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Build It and They Will Come
Summary:The mayor of Ordos on ghost towns, shadow banking and how the city can help Beijing tackle air pollution.

By Song Fuli and Hu Dan (宋馥李, 胡丹)
Issue 612, March 25, 2013
Nation, page 12
Translated by Zhu Na
Original article: [Chinese]

During the annual meeting of China's parliament in Beijing this month, Economic Observer interviewed Lian Su (廉素), the mayor of the Inner Mongolian city of Ordos (鄂尔多斯), famous for its "ghost city" and coal barrons.

Economic Observer:  There's been lots of criticism of Kangbashi New Area in Ordos for being a "ghost town." How do you respond to this?

Lian Su: When talking about urban construction, I think there's a process of infrastructure construction, a process of function improvement and also a process of gathering a population.

Kangbashi New Area started construction in 2004, so it's only been eight years. It's still in the process of construction, so it's impossible to gather a large population immediately. It can be said that our planning and construction is advanced. In recent years, the city's functions and infrastructure have gradually improved. Three hospitals and over 20 schools have been built and the heating situation has also improved. Population growth has sped up significantly.

Currently, Kangbashi New Area has a permanent resident population of 70,000 and a floating population of more than 30,000. With the improvement of city functions and several major industries coming in, the growth and concentration of the population will accelerate.

Realistically speaking, Chinese people's concept of a city should also change. We cannot say that the greater the urban population, the better the city; or the more crowded and more congested a city is, the better it is. Europe has many cities similar to Kangbashi New Area that are very quiet without too many people and are very suitable for living.

EO:  A few years ago, private lending was flourishing in Ordos. It was said that nine out of ten people there were involved in this shadow lending. In the past two years though, some major incidents have occurred like the cases of Shi Xiaohong (石小红) and Su Yenu (苏叶女), who were each unable to pay back hundreds of millions of yuan of debt. What impact has this had on the local financial system?

Lian: I think this is the law of economic development. Private lending and economic development are closely connected. When economic development occurs quickly, it needs money. And when economic development is fast, people will also have money. Private lending will naturally become prevalent.

In recent years, Ordos' economic development has been relatively fast, stimulating more investment and capital demand. Now, loans in Ordos account for roughly 60 percent of the GDP. This is lower than the national average. That is to say, formal financing channels have difficulty meeting development needs.

In addition, with the economic development of the past few years, people have money in their pockets and it's impossible to spend it all. So they look for investment channels. Most of these investments focus on real estate, coal mining and infrastructure construction.

Until recently, most investment was concentrated in the real estate industry. Then, in 2011, after the national real estate restrictions were introduced and financial policies were also regulated, the market experienced a downturn. Housing sales were affected and a lot of money was tied-up in real estate.

EO: In recent years, Ordos has sought to change its coal-dominated industrial structure and put efforts into expanding its industrial chain. How is the situation now?

Lian: The overall idea is that both Ordos and all of Inner Mongolia needs to rely on natural resources, but they can't completely depend on them. Relying only on natural resources won't last long. It's unsustainable. We can't sleep upon resources.

Generally, Ordos has planned three industrial chains.

The first is reconfiguring coal electricity and building Ordos into a clean energy output base.

Currently, coal is transported out of Inner Mongolia mainly by roads at a very high cost. Moreover, eastern coastal areas are feeling more and more [environmental] pressure from burning coal. One of the main reasons for Beijing's pollution is the burning of coal. If coal is all transformed into electricity and then transferred from Inner Mongolia, maybe it can greatly relieve the situation.

Our next major task is to begin transmitting electricity through ultra-high voltage lines as much as possible. The government has attached great importance to this work.

The second industrial chain that we want to develop is the coal-chemical industry and downstream processing. Currently, several major demonstration projects involving the processing of coal oil (coal liquefaction), coal gas, coal-to-olefins and coal-to-glycol are operating in Ordos. Shenhua and Yitai's coal liquefaction projects are all already in operation. It can be said that the most advanced coal chemical industrial technology tools are now being used in Ordos.

The third industry chain is coal-electricity-aluminum integration. The Zhungeer coalfield in Eastern Ordos has coal containing 10 percent aluminum oxide. After generating electricity, the fly ash contains 45 percent aluminum oxide - which is very valuable. We can extract aluminum oxide from the fly ash, which can be used to produce electrolytic aluminum.

EO: But the coal chemical industry consumes a lot of water – something Ordos is short of. How do you resolve this contradiction?

Lian: In general, the water resources are currently still able to support these projects. Ordos has an annual water quota of 700 million cubic meters from the Yellow River. Judging from the current situation, the use of existing surface water resources will not be a big problem.

Of course, the new coal-chemical projects also need to strictly conserve water and reduce water consumption through improved technology. So overall, based on the layout of water resources, there won't be much problem.

EO: Since last year, the price of coal has been low. The outside world has a lot of concerns about Ordos' economy. How are the city's economic fundamentals?

Lian: Coal prices went down and it did have some impact. But overall, the production of coal in Ordos is normal. Last year, the output was over 600 million tons, and the impact was small.

In the context of the entire country's economic slow down, Ordos, of course, cannot be immune. But I don't think it's as serious as it's been portrayed. Last year, Ordos's GDP still grew by 13 percent, the industrial value-added increased by 15 percent and general fiscal revenue grew by more than 8 percent. In general, there was no major turmoil.

In the above transcript, we've changed the order of the questions and some of the mayor's answers were not translated in full.

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