WTO accession, development of the western region, the new economy and economic reforms are just some of the challenges that the Mainland is wrestling with in China's new era of development

In January 1998, China's State Council approved the final report on a study to develop 12 provinces covering 6.8 million square kilometres of the country, known as the western region. Vast as the area is, it only accounts for 4.8 per cent of the country's total gross domestic product, a figure which underlines the mammoth task of bringing the region up to the standards of the coastal areas.

Speaking at the China Business Conference 2000 panel session on Dec. 14, Li Hongxun (right), director general, Economic and Social Affairs Department, Office of the Western Development, State Council, said the first phase of the western development plan focuses on improving the region's infrastructure and education system.

"If we don't first develop our infrastructure and education system it will be very difficult to develop the west," he said.

About 16,000 kilometres of railway line currently criss-cross the western region, while a mere 53,000 kilometres of road Ñ much of which is unsurfaced Ñ serves its citizens.

According to Mr Li, development projects to expand rail, highway, air and marine port infrastructure in the region started in 1998. When complete, eight horizontal and eight vertical railway lines, five vertical and seven horizontal highways, as well several new airport hubs will serve the region, he said.

To woo more foreign investors to participate in these infrastructure projects, investment incentives are being made more attractive. Benefits include tax two-year tax holidays, and low taxes thereafter, among other perks. Mr Li said investment procedures are also being simplified and a mechanism is being assembled to better protect investors' interests.

Mr Li said the region is presently focusing on attracting investments in infrastructure projects, but added that foreign companies will soon be allowed to invest in financial services and financial institutions will be allowed to conduct business in renminbi, the local currency. In addition, the insurance business will also be opened up, he said.

While the challenges are many, Mr Li said he hoped more businesses would look to invest in the region.

"The west is poor, but our prospects are good. We have a lot of business opportunities and welcome investors," he said.

China's state-owned enterprises must face not only the challenges that WTO entry will bring, but also the challenge of the new economy, Wang Qinghai (right), vice president, Shougang Corporation, said at the CBC 2000 panel session.

The unprecedented growth in the U.S. economy in the '90s was driven by developing high technologies Ñ especially in communications -- and clearly illustrates the strength of the new economy.

"This has also accelerated our develop-ment," he said. "Corporate and government behaviour is changing, and multinational corporations' products, services and capital will be able to move more freely."

While reforms are helping develop a market economy in the Mainland, Mr Wang said more still needs to be done to enable Mainland firms to meet the challenges of the new economy.

Technology will play a critical role in this development and whoever has a comparative advantage in technology will be the winner, he said. But because SOEs lag far behind in the technology race, the pace of structural reform should be accelerated to help them catch up.

To do this, SOEs need to focus on development because they currently don't have a comprehensive structure for increasing their technological capability, he said. At the same time, state-owned enterprises must also increase their market competitiveness.

"With the merging of the old and the new economies, our domestic market will start to merge with global practices and there will be further opening to foreign products. This means that we will have to face not only domestic competitors, but also foreign competitors as well," he said.

But for the 1.4 million private enterprises registered in China, their small size, limited capital and weak management skills make them particularly vulnerable to the changing times.

"Their basic structure is not strong enough," he said. "They have only been working for five or six years, and many overestimate their strengths and abilities. This has led to a lot of companies going bust, so now they are going back to the basics."

Companies are brushing up on their management and human resources skills, and are taking a more market-oriented approach towards business.

Moreover, Mr Liu said it is vital that businesses in the Mainland learn to recognise and grasp opportunities to get and stay one step ahead of their competitors.

"If you are behind the market and go against the market then you run into a wall," he said.

New economy tools can assist companies sharpen their competitiveness, but he stressed that they are merely tools, and old economy companies still need to study new economy applications to effectively use them.

Globalisation is also a new concept which businesses must study and learn from other companies' mistakes and successes, and form strategic alliances with investors.

"Private enterprises face a lot of challenges, including a lot of foreign enterprises that are stronger and more experienced than they are, but right now, SOEs are like awakening lions," he said.

Since the late Chiang Ching-kuo lifted the ban on travel to the Mainland by Taiwanese citizens in 1987, an estimated 50,000 Taiwanese entrepreneurs have set up businesses in the Mainland, Chinese Taipei-Hong Kong Business Cooperation Committee Vice-chairman Joey Chou said during the CBC 2000 plenary panel session.

Total Taiwanese investment is estimated at US$5,000 billion, and exports produced by these factories topped US$194 billion last year. Impressive as these numbers are, they could be a lot larger if economic relations between the two straits could shed the political shackles that hinder business, he said.

In the early years, Taiwanese businessmen going to China were mostly SMEs, and they kept a low profile. But today, Taiwan businessmen uproot and replant their entire businesses and families in the Mainland. They also bring management skills and technical know-how which they pass on to local management. Taiwanese businesses have integrated into the Mainland so well in fact that those who have been there for 10 to 20 years only have faint recollections of life in Taiwan, he said.

"The second generation of business people don't even consider themselves Taiwanese," Mr Chou said. "So today, Taiwanese businessmen going to the Mainland have formed a type of new people, and I think it won't be long before the 'Taiwanese businessmen' terminology will disappear."

Many Taiwanese businessmen invested in the Mainland to combat rising land and labour costs in Taiwan. Mr Chou said early investors had a hard time integrating into the Mainland, and were also bashed by Taiwanese who said they had no patriotic conscience.

But these investors weren't concerned about politics.

"They went to the Mainland because they wanted to make more money," he said.

But politics did and still does get in the way. In order to invest in the Mainland, Taiwanese businesses still have to go through a third area to invest in Mainland China.

"We have to pay three layers of costs," he said. "It is like someone trying to skin a cow three times.

"As we enter the 21st century, Taiwan is still talking about politics, not economics. If the political interaction is not improved, that will be very bad for our businesses. And if direct communications cannot be solved, we will have a very long and hard road to travel."

These problems will be magnified when China and Taiwan join the WTO as all sectors of business will face stiffer competition, he added.

In the face of globalisation, Mr Chou said Taiwanese and Mainland businesses should co-operate to leverage their full potential and contribute more to strengthening trade on both sides of the straits.

Already, if the accumulative exports of Mainland China, Hong Kong and Taiwan were to be combined, the total value of those exports would exceed US$1 trillion, he said.