Planner Decries Poor Characteristics of ‘Characteristic Towns’

The so-called “characteristic towns” that were fostered to improve urbanization have worsened some local governments’ debt problems and suffer from a lack of market participation, according to an economic planning guideline that sets out measures to fight these problems.

China’s top economic planning body, the National Development and Reform Commission (NDRC), said in a 16-point guideline that the market should play a bigger role in characteristic towns so local governments will not have to engage in so much debt-fueled spending.

Although what exactly constitutes a “characteristic town” is tricky to nail down, as it has been applied to many different kinds of developments, recent government directives have seemed to emphasize that industrial development is necessary. “A characteristic town should be based on a special and strong industry,” the NDRC said in the guideline, which also said that governments should refrain from placing the characteristic town label on other projects such as industrial parks, tourist attractions and sports bases.

The characteristic town concept was coined by the NDRC in a 2016 document, which was issued at a time when urban problems such as surging house prices, traffic congestion, air pollution and water shortages were making the government consider how it should guide urbanization in the coming years.

The basic idea behind characteristic towns is to drive forward urbanization by encouraging the development of small towns, which can narrow the income gap between rural and urban areas and relieve overcrowding in bigger cities, a report from research firm SWS Research said.

“The development of ‘characteristic towns’ is an important method for pushing forward a new type of urbanization and will benefit economic restructuring and upgrading as well as the coordinated development of big and small cities,” said the NDRC in another document in October 2016.

The authorities have vowed to clear administrative hurdles for characteristic towns, increase public services to lure in small and midsize enterprises and to improve the policy environment for businesses.

Developing debt

A joint statement published last year by the Ministry of Housing and Urban-Rural Development and the Agricultural Development Bank offers greater credit support for the construction of characteristic towns.

The central government’s target of building 1,000 characteristic towns by 2020 has driven the rapid expansion in the number of such projects.

There are currently 630 such towns in China, mostly in the three eastern provinces of Zhejiang, Jiangsu and Anhui, which have 394 in total, according to 51towns.com, a website affiliated to small town development research group TDDR.

The NDRC admitted that this speedy development has caused problems including increasing local government debt and the misappropriation of the characteristic town label by some real estate projects.

In the latest guidelines, the economic planner banned county-level governments with a comprehensive debt ratio above 100% from raising money through local government financial vehicles for the construction of characteristic towns. Instead, it suggested they should encourage centrally-administrated state-owned enterprises (SOEs), local SOEs and private firms to participate as investors and operators.

It also encouraged local governments and the private sector to pool money to create characteristic town funds.

The economic planner also stressed that local governments should allocate more land to industry and business development, as opposed to allowing characteristic towns to become just a lucrative area for real estate developers.

The research firm also estimated the market cap for such towns will reach 5 trillion yuan ($755.6 billion) by 2020, adding that real estate firms and landscape companies will benefit most from the drive.

Contact reporter Pan Che (chepan@caixin.com)