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September 21, 2017

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Chongqing looks to sell distressed assets after Bo scandal

CHONGQING/HONG KONG -- China's biggest municipality, Chongqing, has approached Hong Kong investors with the aim of selling distressed property assets and bolstering its finances, which are under a cloud after the fall of its ambitious leader, Bo Xilai, a source said.

Bo's removal as Chongqing's Communist Party boss in March, amid police suspicions that his wife had murdered an expatriate British businessman last year, has triggered a party review of his leadership, including Chongqing's financial affairs.

That — plus fears of a purge of Bo's business allies — have created concerns over the debt accumulated by the vast municipality of some 30 million people in southwest China.

An estimate of Chongqing's real public debt burden is elusive: the municipality's latest available records, for 2010, show that 12 of its largest investment vehicles had racked up 363 billion yuan (US$57 billion) in debt.

The inclusion of liabilities taken on by state-owned firms and developers, along with district level financing vehicles across the municipality, mean Chongqing's overall debt levels could be several times higher, according to analysts.

"They are very keen for fresh capital," said a source familiar with the recent approach made by Chongqing officials to several Hong Kong conglomerates.

The officials discreetly reached out to billionaire Li Ka-shing's Cheung Kong and Hutchison Whampoa as well as property developer Shui On Land to test their interest in buying distressed real estate projects, said the source who declined to be named because of the sensitivity of the matter.

The list of assets were not disclosed but included those seized from businessmen under Bo's highly publicized campaign against organized crime in recent years, the source added.

Under Bo, the sprawling city on the Yangtze river became one of the world's fastest-growing urban centers, a standard-bearer of his populist crackdown on crime and a vehicle for his ambition to join the top ranks of the central leadership.

But his so-called Chongqing model of state-led capitalism relied on debt to fuel expensive projects and social programs, causing some foreign investors and executives to worry that Bo's ouster will now cool investment in a city that attracted US$10 billion last year alone, up from US$1.2 billion in 2007.

"Some foreign firms are hesitating," said the head of a private equity and investment firm in Chongqing who declined to be named given nagging concerns surrounding the Bo case.

"They are particularly sensitive to political events so they'll wait and see. A lot of people don't dare do anything until late in the year."

Shui On Land, which is embarking on a 37.5-million-square-foot (3.48-million-square-meter) development in the city, including three towers and an entertainment district, said it remained upbeat on Chongqing despite concerns of a housing glut.

Cheung Kong declined to comment.

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