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The darkened halls of the Global Go shopping centre in Yujiapu district in Tianjin. Photo: Simon Song

Despite 104pc growth, China’s ‘Manhattan’ remains cautionary tale of economic zeal

A decade ago, officials embarked on a plan to turn a marshland in the port city of Tianjin into a world-class financial centre. Yujiapu has a high-speed rail, malls stocked with Japanese goods and luxury car dealerships. All that’s missing are people.

Few places better illustrate the story of China’s growth over the last decade than Yujiapu district in Tianjin.

Officials hoped it would the mainland’s answer to Manhattan. A construction spree was unleashed in 2006 and dozens of skyscrapers grew out of the marshland. Some buildings are finished and partly occupied, some remain under construction, while others look abandoned.

A few signs of life are emerging – a high-speed rail station is running, cutting travel time to Beijing to about an hour. The district was given the status of a free-trade zone last year, allowing consumers to buy imported Maserati cars and Japanese napkins. Chinese businesses, from Turkish shisha vendors to software training organisers, are tiptoeing into the empty buildings.

An empty pedestrian area amid the skyscrapers of Yujiapu. Photo: Simon Song

But the area, which local authorities claim recorded 104 per cent economic growth in the first half, sits largely idle.

What happened in Yujiapu has been replicated thousands of times across China when local authorities allot land and funds to build towns where nothing existed, and expecting people will come. Up to May, the mainland had created at least 3,500 new towns and districts – enough space to accommodate 3.4 billion people and a morass of overcapacity and unpaid debts, according to Xinhua.

The first stage of China growth story is over
Larry Hu, economist, Macquarie Group

“The first stage of China growth story is over,” said Larry Hu, head of China economics at Macquarie Group in Hong Kong. “But it’s an open question whether China can move onto the next stage ... the old engines of property investment and exports are gone, but the new engines are still not visible.”

Hu said China might avoid a classic debt crisis or financial meltdown, but the risks of the “middle-income trap” are real if Beijing fails to chart a new path for growth.

Return to state planning or boost for market’s role: which interpretation of China’s supply-side economic reform is right?

The old engines had served China well. In the aftermath of the global financial crisis in 2008, China became the darling of the world by rolling out a big stimulus package and orchestrated a quick economic rebound, not only keeping domestic businesses afloat but also helping commodity booms from Brazil to Australia.
Construction continues on the east bank of the Hai River in Yujiapu. Photo: Simon Song

Between 2011 and 2013 , China consumed more cement than the United States did in the entire 20th century, but it’s clearly not sustainable.

“It means property investment, the biggest driver for growth, is fading, and that will create persistent downward pressure on growth,” said Zhao Yang, the chief China economist for Nomura in Hong Kong.

China announced on Friday the economy expanded 6.7 per cent for the April-June period in a sign of “stabilisation”. The rate was the same as the first quarter, but almost half compared to a decade earlier when Yujiapu’s construction boom began.

A distant view of skyscrapers in Yujiapu. Photo: Simon Song

The leadership under President Xi Jinping must keep the slowing economy on track while tackling structural issues. Through “supply-side” structural reforms, Xi aims to encourage lower level governments to reduce property inventory and close redundant industrial capacity. But he has also made it clear annual economic growth shouldn’t drop below 6.5 per cent through 2020 in order for the Communist Party to achieve its goal of doubling per capita GDP in a decade.

Without a proper institutional foundation, [market reform] is just another slogan
Wu Jinglian, economist

Xi has said the market will be given a “decisive” role in allocating resources, but also stressed state-owned enterprises should become “bigger, stronger and better”.

Wu Jinglian, an 86-year-old economist renowned for advocating market liberalisation, said in a recent public speech that China still lacked the institutional infrastructure for the market to play a key role. “Without a proper institutional foundation, [market reform] is just another slogan,” Wu told the China Economists 50 Forum on June 30. He said intrusive state intervention in development, although intended to optimise the country’s economic structure, could only make matters worse.

“There are doubts over whether the Chinese leadership has enough determination to conduct true market-oriented reforms,” said Li Wei, the China and Asia economist at Commonwealth Bank of Australia in Sydney.
The Yujiapu high-speed rail station has cut travel time to Beijing to an hour. Photo: Simon Song

An economic crisis is sometimes necessary to wipe out inefficiencies, but the government has no appetite for that, and Beijing’s repeated efforts to support growth is just “riding a tiger that it can’t get off,” Li said .

One hope is households will be willing to spend more and borrow more, since the household “leverage” ratio is lower than the government and corporate sectors. But as Chinese property prices push higher, investors are growing more cautious.

“It’s unrealistic to hope the public will have the money to buy properties,” said Ren Feng, a young Tianjin resident. “The economic situation is not good, and it’s certainly better to hold cash than to put it into risky property.”

An empty lot in downtown Yujiapu. Business registration doesn’t always translate into new output, an economist says Photo: Simon Song

Tianjin, home to 15 million people, is in a relatively better situation than many small towns and cities on the mainland. In nearby Beijing, state enterprises are in the midst of moving their headquarters to periphery urban areas to relieve overcrowding. Tianjin also enjoys privileges as a municipality – its free-trade zone pilot programme, for instance, is envied by inland cities.

In the first half of this year, Yujiapu and the Conch Bay area registered 2,800 businesses, according to local authorities.

A business moves its registration from here to there to seek preferential policies, but that’s not generating new output
Li Wei, economist, Commonwealth Bank

But according to Li, the competition among local governments to attract business is increasingly a “zero sum” game.

“A business moves its registration from here to there to seek preferential policies, but that’s not generating new output,” he said.

Liu Hongyuan, a 48-year-old migrant worker from rural Henan provincial countryside, was resting in the shadow of a bridge, gazing at the skyline. “I’ve been in the construction industry for nearly 20 years now, building high-rises in cities,” Liu said. “But sometimes I can’t help asking myself: what should China do when there are enough buildings and there’s no need for construction?”

This article appeared in the South China Morning Post print edition as: district’s 104pc Growth is A cautionary tale
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