Beijing will, as it has already started to do, become more of the focal point for China during 2006. Preparations (and indeed most tenders) for the Olympics are now mostly all underway, and with many schemes linked in any event to city planning and infrastructure developments, the steady rumble of construction will continue apace. New metro lines, airport runways and inner city road developments will all start to come to fruition.

We can expect another minor shift in the RMB/ USD position, probably sometime late spring, and the usual on-going political argy-bargy concerning trade deficits, but otherwise it?ll be pretty much holding the ship steady politically and business-wise for the year, a case of ??steady as she goes?. We do not believe the much hyped bird flu will pose any significant threat.

More interestingly, the re-discovery of North-East China will be the main highlight of the year, as foreign companies, looking for large semi-skilled and skilled workforces look further at sizing up the region for investments, especially those involved with heavy industry. Steel, shipbuilding, automotive, timber and the construction industries and sub-industries are of particular note here. Cities such as Tianjin, and Dalian, already well known to foreign investors, may face increasing competition from Changchun, Jilin and Shenyang as labour costs and rising costs of living force canny accountants to weigh up the expenses of relocating or moving further north. Expatriate life in China has already meant being prepared to move to the second tier cities and this trend will certainly continue further North and West in China?s hinterland.

Of course, it is not all plain sailing. Foreign investors we spoke to during 2005 report continuing difficulties with bureaucracy and approvals ? the local governments and development zones are simply not as internationally experienced in the North-East as they are in Beijing, Tianjin, Dalian or Shanghai. They seem to sit and wait for you to go to them, rather than reaching out and selling their facilities. This will change, but it will take time. That said, there are plenty of US and European investors in the north east who making a go of it, with GM, BMW and Michelin being some of the high-profile examples. Additionally, the central government?s policy on revitalizing the northeast means there are some additional incentives not available elsewhere ? VAT exemption in some
industries, mortgage extensions, additional infrastructure support, and so on ? as well as the chance to take majority stakes in some SOEs and infrastructure sectors previously closed to FDI. It?s worth investigating the detail here, and key to note that the current Minister of Commerce, Bo Xi Lai, is from the region (Dalian, Liaoning Province).

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