China: Yunnan Province: backwater and frontier
Published 21 November 2014
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This article is no longer current. Please refer to Overseas Business Risk - China
Summary
Southwest China’s Yunnan province is known for bio-diversity, multiculturalism, drugs, tobacco and corruption but not for high-speed development. Leaders are trying to cash in on Yunnan’s location by pushing a regional integration scheme with India, Burma and Bangladesh.
Detail
Despite annual GDP growth over 10% Yunnan Province started from such a low base that it is still ranked 29 out of China’s 31 provinces for GDP per capita. 80% of goods sold in Yunnan are made elsewhere.
Yunnan’s economy relies on extractive industries, iron and steel production, agriculture and tourism. Tobacco provides around 70% of tax revenues but changing habits and Xi’s anti-corruption drive have cut growth. Like neighbouring Guizhou Yunnan is pushing infrastructure and industrial parks. But building is more difficult in Yunnan: it is 94% mountains and further from developed markets.
The province also lacks political clout . with few effective links with top leaders Three top provincial leaders have been brought down and the outgoing Party Secretary resigned in unusual circumstances. Neither Xi Jinping nor Li Keqiang have visited as President/Premier, except a flying visit by Li after an earthquake in Ludian County in August.
Provincial capital Kunming is closer to Calcutta than it is to Beijing – traditionally a hindrance. But as China opens up, Yunnan is trying to act as a ‘gateway’ to SE Asia: establishing an annual SE Asia trade fair; upgrading the airport; pushing road, rail and waterway links and pushing Kunming as a cross-border RMB settlement hub.
The ‘Bangladesh-China-India-Myanmar (BCIM) Economic Corridor’ is the latest plan, aiming to connect China to India by land and stimulate trade with the countries in between. Yunnan has been pushing the idea since 1999 but it’s only recently gained attention. Premier Li Keqiang discussed the Corridor during his visit to New Delhi in 2013, and it was re-emphasised in a joint communiqué that concluded President Xi Jinping’s three-day visit to India in September 2014.
Real progress on these ‘headline projects’ is tough to measure or predict. It depends on the continued cooperation and commitment not only of Beijing but also of various national governments in a region of complex security and political relationships. One plan to stimulate growth near the Burmese border was allocated just 400 million RMB p/a, barely enough to construct 5km of highway. China’s relations with Burma may be instructive: the two countries signed a “Comprehensive Strategic Partnership Action Plan” in 2013 but Chinese investment has dwindled due to Burma’s continued struggles with rebels from Kachin and other minority groups. More recently a joint railway project MOU between Rangoon and Beijing expired without implementation.
Both the Mekong and Salween rivers flow through Yunnan before reaching SE Asia. A recent release of water from a dam in southern Yunnan sparked fears of flooding in Thailand and Laos. And in spite of water shortages and environmental risks, Yunnan is ramping up its use of hydroelectricity and selling power to SE Asia as well as Guangdong. There’s also the new gas pipeline from Burma which has already brought 1.88 billion cubic meters of gas and a parallel oil pipeline due to open shortly. And over 70% of Yunnan University’s international students are from SE Asia.
Being a ‘gateway’ poses challenges too: over half of China’s methamphetamines and heroin enter through Yunnan. It is also an exit route for counterfeit goods produced in China. And ethnic communities which straddle the borders are badly hit by HIV/AIDs, and complicate security challenges. Working with Posts across Asia Pacific, BCG Chongqing’s Outreach Team is sponsoring projects which bring together NGOs, communities and local government on issues ranging from health to Intellectual Property.
British companies are making inroads in finance, retail and infrastructure sectors in the region (Arup designed the terminal buildings for the new Kunming airport) and we are helping them pursue opportunities in new energy, modern agriculture, creative industries and healthcare (£1 billion opportunity in hospital build, operation, training and elderly care). Our inaugural Kunming Week significantly raised the UK’s profile.
Comment
Yunnan’s internal political difficulties will not last – the province’s location and ethnic mix mean Beijing can’t afford to ignore it forever. And whether or not the ‘headline projects’ - such as the BCIM or plans to link Kunming to Singapore by road - get the political support they need, the reality is that integration is already happening. Although it lags behind neighbouring provinces, Yunnan has still grown at over 10% p/a for five years without being a big priority for Beijing and should keep up the pace. The door has already been flung open, the question is just how much traffic will flow through it.
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