Shantou's building binge

PUBLISHED : Tuesday, 03 February, 2009, 12:00am
UPDATED : Tuesday, 03 February, 2009, 12:00am

There was a time when the Shantou Waisha Airport in eastern Guangdong was one of the busiest in the country. These days, travellers taking off or landing at the facility often find their plane is the only one on the tarmac.

Shantou was one of the first special economic zones and at its peak, in 1995, its airport moved 2 million travellers a year and ranked 13th in passenger traffic and 15th in cargo handling among the mainland's then 139 airports. Back then, the airport boasted direct flights to 39 domestic and five overseas destinations, including Singapore and Kuala Lumpur.

But, in just over a decade, Waisha's passenger numbers have halved and the number of cities serviced has shrunk, too, to just 21. Today it no longer ranks among China's top 50 airports and operates at a third of capacity.

The airport's decline is all the more stark considering the mainland has the world's fastest growth in civil aviation. Anecdotal evidence suggests that, unlike other booming coastal areas, Shantou never recovered from the Asian financial crisis of the late 1990s.

Nevertheless, the city is now in a rush to build a new airport and several other big infrastructure projects as municipal officials try to grab a slice of the massive investment package the central government unleashed in response to the global economic slump.

Shantou's is just one of dozens of lower-level authorities across the country seeking to cash in on Beijing's spending bonanza, a planning frenzy that has reignited concerns about runaway corruption, extreme waste and the heavy price the public could pay.

Immediately after the central government unveiled its 4 trillion yuan (HK4.54 trillion) stimulus package to build roads, railways and other infrastructure, lower-level governments began crafting their own, even more ambitious, plans. In all, 28 provincial-level regional governments came up with pump-priming plans at a total cost of 29.23 trillion yuan - more than the gross domestic product for the entire country in 2007 and more than twice the country's fixed-asset investment for that year.

Guangdong alone pledged to spend some 2.3 trillion yuan over the next five years on various projects. Most are due to be implemented by 2010 but mainland media report that the 12 top provinces in terms of GDP size will be able to 'receive approvals or start work' on projects totalling 1.5 trillion yuan 'within 100 days'. That puts Guangdong on top of the list and works to Shantou's benefit.

The new Shantou airport - along with several other projects - were approved in the middle of last year, before the central government's stimulus package was announced, but they are now listed as top priority.

In addition to the airport, Shantou plans to build another cross-sea tunnel to add to the city's two existing tunnels, which have been underutilised and operated in the red for many years until the recent boom in private car ownership. Also on the list is a 9.2km-long maritime bridge linking the city with Nanao Island, an impoverished county of fewer than 40,000 people, relying on handouts from the central government.

In 1995, the city built its first maritime bridge, the Shantou Gulf Bridge, the mainland's first modern long-span suspension bridge. The bridge had almost no traffic but, almost immediately, city officials decided to build a second, parallel structure, the Shantou Queshi Bridge, just a few kilometres away.

Hong Kong billionaire Li Ka-shing's Cheung Kong infrastructure unit was majority shareholder in the Gulf Bridge development and the structure was touted as the city's gateway to Shenzhen and Guangzhou, and the heart of the booming Pearl River Delta region. Both city and Cheung Kong sources said there had been an understanding between the two that the city should not build a second cross-harbour bridge until the first one was fully utilised - but local officials went ahead, anyway.

The Queshi Bridge is a bridge to nowhere. It connects the decaying urban area and the poor rural county of Chaoyang. To make up for the shortfall in income, the city government decreed that every car owner had to pay a compulsory annual fee of about 1,000 yuan for the Queshi Bridge, even though many never used it.

The result is that motorists now use the Queshi Bridge to avoid paying the tolls on the more convenient Gulf Bridge, which links up with the city's newly developed affluent urban district. 'My family and I never used the Queshi Bridge before the government imposed the annual charge,' said one Shantou businessman whose family has five cars. 'But with the compulsory charge, I, just like many other drivers in the city, have to use the bridge despite the inconvenience and the longer distance to get to the expressway.'

Many other drivers had similar complaints, describing the municipal government as thuggish for its blunt implementation of the fee.

Meanwhile, in Jieyang county , which borders the city, municipal officials have earmarked 3.7 billion yuan (HK$4.2 billion) for a new airport to serve Shantou.

Officials said the Jieyang Chaoshan Airport would be completed by 2011 and be five times bigger than the old one. It would mainly cater to the expected growth in traffic between the mainland and Taiwan, as well as passengers to and from Southeast Asia.

In their feasibility report to the central government, officials argued that a new airport was needed because annual passenger numbers would reach 5 million in the next decade, outgrowing the existing airport's 3 million capacity. 'Such feasibility reports are often deceptive and designed simply to get through the official approval procedure,' said Cao Qiong , a professor of economics at Shantou University's Business School.

In their previous feasibility report to the central government, in 1998, Shantou municipal government predicted annual passenger traffic would reach 4.8 million in 2005, 6.3 million in 2008 and 7.1 million in 2010. The airport actually handled 800,000 passengers in 2005 and 1.09 million last year.

Wang Xiaolu , deputy director of the non-governmental National Economic Research Institute, said the projects were economically and socially inefficient, and corruption could have been a factor.

'Local governments simply want projects, regardless of economic and social efficiency. The are both politically and personally motivated to go ahead with the spending spree because investment enables them to not only score politically by boosting economic growth, but also allows them to skim for personal gain,' Professor Wang, a specialist in corruption economics, said.

He said that, while Beijing's old-fashioned, centrally directed stimulus package would help the country weather the downturn, at least in the short term, the central government should focus on encouraging market-oriented investment from the private sector.

Some economists said the package was certain to result in more underused power plants, empty airports, deserted highways, vacant buildings and non-performing bank loans.

They said the investment drive risked fuelling a surge in the kind of corruption and waste seen in the last major pump-priming exercise, which came in the aftermath of the 1997-98 Asian financial crisis. Back then, the trillions of yuan spent on roads resulted in the arrest and investigation of more than half of the country's road construction chiefs.

Ha Jiming , the chief economist at China International Capital Corp, said the campaign reminded him of the Great Leap Forward, Mao Zedong's campaign to mobilise the whole nation to produce steel and grain.

In a report for the Carnegie Endowment Policy, Minxin Pei said mainland corruption was concentrated in sectors with extensive state involvement.

Professor Pei said that an estimated 10 per cent of government investment was used as kickbacks and bribes, or simply stolen.

Municipal officials declined to give details about the sources of funds for projects, but the city apparently cannot afford to waste money because it is running average annual deficits of 2 billion yuan and, at times, it has struggled to pay civil servants' salaries.

The city's parlous finances over the past decade have not stopped the local government building three luxury complexes to house the municipal government, the Communist Party Committee and the local legislature, the People's Congress. In many cities, they are housed in a single building.

Unconstrained spending and widespread corruption bankrupted the city government-owned bank, the Shantou Commercial Bank, in 2001 after racking up about 6 billion yuan in bad debts. Local officials said the bank operated as the government's cashier.

Professor Cao said that these projects would mean more debts for the local government because it would not get back the cash it spent. 'It will only be repaid by their descendents,' Professor Cao said.

In a recent speech, Xia Bin , finance chief at the Development Research Centre, a top think-tank to the cabinet, warned that the risk of many local governments going bankrupt as a result of reckless spending was the most severe challenge facing the nation.

He also said that officials should think about developing labour-intensive industries rather than capital-heavy infrastructure projects.

Many economists said that promotion of job growth and private consumption through efforts to revive small and medium-sized businesses was the healthiest and most workable solution to the nation's economic woes.

'Instead of investing tens of billions of yuan on a single infrastructure project, governments should consider using them to invest in hundreds of labour-intensive industrial projects which would be more meaningful to achieve the goal of maintaining growth,' Mr Xia said, referring to the central government's pledge to achieve 8 per cent growth for 2009, to create enough jobs to maintain social stability.

Professor Wang said there was one answer to the wholesale corruption and waste in the public sector. 'What we need now is to speed up the construction of a fiscal system with high transparency to stop corruption and increase efficiency,' he said.

'All public spending and public projects should be under the public spotlight and scrutiny, something lacking on the mainland.'