The city has been ranked first in the nation for its investment environment LONG KNOWN FOR its natural beauty that inspired generations of poets and artists, the ancient city of Hangzhou now has another distinction - as the best place to do business on the mainland. According to the Forbes China ranking of 100 cities published last September, Hangzhou beat out Beijing, Shanghai, and Shenzhen to be named No. 1 for investment. In making the announcement, the business magazine sited the city's top-notch work force, low business costs, excellent infrastructure and strong market potential. In a World Bank survey of 23 mainland cities last year, Hangzhou was also ranked first for its investment environment. The city is the dragonhead leading Zhejiang's rapid economic growth, accounting for 22.7 per cent of the province's GDP, 26.4 per cent of its exports, and 36.8 per cent of imports. The city's GDP rose to US$25.3 billion in 2003, up 15 per cent over a year earlier, marking 13 consecutive years of double-digit growth. It's no wonder that the capital of such a booming province has been so successful in attracting overseas investment. Foreign businesses in the city include big international names such as Otis Elevator, Siemens, Motorola, Electrolux, Nokia, Mitsubishi, Samsung and Mary Kay. Hong Kong's Vincent Lo, who developed Shanghai's upmarket Xintiandi bar and restaurant area, has a similar project along scenic West Lake. Foreign investors are attracted by several factors. First, Hangzhou has one of the best-developed infrastructure networks in China, providing companies with convenient channels for getting their goods around China and out of the country. The city is within convenient reach of Shanghai, 120 km, or two hours' drive, to the north. Two additional lanes are being added to the Hang-Pu Expressway that connects the two cities, and work is expected to be finished by 2007. The Hangzhou Bay Bridge, set for completion in 2008, will make it possible for road traffic between Shanghai and Ningbo to bypass Hangzhou, thus reducing congestion in the area. Negotiations have been held regarding extending the Maglev train in Shanghai to Hangzhou, but no decision has been made. Efforts have also been made to reduce congestion within the city. The Hangzhou Ring Road was recently opened to traffic, and in 2003 the West Lake Tunnel went into operation. A metro system is expected to begin operations in 2008. The city is close to nearby shipping ports. It's 150 km from the Ningbo port and just 180 km from Shanghai's port facilities. Furthermore, the Xiaoshan International Airport, which went into operation in 2000, is easily reached via expressway, making it possible to catch international flights right in Hangzhou. In addition to connections with major Chinese cities, international destinations include Japan, Korea, Hong Kong, Macau, Singapore and Thailand. Direct cargo flights to the US and Europe began in early 2005, and passenger flights to these destinations are set to begin next year. The city, which has a population of 6.4 million, also has a long-established reputation has a centre of quality education in China. Its 35 colleges and universities turn out tens of thousands of fresh graduates every year. Hangzhou is home to prestigious Zhejiang University, one of the top schools in China, which boasts research centres in biotechnology, software development and engineering. With its strong tradition of private entrepreneurship, Zhejiang has long been a Mecca for private business in China. Hangzhou's rapidly expanding private sector boasts entrepreneurs like Lu Guanqiu , who was No. 4 on the Forbes list of the mainland's richest business people. Lu's Wanxiang Group turns out auto parts in Illinois and owns a minority stake in Universal Automotive Industries, listed on Nasdaq. Hangzhou has established four development zones and city officials have targeted the light manufacturing, biotech, hi-tech electrical and IT sectors for development. The services sector is another important part of the local economy. The added value of the services sector climbed to US$10.7 billion in 2003, making it the biggest in Zhejiang province. Hangzhou's scenic West Lake and ancient historical sites make the city one of the most popular tourist sites in China. Tourism fell in 2003 due to the Sars crisis, when total tourist revenue amounted to US$3.9 billion. However, it rebounded to US$4.5 billion last year, accounting for 6.5 per cent of local GDP. The number of foreign tourists also increased during the year, reaching an estimated 1 million. Hangzhou is meanwhile hoping to capitalise on the 2010 World Expo in Shanghai by having tourists stay in local hotels and then commute to exhibition sites in Shanghai. The city is also hoping to take advantage of its reputation as a tourist centre to promote its conference and exhibition facilities. The first World Leisure Exposition will be held in Hangzhou in April and October next year. It hopes to attract more than 15 million domestic visitors, 1 million overseas participants and some 5,000 exhibitors from around the world. The West Lake Exposition was launched in 1929 to promote China's industrial development, but had not been held for seven decades until it was revived in 2000. The expo has attracted more than 20 million people from around the world in the past four years, generating US$7.6 billion in contracts signed. Like elsewhere on the mainland, there are some obstacles to doing business in Hangzhou. Foreign investors have expressed concern about the relatively high cost of housing in the city. And there is a shortage of trained managers and technicians as local talent flows to bigger cities around China such as Beijing and Shanghai. However, as higher-value investments pour into Hangzhou, local officials are confident the city will be better able to attract and retain skilled staff. Hangzhou also suffered power shortages last summer, but officials say the problem should return to normal next year when a new natural gas line for the city, which will begin operating in the summer, is expected to meet local demand. In the meantime, foreign producers have purchased diesel generators using rebate subsidies from Hangzhou's development zones. Despite these challenges, with the city's excellent business environment, and rapidly improving infrastructure and investment policies, Hangzhou should be able to look forward to continued strong growth in the coming years.