Economy of Yunnan

General
Since the launch of the Chinese Communist Party's 'open and reform' policies in 1978, China's economy has grown at a rate and scale unseen in human history, averaging more than 8% growth over almost three decades.
The benefits of this economic progress have not been evenly distributed however, with China's coastal region growing faster and receiving more overseas investments than western China.
Kunming, because of its remote location, has been an economic backwater for most of the last three decades. That was before rapid growth in China's trade with Southeast Asia and China's domestic tourism industry in addition to Beijing's 'Go West' initiative aimed at increasing domestic and foreign investment in western China.
The strategies for economic development in Yunnan , as designed by the provincial government, can be described in short as the realization of 3 targets and the construction of 5 pillar industries. Yunnan often proudly presents itself as a ‘green’ province with an equally ‘green’ economy. This means importance is attached to the sustainable development of the region’s bio-resources as well as the protection of its natural environment. The agricultural sector therefore gets a lot of support in the development of e.g. ‘green’ or organic food, but also the production of traditional Chinese medicine, cut flowers and bio-chemicals is being encouraged.
Ethnic minorities in Yunnan make up an important part of its population. These groups play a growing role in the development of tourism for instance, but the government is also keen on to improve their living standards and level of education.
Yunnan’s strategic geographical location towards China ’s ASEAN neighbors makes that the province is determined to become a major regional hub, especially with regards to transport, (tele)communications and tourism.
As for the five pillar industries, Yunnan ’s focus lies on the development of the tourism, tobacco, mineral and (hydro)power industry. Furthermore, as already mentioned, there’s a lot of support for the development and improvement of ‘green’ food, the horticultural sector and the biochemical industry.

Agriculture
Looking at Yunnan ’s economy, it’s clear the region maintains a strong agricultural focus. Tobacco is the main (export) product and makes up a big part of the provincial GDP. Furthermore, Yunnan has a strong competitive potential in the fruit and vegetable industries, especially in low value-added commodities such as fresh and dried vegetables and fresh apples.
Yunnan is one of the regions in the world with the most abundant resources of wild edible mushrooms. In China, there are 938 kinds of edible mushrooms, and over 800 varieties can be found in Yunnan. In 2004, around 7,744 tons of wild edible mushrooms were exported, making up for 70% of the total export of this product in China. The so-called ‘pine mushroom’ is the main product in Yunnan and is exported to Japan in large quantities.
Another interesting industry with a clear growth potential is the coffee sector. Yunnan is currently China ’s most important producer of Arabica coffee. Besides the export of roasted coffee, coffee-related products such as extracts, essences and substitutes may be promising products. Yunnan ’s the birthplace of tea. Still, ancient tea trees can be found in Yunnan of which tealeaves are processed. Tea is becoming an important export product. Especially in the US and Japan the demand is growing.
Due to China’s growing consumption of dairy products (a trend heavily supported by the national government), Yunnan’s dairy industry is also developing more rapidly and receiving large subsidies from the government develop a competitive edge in Southwest China, but is also aiming to export to its ASEAN neighbors.
Then last but not least, a growing sector, heavily supported by the local government is the horticultural sector. The flower industry in Yunnan province started to develop towards the end of the 1980s. Currently, Yunnan is the most important province nationwide in the field of flower growing. Yunnan province accounts for around 60% of China ’s total cut flower production. The size of the planting area for flowers in Yunnan province amounts to 23,000 hectares by the end of 2007. In 2007, the output of cut flowers totaled 5 billion stems. In the same year the flower industry in Yunnan had a total output of RMB 8.4 billion. Export amounted to USD 85 million. Apart from sales on the domestic market, Yunnan also exports its flowers to around 40 foreign countries and regions such as Japan, Korea, Hong Kong, Thailand and Singapore.
The rapid developments in this field soon attracted the attention of Dutch horticultural companies and Dutch investments in flower related projects and businesses are steadily growing.

Tourism
Yunnan tourism industry, one of the "five major pillar enterprises" of the province, has been developing steadily in the past 10 years. The effects of tourism as a pillar industry and its position and function in the overall economy have been greatly strengthened. In comparison, in 1998 Yunnan received 28.7 million domestic and foreign visitors, while in 2007 the number of visitors to Yunnan at home and abroad amounted to 93.8 million. The total income derived from the tourism industry increased from RMB 13.69 billion to RMB 55.9 billion. The tourism industry is having a considerable influence on the provincial industrial and service industry. Hence, it has become a focal point for economic growth in Yunnan .

Yunnan has one of the most diverse scenery in all of China with tropical rainforests in the south and snow capped Tibetan peaks in the north. Yunnan is home to a third of all China ’s ethnic minorities. The province’s inhabitants are 33.98% non-Han which results in a strong local identity. This combined with its many attractions ( Shilin Stone Forest, Lijiang Old Town, Shangri-La, Dali, Yuanmou Earth Forest, Tropical Rainforest Xishuangbanna) and favorable climate makes Yunnan a hotspot for Chinese and international tourists.

Yunnan has a climate as divers as its terrain. Generally it has a mild climate with pleasant and fair weather. Capital Kunming is therefore also called ‘The City of Eternal Spring’. January average temperatures range from 8ºC to 17ºC, July averages vary from 21ºC to 27ºC. Average annual rainfall ranges from 600 mm to 2,300 mm, with over half the rain occurring between June and August.

Yunnan is therefore regarded as a major tourist destination in China . Many tour operators, domestic and international, are arranging tours to Yunnan . However, there are almost no international hotel chain / 5-star hotels located in Yunnan , nor are there many business visitors. The high-end hotel business therefore might be an opportunity for foreign investors.
For foreign tour operators it is possible to establish an inbound WFOE-office in China but it is still impossible to establish a WFOE-office conducting outbound services to Chinese citizens. As of 1 May 2009 is it possible for foreign tour operators based in China to offer outbound services to foreigners.
The Chinese tourism sector is still not 100% open to investment by foreign tour operators but the situation is improving. Other remaining issues are the restrictions on the use of a foreign computer reservation system and the capital requirement for European tour operators to invest in China ’s inbound tourism industry. The European Chamber is successfully putting its effort in creating more openness.

Mining and hydropower
Yunnan is one of the major production bases of copper, lead, zinc, tin and aluminum in China. Gejiu city is well known as "the Kingdom of Zinc " with the reserves ranked first in the country. The Yunxi brand refined tin is one of the main products in Gejiu, which is registered on the London Nonferrous Metal Exchange. Besides, reserves of germanium, indium, zirconium, platinum, rock salt, sylvite, nickel, phosphate, mirabilite, arsenic and blue asbestos are also high.
The electricity industry is another important economic pillar of Yunnan , which plays a key role in the "West-East Electricity Transmission Project". The electricity produced in Yunnan is hereby mainly transported to Guangdong Province .

Trade
Reliance on foreign trade is not high. Exports amounted to 4.74 billion in 2007. Major exports included chemicals and related products, base metals and related products, tobacco, vegetables, fruits and cereals etc. Due to geographical proximity, ASEAN is the province's largest trading partner. Major export markets include Vietnam, Hong Kong, Japan, the US, Thailand, the Netherlands, Indonesia, the Philippines, Burma and Bangladesh etc. Exports to the ASEAN and EU have recorded spectacular growth in recent years.
In 2007, imports reached 4.04 billion USD. Major import items included minerals, machinery and electrical appliances, electronics and telecommunications equipment. Major import sources included Canada, Hong Kong, Australia, Chile, India, Germany, Mexico, Vietnam and Indonesia . Imports from Latin America have grown sharply in recent years.
Transport and logistics are a serious bottleneck in the development of trade. Cost of building roads and railways are high due to its mountainous landscape. Nevertheless, the government has been planning the construction of new roads and rails in the coming years. China invested USD 4 billion in the Kunming – Bangkok highway that connects to the already existing road network Bangkok – Kuala Lumpur – Singapore . This means a good road connection from Beijing all the way to Singapore . It is expected that this connection will expand opportunities and trade. This highway reduces the travel time (Kunming – Bangkok ) into half, to about 20 hours. The highway is nearly completed except for the obstacle of crossing the Mekong River and customs processing in Laos . The capital city of Kunming is the major city in Yunnan to attract foreign investment.
Other cities in Yunnan successful in attracting foreign investment are Yuxi and Qujing.

Foreign Direct Investment
The total amount of actually utilized FDI amounted to 394.53 million USD in 2007. Foreign investors are mainly investing in manufacturing, but also in farming, forestry, animal husbandry, business services and mining and quarrying.

Bilateral investments
At the moment some 25 Dutch companies and institutions are active in Yunnan with an office or production facility. Most of these businesses are located in or around the capital Kunming and most of them are being active in the field of agriculture, especially floriculture. This sector is also an important priority sector for the local government.
Market leader in cut flower food Chrysal, opened its first Chinese representative office in Kunming in 2004.
Anning Decco Fine Chemicals Ltd, a subsidiary of Dutch company Cerexagri, is producing and exporting bleached dewaxed shellac.
Dutch multinationals as Philips and TNT have also established offices in Kunming.
Van Hall Larenstein, part of Wageningen UR, is cooperating with Yunnan Agricultural University in educating Chinese students in the field of international horticulture and marketing via a so-called 2+2 program. Students study in Kunming for two years and then finish their BA degrees in the Netherlands.