BY BUILDING a development zone for hi-tech industries, Xian endeavours to lure foreign capital with its strength in higher education and scientific research. With 20 per cent of its workforce possessing technical skills, the highest rate in China, Xian is looking to convert its huge technical knowhow into economic benefits. There are 380 research institutes and 41 colleges and universities in the city. Its reputation in scientific research ranks third after Beijing and Shanghai. Xian's major industries include aviation, electronics, petrochemicals and textiles. Located in the southern suburb, the development zone was intended to spearhead the economic growth of the ancient city, long regarded as the natural museum of Chinese history and culture. The authorities plan to build about 50 more 30 storey buildings in the zone's centre by the end of the century. Compared with other similar ventures in coastal cities, Xian's development zone has the advantages of lower labour costs and higher technical skills. ''During the zone's two-year history, about 334 projects totalling US$2.33 billion [HK$18 billion] in investment have been established,'' said Wang Runding, vice-minister of the zone's administrative committee. ''Production value will reach US$6.71 billion when all the projects are completed.'' Of all the projects, foreign joint ventures accounted for about 40 per cent, he said. About 10 per cent were in the hi-tech industries, underlying foreign investors' interest in utilising the city's technical resources, Mr Wang said. Approved by the State Council, the 22.35 square kilometre zone possesses the same preferential treatment as those granted to the coastal economic zones. Enterprises with a period of operation expected to be longer than 10 years may be exempted from income tax in the first three profit-making years. Their profit tax shall be levied at a reduced rate of 7.5 per cent during the three subsequent years. Also, for those enterprises exporting 50 per cent or more of the annual output shall be levied at a reduced rate of 10 per cent. Development of real estates is also encouraged in the zone. Mr Wang said the preferential treatment granted was favourable when compared with other development zones. ''Three major foreign-funded projects will be signed shortly, including one by a US telecommunication group to set up a semi-conductor manufacturing plant. ''The project's total investment is worth about US$151 million, the largest in the zone so far.'' He said about 65 of the new projects signed this year were worth more than US$10 million. The Xian government also plans to make the zone a testing ground for shareholding restructuring. ''About 61 per cent of the enterprises set up in the zone are in shareholding system,'' Mr Wang said. ''This will enable Xian as an inner city to gain more experience with a market economy.'' At present, 51.6 per cent of the foreign investment in the zone is from Hong Kong, 14.8 per cent from the US, 10.5 per cent from Japan and 6.6 per cent from Taiwan.