Lower labor costs give Beihai an advantage in luring investment, but more emphasis must be placed on improving locals' living standards, Mundell says.

Water service and sewage treatment provider Veolia Water recenty signed a deal with the Beihai government to help it reform the city's water supply system and improve the quality of drinking water.

"To realize sustainable development, Beihai must protect its ecological environment - not only to benefit the local people, but also to bring more investors," Su Pei, chairman of Veolia Water Service South China Co Ltd, says.

In addition to environment protection, the Beibu Gulf Area will try to learn from the experience of the Yangtze and Pearl river deltas, the Shanghai Academy of Social Sciences' Wang says.

"Compared with the Pearl River Delta and the Yangtze River Delta areas, which have enjoyed a long history of manufacturing activities, the Beibu Gulf will take a new development approach. It will set up networks with support and service facilities to really enhance this gathering of technology and professionals," Yang Mo, a senior researcher at the National University of Singapore's East Asian Institute, says.

When Huike Electronic first settled in Beihai, it had to transport materials from Guangdong province, which pushed up its costs.

The company got around the problem by setting up its own projects in Beihai. But smaller producers did not have the resources to solve such problems on their own.

That situation is changing. The local government is helping companies to set up support projects and instead of trying to lure single companies to Beihai, it is trying to bring entire industry chains.

China Great Wall Computer Shenzhen Co Ltd is one example of this strategy. When the manufacturer settled in Beihai Industrial Park, the local government also brought in a batch of companies to support it.

Total investment from these companies, including Shenzhen Kuaixunda Machinery Co Ltd and Shenzhen Guangjutai Plastics Industry Co Ltd, exceeds 120 million yuan.

(China Daily September 22, 2008)