Economy, Talking Point

The big city

Chongqing’s ambitious growth plans have huge ramifications

The big city

Supersize me: Chongqing’s population will grow by 10 million over the next decade

“It is hopeless for the occasional visitor to try to keep up with Chicago. She outgrows his prophecies faster than he can make them.” That was Mark Twain’s view in 1883; at a time when the midwestern American metropolis was experiencing growth the likes of which the world had rarely seen.

Fast forward to the present day and the world’s fastest growing city is a Chinese one. The “Chicago of China” – as it likes to style itself – is Chongqing, a place where city guides are said to be out of date almost as soon as they’re printed. Within the next decade this western Chinese city expects its population to increase by 10 million, i.e. the equivalent of Belgium.

But how many of us know much about Chongqing? The UK’s Guardian newspaper thinks it “the biggest megalopolis you’ve never heard of”. Many would struggle to find it on a map.

While its international profile may be low, the same cannot be said for Chongqing’s visibility within China itself. As this month’s cover story in Caijing magazine makes plain, the city is taking centre stage, having announced perhaps the most ambitious urbanisation plan in Chinese history.

This far-reaching initiative touches on many of the key themes affecting contemporary China, including the increasing economic sway of the western regions and the rise of the domestic consumer (vitally, an antidote to the nation’s dependence on export-led growth).

But likewise the plans will test a host of thornier issues too, including the political powderkeg of rural land reform. That could strain relations with the central government in Beijing.

But before exploring the ramifications of moving 10 million farmers into downtown apartment blocks, a little historical context is necessary. More precisely, how and why did Chongqing suddenly get to become so important?

Back to that Chicago label…

It’s a moniker the city’s leaders love. But back in 1930, Chongqing had little in common with Chicago. It had just 200,000 inhabitants, and didn’t get a telephone line until 1931, or reliable electricity till 1935.

Its importance rose briefly when it was made China’s wartime capital (it was known then as Chungking). Much of that was down to its inaccessibility – it lay beyond the reach of Japanese forces. Post-war, the city faded back into obscurity.

Even in 1998, when WiC’s editor was taken on an official tour of the city (accompanying a foreign private equity executive) it was so lacking in investment opportunities that half the day’s schedule had to be filled visiting an artist’s colony. We met Lin Jun, a prominent elderly artist who specialised in woodblock prints of capitalists exploiting the proletariat.

There was some industrial base. A legacy of its inland location (out of enemy bombing range), the city had a preponderance of armaments factories. But cross off the howitzers and surface-to-air missiles, and other manufactured goods were in short supply.

But by the late nineties the city’s renaissance was beginning. And once again Chongqing’s location would count in its favour: it being the nearest large city to the massive Three Gorges Dam project.

The hydroelectric dam’s construction also displaced one million people, and Chongqing was told to house them. But the quid-pro-quo would change Chongqing’s destiny: it was elevated to the same status as a province. As Foreign Policy magazine points out, Chongqing joined Beijing, Shanghai and Tianjin “as the only cities in China not under the thumb of a regional government”. The city’s municipal boundaries were also enlarged, giving it an unusual level of jurisdiction over adjacent rural areas.

The new status gave local officials carte blanche to initiate breakneck economic development – and they accepted with gusto. In 1998 Chongqing had a GDP of $21 billion. Last year it was $86 billion (and in that same 12 month period GDP growth hit 14.9%, nearly twice the national average).

And those similarities with Chicago? Apart from drawing comparisons with the pace of Chicago’s development in the late nineteenth century, Chongqing’s bosses also see similarities in the way both ‘central’ cities connect richer coastlines with less developed hinterlands.

Chicago stands at the confluence of the Mississippi River and the Great Lakes watersheds, and also became the starting point of the iconic Route 66 highway to America’s west coast.

Chongqing sits next to where China’s key inland river route, the Yangtze intersects the Jialing River. Like Chicago, it has also become a leading road and rail hub.

Both are also famed for their weather (depending on the seasons Chongqing has a reputation as either the ‘furnace city’ or the ‘city of fog’; Chicago’s ‘windy city’ label is better known).

There’s even a mafia connection. Chicago had Al Capone, and Chongqing also has a reputation for its underworld.

Or at least it did have: city authorities have been arresting gangsters by the truckload, at the prompting of an Eliot Ness equivalent in Chongqing. His name is Bo Xilai, and he is the son of one of the Chinese Communist Party’s founding fathers. He’s also the most senior figure in Chongqing (as Party Secretary) and easily the most prominent ‘local’ official in China at the moment, having launched the high profile crackdown on mobsters last year. He is having a serious impact. Capone got an 11 year sentence in 1931. Bo’s campaigns have seen 31 mob bosses arrested since last year.

But in economic terms, Chongqing’s a late developer?

Unlike maturer Chicago, Chongqing remains an adolescent. To help it grow up there’s a lot of infrastructure spending going on: this year alone it plans to spend $1.5 billion on expanding its light-rail system and another $2.3 billion on roads. Two new terminals are being added to its Jiangbei Airport, which by next year will be able to handle 30 million passengers annually, up from the current 14 million. Foreign Policy reports that its capacity is expected to be increased again, to 70 million by 2020.

The city economy is booming. Chongqing has become a leading producer of chemicals, cements and auto parts (Ford assembles cars there). While it doesn’t boast homegrown companies of global repute (such as Lenovo, Huawei or Haier), the Chongqing-made Lifan motorbike is ubiquitous across China. And big name multinationals are starting to invest in the municipality (HP, for example, plans to manufacture laptops in Chongqing).

In fact, one of the most interesting things about the city’s economic rise is that 90% of the manufactured goods made there are then sold in China itself – rather than exported. Hong Kong magazine Yazhou Zhoukan terms this the ‘Chongqing Model’ in explaining how the city is growing in lockstep with the country’s consumer market.

Gateway to the west?

Chongqing’s domestic focus marks it out as different to some of the trailblazers in China’s economic miracle. Shenzhen’s manufacturers, for instance, grew by focusing on foreign markets (fair enough when domestic demand was thin on the ground).

But Chongqing seems more interested in customers closer to home. It is also the lynchpin of the ‘Go West’ campaign launched more than a decade ago by the Beijing leadership – a plan that seeks to raise levels of economic development in the inland provinces closer to those on the coast. After years of investment in road and rail – compounded by the recent $586 billion stimulus spend – there is evidence that the ‘west’ is starting to catch up. That’s very good news for Chongqing.

This fact has not been lost on TPG, the $57 billion US private equity firm. Late last month it announced a new fund – the Western China Growth Fund – which plans to raise Rmb5 billion. Notably it is based in Chongqing. “I believe the growth of Western China will be the defining story of the next 30 years, creating vast investment opportunities and we would like to be part of it,” commented Sing Wang, co-chairman of TPG China.

At the fund’s inauguration ceremony, Chongqing’s mayor, Huang Qifan was effusive, calling private equity “the crown jewel of the investment industry”. His remark was telling, as another of Chongqing’s ambitions is to become the country’s second financial centre. It may have more credibility than most of the other contenders. Once again, Chicago is the model, with its vibrant commodity and futures exchanges. Chongqing wants to be to Shanghai, what Chicago is to New York.

Huang: man with a plan…

Mayor Huang is not lacking in the vision-thing. In the 1990s he was based in Shanghai, where he was the vice-director of Pudong – the skyscraper-spangled plot that grew rapidly from empty farmland on the east side of the Huangpu river.

He also had a hand in getting Hong Kong developer Vincent Lo to build Shanghai’s famous Xintiandi entertainment area on the Puxi side of the river. After he relocated to Chongqing as deputy mayor in 2001, Huang again persuaded Lo’s Shui On Group to invest. The result is Lo’s Chongqing Tiandi, which sits on 128 hectares of riverside property, and incorporates a 440 metre skyscraper, an exhibition centre and hotel, as well as the obligatory mix of commercial and residential development.

The full project won’t be completed until 2018. But by the time the last brick has been laid, Chongqing should be approaching a population of 22 million.

Why the population surge?

Now it gets more complicated. Remember we mentioned earlier that Chongqing is one of four ‘special’ cities in China – equivalent in bureaucratic rank to a province? That means that when you speak of Chongqing you are speaking of both the municipality and the city. The former is the bigger entity, encapsulating the rural sprawl around the city itself, and the full population of 32 million. The latter is the urban area (the city) and currently has a population of 12 million.

Chongqing’s plan is to move 10 million farmers (and their families) from their fields and into the city proper: achieving an urbanisation rate of 70% by 2020. According to Caijing magazine it constitutes the largest single urbanisation effort since 1949, when the current regime won power.

WiC has written extensively about the hukou (see WiC51), which can be loosely translated as ‘household registration ID’. It is a system that ties residents to their place of birth, making it more difficult to up sticks and work elsewhere. If a farmer leaves home to go and work in a distant city (i.e. become a migrant worker), he loses the benefits of being a citizen in his hukou-identified locality. So his children cannot go to the local school. His family isn’t eligible to use city hospitals or receive welfare payments locally.

In an interview with Caijing, Mayor Huang refers to these urban benefits as “the five pieces of clothing”. And what his plan proposes is to offer them to farmers who move to Chongqing city (and to those already moonlighting as migrants).

That is to say, he will offer them a ‘city’ hukou. In exchange they must give up their “three pieces of rural clothing”, Huang says. These are their land contract, farm management rights and rural homestead. In return, they will receive a payment of roughly Rmb100,000 ($14,733).

Huang’s near-term goal is to get three million farmers to agree to this deal by 2011, taking the city’s population to 15 million. In recent weeks more than 800 police stations across Chongqing’s 40 counties have started taking applications from rural residents to change their hukou status to urban.

What does this mean in practical terms ?

Moving 3 million people into a city in a couple of years is no logistical picnic. Huang is promising to build more than a hundred new schools and huge swathes of low-cost housing to welcome the newcomers. His plan is estimated to cost Rmb201 billion, including the outlays on compensation paid for farmland.

Huang says he’s done his maths. But Caijing’s article found that a lot of the grassroots officials are worried about how this great relocation will be financed. Huang reckons a big chunk of the cost can be covered by local employers who will foot the bill for additional healthcare and pension expenses. The new rental housing will also pay for itself over time. Most critical of all, there’s the 67,000 hectares of land that farmers will relinquish in return for a city hukou – the city can flip some of it to property developers to make a healthy profit.

As WiC has explained before (see WiC64), local government finances are heavily dependent on land sales. Chongqing’s city government has been running out of land to sell – which is why cynics see the Huang plan as way of securing new supply.

Huang argues it’s about more than land access. The urbanisation process will increase local consumption, he believes, as city dwellers consume more than rural folk. That will boost the economy. It will also lower the average age in the city – combating the problem of an aging demographic. Likewise it will increase the demand for all the infrastructure the city is building, making the spend more efficient.

What about the loss of farmland?

Those who read last week’s Talking Point will have noticed another downside. Isn’t Beijing fearful of losing too much farmland to urban development? And how does shifting millions of countryside folk into cities help stem China’s dwindling self-sufficiency in grains? Policymakers mandate that 120 million hectares of land be used for farming (to ensure food security). As of last year, that figure was perilously close to being breached.

Huang has a cunning retort. He claims his government has been a pioneer in balancing the needs of development with the stock of agricultural land.

In late 2008 a land exchange institute was established to trade ‘land tickets’. Not unlike the principle of trading carbon credits, the scheme compensates those villages that create additional farmland through smart civic planning. These credits can then be sold to property developers who want to build on farmland elsewhere in Chongqing city. So far Rmb1.9 billion ($278 million) has been raised in 11 auctions of credits, redistributing wealth to villages.

The idea behind the ‘land tickets’ is to allow real estate development with no net loss of agricultural productivity. Huang thinks the same principle can drive Chongqing’s urbanisation, as people are moved from lower density fields into higher density apartments. His statistics show that rural land efficiency is not that high, and that every person moving into the city frees up 170 square metres. Urbanisation will allow him to arbitrage this and increase the pool of land available for development.

Will it work?

The plan’s opponents say it lacks detail and can only be financed if a lot of the farmland is sold off to developers. Planners recognise that there is uncertainty. An anonymous local official told Caijing: “The consequences of the reform are unknown. If you have made everything clear, you bind yourself hand and foot. The key is whether to do it or not to do it. If it is necessary, we must do it.”

The ‘Jiulongpo incident’ is also being raised by the doubters. This was a district of Chongqing that tried to pioneer rural land reform in 2007. When the central government discovered that illegal factories were going up on farmland, the scheme was shut down. The area remains in limbo. As Professor Pu Yongjian of Chongqing University puts it, Jiulongpo is “beyond the legal framework”.

The truth is that local governments are only allowed to sell a set quota of farmland to developers each year. Beyond that, further sales aren’t supposed to happen. It is for this reason that the sheer magnitude of Chongqing’s urbanisation plan has many convinced that it will almost inevitably lead to dispute with Beijing. That would not be unique – we have written before about tensions between Beijing and the country’s local governments over land (see WiC53).

But the plan is politically risky?

More than most, yes. Perhaps that’s why Chongqing’s top official Bo Xilai has been notably silent on the topic. He’s left Huang to do all the talking. That might be smart politics. Analysts say that Bo has major political ambitions and hopes to be elected to the Politburo’s Standing Committee – the elite body that runs the country – in 2012. If Chongqing does upset Beijing by selling farmland to real estate developers, he may prefer to have Huang more associated with the project in the public’s eyes.

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