The Urban Development Investment Corporations (UDICs) in Chongqing, China

Abstract

Urban Development Investment
 Corporations (UDICs) have over the years become the central
 pillar in the local government drive to build infrastructure
 in China, where local governments are not allowed to engage
 in direct market borrowing. UDICs were established during
 the early 1990s when local governments were under great
 pressure to both build municipal infrastructure and to
 reform the role of the government in infrastructure
 development. The UDIC model provided the local governments
 with a corporate government structure to borrow from the
 market and quickly develop infrastructure. They are treated
 as municipal corporations under the Company Law of the
 Peoples' Republic of China (PRC). The law does not
 clarify the relationship between UDICs and the local
 government, including the limits of the financial liability
 of the local governments vis-a-vis UDICs. The Government of
 China (GOC) agencies expect that the World Bank (WB)
 Technical Assistance Report (TAR), based on the detailed
 analysis of the financial operations of a selected UDIC in
 Chongqing, will offer critical technical assistance to the
 Chongqing Municipal Government (CMG), which can also be
 shared with other Chinese cities. The GOC agencies realize
 that this TAR is the first step in the right direction, in
 that it will specifically address the needs of a
 reform-minded municipal government and clarify one UDIC
 model in detail. It is anticipated that similar efforts can
 be undertaken in the coming years with other reform-minded
 and high-priority cities that are employing different models
 of UDIC to finance municipal infrastructure.