China's most ambitious project after the Three Gorges Dam is a proposed pipeline to supply the country's east with natural gas from the west. The 4,000-kilometre pipeline will originate in Xinjiang and carry gas from the Tarim Basin to Shanghai and nearby provinces for 30 years starting in 2003. Dubbed China's treasure basin, Tarim is also rich in petroleum, copper, gold and rare minerals.

No wonder the people of Xinjiang talk of their home with a distinct sense of pride. They refer to the province as 'the key of the keys' in the Go West drive, a phrase often used by Xinjiang government officials.

As far as the central government is concerned, the importance of Xinjiang is undisputed. Sharing a 5,000 km border with eight countries and home to more than 10 ethnic minority groups, Xinjiang is strategically important, especially because the largest group, the Muslim Uygur, has been agitating for greater autonomy. The Uygurs do not have a spiritual leader such as the Dalai Lama of neighbouring Tibet but are believed to be supported by Uygurs in neighbouring countries.

Maintaining stability and tapping the region's natural resources to boost the local economy are the principal concerns for the central government. For local residents, however, more basic concerns such as income, education and health care are paramount.

Although the pipeline is the only Xinjiang-related project of the central government's 10 major Go West projects, the provincial government wants to ensure that development of the west is not equated with exploration of natural resources.

The first step in the Go West Xinjiang Development Plan is to shift from exporting natural resources to development of higher value-added processing industries in minerals, agricultural produce and tourism. High on the agenda is developing the province's so-called 'red' industry - a new addition to the dominant black (oil) and white (cotton) industrial mix.

Xinjiang is one of the few places in the country suited to growing red produce such as Chinese wolfberry seeds and a herb called 'red flower', as well as being able to support tomatoes and carrots.

Another industry that Xinjiang pins its hopes on is tourism. With its lush pastures, glacial mountains, places of historical interest, arts and craft, and famed desert, Xinjiang's scenic sights and its colourful minority culture have great appeal. Although elaborate efforts may be required to invite investment in the remote province, people are keen to visit the region. For the local authorities, tourism is also a first step in luring investors.

For Xinjiang, the biggest challenge is the difficulties associated with processing and shipping resources out of the region. Xinjiang is at least 3,000 km from any major city in eastern China and getting there requires a five to seven-hour flight or a week's train journey. This means transport can be costly. It is at least as twice as expensive to visit Xinjiang than any major city in the east.

Then there is the problem of seasons. The peak season for tourism and agriculture is about three to four months in the summer. The situation creates bottlenecks and places a strain on infrastructure and service industries in high seasons. Every summer, hotels and dormitories are packed; in winter, operators of lodgings struggle to make ends meet.

A challenge to Xinjiang's development is the encroaching desert. Increasingly frequent, violent sandstorms have laid waste to much of the land. To make matters worse, the desert continues to advance. The Tarim river, once referred to as the mother river of Xinjiang, dried up in recent years. Authorities have now pledged to restore farmland to forests and grassland, to settle nomadic farmers and to restore the ecological balance in the Tarim river area.

Considering these factors, attracting investment will require an intense effort. According to its 10th five-year plan, Xinjiang aims to implement projects that require a total investment of 420 billion yuan (about HK$393 billion), including 140 billion yuan for the pipeline and another 100 billion yuan for 70 other projects involving infrastructure, environmental protection and industry. Its debt-ridden state sector will not be able to help much. One of the notable features of the western region- and central causes of its backwardness - is state involvement in the economy. Nowhere is this clearer than in Xinjiang, where close to four-fifths of the province's industrial assets remain in state hands, whereas in southern provinces such as Guangdong, private business contributes two-thirds of economic output.

Moreover, where the central government has decentralised control over agriculture in most provinces, Xinjiang's farm output is still dominated by a huge paramilitary organisation that reports directly to the central government - the Xinjiang Construction and Production Corp, popularly known as the bingtuan. Realising that the state has limited funds, the Xinjiang government is planning measures to boost the private economy and attract foreign investment.

'We must realise the importance and urgency of developing the private economy,' said Li Zhensheng, director of Xinjiang Economic Restructuring Office.

'We must put development of the private sector on the agenda of the local party organisations, provincial authorities, and the municipal government.'

Naturally, Xinjiang's businessmen encounter more barriers than their eastern counterparts. The limited market within Xinjiang, long distances and high costs have already made it difficult enough for entrepreneurs to break into the rest of the country. This, coupled with a backward banking system that is almost solely dedicated to the state sector, does not provide a fertile ground for the private sector to flourish.

In order to attract foreign capital, Xinjiang has pledged to offer investors the most favourable incentives it can offer. But first, Xinjiang has to convince investors that the region can provide good returns on investment. There is a dearth of human capital, and a China Daily survey last year showed that in the past two decades 40,000 professionals left Xinjiang, while only about 7,000 moved in.

To its credit, Xinjiang does have a lot to offer to investors. Provided that they are made using modern technology, and packaged and marketed professionally, traditional products of Xinjiang can be turned into brand name goods.

Hong Kong-based New Field Fast Holdings, a trading and real estate company, and Xinjiang's largest foreign investor-to-be, believes that opportunities are promising. New Field plans to build a border trade centre, or 'international trade city', in Kashgar. It aims to provide a platform for traders and merchants to conduct business with Xinjiang's eight foreign neighbours, reducing the hassle of travelling and processing customs documents at the border.