In China, political ambition comes at a monumental cost

TIANJIN, China Mon Nov 5, 2012 10:51am IST

Residents fish with nets on the banks of the Hai River in Tianjin's Binhai New Area, where the government is building its Yujiapu financial center October 23, 2012. REUTERS/Michael Martina

Residents fish with nets on the banks of the Hai River in Tianjin's Binhai New Area, where the government is building its Yujiapu financial center October 23, 2012.

Credit: Reuters/Michael Martina

Related Topics

TIANJIN, China (Reuters) - Dong Zizhou casts his fishing net from the shore and fixes his gaze on a stand of 15 unfinished skyscrapers rising like concrete skeletons beside the Hai River, heralding China's ambition to develop the world's largest financial centre.

The towers in Tianjin's Yujiapu Financial District, and two dozen others on the opposite side of the river, are monuments to the transformation of this once-rundown northern city of 13 million into the country's fastest growing region last year.

They are also a testament to Tianjin's political boss, Zhang Gaoli, whose economic record has marked him out as a rising star of China's communist leadership, a leading candidate to join its supreme decision-making body, the Politburo Standing Committee.

But locals such as Dong, whose house was torn down to make way for the towers, have doubts that the vast sums of money being pumped into the project have been well spent.

"I look at this and it seems like the country is investing too much," Dong, a 62-year-old retired electrician, said as he used a winch to lower a wide, hooped net into the river's grey waters. "Everyone has a loan these days. But average people, we don't understand where this money comes from."

Many experts share Dong's scepticism.

For some of them, Zhang's investment drive in Tianjin is as much a political statement as an economic one - an example of the monumental cost of forging a political career in a one-party state where economic growth, not votes, is a measure of success.

In the past three years alone, the government has poured more than $160 billion into the development zone housing Yujiapu, almost three times the amount spent on China's Three Gorges Dam, one of the nation's most expensive projects.

Yujiapu, billed as China's Manhattan, helped Tianjin to record 16.4 percent growth in 2011, part of a successful tenure in the city that could see Zhang join the Standing Committee this month in once-in-a-decade transition.

"Zhang Gaoli, compared to his predecessors in Tianjin, is a relatively capable guy. And one way in which he is very capable is in getting money from the central government for big projects," said Zhang Wei, a Hong Kong-based economist and former Tianjin official.

But critics of Zhang Gaoli see Tianjin as typical of the kind of debt-financed infrastructure splurges that have succeeded in getting politicians noticed inside China's ruling Communist Party but have left behind mixed economic blessings.

They say Zhang, Tianjin party chief since 2007, has employed cheap state capital and high levels of debt to fund his goal of turning the port city into a global financial centre.

"The Achilles heel of the Chinese economy is free capital," said Minxin Pei, a professor of government at Claremont McKenna College in California. "Here you have a group of people who are making very big bets and they don't have any skin in the game."

"Getting a mega-project attracts attention," Pei added.

A VISIONARY?

However, other China experts applaud Zhang's economic vision, and suggest that political recognition of his efforts through promotion would not be misplaced.

"Things have changed so much since Zhang Gaoli came to the city. There is no doubt he has been a very significant player," said Dali Yang, a political science professor at the University of Chicago. "What we're talking about is really a kind of municipal entrepreneurship. Cities like Chicago and New York would not have been built without this."

For some economists, though, Tianjin is emblematic of China's over-reliance on investment to fuel growth.

Government data shows fixed-asset investment in the city accelerated at around the time Zhang took the reins, as it had done in eastern Shandong province from 2002 when he had taken over as party boss there.

Plans for Tianjin's Binhai New Area - the development zone encompassing Yujiapu - were on the books for years before Zhang arrived, but his reign has seen remarkable investment outlays.

In 2010, Tianjin ranked second among Chinese cities for fixed-asset investment with 651 billion yuan, just below southwestern Chongqing, which has nearly three times the population and its own bold infrastructure plans.

Chongqing's ex-party boss, Bo Xilai, had used the sprawling boomtown, which matched Tianjin's racy GDP growth rate in 2011, as a springboard in his bid to join the Standing Committee. Those ambitions were shattered this year in a string of dramatic scandals that saw Bo ejected from the party, accused of a litany of crimes and his wife convicted of murdering a British businessman.

After the scandals surfaced, Chongqing's finances came under the microscope. The municipality's latest available records, for 2010, show that 12 of its largest investment vehicles had racked up 363 billion yuan in debt, though analysts expect actual liabilities could be several times higher.

Unlike Bo, Zhang has avoided political theatrics throughout his career, kept his head down, crafted important allegiances and logged strong economic growth figures as he moved between top regional party posts over the past 15 years.

His climb has been quick but relatively inconspicuous - with the exception of his Tianjin investment drive, which is remarkable even by the standards of a nation that for nearly a decade has relied on investment for about half of its growth.

China's state audit office put total local government debt across the country at 10.7 trillion yuan as of end-2010, though rating agencies have said those numbers could under-report actual debt levels by as much as 3.5 trillion yuan.

Mao Yushi, a prominent Chinese economist who advocates for reform, worries that Tianjin's boom may end in a bust.

"GDP growth is one way of showing a record of achievement," said Mao, referring to party officials across China. "Another is through the construction of massive buildings, so-called image projects." However, he added: "These create a fuse for a future financial crisis."

PROPERTY GLUT

Plans for Tianjin call for a high-speed rail link to open in 2014, connecting the downtown area with Yujiapu nearly 50 km (30 miles) away, a distance that adds to concerns that the bold new financial hub could quickly become a glut of office space.

On the existing light rail, it takes an hour to cross the expanse of warehouses and urban sprawl, dotted with hand-picked cotton fields and hundreds of half-built residential towers.

"They (Tianjin officials) are hoping they will kick-start the market. If they get state-owned enterprises there, they may be okay. If they don't, they will be in trouble," said Michael Hart, managing director for commercial real estate at the Tianjin office of property consultancy Jones Lang LaSalle.

Tianjin is now planning for three financial services zones: one in the city's downtown, another at Yujiapu and a third just kilometres away from Yujiapu in what is called TEDA (the Tianjin Economic-Technological Development Area).

TEDA is putting the finishing touches on a development of office parks that, according to Jones Lang LaSalle, will have more office space than all of downtown Tianjin offers now. That will be followed in 2014 by the initial crop of 15 towers in Yujiapu, and another 1 million square meters of office space.

Binhai government officials did not respond to an interview request, and TEDA representatives declined to answer questions.

Cranes above Yujiapu were idle when Reuters visited last month and the construction site was quiet, with only occasional cement mixers driving the muddy alleys between the towers.

Tractor driver Zhao Wenxi, 47, said some buildings had not been worked on in months. "It seems their funds aren't stable," he said, adding however that he wasn't worried about his job.

"The central government is behind this project."

POWERFUL PATRONS

Pei, the professor at Claremont McKenna College, said a record of strong GDP growth was required for promotion but that other factors, such as political affiliation, loomed larger as politicians reached the top rungs of power.

"You must put an asterisk next to it. If you have a powerful patron, poor performance will not be a hindrance," Pei said.

For example, experts say leader-in-waiting Xi Jinping could not have soared so high without wide factional support. But Xi's earlier career is paved with growth, having spent two decades in the booming eastern regions of Fujian, Zhejiang and Shanghai.

Research also suggests a stronger link between GDP growth and official promotion at provincial levels than elite levels.

Though a recent study published by the American Political Science Review challenged the link between growth and promotion, especially for elite leaders, it also found that tax revenues were a major indicator of advancement at lower rungs of power.

For Zhang Wei, the Hong Kong-based economist, this link between tax revenues and promotion actually suggests that GDP growth does indeed play a significant role in promotion.

"Where does that money come from? It comes from tax. Where does tax come from? GDP growth," he said.

(Additional reporting by Hui Li; Editing by Mark Bendeich)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Iraq

REUTERS SHOWCASE

Ukraine Crisis

Ukraine Crisis

Ukraine rebels say they are poised to recapture Donetsk airport.  Full Article 

Pakistan Turmoil

Pakistan Turmoil

Pakistan parliament backs embattled prime minister as crisis deepens.  Full Article 

Best Economy

Best Economy

Swiss economy most competitive once again; EU, U.S., Japan improve.  Full Article 

Fighting Ebola

Fighting Ebola

West Africa struggles to contain Ebola as warnings and deaths mount.  Full Article 

Beloved Leader

Beloved Leader

Venezuelan Socialist Party swaps God for Chavez in new prayer .  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage