China's fourth pilot zone for comprehensive and coordinated economic reform will soon debut in the middle reaches of the Yangtze River, opening a new area to attract foreign investment. The application has been submitted to the State Council for approval.

The pilot zone will include two clusters of cities in central China: One consists of Wuhan, capital of Hubei Province, and eight surrounding cities in Hubei, and the other is composed of Changsha, Zhuzhou and Xiangtan, three major cities in Hunan Province.

The effort is aimed at building a resource-efficient and environment-friendly society, said Miao Wei, Secretary of the Wuhan Municipal Committee of the Communist Party of China (CPC).

Central China, according to Zhao Lingyun, President of the Hubei Provincial Academy of Social Sciences, enjoys advantages in rich natural resources and labor supply, as well as huge market potential backed by its dense population.

Apparently the Wuhan and Changsha clusters of cities, if their application is approved, will give impetus to economic growth in central China.

Strategic shift

Two of the first three zones for economic reform experiments are located in eastern coastal areas, but according to Yang Weimin, Deputy Secretary General of the National Development and Reform Commission (NDRC), central and western regions are faced with a much tougher job and a tightening schedule for economic reform. His belief is that the government should select representative cities in China's central and western regions for the next pilot zone.

The reforms in the coastal zones gained experience in opening up and successfully attracting foreign direct investment (FDI), said Zhao. He believes it's equally important to conduct reform aimed at developing economies by taking advantage of their own resources.

The pilot zones have proven to be important for China in promoting gradual reform in the past three decades. Cities such as Shanghai and Tianjin were granted privileges leading to innovation and reform and became catalysts for regional and national economic growth.

The Wuhan and Changsha clusters mark a strategic shift in the Central Government's plans to support the development of central China.

Sustainable growth

The focus of reforms varied in the first three state-level pilot zones. It was institutional in Shanghai Pudong and Tianjin Binhai, but in Chongqing-Chengdu pilot zone, reforms were aimed at the overall coordinated development of urban and rural areas. For the Wuhan and Changsha clusters, the focus will be sustainable growth, efficiency and environmentally friendly projects.

This concept was proposed in General Secretary Hu Jintao's report to the 17th CPC National Congress in October. "We must give prominence to building a resource-efficient, environment-friendly society in our strategy for industrialization and modernization and get every organization and household to act accordingly," Hu said.

The task will involve systematic planning of reforms in production, consumption, circulation and other fields, choosing between different strategies of development as well as launching institutional reforms. The government, enterprises, residents and NGOs should take action and coordinate to make changes in the industrial structure, growth model and consumption pattern. Policies and institutional supports are also needed to ensure the smoothness of the reform experiments.

The Wuhan cluster of cities is the densest area of the province in terms of the population, the number of industries and the number of cities. The Wuhan cluster contributed up to 63.66 percent of the province's gross domestic product (GDP) in the first nine months of this year.

The GDP contribution of Changsha, Zhuzhou and Xiangtan had accounted for 39.22 percent of the total in Hunan by September this year, with a year-on-year increase of 15.4 percent in the first half of this year.

"It will definitely boost the economic growth in this region, if the reform experiment proves to be successful," said Zheng Xinsui, Director of the Wuhan Municipal Federation of Industry and Commerce. He believes the pilot zone program will put high requirements on the government, for example, on how to find a new reform model to secure more opportunities for development with limited land and resources. "If we succeed, we will set a good example for other regions," said Zheng.

Competitive edge

There is one question still unanswered: How will the Wuhan and Changsha clusters distinguish themselves from other pilot economic zones?

The Hanjiang River Plain and the Dongting Lake Plain where the Wuhan cluster is located are important production bases of commodity grains, cotton and oil crops in China. Sun Xiaoyu, Vice President of the Development Research Center of the State Council, who had several investigative field trips to central China, believes the Wuhan cluster of cities should be the largest inland market in order to meet domestic demands for production materials, products and services.

"The strategy is to give full play to the local strengths of the Wuhan economic cluster," said Sun. "And at the same time, it helps avoid its disadvantages in comparatively higher cost in terms of connecting to the international market."

The Changsha cluster, located at the conjunction of the central, southern and southwestern parts of China, is a transportation hub that enjoys huge market potential, said Yang Kaizhong, Director of the China Regional Economy Research Center under Peking University.

Idea industries have witnessed high growth in this region in recent years. For example, 70 percent of Chinese original cartoons were created in Hunan. Besides this, it is convenient for the Changsha cluster of cities, bordering upon the Pearl River Delta, to inherit from the latter any industry it transfers elsewhere and to benefit from the growth impulse of the neighboring markets.

When the Wuhan and Changsha clusters ally, they enjoy more advantages. Both form a conjunction of Yangtze River economic belt and Beijing-Guangzhou Railway economic belt. It will be a hub in its truest name, with advantages in railway, water, highway and air transportation.

Furthermore, the two clusters possess solid foundations for many industries. Wuhan Iron and Steel (Group) Corp. and Xiangtan Iron and Steel (Group) Corp. are large iron and steel manufacturers in central and southwestern regions of China. China's largest oil refiner Sinopec invited South Korea's largest refiner SK Corp. to jointly build a large-scale ethylene project in Wuhan with a production capacity of 800,000 tons per year in March this year. This investment will turn Wuhan into a petrochemical production and supply center for the region.

The two clusters are also labeled as bases for modern equipment manufacturing and hi-tech industries. The Wuhan cluster is the largest distribution center of automobiles and auto parts and is building a hi-tech base dominated by photoelectronic information technologies. The Changsha cluster possesses many of the top innovations in China, such as walking robots, The Queen Wasp series of remote controlled mini aircraft and the Yinhe Super-Simulation Computers.

The new pilot zone will not gain investment or any preferential policies from the government, but this isn't expected to slow the pace in attracting foreign investment in the Wuhan and Changsha clusters.

Wuhan and Changsha have long been business hubs in this region. The Changsha cluster of cities hosts 89 of the world's leading 500 corporations, while the Wuhan cluster boasts a number of regional or national commodity trading markets besides 69 from the world's top 500. The alliance between the two clusters with their established industry structures and open markets will make them hot spots for overseas investors in the future, said Yang.