URUMQI - China has worked out policies to transform two western border towns into key financial and manufacturing hubs connecting the country's inland areas with neighboring central and south Asian countries, particularly Kazakhstan and Pakistan, officials and experts say.

The State Council, China's Cabinet, announced in October a plan to set up two economic zones in the Xinjiang Uygur autonomous region. The move is expected to bring prosperity to the relatively poor Xinjiang and shift the country's opening-up strategy from focusing on eastern coastal regions to a more balanced approach that also emphasizes the land-locked west.

Kashgar, an ancient Silk Road town that borders Pakistan through the plateau of Pamirs, will become a regional logistics center, a financial and trading hub, and a key processing center for internationally traded goods, says He Yiming, head of Xinjiang regional government's commerce bureau. Horgos, a China-Kazakhstan border town, will focus on chemicals, farm products, machinery, pharmaceuticals, and renewable energy.

"The infrastructure will be essentially complete in five years, and the industries will take shape by 2020," He says.

The central government has drawn up ten favorable policies with the establishment of the economic zones in Kashgar and Horgos, ranging from tax exemptions, subsidized electricity and transportation, low-interest loans for infrastructure to development of better rail and air links with neighboring countries.

He Yiming says China and Kazakhstan will be connected by a new rail and road at Horgos in early December, and a China-Kazakhstan free trade center there is expected to start operation by the end of the year.

He says Xinjiang's economic zones will serve as a platform for the country's strategy to further open up to its western neighbors. In the near future, Kashgar and Horgos might even be on par with coastal boomtowns such as Shenzhen, the country's first economic zone set up in late 1970s, he added.

Xinjiang is a sprawling land-locked area that covers one-sixth of the country's landmass and holds rich oil and gas reserves. The central government pushed for the development of the region with most notably the introduction of an energy tax after the regional capital Urumqi suffered a deadly riot in 2009.

The authorities believe stability will come after the root cause of the unrest - poverty - is properly dealt with.

Wang Ning, an economist with the Academy of Social Sciences of Xinjiang, says some of the most "eye-catching" policies for Horgos and Kashgar include making Horgos an import point for automobiles and providing incentives for investors for industry development.

Investors are also drawn to the region by the cheap land, government subsidizes for fixed-asset investment, and the farm products processing enterprises, Wang says.

"We are mostly attracted by the government's offering loans at discounted rates and exempting qualified enterprises from business income taxes for five years," says Huang Peng, a senior consultant of a Canadian joint venture that is setting up a super mall in Horgos.

Officials say businesses are flocking to Xinjiang for investment opportunities.

"Xinjiang will be a large and promising market with the support of the central government and other provinces," says Gao Feng, head of Haida Corporation from Shenzhen.

But some investors say they hope policies can be more detailed and more favorable.

"The platform for investment remains narrow...but we expect the two economic zones can make some improvements in these areas," said a businessman with a Hong Kong-invested firm that has done research in Kashgar.