Local leaders were all smiles this summer at a groundbreaking ceremony for a vast copper smelting project that seemed like the answer to the chronic unemployment that has plagued Shifang in northern Sichuan Province ever since a devastating earthquake in 2008.
However, within days, the tree-lined plaza at the heart of the city was packed with thousands of youths, protesting that the US$1.6 billion factory would pose a pollution hazard. After two nights of street battles pitting youths against the riot police, city leaders canceled the smelter.
“The environment is more important” than new investments or jobs, said a young woman sitting on a recent afternoon at the cafe across the street from the plaza, now empty except for a clutch of retirees gathered under the clock tower.
China’s economic boom over the past three decades has depended overwhelmingly on a build-at-all-costs investment strategy in which pollution concerns, the preservation of neighborhoods and other such questions have been swept aside. However, that approach is starting to backfire, posing one of the biggest challenges for the new generation of Chinese policymakers who will take over at the Chinese Communist Party (CCP) Congress, which started yesterday.
New investment projects used to be seen as the best way to keep the Chinese public happy with jobs and rising incomes, assuring social stability — a paramount goal of the CCP — while frequently enriching local politicians as well.
However, from Shifang in the west to the port of Ningbo in the east, where a week of sometimes violent protests forced the suspension on Oct. 28 of plans to expand a chemical plant, more projects are running into public hostility.
In many cases, they are running into opposition not just from farmers who do not want their houses and fields confiscated, but also from a growing middle class fearful that new factories will lead to more environmental damage.
In response to this and other worries about the economy, a number of influential officials and business leaders in China have stepped up their calls for changes aimed at increasing the efficiency of investment and simultaneously shifting the country toward a greater reliance on consumption.
However, China’s leaders, including outgoing Chinese Premier Wen Jiabao (溫家寶), have been talking about such a transformation for years with little sign of success, as state-controlled banks continue to lend huge sums to politically powerful state-owned enterprises and local governments.
Frenzied construction of roads, bridges, tunnels and rail lines over the past decade has left China with world-class infrastructure. However, it has also produced deeply indebted local governments that are struggling to finance more projects.
At the same time, vast unused capacity in practically every industrial sector has crippled profitability and left manufacturing companies straining to repay their borrowings, a problem that has been partly masked by banks in the habit of simply rolling over loans rather than recognizing losses.
“All Chinese industries are like that — can you dig out which area of Chinese industry is not in overcapacity?” said Li Junfeng (李俊峰), a longtime director general for energy at China’s top economic planning agency.
Investment reached 46 percent of China’s economic output last year. By comparison, Japan’s investment rate never exceeded 36 percent, which it reached in the early 1970s; South Korea topped out at 39 percent in the late 1980s.