Every Mu Counts

The report to the 19th National Congress of the Communist Party of China (CPC) in October 2017 declared that China’s economy has been transitioning from a phase of rapid growth to one of “high-quality growth.”

　

How to shift the economy has become the major focus of governments at all levels. 　

An innovative industry evaluation system called “per mu yield” launched by East China’s Zhejiang Province has gained a lot of attention. 

　

A mu is a Chinese unit of land measurement, roughly equivalent to 0.165 acres. The term “per mu yield” is often used in agriculture to refer to the average crop production for a mu of land. Now, Zhejiang has appropriated the concept and used it in local industry to evaluate whether a company is using resources efficiently, and whether it is growing in a green and sustainable way. 

 　

The evaluation model examines the key indicators of an industrial firm in the amount of mu it covers, such as tax payments per mu, sales revenue per mu, industrial added value, energy saving and sewage disposal. 　

In 2012, Haining was suffering from a serious shortage of land, water and energy, which deterred rapid economic growth. To solve the problem, the local government put forward a strategy called “Vacate Low, Invite High” to make better use of land and resources.

　

The strategy vacates low-end, resource-consuming, energy-intensive and polluting industries and companies (which tend to take up a great deal of space), and invites in high-end, efficient, advanced manufacturing and modern service industry. 

　

The “per mu yield” evaluation system was an innovative response to the strategy. By the end of 2012, Haining authorities had painstakingly evaluated the performance of nearly 2,000 local companies, each covering an area of three mu (approximately 0.49 acres) or above. 

　

This land-oriented evaluation was constructed from a variety of indicators: half was graded on the company’s tax payment per mu, 12 percent on sales revenue, 10 percent on industrial added value, 10 percent on energy saving added value, 10 percent on pollution discharge reduction and 8 percent on overall labour productivity. 

The firms were classified into three categories: Level A, Level B and Level C. Four-fifths ranked Level A, which were promising, and the top 10 percent were A+ firms that could gain propriety support from the government; 15 percent were Level B, and needed an overhaul for better development; the final five percent were Level C outdated firms to be eliminated.

　

The municipal government carried out a differentiated resource allocation policy to reward or punish companies of different levels. 

　

Level A+ enterprises were entitled to a land tax cut as high as 80 percent, Level A 50 percent to 60 percent, Level B 20 percent, while Level C companies were given no tax reduction; Level A and Level B companies paid normal rates for electricity but Level C companies were forced to pay an extra 0.1 yuan per kilowatt-hour (US$/kWh 1.58), and charged a higher overuse fee; meanwhile, for Level C companies, higher industrial production, such as energy, water consumption and sewage disposal, incurred higher costs.

　

Eighty-three enterprises were listed as Level C, of which 13 were wound up, seven merged and reorganised, and eight were “reconstructed.” Fifty-seven parcels of underused land 1,418 mu (233.5 acres) in total – were vacated for future planning. 　

In 2015, Jiaxing, a prefecture-level city in northeast Zhejiang Province which has jurisdiction over Haining, adopted the “per mu yield” system and expanded the evaluation targets to any industrial enterprise in the city that uses land, no matter how little.

 　

The municipal government classified targets into four categories: Level A, Level B, Level C, Level D. Respectively, they were propriety firms to enjoy preferential policies, well-performing firms to be further supported, medium-performing firms to be further supervised and outdated firms to be eliminated or reconstructed.

　

 In 2017, the government evaluated 4,228 industrial enterprises, of which 631 were ranked as Level A, 1,906 Level B, 1,340 Level C and 351 Level D. 

　

“Land is a very rare resource in Jiaxing. It is impossible for the government to offer unlimited land to companies. Land supply would be more and more restricted due to the limited space in the city and high land costs,” Hu Haifeng told ChinaReport. Hu is a deputy to the National People’s Congress, deputy secretary of the CPC Jiaxing Municipal Committee, and mayor of Jiaxing. 

　

Hu indicated that the new evaluation model has played an important role in promoting industrial structural adjustment and ensuring steady growth. 

　

Compared with 2010 numbers, the performance of Jiaxing’s industrial firms improved significantly in 2016. Tax revenue per mu went up by 57.7 percent, industrial added value per mu increased by 56.2 percent, added value of energy consumption per mu rose by 34.9 percent, pollution discharge reduction added value grew by 210.9 percent and overall labour productivity increased by 70.4 percent.

 　

“The evaluation itself is very important, but more important is for the government to efficiently use the evaluation results in making differentiated resource allocation policies to promote the future performance of enterprises,” Hu told our reporter.

　

In 2017, Jiaxing rolled out a differentiated electricity price policy to 956 companies, a differentiated water price policy to 1,296, a differentiated sewage disposal policy to 285 enterprises, and a differentiated energy consumption policy to 131 enterprises. And 6,023 enterprises enjoyed the land use tax cut of 384 million yuan (US$60.6m) in total.

　

From Hu’s perspective, the “per mu yield” evaluation model is an effective tool to motivate enterprises to explore new methods of development through strengthening technological innovation and promoting industrial transformation and advancement. 　

In addition to Jiaxing, 11 municipalities and 89 counties in Zhejiang released relevant policy documents concerning industry evaluations in 2016 and started experimenting. 

To reinforce “per mu yield” reform, the provincial government of Zhejiang declared in January 2018 that by 2020, the “per mu yield” evaluation system will be expanded to all industrial enterprises and large-scale service firms, excluding wholesale trade, retailing, hotels, restaurants, banking, security and insurance industry and property development.　

Zhejiang’s reform has been a model for neighbouring provinces as well as the entire nation. Provinces with land shortages, such as Jiangsu and Guangdong, have begun to explore the “per mu yield” model. Similarly, in November 2017, Suzhou in Jiangsu Province classified enterprises into four levels and gave differentiated resource allocation policies to the firms. Jiangsu plans to extend the evaluation system throughout the province to achieve greener and steadier development. 　

“The design of the ‘per mu yield’ model fully respects the market’s decisive function in resource allocation. Meanwhile, the model also helps the government transform from a management-oriented government to a public service-oriented one, helps the government improve systems and policies and create a more positive environment for development,” Zhang added.

　

An industry insider who asked for anonymity told our reporter that the “per mu yield” reform had shifted the criteria of companies from a focus on scale and growth rate to one based on “benefits per mu.”

　

 From Hu’s perspective, “per mu yield” reform, essentially, is a carrot-and-stick method, also referred to as “vacating the cage to change the bird.” 

　

It puts pressure on outdated, low-end, land-and-resource-consuming companies, forcing them to transform themselves or close down. Meanwhile, high-end, high-tech companies with high added value will gain strong support from the government. The vacated land will be reserved for these industries and enterprises. 

　

Feng Liguo, deputy researcher at the China Association of Enterprises, says Zhejiang’s per unit of output-oriented reform is consistent with the newly established national economic target to transition from fast growth to high-quality growth. 

　

In an interview with Yicai.com, Feng said Zhejiang would in the future focus on industries such as the digital economy, Internet economy and high-end manufacturing. Thus it has to solve the current land shortage problem to create space. 

　

But the scholar also argued that, in terms of the mechanism itself, there are improvements still to be made. If the government cannot handle issues such as fairness and objectivity in the process of evaluation and resource allocation very well, it might spark an exodus of companies or a decline in traditional industries. 

　

“It might not be good news for industrial firms that occupy very large areas, because if they are large but have limited output, they may not gain much support from government. If so, large-scale firms might relocate to other provinces, which might adversely affect the economic growth of Zhejiang,” Feng said.

 　

Hu Haifeng, deputy secretary of the CPC Jiaxing Municipal Committee and mayor of Jiaxing, shared with ChinaReport his thoughts on the “per mu yield” evaluation model. 　

ChinaReport: What are your thoughts on the “per mu yield” evaluation model? 　

Hu Haifeng: The model helps create a survival-of-the-fittest environment for companies in Jiaxing, propelling them to take more initiative in seeking change, self-improvement and transformation. They need to have a sense of crisis to be more proactive. Also outdated industrial capacity will be further reduced. 　

　

CR: When evaluating enterprises with this model, how can we achieve objectivity and fairness since companies in different sectors have distinct characteristics?　

HH: We use a classifying-evaluation system for different sectors. The machinery industry and the textiles industry, for example, can’t be compared horizontally with the same indicators. That’s surely not fair. 

　

We constantly adjust and optimise evaluation indicators. For instance, we started an industry-classified “per mu yield” front-runner project, in which we made a list of frontrunner firms as a benchmark for other firms of the same industry so as to promote industrial transformation and advancement. 　

The government has also made efforts to design different policies for different industries. 　

　

CR: Has the government encountered any resistance in the process of implementing the “per mu yield” evaluation model? 

　

HH: To be honest, there is resistance. The evaluation model puts pressure on companies and may result in pushback. For example, our differentiated resource allocation policy, will surely increase costs for some enterprises, and many felt it was hard to accept at the very beginning. But for the sake of high-quality growth, this must be done. After all, outdated production capacity will be eliminated or relocated eventually, and this model just moves the timeline forward. 　

　

CR: Do local officials feel pressured when they carry out the policy to eliminate outdated enterprises? 

　

HH: They [officials] are certainly under pressure. They will get a poor job performance appraisal if they fail to do it well. 　

From my perspective, what we really need is to change our way of thinking, and this change should be put into specific and concrete practices. We can’t keep on saying ‘high-quality growth’ all day long and do nothing. 　

　

CR: Will the “per mu yield” evaluation model be widely copied and spread throughout the nation? 　

HH: The model is currently used throughout Zhejiang Province. But it is important for other provinces and regions to define their own indicators in accordance with local conditions. The idea of “per mu yield” can be borrowed, but it’s unwise to simply copy the entire system.