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Economy

China's 'richest village' grapples with debt

Financial fortune built on real estate exposed as a castle of sand

This 1-ton gold bull greets visitors to a skyscraper in the center of Huaxi, spoken of as China's richest village.   © Reuters

SHANGHAI -- Long dubbed the richest village in China, Huaxi has also come to epitomize debt-ridden local governments as their troubles are laid bare through a campaign spearheaded by President Xi Jinping.

The Jiangsu Province village sits a roughly two-hour drive northwest of Shanghai. Huaxi owes its rise to then-local chief Wu Renbao, who built steelworks, metal-processing and other facilities as China reformed its economy decades ago under then-leader Deng Xiaoping.

Residents can live off stock dividends, and single-family homes and luxury cars have been provided free of charge. A high-end hotel more than 300 meters tall stands at the center of the village, housing a 1-ton gold statue of a bull worth an estimated 300 million yuan ($43.5 million).

Speculation of financial troubles began to target this seeming communist paradise around 2017, with a key company in Huaxi said to be saddled with 40 billion yuan in debt.

Voices of resentment can be heard here and there from villagers. Only long-term residents received housing and corporate stock, with newcomers treated like migrant farmers, they say. Steel mills are forced to compete with larger state-owned enterprises and derive a big chunk of their income from leasing real estate. The key company is said to have distributed hotel coupons instead of stock dividends to villagers.

Near the high-end hotel are a textile company and its apparel outlet where what appears to be a 20th-century-style blouse carries a price tag of 200 yuan. Business prospects for these establishments do not look bright at a time when casualwear chains like Uniqlo and Gap are reaching deeper into China and online shopping is commonplace.

Huaxi has grown in size to 35 sq. kilometers through a series of mergers with neighboring villages -- a fact that would explain its financial fortune built on real estate.

A steel worker walks in Huaxi, with the village's skyscraper seen in the background. A steelworker walks in Huaxi, with the village's skyscraper seen in the background.   © Reuters

Even though Huaxi has broadened to include finance, marine shipping and natural resource investment, real estate would obviously seem to offer a quick and easy way to raise funds. It has also been revealed that the village received large amounts of bank loans by using corporate stock as collateral.

Huaxi looks no different from many other Chinese localities. It struggles to devise effective ways to promote industry, and its investment business is unlikely to deliver profits quickly. Falling share prices this year have left Huaxi even more dependent on real estate as a source of income.

Huaxi's troubles have come to the fore as the Xi administration has stepped up efforts to reduce excessive debt in China.

Official statistics put local governments' debt at 16 trillion yuan -- small compared with the nation's gross domestic product of more than 80 trillion yuan. The total could actually reach an estimated 30 trillion yuan after adding debts for companies affiliated with local governments, financing vehicles of these governments, and projects undertaken as public-private partnerships.

Localities' finances are squeezed as much as in 1994, when the tax system was overhauled. This problem, which Xi has been trying to tackle, has worsened to the point where painful reforms are needed.

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