The Chongqing Model Worked

Bo Xilai might be a crook, but he was actually pretty good at his job.

Feng Li/Getty Images
Feng Li/Getty Images

Chongqing has long been known as the "foggy capital" of China, an allusion to its humidity and its status as then-leader Chiang Kai-shek’s base during the Japanese invasion. The fog has thickened since the March downfall of Bo Xilai, the former party secretary of the mountainous mega-municipality, and the frenzy of allegations about him and his family members. On Thursday, Bo’s wife Gu Kailai will be tried for the murder of British businessman Neil Heywood; she will almost certainly be found guilty. As for Bo himself, his fate remains uncertain. When the fog clears, however, the real impact of this bizarre episode on China’s future may become apparent.

A unique set of economic and social policies the Bo administration adopted in Chongqing for the past four and half years — widely known in China as the "Chongqing model" — are a radical departure from mainstream state policy. In the aftermath of the Bo incident, the model is being discredited, especially the nostalgic "sing red" movement that organized massive public gatherings to sing revolutionary songs, and the heavy-handed "smash black" campaign against organized crime. Many elements of the Chongqing model, however, continue to be popular locally. It’s important to understand why.

Until the late 1990s, Chongqing was as an economic backwater. China’s once-proud wartime capital could celebrate little other than its food — arguably the best and spiciest in the country. In 2000, when Beijing launched its "Go West" strategy, Chongqing became the beachhead for efforts to develop China’s vast western provinces. Yet it still lagged far behind China’s three other centrally managed municipalities, the economic powerhouses Beijing, Shanghai, and Tianjin. It was the policy innovations under the administration Bo, the party secretary, and Mayor Huang Qifan that fundamentally transformed the city.

To understand the uniqueness of the Chongqing model, it is useful to look at China’s growth pattern since 2000. While impressive in its pace, critics have labeled China’s recent growth pattern "Guo Jin Min Tui," roughly translatable as "the interests of the state advance while those of the private sector and the people retreat." China maintained a state-directed economic model that put exports and investment before living standards.

In 2011, among China’s 500 largest companies, state-owned enterprises (SOEs) accounted for more than 90 percent of the total assets and 85 percent of revenues. Between 1983 and 2010, wages fell from 56.5 percent of gross domestic product to 36.7 percent. The government has set interest rates at low levels that punish Chinese savers, while state-owned banks posted record profits of $161 billion in 2011. While the Chinese economy since 2000 has grown at roughly 10 percent a year, the quality of life for Chinese households has improved much more slowly.

The debate in China is usually framed as a choice between export-led investment and consumption, or state and people. But in Chongqing, the municipal government appears to have found a third way by deploying public policy and public funds to improve people’s quality of life. This unorthodox model did not encourage individual consumption at the cost of investment, but rather used state resources to stimulate collective consumption. The model focuses on funding investment in areas where living standards could be immediately improved.

In Chongqing, the Bo administration improved public security, rebuilt infrastructure, pulled in foreign direct investment and pioneered several policy innovations on urbanization. The smash black campaign, while widely seen as infringing on civil liberties and private property rights, significantly reduced street crime. Local SOEs in Chongqing, according to Ministry of Finance data, contribute 15-20 percent of their profits to the government, the highest in China, which in turn funds infrastructure and social programs intended to improve people’s standard of living. Mayor Huang Qifan (who kept his position) stated in March that his target for SOE profit-sharing is 30 percent in 2015. A $1.5 billion a year tree-planting program, now widely criticized by Chinese media as wasteful, made a huge difference to the ambience of an industrial city. In the past five years, Chongqing’s GDP grew at an average of 15.8 percent annually, compared with 10.5 percent for China as a whole, helping to close the gap between Chongqing and China’s other centrally managed municipalities.

Bo promoted Chongqing as the place to experiment various policies directed at solving China’s age-old urban-rural tensions. By 2011, Chongqing had spent $15 billion in building 13 million square meters of public housing for poor families, with plans for a further 40 million square meters that could house up to 2 million people. The city has also issued over 3 million hukou, or urban residence permits, to rural migrant workers, giving them access to health care, education and social security — a practice unheard of elsewhere in China. It is these substantive measures, not the populist campaigns he also exploited, that have made Bo’s policies popular in Chongqing, even after his downfall. The Chongqing model is a daring experiment in using state policy and state resources to advance the interests of ordinary people, while maintaining the role of the party and state.

In the short term, the Chongqing model will remain tarnished both inside and outside China by the backlash against Bo’s political ambitions and policy missteps, as well as the charges against his wife. But when the dust settles and the fog clears, the Chongqing model may be remembered as a useful social and economic experiment that tackled the tensions between state and people lying at the heart of modern China, providing a credible alternative while China struggles to rebalance its economy and policies. While Bo’s political career is clearly over, he may also be remembered as a maverick risk-taker for tackling these challenges — whatever his personal motives.

Dr. Kevin Lu is a Distinguished Fellow at INSEAD and a member of the Financial Centre Advisory Panel (FCAP) of the Monetary Authority of Singapore.

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