On March 23, Anbound's chief researcher Mr. Chen Gong exchanged his views with around 100 private entrepreneurs concerning the current economic situation and development in China. Among all which they discussed, his systematic discussion on the development direction of urbanization in the "post-land economy period" has received much attention.
As China's economic growth slows down, its economic restructuring and supply-side reforms deepen. Meanwhile, its urbanization process has entered a significantly different phase, one that Anbound calls the new era of "post-land economy. The real estate development model and the degree of dependence of the local economy on the real estate industry is reaching a new stage of adjustment. As a result of China's rapid urbanization, the country's urban expansion is represented by real estate development and industrial agglomeration. This type of urbanization is developmental and incremental, while in the future China's urbanization will be more about stocking.
What are the problems brought by the current mode of incremental urbanization, which is in itself an expansion of urban construction? Chan Kung believes that the first problem is that water resources will not be able to support such development. Taking Beijing as an example, before the South-to-North Water Diversion, the carrying capacity water resources was the largest disadvantage in the development of the city. The second problem is air pollution. The urban built-up area is directly related to the smog in the air. European countries face less smog problems, because their cities have not changed much. While their urban buildings have not changed much, the interior of the buildings have been completely renewed. China will need to follow this path sooner or later.
"Urban construction" is not the same as "urban development". Urban construction includes both development and something more than building constructions. It also involves urban transformation and in the old city, there is the space to do it. Everyone who engages in property knows the existence of depreciation. When time is up, things would fall apart. Concrete would degrade and generally after 30 years, the concrete will be thickened and the steel bars will be exposed, so it is necessary to renovate and reconstruct the buildings. Urban reconstruction, renovation and renewal are a big market. It is generally estimated that the cost of building construction accounts for about 30% of the total cost of the entire building structure, and all interior decoration and maintenance costs account for 70%. Therefore, if the government introduces some policies, supports some funds and focuses on the renovation of the old city and aging buildings now, it will be better than mere expansion of the urban area. For example, in Hong Kong, the doors and windows of a building are required to be inspected once in every five years. If the inspection shows that they do not meet quality standards, they will have to be replaced. There are mandatory updates, and with such standards and requirements, the government only needs to introduce some simple policies that can bring forth the prosperity of the construction industry. This also means that it will generate taxation income. In other words, this is equivalent to internal development. The renewal of the city then, should be the actual direction of development.
Looking from the law of global urban development, after the large-scale development model, asset management around the stock of real estate assets is the inevitable result of the development of the real estate industry. Among the core industries of the urban service industry - "FIRE" industry (finance, insurance, real estate), real estate is an important service industry. From the point of view of urban asset management, urban real estate is a sustainable industry. So long as there are people and businesses in the city, there will be real estate. The real estate industry at this stage must provide high value products and be a city asset management industry.
When industrial development is concerned, entrepreneurs in China would know that many government officers welcome companies to invest in their place. The first thing a Chinese mayor does when he takes office is to inspect and see where the industrial park is. If he thinks that the industrial park is too small, then he would want to increase the size of the industrial park. The result is that there are more than 2,000 county-level cities in China that have their own industrial parks. This has caused overcapacity and in terms of capital, China's capital costs have gradually increased in recent years. In addition, labor costs have also risen sharply and competitive advantage has declined.
Chinese government officials clearly recognize this problem. How then how can they be convinced not to expand in industrial parks and new cities? Concentrating on related policies, resources and money on projects such as the old city renovation project would take a lot of time, yet there is already a ready-made example in Hangzhou next to the West Lake. To many government officials, this place can be difficult to urbanize. There is no development zone to be built, but the actual situation is that this area has been ranked in the top three areas of Hangzhou's economic growth. How did they do it? The idea is to find ways in the built-up area, and carry out renovation in the buildings. Taxation and finance is managed well, and it is doing good in its economic growth. This fine example of post-land economy was studied nearly 20 years ago by Anbound, and has proven Anbound's concept of a "post-land economy". Developing the urban economy without expanding the urban size is achievable, though it requires an additional development approach. It also requires an additional interest structure, a different team of talents and another set of policies to achieve sustainable development.
China is currently involving itself in industrial parks and engaging in land economy. Local government's finances are highly dependent on land. This policy has been in place for a long time, and urbanization has been treading on this development path to this day. If some measures were taken in advance, such as the developing the primary, secondary and tertiary industries in the older parts of the urban areas, as well as diversifying the industrial categories to balance the contribution of these categories to finance, the situation where such cities are facing will not be as extreme as now.
Final analysis conclusion:
As China's urbanization has reached its current stage, it now has limited space selection, and this is a problem caused by the path it chooses in its development. The key to future change is the issue of policy determination. When there is no other option, it is necessary to rely on reform to realize the transformation of urbanization mode.
