Squeezing profit from dry Gansu costly, slow process

PUBLISHED : Monday, 24 April, 2000, 12:00am
UPDATED : Monday, 24 April, 2000, 12:00am

When Thailand's CP Group opened its feed-grain factory it could not get Lanzhou farmers to buy. They had fed their pigs and chickens on grass, waste food and scraps for centuries, so why should they change? It took the company three years and 12 million yuan (about HK$11.23 million) in promotion and training courses to change the farmers' habits and finally turn a profit in 1997.

CP's experience is one reason why Gansu ranks fourth-from-bottom of all mainland provinces and regions in attracting foreign investment.

According to the Ministry of Foreign Trade, in Beijing, it was just US$352 million at the end of 1998. Vice-governor Guo Kun said it was US$1.6 billion at the end of last year, and expected US$1 billion this year.

But it is a fraction of investment in the eastern and southern provinces.

It is not hard to see why. The driest province in the mainland, Gansu suffers from desertification which has made much of it uninhabitable. In 1998 its population of 25.4 million had an average per capita gross domestic product of 3,456 yuan, half the national average and a third of that in the east.

The capital, Lanzhou, is one of the most polluted mainland cities and has just 30 foreign residents. The biggest investors are Hong Kong and Taiwan, but much of their money is tied up in unsold Lanzhou apartment blocks and office buildings.

'In 1993-94, we had nearly 100 real-estate firms, most from Hong Kong,' said one foreign investment official. 'Since 1996, the property market has turned into surplus and many of the buildings are empty.' A manager of a Taiwan company said Lanzhou was typical of the mainland old state economy.

'Bureaucrats are corrupt and inefficient. The only way to get a project approved quickly is to pay money,' the manager said.

Private and foreign firms account for less than 10 per cent of an economy dominated by state companies.

They have laid off thousands of workers, who live on a monthly government allowance of less than 200 yuan.

Little wonder, then, that the decision of the central government to make the development of the west the main objective of the next five-year plan, beginning in 2001, was 'an historic opportunity', Mr Guo said.

It will mean money from Beijing to build roads and railways, pipelines to bring gas from Xinjiang and on water and electricity projects.

'With China's entry into the World Trade Organisation, we must use the market as our base,' Mr Guo said, pointing out entry into the world trade body meant global competition. 'We will close old and polluting firms, like the city's iron and steel factory, which was set up in 1958 and employed 10,000 people. It closed last year. We will develop the private sector and encourage multinationals to buy our state firms,' he said.

Gansu's strengths are minerals, energy, tourism, oil, timber and some agricultural products, including black melon seeds, grown in a region west of Lanzhou.

The seeds attracted the province's first foreign investment - by a Taiwan businessman Lin Ken who started buying them, to smuggle to Taiwan, in 1989.

In 1992 he set up a factory in Lanzhou.

It produces 20,000 tonnes a year, employs 2,000 people in the busy autumn season, and accounts for 60 per cent of the mainland black melon seed market, with an investment of US$10 million.

Mr Lin has leased 13,340 hectares of land next to the desert where he grows the melons. But he is not alone - four other Taiwan companies followed him to Lanzhou and set up plants.

At the same time local companies copied his brand.

But staff insist that, despite competition, the factory makes money.

It is also a happy ending at CP's feed-grain plant, which posted profits of 25 million yuan from 1997-98.

That enabled it to pay back the initial investment and move into the black, chairman Zhang Yuean said, pointing out that it was a business with a low profit margin.

'The farmers we sell to earn 1,000 yuan to 2,000 yuan a year, so we cannot charge them too much. Our profit margin is 4 per cent to 5 per cent,' he said.

Its annual production of 180,000 tonnes goes to farmers throughout the northwest. It is one of nearly 100 CP mainland plants - the first set up in Shenzhen in 1979, one of the mainland's earliest foreign investments.

The group is owned by the Xie family of Bangkok, who originate from Shantou, in Guangdong. Hit by the Asian financial crisis it sold some interests but kept its feed-grain units - the mainland's biggest, with some 7 per cent of the market.