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The economy: slower but still ticking along
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EXPANDED use of government subsidies on housing, green cars and startup companies is helping offset slower capital investment and sluggish factory production in Chengdu, the economic bellwether of western China.
In the first quarter, Chengdu’s gross domestic product expanded 7.4 percent from a year earlier, slowing from 8.9 percent for all of 2014, when the output of goods and services surpassed 1 trillion yuan (US$161 billion) for the first time.
The government said the slowdown seen in the first quarter is likely to be temporary, and new growth policies will herald the resumption of faster economic development.
“We need to renew policies to cope with new challenges,” the city said in a recent document. “After Chengdu’s significant step forward last year, the city is encountering certain difficulties that require attention.”
Still, Chengdu can console itself with the fact that its GDP rate exceeded national growth by 0.4 percentage points in the first three months.
The capital of Sichuan Province has to cope with a slower-than-expected shift of industries from coastal cities to the hinterland, as set forth in national economic development policies. It is also suffering from weaker foreign and domestic investment and consumer demand. Meanwhile, the city’s once vaunted advantage of cheaper labor and operations costs is beginning to erode.
In April, Chengdu released a raft of new policies aimed at sustaining growth. They focused on three major points: attracting more investment, expanding consumer consumption and accelerating industrial restructuring to update factories and focus on cutting-edge technologies.
Attracting investment
Foreign direct investment in Chengdu reached US$2.06 billion in the first three months, while investment from within China was 92.1 billion yuan. The figures were a “notable slowdown” although they met targets.
The city said it will continue to streamline red tape in the approval process for new projects. Government-backed projects with investment of 50 million yuan or less will have their project feasibility and proposals reduced to one statement. For projects under 10 million yuan, a project feasibility statement will no longer be required.
Chengdu has also introduced a new investment model that allows partnerships between private investors and governments for infrastructure projects.
“Fast urbanization in Chengdu and surrounding areas creates a lot of demand for construction,” said Chen Bin, deputy director of Chengdu Investment Promotion Bureau. “We need to be innovative in the funding of these projects.”
In June, a second group of projects eligible under the new public-private partnership program will be unveiled. At the same time, the city will expand its list of public infrastructure projects available under the program.
Expanding consumer consumption
Retail sales in Chengdu in the first quarter rose 10.7 percent from a year earlier to 117.6 billion yuan, moderating from 12 percent growth last year and trailing the 2015 annual target of 12 percent. One bright spot was online spending, which surged 38.9 percent to 16 billion yuan.
“We need to offer more products and create better distribution channels,” said Li Hao, deputy director of the Chengdu Commission of Commerce.
This year, Chengdu will establish five new shopping malls and hasten the upgrading of central commercial districts, equipping them with the latest information technology management.
“Consumption potential exists in housing, eco-products, tourism, communications and health,” Li said. “It’s our job to promote it.”
To support the housing sector, Chengdu has expanded the areas for mortgage borrowers and the funds can be used to pay for rental fees of housing.
Chengdu will continue promoting the use of electric cars by setting up more charging stations and promoting the purchase of eco-cars by offering subsidies to buyers. Electric cars will have fewer traffic restrictions and will be allowed to park free in some state-owned lots.
On the tourism front, travelers to Chengdu can be greeted with digitized information and more helpful visitor services.
Accelerating industrial restructure
Chengdu’s industrial production in the first quarter increased 6.2 percent from a year earlier, slowing from the 2014 pace of 12.2 percent.
Strategic industries bucked the trend.
The car sector reported production expanded 15.4 percent, while information technology sector was up 13.7 percent.
“We have strong fundamentals in core industries like information technology, auto manufacturing, aviation, machinery and biomedicine,” said Yang Jie, deputy director of Chengdu Development and Reform Commission.
The city government will provide some subsidies for foreign technologies and equipment needed in the modernization of local industries. Those imports will also be given preferential customs treatment.
To foster innovative startup companies, the city will create more “incubation parks” where young entrepreneurs can test their bright ideas. Some startup funding will also be available.
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