SPECIAL REPORT-Wall Street wannabe points to China’s growth risks

(Repeats story issued on March 3 to add PDF link)

* China to target slower growth at national parliament

* But local governments still chasing speedy expansion

* Inflation, debt risks increase as a result

* Tianjin, China’s fastest-growing city, shows the tensions

(For PDF version of the story: http://r.reuters.com/duc48r)

By Simon Rabinovitch

TIANJIN, China, March 3 (Reuters) – Yujiapu does not roll
off the tongue like Wall Street, but planners in the northern
Chinese port city of Tianjin hope it soon will.

Round-the-clock construction is transforming muddy ground
into what officials boast will be the world’s largest financial
zone a decade from now.

It’s a monument to the ambitions driving China’s economic
growth and to the sort of risks leaders in Beijing see piling up
alongside the country’s new skyscrapers.

When they gather for their annual parliament in Beijing
starting on Saturday, they will endorse plans to tap the brakes
on the economy, a slowdown to keep inflation and debt — both
rising but under control — from becoming far more troublesome.

But they only need make the one-hour trip to the financial
district sprouting up in Tianjin to see how hard-driving local
officials, pliant state-owned banks and the soaring aspirations
of people seeking a better life are thwarting their designs for
slower, steadier growth.

A forest of cranes and the foundations of 12 buildings, the
first phase of Yujiapu, rise from the land where Li Guowang once
lived. The steelworker’s home was destroyed to make way for the
development and he was moved to a government-built high-rise
compound last year, though without the bitterness that often
accompanies such relocations in China.

“If anything, I’d say the new financial zone is too small —
the entire city should be like it,” he said, playing with his
young daughter in the snowy plaza at the foot of his apartment.

“Hopefully, it will be like a strong light bulb, a single
point that will brighten up the rest of the room.”

Yet even Li had doubts about how a financial centre housing
up to 120 buildings, if all goes according to plan, could
produce anything to rival his employer, the Tianjin Pipe

“What exactly they will do there, I’m not sure. It’s not
like steel, which you can see and touch. I guess they’ll be able
to hold lots of business meetings,” he said.


Although not about to supplant Shanghai, home of China’s
main stock exchange, Tianjin has been racing to hone its
credentials as a financial hub. In the past three years alone,
it has opened the Bohai Commodity Exchange, the Binhai
International Equity Exchange, the Tianjin Climate Exchange and
the Tianjin Ferroalloy Exchange.

Tianjin’s economy grew 17.4 percent last year, the fastest
of China’s 31 provincial-level areas. While that would have been
cause for celebration in the past, the local government has been
modest in trumpeting its achievement.

“It has been a historic breakthrough,” said Tang Zhongfu, a
director on Tianjin Binhai’s Development and Reform Commission,
a powerful planning agency in the city.

“But we still have to address problems, like the
relationship between current growth and long-term growth,” he

Over their eight years in power, President Hu Jintao and
Premier Wen Jiabao have vowed to steer officials away from the
blind pursuit of growth, instead advocating what they term
“scientific development”.

Fuzzy as it sounds, the concept is well understood in China
to mean a more sustainable economic model: slower industrial
investment, less pollution and a fairer distribution of income.

During the National People’s Congress this month, China will
unveil a detailed policy blueprint for the coming five years. Hu
and Wen will try to enshrine their agenda by setting an official
goal of 7 percent annual growth from now until 2015, well down
from the 11.2 percent average of the past five years.

The last five-year plan had, in fact, pencilled in 7.5
percent growth, so the figure is better viewed as the lowest
tolerable expansion rate rather than a binding requirement.
Still, it will be a powerful expression of their desire for
healthier development.

But that is easier said than done. Not a single one of
China’s 31 provincial-level governments has signed up to the
lower growth target. Most want something far higher. Tianjin,
for one, is shooting for 12 percent.

“It’s quite clear that the central government will not be
able to realise its goal,” said Yang Zhiyong, an economist in
the Chinese Academy of Social Sciences, a top government

Outsiders often assume that Beijing is omnipotent in
governing China, bending far-flung cities and villages to its
will. The reality is different.

A centralised tax system has left local governments strapped
for cash. By promoting fast growth, they look to get proceeds
from land sales to fill the gap.

“You have a problem. Healthcare reform, pensions, public
housing — they all need money,” Yang said. “But if I don’t have
money, how can I accomplish the tasks set for me by the central

The problem runs even deeper, said Victor Shih, an expert on
elite Chinese politics at Northwestern University in the United
States. The central government is divided between multiple
factions and none wants to take an unpopular stand against
growth, especially as they jockey for position ahead of a major
leadership reshuffle in late 2012, he said.

“No one in the central government wants to end the party,
even at a time of high inflation,” Shih said. “That leaves a lot
of room at the local level to carry on and to try to achieve
local objectives like investment-driven growth.”


From his desk stacked with papers and volumes of statistics,
Tang, the planner in Tianjin, reeled off staggering numbers that
appeared almost conservative against the scene outside his
window, a patchwork of construction sites and new buildings
stretching into the distance.

The economic output of Binhai, the district in Tianjin where
the Yujiapu financial zone will be based, more than doubled over
the past five years and the government is targeting the same in
the next five. Binhai’s population of 2.48 million will more
than double by 2020.

Global investors have cast a worried eye over China’s ghost
towns, new sections of cities from Ordos in the north to Guiyang
in the south with vast apartment blocks and few people. But
Tianjin is a reminder that what seems to be excessive investment
doesn’t always equal waste in the world’s second-largest

About 75 miles (120 kms) from Beijing, a high-speed train
puts more than 30 million people within half an hour of
Tianjin’s downtown.

Its port is already the fourth-busiest in the world. And an
enviable list of foreign firms has set up factories in the
Binhai district: Airbus , Toyota and Motorola
, to name a few.

The rationale for more offices, more factories, more
apartments and more highways is clear. The question is whether
it is all too much and happening too quickly.

“Everybody wants to be the next Shanghai, so everybody wants
to expand faster than their neighbours,” Qu Hongbin, HSBC’s
chief economist for China.

That description is certainly apt in Tianjin. The municipal
government views the Binhai district, anchored by the Yujiapu
financial zone, as its answer to Shanghai’s Pudong, a rural
patch of land before 1990 that has been built into the country’s
financial hub today. Driven by huge construction spending,
Binhai’s GDP topped Pudong’s last year for the first time.

Tianjin has also set its sights on Guangzhou. While Shanghai
and Beijing are unrivalled as the country’s two biggest cities,
Tianjin, the sixth largest, will surpass the southern metropolis
as China’s third city in a few years on its current trajectory.

In its plan for the next five years, Gu