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SCMP Reporter

BEER put the coastal city of Qingdao on the map. Ask most Westerners to name a Chinese company and the German-built brewery, which is to list on the Hongkong stock exchange, will be one of the few they know.

  Beer wasn't the only legacy that Germany left Qingdao during a 17-year occupation.

  Gothic architecture dominates, and modern developers are still copying the style.

  It remains the city of red-tiled roofs that philosopher-politician Kang Yuwei commented on toward the end of the Ching dynasty.

  It is also becoming a bright investment spot. Hongkong tycoon Mr Li Ka-shing, the Hongkong Bank and US telecommunications giant AT&T are among the latest investors in Qingdao.

  The Tsingtao Brewery listing (the firm retains the colonial spelling of its name) will draw more attention to the port city.

  Qingdao's significance is out of proportion to its size. Urban Qingdao has 1.3 million inhabitants, making it a minnow by Chinese standards though there are a total of 6.73 million within its 10,654 sq kilometre jurisdiction.

  Yet its port is the fourth busiest in the country, being the main outlet for oil from the Victory oilfields of resource-rich Shandong, and its rubber industry is second only to Shanghai.

  Sports shoe maker Double Star produces 40 million pairs a year and is said to be the largest shoemaker in China, while fridges made by Qingdaohaier have a reputation for quality which will help the firm in its forthcoming listing on the Shanghai market.

  Heavy industry contrasts markedly with another mainstay, tourism, but its presence has not yet spoiled the area's spectacular coastline.

  A million domestic tourists visit the city each year. The sanatorium area of Badaguan is favoured by senior cadres from Beijing, high-ranking visitors including paramount leader Mr Deng Xiaoping. During high summer, Number Two Bathing Beach is closed forVIP use: it is the only beach along the entire stretch with a shark-net.

  European villas and streets lined with fruit trees make the district as stylish as the better-known Gulangyu in Xiamen.

  Qingdao has been an open city since the start of the open door policy but it is only in the past two years that investment activity has gathered pace.

  ''Now people are a lot more direct about doing business,'' said one investor who has been working with a joint venture in the city for years. ''Before there was a lot of testing the water, which wasted a lot of my time. Now, they don't want to waste their time.

  ''Before, I wasted five minutes on every long-distance phone call while they talked about the weather. Now they say, 'so, can we do business?' ''   In terms of atmosphere, Qingdao feels much like Guangzhou did five or six years ago when the average citizen was enthusiastic about meeting foreigners and not yet blase about material goods.

  Much of the credit for the changing pace of reform is put down to the city's well-connected mayor, Mr Yu Zhengsheng.

  ''He is certainly reformist in the style of [vice-premier] Mr Zhu Rongji,'' said Mr Richard Li Tzar-kai, a director of Hutchison Whampoa which is investing $400 million in a property development in the city.

  ''He has a very special position in that he is Communist Party Secretary as well as mayor, which means he can make decisions very quickly.''   Mr Yu, 48, was formerly mayor of Yantai and has a reputation for cutting bureaucracy. His links run to China's Premier Mr Jiang Zemin from the time when he worked under him at the state electricity board.

  He is also connected to Mr Deng Pufeng, son of paramount leader Mr Deng, through a period as general secretary of China's Disabled Association.

  Since the inauguration of the open door policy Qingdao has attracted more than US$4 billion (HK$31.2 billion) in foreign investment at 1,100 joint ventures; more than half of that has been in recent months.

  Multi-nationals such as biscuit-maker Nissin and animal feed firm C. P. Pokphand have been operating in the city for almost a decade. The new investors are property firms who have fuelled speculation that has seen land prices quadruple in the past five years, and textile and electronics firms.

  Hongkong accounts for 50 per cent of foreign investment, the largest investor from the territory being Bank of China (Hongkong) which has stakes in Qingdao General Steel Corp, Beihai Shipbuilding Factory and Tsingtao Brewery. It is also developing a new residential property complex, Silver Garden, in the east of the city close to the new civic centre.

  South Korea is the fastest growing source of funds. Investment from South Korean firms rocketed with the relaxation of political constraints last year and now accounts for 10 per cent of the total.

  For the Koreans, cheap labour is the lure. The average manual worker earns about 300 yuan (about HK$405) a month, rising to about 500 yuan once welfare charges are included, which is probably half the cost of other leading coastal cities.

  Links with Korea are expected to grow at a pace. Qingdao is as close to Seoul as it is to Beijing and scheduled flights to the South Korean capital are due to start later this year. A scheduled ferry service to Pusan started last week.

  Qingdao has two main foreign investment zones and the distinctions between the two are blurred.

  The Economic and Technological Development Zone is on the opposite side of Jiaozhou Bay. The zone was last year expanded from 15 square kilometres to 152 sq km, the whole of Huangdao district, and is close to the new Qianwan Harbour.

  The zone is a 45-minute ferry journey or a two-hour trip by road from the city centre. Despite the inconvenient location, some Japanese investors electronics firms have been attracted to the zone.

  A 16-kilometre bridge to link the zone to Qingdao is planned and Hongkong businessman Mr Gordon Wu Ying-sheung has held discussions with city authorities on the two billion yuan project.

  To the east of the city, close to the new Qingdao University campus, is the 59 sq km Hi-Tech Zone at Zhonghan Town, which was launched last year.

  AT&T has earmarked a site in the zone for a US$100 million joint venture to manufacture 5ESS switching equipment and for a Bell Laboratories facility.

  Tsingtao Brewery plans a one million tonne capacity Number Five Brewery in the zone, as part of a Beer Town development.

  Despite the Hi-Tech name, many of the new South Korean textile joint ventures are setting up there.

  The focus of the city seems destined to move eastwards. City centre offices for the People's Representative Committee, the Communist Party Committee and the People's Consultative Committee were sold last year for redevelopment on a one hectare site by Hongkong's Dynasty group.

  A new administrative headquarters at Zhanliugan Road in the east of the city is near completion. Mr Yu said the Hutchison project, close to the new government building, was the only foreign property development he had actively courted.

  In an attempt to curb speculation he has introduced new rules which compel developers to build quickly on the sites rather than sitting on empty lots.

  Qingdao's recent popularity with foreign executives has strained some of its infrastructure to bursting point.

  Flights from Hongkong to the city are hopelessly overbooked and plans to increase frequency have been bogged down in aviation bureaucracy.

  At present there are two chartered flights and two scheduled flights each week from Hongkong; there are also flights from Guangzhou and Shenzhen.

  Mr Yu said there would be some relief when new Airbus planes were introduced to the Hongkong route later this year. He said Dragonair had applied to fly to the city.

  International telephone lines are also at capacity and it can take several minutes to get an IDD line from the main hotels.

  For business visitors the choice of accommodation is limited. There are two four-star hotels and occupancy is high. These are the Huiquan Dynasty, operated by Hongkong's Dynasty group, on Number One Bathing Beach and the new Haitian hotel.

  Frequent visitors to Qingdao prefer the Huiquan Dynasty. Its new Hongkong manager Mr Richard Hu will oversee the opening of a new wing later this year.

  A few nightclubs have opened in the city recently but the two hotels are the main meeting place for foreign businessmen.

  The Hongkong Bank and Yamauchi Bank have branches at the Haitian where Maersk, AT&T, Hyundai and Sumitomo also have offices. At the Huiqian, American President Lines, Marubeni and Samsung have offices.



Heady times for Qingdao