Cities 53 (2016) 51–60
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Reproducing the city of the spectacle: Mega-events, local debts, and infrastructure-led urbanization in China Yifei Wu a, Xun Li b, George C.S. Lin a,⁎ a b
Department of Geography, University of Hong Kong, Pokfulam Road, Hong Kong School of Geography and Planning, Sun Yat-sen University, Guangzhou, China
a r t i c l e
i n f o
Article history: Received 11 September 2015 Received in revised form 8 January 2016 Accepted 9 January 2016 Available online xxxx Keywords: Urbanization Urbanism Mega-events Local debts China Guangzhou
a b s t r a c t Existing studies of the growth of Chinese cities and the escalation of local debts have been done in separation. This research examines the growth and transformation of Chinese cities in relation to the practice of hosting megaevents as a means of capital mobilization and the expansion of local debts. An investigation of the case of Guangzhou, the host city of the 2010 Asian Games, has identified an interesting trajectory in which hosting mega-events has been actively pursued as a strategy of capital accumulation to stimulate infrastructure-driven urbanization. The municipal government has managed to mobilize resources from commercial banks to finance infrastructure projects and foster urban spatial restructuring through the establishment of a series of local government financing platforms (LGFPs). Because land was used as the main assets injecting into LGFPs and as collateral to obtain bank loans, the revenue generated from land sales has been of great significance to support LGFPs. However, the uncertainty of the real estate market has made land revenue volatile, resulting in looming local debts. Findings of this research cast doubt over the long-term sustainability of China's event-driven urbanization and further advance theoretical understanding of the diverse trajectories of urbanization in the era of global urbanism. © 2016 Elsevier Ltd. All rights reserved.
1. Introduction In recent decades, an important line of theoretical enquiry in urban research has dealt with the sophisticated interrelation between the production of the urban built environment and the process of capital accumulation (Christophers, 2011; Harvey, 1985; Lin & Yi, 2011). The process of urbanization is believed to be closely connected with the provision of various transport and communication infrastructure in an attempt to respond to the inherent contradictions of capital (over)accumulation by unlocking the movement of production factors (Harvey, 1978). The thesis of the urbanization of capital has been applied to China where the practices of urbanization have been described as a model with the Chinese characteristics that are state-directed, infrastructure-driven, and debt-financed (Harvey, 2012). According to this thesis, the process of the accumulation of capital usually takes the form of a cycle that covers a long period of time so as to make a balance between the speed of capital accumulation and urbanization growth. However, unlike the urbanization process in Western countries in the nineteenth century, the practice of urbanization in contemporary China is believed to be overshooting a normal process leading to a state of over-accumulation with a high likelihood of a debt crisis
⁎ Corresponding author. Tel.: +852 3917 7023; fax: +852 2559 8994. E-mail address:
[email protected] (G.C.S. Lin).
http://dx.doi.org/10.1016/j.cities.2016.01.004 0264-2751/© 2016 Elsevier Ltd. All rights reserved.
(Harvey, 2012; Ong, 2014; Zhou, Zhang, & Shen, 2015). In this perspective, the debt crisis that is taking shape in China is a representation of the over-accumulation of capital where the means of capital accumulation was enhanced through a state-led accelerated urbanization and excessive infrastructural development. Although many studies have suggested that capital accumulation in the urban domain has played an important role in building up China's soaring local debts, the existing literature suffers from a separation between those concerning the size, growth, and risks of local debts (Feng, 2013; Li & Lin, 2011; Lin, 2003; Sano, 2014), and others focusing on a macro-level interpretation of China's urbanization (Lin, 2011; Oi, 1999; Savitch, Gross, & Ye, 2014; Shin, 2014a; Wu, 1997; Wu, 2010; Xu, 2013). Very little has been written to document and explain the interrelationship between the production of the urban built environment and the accumulation of local debts in China's rapidly expanding cities. Meanwhile, the practice of Chinese urbanization has continued to change in form, style, and fashion, ranging from setting up special economic zones and industrial parks to fostering new urban districts and central business districts and prompting real-estate development and urban renewals (Qian, 2011; Ren, 2013; Zhang, 2012; Lin, 2015). One of the popular and influential strategies recently adopted by many Chinese municipal governments has been to host mega-events such as the Olympics, Worlds Fairs and Expositions, and Asian Games as a means to obtain capital for urban infrastructure development (Timberlake, Wei, Ma, & Hao, 2014; Shin, 2012).
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Hosting mega-events has significantly stimulated urban infrastructure investment and boosted urban transformation, but it has also led to a soaring local debt that undermines the long-term interests in economic sustainability and social stability. According to the report of the Beijing Olympic Research Center, the total cost for the Beijing Olympics was estimated at about 290 billion yuan, of which two-thirds were invested in infrastructure development, including metro, highway, airport, and road constructions (Fowler, 2008). The infrastructure-related spending is equivalent to 43% of Beijing's total urban fixed asset investment for the years of 2005–2007 (409.7 billion yuan). The construction of the Olympic stadium alone has brought about a huge debt that will take almost three decades to pay off.1 Theoretically and practically, the interrelationship between the reproduction of the urban built environment, hosting mega-events, and booming of local debts appears to be a significant issue with great potentials to enhance our understanding of the new dynamics of urbanization. This study attempts to probe into the changing nature and dynamics of China's urbanization through an analysis of how hosting mega-events has been actively pursued as a means of capital accumulation to finance the development of the urban infrastructure and reproduction of the urban space. The objective is fourfold, namely to (1) identify the extent and structural composition of local debts; (2) analyze the motivation of Chinese municipalities to practice the mega-event strategy for fostering infrastructure investment; (3) examine the mechanism in which the mega-event strategy finances urban infrastructure investment; and (4) evaluate the extent to which the mega-event strategy has contributed to the expansion of local debts and the reproduction of the urban space. The following part of this paper is organized into three sections. It begins with a critical evaluation of current scholarly enquiries into the issue concerning China's urban development and the growing significance of local debts. This is followed by a clarification of the methodological issues including definition, research sites, data sources and research design. Attention is then turned to an empirical investigation of the practices in Guangzhou as an important case to examine the role of the Asian Games in the process of infrastructure-driven and debt-financed urbanization. The final section summarizes the major findings of this research and discusses their implications for future studies and policy-making. 2. Theoretical context Recent decades have witnessed a drastic expansion of local debts in China and it has been the subject of heightened scholarly interests and extensive documentation. Given the economic and political significance of the subject matter, many researchers have made important attempts to understand the explosive growth of China's local debts primarily at the national level. Some researchers have placed their emphasis on the supply of capital under the current fiscal and financial systems, while others have stressed on the demand created by infrastructure investment during the urbanization process (Jiang & Xu, 2014; Li & Lin, 2011; Lin, 2003; Ong, 2012; Tsui, 2011; Xu & Xun, 2013; Yang & Li, 2013; Zhang & Barnett, 2014). In the first perspective, the structural mismatch between the central and local governments in fiscal revenue and expenditure is identified as the main cause of the rapid expansion of local debts (Jiang & Xu, 2014; Li & Lin, 2011). An empirical study of China's public debts conducted by Xu and Zhang (2014) maintains that local government debts are primarily the result of the deficiencies in the fiscal and financial systems, in which local governments bear a significantly shrinking public budgetary income and taxation revenue but unreduced expenditure responsibilities for regular public service expenditures and infrastructure investments. 1 Branigan, T. (2012). London 2012: Legacy of Beijing is that Bird's Nest will take 30 years to pay off. The Guardian. http://www.theguardian.com/sport/london-2012-olympicsblog/2012/jul/26/2008-olympics-birds-nest-beijing (accesed 26 July 2012).
In a similar vein, a research conducted by Lin (2003) showed that unreported local public debts, mainly at the township level, were caused by the 1994 tax reform. Furthermore, the tightened restriction over direct borrowing from the formal banking system in recent years has intensified the debt crisis. This restriction has led local governments to search for non-bank financial institutions2 to finance urban projects, which consequently resulted in the rise in local debts (Li & Lin, 2011; Zhang & Barnett, 2014). Another group of researchers placed the emphasis on the demand of infrastructure investment for public finance as the motive for local officials to raise funds from the banks. They stressed that the urbanoriented regime of capital accumulation in the form of infrastructure construction and fixed asset investments has forced local governments to become proactively engaged in infrastructure-driven urban developments (Shin, 2014a; Wang, 2014; Wu & Gaubatz, 2013). Yang and Li (2013) pointed out that several key institutions, including fiscal reform and the cadre evaluation systems, had created an environment under which local governments are drawn into an economic development model driven by infrastructure investment, and this had in turn led to the expansion of local debts (Yang & Li, 2013). The viewpoint of local governments' impulse for infrastructure investment as the fundamental cause of local debts has also been shared by Tsui (2011) and Xu and Xun (2013). Despite their different analytical angles and perspectives, existing studies of China's local debts share a common approach focusing on the phenomenon at the national level without any disaggregate analysis at the sub-national and, especially, municipal levels. In reality, in response to the changes of the fiscal and taxation systems as well as restructuring of the urbanization model, local governments in different places have opted for different strategies to deal with their investment needs. Yet the existing literature is surprisingly silent in the documentation and interpretation of the different approaches adopted by local governments and their different trajectories of development. Among various local strategies, abundant evidence has indicated that hosting mega-events has become an increasingly popular strategy adopted by local governments to soften the budget constraints caused by state fiscal retrenchment policy (Cochrane, Peck, & Tickell, 1996; Cornelissen & Swart, 2006; Essex & Chalkley, 2004) and stimulate urban restructuring (Andranovich, Burbank, & Heying, 2001; Bondonio & Guala, 2011; Burbank, 2002; Chalkley & Essex, 1999; Chen & Spaans, 2009; Hall, 2006; Short, 2008). In the process of preparation for mega-events, local governments can mobilize the needed capital for the public investment conducive to the pursuits of economic and political ambition. Hosting mega-events has been practiced as a catalyst to alleviate budget pressure and support a wide range of urban infrastructure projects (Andranovich & Burbank, 2013; Cornelissen & Swart, 2006; Essex & Chalkley, 1998; Shin, 2012). Without seriously investigating the actual practices of local developmental strategies such as the hosting of mega-events it would be difficult to unveil the picture showing the increasingly sophisticated dynamics of the growth of China's local debts and phenomenal urbanization.
3. Data and methodology This study intends to explore the logic behind the growth of China's local debts and the popular local practices of hosting mega-events as a means to facilitate urban development and capital accumulation in the context of an ever-changing competitive institutional environment. What are the main contributors to China's booming local debts? What is the institutional framework that has set the stage for the pursuit of urban development and capital accumulation in China? How has the
2 These institutions include local trust and investment companies, highway or transport corporations, the urban development investment corporations and so forth.
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needed capital been mobilized to finance the anticipated infrastructure projects? What has been the role played by the hosting of mega-events in the process of urbanization? What is the interrelationship between the practices of hosting mega-events, infrastructure-driven urban development, and the growth of local debts? To answer these questions, three working hypotheses are made for testing. First, the practice of local developmental strategies such as hosting mega-events owed its origins to the restructuring of the fiscal relationship between the central state and local governments since the 1990s. Second, there exists a significant interrelationship between the hosting of mega-events, investment in the urban infrastructure and the growth of local debts. More specifically, staging mega-events is instrumental to the mobilization of capital for the purpose of upgrading and improving the urban built-environment. Consequently, the hosting of mega-events has been used as a justification for borrowing bank loans to finance infrastructure development projects. Finally, local government's ability to pay back bank loans depends on the value and revenue of land that was used as collateral and the volatility of land revenues would result in potential debt problems. In this research, the key domains are mega-events, urban development and capital accumulation. Urban development is understood as both a process of economic, spatial and social progress and a means whereby local governments formulate and execute public policies for economic growth (Kitchin & Thrift, 2009). The concept of capital accumulation is used to refer to the way in which local governments raise funds in order to build up fixed capital assets so as to achieve the production of space as a response to the changing central–local political relation. Finally, mega-events are defined as large-scale, short-term and high-profile urban events3 which function as an engine for urban development and capital accumulation. The case chosen for this study is the Guangzhou municipality4 where the 2010 Asian Games was held (See Fig. 1). Guangzhou presents an interesting case to examine the issues identified above concerning the massive expansion of local debts and capital investment in infrastructure projects, and the role played by the mega-event strategy therein (See Table 1). The past decade has witnessed phenomenal expansion of the urban built-up areas in Guangzhou. It is especially the case during the period from 2004 to 2010 when Guangzhou's investment in fixed assets of urban construction took 4.4% of the national total, ranking third among 31 subnational economies.5 Guangzhou is also an outstanding case in the growth of local debts. A research report showed that Guangzhou was the third in terms of local debt pressure among the 15 provincial capital cities that were audited by the National Auditing Office (NAO) in 2013.6 Furthermore, as the hosting city of the 2010 Asian Games, Guangzhou serves as an important case to demonstrate the relationship between the hosting of mega-events and infrastructure-driven urbanization. In a way similar to many other Chinese municipal governments that host World Horticulture Expo., Universiade, and the National Games, Guangzhou's bid for the 2010 Asian Games has been derived more from a motive of the municipal government to foster urban development than a consideration of boosting national pride and showcasing economic achievements like the cases of the Beijing Olympic Games and the Shanghai Expo (Andranovich & Burbank, 2013; Close, 2010; Shin, 2014b). As such, the case of Guangzhou can be taken to illustrate the tripolar interrelationship
3 Examples of such events include major fairs, festivals, expositions, cultural and sporting events which are held on either a regular or a one-off basis (Chalkley & Essex, 1999; Hall, 2006). 4 Guangzhou in this study refers to the whole Guangzhou Municipality which includes 11 districts. For a detailed discussion of physical characteristics and administrative adjustment of Guangzhou, see Lin (2009,pp.213 and 226). 5 This figure is calculated by the authors based on the official national statistics released by CMHURD. 6 The local debt pressure is defined as a radio of liabilities divided by public budget expenditure. Only 15 municipalities had been audited by NAO by the end of 2014. The report is retrieved from http://past.easysino.com/cms/showDocumentFile.jsp?id=3519499.
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Fig. 1. Location and administrative units of Guangzhou municipality.
between the mega-event strategy, infrastructure-led and debt-financed urban development as well as the growth of local debts. The data and information analyzed in this research are derived from four sources. The first set of data is derived from China's Ministry of Housing and Urban–Rural Development (CMHURD) and it provides detail information on urban development. The second dataset is gathered from Guangzhou Statistical Bureau (GSBa, GSBb) where urban statistics about fixed asset capital investment, government revenue and expenditure are processed and published. The third dataset comes from the National Auditing Office, the Guangdong Auditing Office and the Guangzhou Auditing Bureau. The last dataset is assembled from several online sources, including: 1) official documents about a reform plan of investment and financing system to fund infrastructure construction; 2) prospectus of LGFPs stating their financial positions; 3) financial statistics from an online system named Wind Information (Wind Info); and 4) information on land conveyance is derived an authorized access online portal named China Real Estate Index System (CREIS) which is created by the China Index Academy. 4. Findings and interpretation 4.1. The soaring expansion of local debts and urban space in Guangzhou Over the last decade, the Guangzhou municipal government took on a debt that expanded at a scale and speed unprecedented in history. The first government debt, for which the Guangzhou authority should assume liability, was obtained from the World Bank in 1984. Three years later, the municipal government began to seek loans from domestic
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Table 1 Key social and economic indicators for Guangzhou and its situation in the Chinese national economy, 2010. Source: China State Statistical Bureau (CSSB) (2011), CMHURD (2011), GAB (2012), GSBb (2011) and NAO (2011).
Total population (million person)① Urban population (million person)② Land area (km2) Urban built-up area (km2) GDP (billion yuan) Fiscal income (billion yuan) Fiscal expenditure (billion yuan) Fixed asset capital investment in urban construction (billion yuan) Domestic loans and securities in total fixed asset capital investment of urban construction facilities (billion yuan) Percentage of state budgetary allocation in total urban fixed asset capital investment (%) Percentage of domestic loans and securities in total urban fixed asset capital investment (%) Municipal government debts (billion yuan)
Guangzhou
China
Guangzhou as pct. of China
12.71 7.22 7434.40 994.13 1074.83 139.92 148.72 66.08 49.67 10.48 75.17 247.45
1340.91 669.78 9,600,000 40,058.01 40,120.2 8310.15 8987.42 1363.43 466.47 29.38 34.21 12,169.5
0.95 1.08 0.08 2.48 2.68 1.68 1.65 4.85 10.65
2.03
Notes: ①Total population includes both the hukou population and the migrant population. ②Urban population refers to population in cities and towns or shizhen renkou in the official Chinese definition.
banks and higher level of governments. Local debts started to mushroom since the mid-1990s when the total amount rapidly grew from 4.07 billion yuan in 1997 to 241.73 billion yuan in 2011, an increase of sixtyfold or an average annual growth rate of nearly 200%. A further investigation of the composition of Guangzhou's local debts reveals that Local Government Financing Platforms (LGFPs) have been the most important agent of borrowing, taking the lion's share of the total local debts with 46% (GAB, 2012). The bulk of Guangzhou's local debts has been used to finance public infrastructure construction. Data obtained from the Guangzhou Municipal Auditing Bureau showed that urban infrastructure projects absorbed 67% of all bank loans. With these bank loans obtained by the municipal government, Guangzhou witnessed a rapid development of its physical environment, characterized by an ever expanding urban build-up area, newly constructed roads network, as well as an improved environmental condition. A closer and disaggregate analysis at a finer scale suggests that the most important item among all infrastructure construction projects has been associated with the hosting of the Guangzhou 2010 Asian Games. These projects initiated by the municipal government for the preparation of the 2010 Asian Games were with a total expenditure of 109 billion yuan, an equivalent to almost 60% of Guangzhou's total fixed asset investment in urban construction during the period from 2005 to 2010. The dominance of mega-event related infrastructure investment in the built-up of Guangzhou's local debts requires explanation. 4.2. The infrastructure-driven development strategy in Guangzhou The implementation of the Open Door Policy since the late 1970s has restructured the regional economy of the Pearl River Delta (PRD), where the leading position held by Guangzhou experienced a relative decline in the early period of reforms (Lin, 2009 and Lin, 2015). In the Mao era, the central government emphasized the importance of industrial
production and concentrated resources in the urban industrial sectors. As a result, Guangzhou had experienced dramatic development as a production base in South China harboring many state-owned enterprises (SOEs). However, the lack of flexibility in the organization of SOEs that ruled by state plans had undermined their ability to make adaptation to the increasingly vibrant market. These enterprises were also burdened with very high social welfare costs, which further hindered their economic performance (Eyferth, Ho, & Vermeer, 2003). By contrast, other cities in the PRD region launched a series of flexible and entrepreneurial policies, including lowering land prices, offering tax concession, and giving preferential treatments to domestic enterprises, to foster the development of township and village enterprises (TVEs) and attract foreign investment capital mainly from their neighborHong Kong (Ren, 2013). Consequently, Guangzhou lost the edge it previously held over its rural counterparts in a changing development environment caused by China's reforms and opening up. Prior to 1980, Guangzhou was in a superior position over other cities in the PRD in gross industrial output value with a share of 52 percentage of the total regional output value. This share dropped to 32% by the end of 1990. In an opposite direction, the share held by Shenzhen—a city that has benefited the most from China's opening up, in regional industrial output value was a mere 1% back in 1980, but it jumped to 18% in 1990. In response to an increasingly competitive regional environment, the Guangzhou municipal government has adopted an infrastructureleverage strategy with an emphasis being placed on the investment and improvement of urban infrastructure and environment as a means to boost the urban economy. Fig. 2 depicts the secular trend in urban fixed asset investment using a long time series, suggesting that, since 1990, the expenditure on the development of urban infrastructure construction has taken an increasing proportion of total fixed-asset capital investment in the municipality. This escalating trend of investment has been especially evident since 1998, when the municipal government launched a new campaign to visualize “minor changes in a year,
Fig. 2. Fixed asset investment in Guangzhou, 1978–2000. Source: CMHURD (1999–2000), GSBa (1999) and GSBb (2000–2001).
Y. Wu et al. / Cities 53 (2016) 51–60
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Fig. 3. Fiscal gaps in Guangzhou, 1978–2004. Source: GSBa (1999) and GSBb (2000–2005). Note: Gaps between revenue and expenditure = (local governments' revenue − local governments' expenditure) / local governments' revenue.
medium-scaled changes in three years, and major changes by 2010” through a series of infrastructure and image-building projects. Under this campaign, a total of 109 major projects aiming at urban imagebuilding and 74 projects to increase the accessibility of transportation and eliminate illegal constructions were implemented during the years of 1998 to 2001. These projects included Guangzhou's first urban expressway — Huanan Expressway, Guangzhou's longest metro line, inner ring roads in the central business districts and Guangzhou's second large-scale wastewater treatment plant — Liede Plant. The construction of urban infrastructure was at a rapid speed, by which a total number of 75 projects had been completed during 2000–2001. The implementation of the infrastructure-driven strategy has made a significant difference in the improvement of economic competitiveness of the city. The improvement of transport facilities and the enhancement of urban environment have brought back a large number of foreign investments at an amount of 3327.47 million yuan in 2001 and successfully stimulated economic growth, with a continuing rebound of Guangzhou's GDP share in Guangdong Province by 7 percentage from 1990 to 2001 (GSBb, 2002). 4.3. Constraints faced by local governments for further capital accumulation The initial success of urban development has made the municipal government more assertive towards the practice of the infrastructureleverage strategy to accelerate urban economic growth. There exists evidence indicating a deeper degree of local support for this strategy. In the conference to celebrate the progress of “medium-scaled changes in three years (1999 to 2002)” in 2003, Mr. LIN Shusen, the then Party Secretary of Guangzhou, gave affirmation of faith in the infrastructureleverage strategy, when he said that “A general election will be held this year. However, I believe, the re-elected government officials will insist on the policy of ‘urban development driven by infrastructure projects and investment-led strategy’ and the growth of the urban built environment in Guangzhou will experience another climax” (S. Lin, 2013). In the meantime, important institutional changes have taken place since the mid-1990s when the tax-sharing system was introduced. In 1994, the central government redefined the distribution of tax revenue and recentralized the most lucrative sources of revenue-the valueadded tax,7 as a shared tax claiming 75% of its receipts (Shue & Wong, 2007; Wu & Gaubatz, 2013). Local governments suffered from a substantial reduction in autonomous budgetary income but continued to 7 The VAT collected from enterprises and individuals engaged in manufacturing, repair and assembly activities, accounts for nearly half of all tax revenues in China. It is also a reliable tax whose revenues go up with GDP regardless of profitability and is thus less cyclical than income or profit taxes (Brandt & Rawski, 2008). 8 Some benefits such as health care and pensions that local SOEs used to provide to their employees simply fell to local governments via unfunded mandates from the center (Wang, 2014).
bear unchanged expenditure responsibilities,8 thereby contributing to increased financial pressure and widening fiscal gaps between local fiscal income and expenditure (Brandt & Rawski, 2008; Chien-Hsun Chen, 2008; Huang, 2012; Li & Yang, 2014; Lin, 2014; Zhan, 2012). This fiscal shortage has been exacerbated by a series of fiscal reforms, such as the transfer of administrative fees into taxes in the late 1990s for the purpose of constraining the local ability to raise extra-budgetary funds and a rearrangement of channeling 60% of personal and enterprise income tax to central government in 2002. Data presented in Fig. 3 demonstrate an increasingly high level of fiscal deficit in Guangzhou since the endorsement of the tax-sharing agreement. The insufficient budgetary income forced local officials to resort to other financing methods, giving rise to an increasingly significant role of domestic loans and securities in financing urban construction. Under normal circumstances, if local governments suffer from budgetary deficits, the primary alternatives would include generating extra budgetary resources mainly through land sales, foreign investment or engaging in market borrowing based on various disguised forms (Lin, 2014; Ren, 2013; Xu & Yeh, 2005; Zhan, 2012). Among these alternatives, bank loans are the most commonly adopted and especially efficient way for funding urban construction facilities. It is for the reason that the features of this kind of financing method can satisfy infrastructure projects' need for large scale and long period of borrowing. Data suggest that the loan-financed way of fund-raising has become the driving force in infrastructure investment in Guangzhou, with a fifty-fold increase in the amount of loans between 1995 and 1999, as well as a share of 70% in total urban infrastructure investment in 1999.9 In the late 1990s, the Guangzhou municipal government faced new institutional blockages for raising funds through borrowing. According to China's Budget Law, local governments cannot directly obtain domestic loans and securities from banks (W. Wu & Gaubatz, 2013). The Guangzhou municipal government circumvented the no-borrowing restriction by establishing a number of agencies such as the Guangzhou International Trust and Investment Corporation (GZITIC) and the Guangzhou Construction Investment and Development Corporation as borrowing arms under its auspice to secure market financing (Xu & Yeh, 2005). However, affected by the 1998 Asian financial crises, the authorities of Guangdong International Trust Investment Company (GITIC), which was entrusted and set up by the Guangdong Provincial Government to fulfill functions like collecting funds and investment from banks, announced that it would be closed in October 1998. The bankruptcy of GITIC and the reconfiguration of GZITIC owing to its bad management of investment resulted in a loss of confidence in these investment arms in the eyes of foreign investors (Sano, 2014). As a result, many commercial institutions (including overseas banks and Chinese banks) hold cautious and even suspicious attitudes towards these 9 Figures are calculated by the authors based on official national statistics collected by CMHURD.
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Table 2 LGFPs' role in urban construction. Source: PGOGM (2008). LGFPs
Authorized activities
GCIGCL
Construction of highways, expressways and other major infrastructure projects GCCIG Urban beautification projects, construction of Canton Tower, Haixinsha and Huachenghui①, environment improvement projects near game venues and urban community regeneration GWIGCL Improvement of sewage and waterway systems GMC Metro construction and operation Note: ①Haixinsha is the venue where the opening ceremony of Asian Games was held. The Canton Tower is the place where the Asian Games was televised. Huachenghui is a shopping mall located in the core area of Zhujiang New Town.
corporations' ability to repay loans and thus squeezed credits by putting strict controls over corporations' borrowing. The share of domestic loans and securities as well as foreign investment has experienced a significant decline from 66.2% in 1999 to 27.9% in 2003 (CMHURD, 2000–2004). The increasingly serious fiscal shortage and financial constraints faced by the Guangzhou municipal government posed a growing threat to further capital accumulation, which hindered continuous implementation of extensive infrastructure construction. In fact, during the ‘Ninth Five-Year Plan (1996–2000)’ period, the municipal government already encountered financial difficulties in funding its urban construction scheme. According to the investment plan, a total amount of 50 billion yuan would be required to smooth the path towards the undertaking of 12 major projects, of which 12 billion yuan would need to be collected in 1996. However, by the end of that year, the city government only raised 2.8 billion yuan due to insufficient financial resources. Based on the ‘Tenth Five-Year Plan (2001–2005)’ of Guangzhou, the amount of investment to finance other 29 projects reached a higher level at 80 billion yuan. However, the public revenue in 2001 was only 21.9 billion yuan. The mismatch between government's expected development plan and actual public revenue highlighted the importance of fundraising and borrowing to facilitate urban infrastructure development. On one hand, local governments had the fever to launch infrastructure projects. On the other hand, they had limited resource to finance these projects. The mismatch between income and expenditure needed to be dealt with through the adoption of innovative developmental strategies, one of which has been the hosting of mega-events. 4.4. Mega-event strategy as a way to facilitate capital accumulation and large-scale urban construction Encountered with the financial obstacle, the Guangzhou municipal government had to find other effective ways to rationalize public expenditure on large-scale infrastructure construction so as to enhance the possibility of obtaining credit approval when funds needed to be sought. It did not take long before the municipal government realized that hosting mega-events would be a viable option and means to help justify local development projects in borrowing and fund raising (Broudehoux, 2007; Table 3 Financial records for the 2010 Asian Games and Asian Para Games. Source: GAO (2011) and Luo (2011). Expenditure area
Amount (bill. Yuan)
Percentage (100%)
Operational expenses on the Asian Games Operational expenses on the Asian Para Games Expenses on special areas Venue construction Urban facelift and infrastructure construction Total
6.05 0.67 3.51 7.25 109.00 126.48
4.78 0.53 2.78 5.73 86.18 100.00
Note: The audit was restricted to operational expenses and did not cover expenditure on infrastructure and urban facelifts to prepare Guangzhou for the Games. Outlay on infrastructure construction is derived from China Daily.
Cochrane et al., 1996; Hall, 2006). In the name of mega-events, many long-anticipated urban infrastructure activities that are previously proposed by local governments could be re-packaged under the preparation for mega-events, and be served as public affairs that influence long-term interests of the host city. Therefore, it is possible for the municipal government to subsume its urban development projects within the plan of provincial or central governments, thereby gaining exceptional supports— including extra land and capital subsidies from the central government, tax incentives to benefit contracted companies and easier access to obtaining bank loans—to accomplish development goals or ambitions for enhancing competitiveness (Cornelissen & Swart, 2006). In recognition of the great potentials to be materialized from the hosting of mega-events, the Guangzhou municipal government publicized its strong desire to host the 16th Asian Games and submitted an application to the State Council in December 2003. Mr. LIN Shusen, the then Party Secretary of Guangzhou, announced in a press conference that “the city government will take advantage of the Asian Games to make great progress in terms of social development and urban construction. More efforts and resources should be devoted to the construction of the sporting venues, Asian Games Village, transport infrastructure as well as related projects, like the second phase of the new airport, the train station and other large-scale infrastructure facilities. The total amount of investment would be as much as 200 to 220 billion yuan”.10 Zhang Guangning, the then Mayor also stated that “a series of constructive programs which need supports from the governments of higher levels and will be submitted to the central government for its consideration once the bid has succeeded and the schedule of Asian Games can be fit into the original plan of ‘major changes in 2010, so as to make many key projects, like sewage disposal, air pollution control, urban regeneration as well as the relocation of the secondary industrial sector and promotion of the tertiary industry, into operation”.11 Apparently, the municipal government attempted to take advantage of the Asian Games as a springboard for a concentrated investment in the urban infrastructure construction. After wining the bid for hosting the 16th Asian Games, the municipality issued an official document12 to provide an administrative basis for the establishment of four state-owned LGFPs, namely, the Guangzhou Communication Investment Group Company Limited (GCIGCL), the Guangzhou Water Investment Group Company Limited (GWIGCL), the Guangzhou Metro Corporation (GMC) and the Guangzhou City Construction Investment Group (GCCIG), which are financial platforms to handle fund raising and investment in infrastructure construction. This document clearly stated that the establishment of these LGFPs is for the purpose of “changing the current government budgeting and bank loans as the main ways to finance infrastructure activities and expanding the sources of funds for urban construction” (Guangzhou Municipal People's Government, GMPG, 2008). In fact, the four companies have become regular enterprises instead of performing financing functions for local government after the Asian Games. Therefore, they are created for the construction of urban infrastructure projects, including above-ground transportation, underground transportation, waste management, urban community regeneration and the building of the Asian Games City during the preparation period (Table 2). The creation of four LGFPs has successfully paved the way to mobilize funds and to obtain loans from the banks. In order to meet various requirements for net asset value and profitability, public assets of high 10 Jin X. (2008). Guangzhou chenggong shenban 2010 nian yayunhui [Guangzhou successfully bids 2010 Asian Games]. Guangzhou Wenshi (Vol. 29). http://www.gzzxws. gov.cn/gzws../gzws/ml/69/201003/t20100323_17836.htm (accessed 8 June 2012). 11 News Guangdong (2004). Guangzhou shenya chenggong! Yangcheng jinye xiyue feiteng yanhua zhaoyao yekong [Guangzhou successfully bids Asian Games. The city is full of delight and firelights tonight. http://www.southcn.com/news/gdnews/gdpic/ 200407020122.htm(accesed 1 July 2004) 12 The official document is titled the “Yingfa chengshi jianshe tourongzi tizhi gaige fangan de tongzhi” [Announcement of the Reform Plan for an Investment and Financing System for Urban Community Building].
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Fig. 4. Spatial distribution of event venues and their distance.
quality and parcels of land are pooled together and injected into the LGFPs as capital funds. The asset value of these four LGFPs skyrocketed over a short period of time, with an aggregate amount of 221.16 billion yuan in 2009. The strong balance sheets made it possible to obtain adequate lending that helps LGFPs secure external investment financing and the total amount of credit limits provided by a group of commercial and policy banks to four LGFPs researched 266.87 billion yuan. Thanks to the guarantee of sufficient financial supply, a large amount of investment associated with sporting facilities and urban infrastructure
Fig. 5. The operation mode of LGFPs.
has been poured into the preparation for the Asian Games. Information listed in Table 3 suggests that about 17.48 billion yuan was spent on venue construction and operation management that are directly related to this event, while the bulk – about 109.0 billion yuan – was spent on infrastructure development and environment enhancement, including the construction of the public transportation system, improvement of urban environment, renovation of building facades, refinement of the sewage disposal system and waterways dredging in the old city districts. That is to say, about 86.2% of the total budget was spent on the developments of the supporting infrastructure that are not essential for holding the Games13 and the amount was almost 56.6% of Guangzhou's total urban fixed asset investment from 2005 to 2010 (192.6 billion yuan) (Yin, 2011). The preparation for the Asian Games has also profoundly prompted the restructuring of the urban space. The Guangzhou municipality integrated the preparation for mega-events with the city's spatial development plans. It was reflected in the site selection of the Asian Games Athletes Village and the spatial distribution of the event-related projects. Specifically, the initial site of the Asian Games Athletes Village was at the city center, just 5 km away from the main event venue and other 14 sport venues. This favorable condition could relieve the transportation pressure and smooth the operation and management during the Games. However, the final site selected was located in a longproposed new growth center — the Guangzhou New Town, which is 13 A portion of the fund invested in the supporting infrastructure is possibly necessary for the Games, like a new constructed metro line connecting the Guangzhou Airport to the Guangzhou East Railway Station and an extended line linking to the main games venue. However, these two lines just cost no more than 9 billion yuan.
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Table 4 Revenue of GCCIG in 2010 and 2011 and expected revenue by 2017 (10 thousand yuan). Source: GCCIG (2013). Gained revenue
Expected revenue
Source 2010
Commercial assets
Land revenue Total
Canton Tower Haixinsha Huachenghui Liuhua Trade Centre Properties in Zhongshan Road China Mayor Building Other real estate properties Subtotal
2011
Subtotal
Pct
7201
25,226
32,427
24
6152
24,400
30,552
23
13,353 20,000 33,353
49,626 51,100 100,725
62,979 71,100 134,078
47 53 100
located in the southern part of the city for the purpose of Guangzhou's southward expansion,14 and has to some extent gone against the standard of site selection.15 Furthermore, two important official documents16 that guided the urban development plans during the preparation period clearly stated the Guangzhou municipal government's intention to construct two urban centers and four new towns by combining them to the spatial distribution of event venues. It can be seen from Fig. 4 that event venues have been scattered all over the city with a total number of 50 and concentrated mainly in the southern (Panyu district where the University Town is located) and eastern parts (Tianhe district where the Tianhe New Urban Centre and Olympic New Town are located) that harbored 68% of total venues. This manifests the local government's intention to adopt the Asian Games as a method to promote Guangzhou's spatial structure to transform from a mono-centric to a polycentric one.17 4.5. Mega-event strategy as a time bomb to trigger a debt crisis In the acquisition of bank lending at a large amount, the municipal government has focused on how its LGFPs could raise enough funds to repay secured loans and guarantee sustainable operation. As shown in Fig. 5, in order to facilitate fund raising and increase potential profits, the Guangzhou municipal government has provided capital to these state-controlled urban infrastructure construction companies through public assets injection,18 fiscal subsidizes,19 and provision of franchise.20 More often than not, these benefits are not enough to sustain the operation in the long term. The government also transferred land use rights to these platforms, thereby not only securing bank loans and bonds through using land as collateral but also providing future operating revenue from land sales to support infrastructure projects. Therefore, the injection of land has become the most important measure to prop up 14 The spatial planning of southern expansion was put forwarded as early as 2000 and the Guangzhou New Town was regarded as a key development area. However, this area remained under-developed since then. 15 According to the international standard, the distance between event venues and games village where athletes and staffs reside should be within 30 km or 45 min commuting time. 16 These two documents are the “Mianxiang 2010 yayunhui de chengshi guihua jianshe gangyao [Outline of Urban Planning and Construction for Guangzhou's 2010 Asian Games]” and “Guangzhou 2020: chengshi zongti fazhan zhanlue guihua [Guangzhou 2020: the strategy planning of urban overall development]” proposed in 2005 and 2009 respectively. 17 This intention has been publicly stated in an official document named the Outline of Urban Planning and Construction for Guangzhou's 2010 Asian Games. 18 The Guangzhou municipal government injected Guangzhou Liuhua Trade Centre, China Mayor Building and some commercial assets in Zhongshan Road into GCCIG. Guangzhou Liuhua Trade Centre is located where the China Import and Export Fair was held from 1974 to 2008. China Mayor Building is on the new urban central axis. 19 The amount of fiscal subsidies obtained by GMC, GCIGCL and GCCIG has reached at 26.66 billion yuan, 4.91 billion yuan and 21.19 billion yuan respectively. 20 GCCIG has been authorized to manage and gain revenue from the operation of Canton Tower, Haixinsha and Huachenghui.
2012–2017 192,579 78,000 179,773 154,722 25,415 3100 4500 638,090 1,561,873 2,199,962
Subtotal
701,068
1,632,973 2,334,041
Pct
30
70 100
LGFPs. For instance, the Guangzhou Water Investment Group Company Limited (GWIGCL) acquired two parcels of land in Baiyun and Huadu Districts (GWIGCL, 2011); the Guangzhou Metro Corporation (GMC) obtained the rights of reserve and management of the land located around newly-built metro stations with a radius of 300 m and owned all the future land net revenue (GMC, 2011); the Guangzhou Communication Investment Group Company Limited (GCIGCL) was entrusted for the construction of urban areas around New Baiyun International Airport (GCIGCL, 2010); and the land revenue to be generated from the sale of several land parcels located around Guangzhou South Railway Station and Zhujiang New Town would be poured into the Guangzhou City Construction Investment Group (GCCIG) after having the reserve costs and commission charges deducted (GCCIG, 2013). It should be noted that the revenue generated from land sales has constituted the main source of the future capital for LGFPs and would profoundly affect their ability to repay. Take the GWIGCL and GCCIG as examples. The former platform primarily engaged in the construction of public welfare projects that need substantial funds but with little profits, such as sewage treatment and waterways dredging in old city districts. As for the repayment of bank loans allocated to these two programs, the municipal government tried to rely on the revenues generated from the sale of two parcels of land in Baiyun and Panyu, which was estimated to be 30 billion yuan. For the latter one, although it is eligible to operate and gain benefits from the operation of commercial projects, land has also played a vital role with a higher revenue than these property. As shown in Table 4, the expected revenues gained from the four major commercial projects, namely the Haixinsha where the opening ceremony of Asian Games held, the Canton Tower where the Asian Games was televised, a shopping mall (named Huachenghui) located in the central line of Zhujiang New Town and Liuhua Trade Centre where the China Import and Export Fair21 was held before 2004 were just 7 billion yuan. Whereas land revenue accounted for 53% of the total income and the share of potential revenue was as high as 70% with only 30% remitted to its counterpart.22 However, the reality is not as optimistic as what was anticipated. Since land premium is a very volatile source of revenue, which hinges on the general economic climate especially the condition of the local property market (Tsui, 2011). If there were a down-turn in the real estate market, a drastic reduction in the price or scale of land sales would occur. The financial hardship that the GCCIG has encountered testified the possible debts crises. As discussed earlier, the municipal government has transferred several parcels of land around the Guangzhou South Railway Station into GCCIG and intended to utilize the income from land auction to repay the loans that have been spent on the
21 The China Import and Export Fair is a trade fair held in the spring and autumn seasons each year since the spring of 1957 in Guangzhou. It is the largest trade fair in China, with the largest assortment of products, the largest attendance, and the largest number of business deals made at the fair. 22 This is estimated by GCCIG in 2012.
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Fig. 6. Total liabilities of four LGFPs. Source: derived from Wind Info.
infrastructure construction associated with the Asian Games. Although these land parcels have been prompted as recommended ones by the city government and official cadres who have gone to Hong Kong for sale promotion in 2011, only two parcels of land out of a total of twenty had concluded transactions. As the information provided by the Guangzhou Land Resources and Housing Management Bureau, these land parcels for sale were zoned for commercial and residential purposes, with the highest land price among all land types. Based on the listed price and transacted price, the estimated land transfer fees of all the land would be 105.76 billion RBM while the actual amount is only 5.11 billion yuan. Consequently, the GCCIG had to sell other properties to sustain its operation.23 The instability of urban revenue has made LGFPs very vulnerable to the volatility of the real estate market and would likely trigger off a local debt crisis. Among the four LGFPs, potential debt problems resulted from the development projects involved in the preparation for the Asian Games are especially serious for the GWIGCL and GCCIG. Data show that the loan balance of the two state-owned investment and finance enterprises was 32.80 and 55.81 billion yuan respectively and the debt ratio was 84.56% and 71.54% by the end of 2010.24 Besides, the share of liabilities borrowed by these four LGFPs has reached a high level of 62.4% of the total government debts by the end of 2010 (Fig. 6).
to enforce local government's anticipated development plans and serve as the springboard to channel funding for infrastructure spending. By injecting a variety of municipal assets as equity and collaterals into four LGFPS in which land was used as the main asset, the Guangzhou municipal government has managed to mobilize a variety of resources from commercial banks to finance infrastructure projects and foster urban spatial restructuring. The operation mode of LGFPS was heavily reliant upon land revenue to supply investment funding and finance debt servicing in these LGFPs. However, the revenue source from land sales was highly unstable, risky, and volatile, leading to the build-up of huge local debts. This study has important policy implications. In contrast to many studies that emphasized the positive impacts of mega-events on host cities, this study has uncovered the hidden potential risks invoked by extensive infrastructure investment associated with the hosting of mega-events. The case of the Guangzhou Asian Games offers a unique window to gain better understanding of this popular growth-oriented strategy and provides important information for policy makers. Further research is needed to see how the pattern and process identified from Guangzhou are applicable to other large cities such as Beijing and Shanghai with similar practices.
5. Conclusion and discussion
The work described in this paper has been sponsored by the grants obtained from the State Natural Sciences Foundation of China (NSFC #41271147), Research Grants Council of the Hong Kong SAR (GRF 746413 H), and the Seed Funding for Basic Research Program of the University of Hong Kong.
China's phenomenal urbanization over recent decades has attracted great scholarly attention. Much has been written to document the growth and transformation of Chinese cities in isolation from the rapidly expansion of public debts. This research has been conducted to address the links missing in the existing literature. Rather than treating the growth of cities and soaring public debts as stand-alone events, this study contextualizes them within related political and institutional frameworks so as to demonstrate their interrelations. Hosting megaevents has been identified as a popular strategy actively pursued by Chinese municipalities to stimulate infrastructure-driven urbanization as well as attract and accumulate financial capital with an important effect on the building up of public debts. The case of Guangzhou does provide strong evidence to show how the mega-event strategy has intensified the urbanization process with increased local debts and concentrated infrastructure investment. The Asian Games was used to justify large-scale infrastructure investment
23 The sold assets included the stock right of its one subsidiary corporation and management right of some underground space. 24 The criterion of withdrawal of a LGFP to a general state-owned enterprise is that its debt ratio should be under 70%.
Acknowledgment
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