Lifting the Lid on Guangzhou's Corruption-Plagued Science City(AI Translation)

【周刊提前读】区属城投“科学城”踩雷背后发生了什么

On August 31, the Guangzhou Municipal Commission for Discipline Inspection and Supervision revealed that Hong Hansong, former Party Secretary and Chairman of Guangzhou Science City Investment Group Co., Ltd. (referred to as "Science City"), is under investigation for serious disciplinary violations and illegal activities [para. 1]. Science City, a state-owned investment company, is primarily owned by the Guangzhou Development District Administrative Committee (94.28%) and the Guangdong Provincial Department of Finance (5.72%) [para. 2].

The Guangzhou Development District, established in 1984, is one of the first national economic and technological development zones in China and falls under Huangpu District's jurisdiction. This district has consistently held a high rank in comprehensive development among similar zones [para. 2].

Just before this announcement, on July 26, the Guangdong Provincial Commission had also announced that Zhou Yawei, former member of the Standing Committee of the Guangzhou Municipal Party Committee and former Secretary of the Huangpu District Party Committee, was under investigation for severe violations [para. 3]. During his time in Huangpu District, Zhou played significant roles, including leading the Guangzhou Development District, and retired in early 2024 [para. 3].

Caixin reported that both Hong and Zhou were taken into custody by authorities within a week in early July. Zhou's violations primarily occurred from January 2017 to August 2021, when he led Huangpu District, during which Hong strictly followed Zhou’s directives in his capacity as Chairman of the Urban Investment Corporation [para. 4]. Several officials from the Guangzhou Development District have also been implicated; Cao Peng and Zhang Shouzhong were dismissed for their involvement [para. 5].

Key areas of investigation include urban construction, land transfer, urban village renovation, real estate projects, and engineering construction. Urban Investment Companies have been widely established to fund local governments' economic goals amidst strict debt controls by the Ministry of Finance since 2014 [para. 6]. However, poor oversight has led to “urban investment financing” becoming prone to misuse [para. 6].

Statistics from the "Corporate Early Warning" app indicate that in the first seven months of 2024, 96 executives from local government financing vehicles (LGFVs) were investigated, including 40 chairpersons, highlighting systemic issues [para. 7]. Guangzhou's cases illustrate the problematic dynamics between leadership power and urban investment [para. 8].

Despite regulations like the 2018 "Accountability Measures for Local Government Hidden Debts," violations persist. Excessive borrowing and inefficient investments pose looming fiscal and financial risks. Clarifying the boundaries between government and market functions is seen as key to solving these issues [para. 8].

Zhou Yawei, a native of Zhejiang Province, transitioned from enterprise roles to political ones starting in 2003 and assumed significant responsibilities in Guangzhou, ultimately focusing on SOE reform in Huangpu District [para. 9][para. 10]. His reforms included consolidating local enterprises into top ten state SOEs, with Science City becoming a key pillar [para. 11][para. 12].

Significant state-controlled urban renewal and industrial projects were undertaken during Zhou's tenure, involving controversial companies like Baoneng Group and Cedar Holdings [para. 14][para. 15][para. 17]. These initiatives prompted substantial investment but also raised concerns about the sustainability and financial integrity of the projects [para. 18][para. 19].

However, aggressive urban village renewal projects faced backlash and regulatory intervention due to the accelerated pace and neglect of villagers' interests. By mid-2021, the central government's policies required more cautious approaches to urban renewal, leading to a sudden halt in many projects in Huangpu District [para. 20][para. 21][para. 22].

Science City, later taking over several stalled projects from financially troubled private companies like Baoneng Group and Cedar Holdings, faced immense financial strain. Their investment and cash flow became heavily reliant on continuous financing amidst mounting liabilities [para. 27][para. 28].

Hong Hansong, though having led rapid expansion efforts, resigned in May 2024 amid ongoing challenges and financial losses. Despite stepping down, he continued influencing company affairs. The financial instability of these urban investment platforms underscores the fundamental need for systemic reform to address excessive debts and inefficiencies [para. 27][para. 28].