Welcome to China's China

(2 of 4)

The gaping disparity between East and West was also becoming a big headache for China's policymakers. Fearing disgruntled Westerners would grow unruly, Beijing stepped in seven years ago with an aggressive program to bring balance to the national economy. The government poured money into infrastructure like new airports and expressways throughout western China, with good result. "We follow the tarmac," notes Andy Coslett, CEO of Intercontinental Hotels, which is building like mad in Chengdu, Chongqing, Xi'an and other cities.

Residents of Chengdu, glued to the Internet and TV shows like Friends, are striving to connect with the outside world more than ever before, in fashion trends, food and lifestyles. Starbucks is importing its coffee-education strategy to persuade customers to splurge on a cappuccino. (A grande latte in Chengdu costs about $3.30, a huge sum in a city where locals typically earn less than $7 a day.) Starbucks has seven outlets in Chengdu (more than Peoria, Ill.) and is on its way to 10 to 15.

Foreign investors are lured west by the interior's lower costs--salaries for highly skilled college graduates in Chengdu are about 30% lower than in Shanghai--as well as tax breaks and other juicy incentives. After Motorola opened a software R&D center in Chengdu in 2001, the city government built the company a special building, complete with a rooftop patio.

Today industrial parks outside the city center house research labs from Nokia and Ericsson. U.S. bearings producer Timken is investing $15 million in a factory that will start production this year. Intel has poured $525 million into two chip-assembly and -packaging plants, one of which opened in 2005, while the second will start production this year. These facilities ship from Chengdu's airport to customers around the globe. Overall, foreign direct investment in Chengdu totaled $1.9 billion from 2001 to 2005. The results have been spectacular. GDP growth in Chengdu averaged 13.3% between 2001 and 2005, outpacing Shanghai's 11.9%. In 2005, per capita GDP reached $2,700, still only a third of Shanghai's but 70% greater than in 2000. Wages have surged more than 90%, to more than $2,400 a year on average during that same period, rapidly approaching Shanghai's $3,300.

Consumers in Chengdu are taking a page from the American book on spending, since they appear less interested in saving and more willing to take on debt to indulge themselves. Despite having lower incomes, Chengdu ranks among China's three largest cities in the number of privately owned cars clogging the roads. GM's sales in Chengdu grew about 40% in 2006, twice that of Beijing. Zhao Jinhui, vice president of Chengdu-based Eastern Kingo Auto Group, a large Chevy dealer in China, says that 22% of his customers finance their purchases, compared with only 5% nationally. "In Beijing, when they get rich, they buy cars; in Shanghai, apartments. In Chengdu, they buy both," Zhao says.