-up seminar on the issue conducted here last week by the Hong Kong Trade and Industry Department drew about 300 participants, mainly from small and medium-sized companies. They mulled business opportunities ranging from teaching English to selling cosmetics to building pay toilets.

“These aren’t going to be the first people going out there; they will follow the larger companies and multinationals,” commented Richard Ho, dean of the business school at Hong Kong’s City University, who moderated the seminar. “It’s a long way from home, and it’s risky because the culture and consumption patterns are different. But this was a good, serious session.”

Beijing decided two years ago to accelerate development in 12 western provinces largely neglected during the country’s two decades of rapid industrialization. It is an area covering 70% of China’s land but with less than a third of its population.

The region is home to politically sensitive Tibet and Xinjiang, as well as some of the world’s largest untapped pools of oil and natural gas. A west-east gas pipeline and electricity grid are among the major government-financed infrastructure projects already underway.

One reason for Hong Kong’s curiosity about such a poor corner of the country is a gradual awareness that business leaders must find new markets and new business models if they are to survive once China enters the World Trade Organization later this year, ending Hong Kong’s long monopoly on the role of gateway to China.

“Hong Kong is good at arbitrage between China and the rest of the world,” said Andy Xie, who tracks China from Morgan Stanley Dean Witter’s Hong Kong office. “But China’s coastal regions will be completely open soon, so Hong Kong’s advantage will go.”

Added Richard Margolis, a strategist at the Asia Pacific division of Merrill Lynch Ltd.: “There are people who see a trickle [in the west] and [are] wondering if they can turn it into a stream.”

Hong Kong’s business leaders say they know there are few get-rich-quick schemes in China’s west. Even Beijing’s leaders readily admit that developing the region will require decades, probably generations, to complete.

It also seems likely that Hong Kong’s contribution to building up the region will be limited, at least in the near future. Just getting to Xinjiang, for example, can be a challenge. After a summer-only once-a-week direct charter flight between Hong Kong and the provincial capital, Urumqi, ends its service in early October, the trip will require eight hours of flying, a stopover in Beijing, and an air fare of more than $1,200. Hong Kong-based Dragon Airlines says it is studying the possibility of direct flights but has made no commitment.

But some in Hong Kong are already working to turn the west’s remoteness into an asset. Property developer Peter Wong sees the region as an ideal tourist destination for world travelers seeking a new experience. He signed agreements worth more than $65 million during the May trip, including for the refurbishment of two buildings into what he termed “cultural hotels.”

One, in Urumqi, will be done in traditional Islamic style to reflect the region’s Muslim heritage, while the second, in neighboring Qinghai province, is in the city of Xining, opposite the Tar Lamasery, the home of Tibetan Buddhism’s predominant sect.

“We want to bring them up to international tourist standards,” Wong said. “We’ll have some rooms suitable for student backpackers, others for heads of state.”

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China’s Wild West

Hong Kong business leaders are seeking opportunities in China’s 12 poor western Chinese, which cover 70% of the country’s land but account for less than a third of its people.