Chongqing's economic growth starting to look like an illusion

In November last year some of the biggest figures in the world of private equity gathered in the Grand Hyatt hotel in Wan Chai to discuss the future of their business.

But although they were meeting in Hong Kong, many of the assembled billionaires had another city on their minds, one where a dynamic economy and an obliging government promised the sort of double-digit returns that really get private equity barons salivating.

In five years' time, gushed Jim Coulter, co-founder of US private equity giant TPG, the industry's leaders wouldn't be meeting in Hong Kong, but rather in Chongqing, because that's where the most compelling investment opportunities would be found.

To a certain extent, Coulter was simply talking his own book. TPG opened a Chongqing office in 2010 and announced the establishment of a 5 billion yuan (HK$6.1 billion) fund set up in partnership with a Chongqing government investment company. Still, he had plenty of eager listeners.

Chongqing has been widely touted as an up-and-coming manufacturing centre in recent years, cheaper than China's pricey coastal provinces, but still connected to the rest of the world. Investment in the municipality's factories and infrastructure has shot up, and Chongqing's exports to foreign countries doubled in 2011.

As a result, Chongqing municipality grew faster than all the mainland's provinces last year, recording gross domestic product growth of 16.4 per cent (see the first chart). And that performance was no flash in the pan. Over the past five years Chongqing's annual growth has averaged 15.8 per cent, a rate topped only by the booming coastal municipality of Tianjin and Inner Mongolia, which is enjoying a commodity bonanza.