City Report: Kunming

Wednesday, February 28, 2007 6:54

Due to its remoteness, Kunming has been an economic backwater in China for most of the last 20 years, though this has changed as China’s trade with Southeast Asia has growth and the “Go West” policy was implemented. For Kunming, the success of the “Go West” policy was a boom as companies have looked to Chengdu and Chongqing as primary manufacturing, research, and consumer markets in the West. As the focus has shifted towards Chengdu and Chongqing, Kunming was put on the radar screen of many companies, and the result has been increased investment and economic growth.

Kunming is surrounded by natural resources located in the center of China’s agricultural and mineral production areas. It is being groomed by provincial and national leaders to serve as a main commercial and financial hub for the upcoming China-ASEAN (Association of Southeast Asian Nations) Free Trade Area (FTA). China and the ASEAN member countries signed the world’s largest FTA agreement this year for 1.8 billion people. It will go into effect in 2010.

Infrastructure improvements already underway indicate Beijing’s expectations for Kunming’s near future: Kunming will have a new airport in 2008 that will be China’s third largest; a highway is being built to connect Kunming with Singapore; rail links connecting Kunming to Southeast Asia are being built or expanded; and most recently it was announced that India and China are going to rebuild the Stilwell Road.

Economic Overview:

Located at 2000 meters, Kunming’s economy has historically been dependent upon its natural resources (wood, minerals, coal, and metals). Through its trade contacts with more than 70 countries and regions in the world, Kunming has mostly exported tobacco, machinery and electrical equipment, chemical and agricultural products and non-ferrous metals in the past to South East Asia and to other parts of China for processing and manufacturing. With what is considered to be the best weather in China, Kunming is also experiencing a rise in tourism.

For the past 4 years, Kunming has shown strong macroeconomic growth in GDP and FDI, as shown in figures 1 and 2. Kunming, the capital of the Yunnan province, has experiences slower nominal growth in its economy when compared to other second tier cities, however, in real terms Kunming is currently experiencing its own macroeconomic boom. With the population expected to nearly double in the next 4 years, Kunming’s growth is primarily being catalyzed by the growth in neighboring Chengdu and Chongqing. As a beneficiary and target of the “Go West” policy, Kunming will continue to enjoy the support of the Central Government and will continue to enjoy the interest of many foreign and domestic manufacturers looking to invest in new manufacturing facilities in China.

As can be seen by the increases in disposable income, savings, and annual consumption, the residents of Kunming are now able to afford a higher quality of life and are able to spend more money. The best example of this ability of Kunming residents, are the reports that there are more than 300 cars being bought each day, and the resulting traffic that has become China’s most famous.

Foreign Presence

Historically Kunming, more than Chongqing and Chengdu, has had difficulty in attracting large foreign investments because it was a difficult place to export manufactured goods from. While having a better living standard than other second tier cities, it remained largely in the shadows of Chongqing and Chengdu due to its longer transportation times and higher transportation costs to reach markets. However, many companies from the West and Southeast Asia are seeing Kunming as a future market for manufacturing and sales of fast moving consumer goods (FCMG).

In addition to this growing market incentive, the Government has put several policies into effect to bring in more foreign companies. For example, a foreign company can register a wholly foreign-owned enterprise (WFOE) to foreigners investing as little as $35,000 USD (compared to the $140,000 USD required in Shanghai).

Compared to many other second tier cities, Kunming has lagged behind in attracting FDI into the city. With only 58 new contracts in 2003, Kunming was nearly 150 contracts behind Chengdu and Chongqing. However ,the amount of contracted and utilized FDI has show gains for the last 4 years and as Chongqing and Chengdu continue to develop and expand the trend will continue. With commitments from Fraport and Changi for the new Kunming Airport and other multinationals establishing manufacturing facilities, this trend will continue for the near term. Recently, Kunming has begun to win multinational investments because Kunming offered lower costs of labor, setup, and at the same time, a rising population experiencing growth in per capital income.

To continue its growth and leverage natural resources, Kunming is trying to attract foreign investment in the following areas:

  • Infrastructure
  • Development of agricultural and biological products
  • Development of mineral resources
  • High technology
  • Environmental production

Conclusions

Kunming is a city that appears to be at a crossroads where the economy is at the tipping point of expanding very quickly with millions of people moving to the city while real estate industry is still undergoing its own growing pains.

In the near term (1-3 years), Kunming has a higher risk profile than Chongqing or Chengdu because its economy is 3-5 years behind in terms of infrastructure, knowledge base, and exposure in the international community. However, as the only 2nd tier city south of Chongqing and Chengdu, Kunming will see increased interest from foreign companies much like Suzhou with Shanghai and Tianjin with Beijing. As regional powerhouses Chongqing and Chengdu grow, Kunming will become the less expensive manufacturing market in the southwest. It is already gaining attention from many foreign companies.

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One Response to “City Report: Kunming”

  1. Ivo Cerckel says:

    February 28th, 2007 at 10:36 pm

    Here’s how China-ASEAN (Association of Southeast Asian Nations) Free Trade Area (FTA) will come into effect.

    The European Union’s foreign policy chief Javier Solana wants to attribute IMF votes to China, India and ASEAN, said The Hindustan Times on February 19, 2007.
    (EU for inclusion of India, China in global diplomacy
    http://www.hindustantimes.com/news/181_1930439,00050003.htm)

    Malaysians increasingly see gold as money, not jewelry,
    said The Star, Petaling Jaya, Malaysia, on February 27, 2007
    http://thestar.com.my/news/story.asp?

    This is interesting as ASEAN is a union which is being set around a currency system and as, as a result of this new currency system, and as the IMF has no more role (to fulfill) except that of bailing out the US.

    As Professor [of Corporate Strategy and International Business] Linda Lim, Director of the Centre for Southeast Asian Studies at the University of Michigan, puts it in her Foreword to
    Philip Kotler, Hermawan Kartajaya, and Hooi Den Huan,
    “Think ASEAN! – Rethinking toward ASEAN Community 2015”,
    McGrawHill, 2007,
    private actions can and should initiate a process of market-led regional integration that is likely to be not just quicker, but also more efficient [than a government-initiated process], as a result.

    After attending the ASEAN Business and Investment Seminar (BIS) in Cebu, Philippines in December 2006 and reading the book I just quoted, I wonder whether the ASEAN market is not primarily a market which is going to be “exploited” not by SMEs (Small and Medium-Sized Enterprises), but only by big businesses (Multi-National Corporations – MNCs) which are already operating internationally.

    Let me first say this: I am a firm believer in Freedom (and Truth) and thus in the freedom of contract.
    Nobody can thus be prevented from concluding a contract whereby the partners set up a corporation which eventually becomes a MNC. I have no problems with private corporations where the partners’ liability does not disappear.

    The problem is however that whereas I cannot give legal personality to my dog or my car, the granting of the privilege of legal personality to the PUBLIC corporation at present results in the partners that make up the corporation not being fully liable for the actions of their corporate tool
    (Professor Frank van Dun, “The Modern Business Corporation versus the Free Market?”,
    http://users.ugent.be/~frvandun/Texts/Articles/Corporation
    versus Market.pdf )

    When I see that the quoted book refers several times to a corporation with such ASEAN roots as McDonald’s Hamburger Restaurant, I have my deepest doubts as to the real intentions of some of the promoters of ASEAN.

    ASEAN wants to integrate the economies of its member states and wants to maintain ASEAN in the centre stage, making the ASEAN concept real in the minds of people, said His Excellency Ong Keng Yong, Secretary-General of ASEAN, in His Excellency’s December 09, 2006 address to the ASEAN BIS Seminar in Cebu.

    Will giving MNCs more leeway to “exploit” the ASEAN market make the ASEAN concept real in the minds of people?

    Will that maintain ASEAN in the center stage? I don’t think so.

    It is humbly submitted that having an ASEAN PLUS CHINA gold yuan in one’s wallet would really make the ASEAN concept real in the minds of people and would maintain ASEAN in the centre stage.

    I therefore wonder whether, as I said in the paper “A Currency for the ASEAN market – Freegold”, which I made available to the participants at the ASEAN BIS seminar in Cebu, Philippines in December 2006, it would not be time to realise that these objectives can only be achieved if ASEAN does not tolerate currencies’ exchange rates dominating trade but adopts the opposite policy of allowing ASEAN to consolidate (store) its produced wealth in Freegold.

    Do we cling to the dollar-IFMS (International Financial and Monetary System) or do we opt for the ASEAN gold-yuan? Nothing prevents ASEAN Plus China from copying what the European System of Central Banks (ESCB) is doing and keep gold (the Mona Lisa) in the strong rooms (the Louvres) of its central banks and marking it to market price on a
    quarterly basis.

    Every individual in an ASEAN Plus China nation would then be free to copy the concept of Freegold.

    By the same token, the ASEAN Plus China concept will have been made real in the minds of people and ASEAN Plus China will have been maintained in the centre stage. How else could ASEAN possibly
    integrate the economies of its member states?

    This, Freegold, is the total opposite of the absurd IMF virtual SDR-situation.

    Special Drawing Rights (SDRs) is a potential claim on the freely usable currencies of International Monetary Fund members.
    It is neither a currency, nor a claim on the IMF.
    SDRs are defined in terms of a basket of major currencies used in international trade and finance.
    At present, the currencies in the basket are the euro, the pound sterling, the Japanese yen and the United States dollar.
    The amounts of each currency making up one SDR are chosen in accordance with the relative importance of the currency in international trade and
    finance.
    The determination of the currencies in the SDR basket and their amounts is made by the IMF Executive Board every five years.
    http://en.wikipedia.org/wiki/Special_Drawing_Rights

    This seems to indicate that SDRs constitute the reserve of the inexistant IMF-currency.

    Article IV, Section 2, of the IMF Articles of
    Agreement says that exchange arrangements may include inter alia (under (b) (ii)) cooperative arrangements by which members maintain the value of their currencies in relation to the value of the currency or currencies of other members. Freegold is the opposite of this absurd (virtual) situation. The IMF wants its members to use/take the SDRs as reserve.
    We, the ASEAN Plus China – People in the know of the fact that the dollar-International Financial and Monetary System (IFMS) cannot be expected to start making the CONCEPT OF GOLD-WEALTH-RESERVE public, want Freegold as reserve.

    In this situation, the IMF has no more role (to fulfill) except that of bailing out the US.
    In this situation, Freegold in the European (and ASEAN Plus China) Systems of Central Banks (EACSCB) have the same role to fulfill as the Mona Lisa in the Louvre.
    A wealth reserve in the strong room (the Louvre) of a Monetary Union with a currency, the euro.
    Every individual, not the ASEAN Plus China, is now free to copy the concept of Freegold (Freely priced gold, no longer “fixedly” priced gold) as wealth reserve (no backing or redeemability).

    Just like anybody can come to ASEAN and determine for herself what is the nature of the ASEAN economy and can then appreciate and/or copy it.

    ASEAN Plus China is a UNION OR COMMUNITY which is in the process of being set up around a currency system-in-the-make on euro lines.

    ASEAN Plus China knows that Free Trade is not possible
    without Free Migration.

    That’s why for the moment,
    ASEAN is working to facilitate intra-ASEAN migration
    for skilled labour.

    The ASEAN Plus China gold yuan will
    be introduced on the sidelines of the June 2007 Cebu, Philippines ASEAN, ASEAN PLUS FOUR and EAST ASIAN TOURISM SUMMITS, after the Greater Depression will have started in the USA.

    MIke Whitney, US Housing Market Crash to result in the Second Great Depression, Feb 23, 2007
    http://www.marketoracle.co.uk/Article383.html
    Now, 77 years later, Greenspan has led us sheep-like to the same precipice. The economic dilemma we’re facing could have been avoided if the expansion of personal credit had been curtailed by prudent monetary policy at the Federal Reserve and if wealth was more evenly distributed as it was in the ‘60s and ‘70s. But that’s not the case; so we’re headed for hard times.

    In April 2007, nine practical consequences of the
    \unfolding crisis will converge:
    http://www.europe2020.org/en/section_global/190207.htm

    1. Acceleration of the pace and size of bankruptcies among US financial organisations: from one per week today to one per day in April
    2. Spectacular rise of US home foreclosures: 10 million Americans out on the street
    3. Accelerating collapse of housing prices in the US:- 25%
    4. Entry into recession of the US economy in April
    2007
    5. Precipitous rate cut by the US Federal Reserve
    6. Growing importance of China-USA trade conflicts
    7. China’s shift out of US dollars / Yen carry trade reversal
    8. Sudden drop of US dollar value against Euro, Yuan and Yen
    9. Tumble of Sterling Pound

    (ASEAN Plus Three = ASEAN Plus China, Japan and Korea
    ASEAN Plus Four = ASEAN Plus Three Plus INdias

    East Asia = ASEAN Plus Four plus New Zeeland and Australia = ASEAN PLUS SIX
    The currencies in the latter two countries are called dollars (and thus follow the (mis-)fortunes of the USm dollar).
    Like the pound sterling, those currencies will collapse together with the US dollar.
    That’s why the gold ASEAN will be limited to the ASEAN
    PLUS FOUR and will NOT extend to East Asia or ASEAN
    PLUS SIX.)

    In the meantime, the People’s Bank of China is wondering into what to diversify its foreign exchange reserves.

    Stop doubting, Beijing! Go gold!

    ASEAN PLUS FOUR knows Free Trade is impossible without Free Migration.
    That’s why ASEAN is concentrating on tourism to introduce free migration for skilled labour through the backdoor.

    The gold yuan will display to the world not only that tourism opens the backdoor to allow Free Migration of Skilled Labour but also that as Governor of Jilin Province, China, Wang Min, said
    in his Welcome Address to the EAST ASIA INTER-REGIONAL
    TOURISM FORUM (EATOF) 2005
    http://www.eatof.org
    “Tourism serves as the messenger of peace and also as a bridge in enhancing FRIENDSHIP and cooperation.”

    International politicians seem to assume that trade is a HOSTILE PROCESS; that it is a concession granted to FRIENDLY NATIONS; and that when it is withheld from unfriendly nations it does harm, without harming the withhholder.
    Even the words sometimes used “protection”, “sanction”, “embargo” and the like – suggest hostility.
    They carry the implication of warfare – of doing something to restrain someone,
    (W.M. Curtis, «The tariff idea » (originally published in 1952) in: Richard M. Ebeling and Jacob C. Hornberger, eds., « The Case for Free Trade and Open Immigration », Fairfax, Virginia, USA, The Future of
    Freedom Foundation, 1995, 37, p. 38 – all capitalisation mine)

    That’s why FRIENDSHIP, and thus TOURISM through free migration, is at present still so important for Free Trade in ASERAN Plus Four.

    That’s why ASEAN is concentrating on tourism.

    That’s how ASEAN PLUS FOUR will set up a UNION OR COMMUNITY (around a currency system)
    not as was being argued on February 23, 2007’s ASIA TIMES ONLINE’s
    ASIA HAND by Shawn W Crispin
    in his article « One step forward, two back for ASEAN
    »
    http://www.atimes.com/atimes/Southeast_Asia/IB23Ae01.html

    an economic bloc.

    In my ears the words « economic bloc » carry too much
    hostility, this time not vis-a-vis other ASEAN-members
    as argued in the Asia Times article,
    but vis-a-vis non-members such as the four of ASEAN
    Plus Four who will nevertheless be part of that
    community.

    This gold yuan will establish a real ASEAN PLUS FOUR COMMUNITY or UNION.

    Ivo Cerckel de Siquijor
    [email protected]