On December 24, 2024, Qujiang Culture and Tourism (600706.SH) announced that it had received a notice from its controlling shareholder, Xi'an Qujiang Tourism Investment Group Co., Ltd. (hereinafter referred to as "Qujiang Tourism Investment"), stating that Qujiang Tourism Investment holds 16 million shares, which will be listed on Taobao's online auction platform on January 22, 2025, for online auction, with a starting price of 150 million yuan.

Qujiang Culture and Tourism emphasized in the announcement that this share auction will not affect the company's production and operation, nor will it lead to changes in the company's controlling shareholder and actual controller.

16 million shares account for 6.27% of Qujiang Culture and Tourism's total share capital. It may seem like a small number, but this is actually the third time Qujiang Culture and Tourism's equity has been subject to judicial auction.

In July 2024, the Shanghai Financial Court announced that 28 million shares of Qujiang Culture and Tourism would be judicially auctioned, and another 12 million shares were announced for judicial auction in October. Including the current 16 million shares, this totals approximately 22% of Qujiang Culture and Tourism's total share capital. However, after the previous two judicial auction announcements, Qujiang Tourism Investment urgently raised funds to repay debts, avoiding actual auction.

In fact, this auction is also a means for creditors to put pressure on Qujiang Tourism Investment through judicial auction, forcing it to repay its debts as soon as possible. It is understood that the Qujiang group is actively raising funds and making proper arrangements.

Xi'an Datang Never Sleeps City

So, why does Qujiang Tourism Investment owe so much money? What is the impact of Qujiang Tourism Investment's debt on the listed company Qujiang Culture and Tourism? Qujiang Culture and Tourism has so many high-quality scenic spots, such as Datang Never Sleeps City, Big Wild Goose Pagoda Scenic Area, and Datang Furong Garden. Are they profitable?

The Face and the "Substance" of the Qujiang System

First, we need to clarify the relationship between Qujiang Culture and Tourism, Qujiang Tourism Investment, Qujiang Culture Investment (Xi'an Qujiang Cultural Industry Investment Co., Ltd.), and the Qujiang New District Management Committee.

The Qujiang New District Management Committee is a government-appointed institution that represents the government in exercising certain administrative powers and is responsible for managing the economic and social affairs within its jurisdiction. Developing the Qujiang New District and promoting the economic and cultural prosperity of the new district are the responsibilities of the Qujiang New District Management Committee. To fulfill this responsibility, the Management Committee needs several operational platforms and working tools, so the Management Committee established Qujiang Culture Investment as its investment platform to accelerate the development of cultural undertakings in the Qujiang New District.

Tourism is also part of cultural undertakings, and Xi'an has a large number of cultural resources that can be directly transformed into tourist attractions and tourism products. Therefore, there is Qujiang Tourism Investment, a subsidiary of Qujiang Culture Investment.

Datang Furong Garden

The main entities that invest in a large number of tourism projects in the Qujiang New District, such as Datang Never Sleeps City, Big Wild Goose Pagoda Scenic Area, Datang Furong Garden, and the City Wall Scenic Area, are Qujiang Culture Investment, Qujiang Tourism Investment, and a number of companies under the Qujiang New District Management Committee.

The role of the listed company Qujiang Culture and Tourism, theoretically, is that it is hired by the above-mentioned investment entities to manage the scenic areas. Qujiang Culture and Tourism does not invest in scenic areas, nor does it bear the risk of project investment failure; it earns management fees. In addition to undertaking projects in the Qujiang New District, it also undertakes the management of scenic areas in other regions, such as Wenzhou Yandang Mountain, Yueqing Beidajie, and Datong Ancient City, as well as catering, hotels, cultural and creative development, event operations, property management, and real estate. Qujiang Culture and Tourism is actually a third-party tourism management and operation company.

Datong Ancient City

In short, the well-known scenic spots in the Qujiang New District are developed by the Management Committee's decisions, financed and constructed by Qujiang Culture Investment and Qujiang Tourism Investment, and operated by Qujiang Culture and Tourism after completion. The revenue from the operation of the scenic spots is shared by Qujiang Culture and Tourism and the above-mentioned investors.

However, as a listed public company, Qujiang Culture and Tourism is both the face of the local area and has the function of equity financing and asset expansion. Therefore, in the entire Qujiang system, Qujiang Culture and Tourism has received preferential treatment, and 90% or even 100% of the revenue from many scenic spots goes to Qujiang Culture and Tourism.

In a system, some people need to be the face, and some need to be the "substance." Qujiang Culture and Tourism is the face, while Qujiang Culture Investment, Qujiang Tourism Investment, etc., are the "substance." Their main task is to raise funds through various financing methods such as credit, bonds, trusts, REITs, private equity funds, financing leases, and commercial bills. Their operating performance is not important; as long as the revenue can cover the interest, the money raised is invested in projects, silently supporting the local cultural undertakings and the prosperity of the tourism industry.

Taking Datang Never Sleeps City as an example, it has a total construction area of 967 mu and a total investment amount that is unknown; the general statement online is a total investment of 5 billion yuan. Because it does not charge admission fees, it can only recover its costs through shop rentals and the operation of directly operated projects. Anyone who understands tourism knows that no scenic spot in the country can recover its costs without charging admission fees with such a large investment. Therefore, although Datang Never Sleeps City is extremely popular, the investors are not making money.

In the first half of 2024, the operating company of Datang Never Sleeps City under Qujiang Culture and Tourism had revenue of 39.38 million yuan and a net profit of 230,000 yuan. It should be noted that this is only the profit from the management and operation of the scenic area; Qujiang Culture and Tourism does not bear the investment cost of the Datang Never Sleeps City project, and major costs such as depreciation and amortization and financial costs are not included in the Qujiang Culture and Tourism system. Under these circumstances, the operating profit is only 230,000 yuan. It is conceivable how serious the losses of the investors in the Datang Never Sleeps City project are.

The "Qujiang Model" is Coming to an End

The profits from the operation of the projects are concentrated in Qujiang Culture and Tourism, while the investment losses are concentrated in Qujiang Tourism Investment, Qujiang Culture Investment, and other financing platforms. However, for the Management Committee, losses don't matter; what matters is improving the overall cultural and tourism vitality, economic prosperity, and land value of the entire area. Compared with these comprehensive benefits, the losses of the financing platforms are insignificant.

Therefore, Qujiang Tourism Investment and Qujiang Culture Investment continue to obtain new financing, rolling financing, and using new loans to repay old ones. Coupled with the appreciation of land and real estate in their hands, they use asset appreciation to compensate for the loss of blood in investment and operation. In the past, the appreciation of land and real estate assets created many financing conveniences, supporting these financing platforms to only pay interest and not repay the principal.

Today, with the decline in the real estate market, asset prices are shrinking, market risks are increasing, and funding parties are becoming more cautious in lending money, requiring more and more collateral, and asset shrinkage is also compressing the financing space of borrowers. Under the pressure of several factors, Qujiang Tourism Investment, Qujiang Culture Investment, and others are facing a sudden tightening of the financing environment; they not only have to pay interest but also have to repay part of the principal.

Under such pressure, loan defaults are inevitable. On November 20, 2024, Qujiang Cultural Holdings, the parent company of Qujiang Wentou, issued a statement on its recent debt defaults, indicating defaults on more than a dozen debts totaling approximately 1 billion yuan. Many other debts have not yet matured and thus have not defaulted.

So, will the debt problems of Qujiang Lvtou and Qujiang Wentou affect Qujiang Wenlv? Currently, the impact is minimal. On the one hand, the Qujiang Management Committee and higher-level government departments are working hard to resolve the debt problems of Qujiang Lvtou and others. As a government-owned tourism investment company, there is a certain level of "guaranteed support".

On the other hand, Qujiang Wenlv is a "third-party management and operation company," managing and operating various scenic areas with existing management contracts, unaffected by related debt disputes. Currently, Qujiang Wenlv's stock has been subject to successive judicial auctions, theoretically allowing for a change in controlling shareholders. However, in reality, Qujiang Lvtou holds a dominant stake in Qujiang Wenlv, with nearly 45% of the shares, while the second-largest shareholder holds only 1.2%. Therefore, even with a large number of shares being auctioned, Qujiang Lvtou will remain the largest shareholder.

Finally, let's discuss the "Qujiang Model." Created by Duan Xiannian in 1998, the "Qujiang Model" achieved rapid cultural prosperity, enhanced tourism appeal, and increased land value in the area through a cycle of cultural investment, land development, and large-scale borrowing, with minimal government funding. Objectively speaking, the "Qujiang Model" has made a significant contribution to the Qujiang New District and served as an advanced example for a considerable period, being studied and emulated by cities across the country. A typical example is the renowned former mayor of Datong, Geng Yanbo, and his leadership in the development of the ancient city of Datong.

Big Wild Goose Pagoda

The bustling prosperity of areas such as Datang Never Sleeps City, the Big Wild Goose Pagoda Scenic Area, and the Datang Furong Garden that tourists enjoy today, and Xi'an's current status as a top-tier internet celebrity and tourist city, are largely due to the "Qujiang Model." The debt crisis of Qujiang Wentou and Lvtou today should not negate the historical contributions of the Qujiang Model or individuals like Duan Xiannian.

Times change. The premise of the Qujiang Model's success was the continuous rise in the prices of real estate and land. This premise held true from 1998 to 2018, during which the advantages of the Qujiang Model were evident, while its drawbacks were less apparent. After all, promoting local economic and cultural tourism is a major responsibility of the local government. If there is a suitable method, why not use it? This is also a cause that benefits the local people. As long as asset values are rising, debt is not a problem.

However, today, asset prices are no longer inflated; they are even shrinking dramatically, making debt a major problem, and the flaws of the Qujiang Model are fully exposed. But this does not mean we should fault the adoption of the Qujiang Model in the past. Each era has its own challenges. Today, as the Qujiang Model comes to an end, a new generation of social elites needs to create new models to continue injecting cultural and tourism vitality into society and urban development.