Chongqing, China's western metropolis, balances on economic tightrope

03 Jul, 2005

This far upstream the brown water of the Yangtze seems to be hardly moving at all, but on the banks of the river a city the size of a small European country is frantically remaking itself. Chongqing, 1,000 kilometers (625 miles) inland, is taking advantage of a five-year-old government policy to lift economic growth in China's underdeveloped west, and has turned itself into one giant construction site, filling the air with dust and impenetrable noise.
"It's become an entirely new place during the four years I have lived here," says Yi Hui, a film school student from nearby Chengdu, a city of roughly similar size, but with a completely different laid-back atmosphere.
"The pace of change here is just so much faster than at home in Chengdu," he adds, with an envious shrug.
With 32 million people, the municipality of Chongqing is by some measures ranked as the biggest city in the world, but most of its population lives in rural areas with only about six million urban dwellers.
Built on top of steep hills squeezed onto a narrow strip of land between the Yangtze and the Jialing River, Chongqing may have one of the world's oddest locations for a big city.
Isolated from the world markets and saddled with loss-making industry, its people until recently appeared destined to jealously watch their compatriots along the eastern seaboard move steadily towards rich-world status.
No wonder, then, that almost everyone in Chongqing has nothing but praise for Beijing's "Go West" strategy, one of the most ambitious development drives in the history of the world.
Unveiled in 1999 by then President Jiang Zemin and then Premier Zhu Rongji, it is a trillion-yuan (120-billion-dollar) endeavour to build roads, schools and factories to improve the lives of 300 million people who live in central and western China and so far have had little benefit from economic reform.
For many in 3,000-year-old Chongqing, the policy has been a historical one-off chance to escape from a cycle of poverty. Last year, the city's economy grew by 12 percent.
But half a decade after the strategy was inaugurated, questions have reportedly started to emerge in policy circles in Beijing if all the money has been well spent.
Observers have quoted sources in the National Development and Reform Commission as saying the return on investment for the western infrastructure projects has been unsatisfactory and money handed to the region is now being cut back.
A halt in the stream of money could spell disaster in Chongqing, where the policy has caused the infrastructure to expand at an astonishing speed and changed the lives of its people.
"We have started the same number of railroads in the past four years as in all the preceding 100 years taken together," says Wang Chongju, a leading local economist and president of Chongqing Technology and Business University.
"The number of expressways built recently is five times all the expressways built prior to the western development strategy," he says.
Yin Mingshan, one of China's richest men, waxes almost lyrical as he describes the great historical task he and other businesspeople are undertaking here in the remote west of China.
"The American founding fathers opened up the western hemisphere to the world," the 67-year-old industrialist says, stroking a globe on a table in his office.
"We're doing the same today, opening up the west of China to the nation," he says, using his forefinger to trace the path taken by early pioneers across the American continent.
The difference is the opening of the American west was based on private money and individual initiative, while China's campaign to develop its western provinces is largely a government-funded enterprise.
The bad news for Chongqing and the rest of western China is government money may soon become significantly scarcer. For several years now, fiscal policy makers in Beijing have issued large amounts of extra-budget bonds, earmarked for infrastructure investments especially in the west, but they are now in the process of being scaled down.
This year, the government will issue just 80 billion yuan (9.6 billion dollars) worth of bonds, down from 110 billion yuan last year and 140 billion yuan the previous year.
Local officials try to put up a brave face, arguing that the bond money will start flowing again in more ample amounts shortly.
"The reduction in the extra-budget bonds is a short-term phenomenon, meant to moderate the current over-capacity," says Wang from Chongqing Technology and Business University. "The long-term trend is for continued state investment."
If Beijing does indeed start to phase out "Go West", Chongqing might be asked to rely on its private sector, but that is not a feasible option, says Hong Lijian, an expert on western China at Australia's Monash University.
"The key issue here, I believe, is not whether or not Chongqing hopes to rely on private economy or government subsides, but rather whether or not private economy is a way out for inland cities like Chongqing," he says.
"The road to success for China's east coast may not be suitable for an inland city with quite different human, cultural and physical environment."
Another difference with the east coast is that it is hard to find much in Chongqing that foreign investors can genuinely be excited about, according to Hong.
"The lack of skilled labour, the low purchasing power of local consumers and enterprises, and above all the awkward location of the city make it a tough sell to foreign investors," says Hong.
"The city as a whole, its out-dated industry, its defence industry culture and most importantly, its geographic location make it difficult to attract foreign investment," he says.
"And without that, no Chinese city can repeat the success of the cities on the east coast."
Already now, trade patterns suggest where the city's natural overseas markets are.
Chongqing's most important export items are cars and motorbikes, which fill the streets of large cities in nearby Vietnam and Thailand.
It is mainland Southeast Asia - not the super-rich western economies or Japan - which is likely to be the destination for products made in Chongqing for a long time to come.
Yet Chongqing may have hope because it is too big and too prominent to be allowed to fail, argues David Zweig, a China watcher at the Hong Kong University of Science and Technology, who is currently conducting research in the city.
"It's a municipality now, and I think they want to see this succeed," he says. "They're not about to let it fail."

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