China moves to regulate ‘speciality towns’ amid debt fears

BEIJING (Reuters) – Top Chinese central government bodies issued guidelines on Tuesday to regulate the development of “speciality towns” that have sprung up across the country, warning that the projects risk intensifying local government debt.

The government has actively promoted the development of “speciality towns” – hamlets of a few square kilometers dedicated to unique local industry ranging from eco-tourism to painting and pottery – in a bid to find cleaner and more sustainable growth outside major cities. More than 400 locations have been approved as “speciality towns” by the housing ministry so far.

However, since the plan was launched, there have appeared instances of carrying out the plan “rashly” or “blindly” and “in some areas there are even the first signs of intensified risks to government debt,” according to guidelines released by China’s state planner, as well as environmental, housing and land ministries.

To meet the requirements of the new guidelines, provincial governments must increase oversight of projects and central government ministries will carry out checks on those towns that have been approved to weed out those deemed unfit, the ministries said.

They warned that some of the projects showed a tendency to focus on real estate development instead of cultivating industries, saying that the plan must avoid building a thousand towns that look the same.

State-owned enterprises and private companies should be the prime investors in the projects and the government should as much as possible avoid taking on new debt, they said.

China’s regulators have tightened controls on local government debt to fend off financial risks, but Beijing has also sought to support the funding needs of Chinese firms and keep liquidity conditions relatively fluid.

Projects must also not cross the “red line” of environmental protection and should strictly control the use of new construction land and avoid high energy consumption and high polluting industries, the ministries said.

Building speciality towns should be done in a way that involves real industrial innovation in line with the advantages of the region so as to avoid “wearing new shoes to walk an old street,” they said.

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