China Regional Urbanization Trends: 2014 Edition

OLYMPUS DIGITAL CAMERAThe Economist Intelligence Unit (EIU) shared with us their new study on “China’s Urban Dreams 2014” – an update on the country’s urbanization program. With all the uncertainty about China’s property sector in the news recently, this in depth analysis gives some clarity to the often murky topic of Chinese development.

While Western media tends to paint China with one large brushstroke when discussing the country’s property sector, the reality is that real estate markets vary greatly from region to region. China, like the U.S., is a large, diverse country with many different cities and regions with varying strengths and weaknesses. If there is one takeaway from the EIU study, it’s that not all regions are created equally, and going forward, there are bound to be winners and losers.

Before we delve into the details of regional urbanization trends, let’s take a look at where China as a nation stands today. The country’s urbanization ratio is right around 50%, pretty much on target with the Chinese government’s projections. China’s per capita GDP is still relatively low- above India and Nigeria but below Brazil, Russia, and South Africa. Of course, China’s enormous population is a contributing factor to this being the case.

By 2020, the Chinese Government wants to bump up urbanization to 60%.  This will require another 100 million people in cities. It is important to keep in mind though, that this will not only be a result of migrants explicitly “moving” to the city, but urban boundaries continuing to expand into the surrounding countryside. As cities grow in China they annex the land around them, transforming once rural land into urban real estate.

Another key factor in meeting urbanization targets is household registration (hukou) reform, which would help afford migrants a form of permanent residence status in a given city.

Where will these 100 million new urban residents live in 2020 and beyond? According to the EIU study, Guangdong Province will pick up the lion’s share of new urban development. This is not surprising given that the Pearl River Delta region is already the most urbanized in the entire world and is further developing in a manner to help better integrate the region as a whole.

Central province Henan is also urbanizing rapidly, as is the Beijing-adjacent province of Hebei. Yet both of these provinces won’t reach the urban populations projected for coastal provinces Shandong and Jiangsu.

Perhaps unsurprisingly, it is projected that the direct-controlled municipalities of Beijing, Shanghai and Tianjin will have the highest rates of urbanization by 2030. The Central Government has made it a priority to integrate Beijing, Tianjin and the adjacent province of Hebei into one large mega-region of 100 million people called “Jing-Jin-Ji“. The aim here is to take pressure off of Beijing, which suffers from traffic gridlock, pollution and astronomical housing prices.

Along with the announcement of the formation of the Jing-Jin-Ji mega-region was a move by Hebei Provincial officials announcing that some of Beijing’s Central Government functions will move to the city of Baoding, 150 km southeast Beijing. Although specifics have yet to be articulated, this is a clear indication that the China plans to decentralize its government functions.

WEB - Victoria Lai - Access China - Demographics.inddOverall it looks as if the coastal areas of China will continue to urbanize at high rates while inland regions lag a bit behind. Although there is a wave of manufacturing moving from coastal areas to inland provinces, there still appears to be a logistical advantage being on the coast. To see where China is heading, perhaps it is best to look at the Pearl River Delta, which has led the way since initial economic reform and continues to lead the way today.

China In Africa: An Interview With Go West Project

African Union Building A local looks up at the new African Union Headquarters in Addis Ababa, Ethiopia. The complex was funded entirely by Chinese money. Photo Credit: Go West Proejct

In 2009, China surpassed the U.S. to become Africa’s single largest trading partner. Yet the burgeoning relationship between China and Africa is no ordinary trading arrangement. Rather than colonizing the continent as Western powers did in the past century, China is trading infrastructure development and urbanization expertise for access to Africa’s vast natural resources. This re-balancing of trade has yet to be studied in depth as it is probably too early to tell what the impact of China’s involvement in Africa will have on the broader world’s economy.

What we can observe is the immediate impact China is having on Africa’s urban development. Luckily we have Dutch researchers Michiel Hulshof and Daan Roggeveen of the emerging cities think-tank Go West Project to explain to us what is happening on the ground.

I first met Hulshof (a journalist) and Roggeveen (an architect) at the 2011 Chengdu Biennale where they presented their research on China’s developing western metropolises (hence the name of their think-tank). Their research culminated in the book How the City Moved to Mr. Sun – China’s New Megacities (2011), which looks beyond the so-called 1st Tier cities of Beijing and Shanghai to tell the story of urbanization in the country’s heartland.

Now Hulshof and Roggeveen are looking even further, beyond China’s borders, to study what the Chinese urbanization experiment means for Africa’s cities. They were kind enough to take the time to answer some questions for us about their initial research:

Adam Mayer (AM): Please give us a summary about your research in Africa and what interested you about studying China’s impacts on the continent.

Go West Project (GWP): In our book “How the City Moved to Mr Sun” we described the mechanisms behind the emergence of megacities in Central- and West-China. We are currently working on a new study into China’s involvement in African urbanization. Given the growing impact of China in the world, and the strong ties between China and Africa, one could think of the physical impact that China has in Africa.

It seems the Chinese are already exporting parts of their urban model to Africa: new “Special Economic Zones” in Zambia, Nigeria and Ethiopia, Chinese residential models in Angola or Kenya and Chinese roads, airports and railways all over Africa. There’s also a new approach of “soft power” with Chinese-led African newspapers and television stations, Chinese language schools, university grants for African students and professionals, and Chinese medical aid projects in Africa. We think this phenomenon deserves an unprejudiced look as to what this means for the development and the future of African cities.

AM: What are those impacts that China’s economic development has had on Africa? Are there certain regions or countries in Africa that have benefited more from China’s business interest in the continent?

GWP: These impacts are both tangible and non-tangible. On the tangible side, China constructs roads, railroads, ports, airports, but also telecommunications structures, fiber optic networks, dams and even satellites. It builds schools and offices and has even given the African Union their headquarters as a present. On the non-tangible side, there are grants for students, increased influence of the media – CCTV has already 80 journalists in their Nairobi office! – and Confucius institutes. Of course, the countries with resources are very attractive to go to for the Chinese – but not only them Royal Dutch Shell is already for decades involved in Nigeria.

AM: China is trading its development and urbanization know-how to certain countries in Africa in exchange for resources- What are some prominent examples of infrastructure or building projects built by the Chinese in Africa?

GWP: The most symbolic one is the structure of the African Union building: a 200 million dollar gift from China to Africa. The building was designed in China (by the Tongji Architecture Planning and Design Institute), built with Chinese materials, by a team of half Chinese and half local workers. In Nairobi, we came across the Great Wall apartments on Beijing road, a development by a Chinese real estate developer. The most amazing example is of course the new towns of Kilamba Kiaxi in Angola, where CITIC developed and built 750 highrise apartment blocks.

 Kilamba_KiaxiKilamba Kiaxi in Luanda, Angola

WorkersAfrican & Chinese Construction Workers. Photo Credit: Go West Project

AM: One criticism of China’s venture into Africa is their use of imported Chinese labor to construct new cities rather than using local labor which would help job creation in the region. In your research did you find this to be an issue?

GWP: This is only partly true, and differs strongly from country to country and from project to project. More and more, the Chinese are aware of the fact that hiring locals improves the engagement of a project. What you see very often is a construction site (or a factory for that matter) with Chinese site supervisors, and local laborers.

A way to have local people profit more is not to hire Chines companies, but local companies for construction jobs. However, local companies can often not compete with Chinese ones in speed, price and quality.

AM: Based on studying China’s influence in Africa, do you feel that China is setting a new standard for developing county’s around the world that aspire to urbanize and grow their economies?

GWP: Africa’s urbanization is staggering. Africa’s urban population, which was 395 million in 2010, will be no less than 1.2 billion in 2050. That means Africa’s cities will have to accommodate an extra 40,000 people every day for the coming 15 years. If there’s one country in the world that has experience with such an enormous rural to urban transformation, it is China.

However, implementation of Chinese strategies on African soil seems so far hardly possible due to differences in political and economical structures.

Therefore, we think that the impact of Chinese presence in Africa will depend very much on the local conditions, and will strongly differ from country to country and city to city.

Michiel Hulshof is partner at Tertium, an Amsterdam based office for strategic communication. Daan Roggeveen is the founder of MORE Architecture, Shanghai and Curator at the University of Hong Kong/Shanghai Study Centre.

Be on the lookout for further research on this topic as Go West Project is currently preparing a theme issue of the magazine Urban China, with contributions by Brechtje Spreeuwers (NL), Huang Zhengli (CN), Njeri Cerere (KE) and Paulo Moreira (PT).

The State of Seismic Safety in China


The 7.0-earthquake in Ya’an, Sichuan Province this past April once again brought up the topic of construction quality in China. Images of crumbled buildings also reminded the world of the devastation that overcame the very same region 5 years ago when more than 70,000 people perished in the 2008 Wenchuan Earthquake.

Amazingly, the loss of life in the Ya’an quake was markedly smaller at only 200 (granted, so was the severity of the quake, but 7.0 is magnitude still a very significant tremor). Ideally, the goal of seismic building safety is to minimize casualties, thus April’s earthquake proved that China is stepping it up in the right direction.

I have a unique perspective on the issue having spent 2 years living and working in Chengdu, the capital of Sichuan. And given my position working on the inside of China’s construction boom, industry colleagues and acquaintances outside China frequently inquired about the country’s building safety standards.

The reality is that the discussion of building safety in China is complex. Back in architecture school, our structural engineering professor liked to remind us that “earthquakes don’t kill people, structurally deficient buildings do”. This tends to true, both in Sichuan and other seismically active regions around the world. And while China is generally known for questionable regulations and safety standards, Chinese building codes definitely do not allow any sort of leeway with structural safety.

That being said, it is important to note that an architect and structural engineer can design a building to be structurally sound but the final product will only be as good as the quality of construction, which is ultimately the responsibility of the general contractor. Provided the contractor follows architectural and structural drawings as designed, there should be no concern over seismic safety. Yet the process is never that simple.

By Western standards, construction administration in China is a rather opaque process for a designer. Final decisions during construction are made by owner and contractor without much input from the architect. This can cause issues with oversight, especially with the more unscrupulous contractors and owners who “skim off the top” by switching out building materials for inferior product at the last moment and pocket the difference in price.

While this is an unfortunate practice, the consequences are much less severe when applied to finish materials versus structural materials. Virtually all of the buildings that collapsed in both Sichuan earthquakes were a result of unreinforced masonry construction, meaning that builders stacked bricks or concrete blocks without using sufficient (or any) steel reinforcing bar (rebar). Furthermore, most of these buildings were located in rural towns where they were probably built by individuals not formally trained in construction techniques. This isn’t an excuse, but rather a reflection of a country that is still developing.

Further highlighting the urban/rural gap in China is the fact that in both Sichuan earthquakes, Chengdu proper suffered minimal damage comparatively to its surrounding countryside. And with the mad frenzy of construction going on in the city, never once did I see a cause for concern with the structural reliability of city’s new buildings. In fact, the new high-rise buildings rising in Chengdu’s core fared well in April’s earthquake.

So while there is still improvement to be made in construction processes and techniques, especially in the more rural areas of China, my feeling is that safety standards are only getting better. The architecture and engineering professions in China, as well as government authorities, take seismic safety very seriously and do not lack the know-how in designing and building safe buildings.

The 2008 Wenchuan Earthquake was a wake up call, but given how far China has come in terms of development, there is a very good chance that this will have been the last catastrophic seismic event in country.

MTR Island Line Extension Set to Change Hong Kong’s Western District

Blue Dot = Current Western Extent of MTR Hong Kong Island Line (Sheung Wan)       Red Dot = Terminus of Island Line Western Extension To Open in 2014 (Kennedy Town)

Infrastructure development continues in Hong Kong as the city’s Metro Transit Railway (MTR) extends its underground Island Line into the city’s Western District. Beginning construction in 2009, the western extension of the Island Line (dubbed the ‘West Island Line’) is set to open in 2014. The Island Line currently ends at Sheung Wan, one stop west of Central (Hong Kong’s central business district), but the extension will add three new stops, including Sai Ying Pun, Hong Kong University, and terminating at Kennedy Town.

MTR Station Under Construction On Pok Fu Lam Rd. Across from Hong Kong University

The West Island Line is unique because of uphill/downhill conditions at the Sai Ying Pun and Hong Kong University Stations. At both stations, MTR plans show station exits at various elevations, with high-speed vertical lifts transporting passengers from deep within the subway tunnel up to the Mid-Levels area (see this link for clear sectional diagrams of how this works). The Sai Ying Pun Staiton will have exits at three different elevations: Queen’s Road West, First St./Second St., and Bonham Road.

The extension will also be huge boon for students who commute to HKU. The university’s campus, situated on a steep hill and not easily accessible as a pedestrian, will be served by an exit directly across from the entrance at Pok Fu Lam Road.

The Island Line Western Extension Will Benefit Students Who Commute to HKU

The Belcher’s, a High-Rise Residential Development in the Western District

Because Hong Kong’s Western District is not well served by public transport, rents and property prices have traditionally been lower than other parts of the island with better access to the MTR. Aside from the Belcher’s, a high-rise residential development completed in 2001 that sits atop a shopping mall, the Western District still retains a marked ‘mom and pop’ low-key atmosphere.

It is hard to predict how this will change in 2014 when the West Island Line opens. Property developers  real estate investors have already taken note, but with most of the area already built up with an aging housing stock, there is not much new open space for development.

Whatever future changes come to the neighborhood though, the MTR extension is a positive development for Hong Kong as it continues to serve as  a model of public transportation efficiency for cities around the world.

Kennedy Town. MTR Construction in the Background

China World’s Largest Wind Energy Market

Infographic Courtesy of Statista

Guangzhou’s New Central Business District: Zhujiang New Town

Guangzhou’s New CBD (highlighted in red) sits north of the Pearl River and east of the Old City in what not long ago was agricultural land

Recently I visited Zhujiang New Town, Guangzhou’s newly built central business district (CBD). While Guangzhou itself is hardly a new city (its status as an international trading port goes back centuries), the CBD is brand new, built on what used to be agricultural land well outside of the historic city core. Though thanks to the city’s expanding underground metro and freeway system, Zhujiang New Town doesn’t seem so far away.

Currently Zhujiang New Town is best known as the site for the Guangzhou Opera House and many of the athletic venues for the 2010 Asian Games. One unique aspect about Guangzhou’s CBD compared with others around China is its marriage of cultural buildings with commercial office towers. In this regard, Zhujiang New Town is not much different from the planned ‘downtowns’ of sprawling 20th Century American cities like Los Angeles, Phoenix and Houston.

The iconic Canton Tower sits across the river, just south of the new CBD

View looking north at towers going up in the CBD

Aerial map of Guangzhou CBD

Adjacent to the Pearl River to the north is the site of Zhujiang New Town’s new cultural venues linked by a paved plaza. Directly north of that begins a park stretching four long blocks lined with brand new office towers. Underneath the park, a metro line runs the length of the CBD. This particular line of the Guangzhou metro system has no driver (so far this is the only instance of this I’ve seen in China!).

While the cultural venues were bustling with life when I was there, many of the completed office buildings were for the most part unoccupied and the park was a no-man’s land. This is not to say that the towers won’t be occupied very soon, as the finishing touches were just being put on. It will be interesting to see how this sparkling new CBD fills itself up in the coming months and years ahead.

1. Guangzhou Opera House

2. Guangdong Museum

3. Guangzhou Library

4. IFC Tower

5. New Commercial Office Buildings

6. Agricultural Bank of China Building

7. The Pearl River Tower

8. More Commercial Office Towers Under Construction

Deindustrializing Beijing: Images from the Decommissioned China National Steel Factory

Beijing’s poor air quality is a well-documented phenomenon, yet what is often not considered is the fact is that the municipality has taken steps in recent years to deindustrialize and move its polluting factories outside the city to neighboring provinces (mainly Hebei Province). Unfortunately the closure of factories doesn’t seem to have done much to abate Beijing’s air quality problems as an increasing number of private automobiles continue to clog the city’s roads. That being said, Beijing did try its best to at least keep its air clean for the two weeks of the Summer Olympics back in 2008.

One of the most high-profile examples of this effort was the permanent closure of the China National Steel Factory in western Beijing- one of the largest steel mills in the country. My friend and Beijing resident Daniel Garst, an American writer, recently had the opportunity to visit the decommissioned factory and take some nice shots of the slowly decaying complex.

As the future remains uncertain for the former steel factory, it presently serves as a reminder of Beijing’s industrial past and is a prime location for shooting photography and filming commercials. Perhaps the factory will be reused in the future as a commercial/entertainment district as developers take advantage of the ‘industrial chic’ aesthetic to redevelop other decommissioned factories around the country.

For now, please enjoy the following images of the abandoned complex.

Speculation: China’s Proposed Eco-Cities

A piece I wrote about China’s proposed eco-cities appeared recently in the  inaugural issue of Dwell Asia magazine. The article takes a look at two proposed eco-cities, Dongtan in Shanghai and the Sino-Singapore Eco-city in Tianjin, examining the implications of the ideas presented in both proposals.

For the readers of the China Urban Development Blog, here is a reproduction of the original piece:

Today’s urban development zeitgeist suggests that cities should move towards sustainable models of living to combat climate change and reduce resource consumption. Of course, how to achieve that is a subject of ongoing debate among design and planning professionals. Unfortunately, branding new developments as ‘green’, ‘eco’ or ‘sustainable’ is often a loaded attempt to satisfy marketing and public relations needs for developers and government officials.

Nowhere is the use of greenwashing strategies more common than in China, where new cities practically arise overnight. Many new developments, particularly large-scale residential communities consisting of repetitive tower blocks, with names like Authentic Gardens and Spring Flower Court, claim to be environmentally friendly, but have little in the way of sustainable design strategies aside from a few patches of green space.

There are few problems with this mode of development. For one, new residential projects often take up entire city blocks, turning their back on public streets and discouraging a mix of uses and walkability. Secondly, tower blocks are often built cheaply without proper insulation or sealed windows, leading to more energy consumption for heating and cooling. With the demand for new residential units so strong, there is generally no incentive for property developers to spend extra on things that would save energy in the long run.

The need to make new residential developments sound greener than they actually are reflects a deep contradiction between China’s traditional love of nature and its current state of hyper-urbanisation. As more farmland makes way for expanding cities, promoting a sense of nostalgia ensures that newly developed properties will appeal to first time Chinese homebuyers. Yet a new mode of development is emerging in what might ultimately serve as more appropriate and honest model for China to reconcile its agrarian past with its
urban future.

Enter the eco-city. The eco-city concept, which has gained a wide international audience among planners and environmentalists over the last two decades, aims to build new cities and neighbourhoods in a way that uses the best of sustainable technologies and planning strategies to reduce waste and carbon emissions. Given its current state of development, China is an ideal testing ground for new eco-cities.

Dongtan: A planned Eco-city on Chongming Island in Shanghai

China is lauded for two planned eco-cities in particular: Dongtan, on Chongming Island in Shanghai, and the Sino-Singapore Eco-city in Tianjin. Both eco-cities lie well outside the traditional urban cores of their respective municipalities and seek to become self-sufficient sustainable communities complete with residential, commercial, retail, educational and recreational uses. The way in which these eco-cities differ from other new developments around China is their focus on clean energy, including solar, wind and bio-fuels and urban design promoting sustainable transportation methods such as walking and cycling.

Despite the good intentions of their designers, there is some concern over the viability and appeal of such developments. Some critics argue that Dongtan, which is now indefinitely on hold, is nothing more than a ‘Potemkin Village’ meant to make government officials look good. Others argue that the high initial cost of sustainable technologies means that the cost of living will be too far out of reach for middle-class Chinese urbanites.

Perhaps most misleading about China’s eco-cities is the overall impact they will have on the entire country’s carbon footprint. Together, Dongtan and the Tianjin Eco-City are planned for less than 1 million residents…a drop in the bucket compared to an urbanising population of more than a billion.

Sino-Singapore Eco-city in Tianjin

Eco-city hype aside, China is doing much more to develop towards a more sustainable future in ways that will have much greater impact. Construction of transportation infrastructure, including a national high-speed rail system and extensive metro systems in nearly every large city, will help reduce carbon emissions. Furthermore, China is already the world leader in renewable energy technology, with enormous investment into wind and solar energy.

Whether or not China’s eco-cities ever come to fruition, there are lessons to be taken from the ideas presented in the plans. Promoting genuine mixed-use neighborhoods and buildings with sustainable technologies such as passive heating and cooling and low-flush toilets are a step in the right direction. Yet given the type of development that is currently en vogue in China (the quickly built, tower block type), perhaps it best to start with the unglamorous basics: wall insulation and properly sealed windows.

Chengdu Enhances Urban Environment With Recreational Paths

It seems that too often talk about China development focuses on ‘hard’ infrastructure projects including roads, bridges, power stations, rail systems, etc.  Yet what is often overlooked in discussions about China’s infrastructure are projects designed to enhance quality of life for city dwellers. I recently discovered one of these new projects in the city where I live, Chengdu.

For months leading up to summer, large portions of the promenade along the Jinjiang River, which runs through the middle of the city, was walled off while new landscape construction took place. Upon completion, the riverside opened up with sleek modern guard rails and wide lanes with brand new pavers and newly planted trees.

As soon as the promenade opened again, I resumed my usual jogging route which runs from the city center to about 5 km south along the river. Besides having a smooth new surface to run on, I also found that when I reached the fenced off area where I usually turn around and head back, the fence was gone. Curious to explore further, I carried on along the river.

I ran through some formerly industrial areas and eventually ended up in Chengdu’s suburban periphery outside of the south section of the 3rd Ring Road where new residential towers sprouted up from the ground among vast swaths of green space. The path continued on along the river but at that point I thought it best to turn around before sunset.

It turns out that the extended path is part of Chengdu’s ambitious plan to add 800 km of recreational path by next year. Keeping in line with its self-proclaimed status as a ‘Modern Garden City’, the city is actively promoting green space that enhances quality of life. Given that Chengdu has a temperate climate, a system of recreational paths linking the city center with its surrounding suburbs  is a worthwhile investment.

High-Speed Train Derails in Zhejiang Province

In a gigantic blow to the credibility and safety of China’s high-speed rail network, a train traveling from Zhejiang’s provincial capital of Hangzhou to the seaside city of Wenzhou derailed Saturday evening. Details at this point are still developing, but so far reports have said that the train was struck by lightning and then subsequently hit by another train, leading to two of the train’s cars falling from a bridge. So far, 16 passengers are reported dead and 89 injured.

Having ridden on several of China’s new high-speed trains myself makes seeing the wreckage of this accident all that much more surreal. Whether the accident is due to some sort of track or train defect is yet to be determined. If the train was in fact struck by lightning, this could turn out to be a freak accident. If not, then surely there will be further inquiry into the quality of the fly ash which acts as a critical component of the track foundation mixture.

Whatever the cause of the crash, this incident marks a turning point in China’s high-speed rail program. From now on, questions about safety compromises are bound to come to the forefront of the discussion.

I will keep you posted with updates as more information becomes available.


The death toll is now up to 35, with 210 more injured. It turns out that lighting did strike the first train, D3115 en route from Hangzhou to Fuzhou, causing the train to lose power and come to a stop. Shortly after, D3115 was struck from behind by another train, D301 en route from Beijing to Fuzhou. The crashed caused the first four cars of D301 to derail and fall 20 meters off the viaduct.

Rescue efforts are encouraging, with bystanders and uninjured passengers having offered up immediate assistance before rescue crews arrived at the scene. Hundreds of Wenzhou residents have also donated blood to local hospitals ensuring that blood supply is sufficient for injured passengers.

Whenever tragic transportation accidents happen at this scale, people are quick to assign blame. Already many commentators are pointing to the alleged shoddy quality of the tracks as a reason for this accident. Some even go further suggesting that this is a result of a Chinese culture that doesn’t value quality or safety, pointing to the rampant corruption and food scandals.

At this point it seems that the accident was not a result of shoddy tracks but a miscommunication problem. As soon as train D3115 came to a stop, train D301 and all other trains on that line going in the same direction should’ve been alerted. It’s possible that the lighting strike, which caused D3115 to lose power, also caused it to fall off radar.

Whatever the ultimate cause of the crash, the incident is bound to add fire to the critical voices of high-speed rail development in China.

China Surges Ahead While Ideological Battles Hinder the U.S.

Public policy, stripped to its basics, is a choice among value alternatives. What one person will vehemently contend is the correct policy and another will say is wrongheaded will not depend on empirical measurement, but on the person’s values, philosophy, and ideology.” – John Kasarda

While in the above quote Kasarda, business professor at UNC-Chapel Hill and co-author of the book Aerotropolis, refers to individual values, the same rule is also applicable to groups and institutions. This is certainly the case in the United States where the government  is in the midst of tense negotiations over the so-called ‘debt ceiling’. America’s two main political factions, Republicans and Democrats, are currently at a loss of coming to a consensus due to ideological hangups.

Republicans, who favor severe austerity by cutting social programs yet oppose any sort of tax increases, are unwilling to compromise. The Republicans’ flawed ideological-based approach to solving America’s  economic turmoil comes at perhaps one of the worst times in the country’s history with unemployment at an all-time high and millions losing social benefits. Even Vice President Joe Biden recently told Republican lawmakers that their “intransigence over taxes is a matter of ideology not economics“.

The Republicans’ approach to economic recovery is almost perfectly antithetical to what the Chinese government did in their response to the global downturn in 2008. It isn’t that the Chinese government ‘raised taxes’ or increased spending on ‘entitlements’- what they did do was stimulate their domestic economy through ordering banks to lend and beef up spending on national infrastructure and urban development. This ensured that the country kept on pace with modernization and kept its huge population busy and employed even while export manufacturing slowed.

China’s strategy in dealing with economic problems is inherently pragmatic and non-ideological. This may come as a shock to those in the west who still see China as representing a Marxist-based Communist ideology (also see “America’s Dangerously Out-of-Date View of China“). In fact it was Deng Xiaoping, China’s great reformer who famously said that “It doesn’t matter if a cat is black or white as long as it catches mice.”

It is important for those in western countries to understand that if it seems there is still residue of Maoist ideology lingering in China today it is merely rhetorical in nature- used by some in China’s leadership to appease dissatisfaction with class disparity and encourage a collective sense of meaning into its people. Don’t be fooled into thinking that China is in danger of reverting back to a time when intellectuals were forced to labor in the countryside or misinformed ideological-based policies resulted in famines.

Some commentators also predict that China has a ‘Sword of Damocles’ lingering over its head due to over-investment in fixed assets. Their predictions rest on the hope that once China’s economy crashes, it will once and for all prove the victory of the ‘free-market’ ideology over China’s ‘centrally planned’ model. Don’t bet on it.

Using ideology as a means to argue about which economic or political ‘system’ is superior is a relic of Cold-War mentality and completely irrelevant in today’s world. China knows this and other developing nations are starting to pick up on it. Unfortunately many in the west, and especially the United States, still feel they can justify moral superiority with their ‘system’. While in the past falling back on its narrative of ‘land of the free’ has worked for America, paying lip-service to a feigned moral superiority no longer holds as much weight.

Robert Herbold, former chief operating officer of Microsoft, picks up on this notion and writes a wake up call to the U.S. in a recent Wall Street Journal opinion piece titled “China vs. America: Which is the Developing Country?” Like many other executives and high-fliers who spend some time in China, Herbold is amazed by the country’s achievements and dismayed by America’s comparative lack of ambition . He concludes his piece by writing:

Let’s face it—we are getting beaten because the U.S. government can’t seem to make big improvements. Issues quickly get polarized, and then further polarized by the media, which needs extreme viewpoints to draw attention and increase audience size. The autocratic Chinese leadership gets things done fast (currently the autocrats seem to be highly effective).

Perhaps more discouraging than Herbold’s observations is the WSJ comments section, with most commenters overwhelmingly disagreeing with his assessment and some even resorting to ad hominem attacks. Despite what these anonymous commenters think, the facts are facts: China is moving ahead while the U.S. is falling behind. Herbold is spot on to call out the polarization of the U.S. government as being the primary reason this is the case.

Polarization within the U.S. government stems from the ideological preoccupation of both the dominant political parties. For instance, Republican lawmakers use the threatening rhetorical meme of ‘socialism‘ to argue their position for fiscal austerity. If taxes are raised and money is spent on public services (or even much-needed improvements to public infrastructure), the Republican theory goes, then the U.S. becomes a socialist state.

The Democrat side for its part has largely turned its back on small business and blue-collar workers: the party’s traditional backbone. Instead, the Democrats have succumbed  to interests that work to stifle productive industry: namely the environmental lobby. While pandering to idealistic greens and the ‘knowledge-work will save us‘ cohort, the Democrats have more or less forgotten about the middle-class.

China and the rest of the developing world is not going to wait for America to get its house in order. It would be wise for leaders in both parties to acknowledge this cold hard reality and put aside ideological talking points during this moment of fiscal crisis in America. Unfortunately, that might be too much to ask in a culture which puts so much emphasis on election cycles and side-show campaigning.

World’s Longest Sea Bridge Opens in Qingdao

To mark the 90th Anniversary of the founding of the Communist Party two weeks ago, the seaside city of Qingdao in Shandong province opened its new Jiaozhou Bay bridge. At 42.4 km, it is the longest sea bridge in the world. The bridge links historic Qingdao with the city’s industrial zone Huangdao.

On the same day, a 9.47 km undersea tunnel also opened linking the two sides together. As Steve Dickinson of the China Law Blog points out: “The completion of the bridge and tunnel fulfills the long term dream of the Qingdao government to fully integrate the two shores of the Jiaozhou Bay.

Dickinson goes onto wonder about the possible redundancy of not one but two links across the bay given the high public expenditures of both these projects. At the end of his post, which is titled Qingdao’s New Bridge As Symbol of China Infrastructure‘, he says:

“Nobody is even sure why either the bridge and the tunnel were built, much less the two of them. The bridge seems to be mostly aimed at connection by highway for goods from the ports and airport and tradezones. The tunnel does not provide access to any of this. The high toll for the tunnel means that it will not be used for normal surface transport (private cars and taxis). So why was it built? No one has ever been able to provide me with an explanation. Why was the bridge built at the WIDEST part of the bay? Why was it built when it only provides a 10 minute improvement in travel time? Why was it built with no attention to access and exit? Why were the connecting highways not improved? Who knows.”

Dickinson touches upon what is potentially the most contentious issue about China’s infrastructure: the seldom examined cost/benefit analysis of these new projects. At this point the world knows that China can ‘get it done’ when it comes to building large-scale infrastructure projects. There is no lack of political will or labor to undertake such ambitious plans. Yet lost in the speed of getting these new projects built is a rigorous analysis of the ultimate benefits for what could turn out to be a series of boondoggles.

That is not to suggest that this is not to be expected, especially given that China is a still a developing country. Surely, many of the infrastructure projects will have tremendous benefit now and in the future. I also posit that to some extent China’s leaders are aware of potential labor shortages in the future. As China’s aspiring middle-class urban dwellers move up the value chain, and as the one-child policy begins to take a toll on the country’s youthful demographics, cheap labor will become more scarce.

Given this reality, China appears to be taking an approach that puts speed and ambition above all other considerations, waiting to deal with the details later on.  In a sense, this is a cultural phenomenon: creating an environment of rapid growth to ensure social stability and avoid the internal chaos that is still all too near in memory.

Torrential Rains and Flooding in Chengdu

It’s been a rough start to the summer season for provinces in central and southwest China. Torrential rain and floods have affected millions, destroying crops and forcing many to evacuate their homes. Chengdu was largely spared any flooding up until this past Sunday when a heavy storm dumped on the city.

The storm blew out power lines while the flooded streets created traffic chaos throughout the city. My colleague took some photos of the flooding near his apartment in the low-lying southern part of Chengdu.

Some drivers mistakenly judged water levels and got stuck in the middle of flooded streets.

The storm drainage system in this part of the city couldn’t handle the huge quantities of rain that came down in such a short time period – resulting in covers being pushed off the tops of manholes. The girl in the above picture had the misfortune of unknowingly stepping into one of those holes. Luckily a nearby man came and rescued her before anything more serious happened.

Even though Chengdu experienced some flooding, the real damage took place in the more rural parts of Sichuan province. In Yingxiu county, flooding brought down part of a bridge, stranding villagers. Video of the dramatic rescue can be seen here.

Local Debt Adding Fuel to Bearish Outlook on China

Credit rating agency Moody’s recently released a report claiming that Chinese financial auditors have understated local government debt by half a trillion dollars. This is no small estimate, and the thought of so many non-performing loans on bank balance sheets is enough to make any seasoned investor bearish on China.

Of course, the majority of debt is fueled by lending that is going to local provincial and municipal governments and developers to fund new infrastructure and building projects. Banks are making these loans because of direct orders from the top-level of China’s central government. These orders were stepped up significantly after the 2008 world financial crisis to keep the country’s growth engine humming along as the export market fell off a cliff.

The New York Times wrote an article acknowledging that China’s building boom is stirring up fears of debt overload. To get a better understanding of the situation, the NYT examined the central China city Wuhan to see what the process of urban development entails from a financing standpoint.The piece does a good job of explaining how municipal governments often set up separate entities (state-owned) to help finance and construct large-scale infrastructure projects.

In the case of Wuhan, the city set up an entity called ‘Wuhan Urban Construction Investment and Development’, or Wuhan UCID. According to the NYT piece, Wuhan UCID “has over 16,000 employees, 25 subsidaries, and 15 billion dollars’ worth of projects, including roadways, bridges and sewage treatment plants.” Sun Zhengrong, a spokesman for Wuhan UCID, admitted to the NYT that the company is  heavily in debt.

China’s mode of development is contrary to everything that is sacred to Chicago school economists and free-market fundamentalists. If it were up to the ‘market’ to decide the fate of entities like Wuhan UCID, it should fail tomorrow because of its tremendous liabilities. There is no way that Wuhan UCID will ever be able to recoup its investment in things like bridges or sewage treatment plants because these kinds of investments don’t traditionally turn a profit.

Infrastructure investment is necessary for any developing economy. China understands this and is willing to take the risk of ordering its state-owned banks to make loans towards this type of investment (even if they are never paid back). In a sense, entities similar to Wuhan UCID (of which there are countless across China) and the state-owned banks lending to them are ‘too big to fail’.

When entities like Wuhan UCID do default on their loans, it is likely to dissolve into smaller pieces or restructure into something different to avoid the responsibility of paying them back. The ‘failure’ of these entities to pay back loans also ensures that the central government maintains control over local governments.

What about the banks? The reality is that China’s banks are nothing more than conduits for the government to spend money. They are in no hurry to recoup their loans- rather they have a longer view and see the hundreds of millions of new Chinese homeowners as a stabilizing force in the banking system (and the social system as well). China’s leaders also realize that the era of cheap labor won’t last forever, thus the rush to build the country’s infrastructure.

Property developers, whether state-owned or private, are also tools of the government, pressured into acting fast to build or risk losing land they had successfully bid on.

What are the implications for overseas investors? It is important, first, to acknowledge that the Chinese government doesn’t care about outside investment. Overseas companies who gain access to the China market do so because of the potential to acquire technical know-how. When it comes to banking and investment, China is very closed off. Foreigners have barely any access to the real estate market and China’s currency is still not easily convertible despite pressure from developed economies around the world.

The closed nature of China’s economy, as well as its huge foreign-exchange reserves, is a hedge against the potential damage that over-investment in urban development could cause. If there were to be a problem, China could always do more to open up to foreign investors to prop itself up again. China could also do a lot more to promote internal consumption, including float its currency and remove tax barriers on foreign goods.

The time for these measures has not arrived yet. Despite all the hype of being the world’s number two economy, China is still very much a developing country. Investment in infrastructure makes a lot of sense at this point given the how it will benefit the country now and well into the future.

Beijing to Shanghai High-Speed Rail Opens

Photo by bennettdesign

China’s ambitious high-speed rail program inaugurated perhaps its most important line yesterday: Beijing to Shanghai. The train made its debut on the eve of the 90th anniversary of the founding of China’s Communist Party with Premier Wen Jiabao onboard declaring the line ‘in operation’.

The trip linking China’s two largest cities takes just under 5 hours and scheduled trains will make stops along the way in Tianjin, Jinan and Nanjing.

AFP Infographic

Linking China’s government/cultural center with its commercial/financial hub is a milestone on the path towards creating a connected nation. Airlines will certainly be hurt by the line, but because China’s air traffic is already at capacity, the train should help ease the strain on Beijing and Shanghai’s airports.

Freedom of choice when it comes to transportation options is paramount to social and economic mobility. Thanks to the multitude of options Chinese citizens will be afforded when traveling around the country, overall quality of life should be improve significantly.