Shaanxi faces challenges as it seeks to diversify economy

Shaanxi province's GDP was 1.44 trillion yuan ($231 billion) in 2012, showing an increase of almost 15.5 percent from 2011.

It is a province of less than 38 million people, so its per capita GDP was 36,800 yuan, ranking 14th among 31 provincial-level divisions of the Chinese mainland.

At the top of the list, Tianjin municipality reported a per capita GDP of 95,000 yuan, followed by Beijing, with 88,100 yuan, and Shanghai, with 85,600 yuan.

Zhang Xiaoguang, spokesman for the provincial bureau of statistics, was proud to announce in January that it took only two years for the province's per capita GDP to rise from $4,000 to about $6,000.

Of all the traditionally agrarian central and western regions, Shaanxi trailed only the mineral-rich Inner Mongolia autonomous region, at 64,500 yuan, and the mega-city of Chongqing, at 39,200 yuan.

The city of Xi'an, with a population of about 8 million, reported its citywide GDP as 436.9 billion yuan, or 30 percent of the province's total.

In terms of speed, despite the provincial capital's advantage in skills, Xi'an was overshadowed by the rapid development in energy resources in formerly poor northern Shaanxi towns.

That was exactly what the provincial officials are worried about - too much dependence on the development of energy and resources won't help, and may even threaten, the local economy's prospects.

Zhang, the statistics official, said that in 2011, the average profit rate in Shaanxi's energy and resource industries was above 40 percent, driven, among other things, by a major rise in the price of coal.

But in 2012, because of a drop in energy prices, their profit rate tumbled to an average of less than 7 percent.

"Such growth as we presently have, based on such a configuration of local industry, is hard to sustain unless we change our way of development," the official said.

And the direction of the change is a tall order. His message to Shaanxi was, basically, stop chasing more energy, or even more industry.

The service industry, which accounts for less than 35 percent of the province's economy, will have to expand. And that means competing head-on with the more sophisticated cities near the coast, including Beijing, Shanghai and Shenzhen.

Few hinterland cities can afford to do that. If Shaanxi can, it will be a major accomplishment. And to find out whether it can, one doesn't have to go any further than Xi'an.

In a survey in January about resources in higher education, Xi'an ranks second in the Chinese mainland, second to Beijing. The coastal city of Shenzhen is almost at the bottom, having only one-fifteenth the number of universities as Xi'an.

Xi'an does seem to have potential, if only it can give its educated population a bigger role.

If it can do that, then Shaanxi will set an example for the Chinese hinterland and frontier regions - make a dogged effort, continue to spend on education, tolerate small companies, and one day you will see investors come, and keep coming.