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As state banks concentrate their lending to state-owned enterprises, capital formation has been the bottleneck to the expansion of private small and medium enterprises (SMEs) across the country. In Chongqing, however, hundreds of government-approved and regulated private nonbank providers of micro-credit have lent $15 billion to private SMEs this year alone.
At the same time, government industrial policies are spurring large-scale developments in technology and manufacturing. The development model of the coastal regions of the Pearl River and Yangtze River Deltas has been to encourage low-end assembly industries with the advantage of cheap labor and low-cost transportation by sea. Higher value components in industries such as electronics are still being made overseas.
Chongqing, at a transportation disadvantage, has opted to use government levers to enable rapid build-up of scale in downstream assembly. This is driving component makers to move their productions from overseas directly to Chongqing to realize the benefits of economy of scale. In the mobile computing and tablet industry, current trends indicate a remarkable 80 percent of the value being made in the Chongqing region in the near future.
By 2015, 100 million notebook computers and tablets are to be made in Chongqing, the largest such production base in the world. Hewlett-Packar and Foxconn are among the largest corporate investors. Foreign direct investments have grown from $1.2 billion in 2007 to $9 billion in the first three quarters of 2011.
Perhaps the most significant element of the Chongqing phenomenon is its underlying driver: public morality. A uniquely Chinese brand of socialism underpins its social and economic development. The “singing-red” movement, the revival of age-old Communist revolutionary music, reaffirms modern communitarian values that deeply resonate with Chinese culture’s Confucian roots. Only on the basis of a fair and just society can rapid economic development be justified and sustained.
A strong government unapologetic of its leadership role is proving to be effective because it is consistent with the Chinese cultural tradition of honoring moral authority vested in political power. In an increasingly materialistic environment, the government led by the Provincial Committee of the Chinese Communist Party is reclaiming the moral high ground in society.
The implication of Chongqing is significant. The coastal regions that have largely driven China’s growth so far were the low-hanging fruit. What works there may not work in the Chinese inland where the vast majority of the population lives. As a continental nation, without genuine development of its inland regions, China may very well miscarry its rise.
Deng Xiaoping launched China’s economic reforms 32 years ago with the establishment of the first “special economic zone” in the southern town of Shenzhen – the first stop on China’s rise. He relaunched the reforms nearly 20 years ago with his infamous “southern tour” that was best symbolized by the emergence of Shanghai – the second stop. But, the sprawling factories of Shenzhen and the glitzy towers of Shanghai do not yet make a powerful nation.
Could this mountain metropolis be the third stop and final launching pad of the ascendency of a major civilizational power? All eyes on Chongqing.
Eric X. Li is a venture capitalist in Shanghai and a doctoral candidate at Fudan University’s School of International Relations and Public Affairs.
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