Summary of Key Points
This news article focuses on how local governments can foster new productive forces and overcome the challenges of transformation amidst declining land-based finances and a sluggish real estate market. Through an interview with Professor Zhao Yanjing, it addresses practical issues such as financial dependence on land sales, industrial homogenization, misaligned performance evaluations, and insufficient momentum for development. It proposes specific solutions that range from reducing ineffective investments and revitalizing existing assets to adjusting evaluation mechanisms and adopting the Hefei model. The core objective is to shift cities from a focus on "incremental expansion" to improving the quality of existing resources, while establishing a long-term approach to industrial investment and performance assessment.
Detailed Analysis
#### 1. Breaking Free from Land Sales Dependency: Reduce Land Supply First, Then Rely on Existing Assets for Growth
Problem: Local governments face a dilemma as they need to rely on land sales to fund essential expenditures like education and infrastructure while avoiding further stimulating the real estate market.
Professor Zhao's Solution:
- Cut Back on Ineffective Investments: As urbanization enters a transition phase with slower population growth, building more roads and industrial parks may not be cost-effective; such projects should be halted first.
- Reduce Land Supply to Increase Asset Values: By limiting new land supply, the value of existing properties can rise. This will encourage homeowners to invest in renovations and upgrades (e.g., installing elevators in older residential areas), thereby making up for any loss in GDP due to canceled projects.
- Create Markets for Future Revenue: Enable the trading of future earnings from existing assets (such as office buildings and industrial parks). For example, selling the rental income of a mall over 10 years can be used to repay debts or upgrade the asset. Only when assets gain value will debt ratios decrease; otherwise, more land sales may lead to further decline in property values and increased debt.
- Central Government Support: During the transition period, the central government should provide assistance by delaying debt repayment deadlines, swapping high-interest bonds for low-interest ones, or even purchasing bad debts to help local governments through difficult times.
#### 2. Avoiding Industrial Overcrowding: Focus on Unique Roles Rather than Blindly Competing in Popular Industries
Problem: Many regions compete in emerging industries like renewable energy and semiconductors, leading to overcapacity and waste of resources.
Professor Zhao's Solution:
- Investment is Inevitable: Cities rely on corporate taxes for revenue and employment; competing in popular sectors is a necessary step towards shifting from land-based finance to tax-based finance. Although waste is inevitable, not investing means being left behind. The key is to improve the ability to select worthwhile projects, such as those chosen by Hefei.
- Don't Rely on Property Taxes: While property taxes could replace land sales revenue, they won't generate much if there are no businesses in the city.
- Play Supporting Roles for Leading Cities: For instance, cities like Shenzhen can specialize in chip design while surrounding areas focus on packaging; Shanghai can develop finance services with related logistics industries. This vertical division of labor creates more sustainable and practical development.
#### 3. Avoiding Conceptual Development Without Real Results: It's About Risk Control
Problem: Economically weak regions invest in impractical projects like "quantum towns" or "low-altitude demonstration zones" without proper consideration.
Professor Zhao's Solution:
- Governments Are Also Part of the Market: When new industries emerge, it's normal for governments to follow suit. The focus should be on risk control:
- Learn from Hefei's Evaluation Mechanisms: Use funds for investment (rather than direct government spending) so that failures do not affect essential services.
- Stop Losses Timely: If an investment fails, liquidate it promptly to avoid further losses.
- Fundraising with Existing Assets: If land sales are limited, the government can use the increased value of existing assets (such as offices and land) to fund projects without affecting daily operations.
#### 4. Avoiding Copycatting Hefei's Model Without Success: Capital Is Key
Problem: Less developed regions often attempt to emulate Hefei's strategies but end up with poor outcomes, including the loss of state-owned assets.
Professor Zhao's Solution:
- The Core of Hefei's Model is Creating Capital: Hefei did not directly invest in companies like BOE; instead, it demolished old districts and built the Binhu New City, increasing land values and generating capital for investment. Without this asset appreciation, there would be no capital to support businesses.
- Lack of Asset Value in Less Developed Regions: Developed regions have higher-valued assets, allowing for more failures without significant consequences. In less developed areas, local assets must first be enhanced (e.g., by improving infrastructure and attracting population) before taking risks with investments.
- Don't Fear Failure: Investment is like drilling for water; not every attempt will succeed, but multiple attempts increase the chances of finding success. Hefei's investment in Changxin resulted in a 9-year loss, which was quickly recovered due to surging AI demand. Without a long-term approach, such efforts would be abandoned sooner.
#### 5. Overcoming Misaligned Performance Evaluations: Use a 10-Year Cycle Instead of Short-Term GDP
Problem: Officials are evaluated based on 2-3 years' GDP and the number of projects, but industries often take 5-10 years to mature, leading to unfinished or failed projects.
Professor Zhao's Solution: Learn from Singapore's Temasek model by changing the evaluation mechanism:
- Separate Government from Enterprises: Separate industrial funds from urban development companies and turn them into market-oriented entities responsible for capital appreciation and industry cultivation without bearing government debt.
- Cross-Cycle Evaluation: Use a 10-year return on investment (including asset growth and dividends) as the evaluation criterion, decoupling the evaluation period from officials' terms of office. For example, conduct mid-term assessments every 5 years and final evaluations after 10 years.
- Encourage Innovation and Risk-Taking: As long as the investment process is compliant and there is no corruption, failures should not be held against officials. Bonuses can be delayed or recovered if projects are profitable; salaries can be market-based to retain talent.
Conclusion
The key to local government transformation lies in shifting from rapid revenue generation through land sales to sustainable growth through asset appreciation and industrial investment. The essence of Professor Zhao's advice is to adopt a long-term perspective, which allows officials to avoid short-sighted decisions and truly foster new, self-sustaining industries.