China - Urban land management : options for an emerging market economy (Vol. 1 of 2) : The main report

niiina Urban Land Management: Options for an Emerging Market Economy (In Two Volumes) Volume l: The Main Report October 1, 1992 Environment, Human Resources and Urban Development Operations Division China and Mongolia Department East Asia and Pacific Regional Office FOR OFFICIAL USE ONLY MICROFICHE COPY Report No.:10692-CHA Type: (SEC) Title: URBAN MANAGEMENT : OPTIONS Author: HAMER, ANDREW Ext.:84083 Room:A7 111 Dept.:EA2EH GREEN AND YELLOW COVERS ARE 2 V. Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contenWnay not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency - Renminbi; Currency Unit - Yuan 100 fen $1.00 = Y 5.46 Y 1.00 - $0.19 FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES Metric System ACRONYMS AND ABBREVIATIONS CABR - China Academy of Building Research CASS - Chinese Academy of Social Sciences CSCEC - China State Construction Engineering Company CSHREDC - China State Housing and Real Estate Development Company CAUPD - China Academy of Urban Planning and Design CBD - Central Business District CBTDC - China Building Technology Development Center DPA - Development Permission Area DSL - Da-She Lan District, Beijing FAR - Floor Area Ratio GDP - Gross Domestic Product GIS - Geographic Information System KLDC - Korea Land Development Corporation LAB - Land Administration Bureau LDC - Land Development Corporation, Hong Kong LIS - Land Information System MoA - Ministry of Agriculture MoC - Ministry of Construction MOF - Ministry of Finance NBSM - Flational Bureau of Surveying and Mapping NEPA - National Environmental Protection Agency O&M - Operations and Maintenance PC - Portable Computer PCBC - People's Construction Bank of China REAB - Real Estate Administration Bureau REDC - Real Estate Development Company SHCLAB - Shanghai County Land Administration Bureau SHMLAB - Shanghai Municipal Land Administration Bureau SIS - Strategic Information Systems SLA - State Land Administration SMG - Singapore Municipal Government SPC - State Planning Commission SREC - Shanghai Real Estate Company SUCF - Shanghai Urban Construction Fund THG - Tianjin Municipal Government TREDC - Tianjin Real Estate Development Company TVE - Township and Village Enterprise TVIE - Township and Village Industrial Enterprise URA - Urban Redevelopment Authority, Singapore ZGC - Zhong-Guan-Chun District, Beijing  FOR OFFICIAL USE ONLY CHINA URBAN LAND MANAGEMENT: OPTIONS FOR AN EMERGING MARKET ECONOMY Acknowledsements This report was 'ritten on the basis of a preparation mission, undertaken during July/August 1991, and a main mission, which took place in January/February 1992. The report was discussed with local and national authorities in August/September 1992 and revised in response to comments made at that time. Mission members, some of whom participated in only one mission, includeds Andrew Hamer (EA2EH), task manager; Alain Bertaud (INURD); Paul Stott (RMC) Nena Manley (LEGEA); David Dowall, Peter Fong, Daniel Lam, and Youxuan Zhu (Consultants); as well as local consultants Wang Yukun, Ren Zhiyuan, and Sun Chongwu. The report was prepared by Hamer and produced by Meredith Dearborn (EA2DR), who also provided valuable editing assistance. The team's work would have been impossible to accomplish without the help of over 100 Chinese colleagues, working within central agencies and in the cities of Shanghai, Guangzhou, Chengdu, Hangzhou, Fuzhou, and Shenzhen. The team extends its gratitude to Vice-Minister Zhou Ganshi, Ministry of Con- struction; Director Wang Xiangj in, State Land Administratior; and Director Zhu Fulin, Ministry of Finance; for facilitating the mission's access to informa- tion and advice. At the central level, grateful thanks go to the State Land Administration team organized by Deputy Director Zou Yuchuan and led by Sun Yinghui, Qi Mingshen, and Li Ruanjun. Within the Administration's working- level group, special thanks are due to He Zhan, Zhao Long and Li Ling. At the Ministry of Finance, Xu Pangming and Chen Zhigang provided valuable logistical support, information, and advice. The Ministry of Construction's Deputy Directors of the City Planning Department and the Real Estate Department (Zou Shimeng and Gu Guangeheig, respectively) helped to clarify many issutes and provided early reaction to preliminary mission findings. At the local level, special thanks go to the late Vice Mayor Ni Tianzeng (Shanghai), and to Vice Mayors Shi Anhai ((uangzhou), Su Luanyi (Chengdu), Li Zhixiong (Hangzhou), and Lin Zhongxion (Fuzhou). In each of those citios, along with Shenzhen, the directors or bureau heads in charge of the local Construction Commission, State Land Administration Bureau, and Finance Bureau were very supportive. Important information was also provided by the City Planning Bureaus, Real Estate Management Bureaus, Environmental Protection Bureaus, and the Housing Reform Groups in the various cities. In Hong Kong, Singapore, and Seoul, local government authorities dealing with urban land use management patiently accommodated the demands of team members. Consultant George Tolley provided a "desk report" that proved extremely useful. In addition, special acknowledgement should be made of the role played by Bank staff, including Shahid Yusuf (EA2DR), Paul Cadario (EA2CO), Anthony Ody (EA2EH), Bertrand Renaud (EMTIN), Gregory Ingram (RAD), Stephen Mayo (INURD), Michael Rutkowsky (EC3HR), Natalie Lichtenstein (LEGRA), This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - Songsu Choi (ASTIN), Williar )illinger (INURD), Catherine Farvarque (INURD), Johannes Linn (FPRVP) and Fitz Ford (INURD). The Urban Management Program, locally administered by Mr. Ford, provided critical financial support to the project; his United Nations' Nairobi-based colleague, Patrick McAuslen, also assist d the mission members with very useful advice. As always, Professor Lin Zhiqur., at the Ministry of Construction, deserves special acknowledgement for providing the team with unstinting advice and data. The team also benefited greatly by previous work done on the sub- ject, particu_arly by the Chinese Academy of Social Sciences and Chreod Con- sultants, working in Shanghai. Several individuals played "supporting roles" that nevertheless deserve acknowledgement. Wang Yuan (RMC) proved an invaluable source of advice, while Wu Zhiyong and Sok Lee deserve special thanks for translating otherwise unpenetrable written materials in Chinese and Korean. Anthony Yeh, at the University of Hong Kong, ant Edwin Lehman, head of the Chreod consult- ing firm, proved generous with their advice. Although already acknowledged as part of the sector study team, researcher Youxuan Zhu's contributions in the field and at headquarters deserve reemphasizing. He personally prepared sev- eral annexes. Without his help, bookshelves full of Chinese-language journals and unpublished information obtained from continuous personal contact with local officials would have been unavailable to the sector team.  - iii. CHINA URBAN LAND MANAGEMENT: OPTIONS FOR AN EME.LGING MARKET ECONOMY VOLUME I: THE MAIN REPORT Table of Contents Page No. EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . vii I. THE RATIONALE FOR URBAN LAND MANAGEMENT SYSTEMS REFORM . . . 1 A. Creating Competitive Cities: Objectives of Urban Land Management . . . . . . . . . . . . . . . . .. . . . . 1 B. The Urban Sector's Decade of Achievement . . . . . . . . 4 C. The Challenge of Restructuring the Urban Economy . . . . 9 D. The Urban and Peri-Urban Environmental Challenge . . . . 12 E. The Issue of Industrial Redevelopment . . . . . . . . . 18 Industrial Relocation in Shanghai . . . . . . . . . 19 Industrial Relocation in Hangzhou . . . . . . . . . 21 Industrial Relocation in Fuzhou . . . . . . . . . . 22 Industrial Relocation in Guangzhou . . . . . . . . . 23 F. Residential Redevelopment Issues . . . . . . . . . . . . 24 G. An Overview of Redevelopment Projects . . . . . . . . . 25 An Overview of Compensation and Relocation Policies 26 H. Looking Back; The Government's Rationale for Urban Land Management R4form During the Transition to a Regulated Market Economy . . . . . . . . . . . . * . . . . . . . . 28 II. URBAN LAND PRICE BEHAVIOR IN A MARKET ECONOMY: AN INTRODUCTION 33 A. Economic Model of Land Price Behavior . . . . . . . . . 33 B. Land Price Behavior Across Socialist and Market Economies: Evidence from Large Cities . . . . . . . . . . . . . . . 38 III. FIRST THINGS FIRST: PRICES AND PROPERTY RIGHTS . . . . . . 42 A. Do Urban Land Prices Exist in China? . . . . . . . . . . 42 B. The Abolition of Urban Land Prices and Property Rights: A Retrospective Look .i .o......................... 42 C. The Search for a Third Way: Evaluating Price and Property Reforms to Date . o s . . a . . e .. . .. . . .. . 51 D. Implementing Comprehensive Reforms in Urban Land Price and Property Rights Reforms: A Suggested Strategy . . . 66 Recommendations for Improving tLe Feasibility of Residential Redevelopment Projects . . . . . . . 76 Broadening the Base of Compensation--Paying for Land 78  - iv - Paae No. E. Land Revenues: Will Thf' Prove Significant in Financing City Expenditures? . . . . . . . . . . . . . . . . . 82 F. The Legal Underpinnings of Price and Pzoperty Rights Reforms . . . a . . . . . . . . . . . . . . . . . . . . 91 IV. REINVENTING THE CHiNESE CITY: PLANNING WITH PROPERTY MARKETS IN MIND . . .. . . . . . . .6 . . . .a. . . . . . . 93 A. Introduction . . . . . . . . . . . . . . . . . . . . . . 93 B. The Orderly City: Local Urban Development Planning in China . . . . . ....... .... ....... ................ 93 C. Chinese Planning Practices in Reeponse to Emerging Land Markets: A Reassessment . ..... ....................... 98 V. INFORMATION AS INFRASTRUCTURE: ITS ROLE IN DEVELOPING AN INTERNATIONALLY COMPETITIVE CITY . . . . ... . . . . . . . . 120 A. Introduction . . . . . . . . . . . . . . . . . . . . . . 120 B. Land Administration and Registration . . . . . . . . . . 120 Cadaster Administration . . . . . . . . . . . . . . 122 Land Use Rights . . . . . . . . ... 122 Building Rights . .... ........... 123 Information Access . . . .. .. .. ..... . 124 C. Geographic Information Systems . . . . . . . . . . . . . 124 Issues and Constraints in Developing GIS . . . . . . 126 D. Strategic Information Systems . . . . . . . . . . . . . 127 E. Planning Without Facts: The Case of the Temporary Population of Urban China . . . . . . . . . . . . . . . 128 VI. MOVING FORWARD. . . . . . . . . . . . . . . . . . . . . . . 130 TABLES IN TEXT 1.1 1985 End-Year Housing and Nonresidential Structure Census: Vintage of Existing Stock . . . . . . . . . . . 6 1.2 Shanghai: Changing Floor Area in City Districts (1980-90) 6 1.3 Hong Kong: Current Value of Property and its Relation to GDP ....... 8 1.4 Shanghai: Change in Cultivated Land in Peri-Urban Tcwnships, 1980-88 . . . . . . . . . . . . . . . . . . . 15 1.5 Shanghai: Distribution of Reduced Cultivated Land, 1980-88 16 1.6 Seventh Five-Year Plan Industrial Relocation Costs, Shanghai . . . . . . . . . . . 20 1.7 Profile of Redevelopment Case Studies . . . . . . . . . 26 1.8 Pre- and Post-redevelopment Floor Area Ratios . . . . . 27  -v- Page No. 3.1 Change in the Size of Built-up Areas in Selected Cities: 1949-57 & a . . . ................................ ......... 45 3,2 Farmland Expropriation i2 Beijing: 1949-85 . . . . . . 46 3.3 Urban Land Requisition in Cuangzhou (1951-90) . . . . . 46 3.4 Land Use Rights Transfer in Shenzhen: 1987-91 . . . .. 52 3.5 Land Lease Sales in Shenzhen by Bidding: 1991 . . . . . 53 3.6 Land Charges Collected from Users Who Lease Land . . . . 53 3.7 Land Charge Collected from Users of Administratively Allocated Land . . . . .. . . . . . . . . . . . . . . . . 54 3.8 Shanghai Land Leases: 1988 - June 1992 . . . . . . . . 54 3.9 Land Lease Transfer in Guangzhou: 1990/91 . . . . . . . 55 3.10 Commodity Housing Sale in Selected Chinese Cities: 1989 57 3.11 1984 Guangzhou Land Ilse Fees . . . . . . . . . . . . . . 59 3.12 Star.dard Land Price ror Negotiated Land in Shenzhen: 1991 61 3.13 Off-Site Infrastructure Fee Schedule in Shenzhen: 1991 62 3.14 Combined Land Price and Off-Site Fee: Shenzhen, 1991 . 62 3.15 Cash Compensation and On-Site, Near-Suburban and Far- Suburban Commodity Housing Prices . . . . . . . . . . . 77 3.16 Purchase and Financing of On-Site, Near-Suburban and Far- Suburban Replacement Housing for Various Levels of Cash Compensation . . . . . . . . . . . . . . . . . . . . . . 78 3.17 Residual Land Values for Various Commodity Housing Prices, by FAR . ..*9too*o..*9 . . .. ..... 79 3.18 Estimates of Potential Land and Building Compensation . 80 3.19 Land Revenue in Shanghai: 1987-91 . . . . . . . . . . . 85 3.20 Land Revenue Retained by Shanghai: 1987-90 . . . . . . 85 3.21 Land Revenue in Fuzhou: 1986-91 . . . . . . . . . . . . 86 3.22 Land Revenue in Guangzhou: 1984-91 . . . . . . . . . . 87 3.23 Land Revenue in Chengdu: 1987-91 . . . . . . . . . . . 88 3.24 Land-Related Revenue in Hangzhou: )988-90 . . . . . . . 89 3.25 Revenue from Land in Hong Kong . . . . . . . . . . . 90 4.1 Typical Land Use Conversion in City Centers . . . . . . 108 4.2 Shanghai City: 23 Redevelopment Projects l . . a . . . 109 4.3 Redevelopment Projects in Fuzhou . . . . . . . . . . . . 110 4.4 Housing Redevelopment in Hangzhou . . . . . . . . . . . 110 4.5 Shanghai: Changing Industrial Floor Space (1987-90) . . 111 4.6 New Housing Projects in Shanghai (1980-90) . 112 4.7 New Housing Development in Hangzhou . . . . . . . . . . 112 4.8 New Housing Development in Fuzhou . . . . . . . . . . . 113 4.9 Shanghai: Basic Situation in Minghang and Wujing: 1980-90 116  - vi - Page No. BOXES IN TEXT 1.1 Land Use Per Capita, by Size of Urban S-ttlement . . . . 1 1.2 lnternationAl Urban Development Densities . . . . . . . 2 1.3 The Redevelopment of Baltimora's Inner Harbor . . . . . 3 1.4 Singapore: Tanjong Paga;- !.istoric Preservation Project 3 1.5 Amsterdam: Rediscovering the Value of Historic Preservation . . . . . . . . . . . . . . . . . . . . . . 4 1.6 Selected Time Series for Temporary Residents in Eight Chinese Cities . . . . . . . . . . . . . . . . . . . . 8 1.7 The Role of Suburban County Autonomy in Hindering Metropolit:-- Guided Land Development Strategies . . . . 15 1.8 Peri-Urbun Development Regulation in Hong Kong: A New Strategy . . . . . . . '. . . . . . . . . . . . . . . ............................ 17 1.9 The Fuzhou Redevelopment Model of Residential Neighbor- hoods ..................................................... 27 2.1 The Relative Advantages of CBD and Suburban Locations . 38 2.2 Stockholm's Housing Rental Price Gradient . . . . . 40 2.3 Standard Land Prices in Chinese Cities . . . . . . . . . 41 3.1 Guangzhou: A Case Study in Rising Land Requisition Costs 57 3.2 The French Experience with Land Fees and Exactions . . . 60 3.3 What Do Leases Entail? . . . . . . . . . . . . . . . . . 67 3.4 Hong Kong Experience With Leasehold Regulation . . . . . 69 3.5 Can Industrial Redevelopment be Financed Through Differ- enntial Rent? . . . . . . . . . . . . . . . . . . . . . . ............................ 74 3.b Urban Construction Financing in Shanghai . . . . . . . . 83 4.1 Land Requisition Regulations in China . . . . . . . . . 95 4.2 Shanghai: An Alternative Approach to the Master Plan? . 100 4.3 Hangzhou: The Urban Planning Programs of the Northern Extension . . . . . . . . . . . . . . . . . . . . . . . 105 4.4 Tianjin's Third Ring Road: When Planners and Market Forces Collite.................... 106 4.5 Guangzhou: Increasing Density in New Development . . . 114 4.6 Guangzhou: Suburban County Urban Land Development Policies . . . . . . . . . . .. . . . . . . . . 118 5.L Title Issuance Procedure in Guangzhou . . . . . . . . . 123  - vii - CHINA URBAN LAND MANAGEMENT: OPTIONS FOR AN EMERGING MARKET ECONOMY Executive Summary Background: What Drives Urban Land Reform: The Chinese Rationale i. During the 1980., nconomic activity within China's cities and statu- tory towns, which accounts for more than half of the gross domestic product (GDP), grew at well over 10 percent per annum. In addition, the urban la- tion grew at a rate of 5 percent per yasr between the census of 182 an.' .iat of 1990. By 1990, 26 percent of China's pcpulation, or 301 million, lived in urban areas. In absolute terms. China now has the world's larRest urban Popu- lation. Urban employment rose at roughly similar rates. The size or the urbanized, built-up areas of cities and towns expanded at 6 percent a year in the aggregate. The scale of urban residential and nonresidential investment grew at equally dramatic rates, adding 6 percent to the existing stock each year and accounting for 10 to 15 percent of .urban GDP. ii. In spite of this vigorous sxpansion, the built-up areas of cities totaled only 12,000 square kilometers .c2) in 1990, with an additional 8,251 km2 under development in statutory towns. By contrast, total cultivated land in China totaled at least I million kma and the b-ilt-up area of rural villages and townships occupied an additional 140,000 =m2 (1985). Cities and statutory towns cover an area equivalent of only 2 percent of China's culti- vated land area. This corresponds to the experience of other Asian countries, as well as land-abundant North America and Western Europe. iii. This report's main theme is that though the land area involved is small, urban land management reform is required to accelerate the efficient expansion of a regulated market economy, where land is treated as any other commodity, and where many complementary measures involving planning, legal and regulatory institutions, taxation and information infrastructure are in place. As Chapter VI makes clear, that is now emerging as a view at the central and local level. However, during the first 6-7 years of overall urban reform, beginning in 1984, the central and local authorities often viewed reform as a set of disarticulated changes that did not have a comprehensive content or an ultimate objective of promoting the development of land market transactions. The initial rationale was to either increase administrative controls over land or generate some revenue from its use. iv. For example, because of a national commitment to maintain highly localized urban foodstuffs self-sufficiency, the perceived need to control urban spatial expansion became paramount by the mid-1980s. That urge to con- trol expressed itself at the macrospatial and project level as different tiers of government, particularly the central authorities, tried to limit the over- all expansion of localities, while eliminating "wasteful" and "unnecessary" allocation of land to individual urban investment projects. Control. ra ther tLan the introduction of market mechanisms. became a Primarv drivina force behind urban land "reform." That limited objective was quickly achieved.  - viii - V. Revenue-generation concerns, as well as a desire to assert control over wasteful urban land uses, enco"raged goverrnent at the central and local level to charge domestic land users for the use of land, beginning as early as 1982. Yet this initiative was tempered by an overriding concern that intro- ducing market "prices" would prove "urxffordable" to state-owned enterprises. vi. the pressure for change derived further impetus from the reintroduc- tion of foreign investmeuts into China. Between 1979 and 1991, 15,000 fo;:eign-funded firms invested $22 billion in China. These investors, accus- tomed to well-definsd rights over property, found prevailing arrtangements unsatisfactory. For exampla, land contributed by Chinese partners as equity proved hard to value, impossible to use as collateral to obtain loans, and subject to unreasonable occupancy time limits. Local governments, especially after 1988, adopted a pragmatic attitude, realizing that, in return for sell- ing long-term use rights, they could raise convertible currency revenues while improving the local business climate. In this regard, the examples of Hong Kong and Singapore proved instructive. But, as discussed below, the actual introduction of leases proved inconsequential in scope and did little to cre- ate competitively determined market prices. A Review of Exoeriments to Date vii. Beginning largely in 1984, China's cities embarked on land use man- agement changes across a broad front and have few if any peers among cities in post-command economies. These ci'anges are proceeding at a different pan.e in different cities. Southern and ;entral coastal provincial cities as weil as the "Special Economic Zones" are well ahead of their counterparts in the inte- rior of the country and even northern coastal cities. However, in every city visited by the sector team during preparation missions, the absence of a clear vision of the end-objective--to create a regionally, nationally, and/or inter- nationally competitive city--meant that these changes lacked coherence, and the critical need to create a land market, governed by price signals and guided by appropriate planning and regulatory mechanisms, was unfolding too slowly. In retrospect, it was only during the latter half of 1992 that evi- dence emerged of an acceleration in reform efforts, with land leasing being adopted at an unprecedented scale in selected cities. Among the changes undertaken, whose adequacy is discussed below, the following are the moAt significant: * creation of profit-oriented real estate development companies (REDCs), mostly with public sertor equity, with a mandate to develop commercial estates or properti.s, and sell these at prices that include land location premiuias; * promotion of economic development zones, though often far from the city center, to attract foreign investors; * selective use of land use lease mechanisms, giving users certain ownership rights in return for paying land use premiums; * introduction of land use development fees, taxes, and other exac- tions:  - ix - * promotion of spot redevelopment of inner-city areas, with occasional recourse to "value added" strategies linked to a change in lard uses * greater sene