Current TV has just released their newest installment City on Steroids, and it should not be missed.

Shot in Chongqing, this segment is broken into three parts,

• Day 1 -Bang Bang Men (porters), rampant construction and individual home ownership (every young couples dream),
• Day 2 - life of a bang bang man, migrant appreciation day,a trip to the market
• Day 3 - a trip to Lifan’s car production facility, a look at the shadow that is Chongqing’s skyline, a trip to an English school to discuss the price of progress, and a last stop to visit Mr Rong’s apartment.. under the bridge.

For those that have only been to Beijing or Shanghai (particularly Shanghai), I think the most important things to understand are:
1) This grown is occurring in cities all over China: Chongqing, Chengdu, Xi’an, Kunming, Shantou, Nanchang, and countless others
2) There are large numbers of people in China who are willing to sacrifice everything to live under a bridge to eek out what they feel is a better life for themselves and their family
3) The environmental costs of the torrid pace are tremendous, and eventually Mother Nature is going to ask for the check.

Bill Dodson from This is China writes a piece in Euro Biz this month entitled Parts missing that looks at some of the difficulties a few friend are facing when entering China’s interior market of Chongqing.

It is one of those pieces that will surely get a lot of reads, because he is right. Chongqing is missing some hardware, a lot of software, and for many firms it has yet to develop the local market necessary to warrant real interest from a lot of firms.

why this article is interesting is that Bill’s writing reminds me of conversations I had 5 years ago with investors about Nanjing and Chengdu. they were in Shanghai, they were in Beijing, but when I mentioned Nanjing or Chengdu… the response was “where?”

In one case, I was working on a 10 million USD investment for 6 buildings. the development firms had gone bankrupt, creditors were knocking LOUDLY, and we had exclusive right to it. We spent two days going over the sites, mapping the locations, and building the models based on current market conditions and a general understanding that Nanjing was about to see a huge economic jump over the next 5-8 years that would make these properties really really sexy.

The result of our analysis was that without doing anything, investors would make 200% within 6 months (the lock out period) by simply flipping the properties.

200% sounds attractive right?

well… after meeting with 10 investment groups based in Shanghai, and more based internationally, we came to a single conclusion that 15% in Shanghai was better than 200% in Nanjing because investors really did not understand the fundamentals of China. It wasn’t that there weren’t opportunities. It was that these opportunities required some background, a little imagination, and patience.

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Last December, I referenced an article in the China Daily Five provinces get new leaders in major reshuffle where it was announced Bo Xilai (China Vitae Profile here), ten mayor of Dalian, and 4 other successful mayors would be posted to cities inland.

At the time, it didn’t get much press internationally, however this Guardian article shows how some in the city of Chongqing are already believing this will be a good thing for them.

“Chongqing residents are putting a lot of hope in Bo Xilai. People feel the city has a new opportunity,” said Xiao Zhou, 32, who works for a cosmetics company in the heart of the city.

and where I feel the author hits the mark is in the statement:

Bo’s international profile, honed during his nearly four years as Commerce Minister, has given hope to the region that he might lure the kind of foreign investment that helped China’s coastal areas take off.

However, where I think the article comes up short is that outside of his ability to draw in investment, the author failed to bring up the fact that some of China’s most important reforms have just been put in place, or are just now going in place, and as a trusted member of the inner circle, the central party is looking at he (and the other 4) as the persons who will ensure compliance.

Therefore, unlike the mayors of Suzhou and Nanjing whose sole mandate was to building GDP, I expect his role will be to build GDP in a sustainable fashion that brings strength to the rural region.

He will be asked to development of public infrastructure, improve the investment procedures that firms go through, ensure that firms are in compliance with labor laws., and perhaps most importantly balance the environmental concerns of developing the Southwest - interesting his proximity to 2 massive water projects - and his former city’s reputation for a fantastic environment.

A big optimist on the potential of Western China, I was recently interviewed for an article in this months SEED Magazine entitled Go West Young Scientist.

The author has done a great job of looking at some of the other opportunities (outside of my traditional scope) and hope you will enjoy it.

Growing up, I always hear Home is where you hang your hat, but today the China Daily has put together an article on expats in the 2nd tier cities called Home’s where heart is

Written by Viva Goldner, is a very interesting read and I find that many of the quotes she has pooled together represent similar things we are hearing here from the managers we have been interviewing over the last few months (perhaps that is why she quoted me).

In a report aimed at foreign investors, Brubaker examined real estate investment in the three “showcase cities” of Shanghai, Beijing and Guangzhou, which fed an overheated property market with potential returns of more than 200 percent in just a few years.

“As the cities most accessible to foreign businessmen, they offered a degree of familiarity unique in China, and as such, distracted investors from looking to other markets as investment destinations. Unlike second tier provincial capitals, these cities were considered to be safe bets in a country littered with buyer beware stories,” Brubaker says.

“Historically less developed than Shanghai, Beijing and Guangzhou, second-tier cities sought to catch up by rushing to build the infrastructure necessary to attract large sums of investment.

“So, while the primary markets commanded the attention of many foreign investors, new airports, central business district, arterial highways and universities were being planned and constructed in the provincial capitals. The result has been nothing less than the complete transformation of these cities (and) real estate investment has followed.”

More and more, I expect that the cities of Chengdu, Kunming, Dalian, etc will see movement of senior managers (western and chinese) into their cities. for some it is looking for a little more culture than Shanghai can provide, for others it is the opportunity that the city prvides (much like Beijing or Shanghai 10 years ago), while for others it is being told to go there by someone whose pay grade is a nothc higher.

While working on some research for a report, I interviewed a member of the Chengdu foreign investment bureau to better understand why foreign firms in general were choosing Chengdu, what the obstacles were, and what the future looked like..

Of the 20 or so questions we went over, one of my favorites was in response to my question

“Chengdu or Chongqing… which city will be the logistics hub of China’s southwest?”

to which my interviewee responded:

This question should be answered in different terms. In terms of air and land transportation, we Chengdu shall be taken as the hub in Southwestern China. But if it is in terms of water transportation, no doubt that Chongqing is the hub.

Looking at the map, and you can immediately see why Chongqing is the water hub. The Yangtze splits the city in half.

What I find interesting though is that from the perspective of this representative, and others in logistics & manufacturing, is that Chongqing’s real comparable advantages.. and that is the shame of it.

Taking nothing away from Chengdu, I have to scratch my head as to why Chongqing has allowed Chengdu take such an important role in logistics. Not just regionally, but also domestically, and more and more internationally (primarily air based movements).

After all, Chongqing has all the modes feeding into it. River, Rail, Highway, and air. So what is preventing them from becoming the center of gravity for the region on an intermodal basis? the opportunity exists to import containers from abroad, split them over rail and road to final destination…. right?

Well.. maybe not.

For Chengdu has apparently become know as the regional hub amoung the people I speak with, and if one looks at how this is impacting the logistics network… one can clearly see that there are more firms operating using Chengdu as their base of operations in the Southwest.

Where the competition could heat up, and where the opportunity for strong logistics firms comes out is in the trucking, 3/4pl, warehousing sectors… There are firms who are strong in both cities, but operating independently of each other who will come together.  This is particularly true for those with strong road-hual coverage in the area (and possibly cross border into Thailand & Vietnam).

From the consumer side. The situation is improving every day, and it really doesn’t matter if Chengdu or Chongqing comes out on top because in the end.. the consumer will be the big winner.

Stay tuned as over the next 18-24 months I would expect to see more acquisitions to be targeted in this area.  Currently working on a logistics project, it is clear that many firms have stabilized their east coast operations and partnerships, and that their intention is to focus more on the West.  With all the talk of Go West, the logistics firms have come to understand that their role in that movement is a very lucrative one.

Typically, I would not put a link to article I am quoted in, but this month I have 2 articles in the October edition of CHaINA.. and that warrants a post!

CHaINA is a local magazine started by Michael Pennington and supported by Shanghai Business Review and Supply Chain Council. The primary focus is supply chain/ logistics, however they are beginning to widen their scope to regional manufacturing locations as well (that is where I come in). With the support of SBR and Supply Chain, it is a great monthly read and I would suggest anyone in supply chain, investment, or manufacturing begin downloading their monthly editions at their website.

On page 32, Chris Horton (see the blog Go Kunming) writes the piece Tale of Two Cities to profile the growth (and understand their competitive advantages) of Chengdu and Chongqing, the hottest cities in the Southwest. Interviewed by Chris, I you will find some of my thoughts on the dynamics of the cities themselves, their strengths, as well as how they are working together to draw investment in. While the competitive nature is similar to SIP and TEDA, there is a lot of coordination between the two and each believes that their success is tied to the other (SIP and TEDA would differ on that point)

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