For Briggs & Stratton Corp, the biggest maker of lawnmower engines, a 15-year bet on China's hinterland may earn it some government largess.
The US company set up shop in Chongqing, 2,000km up the Yangtze River from Shanghai, hoping to sell engines to the nation's 700 million farmers. For now, it exports 90 percent of its production. The government favors larger, noisier and cheaper diesel engines.
As China steps up a campaign to lure investment to its neglected west, home to a quarter of its 1.3 billion people and only a seventh of its economic output, things may be looking up. By investing there, foreign companies hope for greater access to China's east and coastal regions, where 85 percent of all economic activity takes place.
"The government may look at us favorably because we were willing to take a chance on western China so long ago," said Mike Schoen, who runs international operations at Milwaukee, Wisconsin-based Briggs & Stratton. Though he hasn't had an indication that's the case yet, "Our investment will ultimately prove to be a wise choice." Local governments are trying to overcome geographic isolation and a poorly educated workforce by giving firms tax breaks and trumpeting abundant natural resources.
Lafarge SA is one example. The French building materials company received an exemption on local value-added tax, free passage over a toll bridge and access to the area's abundant gypsum after establishing a business in Jiangjin, a city about 62 miles upstream from Chong-qing along the Yangtze.
``These firms can help promote the development of the west,'' said Xu Rongsheng, the city's vice mayor. ``The government gives them special attention.'' So far, foreign companies participating in China's ``Go West'' campaign -- a decade-long, US$96 billion effort that began last year to revitalize the western three-fifths of the country -- have little to show for their efforts.
And it isn't easy doing business in Chongqing, a city of 30 million where local companies tout themselves as being based in ``the Land of the Preserved Sichuan Pickle.'' At Bank of Nova Scotia, the only foreign bank licensed for business, branch manager Danny Chen says it's tough to find employees who can speak English. Local government officials often lapse into a local dialect, bewildering Chen, a Hong Kong native who speaks fluent Mandarin.
Yet there have been payoffs. Scotiabank arrived in 1998, reckoning it had a good chance to earn a commercial license after China designated Chongqing a municipality directly under the supervision of the central government.
The bank received a license to open its second China branch in Chongqing. Now it hopes to become the first Canadian bank to upgrade its representative office in Beijing to full branch status and move into Shanghai, joining the likes of HSBC Holdings Plc and Citigroup Inc.
``Certainly it doesn't hurt to be seen to be supporting government policies,'' said Patrick Rooney, who heads the bank's China business. ``When decisions are made for licenses, it certainly helps.'' Boston-based Liberty Mutual Insurance Co, for one, has a US$150 million private equity fund that aims to target China's western regions. It's hoping that buying stakes in local companies will speed the granting of a license to open a wholly owned property and casualty insurance business.
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