The document summarizes China's "Go West" policy and opportunities for foreign businesses in western China. It notes that western China accounts for a large percentage of China's land, resources, and population but a smaller percentage of GDP and exports. The policy aims to develop western regions through large-scale infrastructure investment and attracting foreign capital. Key opportunities exist in industries like energy, chemicals, and tourism across focus regions like Chengdu, Chongqing, and Guiyang. Foreign businesses face challenges like lower wages but also significant government incentives and access to growing local markets. Success requires thorough preparation, strong local partnerships, and flexibility.

1. July 2010
APCO Brief:
China Goes West

2. Introduction to China‟s Western Region
China‟s „Go West‟ Policy
Opportunities for Foreign Business

3. Introduction to China‟s Western Provinces
 80% of China‟s water resources
 70% of natural gas reserves
 69% of overall land area
 60% of coal reserves
 27% of population
 19% of GDP
 17% of consumer spending
 14% of FDI
 10% of applied patents
 6% of registered foreign
enterprises
 4% of exports
Source: China’s National Bureau of Statistics 2009, 2011
China‟s 12 Western
Provinces account for:
3

4. West More Reliant on Raw Materials
Source: China Statistical Handbook
2011 4
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Greater China Eastern
Provinces
Western
Provinces
Primary Sector
Secondary Sector
Tertiary Sector
Composition on China’s Economy
47
43
10 6
49
45
13
51
36

5. Urban Household Income is dramatically
less in the western provinces
Source: China’s National Bureau of Statistics 2011
Xinjiang
Beijing
Tianjin
Shanghai
Chongqing
Guangdong
Fujian
Tibet
Qinghai
Gansu
Inner Mongolia
Heilongjiang
Sichuan
Yunnan
Guizhou
Guangxi
Ningxia
Shaanxi
Shanxi
Hebei
Liaoning
Jilin
Shandong
Henan
Anhui
Jiangsu
Zhejiang
JiangxiHunan
Hubei
Hainan
< RMB 20k
RMB 20k-25k
RMB 25k-30k
> RMB 30k
5

6. Western Consumerism Lags Behind the
East
Source: National Bureau of Statistics 2011
Per Capita Annual Living Expenditure
6
Total
Consumptio
n
Food Education and
Recreation
Household
Items
RM
B
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
Eastern Provinces
Western Provinces

7. Economic Overview
Regional Policies for Investment
黑
龙
江吉
林辽
宁
河
北山
东
福
建
江
西
安
徽
湖
北
湖
南
广
东
广
西
河
南
山
西
内
蒙
古
陕
西
宁
夏
甘
肃
青
海
四
川
贵
州云
南
西
藏
新
疆
浙
江
北
京
重
庆
• 12 provinces
• 27% of total
population
• 71% of total land area
• Leverage
infrastructure
investment to drive
economic
development
• Attract foreign
investment
• China‟s rust belt
• 3 provinces and 5 cities
of Inner Mongolia
• 8% of total population
• 11% of total land area
• Revitalize old industrial
base
• 10 provinces and cities
• 60% of total GDP
• 38% of total population
• 7% of total land area
• Leverage SEIs and R&D
investment to lead innovative
& sustainable development
• Link of East Coast and Western China
• 6 provinces
• 27% of total population, 30% of total rural
population
• 10% of total land area, 23.8% of total cultivated
area
• Promote industrialization, urbanization, and
modernization of agriculture
“Go West” (1997)
“Rise of Central China” (2006)
“Northeast
Revitalization”
(2003)
Developed East
Coast

8. Western Provinces face numerous
challenges
Source: Social and Economic Atlas of Western Provinces, China Business Handbook 2009
Geography
- Extended distances between economic
centers
- Low population density
- Some extreme altitudes
- Water shortages, particularly in the north
- Inhospitable conditions in some areas and
relatively little arable land
Nature & Climate
- Extreme temperatures, particularly in the north
- Threat of natural disasters (e.g. earthquake in
Sichuan)
- Degradation of the environment (particularly
deforestation, desertification)
Ethnic Situation
- Ethnically diverse regions
- Persistent conflicts among ethnic groups (e.g.
Tibetans, Uyghurs)
Politics
- Western provinces were politically neglected
for a long time, only regaining serious political
focus for the last 10 years
- Political problems are hinder economic
progress (e.g. Tibet, Xinjiang)
Specific
Challenges in
Western China
8

9. Introduction to China‟s Western Provinces
China‟s „Go West‟ Policy
Opportunities for Foreign Business

10. China has been implementing the “Go
West” policy for more than a decade
The Chinese government under Premier Zhu Rongji first clarified the guidelines of
its “Go West” policy in 1999; after which developments have steadily followed…
“Western Development” plan begins2000
Construction of the “West-East Gas Pipeline” initiated2002
Policy of “Returning Grazing Land to Grassland” takes effect2003
Law on Promoting Western Development is listed on the
legislative plan of the 10th National People’s Congress
2004
Compulsory education tuition and fees exempted in Western
areas
2005
Qinghai-Tibet Railway begins operation2006
The Ministry of Finance invests RMB 280 billion in the west to support key
projects
2007
NDRC announced US$100 billion in 23 new infrastructure projects
including airports, roads, railways, coal mines, and nuclear power
stations
2010
10

11. Go West Policy has several key priorities
• Construction of railway lines, highways, airport
expansion projects, and gas pipelines, hydropower
plants, telecommunications, etc.
• By 2009, China had invested more than US$322
billion
• This month, the NDRC announced US$100 billion in
23 new infrastructure projects including
airports, roads, railways, coal mines, and nuclear
power stations
Infrastructure
• Preferential tax rates and flexible policies
• Chongqing Liangjiang New AreaForeign Investment
• Converting farmland to grassland and forest areasEcological Protection
• Compulsory education
Education & Retention of
Educated Workforce
11

12. Go West Policy‟s Focus Regions &
Industries
 Energy
 Chemicals
 Mineral mining and processing
 Agricultural goods processing
 Engineered products
 High-tech sectors
 Tourism
Several focus industries:
Three focus regions:
Chongqing-Chengdu
Guangxi “North Bay”
Guanzhong-Tianshui
12

13. The Go West policy has yielded
impressive results…
Source: China Statistical Yearbook, Yearbook of China Transportation and Communications
32.5
118
2000 2008
FlightPassengers(m)
3500
16500
25320
2000 2008 2011
Freeways(km)
76 233 299
2000 2008 2011
PowerGeneration
Capacity(GW)
22000
29500
36307
2000 2008 2011
RailTracks(km)
CAGR: 18% CAGR: 21%
CAGR: 4%
CAGR: 15%
13

14. …However, it has insufficiently closed the
development gap
73.30%
60.87%
79%
1990 2000 2011
West’sRelativeLevelof
GDPper Capita
20.88%
17.13% 19%
1990 2000 2011
West’sContributionto
GDP
14

15. Introduction to China‟s Western Provinces
China‟s „Go West‟ Policy
Opportunities for Foreign Business

16. Corporations have prioritized several key
locations for potential investment
LOW HIGH
HIGH
Corporate Perspective
AnalyticalPerspective
Ningxi
a
Qingha
i
Tibet
Guizho
u
Xinjia
ng
Gansu
Yunnan
Inner
Mongolia
Guangx
i
Shaanx
i
Chongqi
ng
Sichua
n
Source: Roland
Berger,
16

17. Chengdu:
City Overview
 Most prosperous and populous
city in western China, with 2009
GDP of RMB 450 billion (USD
66.17 billion), representing
14.7% growth year on year;
 Economic hub in Western China
for electronics and IT
manufacturing.
Transportation
China‟s sixth largest aviation hub
centered around Shuangliu
International Airport;
Competing with Chongqing to build
largest transportation hub in
Western China;
Investment RMB 20-50 billion (USD
3-7.3 billion) per year to build 5,400
km of new railways to 2020.
DevelopmentZones
Two national level development
zones:
• Chengdu High-tech
Development Zone –
electronics and IT
• Chengdu Economic and
Technological Development
Zone – auto manufacturing

18. Chengdu:
Industries and Policies
Pillar industries: electronics & IT, telecom and auto manufacturing
• Sales revenue of electronics and IT industry in 2009 reached RMB 143.3 billion (USD 21.07
billion), making up 31% of total GDP;
• Major consumer electronics and IT companies in Chengdu include
Nokia, Siemens, Samsung, Sony, Cisco Systems, Intel, HP and Foxconn;
• Chengdu has a complete auto manufacturing supply chain with 8 major manufacturers
including FAW-Volkswagen and over 150 auto components suppliers.
• Chengdu also announced plans to build electric vehicle charging facilities by 2012 and
manufacture 910,000 electric vehicles by 2017, planning to generate RMB 193 billion (USD
28.38 billion) in sales revenue.
• Chengdu municipal government had decided to invest RMB 50 billion (USD 7.35 billion) to
build a national-level telecom hub in 2008. By 2011, Chengdu will become, after
Beijing, Shanghai and Guangzhou, the fourth information broadcasting base in China.
Sustainability: Chengdu-Chongqing Economic Zone and Tianfu New Area
• Chengdu‟s Tianfu New Area is slated to become a major industrial and economic center in
Western China enjoying similar preferential policies as Pudong New Area;
• The State Council approved Chengdu-Chongqing Economic Zone to be a new twin-city
Special Economic Zone (SEZ), one of China‟s three western economic zones created to
spur regional growth.

20. Chengdu:
Tax Incentives
Corporate
Income Tax
(CIT)
• Encouraged sector firms: 15%
• Non-encouraged sector firms:
25%
• Refund Rate: 100% refund of
local portion (40%) of CIT for 3
years and 50% for the following
5 years
• NPV=19%
Value Added
Tax (VAT)
• Standard Rate: 17%
• Refund Rate: 100% refund of
local portion of VAT (16%) for 2
years, and 50% refund for the
following 3 years.
• NPV=8.41%
• Free duty and VAT for imported
equipment: eligible equipment
Others Based On TE Project
Description:
R&D subsidies: negotiable based on
R&D investment capital and product;
Employee training subsidies:
Company is grant subsidy RMB 200 per
employee for signing contract with local
resident for a minimum of one year;
Individual income tax merits for high-
level management: 100% refund of
local portion (26%) of individual income
tax;
Business tax: 100% refund of local
portion (65%) of business tax for 2 years;
50% refund rate for the following 3 years.

21. Significant incentives provided by central
and local governments
 Corporate income tax reductions
 Personal income tax rebates
 Rental discounts
 Subsidies for employee training
 Subsidies for employee relocation
 Financing support
 R&D funding support
 Subsidy for standards certification
 Tax exemptions for equipment importation
23

22. Advantages and challenges for foreign
business
ADVANTAGES  Market access: Western provinces provide access to
quickly-growing local and regional markets
CHALLENGES
 Lower wages: Western regions wages are significantly below those
in China‟s east
 Government support: Wide-spread support for foreign investment can be
found at both the national and local level
 Level of familiarity: Local authorities are less experienced in working with
foreigner and foreign companies
 Personal relationships: “Guanxi” more important in Western regions
which requires time and patience to develop
 Quality of Staff: Staff qualification level comparatively lower
than found in China‟s eastern region
24

23. Success in the West depends on your
preparation and execution
In order for a company to take advantage of the opportunities in China’s west and
the ‘Go West’ policy it needs to be prepared and committed…
Conduct thorough market analysis
Perform solid technical and location due diligence
Thoroughly vet partner and key customers
Build solid government relationships
Develop a dedicated and motivated team of managers and workers
Be flexible to the changing environment
Monitor and track new opportunities and evolving government
priorities
25