Ge Honglin: For Cities, Vitality is More Important than Strength
The following is a translation of Ge Honglin's speech on May 22, 2021 at the Third Annual Conference of Government and Economics. Ge Honglin is the President of the China Nonferrous Metals Industry Association and former Mayor of Chengdu.
Today I would like to talk about how government can facilitate the growth of an economy. I have experienced multiple transitions in my career, from working in an enterprise, to working in the government, then back to an enterprise, and now to an industrial association. It can be said that I have assumed three sorts of roles throughout my career, thus becoming capable of building bridges between the government and enterprises, as well as among enterprises. I would like to take this opportunity to share some of my insights based on my own experiences.
First, the government must serve as the guardian of sound economic development. The government has four major functions. When it comes to the function of ensuring the sound development of the economy, I believe that maintaining stability is a must.
For instance, a while back there was a substantial increase in the price of commodities, which was met with different views in economic circles than in business circles. For those of us inside the industry, it was clear that this was a deviation from the value chain of industrial operations. Let’s take aluminum, copper, and deformed steel bar as examples, with which I am more familiar. In a case where the price increases can enable recovery of the full cost of investment within seven months, the surging prices are deemed as deviations. However, some people are unaware of this truth simply because they have never been engaged in the industry. On April 27, journalists from the CPPCC Daily interviewed me. I explained that the fundamentals of supply and demand had not undergone basic changes, nor did costs support the substantial increase in prices. Therefore, this round of price surges was being driven by the key factors of capital and varying funds—the value of basic raw materials remained stable. Judging from historical experience, we should realize that only when there is appropriate and relatively stable value can the industrial chain remain steady during its long-term development.
On May 12th, Premier Li Keqiang presided over an executive meeting of the State Council, remarking that the government would effectively respond to the rapid increase in commodity prices and its associated effects, after which the prices fell accordingly. There was another meeting on the morning of May 19th, and the market experienced an impact within the same day, with prices showing a major correction in mid-May. Some people, including those who work in futures, believe that price surges are a component of market behavior and that it is unnecessary for the government to regulate the market. However, in many other aspects of market operations, particularly those that are involved in the “six guarantees” and “six stabilities,” the government must intervene and take action whenever necessary. As for the method of oversight, the government should assign a deputy mayor to supervise the decentralized aspects of market supervision, including in the areas of food, medicine, industry and commerce, quality inspection and quarantine, and customs.
Second, we must continuously inject vitality into economic development. I took office as mayor in 2003. In 2004, China Central Television (CCTV) launched a campaign for selecting the top ten cities with the most vitality, which they concluded were Shenyang, Dalian, Dongguan, Hangzhou, Qingdao, Shenzhen, Chengdu, Suzhou, Wenzhou, and Wuxi. Of these cities, nine were located on China’s east coast, with only one in western China. At the award ceremony, I said that the vitality of a city is more important than its strength. A city with strength but without vitality will eventually lose its strength, whereas a city with vitality but no strength will eventually become empowered. Furthermore, there are three sorts of divergence among Chinese cities. First, divergence in the speed of growth. Some cities grow faster, whereas others develop slowly. Second, the divergence in development between China’s northern and southern regions. At that time, Tianjin was not rated as the most dynamic city—Dalian and Shenyang held the top title. However, since 2009, the economic growth of Dalian and Shenyang have diminished, and all three cities—Tianjin, Dalian, and Shenyang—have fallen in terms of economic growth.
The third sort of divergence is related to population. The permanent floating population has experienced a drastic decline. As people have voted with their feet, they have also voted for the vitality of cities’ development. Since I was mayor in 2003, I analyzed Chengdu’s overall situation at that time. I found that Chengdu resembles a sample of the country, with a population amounting to exactly 1% of the Chinese population. The remote suburban areas of the city resemble the western parts of China, the outskirts resemble the central parts of the country, and the urban areas resemble the eastern parts of our nation. As for how to address the imbalance in the development of such a city, we must rely on the development of the western region, the rise of the central areas, and the revitalization of the eastern zone. However, this is not defined as a policy. During the scientific development at that time, these measures were summarized as integration in the six areas, including urban and rural industries, planned industries, markets, infrastructure, and public management mechanisms. Unlike other mayors who started with urban concerns, I began with agriculture. I made efforts to tap into the vitality of urban-rural interactions as well as scientific development. In terms of how the city could facilitate economic growth, I found that the most critical thing is to ensure that people can live and work in peace and contentment. From 2003 to 2008, our goal was to build Chengdu into a city with an optimal living environment, the best ecological environment, and the greatest comprehensive strength among western cities. From 2008 to 2011, we slightly modified our goal to build Chengdu into a city with an optimal living environment, the best environment for entrepreneurship, and the greatest comprehensive strength among central and western cities—we aimed to surpass Wuhan at that time. There is a Chinese saying that goes, “Sichuan is a place where the young don’t come and the old don’t leave.” Perhaps due to this perception, Chengdu has become a city that people don’t wish to leave once they settle down. Intel released a famous advertisement that says, “Can do, Chengdu.” Subsequently, numerous similar slogans have become popular across China, praising the city as a place one must visit, a city that one cannot help but visit multiple times, and a city that one does not wish to leave. Consequently, such publicity has attracted an influx of people moving to Chengdu. Therefore, whether people can work in peace and contentment is a vital measure of a city’s economic development. When a local economy experiences negative growth, this is usually due to the decline of local industries. Economic development is a systematic project which requires an optimal ecosystem for the political and social environment—this is a condition that must be fulfilled. From this perspective, we can see that the government’s efforts to crack down on crime are also another measure oriented toward economic growth.
In addition, we should promote growth by enhancing the vitality of investments, villages, and cities. Of these, the vitality of investments should be the top priority. When there is a lack of investment vitality, it is often not because investors are faced with capital constraints or are unwilling to invest. Rather, despite desire from both sides, there is often a mutual lack of trust. Enterprises are often afraid that the local government will go back on its word, and vice versa. Most commonly, it is the enterprises that do not keep their word.
Subsequently, at a CPPCC meeting three years ago, I recommended that we should establish an investment insurance corporation. Everyone said that we should instead adopt market-oriented, administrative, and legal methods, and that governments and enterprises should sign agreements to cement their commitments. However, given that new officials often decide to ignore old debt, it is difficult for both sides to keep their word. Therefore, we need to open up a new marketing environment as a channel.
Next, there is the question of how to enhance the vitality of villages. Those who come from villages know that members of rural collective organizations can in principle only go out, not in. After entering the city from the countryside, these migrants are allowed to give up their rural identity in pursuit of an urban residence. However, they can't return to the countryside. This is a problem of the system, and cannot persist in the long term. In my opinion, it is necessary to improve our studies in this area to guide the flow of urban resources, capital, talents, and technology to the countryside and increase the innovation momentum for revitalizing villages. Besides, the newest push advocating for people to “go down to the countryside” is different from the original campaign.
The third issue is the housing issue, which currently doesn’t exist in rural areas. Now that we have basically addressed the issue of dilapidated housing, impoverished households, and poverty alleviation in poverty-stricken counties, the remaining problems are primarily in urban areas. To address urban housing issues, we cannot solely rely on market behavior to allocate resources, especially because the issue of affordable housing can also evolve into a social and political problem. Each city should determine the increase or decrease of its permanent population according to its future growth, setting an acceptable range and ceiling, and formulating policies accordingly. Apart from high-end commercial housing, mid-range housing should also be available in urban areas. Cities can't be populated solely by rich, highly skilled workers. For instance, there is a huge market for babysitters in Beijing and a large logistics and shipping industry. Cities must consider where their hourly babysitters live and where their logistics staff sleep at night.
Furthermore, when seeking to attract talented personnel and workers to the city, the government cannot only tend to the issue of household registration while turning a blind eye to housing. The city cannot reap the benefits of an influx of workers without ensuring the convenience of their housing. In this respect, there are also some methods to fully revitalize the idle industrial land of central enterprises and local state-owned enterprises in cities. State-owned enterprises are the foundation of state governance, and the state-owned economy should make its due contribution. In my view, neither the urban housing issue nor the tight housing supply is caused by a lack of land. It is also necessary to convert land into real estate, which immediately enhances the current income of local finance. The government should no longer regard the real estate industry as a pillar industry, but should leverage the improvement of housing conditions as a driving force to promote consumption. Once there is a need to replace appliances such as washing machines and air conditioners, etc., such demand will drive more industries to grow.
In addition, we should attach great importance to the human factor of government work. In 1999, the mayors of the four direct-administered municipalities of Beijing (Mayor Liu Qi), Shanghai (Mayor Xu Kuangdi), Tianjin (Mayor Zhang Lichang), and Chongqing (Mayor Pu Haiqing) all came from the steel industry. Large enterprises are places where people can hone their talents—they are not merely factories, but societies. I have managed docks, fleets, railways and locomotives, substations, power plants, coking plants, and communities—through these experiences, I became equipped to manage every aspect of a city. In 2005, when Xu Kuangdi was the vice president of the Chinese Academy of Engineering, I recommended that he could set up a department at the Academy to include urban management within the management science department. However, he said this would be rather difficult. We need to regard urban management as an area of study and as a science, not as part of the administrative level of a city—for instance, whether the city is a direct-administered municipality, a sub-provincial city, a provincial capital, a city with independent planning status, a prefecture-level city, a county-level city, or a provincial-level city, they all require urban management. From my perspective, there is indeed a need to cultivate a group of professional mayors with urban thinking capabilities and unique ways of revitalizing their cities through prestige, just like a group of professional managers. Moreover, we must attach great importance to the human factors of urban management, and the leadership should not change too frequently. I served as mayor for eleven and a half years. I felt more like an apprentice for the first term of office of three years, as I was still finding my sense of city management. I deepened my understanding in my second term of office, and it became rather difficult for people to deceive me. Then in my third term of office, my sense of accomplishment grew further. This is because projects overseen by the mayor—and large projects in particular—usually require investment, construction, and operation over a decade or so.
In 2007, to expand the production capacity of LCD screens, BOE proposed to build a 4.5-generation LCD production line in Chengdu, with a total investment of 3.1 billion yuan. Given that BOE is an enterprise managed by Beijing Municipality, any cross-city investments required approval by the Beijing State-owned Assets Supervision and Administration Commission. I said that the enterprise could raise capital via additional issuance, but in case the additional issuance failed, the Chengdu municipal government could fill in the gaps. When the restrictions were lifted, the government could withdraw capital through the secondary market, and though the intention was not to make money, we benefitted invisibly. The investment model of BOE and local governments has become a case now taught at Harvard University, and the model was later replicated by BOE in Hefei and Chongqing municipalities. The truth is, I felt quite nervous at the time. If BOE went bankrupt after three years, then the investments made would all be ruined, making the investment decision quite risky. Nowadays, this model has evolved into a government-led model to channel investment into industrial funds. In the previous model, the investments took the form of direct investments, while they are now made through a fund. Some government officials are even smarter. Even if the fund fails, the ban on capital withdrawal can be lifted, and the government may not even be directly held accountable. For every ten investments, there might be only one that fails, though every investment carries the risk of failure. These sorts of risky investments can’t be made all the time, but once in a while is okay—I only did this once in Chengdu. However, not many people truly understand the risks involved.
Therefore, I believe the success of this investment model depends on the decision-makers’ understanding and judgment of the enterprise. In terms of how the government can promote industrial development and directly or indirectly engage in risky competitive fields, this is an issue worthy of academic research. Moreover, there are other aspects of the issue, including compliance, risk prevention and control, and accountability and exemption, which have been the root of some investment failures. This concludes my remarks.
[Q&A Session]
1. When you were the mayor, it took three years for you to eventually figure out the status quo so that others could no longer deceive you, and you decided to focus on several industries. How did you decide on these industries, and what was your thinking at that time?
In 2001, the central government was just about to launch the western development campaign. The Organization Department of the Central Committee assigned some officials from national ministries and commissions as well as central enterprises to support the western regions. Baosteel selected me for this initiative, and after I worked for more than a year, I became the mayor of Chengdu. This shows that Chengdu is not an exclusive city, which is oftentimes not the case in many other places. They wanted an entrepreneur to promote local development. In Sichuan, there is a need to focus on industrial development, so the mayor must be someone who understands industry.
Second, the city needs to be open. I have pursued studies overseas. I have obtained a doctoral degree in engineering after thorough studying. I don’t mean to belittle science, but still, we need to have a basic understanding of foreign countries.
Third, my experience of being the director of a large factory was highly valued, since I was once the leader of more than 20,000 people. After taking office as the mayor, I found that the core issue was that the gap between the east and the west was too vast. I also found that the key to solving this issue was in industry. If industry failed to develop, we would be forced to rely on transfers from the central government, which would be at the discretion of the Ministry of Finance. However, Chengdu never took fiscal transfers from the government, and even paid more in taxes to the Ministry of Finance. By developing local industries, we intended to improve people’s livelihood, and we focused all our work on promoting people’s ability to live and work in peace and contentment. To ensure that people can work in contentment, we must ensure that there are industries worthy of development.
Once, in 2005, GE invited me to deliver a speech. I said that I wished Intel could come to Chengdu. Subsequently, 2,000 senior engineers came, who were all smart people. Most of them were male, while only a few were female. When it came time to settle down, they would get married to 2,000 wives and give birth to 2,000 children, improving the population structure. At present, the population structure of Chengdu is directly related to the development of foreign high-end enterprises in the city. The population structure will further improve now that there are tens of thousands of Huawei employees working in Chengdu, who will marry the equivalent number of local women and give birth to tens of thousands of children accordingly.
I once read a news story online that the Premier visited the high-tech zone in Chengdu and raised a question to the audience of more than a hundred people. He asked, “Which of you come from Chengdu? Please raise your hands.” Only two people raised their hands, and the Premier was quite delighted. Given that 98 out of the hundred people moved to the city from elsewhere, how could Chengdu not experience further growth?
2. While focusing on the development of industries, what industries do you think are worth growing further? For instance, in Chengdu, did you opt for the steel industry?
I adjusted the steel industry and relocated it out of the city center because it brought too much pollution and was not suitable for the area. But for sure, this industry also needs to be developed. Numerous large steel mills were handed over to central enterprises, and to Panzhihua Iron & Steel Group and Ansteel Group. Nevertheless, we should not eliminate this industry.
I also made adjustments to the cement industry. This industry was previously dominated by small cement plants. Now that the government intends to develop large cement plants, including Chinese energy-saving cement plants and French cement plants, we need to phase out the outdated production capacity of the small cement plants. For every production capacity of 10,000 tons to be phased out, reimbursements of 400,000 tons should be made. Without compensations, enterprises will not cooperate to phase out their backward production capacity. On one hand, we should eliminate unproductive firms, and on the other hand, we should let the quotas out.
3. Both steel and cement are the raw materials for the industrial development of Chengdu. What’s your vision for the automobile industry?
When Chengdu and Chongqing were separated into two cities, the automobile industry in Chengdu disappeared. Still, I think that we must develop this industry. The United States is a country built on wheels, and the future consumption in this industry will be immense. The automobile industry is the industry with the most comprehensive driving force. Consequently, Chengdu sought the FAW Group to come and operate locally.
At that time, we had a joint venture with Toyota called Sichuan Toyota. The Toyota Coaster was in fact manufactured in Chengdu. Coaster once held shares of 200 million yuan, accounting for 60%. I recommended that the 200 million yuan of shares could be given to them under the condition that Toyota would jointly promote the production of the Coaster and introduce German companies to Chengdu Municipality. Given that Sichuan Toyota was a state-owned enterprise, they were actually able to obtain shares of two hundred million with only one hundred million in capital.
Nowadays, some other cities also wish to engage in the automobile industry, and my feeling is that it is a bit too late.
4. And you also captured the opportunity brought by Volvo.
At that time, I helped Li Shufu to address the shortage of funds for his acquisition of Volvo. There were numerous secrets behind this, and the key was in the operations. I did not have strength in theory, but my practical operations were still okay.
5. You placed your focus on relatively high-end cars, including Volkswagen and Volvo. As a result, over the past few years, the automobile industry in Chengdu has experienced optimal developments, so to speak.
Judging from our analysis at that time, when we went to a place, we had to figure out what industry to develop there, and we thought that the software industry could be suitable for the development of Chengdu. The University of Electronic Science and Technology is in the area, which is quite strong in this field. Chengdu is also home to the Southwestern University of Finance and Economics, which specializes in cultivating talents for the banking industry. Upon this analysis, we began developing the e-commerce and software industry in Chengdu, with a focus on the chip industry. Intel’s first line of production in western China was located in Chengdu, and SMIC also set up a local base. Subsequently, the service center and even the patent production center for southwest China were also established in Chengdu. Therefore, while looking for an industry suitable for the development of a place, we need to figure out whether talented personnel are available in the area. However, we should not disclose such perception too explicitly, lest we begin to carry out place-based discrimination. Those who truly invest are very clear about this issue when determining whether a region is suitable for a specific industry.
6. How did you promote the development of these industries? You’ve mentioned the use of land and the arrangement of financing—were there other ways? We wish to understand the role of the government in the development of a market economy and the potential tools that can be used to do so.
Most importantly, the government should create a favorable business environment, with an optimal financial ecosystem as the priority. Second, in infrastructure construction, commitments must be fulfilled. I had the experience of holding quarterly symposiums with foreign entrepreneurs. For 11 years and 6 months when I was in office, I held 46 such symposiums. The attendees were divided into groups of seven or eight people, with a meeting for each group. At these meetings, entrepreneurs came to talk about the problems that they encountered. After these meetings, we would then hold a general assembly. It was quite useful and yet painful to hold such symposiums, given that we would find there were many commitments that we had made, and yet many of the requests remained unfulfilled. In addition, some requests overstepped their bounds. It was essential for us to convince our investors that we would keep our word. Intel was new to the city, and the business environment in Chengdu was not ideal.
Their boss was unwilling to come to Chengdu. He said that there was only one five-star hotel in Chengdu, namely, the Sheraton, and there was another hotel next to it. He said that he would like to change his underwear at night for washing, but the laundry service was not available at that time, unlike nowadays. Consequently, he had to find an auntie on the street to wash his clothes. This happened more than a decade ago, so we can imagine how fast China has developed. We have taken two measures to improve the business environment. First, we set up a court specializing in intellectual property protection in 2004, in addition to a specially-established Intel office. The government aimed to build a standardized system of service-oriented governance, and now we are achieving further progress in this respect. The top priority is to regulate the behavior of our government officials—even if they do not provide services, they must be subject to enhanced oversight.
Now the situation is changing on an annual basis, and major transformations can take place in as little as three years. I think it is harder to forecast what will be possible one decade from now.
7. To ask one final question, you told us that you came back from studying overseas and that you obtained a doctoral degree in engineering from Canada. You were once a senior executive sent by Baosteel to assume a temporary office in Chengdu, and after a year and a half, you were elected to be the mayor. You were not even ready for the new position, so why did you still agree to be the mayor instead of returning to Baosteel? After all, the salary in Baosteel of Shanghai was much better. What was going on in your mind at that time?
Different people have varying goals in life. Some people value money, whereas others do not. I wouldn’t say that money is not important, but when I went to Chengdu, I was entrusted by my organization. Chengdu is a locality with unique significance. It is a major municipality in the southwest of China with a local population reaching over ten million. When I arrived in Chengdu, my salary dropped to one-tenth of its previous level, yet I gained responsibility for ten million people instead of over 100,000 employees. In the meantime, I was suddenly promoted to the sub-provincial level with no previous administrative positions. I believed this would be a platform worthy of my efforts.
At one meeting held in 2004, Liu Yonghao and I were both invited as speakers. As one of the richest men in China, he received a warm round of applause when he took the stage. Then, when the host invited Mayor Ge Honglin to deliver a speech, there was much less applause. Being a city mayor is actually quite honorable, and not everyone can do the job well. Chengdu now ranks sixth in China in terms of its GDP. Of course, I am quite delighted to see the city achieving optimal development, and my greatest fear is that it will fall behind. Mayor Tang Liangzhi from Chongqing was my successor as the mayor of Chengdu in July 2014. Whether the city developed well or badly, I said it would be fully my responsibility in that first year. As for the year 2015, I suggested that my responsibility should account for the golden ratio of 0.618, whereas in 2016, Mayor Tang’s leadership would account for 0.618. For the year of 2017 and beyond, Mayor Tang would be held fully accountable for all the good or bad developments in Chengdu. Every class of municipal leaders hands down a legacy from their time in office, and I suggested that the golden ratio could be a good way to measure this. Therefore, to develop a city well, one needs to find the key points and driving forces to sustain its growth.
In addition, we need to foster an optimal image of a city. When I was in office, there would not be more than ten beggars in Chengdu for an entire week. Furthermore, there would be no beggars in the downtown area of Chengdu. Whenever the urban management and law enforcement staff spotted a beggar on the road, they would take photos and directly upload them to the City Management Center instead of the relief centers. Subsequently, the City Management Center would distribute the photos to the Ministry of Civil Affairs. In one week, I saw that there were five beggars in the downtown area of a certain district and that there were more than two beggars in each district, so I asked local officials to pay a field visit for further clarification. First of all, I had to ensure that these beggars were not people with Chengdu registered permanent residence, as our social security system must be sound. Second, for migrants, we had relief stations to offer assistance. The social safety net system must be well-established. When assuming the position of mayor, we need to be passionate about this position. Otherwise, we will not be able to fulfill our tasks well. It’s a bit like being the “housekeeper”at home, but we still need to have a bit of foresight. I once raised the suggestion to the central government that we should set up a system for promoting professional mayors, but in reality, this is hard to put in place. Nevertheless, in foreign countries, many of the mayors are executive deputy mayors and are professionals who took office via campaigning in elections.
8. You have been a factory manager, a senior executive of a large enterprise, Chairman and General Manager of Baosteel and Chinalco, and President of the Nonferrous Metals Industry Association. Which position has brought you the greatest sense of accomplishment?
The position where I gained the greatest sense of accomplishment was when I was engaged in metallurgy in Baosteel, the equivalent of a chief engineer. The second career that brought me the greatest sense of accomplishment was serving as mayor of Chengdu. I didn’t expect to be promoted further—I was content to remain in the position of mayor of Chengdu. I made it clear to the Organization Department of China that it would be fine for me to take office for two terms, and if I did badly in my first term of office, I would be willing to resign. There is a saying in Sichuan that three times three equals nine, which is not as good as two times five, which equals ten. Sichuan farmers used to grow crops for three seasons to develop the agricultural economy, and they found it was quite painful for them to harvest crops and plant seeds simultaneously. Eventually, everyone discovered that there was no need to do so—it was better to plant crops for two seasons. Contrary to people’s expectations, the yield was actually higher. Thus, the government began to educate the farmers and encourage them to plant for only two seasons. Similarly, we must also educate our officials, using memorable slogans whenever possible. If I were to serve as mayor for 13 years, a member of the provincial CPC committee for three years, and executive vice governor for another three years, after three “crop rotations,” it would become difficult for me to gain a sense of accomplishment and to make greater contributions. Conversely, my 12 years as mayor were a rather good experience. During this time, I could better apply the knowledge I had learned throughout my life, especially in the field of industrial engineering.
Some may doubt that industry players are capable of developing the countryside, but indeed, we used industrial development concepts to advance the rural economy. Agriculture is the starting point, and the Chinese Communist Revolution was, in essence, an agrarian revolution. In addition, water conservancy serves as the lifeblood, and the basic way out of agriculture is through mechanization, which must be scaled up. A trickier issue is how to educate our farmers, and though material support is important, spiritual education is even more critical. We should bear these logical relationships in mind to form the big picture.
The third career experience that I would like to share is when I was at Chinalco. At that time, Chinalco was experiencing losses, and it was a tough job both to make money and to allocate resources well. In the last stages of my career, I was assigned to a position that was a hard nut to crack. If you still want to earn money when you’re old, it’s difficult because you will not be seen as promising, just as a money-grubber. Therefore, sometimes when I see some companies mired in fierce competition, I feel sorry for them. Chengdu is a city that has experienced great development in the software industry. In some companies, every young person has a canvas bed next to their desk, and they just sleep there. They are game developers, and if their game is second to launch in the market, they won’t be able to make any profits. Therefore, this is indeed an era of competition.
I was also concerned that if Chinalco were to be ruined in my hands, I would lose all the previous honors that I gained at Baosteel and in Chengdu. Therefore, I aspired to fight for the honor of my country and my honor as an individual. I sometimes think that an individual’s life must be closely connected with their country. On some occasions, if this person obeys their organization to leave their previous position, the result might not be good, but they will still obey. Of course, this may bring many emotions, but adjustment will come with time.
