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Chongqing Mayor Huang Qifan

Reform and Innovation: A New Path

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Reform and Innovation: A New Path

Source:CW

In an exclusive interview, Huang Qifan, mayor of the inland metropolis of Chongqing, lays out his vision of a development model custom-made for his city, different from the one in play along China's coast.

Reform and Innovation: A New Path

By Sherry Lee
From CommonWealth Magazine (vol. 459 )

In his interview with Commonwealth Magazine on Oct. 22, Huang Qifan looked back over his 10 years in China's western city of Chongqing. A public official his entire life, Huang spent more than a decade in Shanghai, serving as deputy director of the Municipal Administrative Committee in Pudong and then as director of Shanghai's Economic Committee. In 2001, he became deputy mayor of Chongqing and then formally took over as mayor in January.

Born in 1952, Huang works 12 hours or more a day, but he is always full of vigor and thinks clearly. During a two-hour interview, he did not drink anything, rest, or consult notes, pausing only to light three cigarettes. He came across as a natural orator, able to call on facts and figures or lines of reasoning at will.

The practical Huang embraces challenges and is one of a generation of officials nurtured on late Chinese president Deng Xiaoping's pragmatic philosophy. He also has taken to heart the wisdom of Greek philosopher Heraclitus, who said: "One cannot step into the same river twice."

Huang believes that one's attitudes from previous experiences must be tossed out when facing a new challenge. Whether responsible for Shanghai or Chongqing, he said he had to gain a feel for the new environment and create policies to suit local conditions if he hoped to resolve problems and innovate.    

Huang's strategic approach and big-picture thinking on how to develop the city, with the support of Bo Xilai, the Communist Party committee secretary for Chongqing, is worth a closer look by many policymakers.

Following are highlights of the interview, in Huang's own words.


I come from Shanghai, which left me with an understanding of the importance of wide-ranging innovation. What does that mean? I was in Shanghai for more than 10 years, during which time it was constantly reinventing itself, whether through the development of Pudong, the makeover of Puxi, or the development of industry and the financial sector. This constant change was part of China's process of moving from a command economy to a market-based one, a process of change that we created and became acclimated to.

The greatest strength Shanghai gave me was to not repeatedly follow the same pattern, but rather to consider problems and policies based on actual conditions. This process is the process of innovation.

What this means is that all of the impressions gained from exploring rivers and wading through their currents should be forgotten, because if they are remembered, they will become mental burdens. Those who must think back to the past whenever they do something are conservative by nature, afraid to innovate and weighed down by the burdens of their experiences. They may have taken plenty of notes, but in the end, those notes are useless. They can serve as teachers, but they'll never become entrepreneurs.

Conditions and places differ everywhere. Nobody can step into the same river twice. Once the water in the current has passed, it's impossible to step into the same river again. Regardless of your knowledge, or what you've learned or done, using the same old methods in a new place is futile.

Chongqing has its own characteristics, and for the city to develop effectively, it can't follow the model used on China's coast. Imitating the coastal cities' every move is bound to fail because of the different conditions found inland and along the coast. What may have been successful in Shanghai might not deliver the same results in inner China. So you need to cater your development and liberalization policies to the actual situation you face.

Export Processing Exploration

China's coastal cities, for example, have been involved in export processing for 20 years, and have built it into a US$1 trillion industry. But over these two decades, export processing volume has been near zero in inland China. Is that because people in inland China are not hard workers? Or is it because Taiwanese or foreign businesses are unwilling to move into central and western China? Actually, it's neither.

The underlying cause is the trade processing sector's structure, where both ends of the industry's chain are located outside China. Raw materials and components come into China from overseas and are sent back overseas as finished goods. If raw materials and components were imported and then shipped to processing plants in Chongqing or Chengdu 2,000 kilometers away, the transportation and logistics costs alone would make any processing plant unprofitable.

The high costs would spell failure. This is determined by geographical realities. The same liberalization policies, the same incentives, the same hard work that you see along the east coast would have different results. Even if a Taiwanese businessman was your friend, he couldn't locate his business where you are, because he would lose money.

Based on that concept, we in Chongqing created a trade processing model that integrates the production of equipment, components and assemblies, that is the integration of the product's upstream, midstream and downstream links, bringing together the industry chain. Notebook computers, for example, consist of many components, 80 percent of which are produced in Chongqing and can be assembled into finished products. The logistics costs will be lower than if the components were imported to coastal areas from around the world. Only by putting in place such a model can our export processing costs and comprehensive incentives have an advantage over the coastal model.  

One year ago, for instance, Hewlett-Packard placed orders for 40 million units, a branded vendor placing orders. The OEMs were Quanta, Foxconn and Inventec, which opened three factories to handle the demand. Some 120 components are being manufactured in Chongqing, and the goal is 200. Production capacity will be 20 million units next year and 40 million units the year after. In the next two to three years, the industry cluster will have taken shape.

This cluster differs from the export processing model, because it changes the process from one where parts come in from around the world to one where the industrial chain is fully integrated.

Pragmatism Reigns

Many things can be accomplished with one word: pragmatism. Being pragmatic instead of doing things by the book can resolve problems. But in the process of thinking practically, many people "go by the book" and have it drilled into their heads that the export processing approach depends on bringing in materials from abroad and then exporting the finished goods. At that point, people are unwilling to think in new ways, and they're lost.

We saw during the financial crisis that notebook sales not only didn't fall, but actually rose. After a quick analysis, we realized that, because of new technologies and wireless Internet access, notebook computers have a good future. So we decided to get into notebook computers. To get into notebooks, we could approach OEMs like Quanta and Inventec, or we could work with brands like Acer and HP. But going to the OEMs is pointless, because their orders are placed by others. The OEMs can work with you, or they can go somewhere else. But it's the branded vendors who command global market trends. So, we decided to go after branded vendors. That's the first thing.

Secondly, there are 8 to 10 major brands. Which one do you approach? Of course, you go for the biggest ones, like HP and Acer, because the bigger the company, the better it understands the global market structure.  

The New Ratio: 70% Domestic Sales, 30% Exports

Chongqing is in inner China, so of course it's important to stimulate domestic consumption in the area. Compared to the rest of the world, China has a massive domestic market. If in five years, Chongqing's industrial sales total 2.5 trillion renminbi, then about 700 billion renminbi of that should be exported and the other 1.8 trillion renminbi sold domestically. In fact, China should not completely rely on exports to drive the economy; it should have a ratio of about 70 percent domestic sales and 30 percent exports, and Chongqing should follow the same ratio.   

At the same time, however, we are not only pushing domestic consumption. In terms of exports, we are the same as coastal China, as the island of Taiwan, and as Southeast Asia. Some say we are geographically inland, but to Chongqing, if we ship our products by air to other parts of the world, it is no different than if they were to fly from Kuala Lumpur, Malaysia, or Guangzhou. Shipping costs to the United States are about the same for a nonstop flight. That's significant, because it means that what they can do on the coast, I can do too. What the Philippines can do, we also can do as well, because the costs are the same. That's first.

Second, let's look at shipping products to Europe by rail. From Shanghai they get transported to Vladivostok, or to Manzhouli. After they're shipped to Siberia, they then travel 10,000 kilometers across Russia to Rotterdam and Germany. We call it the Eurasian Land Bridge. But starting from Chongqing does not require a huge detour. It's 4,000 kilometers to Xinjiang, then another 4,000 kilometers to cross Kazakhstan into Russia, and then 1,000 kilometers to go past Moscow and get to Rotterdam. From here, it's a much shorter route.

This railway existed in the past, but it was always extremely slow, with trains traveling at about 40 kilometers an hour. If they ran for 24 hours in a single day, they could cover 1,000 kilometers, but to go 10,000 kilometers, they would take 20 days. On the other hand, if you operate a faster train, the world's highest grade "five-fixed" trains that offer fixed stops, routes, train numbers, schedules and freight prices, they would become like our express passenger trains, which are yielded to by other trains on the line. If we were to run "five-fixed" trains, we could get to Europe in 12 or 13 days.

Unleashing the Power of Cooperation

I invited China's railway authorities to coordinate issues with the railway agencies of Russia, Kazakhstan and Germany, and I got involved to persuade them to move more freight by train and allow everybody to make money. If all they transport is coal rather than electronic products, the railway's value will be diminished.

But in the case of shipping freight south, traveling 1,000 kilometers in Russia, 4,000 kilometers in Kazakhstan and 4,000 kilometers in China, Russia is likely to think that the route will force it to sacrifice freight revenues. It can use its customs agency to inspect goods closely over the 1,000-kilometer distance (to try and increase revenues). It is within their power to do thorough searches, but that slows down freight delivery. But customs officials will never admit that they are conducting the checks because of dissatisfaction over rail freight fees.

So we discussed the issue with Russia's customs bureau and reached a consensus on expedited customs services. Efficiency was increased, and clearing customs became more convenient. The railway companies grouped together to form a transportation company, in which the profits are spread evenly, rather than having one side making more than the other. Everyone can benefit, and share the profits. That's called coordination.

The Economic Perils of High Real Estate Prices

Chongqing has built a high number of public rental housing units (600,000 units with total floor space of 30 million square meters catering to individuals with monthly incomes of lower than 2,000 renminbi). The main reason is that excessively high real estate prices are harmful to the local economy.

You asked me why we're resisting developers and slowing the pace of growth in housing state prices. Why would I want to allow housing prices to rise? If you want growth, go to Shanghai. Here we want prices to be lower, so that big, medium-sized and small businesses can invest here, and white collar workers can follow their bosses in settling here. Our economy has developed and tax revenues have risen. Hong Kong's property prices have soared too high, and that will be its fatal flaw.

In this sense, our government is not at the beck and call of residential real estate developers. We want to adopt a reasonable policy to keep the situation balanced. The American government can create an environment in which 60-70 percent of its residential housing is rentals, while Singapore is 70 percent rentals and 30 percent owned. Why can't China's government achieve this?

I believe this policy can help the majority of poor people, just as many of (U.S. president Barack) Obama's policies are targeted at helping the middle and lower classes, which can win him votes. But China does not rely on elections to get things done. We do things not for votes but to help the majority of people live a better life.

Translated from the Chinese by Luke Sabatier

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