Deep in the red, Chinese county pays price for vanity-projects
RUCHENG COUNTY, China: In the heart of an impoverished village in southern China, a lifesized statue of Mao Zedong sits on a platform adorned with intricate stonework, flanked by a diorama of Red Army soldiers and traditional brick-and-tile homes with curved roofs.
Officials have spent a small fortune on the project that has transformed the village of Shazhou, in Hunan province, into an open-air museum dedicated to the Chinese Communist Party. But few tourists have come to peer at the inscription at the foot of Mao’s statue, or take selfies in front of the heroes of the revolution.
The ‘red tourism’ project was the brainchild of the former Communist Party chief of the local county, Rucheng, and cost 300 million yuan ( US$ 44 million). But it has yet to produce a profit, just like the string of public gardens, town squares and office buildings that the county has built in recent years.
Now the clock is ticking as Rucheng, among China’s poorest counties, and with a population of just 420,400 people, is under pressure to resolve US$1 billion in debt, following a decade of creditfuelled vanity projects, three local officials told Reuters. They requested anonymity due to the sensitivity of the matter.
To raise funds and conserve cash, Rucheng - which doesn’t have a train station or an airport - has been slashing public investment in infrastructure projects and increasing government land sales to generate revenue, the officials said.
Rucheng is not alone – hundreds of other indebted counties in China are in the same boat. In a recent financial stability report, the central bank said that much of China’s hidden debt risk is held at lower-tier levels, meaning prefectures and counties like Rucheng.
As China prepares this month to celebrate the 40th anniversary of the economic reforms that transformed it into the world’s second-largest economy, fears over local government debt are growing.
China’s local governments had 18.4 trillion yuan of outstanding debt at the end of October, and were estimated by S& P Global Ratings to have up to 40 trillion yuan in off-budget borrowing.
Of particular concern to the authorities as they tackle risks in the financial system are those governments with tiny revenue streams relative to their debt. Their over-reliance on income from land sales is also driving asset bubbles in China.
Rucheng’s free- spending ways came onto Beijing’s radar this year when visiting anti-corruption inspectors were shocked by the contrast between the county’s newly built but deserted municipal district and cramped older areas where residents drink polluted water from aging pipes.
When the inspectors were in town, numerous anonymous complaints arrived in the mail.
Since 2008, Rucheng has spent billions on 10 office buildings, 11 public gardens and squares and 26 urban roads, the anti- corruption inspectors found. But less than six per cent of government spending went on investing in industry.
Vanity investments helped drive Rucheng’s debt ratio – or borrowing relative to fiscal revenue - to 336 per cent last year from 286 per cent in 2016, and 274 per cent in 2015.
“We must rectify the problem according to what is required of us, otherwise the local people will not trust our government officials anymore,” said one of the officials.
The head of Rucheng’s Communist Party was sacked for profligate spending and “ignoring the livelihood of the local people”.
Hunan province also placed Ruchengona“top-levelgovernment debt warning list” of counties with debt ratios over 100 per cent, the Rucheng officials said.
Local governments on the list face restrictions on taking on new debt, launching new projects, hiring employees and travelling overseas, they said.
Since the anti- corruption inspection, Rucheng has suspended, cancelled and scaled back 79 government projects, cutting investment by 2.1 billion yuan, the officials said.
All Rucheng officials have been working seven days a week and meeting regularly with local residents, the three officials said. One official died from overwork, they added.
More than 30 million yuan is also being spent on renovating old water pipes in the area.
To resolve the debt problem, Rucheng has to repay 400 million yuan a year in principle and interest to reduce its outstanding government debt, which was around nine billion yuan at the end of 2017, an official at Rucheng’s finance and debt department told Reuters.
Rucheng’s debt ratio has since dropped to about 60.6 per cent, said the official at its finance department. On December 5, the provincial government lowered Rucheng’s government debt warning level from “first-level” to “second-level”, the officials said.
At the same time, Rucheng officials are under pressure to produce economic growth.
“The higher authorities require us to have zero additional debt but deliver high- quality economic growth,” said a Rucheng official in charge of the economy. But the legacy of the vanity spending remains.
A mineral bath tourism spot in Rucheng was deserted during a recent visit by Reuters.
Local residents washing vegetables and boiling eggs in the hot springs said the tourism spot, which had cost about 400 million yuan to build, had done little to improve livelihoods. — Reuters