Chongqing Express

If one imagines chinese industrial cities as gray, smelly, crowded, and dirty, then Chongqing fits the bill. Walking through the central district, one's eyes are irritated by air thick with dust and smoke. Looking out from a height, one finds that haze makes it difficult to see further than a few hundred yards.

But the city is a work in progress. Under threat of nonrenewal of their licenses, taxi drivers are this month converting their engines to compressed natural gas instead of gasoline and diesel. Large portions of the central business district are being rebuilt at a furious pace. Real estate prices are rising rapidly. Upscale neighborhoods are sprouting up. A few more years of frantic activity, and the city may start to look like Shanghai, China's sparkling metropolis.

Many of the changes under way are the result of Chongqing's shift in status four years ago. In order to bring prosperity to the heart of China, leaders in Beijing made Chongqing the fourth city in China--after Beijing, Shanghai, and Tianjin--to come directly under central government rule. The borders of Chongqing were enlarged, so much so that its land area now represents about a sixth of Sichuan, the province from which it was carved. With its boundaries expanded, Chongqing's population has increased from about 5 million to 30 million.

The city's new status is a boon to the chemical industry. New projects requiring government approval now reach decisionmakers in Beijing more promptly, according to Miao Guan Kui, chairman of Chongqing Chemical & Pharmaceutical Holding Group (CCPHG). Previously, project proposals were routed--and delayed--through the Sichuan provincial capital of Chengdu before reaching the central government, he says.

CCPHG was launched in 2000 as a state-owned holding company managing the chemical and pharmaceutical assets of the Chongqing government. It has 51 subsidiary companies, about half of which are wholly owned. Two are listed on stock markets in China, Miao says. CCPHG's headquarters are in an old office building on a dingy backstreet of central Chongqing, suggesting that the organization spends carefully.

Miao's job is to improve the efficiency of subsidiaries under management. It is not a simple task. The plants he oversees were mostly conceived in the days when China sought national self-sufficiency under centrally planned economic management. A man visibly under stress, he is quick to list the challenges he faces.

THE QUALITY of the management in subsidiary companies leaves much to be desired. The companies are overstaffed. Several, located near population centers, need to relocate and invest in equipment to reduce air and water pollution. Some are also laden with debt. Privatization is the way to turn the subsidiaries around, Miao says, adding that this is his biggest headache. He is struggling to find ways to turn his assets into shareholder-owned entities that are attractive to Chinese and foreign investors.

But overall, he believes he has been making progress since 2000. "I still have my job, don't I?" he says. CCPHG's financial loss has been reduced from $45 million in 2000 to $2 million last year, Miao says. During that period, he adds, sales have increased from $550 million to $875 million as a result of economic growth and improved marketing. The figures are not audited by independent accounting firms.

Chongqing has much going for it, Miao insists. He says the transportation links--river, highways, and rail--are excellent. Moreover, Chongqing and Sichuan have abundant natural gas. He recalls that BP's managers initially were reluctant investors in Chongqing when they set up an acetic acid joint venture with Sinopec. It has since become a runaway success. He expects Mitsubishi Gas to be the next foreign company to invest in a major chemical project in Chongqing--an 850,000-metric-ton-per-year methanol plant.

Chinese investors are also interested in Chongqing. Across the Yangtze River, in the Nan'an (south shore) district of the city, is the Chongqing Pharmaceutical Research Institute, which was acquired from the Sichuan government in 2001 by Shanghai Fosun Industrial, a Shanghai-based pharmaceutical manufacturer. Employing about 200 people, CPRI is a research organization that develops over-the-counter medications for Chinese companies. It also owns a U.S. Food & Drug Administration-approved plant producing bulk clindamycin, a drug used to fight various types of infection.

Fosun has increased CPRI's research equipment budget sixfold to $250,000 per year, says Fu Jie Min, the institute's general manager. He says new instruments, consisting primarily of Agilent and Hewlett-Packard analytical systems, have raised the productivity of researchers. A tour of the research facilities, housed in a shoddy-looking eight-floor building, reveals labs that are in surprisingly good shape. Young researchers, 35 years old on average, according to Fu, work on projects well after 6 PM when the building's elevator goes out of service. Sadly, they conduct experiments without safety glasses.

Chinese manufacturers rarely perform their own R&D, Fu says. Launched in 1950, CPRI develops new products and sells its know-how to Chinese manufacturers that then launch the products commercially. The products developed by CPRI are over-the-counter drugs that have been chemically synthesized or extracted from traditional Chinese medicine. The company runs an animal house with dogs and rats for its testing.

Since 1997, though, when the clindamycin plant earned FDA approval, most of CPRI's profits have been from sales of active pharmaceutical ingredients rather than from its traditional research business. The company's current site, almost within the city proper, has become too small to accommodate its manufacturing ambitions. Fu says CPRI is building a plant near Chongqing city that is 10 times larger than the current one. The new center will produce a range of intermediates used to make drugs.

ANOTHER COMPANY that is moving out of metropolitan Chongqing is the Chongqing Xinhua Chemical Plant, a midsized producer of anatase titanium dioxide. The firm's plant is located about 10 minutes by car from the core business district of Chongqing, on a hill overlooking the Yangtze. Oddly, the company is owned by the Yuzhong district of Chongqing, home to the central core of the city. The company's current capacity of 6,000 metric tons per year will be expanded to 10,000 or 15,000 metric tons when the relocation is completed by early next year.

Liu Yuan Jun, the company's manager of foreign business, says local authorities are eager to redevelop the land for residential or commercial use. Moving will be relatively easy. Xinhua will sell the land to the government and use the money to build a larger plant at a new site about 125 miles away. The city will pay for the dismantling of the plant and the cleanup of the site.

As part of this process, Xinhua will turn private and will likely be owned by its employees.

Anatase titanium dioxide, Liu says, is produced mostly by relatively small companies like Xinhua. The production technology is quite old, and margins are slim. Xinhua, he says, has several longtime customers, about two-thirds of whom are in China. "Our quality is slightly better than that of other companies, and our customers trust us," Liu says. In 1999, Xinhua began selling to foreign customers directly rather than through trading companies. Xinhua now handles about half of its foreign sales, Liu says.

A tour reveals that Xinhua's facilities are in poor shape. "As you can see, it's about time we should move," Liu notes in a tone that signifies that all is as it should be. He says pollution is under control, as the company has invested in equipment to clean up its air emissions. A naturally jovial and engaging person, Liu insists that injuries are rare at Xinhua, even though workers stand without any protection next to heavy moving machinery.

Safety, like many things in Chongqing, still requires improvement. But this is something that local decisionmakers here are well aware of. A brief look at construction sites throughout the city shows that progress is being made. At CCPHG, Wang Ke, the right-hand man of the firm's chairman, Miao, is upbeat about the future. "Come back in two years," Wang says.

MORE ONLINE

Read more about China's growing chemical industry as Jean-François Tremblay travels down the Yangtze River. His travelogue is available on C&EN Online, http://www.cen-online.org/china/index.html