Published by: THE WORLD UYGHUR NETWORK NEWS November 6, 1997

11/05/97, Reuters, By Jane Macartney

SHIHEZI, China, Nov 5 (Reuters) - A year ago Ren Zengguo managed a textile mill in China's booming and cosmopolitan metropolis, Shanghai. Now he lives in a remote town on the arid plains of the country's westernmost corner.

Dressed in a double-breasted suit, white shirt, silk tie and shiny black loafers, Ren is an unlikely looking Wild West pioneer.

But he is at the forefront of a drive by China to move investment to the backward interior from prosperous eastern provinces.

China's communist rulers fear a widening wealth gap with booming eastern regions could stir up more unrest in an area already troubled by anti-Chinese Moslem forces.

POLICY STARTING TO PAY OFF?

Officials in the northwestern Xinjiang region insist the policy to move investment from east to west is starting to pay off for the 16 million residents of this area, which is three times the size of France.

Local officials say the drive to lure industry and investment to the west is only fair for a region that has lost out so deeply as Beijing's sweeping capitalist-style reforms have nurtured a boom in the east and left the rest to lag.

``The east is earning our money,'' said one senior official in the ancient trading city of Kashgar that two millennia ago was a crucial post on the Silk Route and is now a business backwater.

Officials complain Xinjiang cotton flows out for processing in Shanghai, at the region's expense.

It is up to Ren, and other coastal entrepreneurs, to narrow the wealth gap.

Not far from Ren's factory floor, Xinjiang farmers trudge their fields barefoot, donkey carts are a primary mode of transport and few can read or write.

It is a far cry from the bright lights of Shanghai.

NO REGRETS, SAYS REN

The dapper Ren said he has no regrets over his move.

His task is to organise the transfer of 30,000 spindles from the huge state-owned Shanghai Number One Cotton Textile Co to a new joint venture with the Number Two Wool Factory in Shihezi, some km (miles) northwest of Xinjiang's capital, Urumqi.

His Shihezi Xinshen Textile Co Ltd is just one of many such mills springing up across Xinjiang as part of Beijing's ``east spindles move west'' policy to take advantage of the cotton that grows in abundance in the region.

The Xinjiang Xinrun OE-Rotor Spinning Co Ltd is a Hong Kong-China joint venture that has moved its entire yarn spinning operations from the southern boomtown of Shantou, not far from Hong Kong, to this dusty, new city on the western plains.

Westernmost Xinjiang offers two major attractions, said businessmen and officials who have arranged the move of plant thousands of miles from the east coast to the landlocked west.

Labour is cheaper. Cotton is cheaper. And both are plentiful.

In addition, costs for power and water are also lower, said Chen Jingguo, general manager of Xinjiang Xinrun.

HIGHER PROFITS

``Higher profits depend on efficient management and we estimate our profits are 15-20 percent higher than on the coast,'' Chen said as he showed visitors around his gleaming factory floor.

His factory boasts one of the most modern production lines in all of China, imported from Switzerland.

Even the daunting distance his product must be transported to reach textile plants in the east does not dent costs enough to deter him from investment in the far west, Chen said.

``If we transport the cotton to process in Shantou we have the same problem with distance,'' said Chen. ``So this way actually the costs are lower because the product is cheaper.''

Transport and communications are set to improve.

For example, Beijing has allocated 300 million yuan in Kashgar to extend the railway line by some 850 km (510 miles) to link the bazaar city with Urumqi and thus the rest of China.

After years of delays, Beijing has also finally come up with 18 million yuan to expand the Kashgar and Urumqi airports.

Officials boast that investment is higher this year in the west than in the east, totalling 86.7 billion yuan ($14.4 billion) in the first seven months and a year-on-year rise of 19.9 percent. This compared with 9.0 percent growth in the east.

TAX BREAKS

Tax breaks may help. Domestic investors who move to Xinjiang pay no income tax in their first three years of operation and only half the national average for the ensuing two years, officials said.

``Only Xinjiang has this policy,'' said one Shihezi official.

The government of remote Xinjiang is also introducing tax breaks to try to lure foreign investors to do business in China's gateway to Central Asia.

``We want Urumqi to become an economic and financial centre for Central Asia,'' Liu Yusheng, head of the Foreign Affairs Office of the Xinjiang region.

To attain that goal, the government of this region of deserts, mountains and fertile oases plans to unveil a new blueprint of tax holidays and other favours.

As an autonomous region, Xinjiang has the power to set policies separate from Beijing and is using this status to offer some of the most generous and far-reaching breaks in China.

Foreign investors will be allowed to lease, buy, take art in or fully own any type of Chinese enterprise in Xinjiang, including long-protected state industries.

``We are going to offer tax concessions and open policies that are more attractive than those offered by interior provinces,'' Liu said.

NOT WITHOUT RISK

But moving to Xinjiang is not without risk.

The region has been rocked in recent years by increasingly violent anti-Chinese protests by its Moslem ethnic minorities, although officials dismiss these as a containable problem created by a tiny number of disgruntled extremists.

More worrying are the problems of usin a relatively untrained work force accustomed to the ``iron rice bowl'' of jobs for life and the difficulties of starting a business without a network of contacts.

Ex-Shanghai resident Ren said his lack of connections -- the grease of business operations throughout China -- had hampered his ability to obtain working capital.

His Shihezi Xinshen plant has begun production, but only just. Operations are running months behind schedule with 6,000 of the factory's 30,000 spindles yet to be moved from Shanghai.

``I don't regret coming here,'' he said. ``Wherever you do business there are going to be difficulties. Our problems here happen to be working capital and an untrained labour force.''

On the upside, he has the power to hire and fire at will and his management team is streamlined, unlike most top-heavy state enterprises. Also, costs are 20-30 percent lower than in Shanghai and cotton is abundant, high quality and cheap.

``We are bringing in new, modern management techniques from the east. Some Shihezi state factories are visiting us to ask how we do it,'' said Ren.

``Maybe our new ideas are the most important thing we bring to Xinjiang.''