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The wide new boulevards that cut across parts of Weifang in eastern China are largely free of traffic, a quiet reminder of the coastal city's big ambitions.
"It's empty here, and I always come here to dry my wheat," said a 77-year-old farmer surnamed Zhang who, along with his wife and son, was spreading grain on a sidewalk in one of the city's newer districts on a recent summer day.
Weifang is quickly outgrowing its rural roots, and officials see a wave of urbanization reshaping the local economy for years to come. Across the city, plans are underway for billions of dollars of major public projects, including new highways, high-speed rail lines, water treatment plants, schools and health care facilities. There is just one hitch: Weifang can't pay for all the projects.
In the past, city officials would have turned to low-cost loans from state-owned banks, as the national government encouraged local spending to spur economic growth. But the Chinese leadership, worried about the country's ballooning debt problem, is backing away from that strategy.
Like hundreds of cities across China, Weifang is now wooing deep-pocketed private investors, both local and overseas, to help pay for public infrastructure and services. Behind the spot where Zhang dries his wheat, a gleaming new hospital dominates the skyline, built in part with outside capital.
"If the project suits the public-private partnership model, we will try to fund it that way," said Liu Xitian, the deputy director of Weifang's finance bureau. "The next step will be to improve public services. We will release lots of projects in that area."
The push reflects the precarious financial state of many cities and towns.
Although the country escaped the worst of the global financial crisis six years ago, it did so on the back of a borrowing binge by local governments, which spent heavily on new but often unprofitable infrastructure projects. Now, many local governments are mired in debt.
In Weifang, a city known for seafood processing and an annual kite-flying festival, rapid urbanization over the last decade has saddled the local government with debts totaling 88.4 billion renminbi, or $14.2 billion, as of June 2013, the most recent data available.
Since 2007, China's overall local government debt has risen at an annual rate of 27 per cent. It now totals almost $3 trillion, according to estimates from the consulting firm McKinsey & Company.
Companies, too, have gorged on cheap credit in recent years. Altogether, China's total debt stands at 282 per cent of its gross domestic product - a high level that raises the risk of a financial crisis should borrowers prove unable to repay and a wave of defaults ensue.
It has created a conundrum for the country. China's leaders want to wean the country from this debt-fueled growth model. But they also need to continue stimulating the economy, particularly at a time when growth is slowing.
Part of Beijing's solution has been to help local governments lower their borrowing costs through refinancing. Local government-controlled companies that are struggling to pay bonds are being encouraged to exchange them for new loans at lower interest rates from state-run banks. China's Ministry of Finance recently expanded this local government debt refinancing program to 3 trillion renminbi, or nearly $500 billion, up from 1 trillion renminbi just a few months ago. China has also begun a national campaign to encourage private investment in local infrastructure projects.
In May, the nation's top economic planning agency released a list of more than 1,000 projects worth 2 trillion renminbi that local governments across the country are seeking to finance with outside investment. Analysts estimate that is on top of roughly 1,500 other projects worth 3 trillion renminbi that had been previously announced by the local authorities.
A decade ago, the MTR Corporation, the Hong Kong subway operator, was an investor in Beijing's fourth metro line. Beijing had won the right to host the 2008 Summer Olympics and was expanding its transport network at a blinding pace.
By the time it opened in 2009, passenger flows on the new line were much higher and revenue much lower than either party had forecast. This prompted huge subsidy payments from the Beijing government to the MTR, which did not sit well with local officials.
So city officials simply rewrote the contract. The new terms reduced subsidy payments to the MTR, and were on balance more favorable to the city government. MTR, as the minority shareholder, had little room to object.
Ren Yuhang, general manager of the finance department at Beijing Infrastructure Investment, the city government company charged with financing subway investment, compared such deals to a marriage. "It takes a lot of negotiation and compromise," he said.
Xie Hua, a deputy manager at the MTR in charge of business development in China, said local officials often failed to appreciate the long duration of rail partnerships, which can extend to 30 years. Also, some local officials tend to focus too narrowly on just getting money.
Foreign investors bring expertise, and they want a say in how a project is run, but local officials often reply that their "biggest problem right now is funding," Xie said. "The two sides have mismatched solutions."
Such experiences, say analysts, could limit the appetite of foreign investors.
"The initial wave of all these projects definitely is going to be more suited to the local players," said Stephen Ip, a partner and the head of government and infrastructure business at KPMG China, based in Shanghai. Foreign investors "can't really make the leap of faith at the moment."
In Weifang, the local government has a list of nearly 70 projects it hopes to finance through the private-partnership model, for a total investment of 124 billion renminbi - about a quarter of the city's economic output.
Officials hope the money will help the city cope with rapid transformation. Farmland is giving way to new roads, rail lines and other large-scale infrastructure projects. A huge industrial park on the outskirts of town is busy with construction activity, but it is also dotted with symbols of previous booms that have fizzled.
Part of the idea behind bringing in private investment is to help offset a slowdown in other parts of the local economy, including real estate. Evidence of the property market slump can be seen in half-finished projects in the same industrial park, like Jinhe Aristocratic Family, a luxury housing development.
The six-tower complex was supposed to be completed this year, but the developer ran out of money. Dormant construction cranes tower over the site. Wild grass has since overtaken much of the freshly cleared earth.
"If you are interested, I would suggest you purchase after the construction restarts," said a lone security guard living at the Jinhe site, declining to give his name.
The falling property market has cut deeply into local coffers. In Weifang, land sales, which account for a major share of the city's income, plunged 40 percent last year, according to figures from Deutsche Bank.
Weifang officials had some early success in attracting private capital.
The new hospital, built with funding from Sunshine Insurance, a company based in Beijing, aims to be the biggest medical facility in Shandong Province. The insurer, which this year spent $230 million to buy the Baccarat Hotel in New York, has local connections. The company's chairman, Zhang Weigong, is a native of Weifang.
One of the biggest projects in Weifang is the local section of a new high-speed rail line connecting the major cities of Jinan and Qingdao. It is the country's first high-speed rail project to secure private financing.
But the definition of private is a bit stretched, in some cases.
The Weifang government is responsible for 4 billion renminbi of the 26 billion renminbi budget for the 147-kilometer, or 90-mile, portion that will run through the city. The main outside investor is the Postal Savings Bank of China, a sprawling, state-owned bank. Temasek Holdings, the Singapore state investment firm, has also agreed to participate in funding at the provincial level, according to local officials.
Even if the enthusiasm of private investors fails to keep pace, the force of urbanization seems unlikely to slow.
In the sleepy village of Beiying on the outskirts of Weifang, a farmer who gave his surname as Pei is worried that the rail project will force him out of his home.
"I was born in this village and have worked as a farmer my whole life," said Pei, 50, who grows fruits and vegetables a few hundred yards from where construction on the rail line will start soon. "What else can I do if I don't farm?"
© 2015 The New York Times News Service
