"Parachute" officials are often the focus of attention. When they are "parachuted" into county-level positions, they attract even more attention.
The deployment of officials from higher levels—who are both down-to-earth and capable—undoubtedly provides strong support for “county-level urbanization.”
County-level cities building distinctive industrial clusters and “competing for projects” in Beijing, Shanghai, Guangzhou, and Shenzhen is a very real phenomenon.
It can be said that the first step in “revitalizing county-level industries” is attracting investment.
In the past, traditional investment promotion in county towns was inefficient, and targeted investment promotion lacked avenues. But in the context of the new economy, who isn’t taking a giant stride “outward”?
It is precisely this trend that has allowed emerging industries to spread to county towns, brought investment banking mindsets and innovative approaches to the grassroots level, and even seen unicorns and IPO-bound companies emerge from these areas...
Making a Comeback: Identifying Strengths
Last year, a policy “taking county towns as key platforms” emerged out of nowhere!
This signifies a new direction for the future of China’s more than 2,800 counties.
By signaling this shift through policy, county towns may be poised for a comeback.
Why are county towns gaining renewed attention?
On one hand, it relates to transportation, logistics, and infrastructure development.
The gap between county towns and cities is gradually narrowing; even in small county towns, businesses can now distribute their products and generate profits.
On the other hand, it relates to a new round of industrial relocation.
By absorbing population and functional relief from metropolitan areas and meeting the industrial relocation needs of major cities, county towns have been presented with development opportunities.
This new wave of county-level resurgence faces a tiered differentiation, with counties surrounding major cities benefiting first. By seizing industrial dividends and allocating limited resources to the most profitable counties, they can maximize returns.
Next come county towns with distinctive local industries—some with potential in new materials and renewable energy, while others focus on sectors like vegetable farming and tourism.
To be honest, without the advantage of proximity, it would be difficult for them to become an integral part of the economic development of major cities.
Of course, some counties have driven development through infrastructure projects, building “garden cities” with the aim of giving the town a facelift in the short term, resulting in debt piling up before industries have even taken root.
As evidenced by practical experience, most county towns that have succeeded in development have adhered to three key principles to identify their competitive advantages:
Aligning industrial development with local resources
Analysis and evaluation of local industrial resources serve as the crucial basis for defining industrial development strategies; otherwise, such plans risk becoming mere pipe dreams.
Industrial development must align with local development logic
Building upon existing industries to tap into their potential, continuously upgrading and expanding the industrial ecosystem, is likely the path to greater success.
Industrial development must be sustainable
An industry differs from a product; its growth potential depends on the maturity of the entire supply chain and the richness of the industrial ecosystem.
For county-level cities, the demands of high-tech industries are difficult to gauge. These sectors evolve rapidly, and enterprises advance quickly, placing high demands on the environment and decision-making processes; therefore, blindly pursuing cutting-edge projects is not advisable.
Of course, this does not mean that high-tech industries cannot be developed. Rather, given the development level, industrial foundation, and human resource reserves of most county-level cities, those with the comprehensive capabilities to do so are few and far between.
Investment Promotion: Upholding the Bottom Line
The state has never wavered in its commitment to developing county-level economies.
In 2022, despite pressure on tax revenues, the state further clarified its commitment to intensifying relief efforts for enterprises.
Specifically, small, medium, and micro-enterprises that purchase new equipment or tools with a unit value of over 5 million yuan and a depreciation period of three years may opt for a one-time tax deduction, with enterprises eligible to claim this benefit on a quarterly basis.
What does this mean?
It encourages enterprises to import high-end equipment, driving the upgrading of the manufacturing sector and creating more jobs.
For example, if you import a piece of high-end equipment worth 1 million yuan, the government will subsidize you with 200,000 yuan in cash.
Consequently, speculators have been registering companies and defrauding subsidies under the guise of county-level “investment promotion” initiatives.
The sophistication of their methods and the darkness of their operations are truly astonishing.
They buy machine tools with a factory price of less than 30,000 yuan, slap an imported brand’s label on them, and resell them as imported equipment priced at over a million yuan.
They then fraudulently claim government subsidies, receiving 200,000 yuan per machine. Ten machines amount to 2 million yuan.
Two or three years later, when the government comes to inspect the results or tally tax revenues, they either declare bankruptcy and flee under the pretext of poor management, or leave citing an unfriendly local business environment.
The state’s money is gone. A pile of so-called “imported” machine tools is left to rot there…
In the history of county-level development, successful cases are rare, while failures are plentiful.
This is especially true for capital- and technology-intensive industries, which require massive, sustained capital investment and robust technological support.
Take the automotive industry, for example: it has a long supply chain and involves numerous companies. A single vehicle contains over 1,000 major components sourced from more than 200 Tier 1 suppliers.
For a typical county town, it is clearly impossible to provide a complete automotive supply chain, nor does it have sufficient financial and technical resources to support it.
Previously, the failure of Sae-Lin Automobile was precisely because “the status of a county-level city and its industrial chain foundation were inadequate, making success impossible.”
In terms of industrial development, the mindset of county-level cities has shifted.
In the past, the focus was primarily on attracting investment, relying too heavily on external industrial resources while neglecting the integration of internal industrial resources. After all, the construction of industrial parks alone is only one aspect of industrial development.
Without a corresponding industrial foundation and supporting upstream and downstream sectors, even the best physical infrastructure cannot attract investment.
Every industry goes through a developmental process from small to large and from weak to strong; the existence of low-end sectors is simply because they have failed to keep pace with the times and undertake industrial transformation and upgrading.
Strategies for Leveraging Capital
As the county-level economy strengthens, an increasing number of high-tech enterprises are turning their attention to county towns, with their site selection criteria extending to the county level.
Some companies are opting to separate production from R&D—establishing production bases in county towns while setting up R&D centers in talent hubs such as Beijing, Shanghai, Guangzhou, Shenzhen, and overseas.
As the traditional “sit-and-wait” investment attraction model can no longer adapt to the new landscape, leveraging the capital market may become the new “rule of the game.”
Take Hefei, a city known for its industrial investment, as an example. In 2022, Feixi County in Hefei established a 10-billion-yuan master fund, with a 2.7-billion-yuan sub-fund dedicated to the biopharmaceutical industry.
In March of this year, Changfeng County launched a 10-billion-yuan fund of funds aimed at guiding social capital into Changfeng County to develop relevant industrial chains and attract leading enterprises and emerging strategic companies to settle there.
It is not just Hefei; districts and counties in Jiangxi and Zhejiang are also accelerating efforts to leverage more capital through mother funds.
For instance, Yongfeng County in Jiangxi established a 1 billion yuan Industrial Development Guidance Fund; Lushan City (county-level city) in Jiangxi filed a 1 billion yuan Industrial Sector Guidance Fund; and Wan’an County in Jiangxi filed a 1 billion yuan Wanfu Industrial Development Guidance Fund (Limited Partnership). Meanwhile, Yongkang City (county-level city) and Linhai City in Zhejiang established mother funds with scales of 3 billion yuan and 10 billion yuan, respectively...
In addition, districts, counties, and county-level cities such as Shan County in Heze City, Shandong, and Jinjiang City (a county-level city) in Fujian are also establishing fund-of-funds, with most funds ranging in size from 1 billion to 10 billion yuan.
Since 2022, the proportion of district- and county-level guidance funds among newly established mother funds has been steadily increasing. Most of these government-guided funds are industrial funds, primarily focused on strategic emerging industries such as high-end manufacturing, information technology, and healthcare.
Industrial investment projects do not seek controlling stakes or short-term gains; instead, they select investment targets along the industrial chain. This is the most fundamental difference between government investment institutions and venture capital firms.
In addition, local governments are adjusting restrictions such as reinvestment requirements to make local fund-of-funds more market-oriented.
As fundraising challenges intensify and county-level fund-of-funds become more active, investment institutions and county-level fund-of-funds have formed a mutually beneficial partnership:
Investment firms have gained new sources of funding, while county-level funds can leverage more resources through more professional teams.
Currently, a large number of technology-based IPO companies have emerged from small county towns.
To date, there are nearly 900 county-level listed companies in mainland China’s capital markets, accounting for about one-sixth of the total. These companies have grown from nothing to become increasingly robust, demonstrating that county-level areas are entering a new era of prominence.
When all factors converge, the growth rate of enterprises in county-level cities rivals that of leading enterprises in prefecture-level cities. It can be said that the shifting priorities and dynamic changes in county-level cities are influencing the development of China’s economy.
