By Simon Rabinovitch
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Round-the-clock construction is transforming muddy ground into what officials boast will be the world's largest financial zone a decade from now, a monument to the ambitions driving China's dizzying economic growth and to the sort of risks leaders in Beijing see piling up alongside the country's new skyscrapers.
When they gather for their annual parliament in Beijing starting on Saturday, they will endorse plans to tap the brakes on the economy, a slowdown to keep inflation and debt -- both rising but under control -- from becoming far more troublesome.
But they only need make the one-hour trip to the financial district sprouting up in Tianjin to see how hard-driving local officials, pliant state-owned banks and the soaring aspirations of people seeking a better life are thwarting their designs for slower, steadier growth.
A forest of cranes and the foundations of 12 buildings, the first phase of Yujiapu, rise from the land where Li Guowang once lived. The steelworker's home was destroyed to make way for the development and he was moved to a government-built high-rise compound last year, though without the bitterness that often accompanies such relocations in China.
"If anything, I'd say the new financial zone is too small -- the entire city should be like it," he said, playing with his young daughter in the snowy plaza at the foot of his apartment.
"Hopefully, it will be like a strong light bulb, a single point that will brighten up the rest of the room."
Yet even Li had doubts about how a financial center housing up to 120 buildings, if all goes according to plan, could produce anything to rival his employer, the Tianjin Pipe Corporation.
"What exactly they will do there, I'm not sure. It's not like steel, which you can see and touch. I guess they'll be able to hold lots of business meetings," he said.
Tianjin's economy grew 17.4 percent last year, the fastest of China's 31 provincial-level areas. While that would have been cause for celebration in the past, the local government has been modest in trumpeting its achievement.
"It has been a historic breakthrough," said Tang Zhongfu, a director on Tianjin Binhai's Development and Reform Commission, a powerful planning agency in the city.
"But we still have to address problems, like the relationship between current growth and long-term growth," he added.
Over their eight years in power, President Hu Jintao and Premier Wen Jiabao have vowed to steer officials away from the blind pursuit of growth, instead advocating what they term "scientific development."
Fuzzy as it sounds, the concept is well understood in China to mean a more sustainable economic model: slower industrial investment, less pollution and a fairer distribution of income.
During the National People's Congress this month, China will unveil a detailed policy blueprint for the coming five years. Hu and Wen will try to enshrine their agenda by setting an official goal of 7 percent annual growth from now until 2015, well down from the 11.2 percent average of the past five years.
The last five-year plan had, in fact, penciled in 7.5 percent growth, so the figure is better viewed as the lowest tolerable expansion rate rather than a binding requirement. Still, it will be a powerful expression of their desire for healthier development.
But that is easier said than done. Not a single one of China's 31 provincial-level governments has signed up to the lower growth target. Most want something far higher. Tianjin, for one, is shooting for 12 percent.
"It's quite clear that the central government will not be able to realize its goal," said Yang Zhiyong, an economist in the Chinese Academy of Social Sciences, a top government think-tank.
Outsiders often assume that Beijing is omnipotent in governing China, bending far-flung cities and villages to its will. The reality is different.
A centralized tax system has left local governments strapped for cash. By promoting fast growth, they look to get proceeds from land sales to fill the gap.
"You have a problem. Healthcare reform, pensions, public housing -- they all need money," Yang said. "But if I don't have money, how can I accomplish the tasks set for me by the central government?"
"No one in the central government wants to end the party, even at a time of high inflation," Shih said. "That leaves a lot of room at the local level to carry on and to try to achieve local objectives like investment-driven growth."
"THE NEXT SHANGHAI"
From his desk stacked with papers and volumes of statistics, Tang, the planner in Tianjin, reeled off staggering numbers that appeared almost conservative against the scene outside his window, a patchwork of construction sites and new buildings stretching into the distance.
The economic output of Binhai, the district in Tianjin where the Yujiapu financial zone will be based, more than doubled over the past five years and the government is targeting the same in the next five. Binhai's population of 2.48 million will more than double by 2020.
Global investors have cast a worried eye over China's ghost towns, new sections of cities from Ordos in the north to Guiyang in the south with vast apartment blocks and few people. But Tianjin is a reminder that what seems to be excessive investment doesn't always equal waste in the world's second-largest economy.
About 75 miles from Beijing, a high-speed train puts more than 30 million people within half an hour of Tianjin's downtown.
The rationale for more offices, more factories, more apartments and more highways is clear. The question is whether it is all too much and happening too quickly.
That description is certainly apt in Tianjin. The municipal government views the Binhai district, anchored by the Yujiapu financial zone, as its answer to Shanghai's Pudong, a rural patch of land before 1990 that has been built into the country's financial hub today. Driven by huge construction spending, Binhai's GDP topped Pudong's last year for the first time.
Tianjin has also set its sights on Guangzhou. While Shanghai and Beijing are unrivalled as the country's two biggest cities, Tianjin, the sixth largest, will surpass the southern metropolis as China's third city in a few years on its current trajectory.
In its plan for the next five years, Guangzhou gave a rare glimpse into the race to the top that is fuelling wave after wave of spending by local governments.
"The domestic economic environment is extremely complex. Competition between regions and cities is fiercer by the day. This presents a grim challenge for our development," it said.
The resulting over-investment poses serious risks.
Although Beijing has tightened monetary conditions to dampen inflation, which has been running near a two-year high, the construction projects already launched by local governments will require vast amounts of funding in coming years just to be seen through to completion. This will prevent China from implementing the more aggressive monetary tightening many analysts think is needed to truly stamp out inflation.
And the investment does not come for free, even if it sometimes seems like that in China. Local governments have turned to banks to fund their largesse.
Banks, owned by the state, have unsurprisingly answered their master's call -- just the sort of non-commercial decision that can lead to loan defaults.
That nexus between the government and banks has been especially pronounced in Tianjin.
According to the People's Bank of China, 62.5 percent of the new loans issued in Tianjin that year went to local government financing vehicles, firms created by provinces and cities to circumvent restrictions on their incurring debt.
"This was an important contribution to the national economy in overcoming the impact of the global financial crisis, but at the same time we must pay attention to the latent problems," the central bank said in a report about Tianjin last June.
Chinese banks issued a combined 17.5 trillion yuan of new local currency loans in 2009 and 2010, almost a quarter of the economy's total output during that time, powering the country through the global turmoil.
But with growth once again soaring, Beijing has struggled to pull credit issuance back to a more normal pace.
"The scale of new loans has increased incredibly quickly, even doubling, in just a short period, but the expertise and efficiency of loan officers can't have doubled at the same time," Liu Mingkang, the chief banking regulator, said in an unusually blunt warning at an internal meeting earlier this year, a source said.
WEALTH FROM GROWTH
A rise in bad debts may well be tomorrow's story. For now, though, the lending has paid dividends in stunning growth, and an increasing portion of that has wound its way into the pockets of the workers, narrowing the income gap that the government has identified as a threat to social stability.
Tianjin, like other cities throughout China, will greatly sweeten its minimum wage this year, raising it 16 percent to 1,070 yuan a month.
With so many construction sites around the country, the demand for skilled laborers far outstrips the supply, pushing their wages up by even more.
Chen Jiaqing, a wiry man in his 50s with a weather-beaten face, pushed a wheelbarrow on an access road where the Yujiapu financial center was beginning to take shape.
From the southern province of Jiangxi, he was struggling against the cold, a change from the warmer weather of Shanghai, where he had worked on last year's World Expo, but he could not bring himself to complain.
"The company came all the way to recruit us," he said. "Wages are very good, about 100 yuan day, better than in Shanghai."
Tianjin has, in fact, scaled back its ambitions somewhat. Previously, the city wanted to make Binhai into a testing ground for bold experiments in currency convertibility and financial liberalization to become a true challenger to Shanghai.
An architect of that plan, Pi Qiansheng, the former chief of Binhai, was found guilty last year of corruption and sentenced to death, though that will likely be commuted to life imprisonment.
Tellingly, when Premier Wen, himself a native of Tianjin, visited last September, he lavished praise on its industry and technology, not its financial center. He toured the Airbus plant, a supercomputing center and a biotech research institute.
But Tianjin has not abandoned its dreams of high finance. It is now styling itself as China's home of private equity, offering firms generous tax breaks to register there.
In announcing investment of up to 200 billion yuan in Yujiapu last September, the city government laid out its vision of turning the clock back to the early 20th century, when it played host to scores of local and foreign banks.
"Tianjin's position as a financial hub has gradually declined. Now, the people hope that the Yujiapu financial center will reproduce the brilliance of the olden days," the government said in a statement on its website in July.
Chasing that vision is worth the risk, said Sun Guizhi, a primly dressed middle-aged woman whose husband works in a storage facility at the port.
"It might be a bit too fast, but we need all of this construction," she said, standing next to her car and a gleaming new apartment tower. "It's what generates the prosperity that spreads to the other parts of the economy."
(Editing by Don Durfee and Neil Fullick)