With Bo Xilai on Trial, China Adopts Chongqing Model (Page 2 of 2)

Many of the socioeconomic components of Bo’s Chongqing Model are also being adopted by the Chinese leadership that is persecuting him. This effort is being spearheaded by Premier Li Keqiang.

During Bo’s time as Secretary of Chongqing, the municipality enjoyed astounding levels of growth. These growth rates were made all the more amazing by the fact that the period coincided with the 2008 financial crisis.

Much of the economic boom was driven by investment in infrastructure and copious amounts of Foreign Direct Investment, which Bo attracted to Chongqing through good infrastructure investment, subsidies for foreign businesses and low corporate tax rates. But the most notable aspect of the Chongqing growth model was Bo’s emphasis on social justice and greater equality, which are the parts of the model that Li and the Chinese leaders will find most attractive.   

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For example, during Bo’s tenure State-Owned Enterprises (SOEs) in Chongqing paid the highest taxes in all of China, according to a recent analysis by Oxford Analytica, a global analysis and advisory firm that recently forecast that Chinese leaders would adopt some of Bo’s economic policies. With these SOE taxes and large amounts of borrowing, Bo invested voraciously in low income housing projects and extended urban Hokou status to rural migrant workers in Chongqing. Indeed, Bo used Hokou reform to drive urbanization by offering rural farmers the chance to trade their residential land rights for urban Hokou residency. As a result, Chongqing has converted 3.2 million people from rural to urban residents in recent years; more than three times that of Guangdong, Shanghai Chengdu combined!

Li’s economic plan has already tried to pursue many of these goals through similar means, and more are almost certainly on the way. One example is Li’s pet project, the Shanghai Integrated Free Trade Zone (SIFTZ), which seeks to attract greater investment by offering “world-class transport and communications facilities and a tax-free environment for domestic and foreign enterprises.”

Similarly, the new stealth stimulus that is quietly being implemented is largely going to social housing projects, slum renovation and transportation infrastructure. As J Capital Research’s Anne Stevenson-Yang explained to Forbes, the stealth stimulus “is a genuine acceleration in infrastructure spending and [there will be] many announcements about how the government will accelerate ‘slum renovation,’ water projects, and roads.”

Li has made it abundantly clear that urbanization will be a top priority under his administration. Although few concrete details on implementation have been unveiled so far, there is an understanding that accelerating urbanization will require reforming the Hokou system so that migrants in the city can obtain urban status. It is also understood that urbanization will require building massive amounts of low income housing because migrant workers and the urban poor cannot afford housing in the booming real estate markets in Chinese cities.

Even Bo’s eco-friendly polices— such as his tree-planting campaigns and efforts to move high-pollution factories out of the cities— is being adopted in tone if not substance by Li and the Party leadership.  

It’s by no means surprising that Li is looking to the Chongqing Model for his economic policies. After all, although Chongqing is the largest Chinese municipality in terms of population, it is also one of the most developed inland cities in the country. This is important because Li’s big push for urbanization will focus on developing second and third-tier cities mostly in the Chinese interior along the Yangtze River. Thus, Chongqing would be the most sensible place to look for policy ideas.

Yet there will have to be two crucial differences between Bo’s economic agenda in Chongqing and Li’s national one. First, as noted above, Chongqing enjoyed nearly unparalleled growth rates during Bo’s reign whereas China as a nation is going to have to accept lower growth rates than it has been enjoying. Growth also differ substantially between different localities, however, and if Xi’s political campaigns can keep the Party and PLA in line this should be manageable.

More challenging for Li is that Bo’s massive socioeconomic plan in Chongqing relied on heavy borrowing and investment, both of which China is trying to move away from. By targeting investment better, and in particular directing it at underdeveloped inland cities, Li might be able to get better returns on investments than his predecessors did near the end of their tenures. Continuing to take on more debt will prove more problematic and risky

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