Michigan Governor Gives China Advice on Municipal Debt
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Version 0 of 1. BEIJING — Debt trailed Governor Rick Snyder to China last week, where he tried to entice cash-rich Chinese to invest in his state, Michigan, and its tarnished jewel, the bankrupt city of Detroit. But here’s the odd thing — it wasn’t just the $18 billion Detroit owes that was on everyone’s lips, or the financial restructuring under way, which seemed to impress and provided the focus of much local coverage of the visit. Instead, Chinese reporters wanted the governor’s advice on how China should handle its own municipal debt, the scale of which is unknown but may be large — perhaps unmanageably large in some areas. Earlier this year, a former finance minister, Xiang Huaicheng, said local government debt might total as much as 20 trillion renminbi, or about $3.3 trillion, according to Reuters. “To prevent the emergence of ‘reproduction Detroits”’ in China, audit teams from Beijing have fanned out across the country in recent weeks to check the books of local governments and state-run companies, several Chinese news outlets quoted the Communist Party-friendly, Hong Kong-based Ta Kung Pao newspaper as saying. Ta Kung Pao called it “the biggest and most effective debt audit in Chinese history.” Mr. Snyder, an accountant by training whose Twitter username is @onetoughnerd, was diplomatic about giving advice when answering the first question from a Chinese reporter at a media event at the China Club in Beijing. “I am proud to say I am the token accountant governor in the United States,” he said. His translator looked puzzled. “Yeah. The only one,” he added, helpfully. “I may not be very exciting, but we balance our books and pay our debt.” Point made. Over all, “With respect to Chinese municipalities, what I would say is, I wouldn’t want to speak about them specifically because one thing is, there’s many ways to deal with debt questions,” he said. “Detroit is relatively unique in terms of having a huge debt burden. “I would say that Chinese municipalities might find it interesting to watch how we handle things in Detroit because we are putting in place a number of best practices to help better manage long-term debt as we emerge from the restructuring,” he said. Earlier, in an interview with American reporters, Mr. Snyder had been a little more specific. (“Being an old accountant, I could probably put you to sleep,” he said.) A key problem is that local governments frequently build budgets upon inaccurate revenue forecasting, he said. “So what they’ll do quite often is they’ll go through a political process to come up with what their revenue estimate is,” then discover it was an unreal assessment, he said. That is “the single most likely area where a municipality will blow it, on a consistent basis.” As any good business manager knows, a way to get out of debt is to increase revenue. And the governor was here not to dispense advice to China but to sell Michigan, and Detroit. His pitch covered trade and tourism, and it hit the spot in cultural terms. Chinese value fresh food: Want to fish in one of Michigan’s thousands of lakes, then eat your morning catch for lunch? Play golf, or buy a waiting-list-only, Michigan-made wristwatch? Import blueberries, an increasingly popular food here? How about a bigger slice of the global automotive business, summed up by the legendary persona of “Hengli Fute,” or Henry Ford, a household name here. The state of Michigan and Detroit have an awful lot to offer, was the carefully calibrated message. “One of the things I think is really important is to recognize the comeback of Detroit is already under way,” he told the American reporters. Jobs are being created and buildings bought, and there is even a squeeze on downtown and midtown housing, he said. But there is also land for sale — more than 30 square miles, or about 80 square kilometers. That might be something real-estate-focused China would be interested in, but the governor seemed careful not to appear too needy. He pushed back on the suggestion that Detroit was a “distressed asset.” “It’s the value place to go,” he said. “Not the distressed asset one; I wouldn’t use the word distressed. It’s really a value opportunity.” “Detroit is going to come back in any case,” he said. “What I would say is, I think Chinese investment could be an important influence and accelerator to the comeback. But again, it is not a central piece of it, but it could be a very helpful and useful piece that could be mutually beneficial.” It was Mr. Snyder’s third trip to China in three years, taking in Chongqing and Shanghai, too, and he had brought Michigan businesspeople with him. There was also a foray to Japan — over a week, in all. It was billed mostly as a relationship-building exercise, but there is already evidence of real Chinese investment. In December, Chongqing Helicopter Investment Company bought Enstrom Helicopter Corporation, in the city of Menominee. In May, work began on an expansion expected to nearly double the size of its facility, adding 150 to 200 new jobs, according to statements on the company Web site. But the tough edge of China’s development strategy — long focused on acquiring technology from developed countries by any method necessary, whether legal, illegal or extralegal — was also on display during the governor’s visit. “You invited Chinese companies to invest in Detroit and Michigan,” a reporter for Global Times, a nationalistic newspaper owned by People’s Daily, the Communist Party flagship, said at the Chinese media event. “Do you think it is possible for the Chinese companies to get access to some key technologies in the U.S. companies, especially in the automobile sector?” Mr. Snyder didn’t directly answer that question, instead underlining that he would support Chinese companies in finding talent and building their customer and supplier relationships, “the most important things for long-term business success.” |