The outstretched arm of Mao Tse-Tung’s statue appears to bless the sprawling traffic on Renmin Road. It is a Monday morning, and the tall imposing statue of the architect of the People's Republic of China on Tianfu Square overlooks the thousands of bicycles, motorcycles and cars that intersect the relentless stream of people circling the square on their way to work.

Located at the heart of Chengdu city, the capital of Sichuan Province in south-west China, Tianfu Square is a place of paradoxes. With a distinctive architecture that is heavily Chinese in style, the white sombre statue of Mr Mao is an ever-present reminder of the country’s socialist leanings. Standing to one side of the square in front of the Sichuan Science and Technology Museum, Mr Mao’s statue directly faces Renmin Road, Mandarin for 'the people’s road'. Yet Renmin Road is also one of Chengdu’s most exclusive high streets, hosting goods that are unaffordable for all but the very rich. Lined with luxury brands such as Louis Vuitton and Prada, Renmin Road caters to the tastes of Chengdu’s growing class of elite, wealthy consumers.

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Emerging China

As one of the beneficiaries of former Communist Party leader Deng Xiaoping’s policy shift that begun in 1978, to gradually reform and open China’s economy, Chengdu today encapsulates the paradoxes of China’s model of socialism “with Chinese characteristics”. A native of Sichuan Province himself, Mr Deng set about developing a market economy alongside the state’s planned economy, and this later led to an influx of foreign companies and capital, which accelerated the growth of China’s economy. 

Although development along China’s eastern seaboard has for decades outstripped growth in mainland China, this trend has begun shifting in recent years. Partly due to the central government’s push to encourage the urbanisation and development of China’s inland provinces, the fastest growing cities this decade are set to be in regions that were considered for years to be China’s economic hinterland. The Economist Intelligence Unit’s (EIU) most recent report documenting the rapid rise of China’s ‘megalopolises’, defined as cities with a population of more than 10 million people, identified Chengdu as the furthest inland Chinese city that is set to attain megalopolis status by 2020.

“In [previous] decades, we saw a tremendous amount of migration from inland [regions] to places such as Shenzhen, Shanghai and Beijing,” says Duncan Innes-Ker, a China analyst at the EIU. “Those were people moving to take advantage of economic opportunities there. We [are] now seeing more companies moving their operations inland, which has paved the way for a migration for jobs to the places where the migrants [originally] came from. We are increasingly seeing people moving to the big cities [inland] and this is what is driving the growth of Chengdu among the new tiers of megalopolises.”

A place in history

Located in the mountainous terrain of south-west China, Chengdu is the provincial capital of Sichuan Province. Flanked by the alluvial cones of the Minjiang, Jianjiang, Shiting and Mianyuan rivers, the Chengdu Plain, located in the western part of the Sichuan basin, is well known among locals in neighbouring provinces for its scenic beauty and temperate weather.

As one of the oldest cities in mainland China, Chengdu city evolved within the plain as Sichuan Province’s largest metropolis, developing a rich cultural heritage. “Chengdu has a 3000-year-old history,” says Wang Yi, director of Chengdu Museum. “Chengdu was one of the most commercialised cities in ancient times. In the western part of China, Chengdu still plays a very important role culturally, politically and economically.” Its unique surroundings have made it among one of China's more popular destinations with domestic tourists, and Chengdu has developed a reputation as a popular weekend getaway for Chinese families in neighbouring provinces.

Keen on capitalising on its geographical endowments, the local government has portrayed Chengdu as a city that maintains a balance between being a fast-growing commercial hub and a city with a relaxed pace of life that is close to nature. Officials are quick to highlight the government’s efforts in protecting Chengdu’s natural heritage. “Chengdu is one of the only cities in China with a National Relic Protection Unit,” says Mr Wang. Indeed, Mount Qingcheng is emblematic of this effort to preserve the province’s cultural legacy. Within an hour’s drive from Chengdu, a visitor will find a host of Taoist temples, serving as a reminder of the province’s role in ancient China as one of the main centres of the Taoist faith.

Chengdu's city centre is also dotted with reminders of Sichuan culture. The Wu Hou Shrine and the Jin Li Promenade in central Chengdu, constantly teeming with tourists, was reconstructed to imitate the streets of ancient Chengdu, and it is one of the city’s more popular attractions. “Most of the tourists we receive are from other parts of China,” says He Hongying, vice-curator of Wu Hou Shrine Museum. “We also have international tourists, particularly from east Asia. Wu Hou Shrine and Ji Li Promenade, for example, were rebuilt in a style based on our cultural history. We have tried to combine the traditional elements of Sichuan culture with modern elements that differentiate Chengdu.”

Furthermore, Chengdu’s subtropical monsoon climate has made it home to a biodiversity of animals, paramount among them being its pandas. Well known for being one of the natural habitats in China for giant pandas, the Chengdu Research Base of Giant Panda Breeding is part of the local government’s efforts to attract foreign tourists seeking the charms of cuddly pandas, as well as a broader conservation scheme to stem the rate of extinction among China’s panda population.

Diversifying growth

Yet the local government has been actively attempting to position Chengdu as a dynamic commercial hub in west China, seeking to develop several competitive sectors to sustain Chengdu’s growth, in addition to tourism.

Designated by the central government as one of the cities that will power the growth of the western part of China, Chengdu has in recent years witnessed a high rate of development as a consequence. “Chengdu has been one of the main beneficiaries of the government’s development strategy,” says Tom Rafferty, a China analyst at the EIU. “It has become, along with Chongching, the focal point for economic growth in the western part of China.”

According to the EIU, Chengdu’s year-on-year GDP growth accelerated by 15.2% in 2011, up from a 15% growth rate in 2010. This is in contrast to the national slowdown in growth. According to China’s National Bureau of Statistics, the country's year-on-year GDP grew by 9.2% in 2011. “Chengdu grew by more than 15% last year, and this year it will grow by just over 13%,” says Mr Rafferty. “[This] is lower than last year but it is in line with the government’s wider plans, and it is still very impressive.”

Western China is becoming increasingly attractive to foreign companies because of its relatively low wage costs in comparison to China’s more expensive eastern provinces. Coupled with the Chinese government’s investor-friendly policies aimed at facilitating inward investment, this has seen foreign companies begin to seek opportunities in western China. Accordingly, the growth of FDI in Chengdu has been robust in recent years.

“The government is doing a good job and if you speak to businesses in Chengdu, they are positive about the business environment there,” says Mr Rafferty. Furthermore, according to fDi Intelligence’s greenfield investment database, fDi Markets, between 2003 and 2012, a total of 257 greenfield FDI projects were recorded in Chengdu. These projects represent a total capital investment of $19.72bn, which is an average investment of $76.7m per project.

Although Chengdu lacks a major port, foreign companies have been particularly attracted its IT sector. fDi Markets identified the top four sectors that performed well in attracting greenfield FDI were software and IT services, financial services, transportation and semiconductors. Between 2003 and 2012, each of the sectors attracted 27, 26, 21 and 17 projects, respectively, and they received total capital investments worth $6.5bn.

Great expectations

Chengdu’s growth is also symptomatic of a more general trend in China that has resulted in a shift of FDI inland. The 2008 global financial crisis triggered a gradual move away from China’s older commercial centres in the east such as Shanghai. Affected by the slowdown in trade and export demand, primarily from developed markets in the West, the economic crisis had a direct effect on lowering the rates of growth in the more open economies in the east of China. Chengdu’s relatively lower economic exposure has conversely enabled it to weather the economic crisis relatively well.

“The past 10 years were interesting, as [Chengdu] initially did not do well and the story of the interior at the time was of a poor one,” explains Mr Innes-Ker. “The infrastructure [at the time] was not really good enough and the local markets were very small. [Yet] that picture has definitely changed in the past four years, where we see a real surge of investments going into Chengdu. When you consider China, it is obviously exposed, [and] vulnerable to trends in the global market place. Yet when you consider the interior of China, places such as Sichuan and its capital Chengdu, they are much more sheltered from the global financial [shifts] affecting a lot of the traditional export bases on China’s coast. They definitely have a lot less exposure.”

The choice by the US company AllTech Medical Systems to set up an office in Chengdu is an example of this. Influenced by the cost advantage a second-tier city such as Chengdu offers, David Grime, the vice-president and chief operating officer of AllTech, says: “We did all the groundwork between 2004 and 2005, and we established a company [in Chengdu] in June 2005. We ruled out tier-one cities as we felt the benefit wave had passed [them] and they had disadvantages in terms of costs and employee stability. So we only looked at tier-two cities, and we looked at places such as Wuhan and Chengdu. We settled on Chengdu because it has cost advantages [compared] to tier-one cities. Also, from the employment point of view, tier-one cities such as Shanghai suffer from a lot of employee migration, but in tier-two cities, the [employees] tend to be more settled.”

As a provider of medical imaging technology and product solutions, AllTech also chose Chengdu due to an absence of competitors, and its availability of technically trained employees. “We identified Chengdu [because] none of our competitors were here,” says Mr Grime. “We did not want to compete with our major competitors for employees or suppliers. There is a history of high-tech within Chengdu. So there is a [greater] culture of quality awareness than in other parts of China, and there is a large and very good student population here and a lot of affiliated universities, which provide a source of assistance and potential employees.”

High-tech heritage

Chengdu has been successful in attracting international firms due to its relatively low labour and land costs, which have been a major draw, particularly for manufacturing and services firms that consider the availability of well-educated labour to be a major advantage. Chengdu’s success in attracting FDI to its evolving IT sector stems from China’s pre-reform era, when Chengdu was used by the central government as an R&D base. This legacy endowed Chengdu with a technical foundation on which to build up its IT skills and to improve its R&D capabilities.

It appears that a combination of the local government’s proactive attitude to courting investors, the city’s relatively low costs of doing business, and the availability of a talented labour pool has enabled Chengdu to outperform the more established cities of eastern China. Yet with its GDP growth set to slow down to 13% this year, it remains to be seen whether Chengdu will successfully withstand the effects of the protracted global economic slowdown, as well as meet its government’s long-term economic expectations.