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Beijing and northeast China are fast becoming areas of growing interest to international investors. Here we highlight some aspects of cities in northeast China and consider the options for setting up business in the capital.

Beijing

Capital economy still facing challenges

The Olympic projects, road construction, hi-tech business and infrastructure expansion in rural areas all dominated the capitals development agenda in 2005. Direct investment in the Games, amounting to some 140 billion yuan, will boost Beijings average annual GDP growth by 2.1 percent in the lead up to the event. The service and financial sectors are also becoming very significant, and there is a lively and diverse expat community.

But the city still has problems to solve. Concerns remain about pollution and serious shortages of water, energy and land. Efforts to reform certain sectors, such as heavy industry, continue to require a lot of effort. And investment in real estate is still relatively high, with demand still rising amid limited supply. There are contradictions between the pace of road construction and the rising number of cars--there are now 11 cars for every 100 permanent residents.

Foreign investors views on the city are mixed. In its 2005 White Paper, the American Chamber of Commerce noted, “the Beijing Government continues to do a commendable job building the infrastructure needed to support a rapidly expanding foreign business community.” The chambers surveys indicate that the regulatory environment has also improved, with less "red tape". But resources, pollution and protection of intellectual property rights remain a concern.

One major issue facing the capital, like many other parts of the country, is an energy shortage--it imports 94 percent of its energy from other provinces and regions. Water shortages are common, too. The American Chamber of Commerce noted that its members are “deeply concerned” about these issues. It was no surprise, then, to see a survey of the “most livable cities” by the Horizon Group in which the capital slipped from third place in 2004 to 15th in 2005, largely because of congestion, pollution and property prices.

Chris Devonshire-Ellis chris@dezshira.com (mailto:chris@dezshira.com) is a senior partner of Dezan Shira & Associates, Business Consultants www.dezshira.com

Note: This is the second part of a special report on the investment opportunities in Beijing and the cities in northeast China. Part three will follow in issue 15.tory environment has also improved, with less “red tape.” But resources, pollution and protection of intellectual property rights remain a concern.