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Mr. Yang， a taxi driver in Wuhan， Hubei， felt like getting old. He did not want to go out to work during the rush hour for he had got lost in Wuhan several times despite his years’experiences as a taxi driver.
“I think I have lost my sense of direction，” he complained. But it is not him to blame. Wuhan， the capital city of Hubei Province， is now undergoing massive urban construction， which turned this city into a big and busy construction site.
“Two years ago， Wuchang is a big maze and a nightmare for taxi drivers. Now it is Hankou’s turn，” he said. The arterial road Hankou， one of the three districts of Wuhan along with Wuchang and Hanyang separated from each other by Yangtze River and Han River， is almost blocked by one urban construction project. The road， which could previously accommodate eight vehicles running side by side， now is narrowed by 5/8. This city， which used to be known for its breath of life， is a “cement forest” that is even strange to local people.
Many citizens of Wuhan complained that the massive urban con- struction has huge impact over the traffic and air quality. They had a consensus that “the urban construction should be programmed more reasonably and scientifically. A bit slowness is OK since the current feel of traveling and the environment are also very important.”
Behind this is the high speed of urban construction in Wuhan that every one can see. Wuhan’s mayor Tang Liangzhi said to a British media that the urban construction of Wuhan in five years is gong to cost 200 billion pounds. That British media was shocked， stating that the expense on infrastructure in Wuhan， one of the cities –not even the best one – in China， is equal to the entire budget of UK for the upgrade and improvement of infrastructure. Its capital and strength could easily shame Boris Johnson， mayor of London.
But there are more doubts than compliments.Wuhan was once the “Chinese city with the heaviest debt burden” for its debt balance of 203.705 billon yuan. The main local fundraising platform’s credit rating was also lowered. Even though the government of Wuhan still holds optimistic viewpoints towards the debt situation， the 2-trillion-yuan investment still focused people’s attention to the stress of local debts.
In addition， there are about 10 cities with the annual expense of urban construction higher than 100 billion yuan. Each of them could easily match or defeat a European country in terms of urban construction budget. A City and A Country
Last year， Boris Johnson came to Wuhan upon the invitation of Wang Jianlin， board chairman of Chinese real estate company Wanda Group， to visit Wanda Group’s commercial and cultural projects in Wuhan. Johnson and his entourage paid a visit to the “Central Culture Zone”， which is Wanda Group’s largest project in Wuhan and claimed the investment of 50 billion yuan.
The huge investment Wanda Group threw into Wuhan is just an epitome of the fast development of urban construction of this city. Generally speaking， the fixed assets investment can be divided into three areas： the investment in urban infrastructure construction， the investment in real estate development and the industrial investment. The former two make up the investment in urban construction.
In 2013， for example， Wuhan invested 130.114 billion yuan in the infrastructure， including traffic， transportation， storage and post services. It also invested 190.56 billion yuan in the real estate projects. The combination of the two figures led to the aggregation of 320.674 billion yuan.
It is reported that the total expense on urban construction of Wuhan will surpass 150 billion yuan in 2014 and the investment into the real estate development is expected to be more than 200 billion yuan. This is very close to the 2-trillion spending on the five-year urban construction plan mentioned by Tang Liangzhi.
Peng Hao， director of the Wuhan Municipal Administration of Urban Construction， said that the government budget only accounted for a small part of the massive cost of urban construction. The major fundraising channels include the collection of capital through building-transferal， building-operatingtransferal and public-private partnership. The corporate bonds， finance lease， foreign investment and private capital are also important sources for the money used for urban construction.
The aforementioned British media described Wuhan’s blueprint as follows： this city， which boasts hundreds of apartment buildings， ring roads， bridges and railways， now has a complete subway system and the second international airport under construction.
In comparison， the total budget for the urban construction in UK from the British authority covers 375 billon pounds or 3.75 trillion yuan， covering energy， traffic， flood prevention， waste disposal， water resources and communication. The timetable of the budget extends to the year of 2030. That means the 3.75-trillion-yuan budget is going to be the amount the British are going to invest into urban construction in the next 20 years or so. According to the information from the UK Treasury Department， the country is going finish the public investment of 100 billion pounds in the next seven years to rebuild UK. Then， of course， much of the capital needs to be raised from private sectors.
Given the discrepancy in caliber and the issues like counting the real estate investment in or not， it is not a believable conclusion that the urban construction expenditure of Wuhan is higher than the one of UK， but according to the data of Wuhan in 2013， the investment into infrastructure （130.114 billion） accounts for 40% of the total urban construction investment. That means the objective investment of 200 billion pounds in five yeas will have about 80 billion pounds in the urban infrastructure， almost the same with the British investment， meaning that the British media is not wrong in that matter.
Concerns of Repayment of Local Debts
The intensive investment into the urban infrastructure construction also drew the attention from the outside to the debt problem. The commissioner of China’s Ministry of Finance stationed in Wuhan worked out a report， saying that the debt balance of Wuhan reached 203.705 billion yuan by June 30， 2012. The liability ratio was 1.36 times as high as the international standards. This requires the government to pay back 100 million yuan every single day. Thus， Wuhan is called the “Chinese city with the heaviest debt burden”.
In addition to that， China Credit Ratings Co.， Ltd （China Credit Ratings） published the latest result of the credit rating of Wuhan Urban Construction Investment and Development Co.， Ltd （hereafter Wuhan Urban Investment） at the beginning of this year. Wuhan Urban Investment is the major force in the fundraising and investment for the urban infrastructure construction in Wuhan.
The latest result showed that the company had a lowered credit rating. As for the reason， China Credit Ratings explained that “the company’s burden is increasing while its ability to pay back the debts has been weakened. It also needs to carry a heavy burden of massive investment in the future. Since the policies for the fundraising platforms remain as strict as bfore， the company will face more expired debt in the next one or two years， further increasing its burden.”
Meanwhile， the bank line of credit for Wuhan Urban Investment was also greatly reduced in spite of its rising debt balance， which already increased from 84.1 billion yuan to 111.7 billion yuan at the end of September 2013. China Credit Ratings also claimed that the source of Wuhan Urban Investment to pay back the debts mainly comes from the financial fund of Wuhan government （5 billion yuan or so per year）， the tolls of expressways and bridges （1.8 billion yuan per year） and the income of land transfer. In the next five years， there will still be a financial gap of 25 billion yuan waiting to be filled.
Nevertheless， Tang Liangzhi is confident that the debt balance of Wuhan matches the overall economic development of Wuhan and its ability to repay the debts， though it is necessary to fix a reasonable size of debts and to optimize the debt structure to keep it in tune with the urban development in the future. The raised capital should be managed and used well， meaning it should be invested into where it is needed most.
Pay Back Debts by Selling Land
When Wuhan is massively rebuilding itself， the same phenomenon could also be found in other Chinese cities which further shocked the world. The big cities of China， as revealed by CBN Daily， could have over 100 billion yuan invested into infrastructure construction every year. In addition to the billions of RMB invested into the real estate， they are no less generous than Wuhan when it comes to the urban construction.
Beijing realized the total investment of 178.57 billion yuan into the infrastructure – mainly transportation and public services – in 2013. Shanghai invested 104.331 billion yuan in the infrastructure construction and 281.959 billion in real estate development.
Though the detailed number concerning Tianjin is unavailable， the local media reported that the investment of Tianjin was 95.961 billon yuan in the first half of 2013， meaning that the total investment of Tianjin in the urban construction was more than 140 billion yuan in 2013. There was also the investment into real estate that amounts to 148.082 billion yuan， making the total investment into urban construction of Tianjin hit around 300 billion yuan.
Guangzhou， which is considered to be the third most developed city in China， also spent 297.487 billion yuan upgrading and rebuilding itself， 157.968 billion of which was put into the real estate. Its peer city Shenzhen， ranking No. 4 in all cities of China， seems to have little space to make improvement since it only invested 35.834 billion yuan upgrading and rebuilding.
Compared with those developed cities in East or North China， cities in West and Central China are more robust in the urban construction. Chongqing， for example， spent 296.21 billion yuan on the urban infrastructure construction and 301.278 billion yuan on the real estate development. Changsha， capital city of Hunan Province， invested 82.932 billion yuan in infrastructure projects and 114.361 billion in real estate development. Zhengzhou， capital city of Henan Province， respectively saw the investment of 97.3 billion yuan into infrastructure and 144.5 billion yuan into real estate.
Li Xudong， Financial Research Institute of Guangdong Provincial Department of Finance， said that the industrial investment and the real estate investment were mainly guided by the market force. Therefore the investment is mostly made by the enterprises. But the infrastructure construction needs to be pushed by the government as it is its duty to promote the construction of subway， tunnels， bridges and waste water disposal.
The fundraising platforms under the administration of local government– like Wuhan Urban Investment – serve as the major source for the investment into infrastructure construction. Then， the massive investment is undoubtedly a heavy burden for many local governments.
Chongqing still had 307.039 billion yuan unpaid by the end of 2013. Beijing also needed to pay back 649.632 billion yuan in the first half of 2014， 50% more than it needed in the year of 2010. There is no reason for Beijing to reverse the situation within only six months.
Guangzhou’s hosting the 2012 Asian Olympic Games increased its debt balance to 286.5 billion yuan at the end of June 2013. It also needs to invest more to support the further development. As its plan revealed， Guangzhou needs to borrow the debts of 143.8 bil- lion yuan for the construction of transportation and education facilities in the city.
The snowball is rolling and getting bigger. How to resolve the debt problem remains a concern for every body. Peng Peng， deputy director of Guangdong Provincial Reform and Development Institute， said that local governments largely rely on the land transfer， state-owned enterprises’ income， tax and penalties to repay the debts.
Of them the land transfer is the most common resort. Most local governments mortgaged the land for the fundraising. That means whether local governments can repay the debts or not on time is closely related to the performance of local real estate market.
“In many cities， the leaders are in a hurry to finish all projects during their terms of office. Driven by the GDP and political performance， they invested blindly and heavily into the urban construction regardless of the necessity and reasonability. They do not care what they do is sustainable or not，” said Li Xudong. “So， when the performance of real estate went down， the debt crisis for local governments is going to be highlighted as well. That’s why most local governments strongly objected the stricter regulatory rules of the real estate.”
“I think I have lost my sense of direction，” he complained. But it is not him to blame. Wuhan， the capital city of Hubei Province， is now undergoing massive urban construction， which turned this city into a big and busy construction site.
“Two years ago， Wuchang is a big maze and a nightmare for taxi drivers. Now it is Hankou’s turn，” he said. The arterial road Hankou， one of the three districts of Wuhan along with Wuchang and Hanyang separated from each other by Yangtze River and Han River， is almost blocked by one urban construction project. The road， which could previously accommodate eight vehicles running side by side， now is narrowed by 5/8. This city， which used to be known for its breath of life， is a “cement forest” that is even strange to local people.
Many citizens of Wuhan complained that the massive urban con- struction has huge impact over the traffic and air quality. They had a consensus that “the urban construction should be programmed more reasonably and scientifically. A bit slowness is OK since the current feel of traveling and the environment are also very important.”
Behind this is the high speed of urban construction in Wuhan that every one can see. Wuhan’s mayor Tang Liangzhi said to a British media that the urban construction of Wuhan in five years is gong to cost 200 billion pounds. That British media was shocked， stating that the expense on infrastructure in Wuhan， one of the cities –not even the best one – in China， is equal to the entire budget of UK for the upgrade and improvement of infrastructure. Its capital and strength could easily shame Boris Johnson， mayor of London.
But there are more doubts than compliments.Wuhan was once the “Chinese city with the heaviest debt burden” for its debt balance of 203.705 billon yuan. The main local fundraising platform’s credit rating was also lowered. Even though the government of Wuhan still holds optimistic viewpoints towards the debt situation， the 2-trillion-yuan investment still focused people’s attention to the stress of local debts.
In addition， there are about 10 cities with the annual expense of urban construction higher than 100 billion yuan. Each of them could easily match or defeat a European country in terms of urban construction budget. A City and A Country
Last year， Boris Johnson came to Wuhan upon the invitation of Wang Jianlin， board chairman of Chinese real estate company Wanda Group， to visit Wanda Group’s commercial and cultural projects in Wuhan. Johnson and his entourage paid a visit to the “Central Culture Zone”， which is Wanda Group’s largest project in Wuhan and claimed the investment of 50 billion yuan.
The huge investment Wanda Group threw into Wuhan is just an epitome of the fast development of urban construction of this city. Generally speaking， the fixed assets investment can be divided into three areas： the investment in urban infrastructure construction， the investment in real estate development and the industrial investment. The former two make up the investment in urban construction.
In 2013， for example， Wuhan invested 130.114 billion yuan in the infrastructure， including traffic， transportation， storage and post services. It also invested 190.56 billion yuan in the real estate projects. The combination of the two figures led to the aggregation of 320.674 billion yuan.
It is reported that the total expense on urban construction of Wuhan will surpass 150 billion yuan in 2014 and the investment into the real estate development is expected to be more than 200 billion yuan. This is very close to the 2-trillion spending on the five-year urban construction plan mentioned by Tang Liangzhi.
Peng Hao， director of the Wuhan Municipal Administration of Urban Construction， said that the government budget only accounted for a small part of the massive cost of urban construction. The major fundraising channels include the collection of capital through building-transferal， building-operatingtransferal and public-private partnership. The corporate bonds， finance lease， foreign investment and private capital are also important sources for the money used for urban construction.
The aforementioned British media described Wuhan’s blueprint as follows： this city， which boasts hundreds of apartment buildings， ring roads， bridges and railways， now has a complete subway system and the second international airport under construction.
In comparison， the total budget for the urban construction in UK from the British authority covers 375 billon pounds or 3.75 trillion yuan， covering energy， traffic， flood prevention， waste disposal， water resources and communication. The timetable of the budget extends to the year of 2030. That means the 3.75-trillion-yuan budget is going to be the amount the British are going to invest into urban construction in the next 20 years or so. According to the information from the UK Treasury Department， the country is going finish the public investment of 100 billion pounds in the next seven years to rebuild UK. Then， of course， much of the capital needs to be raised from private sectors.
Given the discrepancy in caliber and the issues like counting the real estate investment in or not， it is not a believable conclusion that the urban construction expenditure of Wuhan is higher than the one of UK， but according to the data of Wuhan in 2013， the investment into infrastructure （130.114 billion） accounts for 40% of the total urban construction investment. That means the objective investment of 200 billion pounds in five yeas will have about 80 billion pounds in the urban infrastructure， almost the same with the British investment， meaning that the British media is not wrong in that matter.
Concerns of Repayment of Local Debts
The intensive investment into the urban infrastructure construction also drew the attention from the outside to the debt problem. The commissioner of China’s Ministry of Finance stationed in Wuhan worked out a report， saying that the debt balance of Wuhan reached 203.705 billion yuan by June 30， 2012. The liability ratio was 1.36 times as high as the international standards. This requires the government to pay back 100 million yuan every single day. Thus， Wuhan is called the “Chinese city with the heaviest debt burden”.
In addition to that， China Credit Ratings Co.， Ltd （China Credit Ratings） published the latest result of the credit rating of Wuhan Urban Construction Investment and Development Co.， Ltd （hereafter Wuhan Urban Investment） at the beginning of this year. Wuhan Urban Investment is the major force in the fundraising and investment for the urban infrastructure construction in Wuhan.
The latest result showed that the company had a lowered credit rating. As for the reason， China Credit Ratings explained that “the company’s burden is increasing while its ability to pay back the debts has been weakened. It also needs to carry a heavy burden of massive investment in the future. Since the policies for the fundraising platforms remain as strict as bfore， the company will face more expired debt in the next one or two years， further increasing its burden.”
Meanwhile， the bank line of credit for Wuhan Urban Investment was also greatly reduced in spite of its rising debt balance， which already increased from 84.1 billion yuan to 111.7 billion yuan at the end of September 2013. China Credit Ratings also claimed that the source of Wuhan Urban Investment to pay back the debts mainly comes from the financial fund of Wuhan government （5 billion yuan or so per year）， the tolls of expressways and bridges （1.8 billion yuan per year） and the income of land transfer. In the next five years， there will still be a financial gap of 25 billion yuan waiting to be filled.
Nevertheless， Tang Liangzhi is confident that the debt balance of Wuhan matches the overall economic development of Wuhan and its ability to repay the debts， though it is necessary to fix a reasonable size of debts and to optimize the debt structure to keep it in tune with the urban development in the future. The raised capital should be managed and used well， meaning it should be invested into where it is needed most.
Pay Back Debts by Selling Land
When Wuhan is massively rebuilding itself， the same phenomenon could also be found in other Chinese cities which further shocked the world. The big cities of China， as revealed by CBN Daily， could have over 100 billion yuan invested into infrastructure construction every year. In addition to the billions of RMB invested into the real estate， they are no less generous than Wuhan when it comes to the urban construction.
Beijing realized the total investment of 178.57 billion yuan into the infrastructure – mainly transportation and public services – in 2013. Shanghai invested 104.331 billion yuan in the infrastructure construction and 281.959 billion in real estate development.
Though the detailed number concerning Tianjin is unavailable， the local media reported that the investment of Tianjin was 95.961 billon yuan in the first half of 2013， meaning that the total investment of Tianjin in the urban construction was more than 140 billion yuan in 2013. There was also the investment into real estate that amounts to 148.082 billion yuan， making the total investment into urban construction of Tianjin hit around 300 billion yuan.
Guangzhou， which is considered to be the third most developed city in China， also spent 297.487 billion yuan upgrading and rebuilding itself， 157.968 billion of which was put into the real estate. Its peer city Shenzhen， ranking No. 4 in all cities of China， seems to have little space to make improvement since it only invested 35.834 billion yuan upgrading and rebuilding.
Compared with those developed cities in East or North China， cities in West and Central China are more robust in the urban construction. Chongqing， for example， spent 296.21 billion yuan on the urban infrastructure construction and 301.278 billion yuan on the real estate development. Changsha， capital city of Hunan Province， invested 82.932 billion yuan in infrastructure projects and 114.361 billion in real estate development. Zhengzhou， capital city of Henan Province， respectively saw the investment of 97.3 billion yuan into infrastructure and 144.5 billion yuan into real estate.
Li Xudong， Financial Research Institute of Guangdong Provincial Department of Finance， said that the industrial investment and the real estate investment were mainly guided by the market force. Therefore the investment is mostly made by the enterprises. But the infrastructure construction needs to be pushed by the government as it is its duty to promote the construction of subway， tunnels， bridges and waste water disposal.
The fundraising platforms under the administration of local government– like Wuhan Urban Investment – serve as the major source for the investment into infrastructure construction. Then， the massive investment is undoubtedly a heavy burden for many local governments.
Chongqing still had 307.039 billion yuan unpaid by the end of 2013. Beijing also needed to pay back 649.632 billion yuan in the first half of 2014， 50% more than it needed in the year of 2010. There is no reason for Beijing to reverse the situation within only six months.
Guangzhou’s hosting the 2012 Asian Olympic Games increased its debt balance to 286.5 billion yuan at the end of June 2013. It also needs to invest more to support the further development. As its plan revealed， Guangzhou needs to borrow the debts of 143.8 bil- lion yuan for the construction of transportation and education facilities in the city.
The snowball is rolling and getting bigger. How to resolve the debt problem remains a concern for every body. Peng Peng， deputy director of Guangdong Provincial Reform and Development Institute， said that local governments largely rely on the land transfer， state-owned enterprises’ income， tax and penalties to repay the debts.
Of them the land transfer is the most common resort. Most local governments mortgaged the land for the fundraising. That means whether local governments can repay the debts or not on time is closely related to the performance of local real estate market.
“In many cities， the leaders are in a hurry to finish all projects during their terms of office. Driven by the GDP and political performance， they invested blindly and heavily into the urban construction regardless of the necessity and reasonability. They do not care what they do is sustainable or not，” said Li Xudong. “So， when the performance of real estate went down， the debt crisis for local governments is going to be highlighted as well. That’s why most local governments strongly objected the stricter regulatory rules of the real estate.”