Summary:

China’s success is often credited to the competitive drive of its local governments. How did the local governments in China pursuit competitiveness over the last decade? ACI evaluates 34 provinces and presents Hunan as a case study, given its impressive leap from 23rd to 13th in overall competitiveness.

The study further identifies infrastructure development, which includes transportation, education, and healthcare, as the primary driver of the rise by examining the components of the overall index. In particular, Hunan’s ranking of infrastructure development index has risen quickly from 23rd to 8th, positioning it just behind the most developed coastal provinces, such as Shanghai and Guangdong.

However, the improvement in infrastructure is not a free lunch. Fiscal expenditure also skyrocketed during the same time period, with Hunan incurring increasingly higher expenditures than the national average. In contrast, its fiscal revenue has not kept pace and has worsened over the years. As a result, Hunan’s local fiscal deficit has surged in tandem with its spending on infrastructure.

This trajectory leaves Hunan at a crossroads. Although the province has swiftly improved its competitiveness by targeting key development areas, the sustainability of this growth poses a question. The success of Hunan’s strategy hinges on whether the infrastructure expenditures can stimulate sufficient economic growth to manage and reduce its debt. If these improvements are underutilized, Hunan could face a precarious financial future, potentially necessitating fiscal austerity measures that might undermine its newly gained competitive standing.

Highlights:

• Hunan’s impressive leap from 23rd to 13th in overall competitiveness over the last decade is largely driven by significant investments in infrastructure, including transportation, education, and healthcare.
• Despite Hunan’s rapid infrastructure development, its fiscal expenditures have far exceeded the national average, leading to a widening fiscal deficit as revenue growth lags.
• The sustainability of Hunan’s economic growth is uncertain, dependent on whether its infrastructure investments can sufficiently boost economic activity to manage and eventually reduce its burgeoning debt.

Article By GUO,Meiling

Graphic By GE, Yixuan