Described by the intrepid 13th century traveller Marco Polo as the biggest city in the world, Hangzhou is now listed by Forbes magazine as the best destination in China for foreign investors.
Known for its quality of life and more recently for its economic dynamism, the city has also become expensive, to the detriment of its inhabitants and sometimes of the companies.
With a population today of almost 4 million, the capital of Zhejiang Province is about 200km southwest of Shanghai and has its own international airport which serves several Asian capitals.
Ningbo, Wenzhou and Shaoxing, three other provincial towns which have accelerated privatisation of state enterprises, also appear in Forbes' top 10 Chinese destinations for foreign investors.
Foreign companies are attracted to Hangzhou by "steady infrastructure improvements, a highly educated workforce, a strong spirit of private enterprise," according to China Business Review, a publication of the US-China Business Council.
Zhejiang has numerous motorways and the province will also invest US$12 billion to improve its rail network by 2010.
The villages around Hangzhou bristle with three and four-storey houses, some of which have turrets, giving them the appearance of small castles.
Proud of its prosperity, the provincial government recently announced the general extension of mandatory education to 15 years, from nursery to high school.
"It's here that we had the most incentives at the start in terms of help to invest," said Denis Gandon, director of Hangzhou Bayer Crop-science, whose factory has since 2001 manufactured insecticides and weedkillers, 70 percent of which are intended for the Chinese market.
Today, the development zone no longer has much land available and "the conditions which are imposed are now completely different. For a 3.3-hectare site, you need to invest US$15 million," Gandon said.
Local residents are also feeling the effects.
Ding Jianmin, a taxi driver who denounced "a group of Wenzhou speculators who buy whole buildings" said: "Fewer and fewer people can afford to buy a house because of the soaring prices."
Zhang Guishou, a former civil servant from the municipal housing bureau, recalls that "three or four years ago, the average price per square meter approached 4,000 yuan [US$480], whereas now it's around 7,000."
"There is inflation, which is not reflected very well in the official figures, which brings annual wage increases of 15 percent, much more than the national average," Gandon noted.
The historic city attracts a large number of tourists and is a favored holiday resort for the rich of Shanghai, who dine at the weekend in the sophisticated restaurants which border the West Lake.
As Zhang predicts, "house prices won't drop, because there is less space and Hangzhou is surrounded by mountains on three sides and bordered by a lake."
This however confers exceptional virtues on the setting, from the point of view of feng shui.
Despite all these assets, the flourishing city suffers a brain drain, like nearly all the main Chinese cities, with the possible exceptions of Beijing and Shang-hai, according to China Business Review.
Industrial development is also slowed down by the power cuts which affected two thirds of China last summer.
"Some companies have brought in diesel generators to compensate, others are forced to close certain days of the week or cannot produce in three shifts of eight hours as they used to," Gandon said.
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