The western region of China involves six provinces, five autonomous regions and Chongqing municipality, accounting for more than 70 percent of the Chinese mainland's area and is the habitat of 75 percent of the country's ethnic minority population.
The Chinese central government has a longtime policy of promoting economic development in western China. According to the state-run newspaper China Daily, the government spent nearly $325 billion on development projects in the area between the years 2000 and 2009. The policy aims to help the Chinese economy by increasing energy security and domestic consumption in the region.
Demand for Resources
According to the International Energy Agency's (IEA) latest Oil Market Report, China continues to lead global oil demand. Experts say that while China is increasing its domestic energy production, it is still actively seeking more international energy trading deals, as well as snapping-up fields and pipelines to ensure it is well supplied. From January 2009 to April 2010 alone, China spent around $29 billion worldwide to acquire oil and gas assets, says the IEA. In addition, China National Petroleum Corp (CNPC) and Sinopec were involved in 11 loan‐for‐oil deals with eight countries worth a total of $77 billion.
China’s seemingly insatiable appetite for energy production and consumption reaches new levels as the country unveils plans to increase oil and gas production by a third by 2020. Far western China has become a prime development site, thanks to rich deposits of natural gas and other crucial resources. Both Chinese President Hu Jintao and Jiang Jiemin the CNPC President have commented on the strategic importance of Xinjiang Uyghur Autonomous Region. CNPC has recently revealed its plans to ramp up its oil and gas production capacity in the remote northwest province of Xinjiang.
According to China Banking Regulatory Commission’s Chairman Liu Mingkang, Chinese financial institutions should support development in the western region of Xinjiang. For instance, banks should set up branches in remote areas of the region and allow branches to grant loans, supporting small enterprises in Xinjiang.
Boost Domestic Demand
The central government recently announced it would spend US$100 billion on development of the western region. China’s National Development and Reform Commission (NDRC), a top-tier economic planning agency, said the money would be spent to build railroads, coal mines, airports and power grids, among other infrastructure projects. It would be spread over the Xinjiang, Tibet and Inner Mongolia regions and Sichuan and Yunnan Provinces. As part of its plans for the Western regions, China will impose nationwide a tax on oil and gas drilling and other resource industries to raise money for the regions’ development.
The NDRC, along with other departments, will compile a catalogue of industries in the western region covered by the government's favorable policies. Companies in these industries will enjoy a favorable corporate income tax rate of 15 percent, compared to the regular rate of 25 percent.
The vast, resource-rich western region has great potential to help enhance domestic demand as the regional population accounts for 27.5 percent of the country's total, while consumption only takes 18.4 percent of national retail sales.
Opportunities
After recent labor unrest in the southern regions of China, some multi-nationals have began to give serious consideration towards shifting production to the country’s central and western regions. Given the influence that government policies have on businesses in China, the government’s stated intentions to develop China’s Western regions should give foreign investors greater confidence to evaluate the prospects of investing into that area.
Still, the NDRC’s announcement of renewed development for the western region was only made recently and it is not certain yet how foreign private participation would be encouraged. It would be prudent to explore but await a clearer view of the opportunities ahead.
