What really happens when Chinese investment goes bad, and is there any way out of the hole?
Caofeidian’s grand plan resulted in abandoned buildings and massive debts, now it’s betting on logistics and hi-tech and green industry
Pedestrians are seldom seen in the central business district of Caofeidian, about 200 km east of Beijing, and cars are equally rare on its four-lane roads.
Eleven years ago, Caofeidian, part of the Hebei city of Tangshan, was touted as the answer to Beijing’s pollution problems ahead of the 2008 Olympic Games. But its investment boom ended abruptly in recent years, leaving behind unfinished buildings and massive debts.
With government endorsement, implicit or explicit, banks are willing to continue to lend to poorly designed projects
It’s now pinning its economic hopes on a regional synergy plan but needs to tread carefully to avoid repeating the mistakes of the past.
Sun Lijian, vice-director of Fudan University’s school of economics in Shanghai, said that while lower labour costs were an argument for moving factories to Hebei, relocation was not the ultimate solution.
“If there’s a lack of demand for the goods produced in Hebei, then those plants will be wasted and the enterprises will give up on Hebei and leave,” he said.
The rise and fall of Caofeidian can be viewed as a case study of China’s disordered investment boom, when it boasted economic growth rates that were the envy of the world but which came with hidden risks. And its future, the successes and the setbacks, is likely to mirror the urbanisation process of the world’s second-largest economy.