CHINA'S longest river has become the nation's lifeline for economic reform. Although market socialism was born in the Pearl River Delta, there is a growing consensus that it can only reach maturity along the banks of the Yangtze River, beginning with the delta region at its mouth around Shanghai. 'The Yangtze is like a belt that goes around the whole country. It's the best economic region and the only one that cuts across so many important provinces,' said Nicholas Kwan, senior economist at US financial services company Merrill Lynch. 'The Pearl was a breakthrough in China's reform and development, but the Yangtze will play a different role. It will magnify the impact several times and take the reforms from a corner of the country to the centre.' Stretching 6,000 kilometres into China's hinterland, the Yangtze offers access to 10 provinces and over 400 million people as improvements in transport and infrastructure allow development to filter inland. The Yangtze Delta region itself, including Shanghai and the two adjacent coastal provinces of Zhejiang and Jiangsu, sits at the gateway to the nation's most fertile and industrialised area - the Central China Plain. With Shanghai, China's largest city, destined to become the nation's financial capital, investment is almost certain to remain high for years to come. Foreign investment in Shanghai alone topped US$10 billion last year - up over 30 per cent on 1993. 'The potential of the Yangtze in terms of natural and human resources still has a long way to develop, while the Pearl is almost at the point of overpricing itself,' Mr Kwan said. When the first market reforms were launched in the late 1970s, the Pearl River Delta was the perfect test site. Mountain ranges to the north served as a buffer between it and the rest of the nation, and its proximity to Hong Kong and status as the ancestral homeland of most overseas Chinese, boosted its chances of success. Mr Kwan said Beijing was only willing to liberalise the Yangtze Delta region - the nation's crown jewel - after witnessing more than a decade of double-digit growth in the south. In 1990, Shanghai's Pudong district was granted the privileges and economic autonomy of a special economic zone, finally allowing it to compete for investment with the Pearl River region on a more equal footing. But the Yangtze is not alone in experiencing a new burst of growth. Following closely on its heels is the Bohai Rim in northern China across from Korea, where in recent years a 'third wave' of investment has begun to wash over Beijing, Tianjin, Shanxi province and the provinces of Liaoning, Hebei and Shandong. Actual foreign investment in the region hit US$4.9 billion in 1993, up 129 per cent on 1992. Shen Longhai of China's State Planning Commission said the Bohai Rim had also benefited from the central Government's decision to divide the country into seven large economic regions. Unifying the two cities and four provinces as a single economic unit had helped them to co-ordinate inter-provincial infrastructure projects and create economies of scale. 'Our idea was to merge central planning with the needs of the individual provinces and regions of China. Everyone has to work together to bring about the harmonious development of China's economy,' Mr Shen said. But with Liaoning suffering from a preponderance of ailing state enterprises, Tianjin considered too small to have much growth potential, and Shanxi located inland, some Hong Kong-based economists have pinned their hopes for the Bohai Rim on Shandong. 'The only viable successor to the Yangtze River Delta is Shandong. You've got a comprehensive industrial structure there,' said Thomas Chan, director of the China Business Centre at Hong Kong Polytechnic. 'The infrastructure in Guangdong has fallen behind that of Shandong, which is better and cheaper.' Ranked first in agricultural output and second in industrial production in 1993, Shandong also has high-level political support now that its party chief Jiang Chunyun has been admitted to the Central Committee Secretariat. Official statistics also show that the province's gross domestic product grew 11.9 per cent in 1993, twice that of eight years ago. Despite regional disparities, the Pearl River Delta, the Yangtze River Delta and the Bohai Rim share two common features which make them long-term hot spots for investment: relative economic autonomy and proximity to foreign trading partners. 'If you dissect the Pearl River Delta model, you find that the most important aspect is its external orientation,' said Mr Kwan. That included not only trade and capital investment, but also technology transfers, and marketing and management expertise. In the past, Hong Kong has been the undisputed investment leader, supplying China with more than 60 per cent of its foreign capital and handling some 35 per cent of China's external trade. But economic relations with South Korea and Taiwan have also warmed rapidly over the past five years. Direct two-way trade between China and South Korea stood at about US$9 billion in 1993, up from $8 billion the previous year. Korean direct investment is predicted to rise to $2.5 billion by next year. Similarly, indirect two-way trade between Taiwan and the mainland through Hong Kong has climbed from US$7.5 billion in 1988 to $21.2 billion in 1993. The number of Taiwanese visitors to China has more than tripled to 1.5 million over the same period. Taiwan's grand plan unveiled this month to transform the country into an Asia-Pacific operation centre could give trade another boost by easing the ban on shipping links with China and speeding capital flow. Although the Pearl River Delta region still leads the nation in attracting foreign investment with 44 per cent in 1993, investment in the Bohai Rim has grown the fastest, soaring from US$1.14 billion in 1992 to $4.92 billion in 1993. The Chinese Government's hesitancy about reforming the debt-ridden state sector and its determination to proceed gradually with some degree of centralised control mean the extension of preferential treatment to other areas will occur slowly. 'The special economic zones. That's where the foreign investment is going, and I don't see any change whatsoever,' said Andrew Freris, chief regional economist for Salomon Brothers. China's poor distribution and transport network, not to mention the out-of-date infrastructure in many of its cities, will take decades to modernise no matter how fast trade and foreign investment grows. And although the Yangtze River is often touted as the main artery to the interior provinces, inland it becomes too shallow for large cargo ships and will eventually be disrupted by the Yangtze River Three Gorges power plant. At best, the Yangtze River Delta's growth may ignite Anhui and Hubei by the end of the century, but there is little chance that it will have a dramatic impact on provinces further upstream, such as Sichuan, for at least a decade, said Mr Kwan. 'Gradualism has a lot of problems, but history has shown it's something that works in China,' he said. 'Imagine if something were to go wrong in a country of 1.2 billion people. It would be hard to reverse it.'