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Beijing Residential Tower

As China’s state media increases its accusations of tax evasion, real estate developers are going on the defensive.

Last week, property tycoon Ren Zhiqian, Chairman of Beijing-based developer Hua Yuan Real Estate Group, posted  a message on Weibo (China’s version of Twitter) calling China state broadcaster CCTV “the dumbest pig on earth“.  This was in response to a program recently aired by CCTV accusing Vanke, another very large property developer, of owing more than 4.4 billion yuan (~$727 million USD) in unpaid taxes. The unpaid tax in question is the ‘land appreciation tax’ (LAT).

As a tax levied on the gains from the transfer of land development rights of state-owned land to real estate developers, the idea of the LAT is simple enough in theory but more complicated in practice. As explained in this South China Morning Post article from November:

“Land appreciation tax is collected by local governments, who have much leeway on deciding the actual tax rate. When a developer gets a pre-sale licence, it needs to pay a certain amount of land appreciation tax based on the asking price of the project. When the project is sold out, the exact amount of the tax will be calculated, deducting the cost of land, construction, marketing and other expenditures from the sales revenues, and multiplying the result by progressive tax rates.”

What this essentially means is that as a property developer increases the value of land through improvements and subsequent sales of housing units or leasing of commercial space, they need to pay a percentage of their gains to the local government. This is money due on top of what they already pay to the local government to bid on the land-development rights. The amount of money earned by local municipal governments in China on land sales is huge, accounting for about 30% of revenues.

Needless to say, as China has been going through its decades-long urbanization boom, local governments have not had to worry about a steady stream of money coming in from land sales.

Yet now China is at a tipping point.

With half the country urbanized, local governments are going to have learn to wean themselves off the land sales teat. There is also growing concern that local governments will not be able to pay back debts from loans taken out from state-owned banks used to fund the building of infrastructure.

Given this reality, it makes sense that the issue of land appreciation taxes is just coming to light. Don’t be fooled though- the accusations by CCTV are very calculated and a poorly veiled threat by the Central Government directed at country’s big real estate developers to “pay up”. It also creates a false narrative using developers as a straw-man to direct negative public sentiment towards.

No wonder Ren Zhiqian is livid.

It will be interesting to see how this plays out, especially since for at least the past 10 years developers have been the go-to guys for local governments in meeting their GDP targets (set by the Central Government ironically enough). As urbanization inevitably slows, tax laws will have to be reformed (and enforced).

Unfortunately, there is perhaps no easy way to make this transition. Clearly broadcasting exposés on state-run media against the country’s developers is only adding fuel to a potentially bigger fire.

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Value Factory 161The “Value Factory”: Site of the 2013 Bi-City Biennale of Urbansim/Architecture

The 2013 Bi-City Biennale of Urbanism/Architecture is now underway in Shenzhen and Hong Kong. Open until the end of February 2014, the event is the world’s only biennale exhibition based exclusively on the themes of urbanism and urbanization. Now in it’s 5th edition, the Bi-City Biennale takes place across one of the world’s most dynamic economic regions, exploring not only the dichotomy between Hong Kong and Shenzhen, but the larger issues facing urbanization in China (something this blog is always very excited about discussing).

The Creative Director for this year’s Bi-City Biennale is Dutch Curator Ole Bouman. Mr. Bouman answered a few questions about the Biennale for the CUD Blog discussing some of the relevant issues surrounding this year’s event:

Adam Mayer (AM): Hong Kong, Shenzhen and the greater Pearl River Delta is arguably the world’s most dynamic urban region at the moment. What does it meant to curate a Biennale in a place that is very much “of the now” in terms of economic might versus a city like Venice which, while it lingers in our collective cultural imagination, is long past its primacy as a mercantile power center?

Ole Bouman (OB): To work in Shekou, at the heart of the Pearl River Delta conundrum, gives a chance to position this biennale as a real urban laboratory, with real implications for Shenzhen, but perhaps also with effects on the practice of urbanism in China. We have been given a chance to work on the scale of the city, with real investors, real owners, real users. This is only possible when the city is still a battlefield, not a museum. In Venice, history is the background of an event. In Shenzhen, you can make urban history.

AM: The main site for the Biennale is the “Value Factory” – a repurposed space in what used to be the Guangdong Float Glass Factory in the Shekou area of Shenzhen, which operated from 1987 to 2009. Considering that little more than 30 years ago Shenzhen was nothing more than an ambitious economic experiment on paper, how does the city come to terms with such a rapid progression from industrial development to post-industrial metropolis?

OB: In many different ways, of course. And to some extent it doesn’t come to terms at all, because the terms are changing themselves so rapidly. Under the current dynamic conditions, city development happens by stealth almost by definition. Nevertheless, I have been working with people with a growing awareness of the historical opportunities; they increasingly work with a helicopter view which enables them to set up urban relations that matter. That’s also why I am very happy we could realize a panorama deck on top of the factory which reveals all the frictions and storylines at a glance.

AM: Shenzhen is often derided within China as a cultural desert especially when compared with the more traditional cultural centers of the country such as Beijing, Xi’an and Chengdu. How does Shenzhen combat this reputation?

OB: I know this reputation. It can be related to the first stage of an arrival city. And in that sense, time will tell how it matures. But Shenzhen even now is certainly no cultural desert, unless you think that culture is a matter of consuming cultural products. For me essential to Shenzhen is its pioneering mentality. It is about the culture of creating new things, rather than the celebration of creations of the past. What is the meaning of monuments, when you are actually able to make them? What is the meaning of art, when you are able to create it? What is the meaning of theater, when you actually a protagonist yourself everyday?

Ole Bouman, directeur NAI, Rotterdam, 9.3.2012Ole Bouman, Curator and Creative Director of the Biennale

AM: The Biennale takes place across the Mainland China/Hong Kong border. As a Bi-City event, how does the Biennale reflect the sometimes contentious yet symbiotic relationship between the two very different cities of Hong Kong and Shenzhen?

OB: This year I find this relationship different from previous years. Shenzhen got back to using the Biennale as an urban catalyst. It is enormously ambitious but not as a goal in itself. In Hong Kong the biennale also “performs” in a certain way, but more as filter of urban dynamics than as an agent, as far as I can see. On the other hand, in Hong Kong already this filter is enough for serious protests against it.

AM: In Shenzhen’s aspiration to become a global metropolis, several prominent Western architects such as Steven Holl, Rem Koolhaas and BIG have had an opportunity to leave their mark on the city. Moving into the future, do you see Shenzhen continuing to invite architects from the West to design its marquee buildings or will we see more homegrown, Shenzhen-based architects contributing to the urban fabric of the city?

OB: I don’t believe the architects you refer to “leave their mark on the city”. Maybe they do “on the skyline” of a specific neighborhood. But Shenzhen is already way too developed to be reduced to architecture. The urban dynamics are excruciating. The city is exactly doing what a city should be doing in the first place: to work as an emancipation machine, to help people make a living. I am convinced that architects can play a very important role in facilitating this process and I also think that local architects are very able to do so as well.

Many thanks to Mr. Bouman for taking time out of his busy schedule to answer some questions for us. For more information about the 2013 Bi-City Biennale of Urbansim/Architecture please visit the following link: http://en.szhkbiennale.org/

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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.

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Zaha_copied in ChinaZaha Hadid’s Wangjing SOHO design (left). Chongqing Meiquan 22nd Century design (right). Image from AFP.

Earlier this year, the architecture world was in shock after a story made the rounds that a Zaha Hadid designed project in Beijing is being pirated by a developer in Chongqing. What’s surprising about this story is not the actual copying of Hadid’s design but the reaction from the design media, as if this is the first incidence of architectural piracy in China.

Of course this is not the case as building designs are routinely copied in China. However, what makes this instance unique is that while Hadid’s design (Wangjing SOHO) is still under construction, the copied version (Chongqing Meiquan 22nd Century) is set to complete first. Pan Shiyi, Board Chairman of SOHO China, Hadid’s client, has not kept quiet about his disapproval, and is now taking legal action against the developers in Chongqing.

This situation brings up the reoccurring discussion about authenticity (or lack thereof) in China. It is no secret that China ‘learns by imitation’ in everything from product design to software development. In the realm of architecture, it is not uncommon to come across functioning replicas of famous buildings from history (like the Chrysler Building, Sydney Opera House, or the entire Austrian Village of Hallstatt) in China’s cities.

Hadid’s office speculates that perhaps someone got hold of their plans for Wangjing SOHO to produce the copy. Yet having seen Chinese architects in action, it would not be far-fetched to speculate that the designers of Chongqing Meiquan 22nd Century saw nothing more than a computer rendering of Hadid’s project on the internet to generate something of similar likeness.

Architects around the world learn from other architects. Websites like ArchDaily are a great resource for architects to promote their work and for other architects to get inspired. Like professional writers, there is an unspoken ethical code among architects about borrowing from other designers: re-using certain ideas or building elements is ok, even flattering at times, but outright plagiarism is never ok.

This code of design ethics doesn’t exist (yet) in China. As is often the case, copying a famous design from another architect can be a good strategy in getting approval from a Chinese client or local government official. In response to the accusation of copying, developer Chongqing Meiquan even said “never meant to copy, only want to surpass.”

This response is very telling of where the value of architectural design lies today in China. While it could be argued that China is still in its “learning phase” of development, it is starting to become clear that the country’s ambitions lie much further beyond not only being the ‘biggest’ but the ‘best’ – even if that means using dishonorable means to get there.

  • Michael Grau - A word on the chinese habit of copying originals.

    Chinese Copies don’t worry me.

    I happen to be one of the people who built Soho Galaxy and Wangjing Soho. For both projects I developed software that allowed us to deal with the complex geometrical challenges involved in such projects. I witnessed how much sweat and hard work went into the designs, some of the sweat was my own. I enjoy the process of coming up with unique solutions, it’s my life. My wife is an architect too, she is mainland chinese, working a lot in Beijing and China. She refuses to copy german villages. Our daughter knows both worlds and I wonder what she learns in school.

    Here I can only speak for myself. Personally I am not worried about our buildings being so obviously copied. It’s not how I grew up but after having spent some time here I do understand. This is China, this is just how it works. People learn by imitation, people imitate what they like. Here copying is a doctrine, its even the law: to do business in china one has to collaborate with a local partner. And how many companies got burned when they found that their local partner copied the new factory with all the processes inside to build a very similar product to only his own benefit? Plus endless evergreen jokes about things feeling familiar, just minus the functionality.

    Now this is really old news and something we meanwhile should have gotten used to. Part of the process. What I do very much worry about is something slightly different, a related question. As I said the copying is a protected, man made doctrine in a centrally governed country that was a totalitarian country just a short time ago. Therefore it’s ubiquitous. Furthermore the copying has it’s roots in the culture, there will not be anything wrong with it. You copy, you learn.

    After a lot of learning comes mastership and with it originality.

    Original work set’s you apart from others, it is by defiinition outstanding and special. What sort of doctrine is in place for the arising outstanding original people who went through all the learning? I do understand that the world will be a good place when original thinking, therefore the individuum, maybe my daughter, finds a home in China too. What worries me is the thought that this transformation might not happen soon and that historic, cultural and other pressures don’t allow that great country to be as original as it needs to be to be truly impressive.

    That worries me.

    Michael Grau, LondonReplyCancel

    • geri egon - Great comments. French urb an planner in Vietnam since 12 years, we have also the same “duplicate culture..but..if copying is not a stupide or illegal work, what about one original concept ? When i say that, i am thinking about the future generation of chinese architects . It’s time for them to design their rainbow or their ’emancipated’ way. Like said Vitruve : one style, one character, one quality of construction… Just that and only..ReplyCancel

  • Adam Nathaniel Mayer - Hi Michael,

    Thanks for your comment. I agree with most of what you said, especially pertaining to copying as doctrine in China. Although to be honest I am still not sure how much of it has to do with the country’s recent history of totalitarianism vs long-held Chinese cultural characteristics. Perhaps it is a bit of both.

    One thing is for sure though: foreign companies make a “Faustian Bargain” when they chose to do business in China, trading intellectual property for cheap labor and/or access to the huge consumer market. Intellectual property transfer is the whole point behind joint-ventures. In the case of architecture, IP is even more easily transferred, as all it takes is one look at a rendering for a newly proposed building to make a copy.

    It will be interesting to see if China comes to value originality in the future. It could come sooner than we think.ReplyCancel