CHINESE are renowned for having very high expectations of their children, and Anhui provincial leaders are no different when it comes to their small capital of Hefei. Now that Deng Xiaoping's economic reforms are well established, Anhui officials have decided that it's about time for Hefei to grow up . . . and out. At the Anhui People's Congress earlier this year, Governor Hui Liangyu set ambitious goals of doubling the city's population and its area by the year 2000 to turn it into a major metropolis. Industrial output was expected to rise from less than 30 billion yuan last year to 100 billion yuan. But there is a question mark hanging over Hefei's planned 'great leap forward'. Will it help it to catch up with coastal cities, or leave it mired for decades to come in a host of problems of its own creation? Drive into downtown Hefei today and you will probably grind to a halt at the end of a long line of cars, motorcycles, taxis and trucks. For the moment, those traffic jams are as much a symbol of the city's new-found economic vitality as its backwardness. Since 1992, when Beijing granted Hefei the same preferential policies enjoyed by coastal cities, the capital's gross national product has expanded by more than 30 per cent a year. Trucks rattling in and out of the city carry products from local industries and township and village enterprises where output has ballooned by over 40 per cent and 70 per cent per year respectively. Today's traffic bottlenecks also threaten to put a cap on future economic development, however. And they highlight the city's two major challenges: raising capital and building infrastructure. City officials admit that Hefei cannot hope to achieve its growth targets alone. 'Although Hefei's annual revenues are the highest in Anhui, they are only enough to pay wages and begin essential infrastructure projects,' said Shao Linsheng, the city's vice-mayor. He is betting that foreign investors, attracted by the province's central location on the Yangtze River, plentiful natural resources and low labour costs, will choose Hefei as their industrial base. Leaders also point out that Anhui could become a key economic and distribution link between Shanghai's booming Pudong area, the Three Gorges hydroelectric power development and remote western provinces. Those are all long-term plans, however. With 1.1 million people spread over 70 square kilometres, Hefei is currently one of China's smallest provincial capitals. Its annual budgetary revenue and savings deposits also rank among the lowest, leaving the city with a narrow financial base. Even within Anhui, Hefei is no economic powerhouse. Its gross domestic product ranked third last year at 13 billion yuan, behind Anqing city and Fuyang district. Hefei's industrial output and infrastructure investment also ranked third in the province, while its agricultural output ranked seventh and average rural income ranked ninth. Nevertheless, the city's extremely high growth rate has spurred inflation to new heights. The consumer price index hit 27.6 per cent last year, more than three points above the national average of 24.2 per cent. Local industries are also feeling the pinch. Prices for energy and raw materials shot up 22.3 per cent in the province, while production costs rose 28.7 per cent. Fangcao, the local toothpaste manufacturer, has seen profits fall from 28 million yuan to 10 million yuan. In recent years, the city has added to its troubles with poor planning. 'We used to build roads that radiated out from the capital to other cities. But along with spurring economic development they created huge bottlenecks. Vehicles going from one city to another need to pass through the centre of Hefei,' said Zhu Yuanxian, a director in the city's Transport Department. To reduce traffic in the central area, the city has mapped out plans for two ring roads to be completed over the next five years at a cost of more than 1.55 billion yuan (about HK$1.42 billion). Although efforts to locate foreign investors have failed because of the difficulty of charging tolls on city roads, construction will proceed anyway because of the urgency of the project. The government is also determined to make up for its lack of financial resources with human ones. Vice-Mayor Shao spent 50 days at the city's Economic and Technological Development Zone when it was established in 1993 to help smooth out initial difficulties. Hefei's High-Technology Zone, opened in 1990 southwest of the city, is one of the province's two zones fully supported at the national level by the State Council. By the end of last year, 317 companies had entered the zone, representing a total investment of 2.96 billion yuan, 70 per cent of which has come from foreign companies. To cut red tape, the city has consolidated the project approval office and related project-registration bureaus under the foreign investment office. 'All the paperwork for a foreign invested project can be completed within one week after the contract is signed,' Vice-Mayor Shao boasted. 'Many inland cities can provide preferential policies to foreign investors these days, but we emphasise service too.' Two weeks ago, Governor Hui Liangyu pledged to raise the cap on locally approvable foreign invested projects from US$10 million to $30 million in key cities and to shorten the approval process. And this year Beijing permitted foreign banks to establish branches in Hefei for the first time, which will make it easier for foreign companies to finance projects there. Wang Bin, director of the Anhui branch of the People's Bank of China, said representatives from about 15 foreign banks would visit the capital this month to investigate the possibility of establishing branches. But for all that, foreign investment has not exactly taken off in Hefei. Although the city has gobbled up 44 per cent of the province's total foreign investment since 1980, Anhui accounts for less than one per cent of China's total foreign investment. The number of newly approved foreign-invested projects in Hefei is not increasing rapidly either. About 190 foreign-invested companies were set up last year with a contracted investment of $438 million, down 49 per cent and 34 per cent respectively from 1993. Officials take heart in the fact that the average size of each investment has grown from $1.56 million in 1992 to $2.3 million last year. Foreign investors already in Hefei said they were generally pleased with the city's investment environment, despite its location inland. 'We get more attention from the city and provincial government here. In Shenzhen and Shanghai, ours would be only one of many good projects, but in Hefei it's one of the only ones,' said Yao Ruoguang, special assistant to the president of Wyan Electronics Inc in Hefei's hi-tech zone. Other foreign ventures said they were attracted by the city's high ratio of technical workers to blue-collar labourers and its central location. But work was still interrupted by power shortages, even in Hefei's economic and technology zones. Hefei also has some well established domestic enterprises. Shenzhen A share company Hefei Meran, which produces refrigerators, Rongshida (Group) Company, which makes washing machines, and Tian E, which makes air-conditioners, are among China's 10 largest companies. But only 11 of the city's 124 state enterprises earned more than 500,000 yuan last year, and half of them lost money. Propping up these ailing state enterprises is stretching city funds at a time when Hefei cannot afford to neglect investing in its own infrastructure. Goodwill on the part of the city's leaders will help increase foreign investment over time, but for the next few years be prepared to wait for 10 minutes to an hour to cross an intersection downtown. Or better yet, buy a bike.
