Will China repeat the mistakes of Detroit?

The financial situation of Detroit in the United States has been deteriorating recently, and it was facing bankruptcy as early as March this year. On July 18, local time, Detroit filed for bankruptcy, which is expected to become the largest urban bankruptcy in the United States. Detroit's debt is now estimated at $18.5 billion. If the federal government steps in, an estimated $20 billion is needed.

Detroit was once a splendid industrial city in the United States. In the past, it enjoyed the reputation of the world's traditional automobile center and music capital, and its population ranks among the top cities in the United States. Due to the booming development of the automobile industry, the economy has grown quite rapidly here. High-rise luxury buildings abound, as well as hotels with more than 30 floors.

In the past decade, one of the four largest cities in the United States that once rivaled New York has lost nearly half its population, with 70,000 residential and commercial properties abandoned, and has gone from the richest city to the poorest with the highest crime rate city of.

To a certain extent, the decline of Detroit City is not a premature death, nor a sudden death without warning, but a decline that has long been shown. The "pit" that led to the bankruptcy of the city of Detroit has long been buried under its economic-society-political-cultural landscape.

After reaching its peak in 1962, Detroit's boom began to decline. Discrimination is considered one of the major causes of Detroit's city failure. Due to dissatisfaction with long-term segregation, discrimination and injustice, Detroit experienced two large-scale urban riots in 1943 and 1967. White people began to withdraw on a large scale, the number of the population was greatly reduced, and the quality of the population was greatly reduced, and then the social security situation in Detroit became severe.

Detroit invested money in construction after the city went into decline, hoping to revive the city through massive infrastructure construction and urban renewal. This is another source of Detroit's failure. The most famous urban renewal project in Detroit is the Renaissance Center. With government political and tax-free support, the world's largest private commercial project aims to recreate Detroit's downtown business district and revive this once-great industrial city.

The consequence of the whitewash is that between 2000 and 2010 alone, Detroit's population plummeted by 25 percent. In 1996, Ford sold the Renaissance Center, built for $350 million that year, to General Motors for less than $100 million. Only recently has Detroit acknowledged the demise of its revival dreams, realizing that those who left will never return. So began to raze those abandoned houses to the ground and replanted with trees and grass. This can at least beautify the environment and reduce the cost of public services.

Finally, the decline in the overall U.S. manufacturing position also poses a headwind for Detroit's decline. The most powerful thing in the United States has long been not the manufacturing industry, but the high-tech industry of technology-intensive industries and the information industry that emerged in the 1990s, such as aerospace, IC, computer and new materials and other high-tech industries; and some Soft industries, such as financial industry, cultural industry, entertainment industry, game industry, environmental protection industry and new energy industry in the future. Manufacturing is a sunset industry for the United States, and the background is not good for Detroit.

Nowadays, on the streets of Detroit, there are many abandoned properties, dozens of stories high, former hotel buildings, the largest factory buildings, and more private residences, some of which are already crumbling, and some are garbage , surrounded by weeds, became a place for mice to infest and wild cats to hide.

Detroit's bankruptcy has some lessons for countries around the world. On the other hand, when we look at the development process of China's economy, the significance of reference is particularly significant.

First of all, Detroit is called the "Auto City" because several auto giants have their headquarters here. But now the auto manufacturing industry in many emerging market countries has also taken shape, and is gradually catching up with the United States. The U.S. auto industry has faced unprecedented challenges, but it has little room for change. The U.S. auto industry has neither the low-cost labor advantage of emerging countries nor a low-end market. At that time, the rulers of Detroit did not develop diversified industries in time, and the industrial structure was too single.

In my country, with the growth of GDP in various places, local governments in my country either rely on real estate, photovoltaic industry with excess capacity, or low-end manufacturing such as steel and cement, while ignoring the modern service industry and mid-to-high-end manufacturing industries. Diversified development. Too single economic growth structure can easily lead to the consequences of one loss and one prosperity. The slow progress of local governments due to economic transformation and industrial structure diversification has laid hidden dangers for future crises similar to Detroit.

Secondly, blind urbanization can only create "ghost towns". The reason why it is called a "ghost town" is that Detroit has lacked enough attraction for local and foreign residents, leaving a large number of deserted and dilapidated buildings. The financial crisis since 2008 has made Detroit's economy worse. The housing bubble burst, car sales fell, wages fell, corporate solvency declined, the three major auto companies filed for bankruptcy protection or reorganization, and a large number of layoffs, unemployment, and crime rates. Sudden rise, "ghost towns" naturally came into being.

Looking at my country, the process of urbanization is currently being vigorously promoted. Many people believe that with the gradual advancement of urbanization, domestic demand will be activated, which will drive the rapid development of my country's economy. Over the years, a large number of people have flowed to the first- and second-tier cities, while the third- and fourth-tier cities have blindly promoted urbanization regardless of problems such as infrastructure, industrialization, and the relatively weak modern service industry. Its assets and liabilities have deteriorated further, and in the end, it may not escape the footsteps of the American city of Detroit.

Again, the local government's debt must have a "degree". The city of Detroit filed for bankruptcy protection this time mainly because its debt of as much as 18 billion was insolvent. On the spending side, pension spending is the most persistent challenge to fiscal spending, with more than half of Detroit's long-term debt related to pensions. The cumulative cost of debt is another major burden on fiscal spending. Detroit's government operating expenses fell from $1.025 billion in fiscal 2008 to $692 million in fiscal 2013, but the increase in rigid spending was mainly from interest expenses.

For China, the scale of local debt scale varies widely. Some studies suggest that the domestic local debt is as high as 20 trillion yuan, and the annual payment of bank interest alone is as high as more than 1 trillion yuan. This does not include implicit debt guarantees made by local governments for subordinate functional departments or enterprises. The scale of local government debt has snowballed in recent years, not only overdrafting its own fiscal revenue in the next few decades, but also bringing potential risks to my country's financial industry. The central government should check the level of local debts regularly and irregularly, and conduct “stress tests” in a timely and appropriate manner to ensure the sustainable development of the entire financial system, so as to serve the overall situation of stable macroeconomic development and structural transformation.

Although there are many revelations, most of the analysis of experts and scholars is to prevent the small and the gradual, sound the alarm for the long-term and healthy development of China's economy, and provide more practical suggestions. At present, my country is still optimistic about the future economic development, saying that "there will be no Detroit-style bankruptcy for local governments."

At a press briefing held by the State Council Information Office on August 1, Wang Yiming, deputy director of the National Development and Reform Commission's Macroeconomic Research Institute, said that China's economy is currently running smoothly. If measures to stabilize growth are in place in the second half of the year, the economic growth rate can reach 7.5% %. China's economic growth has shifted gears, but shifting gears cannot be stalled, neither can it blindly stimulate economic growth, nor allow it to decelerate and fall out of a reasonable range.

Song Li, deputy director of the Economic Research Institute of the National Development and Reform Commission, also said that Detroit's urban development has entered a downward stage, while China's cities are in a rising stage, and it is necessary for local governments to moderate debt in the process of urbanization. "Many local government debts are short-term repayment or misallocation of funds. They are only financial difficulties and will not cause recurring risks or crises."