Business / Opinion

Fast times over for the smaller cities

By Ed Zhang (China Daily) Updated: 2014-02-17 07:23

But other cities that don't have much industry to attract outside workers, especially skilled ones, cannot even earn much from land auctions.

If new housing units don't sell well, local governments' land auctions will no longer be attractive to private investors in local development schemes. Small wonder that, as the Chinese media reported last week, some local governments have gone so far as to require their staff members to buy some of the housing units that have failed to find buyers in the market.

Regions continue to rely on capital investment for GDP

Solutions needed for urbanization

This means, in the game based on the old development model, only a few large cities can win, while many other cities will fall further behind. Especially at a time of overcapacity in many fields of manufacturing, the losers can't expect to catch up either by selling more land or attracting more investors.

This is exactly the state of many local governments. The local economy is losing steam and the officials still don't have a workable strategy for change. In other words, they are in crisis, whether or not they acknowledge it.

It may sound paradoxical the country that has produced the world's fastest growth record in recent times is running out of ideas for further growth, especially viable and sustainable growth, at the local level. But this squares perfectly with the latest reports about lackadaisical business activities, weak energy demand and low inflation.

It also squares with the fact that a nation ranking only about 90th in per capita GDP (there are different listings by different international organizations) can hold so much money (in both trade and capital surpluses) without knowing how to spend it.

Running out of ideas is a typical part of the learning process. At no time in the past 30-odd years has it become so imperative for China's local officials to learn to be entrepreneurial. They can depend on the central government for general guidelines, but not for exactly what to do to differentiate themselves from other cities in business development.

This is also why we've got two hugely divergent views about how the Chinese economy will fare in 2014.

Those who focus on the micro-level have sent out alarms by pointing out an unprecedented crisis here or there.

The author is editor-at-large of China Daily.