'Blue city' awaits prosperity

PUBLISHED : Thursday, 12 October, 1995, 12:00am
UPDATED : Thursday, 12 October, 1995, 12:00am

MENTION Huhhot, the capital city of China's Inner Mongolia autonomous region, and crisp blue skies and rolling grassland traditionally spring to mind.

But walk around Huhhot, which translates as 'blue city', and it is the spread of high-rises and industrial zones that astonishes and indicates China's reform programmes are taking effect in its most northern region.

However, prosperity has yet to filter through to this remote and lesser developed part of China, which was left out in the economic cold until the most recent years.

Its average per capita income of 160 yuan (HK$147) a month was China's lowest last year.

Government officials make no secret of the arduous task of catching up with lost time.

City vice-mayor Yao Yongtong said: 'The city must be modernised, but that is not going to happen in the next five years.' Modernisation is more a long-term target for landlocked Huhhot, neighbouring Heilongjiang to the east, Xinjiang to the west, Mongolia to the north and five provinces to the south.

The city is linked to Beijing, 669 kilometres to the southeast, by road, rail and air. Chartered flights are available to Hong Kong and Mongolia.

Huhhot is inhabited by 37 nationalities, including Han, Manchus and Mongols. Mongols make up less than 10 per cent of the city of 1.44 million.

And historically, Huhhot was part of China's frontline against the former Soviet Union when relations between the two countries soured in the 1960s, which has since stifled its economic development.

But in 1992, it got its big economic break when it was granted the same preferential policies as coastal cities, part of Beijing's bigger plan to drive investment to central and western regions.

With Beijing's blessing, the open-door policy that unleashed sweeping changes along the coast and in the south from 1979 began to make inroads into Huhhot.

Growth in the past five years has been rapid, due to the relatively low comparison base.

Gross domestic product (GDP) grew an average of 29.5 per cent in the previous five years, and despite slower growth in 1994, GDP rose 36.8 per cent year-on-year to 7.8 billion yuan.

But China's austerity measures have dampened frenzied fixed-asset investment in the city, which averaged 52.5 per cent over the past five years.

From an alarmingly high growth of 74.4 per cent in 1991, inflated by the low comparison base, to 36.6 per cent last year, Huhhot's fixed-asset investment reached 2.5 billion yuan last year.

In tandem with its expanded economy, Huhhot recorded inflation of 19 per cent last year, slightly lower than the national average of 21.7 per cent.

Government officials appear to be happy with the city's speed of growth.

Mr Yao said: 'Five years ago, we didn't have an oil refinery. Now we have one with an annual capacity of one million tonnes of crude oil.' By comparison, one of China's largest refineries, H-share company Zhenhai Refinery and Chemical has an existing capacity of 5.5 million tonnes a year.

The state-level refinery is one of many large projects that Huhhot has pinned its hopes on in its bid to broaden its economic base backed by the wool and machine-building industries.

But analysts are not impressed at the aggressive expansion drive.

Morgan Grenfell Asia analyst Wang Qi said: 'Although Huhhot has been making big strides in the reform programmes, it is still lagging behind most other cities in economic development.' Despite the city's proximity to Russia, border trade - both cash and barter - is far from rosy, representing less than two per cent of Huhhot's total exports of US$11.67 million (HK$90.2 million) last year.

'Russia has problems paying for goods,' Mr Yao said.

One of Huhhot's economic plans is to build up its heavy industry, which now represents about 44.5 per cent of the total industrial product.

Although Mr Yao said Huhhot has no intention of competing with neighbouring Baotou, Inner Mongolia's heavy industrial base west of Huhhot, officials admired Baotou because of its better industrial base.

'Baotou has the country's biggest aluminium manufacturing factory and is one of China's biggest heavy industrial bases.' As a slow starter in economic growth, Huhhot has been lagging behind others in setting up the infrastructure necessary for its urban planning. Plans to upgrade its road system have been mapped out only recently.

Foreign banks have yet to operate in Huhhot, although the airport will be upgraded to international status within years.

Even worse, foreign investors have yet to show their commitment to Huhhot, with registered foreign investment representing only a fraction of the actual investment agreed on.

Of the 297 foreign-funded enterprises registered as of last year, only 166 were up and running, representing about 55.8 per cent of the total.

'Some of these enterprises are awaiting start-up capital; others failed to come up with detailed investment proposals,' said Zhang Yiming, vice-director of development of Huhhot's foreign economic relations.

Whatever the reasons, they show foreigners' lack of faith in the city.

Maybe low investment returns have barred them from investing in Huhhot.

'Foreign-funded enterprises have not made good money last year. One-third of them are profitable, one-third are break-even and the remainder are making losses,' Mr Yao said.

One foreign investor said Huhhot could be an investment venue for the woollen sector but not others, with its abundant supply of raw cashmere.

Inner Mongolia's cashmere output makes up 60 per cent of China's total.

'Huhhot could also provide investment alternatives for smaller investors who don't have much money to invest in coastal regions,' he added.

Last year, there were 116 new contracted foreign-funded projects with total investment worth 930 million yuan. No figure was available for a year before.

Mr Yao said the city planned more than 20 big projects under the next five-year plan to the year 2000, including the establishment of chemical fertilisers and petrochemical plants.

'These will need total investment of tens of billions of dollars,' he said.

Some of the projects are designed to take advantage of the city's huge resources to trigger economic development.

Huhhot has rich coal reserves, with one of China's biggest coal fields, Zhungeyi, on its southwest flank.

The coal field has 30 billion tonnes of reserves and is now being developed.

A World Bank-funded power plant, 70 kilometres from Huhhot, has also been mapped out. Funds for the first and second phase have been secured.

The coal-fired power project is also one of China's biggest, with total generating capacity of 10,800 megawatts.

Apart from the coal field and the power plant, Mr Yao said the lack of cash meant some other projects may be delayed.

'We want to take advantage of our resources, but we don't have the capital,' he said.

Among the projects on the agenda is the channelling of water from the upper reaches of the Yellow River to Huhhot.

A dam will be built in Madihao to divert water to Huhhot. When completes in 1997, it will store up to 23 million square metres of water.

But whether these projects will lead to the actual taking off of Huhhot's economy is still unclear.