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View over Victoria Harbor towards Central- the center of the pro-democracy protests

Hong Kong is an unlikely setting for massive political protests. The city, known for its open global trading culture, is a paragon of economic freedom. Yet many would argue that the economic freedom enjoyed by Hong Kong’s citizens has not kept pace with the level of political freedom.

Case in point: at the time of this writing, pro-democracy protests in Hong Kong have taken over the city; spilling over from the city’s central business district of Central into the neighborhoods of Causeway Bay and to Mong Kok across the harbor in Kowloon. Prompting this unprecedented massive protest was the Chinese Central Government’s decision last month to allow only committee-approved candidates to run for Chief Executive (Hong Kong’s highest political office) in what was supposed to be the city’s first public vote in 2017.

Beijing’s decision to vet Chief Executive candidates before they are permitted to run for office sent a signal to Hong Kong citizens that perhaps the Central Government is not fully comfortable embracing the idea of ‘One Country, Two Systems‘. That being said, while on the surface this appears to be primarily a political protest, underlying much of the frustration of protestors are economic issues resulting from a flood of Mainland wealth entering Hong Kong.

To understand why this may be the case, it is important to look at Hong Kong as a ‘city’ first rather than a former British Colony and current Special Administrative Region of China.

As anyone who has visited the city knows, Hong Kong is one of the most compelling urban places in the world. Spanning across Victoria Harbor, from Hong Kong Island to the Kowloon Peninsula and beyond to the New Territories, the city’s natural geographical setting is stunning. Add to that the forest of svelte skyscrapers against a backdrop of steep mountains and you get a visual dynamism that is unmatched by any other city.

Urbanistically, Hong Kong functions like a well-oiled machine. The always on-time metro system spans to the far reaches of the city and mixed-use developments everywhere promote lively street-level activity. The city’s airport is one of the most well-connected and efficient in the world. The tourism/hospitality industry is gold standard and booming.

Given all the assets possessed by the city, what then is Hong Kong’s problem?

Short answer: the cost of living is out of control.

In a sense, Hong Kong is a victim of its own success. Thanks to its open banking system, global capital flows into the city relentlessly. Investment in Hong Kong property, primarily from wealthy buyers from Mainland China, drives up the price of real estate to astronomical levels out of reach for most locals.

Exacerbating the housing affordability crisis in Hong Kong is the lack of land to build new real estate to meet the high demand. Demographer Wendell Cox’s research has even found Hong Kong to be the world’s most unaffordable housing market.

The protests in Hong Kong are directed at the Chinese Central Government, but they might as well be directed at China’s capital flows into the city. To put it into perspective, this is a semi-autonomous highly developed city of 7 million, adjacent to a developing country of 1.3 billion. Hong Kong is the closest safe harbor for wealthy Mainlanders to put their money. On top of that, millions of Chinese tourists come to Hong Kong each year to go on shopping sprees, buying luxury goods, sales-tax free, that would be more expensive to purchase in the Mainland.

Given the severity of the situation, it is no wonder that native Hong Kong citizens are taking to the streets in protest. Yet as Hong Kong is already a relatively free city, unfortunately I do not think that more ‘democracy’ will help the solve the problems that Hong Kong protestors are most concerned about (cost of living, loss of cultural identity, etc…).

On the contrary, the solution for the city’s woes would be for the rest of China to become more like Hong Kong. That is- more global, economically open and possessing a banking system that investors can trust. Mainland China is not there yet, but proposed initiatives such as merging the Pearl River Delta into an interconnected ‘mega-region’ and the Shangahi Free-Trade Zone are steps in the right direction.

Ultimately the point is to take the pressure off Hong Kong. This could be achieved by making other cities in China, such as Shenzhen or Shanghai, more open economically, so that capital flows more freely through the Mainland.

The Chinese government up until now has hesitated in doing this. Perhaps the protests in Hong Kong will be a wake-up call to speed up reform. My feeling is that this will happen eventually and hopefully sooner than later.

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.

Sensationalist stories about China’s supposed looming economic collapse captivate international headlines. While these articles might be entertaining to read or talk about, they nevertheless perpetuate an inaccurate picture of an evolving Chinese economy. The really big China story is perhaps too mundane for editors looking for catchy headlines. That is, the emergence of the largest middle-class in the world- beginning with Deng Xiaoping’s reform and opening up in 1978 and still being written today.

Upon my own arrival to China nearly five years ago, it became clear fairly quick that the younger generations living in urban areas would not be content to continue working in low-wage factories and construction sites forever. Following a similar arc of modernization and urbanization that developed countries went through in the past, albeit at a much accelerated rate, China ambitiously aims to move up the value chain economically.

This development is not easily grasped for those who haven’t had the opportunity to invest significant time interacting with people on the ground in China. Luckily we have Shaun Rein and his book The End of Cheap China to tell us the story of China’s evolving trends. The book was released in 2012, but the predictions Rein makes are perhaps even more relevant today than when it originally came out two years ago.

Rein, a consultant to foreign businesses looking to succeed in the China market, is a polarizing figure among the “China Watcher” community. His critics (mostly other expatriates in China) see him as an opportunist, shamelessly networking with high-level government officials and business leaders, and presenting a naively optimistic view of China’s future. Yet it would be a mistake to suggest that Rein is in denial of the tremendous challenges facing the country. Rather, his position is based on rigorous observation and analysis of the changing values of China’s upwardly mobile population. The End of Cheap China is anything but naive, interweaving Rein’s anecdotes of personal interactions with statistics and case studies.

Rein has been in China long enough to see beyond the physical changes to observe social shifts and how they impact individuals. In a chapter titled “The Modern Chinese Woman” he tells the story of an acquaintance he made while living in the northern port city of Tianjin. “Amy”, who Rein originally met in 1997, was a bashful young waitress at a local cafe, working hard and keeping her head down.

When Rein returned to Tianjin more than a decade later and ran into Amy, he found a confident, stylish woman complete with a designer bag and trendy clothes. After catching up with her, he learned she had left her waitressing job and had been working for several multi-national companies doing business in the city. Her prospects turned out to be so good in fact, she expressed interest in becoming an entrepreneur and starting her own business. Opportunities like this abound for young and savvy Chinese urbanites. Competition is fierce in China’s cities, but compared with the chaos that ensnared the country during most of the 20th Century, there has never been a better time to be a young person in China.

Perhaps of most interest to readers of this blog is the book’s insight into China’s real estate sector, which has an entire chapter dedicated to discussing the subject. Near the beginning of the book, Rein demonstrates his deep understanding of how the real estate game works under a case study section titled “What To Do and What Not To Do in China”:

Real estate is intentionally ramshackle. Many Westerners say Chinese real estate companies exhibit poor urban planning. A common complaint by visiting Westerners is that malls are not built attractively, or that parking lots are built on prime building locations, like on a riverside, while shopping complexes and restaurant zones are built across the street without good river views.

Criticisms like this does not survive basic analysis. Rules force developers to start construction soon after buying land from the government. It is illegal to hold on to land as an investment, so real estate developers who think land values will continue to rise either will build something as cheaply as possible, in the hopes of knocking everything down and rebuilding when prices go up, or will put up parking lots to fulfill regulatory requirements and delay prime construction on the property until later.”

This sober explanation of China’s real estate industry is not something you’re likely to read in the pages of the New York Times or one of the countless alarmist articles about China’s “ghost cities”. Rein goes on to debunk the popular opinion by perennial China bears such as economist Nouriel Roubini and hedge fund manager James Chanos that the country has over-leveraged itself on infrastructure development.

Development of new highways and rail lines (both urban metro lines and inter-city high-speed rail) might seem superfluous to outsider observers, but these transportation networks are key to successful urban development, including the availability of affordable housing. As Rein writes: “The need for less-expensive housing and commercial space will require urban areas to spread out, and for all infrastructure spending to be used on railroads, subways and airports.

The book’s chapter on real estate does acknowledge some problems within the industry, including the lack of quality management in new commercial developments, which may cause some developers to fail. As a matter of fact, this is already happening in some cases, yet Rein points out that because commercial real estate only accounts for 20% of new construction, any serious problems in this sector are unlikely to have a catastrophic impact on the overall economy.

The underlying message throughout the book is a warning to foreign businesses to not assume that China will always just be a “cheap place to manufacture things”. On the contrary, it is important at this stage of economic development for savvy investors to seize the opportunity in selling to the rapidly growing Chinese consumer class. Granted, many foreign businesses have already seen this opportunity, but Rein warns of the competition from domestic Chinese firms such as Haier (in the home appliances market) and Tencent (in the social media space) who are developing strong brand awareness and consumer trust within the local market.

Perhaps it is fitting that this review end with a mention of successful home-grown Chinese brands as Rein recently announced a follow up book coming out in November of this year titled “The End of Copycat China“. Up until this point, Chinese companies have been seen by the international community as ‘copycat artists’ stifled by a controlling government and an inability to think creatively. Holding onto this view going forward is dangerous, not only for investors involved in China but for global brands competing for market share internationally.

Rein’s new book is bound to be insightful and timely. In the meantime, if you haven’t already, I highly recommend The End of Cheap China as an excellent guide to understanding the current state of economic development in The Middle Kingdom.

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SPARK Architects have shared with us their award-winning design for a new mixed-use development in Beijing. Designed for Vanke in the city’s growing southern suburbs, the project is a mix of retail, leisure, entertainment and office programs.

Currently under construction, Vanke Jiugong is a continuation of SPARK’s investigations into the breaking up of the architectural mass of the shopping mall, and the forging of connections between ‘interiorized’ space and the city. The 127,000 sqm development will incorporate a mall, a cinema, three live-work towers, and a separate retail pavilion, with a pedestrian bridge connection to an adjacent train station.

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While shopping malls traditionally turn their backs on the city, in the context of China, where there is very little urban public space, SPARK director Jan Felix Clostermann says of their design approach, “we typically try to extend the city into the building.”

The scheme proposes a perforated and penetrable building mass of interlocking components of various scales. A base retail block (with traditional curvilinear ‘race-track’ circulation) is prised open with glazing and voids at its periphery and pierced internally by two large conical voids, which draw daylight downward into the center of the building mass and forge visual connections between levels. A sleek white palette contributes to a seamless and flowing retail environment.

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On levels four and five, these volumes terminate with a second ‘ground plane’ – a village of restaurants in an orthogonally planned zone expressed with an alternate material treatment of timber and traditional terazzo tiles. Above is a third ‘ground plane’ – an environment akin to a miniaturized business park, where small office pavilions and larger live-work towers rise from a roof garden. “Level six will be a bit like a hutong in the sky,” says Clostermann, with the fragmented open areas of the garden taking a character similar to courtyards and available for the enjoyment of office users and the wider public.

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The cinema, positioned at one end of level six, will be connected to an external 24-hour circulation route that traverses the façade to allow direct access to and from the entertainment zone after shopping hours. While preventing the disconcerting experience of circulating through a ‘dead’ mall after hours, the external circulatory route will also enliven the exterior of the building, bringing vitality to its principal street façade.

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Thanks to SPARK Architects for sharing their design for the Vanke Jiugong Mixed-Use development. To learn more about the firm and their other exciting work in China, check out their website: http://www.sparkarchitects.com

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).

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