A while back, municipal bonds and local government debt were all the rage...

In fact, urban investment bonds are essentially local government bonds.

The central government doesn’t provide a safety net; local governments are responsible for their own finances—it’s a case of “whoever’s child, they take care of it”—and there’s nothing wrong with that.

Nowadays, they issue new bonds to repay old ones, patching up whatever’s falling apart.

Frankly speaking, is there really a problem with borrowing against the future and rushing infrastructure projects?

We should view this dialectically and invest rationally. Borrow reasonably, use funds properly, and pursue sustainable development. If all localities can establish such a virtuous cycle, debt will be given its rightful value.

Of course, everything comes at a cost—the key is “don’t copy the same homework.”

01 The Bundled Model: Urban Investment Companies and the Government

What does a city need to achieve high-quality development?

Subway systems, educational resources, top-tier hospitals, leading enterprises, and high-caliber talent.

And what do these require? That’s right—money!

But the reality is that not every region has the funds, nor can every region generate them.

What to do?

By taking on debt—essentially borrowing the city’s future funds for use today.

Launch large-scale infrastructure projects to provide the city with comprehensive supporting facilities. Well-developed infrastructure and supporting facilities are among the key factors in attracting corporate investment.

As a result, the trend of large-scale infrastructure projects across the country has become unstoppable.

A few years ago, “Little White House”-style government buildings across the country became a hot topic.

But did the expected investment actually materialize? The answer is no.

It is understood that the disparities in infrastructure and supporting facilities among Chinese cities, between urban and rural areas, and across regions are likely the smallest in the world.

Narrowing these gaps requires money, and without it, borrowing is necessary. Debt is the price paid to bridge these gaps.

Therefore, for third- and fourth-tier cities in central and western China to possess the facilities and infrastructure of coastal cities, it is virtually impossible to do so without incurring debt.

Tongren, Guizhou, has a GDP of approximately 150 billion yuan, while Wuxi, Jiangsu, has a GDP of approximately 1.4 trillion yuan. Wuxi’s economic output is 10 times that of Tongren. Yet the urban landscapes and infrastructure of the two cities do not differ by a factor of 10.

In other words, Tongren—whose economic output is only one-tenth that of Wuxi—has provided urban infrastructure and amenities that are on par with those of Wuxi.

Everything comes at a cost—what price has Tongren, Guizhou, paid?

A heavy burden of local government debt!

Consequently, local governments across the country established state-owned enterprises. These enterprises are commonly referred to as “local government financing platforms.”

However, most of these platforms are named “XXX Investment Company.” For example, the first such company was called the “Shanghai Urban Construction Investment and Development Corporation,” abbreviated as “Urban Investment.”

On the surface, these urban investment companies appear to have little connection to the government, but in reality, they are inextricably linked to it.

Simply put, Urban Investment companies are “financing tools for local governments.”

02 Reflection: Investment and Returns

Not long ago, news of the “Urban Investment Bond Crisis,” with local urban investment companies owing 65 trillion yuan and per capita debt reaching 50,000 yuan nationwide, made headlines.

According to reports, as of 2022, the total volume of China’s urban investment bonds reached 65 trillion yuan, equivalent to half of the country’s GDP.

How did they accumulate such a massive debt?

To understand the root of the problem, we must go back to 2008. To weather the financial crisis, the central government rolled out a 4 trillion yuan investment plan. Not all of this 4 trillion came from the central government; at least half was funded by local governments.

However, following the tax-sharing reform, local tax revenues had already been significantly reduced. What was the solution? Issuing bonds!

Local governments were permitted to issue bonds through urban investment companies, using their own tax revenues, future land sale proceeds, and even assets under their control as collateral.

The funds raised through these loans were then used to finance infrastructure projects.

Consider a county with a permanent population of just 350,000 and fiscal revenue of 900 million yuan. In less than a decade, it accumulated 40 billion yuan in debt for urban infrastructure and economic development—a situation that gives pause for thought.

Nevertheless, many oppose urban investment companies. This is not the case; one cannot condemn an entire group with a single stroke.

Some projects are essential investments. For example, highways, wind power, and hydropower may not turn a profit immediately, but their overall value is positive. In contrast, tourism projects involving demolition and reconstruction, as well as the construction of certain “Guanyu statues,” exhibit a certain degree of recklessness.

Having worked in investment promotion for a long time, I’ve noticed that every city has a “high-tech industrial park.” For first-tier cities and coastal regions, these parks do indeed foster significant industrial clustering.

However, in some inland areas, these parks may lack both high-tech content and actual industry, with factory buildings standing completely empty.

Ultimately, it comes down to “effective investment.”

Effective investment refers to investment with high returns on output—investment that continuously generates added value and remains safe and sustainable. In future economic development, such investment will not only yield tangible economic benefits but also promote long-term, stable economic growth.

Guizhou has seen major projects come to fruition in the past.

In the Gui'an New Area, an Apple data center was built; in Pingtang County, there is the 500-meter Aperture Spherical Radio Telescope, known as the "Sky Eye."

These projects have indeed been successful.

This demonstrates that high-tech and digital infrastructure can thrive in Guizhou. The province has ranked first nationwide in digital economy growth for four consecutive years, and third in the Big Data Industry Development Index, proving Guizhou’s potential.

Should regions with relatively weak economic foundations invest in infrastructure development?

In my view, they have the same right to development.

Normal infrastructure development is perfectly acceptable. If supporting infrastructure is underdeveloped, attracting industries becomes difficult, and it’s hard to retain talent. Without people coming in, there is no consumption, and costs cannot be recouped.

The national economy is a unified whole; we cannot judge it solely based on 65 trillion yuan in debt, nor can the opportunities brought by infrastructure be dismissed outright.

Whether this money should be spent and whether it is worth spending is a matter for local decision-makers to carefully evaluate.

03 The "Copy-and-Paste" Approach: Experience and Implementation

Given the vastness of the country and the vast differences across regions, it is not uncommon to see blind “copying of the same playbook.”

The southeastern coastal regions have inherent advantages in all aspects, making them suitable for copying this model—and thus they succeeded.

However, for the Northeast, Northwest, and Southwest, copying this model would spell disaster.

Practice has proven that “oranges grown south of the Huai River are oranges, but those grown north of it are zizyphus.”

Take Hefei, for example—a “special case” on a national scale—which is why it was able to “turn things around.”

Behind these large-scale investments lies the support of over 200 to 300 specialized investment promotion teams that Hefei has dispatched year after year, as well as 110 entrepreneurs specifically hired as investment advisors.

They help the investment promotion teams gain a deep understanding of industries, grasp the competitive landscape and development trends, effectively transforming investment promotion into a high-tech, professional investment banking operation.

At the same time, Hefei has also recruited professors and associate professors from more than 20 universities, inviting them to offer advice and suggestions, transforming their strategies into policy decisions and their writings into official documents—effectively combining theory with practice.

Although the projects were a mixed bag, armed with a keen professional eye and sound judgment, the Hefei municipal government dared to boldly co-invest in and lead investments for top-tier enterprises and major strategic projects.

The Hefei government has a clear understanding of this, as Yu Aihua put it:

“We cannot simply focus on making money or saving money, only to end up afraid to spend it.”

“When it comes to investment, Hefei is willing to spend money as long as it’s worth it.”

Currently, the “copy-and-paste” mentality in local investment persists. Some economically underdeveloped regions engage in replication and imitation, which is fundamentally unsuitable for local development. Faced with the issue of uneven regional development, we must not pursue a “one-size-fits-all” approach.

If there is any “advanced experience” that is universally applicable nationwide, it is encapsulated in just four words: “adapt to local conditions.”