China Looks to the Chongqing Model

The Economic Observer looks at how Chongqing has managed to continue growing at double digits while the rest of China slows. Debt levels have fallen in the past two-and-a-half years, but revenue growth is exceeded by spending growth and the city had very high debt levels from prior years of borrowing. Use of equity financing and a focus on emerging industries are positive factors. Real estate investment has remained elevated.

EO: 第三方解密:重庆这两年做对了什么
Financial level, the financial situation of Chongqing good, low debt levels. Chongqing public annual general budget revenue growth of 12.1% over the previous year, higher than the national average of 8.4%; the general public budget expenditure increased by 14.8%, lower than the national average of 15.8%. The Chongqing government fund revenue decrease of 9.6%, better than the national average. From the debt balance, the national debt balance only Chongqing and Hubei in two and a half years decreased rather than increased, the average debt balance decreased by 7%; from the government bears the responsibility to repay the debt / GDP indicators, the 28 provinces Debt / overall GDP rise only debt ratio Chongqing, Hubei and Beijing fall, Chongqing 21.7%; / (+ local public revenues and the return of the central and local government subsidies + fund revenue) from the government bears the responsibility to repay the debt indicators look, the national average of around 100%, the lowest rate of debt in Chongqing, was 59%.

...Dispelling Chongqing stock of debt in the investment and financing platform plays an important role: (1) major investment and financing platform with large land reserves, as a platform for economic activities provide potential sources of funding; (2) government authority for investment in the field of financing relative concentration , the main shareholder in Chongqing SASAC, avoiding coordination problems caused by decentralization; (3) relatively good land can resolve the debt situation in Chongqing external conditions. However, with the long-term downward trend in the real estate market, the government fund revenue fell significantly, by transferring land reserve loan repayment model is not sustainable.

...Meanwhile, the state-owned reform program in Chongqing to leveraging the stock, the incremental introduction of open projects as the main way to the overall market as the basic path to diversified equity group level, focusing on promoting the development of the vast majority of state-owned enterprises mixed ownership business, leveraging social capital is conducive to promoting state-owned, private capital, foreign mutual ownership, integration and development, achieve debt shunt, thereby reducing corporate assets and liabilities.

Excess capacity is manageable, emerging industries are flourishing

On the one hand, and strictly control the scale of excess capacity. Chongqing strictly limited excess capacity and high energy-consuming, high-polluting enterprises and financial support programs to effectively curb the excessive growth of building materials, steel, high energy-consuming industries. From the data to test the eight industrial overcapacity industry revenue accounted for the proportion of total revenue, the Chongqing is about 10%, the proportion is relatively low, but the cement production capacity to the problem is still severe. Meanwhile, Chongqing Control "excess capacity" is not limited to traditional industries and backward production capacity, for strategic emerging industries and even the financial industry, but also pay attention to prevent the supply does not match demand caused overcapacity.

On the other hand, automotive electronics and emerging industries to flourish. 2015, Chongqing Automobile and electronic lines added value growth rate were 14.8% and 24.6%, respectively contribution to industrial growth rate of 49.8%. Chongqing launched ten strategic emerging industry development plan, it has formed two rivers (the core foundation of electronic components, high-end transportation equipment), Yongchuan (robotics and intelligent equipment), Fuling (shale gas) and other strategic emerging industries concentrated area. Meanwhile, Chongqing service industry structure was further optimized. Modern financial services sector grew faster than trade in services and general services. The city's financial industry realized an added value of 141.018 billion yuan, up 15.4 percent over the previous year, accounting for 9.0% of the gross regional product of the city.

Local debt exchange and financing policy

The stock of debt mainly through local financing platform for the bank loan or trust formed by accumulation, poor mobility, higher financing costs. 2015, Chongqing local government bond substitutions reached 82.4 billion yuan, the average interest rate over the same period bonds rather, part of the county high interest, short-term debt for low-interest, long-term debt, reducing annual interest of more than 40 billion yuan in the construction of security project finance and capital chain is not broken.

By the end of 2015, the city's government debt 337.9 billion yuan, slightly lower than the State Council approved the government debt limit 341.2 billion yuan, reduced to a high-risk districts, the city's government debt risk overall control. In addition, Chongqing obtain financing 12.6 billion yuan of policy, support urban shantytowns and key projects demolition, increased business and social mobility of low interest rates.

Chongqing Why maintain stable rates?

Chongqing real estate development and investment growth rate has maintained rapid growth. 2015 national real estate industry, GDP growth was 3.8%, Chongqing 5.5%; national real estate development investment in growth of 1%, Chongqing 3.3%, both at a high level. At the same time, Chongqing prices are relatively stable in the low volatility, in February 2016, the National 100 cities in new housing price index rose 5.25%, the number of cities rose up to 40, and as one of the municipality of Chongqing fell Rates 2.57%. Chongqing Low Rates phenomenon can be analyzed from the "ground ticket system" and the protection of housing system.
The article is quite long, the above is less than a third of it.

Related: State Council fosters city cluster around Chengdu and Chongqing
Encouraged by the clustering effect of some of the country's coastal industrial towns, the Chinese central government has decided to build the Chengdu-Chongqing city cluster as a new economic power engine in the country's inland areas. In this Policy Review page, economic advisors suggest that proper coordination and cooperation will be needed to make the clustering program really work to replicate the success of the cities.

As for Chongqing's debt:

SCMP: Chongqing banks face pressure on finances as fiscal reform plan gets underway
Local banks in the southwestern municipality of Chongqing are facing heavy pressure on their finances as a result of having to buy some 150 billion yuan (HK$179 billion) of local government bonds as part of an ambitious fiscal reform programme.

WSJ in 2012: Behind a Chinese City's Growth, Heavy Debt
"I don't think it would be a stretch to say that Chongqing local government, state-owned enterprises and state-owned developers collectively owed 1 trillion yuan at the end of 2011," says Victor Shih, an expert on China's local-government debt at Northwestern University. That estimate, based on Mr. Shih's own look through the records of Chongqing's financing vehicles, would put local-government debt in Chongqing at 100% of gross regional product, far higher than the 22% level for China as a whole, according to numbers from China's national audit office.

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