In the wake of Cellon’s controversial report, experts look into Jiangxi’s business environment

An investigation report which blames the local government in Gongqingcheng, East China’s Jiangxi Province, of directly causing communication services provider Cellon to fall has gone viral. In the wake of the report, an increasing number of investors ponder whether Jiangxi is a good destination to invest. The Global Times recently spoke with businessmen and experts to figure out what Jiangxi’s investment environment is currently like in terms of governance, policy consistency and government supportive measures.

The government in Gongqingcheng, East China’s Jiangxi Province, was thrown into the limelight in recent days over a widely circulated and controversial report, which accused the local government of directly causing the “sudden demise” of Cellon Communications Technology, a local communications services provider.

While details of the case still hang in limbo, the Chinese public is hotly debating whether domestic investors should seek business opportunities in Jiangxi, as some claim that Cellon’s failure is just the tip of the iceberg regarding the “strained and frictional” relations between the local government and private enterprises.

Largely unknown to the general public, Cellon, headquartered in Shenzhen, South China’s Guangdong Province, was in fact once a prominent R&D company in the mobile phone sector, counting domestic handset-makers including Huawei and Xiaomi, and some foreign companies such as Motorola, among its clients.

The recent media investigations provide insight into how the tech pioneer boomed and burst in Gongqingcheng, a city of around 200,000 residents, and what role the government played in its bankruptcy.

Cellon’s rise and fall

In September 2010, at the invitation of the local government, Cellon invested 300 million yuan ($45.2 million) to establish a subsidiary in Gongqingcheng. During the first three years, Cellon was a local star, and was also among the biggest corporate taxpayers in the city, the Beijing News reported on Wednesday.

But from October 2013, the company was mired in a capital crunch after “local authorities ordered financial institutions to stop issuing loans to the tech company because of its cash flow problems,” said another report by technology industry website TMTPost.

Then, several attempts by Dai Xiaoquan, the founder and chairman of Cellon, to bring in new investors also failed due to “local government interference,” the report noted.

Later, Zhan Zheng, the then-deputy mayor of Gongqingcheng, reportedly ordered Dai be detained and forced him to transfer shares to him and then-Party secretary Huang Bin, or otherwise he would “be jailed permanently.”

Dai was released two months later after he finally agreed to the officials’ request, according to the report.

In July 2017, Dai was sentenced by the local court to two years in prison on charges of tax evasion involving 3.39 million yuan, said the report.

But the Gongqingcheng government tells a different story from the media reports, denying the accusations and attributing Cellon’s bankruptcy to its own management problems.

“Cellon’s operation had been experiencing a freefall since early 2013 after it lost orders from Motorola, its major client, which caused the company to cease operation in October 2013,” said a statement published by the Gongqingcheng government on its official Weibo account on Tuesday.

“So far, Cellon still owes banks and other business entities in Jiangxi Province 736 million yuan,” the post continued.

Jiangxi provincial commerce department and the bureau of commerce of Jiujiang, a prefecture-level city in northwest Jiangxi which has jurisdiction over Gongqingcheng, refused to further comment when contacted by the Global Times.

Cellon could not be reached for comment either.

Quantity over quality

While Cellon’s failure still needs to be further investigated in order to clarify details and identify the responsible party, public discussions surrounding the case continue, with the Jiangxi government adding fuel to the fire in recent days.

Some investors pointed out that the case reflects the unfavorable business environment in Jiangxi, the result of the so-called “bigger-is-better” local government.

“I’m not surprised about Cellon’s woes,” a Jiangxi resident, who only gave his surname as Shou, told the Global Times.

Shou had run some small businesses in Jiangxi prior to 2014, but later left the province “due to disappointments with the local government” and instead founded a tech start-up in Shenzhen.

He said that the local government’s heavy hand has led to most of the once-populous industrial parks in Jiangxi to be left abandoned.

In 2013, the Jiangxi government unveiled a plan that aimed to ensure the province’s industry income would reach 1 trillion yuan by 2020.

To accomplish the goal, various local authorities were assigned the mission of attracting investors, another Jiangxi businessman, who only spoke on the condition of anonymity, told the Global Times over the weekend.

As a result, “the local government’s moves [to attract investors] were motivated by completing tasks instead of vitalizing the economy,” Shou said.

But after successfully persuading investors to set up factories in Jiangxi, follow-up measures could not immediately be carried out to ensure the safety of their businesses, said the anonymous Jiangxi businessman.

Path to recovery

Despite the controversy, the local investment environment in Jiangxi has actually been improving thanks to recent and various measures taken by local authorities, Li Shicai, dean of the Department of Finance at Jiangxi Normal University, told the Global Times.

In August, Jiujiang ranked as the 80th Chinese city out of 334 in terms of the cities with the most thriving business environment, climbing from 99th in June, according to a report issued by consultancy

The province’s latest improvements are also marked as a result of the construction of the 25-square-kilometer Nanchang Aerospace Industry Town, which boasts investment totaling 30 billion yuan and is located in the northeastern part of Nanchang, the provincial capital, experts said.

They also noted that the center will soon build up a solid foundation for aviation and high-tech related industries. For example, the base’s first phase has already been put into operation, the most successful achievement of that so far being the delivery of the C919’s main body, the first Chinese-manufactured jumbo aircraft.

Hu Qifeng, chairman of Zonjli, an intelligent electronic weighing supplier based in the Nanchang National High-Tech Industrial Development Zone, a national semiconductor illumination base, also took note of Jiangxi authorities’ recent supportive policies in high-tech industries.

Hu, who came to invest in Jiangxi in 1999, told the Global Times that a number of policies have been carried out by authorities to stimulate innovation in R&D.

For example, since early this year, the industrial development zone offered to refund an extra 0.5 percent in R&D expenses as incentives so that companies could invest more in R&D, according to Hu.

“I’m satisfied with the business environment [in Jiangxi]. The innovation-driven strategy has been carried out, governance is getting more and more law-based, and the approval process here is efficient,” Hu noted.

Source: Global Times

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