A Rapid Beat in China's Heartland

Beijing is pouring huge sums into rural areas, but if the pace of change is too fast, today's boom may well be tomorrow's bust

By Mark Clifford

In trying to answer the riddle of where China will go over the next decade, one of the biggest puzzles is what's happening in the nation's interior. Most reporters spend our time in the big cities of Shanghai, Beijing, and Hong Kong, with the occasional foray to regional centers such as Qingdao or Kunming. But with 900 million people living in the Chinese countryside, we run the risk of missing what is happening in China's heartland.

Turns out a lot is afoot, if a recent visit to rural Chongqing is any indication. Chongqing is a large area -- about the size of South Carolina or the Czech Republic. Put another way, it's three times the size of Belgium. The central government calls Chongqing a self-governing municipality, one of four in the country, though it's more like a province. (The self-governing municipality moniker, which it shares with Beijing, Shanghai, and Tianjin, gives it more political clout.) Two-thirds of its 31 million people are peasants.

It's clear, though, that change is coming to Chongqing. The government is pouring buckets of money into the territory as part of an effort to develop the western part of the country. In all, state plans call for an investment of nearly $200 billion by 2010.


  The money is already trickling down to the small cities and farms around Chongqing. "The 'Go West' policy is a big benefit to us," I was told by Guo Ruqi, the Communist Party secretary in Jiangjin, a town with 1.45 million residents 26 miles (42 kilometers) south of downtown Chongqing. Guo points to new roads, power, dikes, and telecommunications investment in his mostly agricultural county and says more is in the works.

Mindful of the competition that China's entry into the World Trade Organization will bring, Guo has been encouraging farmers to switch out of low-value-added crops like rice and into oranges, pears, and vegetables for the booming local market. Colorful nurseries now dot the county roads. Rice made up 80% of farm income in 1998. Guo says that's down to 50% now. He adds that Agriculture Ministry officials from Beijing recently visited the county to see if its success can be replicated elsewhere.

Guo eagerly courts foreign investors. Visitors receive a glossy book listing more than two dozen projects in need of private investment. On offer are everything from a toll road to a motorcycle-component venture. Guo's biggest catch so far has been the takeover of the aging Di Wei cement factory, the county's biggest employer, by Hong Kong's TH Group. Di Wei is one of three Chongqing cement plants in which TH has invested $100 million.

TH is upgrading facilities and increasing productivity but has promised not to lay off workers. With all the infrastructure spending, TH's business is booming. "We see growth opportunities in Chongqing," says managing director Paul S. P. Tung, who hopes to snap up other state-owned cement factories in the region.


  On another day, heading north from downtown Chongqing, I found much the same spirit of can-do optimism when I spoke with Wu Daofan, the 39-year-old mayor of Hechuan. Wu, like Guo, has the task of making China's policy of developing small cities a reality. Two-thirds his county's 1.5 million residents are peasants. By the end of the decade, half to two-thirds of the population is supposed to be living in towns or cities -- part of a national campaign to move more people off farms.

All this change is going to mean lots of work for the construction industry. To help speed the process along, Wu says he's cutting red tape. The time needed for approval of real estate projects fell from 200 days a decade ago to 100 days last year. Now, he's trying to cut it to 70 days. "The most important thing for a city is to improve the development environment," says Wu.

The financial picture in Hechuan is mixed. Tax collections are low, reflecting a problem common throughout China. The county is running a big deficit, largely because it funded a $338 million spending program last year. Indeed, to build a bridge, Hechuan had to borrow $3.6 million from the TH Group.


  However, many signs point to growing affluence. Wu, for instance, found the money to build his pride and joy: A towering new 30,000-square-meter (about 300,000 square feet) municipal building that he'll move into in January. Behind it, he plans a 30-story office complex. Across the impressive boulevard in front of the town hall, a massive square is under construction. A $100 million, four-star hotel is planned for the far side of the square, with an underground shopping mall beneath the square. The overall design was done by a Shanghai design firm at a cost of almost $100,000, reflecting a desire to avoid the unplanned development that has plagued many Chinese cities.

Even with all the projects going on, I couldn't quite see how Hechuan was going to support that many new stores. But Wu proudly told me that a new shopping street across town that only opened last year racked up almost $50 million in retail receipts in its first 12 months of operation.

After talking to Wu, Guo, and others, I was struck by the dynamism of many local officials. From a distance, it's easy to deride these people as incompetent, corrupt, or worse. But the men I met have grasped many of the big changes going on in China and are doing their best to help change along with the nation.


  Still, I wonder if the seeds of yet another real estate bubble aren't being sown. From a distance, China's stunning development over the past two decades looks nothing short of miraculous. But it's a development process that has been punctuated by periodic frenzies of overbuilding that left a legacy of underused projects and bad debt.

It would be nice to think that Chongqing can avoid these excesses, but history suggests otherwise. China's forced-march development pattern may all work out over the next decade or two. Along the way, however, the country may experience a sort of bulimic pattern of excess and purging.

Clifford is Hong Kong bureau chief for BusinessWeek. Follow his China Journal column every week, only on BW Online

Edited by Thane Peterson

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