Ample raw materials, energy sources, and investment support make Inner Mongolia's capital ripe 
for investors willing to take the road less traveled

        In the early thirteenth century, when the Mongol conqueror Genghiskhan and his sons ruled Asia
from the Pacific Ocean to the borders of  Eastern Europe and from Siberia to the Sea of Bombay, the area
 now known as Hohhot served as the capital of the Mongolian Empire. The capital was the region's center 
of commerce, law , religion, arts, and culture.
        Today Hohhot, which means"bule city" in Mongolian, is the capital of Inner Mongolia, 
one of China's  ethnicminortiy autonomous regions. Reflecting its past as a cultural crossroad, Hohhot is 
a diverse city of roughly 2.5 million people that is once again becoming a trade nexus in northwestern
China.
        Excluding China's four directly administered municipalties, Hohhot has grown faster than any other
 Chinese city in the last four years. The city's GDP rose 33.3 percent from 2003 to 2004, jumping from $4.9
 billion to $7.2 billion. According to 2004 statistics, the key industries that drove this growth are 
electronic information systems(40 percent of growth), dairy(30 percent), and electric power(20 percent) 
generated by coal, solar energy, and wind. Other important industries include real
estate, construction, general manufacturig, services, and retail.
        Hohhot's economic growth is the result of a confluence of factors, including its strategic 
geographic location, valuable and abundant natural resources, government support, and competitive workforce.

Frontier town
       Inner Mongolia stretches across China's northern frontier. It borders nine Chinese provinces and two
countries--Russia and the Republic of Mongolia.
       Trains, trucks, and airplanes arriving and departing from Hohhot carried nearly $4 billion in
natural resources and manufactured goods to western China, Mongolia, Russia, and Europe in 2004. The 
recently completed trans-Asian railroad links Hohhot to Frankfurt, Germany, by rail in 18 days, (prior to 
the container rail line's completion in March, shippers sent containers by sea through the port of Tianjin,
 which could take roughly 40 days).
       Beijing ad Tianjin lie about 600 km and 710 km southeast of Hohhot, respectively--making Hohhot only
a 45 minutes flight or a 5-hour drive from the nation's capital. For corporations with offices in Beijing, 
Hohhot provides a convenient manufaturing base. Trains from Hohhot arrive at the port of Tianjin in 12
 hours.
       In preparation for 2008 Beijing Olympics, China is upgrading Hohhot's tranport infrastructure. The 
PRC central government earmarked $ 70 million to build a new international airport there, scheduled for 
completion in 2007. It will serve as backup for Beijing Capital Internatioal Airport in case of weather 
disruption or overcapacity. The superhighway between Hohhot and Beijing was completed in September 2005.

Powering Hohhot Industries
      The natural resources found just outside the city  supply energy to locations across China and
provide raw materials for Hohhot's factories. Roughly 140 rare-earth minerals, including gold deposits, 
iron ore, granite, and graphite, are available within 100 km of Hohhot. Twenty percent of Beijing's
 electricity is generated by coal mined in Inner Mongolia. Oneof  the largest natural gas reserves in Asia
 lies to the west of Hohhot--the Sulige natural gas field in the Ordos Basi. 
Alternative energy sourse, namely solar and wind, dot the villages that surround Hohhot and offer a
secondary energy source for the city's factories, businesses, and residents. Each year, while factories in
southern China endure brownouts,blackouts, and reduced operating hours, factories in Hohhot work around 
the clock to drive the regional economy.
      Eighty percent of the wool used for cashmere fabric in China is sourced from Inner Mongolia. China's
 top two dairy companies---China MengNiu Dairy Co., Ltd and Inner Mongolia YiLi Industrial Co.; Lid.---are
headquatered in Hohhot and operate state-of-the-art processing plants that produce milk and dairy products 
for China and abroad. One of China's top
consumer eletronics manufacturers, TCL Corp., operates two factories in Hohhot that produce cell phone and 
TVs for domestic and international markets.
     Although Hohhot can supply a varity of raw materials, some foreign companies ecounter procurement 
problems.Because Hohhot is home to few foreign suppliers, foreign companies may need to import some
 components and semi_finished assemblies from overseas or from other provinces.

Government Support
     As part of the PRC central government's preferential economic policies for minority areas and its 2000
Great Western Development Strategy, Hohhot enjoys special financial and tax incentives and some relaxed 
government polices. The two economic development initiatives provide companies that invest in the area 
certain advantages, such as lower and natural resource costs and some freedom from central goverment 
restrictions.
     The central government has also commissioned two national level economic and technological develoment 
zones(ETDZs) in Hohhot: the Ruyi ETDZ, which is located in eastern Hohhot, near Baita Airport and the city
 and provincial government complexes; and Jinchuan ETDZ, which is located in the western part of the city
 and icludes the Hohhot Export Processing Zone. The Ruyi and Jinchuan zones make up the Hohhot Economic 
and TechonogicalDevelopment Zone. Jinchuan's export processing zone contains bonded warehouses and a 
dedicated customs processing office: factories that export at least 51 percent of their production enjoy
 value-added tax exemptions and logistics support.
     The city government also hopes to steer development and investment toward many provincial and 
local-level zones that do not yet have national- level status or administrative operations. The Inner
 Mongolia Administrationof Industry and Commerce handles investments in these zones.
     The national-level ETDZs have attracted compaies in electronics, high-tech, power, textiles, dairy
 and food processing and pharmaceuticals. The zones host more than 50 domestic and international companies,
 including leading Chinese firms such as China Mengniu Dairy and Inner Mongolia Yili Industrial Co., TCL
 Corp; Inner Mongolia Lantai Industrial Co.,Ltd; the Inner Mongolia Sanbao Kaolin Co.,Ltd; and the North 
China power Group. Outside of mainland investors, Hohhot's top investors include Hongkong, Taiwan, and
 Mongolian companies. Of American firms, LW Packard is strong in manufacturing,while Yum Brands, Inc. 
(parent company of KFC Corp. and Pizza Hut, Inc.) and Mcdonald's Corp. are strong in the service sector.

Competitive workforce
     As the region's educational hub, Hohhot boasts 17 universities and colleges, graduating more than 
14500 students each year. The Inner Mongolia University and Inner Mongolia Polytechnic University offer
 MBA programs that draw students and employees from across China. The city's location also gives companies
 in Beijing, Tianjin, and the local area the ablility to recruit easily within the autonomous region.
     Hohhot's educational system produces skilled employees who, because of the city's comparatively low 
costs of living,work for lower salaries than their coastal counterparts. In 2005, average salaries have 
ranged from ¥420-¥500 per month for unskilled laborers to ¥1000-¥1500 per month for mid and senior-level
 managers($52-$62 and$123-$185 per month, respectively)
     Nevertheless, managemant and staff in Hohhot have less experience with Western business and 
management practices than their counterparts in China's large, coastal cities. According to Pacific
 Resources International, the English reading and writing proficiency of the region's college graduates-
-particularly in business, finance, management, and engineering--is generally high, but only 10-20 percent
 of college graduates have sufficient english oral 
communications skills to work on a day-to-day basis in that language. Government officials have also had
 few opportunities to assist foreign companies with long-term investment and development, though there is
 a strong willingness to expand and improve services as more companies move to the area.

Hot for Hohhot
     As China's economy grows, companies across China are racing to acquire the necessary resources to
 power ther expansion, secure coveted raw materials, hire qualified employees at competive wages, and find
supportive infrastructure and government policies. Because Hohhot can help companies fulfill these goals,
 the city presents an attractive alternative for companies seeking to invest in China's rapid growth.  

                                                                                    14/12/12005


note:
the article is compiled from  November-December 2005,  Volume 32 Number 6, the China Business Review, the 
magazine of The US-CHINA BUSINESS COUNCIL

About the Authors:
  Lisa M. Hoff  is chief representive at Pacific Resources International's (PRI) Hohhot, Inner Mongolia,
 office.
  Victor Hou is senior manager at PRI's Hohhot office.