November 26, 2007 -- US hedgefund, Chilton Investment, is set to open an office in western China. The company announced on November 18 that they are planning on opening a research office in Chengdu.

"The next 10 years will be about the western cities," Richard Chilton Jnr, the company's chairman and chief executive said in a statement.

Chilton views western China as a region with huge growth potential, but the Chengdu office will not be their main source of operations. The hub of Chilton's Asia operations will be their Hong Kong office, which opened in July of this year. The company also plans to open an office in Beijing later this year, pending approval by the Chinese government.

"A lot of foreign money is looking at China and the coastal area, the eastern market, is already occupied by the huge heads. The western area is under exploited," Marco Ma, project officer of the international department of Chengdu China Council for Promotion of International Trade (CCPIT), told Emerging China. "The eastern area is already full, so the rest of the money seeking to invest in China is coming to the western area. And Chengdu is the leading city in western China."

In their press release, Chilton said they believed the Western China region has tremendous growth potential but is currently underserved by investment specialists.

Chilton is not the only hedge fund company looking outside the big cities.

"The business of a hedge fund is to look at alternative investments," Andrew Miller, managing director of Asia for Xinhua Finance, told Emerging China. "I think it is safe to assume that hedge funds have been active outside of the main cities for many years. Even though they may base themselves in Beijing or Shanghai, they are not limiting themselves to those areas."

Setting up a research office outside China's major cities comes with several advantages. There are lower expenses and plenty of research resources. There is also the potential tax incentives provided by the local government. In western China, the infrastructure is on par with those of developed cities. Most importantly, there is an abundance of companies outside the major cities. Proximity to companies based in western China will likely work to Chilton's advantage; the company will be better positioned to find quality companies operating with limited visibility in the investment community.

It will take manpower and plenty of due diligence to properly research those companies. Company visits will be very important, as well as knowledge of the Chinese accounting system.

"There are 1400 companies listed on two stock exchanges [in China]," said Miller. "But there are millions of companies here. We have a database of 250,000 private companies and we know some investment companies are subscribing to these data to find the next gems, to find out where they are, who they are, and what are their finances."

Chilton is based in Stamford, Connecticut. The company will be looking at investments in western Chinese companies listed in Shanghai, Shenzhen and Hong Kong, as well as privately held firms.