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Will ‘Urban Renewal’, as listed in the 14th Five-Year Plan, resolve the problems of housing provision in large cities?

2021-10-20 | ENN WEEKLY

Introduction: “People’s City, by the People and for the People.” Understanding the implications of Urban Renewal, building a perfect institutional system for Urban Renewal, effectively pushing forward Urban Renewal, are practical issues that need to be addressed for all large cities during the 14th Five-Year Plan era.

In this June, China’s national policies of “Urban Renewal” are finally promulgated.

On the 2nd of June, Shanghai has firstly announced to establish China’s largest fund for Urban Renewal, more than 80 billion yuan, to attract further investments in the redevelopment of old districts and urban renewal.

Gong Zheng, the deputy secretary of the CCP party committee, the mayor of Shanghai, when investigating the city’s Urban Renewal, points out that the existing space of the city should be finely utilized, along with an ongoing redevelopment of old districts, regional development, and peoples’ well-being, and speed up the exploration of new routes, new modes, and new experiences for an organic renewal of this megacity. 

Two days later, Chaoyang District of Beijing, also announced its strategic cooperation with Beijing Capital Development Holding (Group), for a joint exploration on the comprehensive improvement of old neighborhoods, so to achieve ‘refined’ urban governance. On June 10, Beijing issued the Guidance on Urban Renewal Implementation of Beijing Municipal Government.

In the last two years, “Urban Renewal” has been a hot topic of the public in China, attracting wide attention of the society, which has also been listed in the national 14th Five-Year Plan and the 2021 Government Work Report.

Several experts in the field claim that most cities of the world have experienced the reconstruction and renewal of their historic space. Urban renewal is an important phase of urban processes and an inevitable choice of sustainable development.

What is the difference between Urban Renewal and other concepts such as Old-Town Renovation or Shanty-Area Redevelopment in China? Can it bring true benefits to the residents? Moreover, will Urban Renewal still be featured by factories gave way to real estate properties, will housing price increase, again?

We will see.

01 Urbanization Development, not Urban Sprawl.

By the end of 2019, China’s urbanization rate of long-term residents has reached about 60.6% and as high as 86.28% in Pearl River Delta. The implementation of China’s New Type Urbanization strategy indicates the end of its rapid development, and China’s development mode is changing “from quantity to quality.”

As early as 2013, the Conference on Urbanization of the Central Committee (of CPC) has put forward the new development principle of “control the growth, vitalize the stocks” and “optimize the structure, raise the efficiency, effectively improve the intensity of urban development land.” The Central Committee has foreseen large cities in China will enter the new phase of “stocks vitalization,” and urban built-up areas shall not sprawl or expand without constraints.

After that, several circulars were issued by the former Land Resource Ministry, requiring local governments to strictly control the size of land for construction and framed the development intensity of territorial land. For instance, the Outline of National Territorial Land Plan (2016-2030) released in 2017 stipulates that during 2016-2030, the average net increment of land for construction per year is 4,830 km2, which had been dramatically decreased compared with the figure in the last 15-year plan (5,706 km2).

Meanwhile, with respect to the renovation and redevelopment of the urban and rural stocks, China successively puts forward the policies in terms of Old-Town Renovation, Shanty-Area Redevelopment, Urban Renewal, etc., which are widely explored now across the country.

First, Old-Town Renovations are mainly working on old urban areas, old factories, and old villages, which are, partly or integrally, transforming the physical environment of the old towns step by step. Second, the Shanty-Area Redevelopment aims to eliminate dilapidated and old housing to improve the living environment and optimizing the city functions and environment.

In August 2009, the Ministry of Land Resources and Guangdong Province, worked together to release their Guidance on Pushing Forward Three-Old-Renovation for Promoting Saving and Intensification, marked the official commencement of Three-Old-Renovation, which received high achievement both economically and socially.

▲Green Scene of Ersha Island, Guangzhou (Drone Photo on 1 Dec 2017, by Xinhua LIU Dawei)

The financialization of Shanty-Area Redevelopment, started from 2015, was not only benefitting the destocking of the real estate market, but also improving the living quality of residents. By the end of 2019, Shanty-Area Redevelopment of China has been cut in half and approaching its end. In March 2021, the 14th Five-Year Plan, adopted at the 4th Session of the 13th National People’s Congress, has clearly identified the movement of Urban Renewal to be the new handrail of cities of China for further development.

The Central Committee developed a deeper understanding of New Type Urbanization during practices. Generally speaking, Urban Renewal covers former Old-Town Renovation, Shanty-Area Redevelopment, not just demolishing or rebuilding, while with more concerning extended to the renewal and upgrading of city structure, functional system, and industry structure and more.

Urban Renewal includes the reconfiguration of city structure, the redevelopment of land resources, the redistribution of economic benefits and the reshape of regional functions.

“It is foreseen that Urban Renewal will to be the main project of urban development during the 14th Five-Year and will help achieve the rebuilding of stocking assets and the improvement of the urban landscape,” said YAN Yuejing, Director of the Think-tank Center, the E-house China R&D Institute.

02 Industrial restructuring needs City “Refreshing”

With a rapid development of China’s economy, the industry structure of cities is experiencing fundamental changes, and the focus is shifting from primary and secondary industries to the tertiary sector.

As estimated, the ratio of the tertiary industry of Beijing has exceeded 80%, Shanghai and Guangzhou are also over 70%. This means that the past land planning and building morphology could no longer meet the needs of contemporary economic and social development.

For instance, Shanghai is one of the oldest industry bases in China. Industrial production had made a huge contribution to the city’s economic development. However, as the industry structure of Shanghai gradually transforms to the service sector, a great deal of problems, such as the excessive stocking industrial land within the city, scattered distribution, extensive use of land, low-level output, have emerged. All of these issues have become big challenges facing the local government.

From 2012, under the background of “quantity cutting, efficiency raising,” Shanghai started its urban redevelopment by trying some pilot projects, for example, the regional functional renovation for West Asia Hotel in Xujiahui, public green land in the Shanghai Train Station in Jing’an, historic building protection and rebuilding of “Dongsiwenli” in Jing’an, etc.

Recently, along with the change of China’s population structure, more labor-intensive industries are moving away from coastal cities, resulting in higher demand for industry-upgrading in these areas. Renovating the stocking industrial and commercial land by Urban Renewal and accommodating the need of the development of the service sector, became an urgent task of the cities.

It is remarkable that this city “refreshing” phenomenon is not a single case in China. For metropolitans around the world, their prosperity and decline are all going with the industry iteration and upgrading.

For example, Detroit, used to be the fourth largest city in the U.S. known as the capital of automobiles, was confronted with a huge bottleneck of development after the decline of the U.S. automobile industry in the 1970s. With a shrinking population and decreasing fiscal revenue, the once glories city of Detroit has declined and become the first city that files for bankruptcy in the U.S.

On the contrary, Pittsburg turns out to be a good case of transformation. In the 1880s, Pittsburg had grown to be the largest base of the U.S. for iron and steel production, which had undertaken 2/3 of the production value of the country. However, this also brought about quite a lot of “Big City Diseases” in terms of environmental pollution, over-concentration of industries, limited opportunities for employment, and etc. From the 1950s, Pittsburg government put a lot of effort into their “renaissance plan,” commenced from the environment, formulating a diversified strategy for the local economy, and encouraging Hi-tech emerging industries. Finally, driven by the University of Pittsburg and Carnegie Mellon University, Pittsburg successfully achieved a diversified industrial structure dominated by the Hi-tech industry, reinventing itself.

By learning from the experiences above, the cities must keep pace with the times. Once failed to adapt to the progress of times and the development of the economy, they will finally be knocked out by history, even though they used to have a very good time. 

03 Population Booming Requires More Supply of “Good Dwelling”

Besides the problems including development growth limitation and industry upgrading, mega and big cities of China must bear the booming population as well, which results in the conflicts between housing demand and supply, as one of the major problems of people’s livelihood, especially for the young generation, it is difficult for them to live a stable life and work happily.

Just in the central areas of these cities, where skyscrapers locate everywhere at extremely high prices, we could still find those old, shabby and tiny houses, dirty, messy and poor streets with abandoned and hollowed factories. Even though there is such high intensity of development in the central areas of cities, the supportive functions and spatial capacity of the cities were not improved spontaneously.

Taking Shenzhen, one of the most talked about cities, as an example, in 2005, LI Hongzhong, the party secretary of Shenzhen, points out “the Four Challenges of Sustainability” when analyzing the troubles of development facing Shenzhen, including land scarcity, resource shortage, overpopulation and environmental capacity limits. He then illustrates that, if the conflicts between land and population could not be solved or became even worse, Shenzhen was sure to be overburdened and could not sustain its healthy economic growth. 

Meanwhile, the development of security housing in Shenzhen also fallen behind the pace of city development. The underclass could only rely on a large amount of self-built housing to meet the need for shelters. However, these buildings, which are unclear in ownership, chaos in order and complex in interest relationship, resulted in difficulties of effective development of vast pieces of land in Shenzhen.

By the end of 2018, the ratio of the built-up areas of Shenzhen has reached 46.5%, much higher than that of Beijing, Shanghai and Guangzhou, which are 9%, 19.5% and 17.5%, respectively. According to the Shenzhen Housing Development Plan (2016-2020), the newly allocated land for development is extremely limited, and more than 70% of the land for commercial and residential uses is to be acquired from Urban Renewal. It is such an urgent affair for Shenzhen to improve land use efficiencies.

Situations are more or less the same across the country. Although the residential floor area per capita of China is not low (40 m2 per capita), there are still shortages of housing supply in big cities, while the quality of stocking housing is not high. For example, a large number of “urban villages” lie in Shenzhen and Guangzhou, while Beijing and Shanghai are bearing a lot of “old public houses.” These old and dilapidated buildings are ageing and with outdated hardware and poor living condistions, which could not meet the requirements of housing improvement.

Open data shows that demolished, rebuilt, or regenerated buildings for residential renewal in China are about 1.12 billion m2 annually. Improving the housing supply by Urban Renewal has already become a practical demand of the inhabitants of big cities. Revitalizing the stocking land of cities by Urban Renewal shall also be an important part of “the New Type Urbanization with the People as Core.”

“We must carry out Urban Renewal unswervingly, put forward the high-quality development of cities, and try our best to build the city to be our beautiful homeland where people and people, people and nature coexist in harmony,” said an officer from the Ministry of Housing and Urban-Rural Development.

He believes that, on one hand, with the ageing of buildings and urban infrastructure, some of the original construction codes are outdated and need reforms and adjustments to enhance safety. On the other hand, the original urban land use layouts, building facilities, the spatial environment of the cities, are no longer fit for the high living demand of residents, and are in need of Urban Renewal to raise people’s feeling of happiness and satisfaction.

We anticipate that the population and economy of China will continue to be concentrated, and that urban clusters and metropolitan regions are going to be the future urban morphology. Thus, the housing problem of megacities should be solved without delay.

04 Experience of Practice Requires Cooperation between Governments and Corporates

“This time, the first establishment of Shanghai Urban Renewal fund, has brought forth a lot of new ideas, and is worth to be learned by other big cities”, said YAN Yuejing.

Firstly, 80 billion of fund scale is relatively large, showing Shanghai’s strength of capital and power of Urban Renewal. Secondly, multiple entities have been enrolled in this fund, including China Merchants Shekou (CMSK), China Communications Construction Company (CCCC), Vanke Group, Poly Developments, China Pacific Insurance Company (CPIC), and other heavyweight developers and insurance investments, showing up on the signing ceremony. This guarantees the corporations afterwards and is a positive attempt between the government and corporates.

In the past practices of Urban Renewal, either governments or corporates have ever taken the dominant role. The advantages of the dominance of corporates lie in more sensitive perception to the market. Corporates could provide a higher quality of development and design, and effectively reduce the burden of government.

While the disadvantages are also obvious. Developers are profit hunters, prefer lands with high commercial values, and avoid areas with poor location or dilapidated houses. Public good could not be guaranteed either.

What is worse? Some corporates just want to capture more land when participating in Urban Renewal. They freely promise compensation for demolishing and relocation. Once acquired the cooperation right of the project, they will either break their promise or just suspend the project to bargain for more space, leading to stagnation of the project or even unfished housing developments. They may disrupt the normal order of the market and bring huge losses to the government, village collective and other market entities.

It could be learned from above that, during the process of carrying out Urban Renewal, governments and corporates shall utilize their own advantages and build up positive cooperation mechanism. By stimulating the motivation of the market and corporates, governments shall play the role of watchman for the market, balancing the planning orientation and public interest, working together to push forward the improvement of urban space and industry upgrading.

“Large-Formation-Warfare, is able to fully guarantee the public interest, optimize the integral function of the city, protect the space for industrial transformation and upgrading, so as to realize the sustainability of city development,” told by a person in charge of the Urban Renewal department of a real estate company.

With respect to the cooperation in Shanghai this time, Shanghai Land (Group) Co., Ltd, the local pilot enterprise for city and land operation, leads the cooperation with other enterprises. This will help the implementation of Shanghai government’s policies on Urban Renewal.

As to the real estate companies, since their profits were strictly limited in land “bidding, auction and listing,” taking part in the Urban Renewal could also expand their channels of land acquisition and effectively supplement their high-quality land reservations. From the perspective of the whole country, real estate companies, those which heavily stocked in Shenzhen, like Kaisa, Evergrande, Logan, Vanke, China Resources, Excellence, etc., and those in Guangzhou like Times, R&F, KWG, Aoyuan, etc., and Shoukai, Shouchuang whose distributions are more in Beijing, have all achieved remarkable profits in Urban Renewal projects.

However, Urban Renewal projects are of long duration and high uncertainty, with numerous stakeholders for demolition and relocation and complex ownership rights. There are huge challenges of funding arrangement and coordination capacity for the real estate companies, which shall act according to their capabilities.

“Above all, it shall never happen that the real estate companies leave the unfinished part to the government, after they complete the construction of the commercial and residential properties,” a professional warns, “and shall adhere to the principle that housing is for living, not for speculation.” The nation’s macro-regulation policies of the real estate industry must be implemented, and Urban Renewal will be an important part of the long-term mechanism.

Source: <https://mp.weixin.qq.com/s/OH7CXV8rakeckzmicY7WAw>

Translated by Zheng Shujian