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Going West in China

By on February 18, 2013

Development program seeks to improve logistics in interior of world’s most populous nation

After more than a decade of China’s “Go West” strategy, international business interest in developing the world’s most populous nation’s hinterland remains high despite stiff challenges.

Called the Western Development Program, China’s “Go West” strategy was launched prior to the country’s 2001 entry into the World Trade Organization. The central government program sought to boost the poorer western regions of the country that had failed to benefit economically from China’s opening to trade with the outside world.

Through 2011, the central government invested more than CNY2,022 billion (US$325 billion) in projects ranging from railroads, ports and airports to highways, power grids, coal mines and pipelines.

The Go West program covers the municipality of Chongqing, the provinces of Gansu, Guizhou, Qingshai, Shaanxi, Sichuan and Yunnan and the autonomous regions of Guangxi, Inner Mongolia, Ningxia, Tibet and Xinjiang. This region makes up 71 percent of China’s land mass, but only 28 percent of its population.

Western China’s share of GDP was only 17.8 percent in 2008, with the east accounting for 41.1 percent, according to the Center for Studies of China’s Western Economic Development at Northwestern University in Xi’an.

Western China’s GDP per capita increased from CNY3,733 (US$600) in 2008 to CNY12,027 (US$1,933) in 2010. As its population’s discretionary income has increased, so has travel. Railway capacity is up more than 160 percent and highway capacity has nearly tripled since 2001.

The Go West program was also designed to halt the flow of rural residents from the hinterlands to the coastal metropolises, while developing its internal consumption market, said Walter Kemmsies, chief economist at coastal and civil engineering firm Moffatt & Nichol.

Economists such as Kemmsies say statistics about the China market remain fuzzy because of the country’s manipulation of the yuan, its skewed production capacity, and its inability to increase internal consumption to drive growth.

China’s economy slid to its slowest growth rate in more than a decade last year, dragged down by global woes and a domestic campaign to deflate a
property bubble.

There are bright spots. China finished 2012 with a rebound that analysts believe will ripple into a stronger performance this year. China’s GDP expanded by 7.8 percent last year, the lowest since 1999. However in the fourth quarter, growth was 7.9 percent year-over-year, breaking a streak of seven consecutive weaker quarters.

The government’s infusion of money into infrastructure spending prompted the 2012 year-end rebound, but fell short of the massive stimulus for rail and roads that officials launched in the wake of the 2008 global financial meltdown.

Besides building infrastructure, China is using capital to increase agricultural production, Kemmsies said. “That’s why companies like Caterpillar, John Deere and General Electric have done so well. They’ve had huge growth in the sale of construction and transportation infrastructure equipment,” he said.

Chinese forwarding giant Sinotrans has successfully worked with cargo owners and EPCs that require imports and domestically manufactured cargo to be transported from coastal areas to the western hinterland, said Gu Yu, general manager, Sinotrans Eastern Co.

“We have projects in Chongqi, Changshou, Shan’n, Xi Yulin and Shenmu, as well as inner Mongolia and Tibet,” he said.

Sinotrans, along with compatriot forwarder Cosco Logistics, works with direct owners BASF, Bayer, Sinopec, PetroChina, Shanghai Electric Corp., CITIC Pacific Mining Management Pty., as well as EPCs Fluor, Daelim, JGC, MCC, Toyo, and Technip, said Eric Ding, manager of Sinotrans’ marketing business development. Sinotrans largest business, a CNY62.2 billion (US$10 billion) project, meant CNY1.2 billion (US$200 million) in revenue for the company.

With more than 1,000 branches and offices in China, Sinotrans also subcontracts with Bertling, JAS Projects, Panalpina, Martin Bencher and others, he said.

Accessing western China markets is a complicated and unforgiving business. Despite the vast infusion of infrastructure spending, building connections to Mongolia’s coal reserves, for example, required traversing the Gobi desert and Altai Mountains.

Trucks are available and companies such as Sinotrans provide SPMTs for heavy-lift projects. But that doesn’t mean the route from Point A to Point B is a simple one.

German-based project forwarder Weiss-Röhlig established a presence in western China in Urumqi at the start of the Go West policy. It expanded to Chengdu in 2005, and to Xi’an and Chongqing in 2008.

Quick Zhou, western China project development manager, said Weiss-Röhlig China Co. uses small and medium-sized domestic barge transports on the Yangtze River, and has established “close contact and long-term relationships with river ports like Chongqing, Luzhou, Yiben, Leshan and Wanzhou, as well as several small ports and jetty operations along the Yangtze,” he said.

Recently, Weiss-Röhlig China imported project cargo from Hamburg to Dongfang Turbine’s Deyang, Sichuan plant, which required a routing of Hamburg, Shanghai, Wutongqiao, Leshan and Deyang.

“River transport from Shanghai to Leshan was a total of 2,830 kilometers,” Zhou said. “The last 162 kilometers from Yibin to Leshan are navigated on the Minjiang River and the transport time coincided with the river’s dry season when it is only navigable by small 1,000-ton barges.”

Because the water depth between Wutongqiao and Leshan can be only a meter during dry season, even a small barge may have to wait two or three days for sufficient water level.

The shallow draft forced Weiss-Röhlig to move the cargo from a 1,500-tonne barge at a small pier in Wutongqiao onto a 1,000-tonne barge, using two mobile crane trucks. From Leshan, the cargo was trucked the final 264 kilometers.

Weiss-Rohlig’s exports have included an exhaust gas recycling mill from Zigong, Sichuan Province, to Chile for Andritz; locomotives and equipment to Sudan, South Africa, Gabon and Bangladesh for CSR Ziyang and China Shipbuilding Industry Chongqing.

A regular import customer is Dongfang Electric Group, China’s largest power equipment manufacturing enterprise, in Deyang, Sichuan Province, “regularly entrusting us with the transportation of generators and generator manufacturing equipment from Europe, and large-scale imports of spare parts,” Zhou said.

Weiss-Röhlig also handled imports of Siemens furnace motors from Europe for Shuicheng Iron and Steel Factory in Liupanshui, Guizhou; raw materials and equipment from Germany for aircraft manufacturer Baoji Titanium Ally Group; and a chemical reactor tank from South Korea to Chongqing for Chongqing Chemical and Pharmaceutical Group.

China is courting international investors in its shale gas sector as it promotes natural gas consumption. The country’s demand is expected to double to about 270 billion cubic meters by 2015, and Beijing has set a production target of 6.5 billion cubic meters per year by that time.

A Shell report noted the oil giant last year invested CNY3.1 billion (US$500 million) in its partnership with PetroChina in Sichuan province in the south and southwest, after spending about CNY2.8 billion (US$450 million) in 2011. Shell’s portfolio with PetroChina includes shale gas and coal bed methane projects in south, southwest and north Sichuan.

Chevron and PetroChina, a unit of China National Petroleum Corp., are partnering in the Chuandongbei gas project in Sichuan. It is China’s largest onshore gas project with a foreign partner. Chevron’s 30-year agreement with PetroChina is to develop Chuandongbei at a cost of CNY29.2 billion (US$4.7 billion).

BASF received approval last year for a 400,000-tonne methylene diphenyl diiscocyanate, or MDI, project in Chongqing, to be completed by 2014, at a cost of about CNY8.1 billion (US$1.3 billion).

China’s SAIC Motor and General Motors are building a factory in Wuhan. The CNY6.8 billion (US$1.1 billion) project will have annual production capacity of 300,000 units.