Why Your Future in China Depends on Which City You’re In (Episode 2): Local Debt, Hefei, and the Search for Certainty

Nie Huihua on explained why most places can’t replicate Hefei-style government investing, how e-commerce is reshaping county governance, and what “stability” really buys in an era of uncertainty.

One simply cannot foresee destiny; no one can predict their own fate. A person’s fortune depends, of course, on self‑struggle, but you also have to consider the tides of history.

那么人呐，就都不知道（命运），自己就不可以预料。一个人的命运啊，当然要靠自我奋斗，但是也要考虑到历史的行程

Those are the words that popped into my head when I was listening to Professor Nie’s closing message to young Chinese listeners in his latest podcast—where he urged them to lower expectations, improve skills, exercise, cherish time, learn English well, and read more history.

In Episode 1, Prof. Nie discussed that a city’s administrative rank is not just a label—it’s a distribution mechanism. It shapes who gets better schools and hospitals, who has more job options, and which places enjoy fiscal room and policy autonomy from the start. Professor Nie Huihua also pushed us to look past slogans about “escaping the megacities” or “returning to the county,” and instead see the deeper governance logic: the higher the level, the more formal rules matter; the lower you go, the more informal rules dominate. Under incomplete contracts and territorial management, grassroots officials end up carrying “unlimited responsibility”—and that, in practice, produces amplified power.

Episode 1 ended on the hard edge of China’s growth model—the rise and limits of land finance, and how short official tenures and performance incentives made it rational, in many places, to “drink poison to quench thirst.” Now that real estate is no longer a reliable cash machine, local debt has become the gray rhino everyone talks about—yet it still feels abstract to most people.

So in Episode 2, we bring the discussion down to street level. When land finance fades and debt pressure rises, what exactly can local governments do next—and what should they stop trying to do? Can the “Hefei model” really work as a one-size-fits-all template for other localities? How has e-commerce reshaped grassroots governance—economically, politically, and culturally? And for young graduates, in an era when “the end of the universe is the civil service exam” has become a catchphrase, is kaogong genuinely the optimal form of risk-aversion—or just a mass migration toward perceived certainty?

Here, Prof. Nie delivers a sobering reminder: Hefei could place big bets because it could mobilize provincial-level resources, tolerate risk, and ride a particular moment. Most prefecture-level cities can’t do that; counties can’t even dream of it. And even when governments try to act like venture capitalists, their incentives—visibility, stability, measurable “political achievement”—often clash with the logic of innovation, which is messy, uncertain, and hard to audit.

He also offers unusually candid advice on personal choices under uncertainty: what kinds of people actually survive inside the civil servant team, why the “iron rice bowl” may still be eroding in quieter ways—bonuses shrinking, departments merging, mobility narrowing—and what “real security” looks like when no institution can promise it forever.

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Host Bing Jie: Speaking of local debt, many feel it’s far from ordinary people. Could you tell us, if this gray rhino really charges, how would it transmit to our concrete lives? For example, our wages, social security, and even the public services around us—would they visibly degrade because local governments lack money? Considering this, how do local governments find the next source of revenue?

Prof. Nie: This is very difficult, but I also think we don’t need to be particularly pessimistic. We need a different way of thinking. Why must local governments always drive economic development? Their proper role is to improve the business environment, provide good public services, right? According to classic institutional economics theory, the government’s main role is to provide protection and justice, acting more as a referee than a player. Our current mindset always expects the government to play the player. This is incorrect. Don’t place hope in the government to discover a new industry or cultivate a new industry. This is risky. Don’t just see that a few cities like Hefei succeeded and think this model can be replicated. There’s a considerable element of luck, and there’s also a survivorship bias—more failures you don’t see. Local governments actually have no clear advantage in developing or cultivating an industry. Think about it: if the market doesn’t understand something, on what basis do investment attraction officials understand it better? They only have a little information advantage—knowing policy advantages. But policy advantages aren’t necessarily positively correlated with technology and markets. Whether something is mature in the market, who has the most advanced technology—you may not be able to judge that.

So I think the government should better perform public services. The government’s functions need to transform; this is most important. The government should transform from a developmental government to a service-oriented government. Providing a good environment is enough. Don’t personally select industries and cultivate enterprises. This is risky.

Host Bing Jie: You mentioned survivorship bias, including the Hefei model. Right now, the Hefei model is probably also viewed as a learning case by many local governments. You seem to have doubts about whether this model can be widely replicated and promoted.

Prof. Nie: As I said earlier, many government has no information advantage, no knowledge advantage. Also, many places aren’t as wealthy as Hefei. Hefei is the provincial capital. When it was introduced, say, NIO’s investment, it utilized provincial-level resources. Where would an ordinary prefecture-level city地级市 get provincial resources? A county-level city县级市, a county—where would they get provincial resources? For example, Hefei engages in equity investment. First, you need funds for equity investment. A provincial-level fund is typically on average tens of billions, over ten billion RMB. Where would a county-level city get over ten billion? So I think the vast majority of places should not learn the Hefei model. If you don’t change incentives and don’t shift the government’s role from a developmental to a service-oriented one, the old problems will reappear. However, to say we should immediately slam the brakes on the locomotive and stop the government from acting as the economic locomotive is also unrealistic. An emergency brake would cause many consequences. What I’ve been saying is to gradually shift towards a service-oriented government, rather than immediately becoming one. But...

Host Bing Jie: Professor Nie, right now, the Hefei model is practically a myth in the eyes of many local governments; everyone wants to learn it. You say government venture capital has no advantage. That’s like pouring cold water on current investment attraction. If this move isn’t effective, do they have any other cards to play?

Prof. Nie: It’s equivalent to venture capital: I spot an industry, invest heavily in it, cultivate upstream/downstream enterprises, turn it into an ecosystem, an industrial chain. Then when it develops, it can repay me with higher capital returns, and I use that money to invest in new things. Isn’t that a venture capital model? Right. But if the government does venture capital, I ask, where is the advantage? Apart from gaining a better understanding of national policy, you have no advantage. So I think we must be especially wary that this model truly has strong limitations. I even think developed cities can also use it less.

You’re already very developed; why do you need to personally invest? Your investment might crowd out private investment. Existing research has already found this. Some local officials are so conservative that if they invest money in you, they expect you to build factories and buy assets as much as possible. Why? Because that’s visible. If you hire people for AI, he can’t see it, he worries. Because his logic isn’t driven by wealth, it’s driven by stability. This naturally doesn’t align with the nature of venture capital. I’ve never been very optimistic about the equity investment model. I don’t think it’s a sustainable model.

Let me add one more point: I study unicorns. The two countries with the most unicorns globally are the US and China. Over 30% of unicorns have traces of government investment. So we need to observe: Will China’s unicorns grow faster from now on? Currently, it seems not. Before 2021, China and the US had similar numbers of unicorn enterprises. Now we only have half of theirs. This should raise alarm. Unicorns are among the fastest-growing, highest-tech, most uncertain types of enterprises. So investment in unicorns can clearly reveal the limitations of government investment. Where’s the main reason for falling behind?

Increment is less. The reason for the less increment is varied. One is that capital markets have less money. Previously, 90% were USD funds; now 90% are RMB funds. RMB funds investing in such high-risk, high-return, high-uncertainty industries have no advantage. But Hangzhou is special. Hangzhou doesn’t particularly emphasize direct government capital injection. Both Hangzhou and Shenzhen emphasize “respond to all requests, disturb nothing without cause”. Many places want to learn from Hangzhou and Shenzhen, but can’t. Why? What’s easy to learn is ‘respond to requests’; what’s not easy to learn is ‘disturb nothing without cause’. Because in backward regions, there are only a few enterprises; you watch over them every day, not giving enterprises enough innovative...

Host Bing Jie: ...space for innovation. So discussing the business environment and the transformation towards a service-oriented government... Looking at it now, are Hangzhou and Shenzhen the ideal models?

Prof. Nie: If more cities were like them, that would be good. Although they also have imperfections, they have done quite well. China only has one Shenzhen, one Hangzhou. These cities are destined to be at the top of the pyramid. Why? Because, as I said earlier, resources are allocated top-down. Hangzhou and Shenzhen are both sub-provincial cities. Other places don’t have this capital, these resources. Don’t blindly try to learn them. Learn their philosophy, like being pro-business, serving businesses and enterprises, not interfering. That can be learned.

Prof. Nie: Actually, cities with higher levels of economic development are all similar; their business environments are quite good. You’ll find that good cities are almost good in all aspects, while bad places are almost poor in every aspect. It’s not just Hangzhou and Shenzhen. Other places like Suzhou also do well, just relatively less eye-catching. So as long as there’s fair competition, good cities will converge.

Of course, the downside is the distance between good and bad cities will grow further. This is unfavorable for small/medium cities because they didn’t start on a completely fair competitive footing. Unless I propose a suggestion: artificially make China’s city levels tend towards equality. How to equalize? First, abolish the sub-provincial city designation; cities should be parallel. Then, in the future, the difference between a city and a county should only be half a level; now it’s a whole level difference. Allow counties and prefecture-level cities to at least be able to compete on equal terms with districts. Now they simply can’t compete. If a county does well, the city immediately turns it into a district, bringing it under its jurisdiction.

Host Bing Jie: Theoretically, this suggestion sounds wonderful, but from a practical view, it’s probably very difficult.

Prof. Nie: China’s city levels weren’t originally like this. There weren’t even ‘cities’市 before. Before the 1990s, they belonged to ‘prefectures’. Prefectures were outposted agencies; their administrative organ was called an administrative office, its head was a prefectural commissioner. It was an outposted agency. Mm. At that time, prefectures’ management of counties was only macro-regulation and coordination; they couldn’t even decide on personnel. Later, when prefectures became cities, they could directly administer counties.

So you see, we changed once before. Why can’t we change back? Going further back—many people don’t know this—we even had administrative levels higher than provinces. From the founding of the PRC to the 1950s, we had five great administrative regions: Central China华中区, North China华北区, Northeast东北区, Southwest西南区, Northwest西北区. One region administered several provinces. However, the great regions were abolished after 1950, so many people are unaware of this. If people understood this evolution of the administrative system, they wouldn’t feel particularly surprised by my suggestion.

Everyone knows that the county level is China’s most basic administrative unit, so we should let it develop well. But now the problem is that cities are encroaching on county resources. If a county develops well, turn it into a district, then it loses its independence. But by doing this, the county can’t compete with the city. Strictly speaking, this concept is incorrect because a county is part of a city. But what I’m saying more is that counties and districts can’t compete then, right? This is not conducive to encouraging regional competition. Set the rules well, allow resources to flow freely—that’s most important. Why have a hierarchy? Isn’t that contradictory? Markets emphasize parallel rules. Mm. Only enterprises, only governments need to emphasize hierarchy. In economics, firms characterized by hierarchy and markets characterized by parallel transactions are originally two alternative resource allocation mechanisms. So I think in the future we should weaken the city-level function. Provinces are indispensable.

Prof. Nie: Then eliminate the city level, make the county level less substantial, eliminate the township level... this way it actually becomes mainly three tiers. This would greatly reduce administrative costs and greatly increase administrative efficiency. Another reason is that advances in digital technology make such management more efficient. Why did we need five tiers in the past? Due to information asymmetry, passed down from level to level. Now, higher-ups or the central government are aware of many grassroots situations faster and earlier than the grassroots organizations themselves, thanks to big data and AI. So this is definitely a future trend.

Host Bing Jie: Looking at population flow and changes in urban structure, it’s true that some counties are experiencing continuous net outflow of population. So there have been many discussions about whether some counties will disappear?

Prof. Nie: They will definitely disappear. Roughly over a hundred cities have become shrinking cities. This is a trend. People follow resources; resources follow power; power is embedded in hierarchy. That’s the most core sentence of my book. Mm. So think: where are resources? Resources are allocated top-down, according to hierarchy. So, of course, you flow to higher-level cities; this is normal. Add to that, the population is decreasing, so in the future, many villages will definitely disappear, and many counties will merge. That’s definitely the trend. Precisely because of this, I feel the city level can be made less substantial. Make counties larger, and let them compete. Because now provinces can directly administer counties. Although a county Party secretary is a Division-Head level cadre, in principle should be under city jurisdiction, but in practice is already under provincial jurisdiction. Important district and county Party secretaries and heads are now appointed by the province, meaning the province already can administer counties. Since the province can directly administer counties, may I ask why keep the city level? Either make the city a unit parallel to the county, or half a level higher than the county. Ancient times were also like this. The province could directly administer a prefecture, equivalent to today’s prefecture-level city, or a directly-administered department. The province could directly administer a county, equivalent to a department here being slightly bigger than a county; a department could administer counties, right? But it could also directly administer a place; it could also directly administer a county. This shows what? It means that even in ancient times, the provincial level could already administer two levels down. This means...

Host Bing Jie: From a practical level, it’s about integrating the current city and county integration

Prof. Nie: Right, that’s what I mean. Cities and counties could be parallel. Or semi-parallel, with cities half a level higher than counties, but both cities and counties are directly administered by the province.

Host Bing Jie: What’s the benefit of developing this way? Resources more concentrated?

Prof. Nie: It reduces some deviations in the process of resource allocation according to hierarchy. Because now it’s five levels; resources get intercepted at each level; many resources don’t reach the county, intercepted by the city. Since you want to develop county economies, give them a fair competitive environment.

Host Bing Jie: I saw in your book, regarding the future development path for counties, you mentioned something that left a deep impression on me. You said relying on e-commerce to revive small counties.

Prof. Nie: I didn’t say it would definitely succeed, but I think for small countries it’s an opportunity. Small counties developing e-commerce are not just engaging in an economic activity; they are also enhancing their governance capacity. Why? Think about it: with so many ordinary people, farmers, and workers engaging with e-commerce, doesn’t their market economy awareness improve? After having a sense of competition, they can expand their business. Then the county, think about it: don’t you need to engage with platform companies? Also with many self-media? Then your horizon is different. How do you respond? How do you utilize these resources? Mm. How to scale up? How to promote well? How to promote local cultural tourism? You see, you have to learn. The grassroots actually needs quite a few people who understand self-media, modern networks, public opinion, and e-commerce.

Prof. Nie: So I believe e-commerce is a huge impact on grassroots governance; it’s transforming it in all aspects. Also, officials can’t act arbitrarily anymore. Now with self-media and e-commerce, many things are easily spread online. This forces local governments to transform. I think this is good, right? So e-commerce and logistics have to a considerable extent reshaped the grassroots governance ecosystem. And precisely because of e-commerce, many people don’t need to stay in big cities. For example, Dali大理 is called the hometown of digital nomads. I have friends there. And it can also drive rural revitalization.

Host Bing Jie: The digital nomad group is indeed part of this current wave of young people returning home, a quite representative group, precisely because of leveraging current network development.

Prof. Nie: Right. Actually, China in terms of digital economy development, is a latecomer surpassing the oldtimers. We are a developing country, but our digital economy scale is already second globally, only after the US. Because of the internet, even children in the most remote areas can absorb modern knowledge promptly—if they don’t use it just for watching TikTok and playing games, but that’s another issue. Since we’re talking about rural issues, how to develop the countryside, and how to conduct rural revitalization? Actually, we should let money go in, let people come out. Now, Germany, Japan, many places are like this. If we could build our countryside as beautiful as Japan’s, I believe many would be willing to go to the countryside. Now with such developed networks, on slightly longer weekends, you can go to the countryside for vacation. Why wouldn’t I? Why should I crowd in the city？

Host Bing Jie: Let’s end by talking a bit about personal development and future trends. Alright? Because at the beginning we also said why people should understand the operating logic of grassroots China. Often it’s also aligned with the current civil service exam craze. You directly interact with students in universities, so you must have a very intuitive feel. Now it’s not just young people taking the exams; since this year relaxed the age limit, middle-aged people have also joined the civil service exam camp. Hence there’s a catchphrase: ‘The end of the universe is the civil service exam.’宇宙的尽头是考公 Do you think taking the civil service exam is the optimal solution for risk-aversion during an economic downturn?

Prof. Nie: First, so many people taking the exam is definitely because of the economic downturn—most jobs are unstable, lack certainty, so people seek certainty. The most certain positions, currently, are definitely civil service positions. You rarely hear of large-scale layoffs among civil servants. So you can understand it as a risk-aversion strategy. Of course, having a strategy doesn’t mean you can achieve it. So many people try because its direct cost is low—I mean, you can even take the exam without preparation. Many think this way: I treat it as buying a lottery ticket. If I win, I strike it rich; if not, it doesn’t matter. So we can’t exaggerate this phenomenon too much. Many go with a lottery mentality. If you don’t believe me, let’s experiment: if the cost of taking the exam were raised to 10,000 RMB, see how many would take it, right? From a societal perspective, I don’t think it’s a good phenomenon. Because in principle, each type of talent should have its place to shine. It’s impossible that everyone is suited to be a civil servant. Most students choosing to take the exam is abnormal in itself.

It’s impossible that most people are suited to be civil servants. This must involve a misallocation. A normal allocation outcome should roughly distribute exam directions according to employment numbers. Mm. For example, if 70% of people are employed in enterprises, then roughly 70% should be seeking jobs in enterprises, not appearing to take civil service exams, right? Western theory might be more radical, viewing the civil service system as dividing the pie rather than growing it. So many smart people, master’s, PhDs from top universities, going to divide the pie instead of growing it, is a misallocation of talent from a national perspective.

From an individual perspective, it’s hard to say, because when making choices, everyone acts with individual rationality. They think jobs are so hard to find; I’ll take the exam; if I pass, I go; if not, I’ll do something else—it’s not contradictory. Also, if I work for a while and find it unsuitable, I can jump out. I have a philosophy that might help everyone: you can divide all things in life into two categories: reversible and irreversible. You must do first the irreversible things, then do the reversible things. Taking the civil service exam is reversible. Many treat it as a priority choice, which is also an important reason. But this also reflects something: our career mobility isn’t that smooth yet. We have a semi-revolving door: you can only move out from the system, but hard to move in from outside. That’s another reason. But what I want to say is, even if it’s a relatively rational choice for you personally, not everyone is suited to be a civil servant. Who is suited? I have a few generalizations for reference: I’ll summarize a few: Sharp eyes, tight lips, quick hands, diligent legs, good writing skills, low-key, doesn’t show emotions easily, can endure humiliation and bear heavy burdens. Think about it, how many people fit these characteristics?

Host Bing Jie: Each one eliminates a large group.

Prof. Nie: Right. Because in government, it’s not an ordinary department; the government is a strict hierarchy. If you show the slightest dissatisfaction with a leader, and the leader notices, you’re done. Many think that’s not right; they say the system is most inclusive, you won’t easily get fired even with low emotional intelligence. You’re wrong. First, you have to get in; with low emotional intelligence you can’t even get in. Even if you get in, you won’t survive long. On the contrary, some fields don’t require such high emotional intelligence. Say you’re a tech enthusiast; you can go to a company for R&D. Every department needs some people who can get work done. It’s like... let me give an example: in the pilgrimage team, you have a firefighter like Sun Wukong. No matter how dissatisfied Tang Sanzang is with Sun Wukong, he has to tolerate him. Why? He follows a technical path, which enables him to fight demons; others cannot. Many people have it completely backwards, saying those with low emotional intelligence should go into government. You can’t even get in in the first place.

Host Bing Jie: I think many probably know their personality isn’t suitable for the system, but they still want to get in. The biggest demand is driven by the need for stability, particularly in light of the recent social shifts.

Prof. Nie: Right. That’s the abnormal phenomenon: the youngest, most vibrant group is seeking the most stable work. This isn’t a good thing. They should be the ones to venture, experiment, innovate, right?

Host Bing Jie: Okay, I choose to enter a company, choose a high-risk sector, join an innovation department. But now, for example, working in a big tech company until after 35, then facing being laid off—that’s also a reality.

Prof. Nie: Right. Layoffs at big tech companies are somewhat exaggerated. If they start a business, go to another company, find a better job, it’s not a bad thing. If a government department lays you off at 35, where do you go? If you haven’t reached the deputy bureau-chief level and get laid off, you won’t know how to do anything. Big tech layoffs offer good compensation. The key is whether we track their subsequent path. If they have good development prospects, they are outputting talent for society, right? So if there’s more advice, it’s this: working within the system, even if you luckily get in, you must maintain the ability to leave the system at any time. Otherwise, you’re finished.

Host Bing Jie: That’s really difficult. He gets bound by that inertia. I agree.

Prof. Nie: As a teacher myself, I also consider myself part of the system. I think about this problem: what can I do if I’m no longer a teacher one day? Being an internet celebrity on Bilibili is just a short-term phenomenon. One must have sustained ability. So these years I have first read more; second, done more research. I hope to master some knowledge that others don’t have, unique. So I mean, maintaining the ability to learn forever—this is too important, but not easy to achieve. I think there’s also an advantage: it’s not easily replaceable by robots. AI easily captures explicit knowledge, but it is not easy to capture tacit knowledge. If you don’t believe me, go ask DeepSeek a question. Ask it: ‘What is the probability of a county Party secretary being promoted to deputy mayor?’ It might not dare answer that question, right?

Host Bing Jie: Then why don’t you answer this question.

Prof. Nie: A county Party secretary is an absolutely very important position. His probability of promotion is higher than that of an ordinary Division-Head-level official. According to our sample statistics, roughly 60% of county Party secretaries can get promoted, as long as they don’t make mistakes. Of course, the quality of promotion is hard to say—some become vice-chairman of the city’s Political Consultative Conference, some vice-chairman of the Municipal People’s Congress Standing Committee, and all are possible.

Host Bing Jie: I have one more question. We discussed the crisis facing the local economy, including the fact that many original system-affiliated units have had their salaries affected to some extent. This is particularly evident in recent government departmental decisions to reduce recruitment in practice or implement such plans. Do you think it will affect the iron rice bowl within the system？

Prof. Nie: It will affect it to a certain extent. This has also happened before. Government departments generally optimize; they don’t directly lay off. They might transfer you. For example, if you were in an important department, you might be assigned to a less important one. If your ability is somewhat lacking, if still not working, transfer to a public institution. It’s rare to directly fire someone. This is also why people take the exams.

Prof. Nie: Mm. This is an implicit promise. But in the future, what might appear is: you may not have much work to do, not much performance pay. For example, many departments merge. After merging, they won’t fire you, but are you willing to go to a public institution? If not, you may not get promoted, you may have no bonus. Then you choose. They’ll also encourage you to retire early. Through such implicit ways, they still erode your ability and prospects. So don’t think not being fired is secure. That’s not necessarily true. Our universities also have such situations. What if a teacher is unqualified? You can’t directly fire them—I’m talking about before 2006, there was no real concept of firing. The school can assign you to the library. If you do poorly there, assign you to logistics. Do poorly there? Go to logistics at an outlying campus. They always have a way. So you’re not laid off, but what’s the significance, right? So we must never imagine that once we enter the system, we get an iron rice bowl from then on. Absolutely should not. Even someone like me, a full professor for over ten years, must think clearly: if we are laid off tomorrow, what can we do? We must maintain a learning ability.

Host Bing Jie: Do you still have this sense of crisis now?

Prof. Nie: Of course I do. Who knows how unpredictable worldly affairs are? There is no true iron rice bowl in the world. So sometimes I say jokingly, we used to say ‘The sea of bitterness has no bounds, turn back and the shore is at hand’. Taking the civil service exam isn’t truly reaching the shore either. There’s no such thing as truly reaching the shore in this world. So if you say there must be a shore, then we can reach the shore of the heart, but not the shore of reality. No one can do that. So for ordinary people, being able to enrich one’s inner self is already quite an achievement.

Prof. Nie: I actually quite admire Schopenhauer’s viewpoint: he said everyone should be the king of their own heart. That’s the only thing you can control. Most people are unlikely to create monumental achievements in such an economic downturn era and an era of uncertainty. Intellectuals always think about establishing virtue, achievement, and words. Actually, the vast majority have no such opportunity at all. Then you can only seek spiritual consolation, meaning making yourself... content is already pretty good. If you can also make a social contribution, that’s of course even better. That’s why I give young people six suggestions: lower expectations, improve skills, exercise, cherish time, learn English well, read more history. You read more history, you’ll feel... things you take for granted today might not have been normal in the past, and things you think are hard to imagine might have been commonplace in the past. Many events in the long river of history are just a splash. If you have a broader perspective, know more history, you’ll view many things more dispassionately, also more calmly.

Host Bing Jie: Alright, then the conversation ends here. Thank you, Professor Nie.