Photographer: Feng Li/Getty Images

One of China's Poorest Provinces Puts Nation on Track to Beat 6.5% Growth

  • Southwestern province is pioneering big data centers
  • One danger: many regional authorities take on the same model

About 2,000 kilometers from Beijing, one of China’s poorest provinces is pioneering a new development model -- one that has it leapfrogging right over the manufacturing base that’s been key to developing other parts of the country.

Guizhou posted the third-fastest growth among China’s 31 regional districts in the first half of the year, with a 10.5 percent pace. The southwestern province has focused on developing human and computing talent skilled at gathering and analyzing vast reams of information -- so-called big data.

A growing reputation for big-data resources has pulled in investment from firms including chipmaker Qualcomm Inc., iPhone maker Foxconn Technology Group and local telecommunications giants China Mobile and China Unicom. The ensuing infrastructure boom associated with the newcomers has in turn fueled the rise of the subtropical region of about 35 million people.

"Creating such growth clusters of industries not found elsewhere could be a promising strategy" for local governments, said Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong. "The risk, of course, is that several will rush headlong into the same niche -- fighting for space, and exhausting their efforts before the pay-offs arrive."

For now, Guizhou’s success is part of the reason China’s growth rate is still outpacing the Communist leadership’s minimum annual target of 6.5 percent. Gross domestic product data due Oct. 19 will show a 6.7 percent gain for the third quarter, according to a Bloomberg survey of economists.

Economic Transition

Other data on Wednesday is likely to reflect the nation’s transition away from investment-led growth. Industrial production is seen having risen 6.4 percent in September from a year earlier, compared with the near-10 percent average over the past five years. Retail sales, by contrast, are forecast to have expanded 10.7 percent last month.

Sustained success won’t come easy for Guizhou, which has per capita income of about half the national average. Building the infrastructure to help facilitate its push into big data is the easy part for a province with disadvantages that include relative poverty, a small talent pool and its landlocked, mountainous geography. It’s also competing in the big data sphere with established centers including Beijing and Shanghai and up-and-comers like Chongqing.

The risk for Guizhou is that competing provinces also rush headlong into big data, causing the industry to suffer from the kind of excess capacity that has plagued old growth industries from steel and cement to newer industries including solar and wind power.

"These kinds of technology industries really benefit from clustering and if they are dispersed throughout the country it’s going to be hard for them to benefit," said Andrew Polk, Beijing-based head of China research at Medley Global Advisors, which advises hedge funds and other institutional investors. "China’s fine at supporting the winners. What it also needs to do is identify losers and force them out of the market. If they can’t do that in the big data analytics space, they are just going to have the same problems."

Building Boom

On the ground in the capital Guiyang, signs of an emerging transformation are palpable. Work began last year on a 19.6 billion yuan ($2.9 billion) expansion of the city’s airport, while the city is littered with new construction projects, from apartment blocks, to offices and roads.

Guiyang’s economy expanded 11.6 percent last year, with infrastructure investment leaping 53.9 percent and spending on information transmission and info-tech services soaring 2.7 times from a year earlier, according to the government. The services sector contributed more than 57 percent of gross domestic product.

Revenues from big data in Guizhou in three key big data segments -- including data collection, smart devices and e-commerce --- surged almost 44 percent last year to 86.6 billion yuan, according to technology research firm International Data Corp. These revenues will jump to 394.8 billion yuan by 2020 for a compound annual growth rate of more than 35 percent from 2015 to 2020, says IDC.

Helping it to overcome its human capital and geographical disadvantages are officials at provincial and city level with strong track records and good connections, says Victor Shih, a professor at the University of California at San Diego who studies China’s politics and finance.

Track Record

Guizhou party secretary Chen Min’er worked closely with Xi Jinping in Zhejiang when the nation’s president was party secretary in the eastern coastal province. At Guiyang’s helm is party secretary Chen Gang, the man who previously steered the development of Beijing’s Zhongguancun, home to a raft of technology companies from PC maker Lenovo Group Ltd., to search engine operator Baidu Inc. and smartphone maker Xiaomi Corp.

Under Chen’s guidance, Zhongguancun became a national innovation hub that’s sometimes likened to Silicon Valley in the U.S. Earlier notable successes for Chen include overseeing the rise of Beijing’s 798 art district and the smooth operation of the Beijing Olympics in 2008.

"Many of the high level government officials in Guiyang used to work in Beijing, where they were trained with good working habits and a broad vision," said Ma Peng, a Beijing-based analyst at IDC. "These officials have strong execution ability, not in the usual bureaucrat style. Guiyang has won strong support from the top leaders."

They are devising a practical plan to develop big data, starting with easier projects like building call centers and data storage centers in Guiyang before moving on to higher-tech ones, Ma said. The province invested 3.5 billion yuan on information infrastructure construction in the first half of this year and has call centers with 90,000 seats, the government says.

Luring Investment

Telecommunications companies China Mobile, China Unicom and China Telecom decided in 2013 to set up data centers in Guizhou with more than 2 million servers, according to the official China Daily. Qualcomm agreed a 1.85 billion yuan joint venture with the Guizhou government early this year to develop server chips for the Chinese market using Qualcomm designs and technology.

Whether Guizhou big data can ultimately lift the province out of poverty is a tough question, says IDC’s Ma. But like China more broadly, it has no choice but to shift away from investment-driven to innovation-driven industries as the nation’s labor force shrinks and wages rise, he says.

"Otherwise the country may face the risk of falling into a middle-income trap," he says, referring to the phenomenon of a country’s economic progress stalling when it fails to become more innovative. "Or become another Japan."

— With assistance by Yinan Zhao, David Ramli, and Kevin Hamlin

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