Megacity Chongqing’s potential as ‘strategic pivot’ of the New Silk Road

By Ingrid d’Hooghe and Dong Chen[1]

In the first 6 months of 2015, the Chinese megacity Chongqing posted the country’s highest growth rate, 11 per cent, just like it did in 2014 with a growth rate of 10.9 per cent. Not yet a household name in Europe, Chongqing municipality, which is twice the size of the Netherlands and home to more than 34 million residents, 9 million of which live in the core city, is well known in China. Not only for its spicy hot pot and foggy weather, but, more importantly, for its rapid transformation from a dusty traditional industrial city into an advanced manufacturing and services center, in particular in areas such as IT, medical and automotive industries. Today the municipality is the largest shipping center on the upper reach of the Yangtze and more than two hundred of the World Fortune Top 500 companies have set up branches in this emerging metropolis, among them Hewlett-Packard, BP, BASF, and Carrefour. Chongqing is doing well and officials have great ambitions for the municipality’s future. Recently they have been promoting the city as the ‘strategic pivot‘ of China’s Silk Road Economic Belt, and as industrial hinterland of the Maritime Silk Road (One Belt and One Road (OBOR)). Is this wishful thinking or does Chongqing really have the potential to play a central role in the OBOR strategy? And what do they have to offer Dutch business?

Favorably located in the upstream Yangtze River basin, the city has long been recognized for its potential as a major transportation hub. As early as 1891 it became the first inland commerce port to open up to foreigners and during World War II, with the Kuomintang government and more than 30 embassies moving to the city, Chongqing became China’s provisional capital. Many industries followed the KMT government, helping Chongqing to industrialize at a fast pace. In 1997 the development of Chongqing got a new boost when the city and its neighboring areas and towns became the 4th national-level municipality, after Beijing, Shanghai and Tianjin. Over the past decade Chongqing has been able to benefit from being designated in 2007 as a ‘key region for comprehensive experimental reform’, and the establishment in 2010 of the Liangjiang New Area national level development zone.

Liangjiang New Area has become the engine of Chongqing’s growth. The area includes Jiangbei International Airport; China’s largest inland port: Guoyuan Harbor; Lianglu Cuntan Port; and the YuXinOu – Chongqing-Xinjiang-Europe – International Railway. Chongqing thus forms a traffic hub that integrates railway, highway, shipping and air transportation. The municipality has announced that it will invest up to US$190 billion in infrastructure by 2020, including the constructing of a new shipping center. With the latter Chongqing will establish itself as the western hub of the so-called ‘Yangtze River economic belt‘, an initiative launched by China’s State Council in 2014. Reflecting the aims of OBOR, the initiative aims to develop the Yangtze River into an inland river economic belt, linking China’s huge inland markets to the Silk Road economic belt and offering opportunities for foreign investors to expand China’s inland markets.

Another infrastructure project Chongqing invests in is the YuXinOu (Chongqing – Xinjiang – Europe) international railway, which connects the Chongqing Free Trade Port in the Liangjiang New Area with Duisburg (Germany). Transportation via the YuXinOu railway takes an average of only 15 days which means goods are delivered twice as fast as via the traditional maritime routes through China’s coastal ports. While one-fifth of the costs of air transportation, railway freight costs are much higher than shipping transport and its volume capacity is much lower. This overland connection, therefore, is only interesting for specific products that are not too voluminous and that benefit from a quick delivery.

One of the products that Chongqing has started transporting via the YuXinOu Railway to Europe is coffee, which is produced in large quantities in the neighboring province of Yunnan and in other nearby Asian countries and bought by European companies such as Nestlé. In cooperation with Hogood Co. (后谷)one of China’s major coffee producers, Chongqing YuXinOu Logistics Company plans to transport 30,000 – 50,000 tons of coffee to Europe in 2015. By 2018 Chongqing hopes to transport over 1 million tons of coffee from countries like Vietnam and Indonesia, to Europe and the megacity’s aspiration is to become the world’s third-largest coffee futures market after New York and London. Chongqing furthermore invests in the development of the region as a base for emerging sustainable industries. On June 15, for example, Liangjiang Zone launched a large-scale industry fund of CNY 20 billion ($3.22 billion) to support emerging industries such as robotics, shipping, medical innovation and green automobiles.

As fastest growing region in China, gateway to the huge domestic consumption market in the west of China, and beneficiary of preferential policies, Chongqing has much to offer as OBOR hub and as destination for foreign investment. The presence of Dutch business in Chongqing is still rather limited but the Dutch government has recognized the growing importance of the megacity: in 2014 it opened a Consulate-General in Chongqing which focuses on helping Dutch companies expand their business in West China. Chongqing, in its turn, opened a Government Logistics Council Office in Rotterdam, which seeks to help Chongqing benefit from the logistics advantages of the Netherlands. Opportunities in the megacity for Dutch companies lie in areas such as smart logistics and supply chain solutions, but also in clean energy (especially wind power), dairy industry, agribusiness, and high-tech. Dutch business, therefore, would do well to more actively explore what Chongqing has to offer them.

[1] Dong Chen is MA-student International Relations and Diplomacy at Leiden University and intern at China Relations.

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