China's Sprawling Cities Bet Their Future on Getting Even Bigger
Local Governments Approve Steps Such as Cutting Down Hills to Open New Space
Dec. 16, 2013 10:33 p.m. ET
SHIYAN, China—Authorities here worried a few
years ago that the local economy was headed for ruin because there was
no more space in this remote city, nestled among towering hills, for
industry to grow.
The solution? Level the hills.
Officials launched a campaign to
blast hundreds of hilltops and low mountain peaks, leaving man-made
valleys through the forested slopes that surround the city of 800,000 in
central China. The goal is to expand its area by 70% so it can draw
more manufacturing projects.
"It's very
difficult for Shiyan to attract investment," said
Gong Bailin,
an official of the local economic planning agency. "We've paid a
high price, but there's now large scope for further development." The
nearly $2 billion hill-chopping plan now is about 60% completed.
Shiyan
shows the lengths to which Chinese cities are going as they
increasingly rely on land, and revenue from its development, to keep
growth going.
The strategy gives cities
hope for ever more investment and jobs, provided they can lure enough
new factories or other projects to occupy the land they are clearing.
It
also loads cities with more debt, exposing them to problems if property
and export markets don't keep booming. Beyond that risk is the
environmental and social costs from clearing more terrain at a time when
popular anger over rapid development and land seizures is growing.
Industrial parks are a particular
concern because of the chance that their roads, power plants, sewage
systems and other infrastructure may not draw enough projects to pay for
themselves. Chinese industries from steel to shipbuilding already face
overcapacity.
Occupancy rates were less
than half at about 40% of 341 Beijing-approved industrial parks,
according to a survey the Ministry of Land and Resources did in 2011.
Analysts said occupancy could be lower still for thousands of other
parks without the same high-level support.
Regardless,
municipal governments continue to build. "This is what I call the
cowboy economy," said
Karl Hallding,
head of China research at the Stockholm Environment Institute, a
research center in Sweden. "Local governments have a lot of power, and
the central government seems to have a lot of trouble reining them in."
The
push to develop more land is driven largely by local government
officials whose career advancement is tied to delivering fast economic
growth, analysts say. Clearing more land stimulates economic activity in
the short term and holds the long-term promise of being followed by
major investments. For city leaders, having plenty of land available is a
marketing tool to entice investors.
"Chinese mayors are using land as
their banks," said
Karen Seto,
a professor of the urban environment at Yale University. "They
look at the mountains and see they can literally turn them into
condominiums."
To launch developments
such as industrial parks, local governments usually have to borrow,
sometimes heavily. To repay, they count on sales of decadeslong land
leases to developers of residential and commercial buildings.
The
model has kept working so far, as demand for industrial parks and
housing has stayed strong. But as developments proliferate and overall
economic growth in China slows, analysts say localities' reliance on
land leases makes them vulnerable.
"If
the land market cools, land prices drop and the volume of land transfers
falls, not only will the funding of some projects experience
difficulties, but it will likely produce financial crises,"
Ba Shusong,
a researcher at the Development Research Center, a think tank
under China's State Council, said in a recent article in the People's
Daily.
Officials debated the issue at a party Central Committee meeting in November, called the
Third Plenum. Its final document said officials aimed to "raise the efficiency of cities' use of land," but didn't give specifics.
Exactly
how much debt China's local governments have piled up isn't certain, as
figures aren't regularly tracked. When the National Audit Office last
counted in 2010, it put the figure at 10.72 trillion yuan (about $1.76
trillion). Debt has since risen to the equivalent of $2.46 trillion to
$4.92 trillion, or 30% to 60% of China's gross domestic product,
according to estimates by government officials and analysts. In the
U.S., state and local debt is about 18% of GDP, according to the St.
Louis Federal Reserve Bank.
The head of China's National Audit Office,
Liu Jiayi,
recently said local government debt levels were manageable.
The
Third Plenum
document promised to make it harder for local governments to take over
farmland, potentially threatening that aspect of the cities' strategy.
Beijing already imposes some restraints on land seizures, issuing an
annual limit to preserve a minimum amount of arable land, around 465,000
square miles.
But cities that have
ambitions exceeding Beijing's limits—or are constrained by natural
boundaries, as Shiyan is—are seeking out new land sources.
Coastal
cities are aggressively creating industrial space by reclaiming land
from the sea. In the Bay of Bohai in China's northeast, about 80 square
miles of land has been reclaimed around Caofeidian, once a quiet fishing
island. Off the coast of Shandong province between Beijing and
Shanghai, the town of Longkou plans over three years to create 11 square
miles by building a cluster of small islands.
The
hill-leveling strategy of Shiyan is also on display in far western
China's Gansu province, where about 700 hills are being cut down to make
way for a new satellite city outside of the provincial capital,
Lanzhou.
Yan'an, where in the 1930s
China's Communists hid from Nationalist troops in mountain caves, now
has launched a mountain-demolition project.
Shiyan,
two hours by car from the nearest commercial airport, was just a
village until the late 1960s, when worries about possible war with the
Soviet Union led Mao Zedong to relocate much of China's industrial
production to the relative safety of mountainous regions. Shiyan, in
Hubei province, became home of the Second Automobile Works, which is now
known as Dongfeng Motor Corp. and is China's second-largest auto maker
by sales.
But in 2003, Dongfeng moved its headquarters to Wuhan, the provincial capital. A Dongfeng joint venture with
Nissan Motor Co.
7201.TO +2.54%
later followed suit.
Before
moving, Dongfeng asked Shiyan for about 80 acres of land, which the city
couldn't provide, according to the Shiyan Bureau of Land and Resources.
The company, in a written reply to questions, said its aspirations to
become an international brand prompted its move to Wuhan, which has
better transportation links.
To forestall further departures, Shiyan officials in 2007 made up their mind to create 15 square miles of new land.
"After
Dongfeng decided to move the headquarters of two of its units, it
looked as though the motor city could become an abandoned city," the
Bureau of Land and Resources said. "Leveling mountains has become the
golden key to resolve the problem of Shiyan's development impasse."
Demolition
crews began using explosives to take down the hills, after which
excavators moved in to clear the rubble. A visit in October found
excavators scraping at partially razed hilltops, filling fleets of heavy
trucks with soft, yellow soil.
Dust hung low in the air throughout a broad area, giving the city a hazy feel.
In
villages outside the city, farmers who used to cultivate the hillsides
now try to make do with the land left to them on the valley floor.
Although the city provided compensation, some farmers complain it
doesn't offset their loss of farming income. Village children walk to
school along dirt roads cut through the hills, shared with heavy trucks.
"At night we can't sleep because of all the noise" from the land being leveled, said
Li Xuefei,
a 37-year-old who lives in Qiliyacun, a tiny village at the bottom of a gully next to a residential development.
Bao Wei,
deputy director of the Shiyan Environmental Protection Agency,
said that "the dust from cutting down the mountains does cause some
pollution, but it's not on a big scale, and afterward we restore the
bare hills. So all told, the environmental impact isn't too great."
Most of the newly created level land is earmarked for industry and warehouses, with a small amount dedicated to housing.
In January,
AB Volvo
VOLV-B.SK -0.80%
agreed to purchase 45% of a new unit of Dongfeng Motors that is dedicated to making commercial vehicles back in Shiyan.
The
site is backed by a white cliff face, the remains of a hill that was
split in half to create level land. This fall, workers were busy laying
the foundations of a gear factory.
"By
leveling the mountains, what did we dig out? We dug out a Volvo," said
Pu Guolin,
head of agricultural zoning at the city's economic planning
agency. "If Shiyan hadn't razed the mountains, there is no way Volvo
could have come here."
Dongfeng, asked
why it chose Shiyan for the plant, cited the city's experience in making
heavy vehicles and the company's sense of responsibility toward its
traditional home. Volvo declined to comment.
Shiyan
officials said they level hills only after securing industrial tenants,
who they said are queuing up. They estimated the Shiyan economy is
growing more than 10% this year, well above China's national growth rate
of around 7.5%.
Shiyan's statistics bureau said that residential space sold was up 29% in the first half of 2013 from a year earlier.
Still,
huge swaths of newly leveled land remain unoccupied. And on a recent
day, one residential development built on a cut-down hill was offering
free cars to people who bought apartments, while another development
nearby was offering customers who were willing to buy an entire floor an
additional floor free.
Some underground
lenders, an important source of credit in the local economy, said they
were no longer willing to lend to property developers or people looking
to buy apartments in Shiyan, out of concern that demand is weakening.
Tri-Ring
Group Corp., a manufacturing company, is building a factory to produce
dump trucks and tractors on 120 acres of new land outside of Shiyan. The
company laid the foundations in April 2010 and, according to its
website, planned to finish construction in 2011.
A
visit to the site in October showed just half of the planned buildings
had been constructed, with weather-beaten signs marking what remained to
be built. The only evident activity was a handful of workers installing
wiring in the gatehouse by the main road.
A spokesman for Tri-Ring said it plans to move into the new facility in May.
Pengyuan
Credit Rating, in assessing the company set up by Shiyan's government
to handle construction of projects on new land, said that its debts were
high, that it would be under pressure in paying the interest and that
its income was exposed to fluctuations in property prices.
The
government company's cash from selling decadeslong leases on land
hasn't been sufficient to cover loan payments over the past two years,
and additional borrowing was needed to cover the shortfall, according to
details disclosed by the rating firm. The price at which land is
offered to developers is only marginally more than it costs to develop
land from the hills and mountains, according to city figures.
The government company said it can repay its debts in full and on time.
—Qi Liyan contributed to this article.
Turbulence Ahead for U.S., China Ties
Dec. 17, 2013 5:31 a.m. ET
China's foreign relations in modern times—particularly with the U.S.
and Asian neighbors—have been guided by a doctrine of prudence embodied
in Deng Xiaoping's famous maxim "taoguang, yanghui"—"bide our time; hide
our capabilities."
韜光養晦
比喻隱藏才能，不使外露。清˙鄭觀應˙盛世危言˙序：「自顧年老才庸，粗知易理，亦急擬獨善潛修，韜光養晦。」
Mr. Deng correctly calculated that once the
world understood the full implications of an emerging Asian giant, it
would stir up anxieties and upset the external harmony that China needed
to pursue its economic development. He was suspicious, too, that the
U.S. secretly...
菲律賓周三警告稱，
在泰國曼谷的反政府抗議活動中，幾乎是一夜之間，