Beijing and northeast China are fast becoming areas of growing interest to international investors. Here we highlight some aspects of major cities including the capital itself and other regional centers, and consider the options for setting up business in this area.

While east and south China have developed primarily as export-based manufacturing centers, Beijing and northeast China represent two quite different aspects of China's macro economy.

The capital is of course China's brain, with the greatest political clout. This is where big decisions are made, and increasingly foreign companies are seeing the benefits of a base here, to be close to policymakers and to influence law making during the drafting stages. The city is also undergoing a renaissance and regeneration ahead of the 2008 Olympics, an event that could be a watershed for the country, marking the end of its first phase of "reform and opening up" begun a generation ago by Deng Xiaoping.

Equally, Tianjin, the second great metropolis of the north, is developing as the area's modern manufacturing base and most significant port. It includes some of the most important development zones in the region, notably Tianjin Economic-Technological Development Area (TEDA), and also has plentiful supplies of land and labor at reasonable costs.

Northeast China, on the other hand, is a region that has been rather "left behind" in the country's recent drive for growth. It was the national center of heavy industry and served as the engine for national reconstruction in the 1950s. At that time, China poured enormous resources from all over the country into the northeast to develop heavy industry, and products from the region were distributed to other regions under the planned economy.

In the early stages of "reform and opening up," Liaoning's GDP was twice that of Guangdong. Now Guangdong's is double that of Liaoning. The significance of the northeast fell back as the Pearl River Delta and Yangtze River Delta received greater government attention and financial support in the 1980s and 1990s, and the area gained the unfortunate epithet of "China's rustbelt."

For a region accustomed to functioning under a planned economy, the process has proved to be rather painful as it failed to adapt to new market conditions. Factories registered huge losses and went bust, workers lost the protection of corporate welfare, the so-called "iron rice bowl," and social problems ensued.

In 2002, the Central Government launched its strategy to revitalize the old industrial base of the northeast, using such methods as restructuring state-owned enterprises, technical upgrading and the introduction of more domestic and overseas investment. Like elsewhere in the country, industries want to move up the value chain, away from labor-intensive industries and into those that are capital and technology intensive.

China wants the northeast to become the country's fourth economic growth area after the Pearl River Delta, the Yangtze River Delta and the Beijing-Tianjin area. While old heavy industry does remain, during a tour of northeast cities in late 2005 we found flourishing modern development zones, slick new infrastructure and embryonic new industrial sectors. The northeast is changing fast, and more and more foreign investors are beginning to explore. Asian companies, notably from South Korea and Japan, have known of this region for many years, and European and U.S. companies are now discovering, or rediscovering, the northeast, too.

Chris Devonshire-Ellis chris@dezshira.com is a senior partner of Dezan Shira & Associates, Business Consultants www.dezshira.com