Sept. 30 (Bloomberg) -- The biggest winners from China’s $586 billion economic stimulus are emerging more than 1,000 kilometers (620 miles) from Shanghai in the factories and stores of Chengdu and Xi’an.

“Now it’s our turn” for development, says Li Chunjie, a 63-year-old retired public servant surveying a construction plot for the future subway system of Xi’an, the biggest city in central China. Next to the site: the Chang An Metropolis Center, featuring Gucci and Ermenegildo Zegna designer-fashion stores. “Look at all the work they’re doing on the city now,” he says.

As China’s communist regime prepares to celebrate its 60th anniversary tomorrow, spending aimed at combating the slowest national growth in almost a decade has sparked an investment boom in central and western provinces. That’s increasing opportunities for jobs and income gains for 700 million people in an area from Anhui, upriver from Shanghai, to Xinjiang on the Pakistani frontier.

The global recession and unprecedented government investment have reversed a three-decade trend of China’s coastal export centers leading its expansion, job creation and income gains. The west’s 9.3 percent annual growth pace in the first half of 2009 outstripped a 6.5 percent rate for the seaboard.

“China’s growth is shifting west,” says Nick Lord, a banking analyst in Hong Kong at Macquarie Securities Ltd., a unit of Australia’s biggest investment bank. Government spending in China’s interior increased 47 percent in the first quarter from a year earlier, outpacing the 33 percent rise in the east, Macquarie estimates.

No Holidays

The investment in transportation networks and buildings means that West China Cement Ltd.’s Lantian Yaobai cement factory, outside of Xi’an, operates 24 hours a day, with no stops for holidays. The firm was this month named by Forbes magazine as one of Asia’s 200 small- to medium-sized companies with the greatest opportunities for growth.

“What was bad for the world was good for us and China’s inland,” says Low Poling, finance director at the Xi’an-based company, whose profit more than doubled this year to 186.9 million yuan ($27 million) compared with 2008. “This is just the starting point.”

As global trade flows declined, China suffered a 10-month slide in exports, damping growth in the east and pulling the nationwide expansion rate down to 6.1 percent in the first quarter, the slowest pace in almost a decade. The government is using its 4 trillion yuan stimulus and record bank lending to build railways, roads and power plants, mostly in the less- developed west and center of the country.

JPMorgan’s Vision

The accelerating development lured JPMorgan Chase & Co. to open this month its first branch in western China, in Chengdu, Sichuan. The second-biggest U.S. bank, which is based in New York, was drawn to the area’s “tremendous industrial base,” according to Lisa Robins, who is head of Treasury and security services at the company and leads its Chinese branch-expansion efforts.

“Sooner than five years from now, the center of China will have a thriving financial center supporting the manufacturing sector and other industries,” says Robins, who works from Beijing. “Chengdu and Sichuan is just an amazing booming economy that is the gateway to the southwest.”

Businesses are counting on the government investments and current spurt in growth to generate a sustained expansion and advance in household purchasing power after the fiscal impetus fades in 2010.

Investment Call

Great Wall Motor Co., China’s largest maker of pickup trucks, is one of the automakers best placed to capitalize on rising consumption because as much as 70 percent of its sales come from central and western China, says Hou Yankun, an analyst with Nomura Holdings Inc. in Hong Kong.

Baoding, Hebei-based Great Wall’s stock price will rise to HK$10 ($1.29) per share within 12 months, Hou forecasts, driven by rising incomes that are making pickups more affordable.

The company “is targeted to the rural area in China, and the major growth for the pickup sector in the future will be in the countryside,” added Jack Yeung, an analyst in Hong Kong at BNP Paribas Securities Asia Ltd., a unit of France’s biggest bank. He estimates the stock will reach HK$9.75 within a year. The stock rose to HK$7 on opening in Hong Kong trading today, up from HK$6.94 at yesterday’s close.

Parkson Retail Group Ltd. is another company with its sights on the interior. Two of the three stores Parkson opened in 2008 were located in Guizhou, according to the Beijing-based company’s Web site. The firm’s shares may climb to HK$14.64 within a year, says Randy Zhou, an analyst in Shanghai at UBS AG, the biggest Swiss bank by assets. Parkson’s shares opened at HK$11.78 in Hong Kong trading this morning, up from HK$11.56 yesterday.

Region’s Population

Western and central China together are home to more than the combined populations of the U.S., Brazil and Mexico. Four cities have more people than London’s 7.4 million.

Development in the region has lagged behind the east because China’s export-led growth strategy favored investment in the coastal region. Gross domestic product per capita in the east is $5,791, more than twice that in the central and western regions, according to China International Capital Corp., an investment bank that’s 34 percent owned by New York-based Morgan Stanley, the sixth-biggest U.S. bank by assets.

Shanghai’s per-capita GDP, the nation’s highest, is $10,500, compared with $1,270 in the western province of Guizhou, the lowest, according to data prepared by Beijing-based CICC.

Social Tensions

Income disparities have contributed to social unrest, along with ethnic tensions in areas with minority populations such as Xinjiang in western China. Five people died in early September during protests in Urumqi, the Xinjiang capital, where ethnic Uighurs and Han Chinese are at odds following clashes in July that led to the deaths of almost 200 people.

China faces an “arduous task” of maintaining steady growth and a stable society, President Hu Jintao said Sept. 20.

The national job market remains grim, Yin Weimin, the minister of human resources and social security, said Sept. 9. As many as 41 million Chinese workers have lost their jobs during the global financial crisis, and 23 million remain out of work, according to the Chinese Academy of Social Sciences, a government-affiliated research institute.

“To maintain stability in this country, the government must develop the inland,” says West China Cement’s Low, a 34-year- old drawn to China’s opportunity from her native Malaysia.

Growth in lending helped drive investment in factories and properties higher by 50 percent in the west and 39 percent in the central region during the first eight months of 2009 compared with a year earlier, according to the government’s central planning agency. Investment in the east rose 27 percent.

“Xi’an’s development hasn’t been as fast as the eastern and southern parts of China, but we are catching up, and the space for more development here is much greater than for the coastal cities,” says 31-year-old Xi’an resident Zhang Rong.

“Life has gotten much better here,” Zhang says as he shops in Xi’an for a liquid-crystal-display television with his wife, Wang Xin, for their new apartment.

To contact the Bloomberg News staff on this story: Kevin Hamlin in Beijing on khamlin@bloomberg.net

Last Updated: September 29, 2009 23:47 EDT