* Beijing promotes "specialty towns" to boost regional
* Local govts launch array of manufacturing, service
* Concerns grow over white elephant projects and risky debt
By Yawen Chen and Christian Shepherd
ZHONGXIAN/YIXING, China, Dec 8 (Reuters) - The first plan
was for an "eco-city" that would help pull Zhongxian, a remote
city on the hilly banks of the Yangtze River in southwest China,
out of poverty.
But after a dispute with the local government over land
rights, the developers pulled out and all that remains of the
green-themed project are half-completed structures and piles of
Now, Zhongxian's government has seized upon another plan to
reinvent its economy: a 1.4 billion yuan ($211.60 million)
online gaming complex that it hopes will cash in on China's
fast-growing e-sports market.
When finished, the complex will include a 6,000-capacity
stadium and an incubator for gaming start-ups - and this in a
town that lacks an airport or railway station.
Zhongxian, a hardscrabble city of one million people, is
among a slew of towns responding to Beijing's call to create
1,000 "specialty towns" by 2020.
The Chinese government is hoping to spur the development of
sustainable economies around local industries in the hinterland,
but the plan also underlines the challenge it faces in trying to
rein in risky debt undertaken by local governments.
Local governments have responded to the initiative by
embracing a vast array of industries; cloud computing,
chocolate-making, traditional painting and much more. Some
projects involve new industries; others are based on promoting
traditional ones, or developing tourist industries based on
local natural attractions.
While the initiative might mean some long-term growth in
neglected regions, economists are also concerned about a new
buildup of the kind of risky debt that Beijing has been
struggling to resolve, and result in more white elephant
projects across the country.
China's State Council Information Office, which doubles as
the Communist Party's communications arm, did not respond to a
faxed request for comment.
Many of the specialty towns - like the one in Zhongxian -
are also proceeding with projects before getting official
approval, raising the risk potential, the economists say.
"On one hand, the plan can help resolve inequalities in
regional development, but on the other, lots of people are
taking specialty town funds and creating a fiscal mess," said
Gao Wei, a Beijing-based analyst at the Centre for China and
China's state planning authority, and the housing, land and
environmental protection ministries, on Tuesday issued new
guidelines for specialty towns, citing growing risks from local
government debt and an over-emphasis on property development.
Guo Li, a Zhengzhou-based independent city planning
specialist, calculates there are as many as 6,000 specialty
towns in the works. Based on the typical announced investment of
3 billion yuan, Guo said, total investment may be about 18
Zhongxian raised funds through a proxy company set up by the
city's finance bureau, according to the company's official
Such companies – known as local government financing
vehicles - can be used to skirt restrictions on borrowing by
local governments. However, regulators have raised concerns
about the system's lack of transparency.
Other specialty towns have turned to the so-called
public-private partnerships preferred by Beijing, drawing
investment from private companies. However, the authorities have
expressed concerns that some local governments are using the
partnerships as "disguised channels" to increase debt.
REJUVENATING THE HINTERLAND
Plans to rejuvenate the comparatively poor hinterland and
narrow a divide with prosperous coastal regions have mushroomed
under President Xi Jinping, who is ratcheting up pressure on
local officials to find equitable, cleaner and more sustainable
drivers for China's slowing economy.
Xi added fresh impetus to those rebalancing efforts when he
said recently that the "principal contradiction" facing Chinese
society was between "unbalanced and inadequate development" and
the "people's ever-growing needs for a nice life".
His statement was seen by experts on Chinese politics as a
significant policy shift that will push officials to focus on
sustainable development in neglected areas and kick efforts like
the specialty town initiative into overdrive.
During China's manufacturing boom, a host of single-industry
towns sprung up organically around factories, specializing in
things like socks or Christmas lights.
The new specialty towns, by contrast, are government
mandated and normally require approval from the provincial
government and central entities, including the housing ministry
and state planner. The towns are usually limited to a
three-square-kilometer zone dedicated to the industry of choice.
In August, five specialty towns in Zhejiang province
received warnings from the provincial economic planner for
failing to meet targets on earnings, investment and innovation,
according to media reports.
One was a "pet town" whose plans included making and selling
dog houses, leashes and chew toys, as well as attracting
tourists with a bone-shaped visitors centre. The town failed to
provide a high return on investment and spent too much on
building shoddy local infrastructure, the reports said.
Reuters could not reach the Zhejiang government for comment.
HOPES AND DOUBTS
In Zhongxian, residents said they were hopeful the gaming
complex would boost incomes and generate jobs.
Although the government has yet to apply for specialty town
status, local officials say they are in the process of applying.
Yi Hui, director of the Zhongxian Cultural Committee, said
the city had no set goals in terms of return on investment as
the project was still in its early stages. Zhongxian seized upon
the industry as one with great potential when considering new
opportunities, he said.
The booming Chinese gaming industry was "for sure good for
our economy", he said.
Zhongxian's stadium, due to open in December, will bring in
rental income and ticket sales from future gaming competitions,
Yi said. Zhongxian has won the right to host the grand final of
China Mobile E-sports Games – a mid-tier competition backed by
the General Administration of Sports – for the next five years.
China's main e-sports events are usually held in cities like
Shanghai. For Zhongxian, bringing in fans will be more difficult
- the main public transport link is a three-hour bus ride away
from downtown Chongqing, the closest major city. But Yi said
shuttle buses would bring in visitors when the gaming stadium
He said the city estimates the gaming town will help attract
at least 3.6 billion yuan in new businesses and investment, as
well as tourists.
One government-approved specialty town, Dingshu, on the
shores of Lake Tai in Jiangsu province, is aiming for a dual
approach: leveraging its history as a centre for red-clay
teaware, and developing a small-scale aviation industry on the
It has set up an industrial park that already has a company
building small float planes on Lake Tai and one that makes
aviation equipment. The city hopes to attract more
aviation-related businesses and build an airport.
But the local government is pinning most of its hopes on
Dingshu's pottery industry.
A spokesperson from the government of Yixing, of which
Dingshu is a district, said while the aviation industrial park
was independent from the pottery specialty town, it was "icing
on the cake" for Dingshu's economic development.
Local residents said it was unclear how becoming a specialty
town will help their pottery businesses and they worry about
"As yet, I have not seen any change from Dingshu becoming a
specialty town," said one pottery seller surnamed Zhang.
($1 = 6.6162 Chinese yuan renminbi)
(Reporting by Yawen Chen in Zhongxian and Christian Shepherd in
Yixing; with additional reporting by Irene Wang in Beijing and
Anita Li in Yixing; Editing by Philip McClellan)
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