China’s Private Cities

In Rising private city operators in contemporary China, Jiao and Yu report that China’s private cities are growing.

…the last decade has witnessed a large growth in private city operators (PCOs) who plan, finance, build, operate and manage the infrastructure and public amenities of a new city as a whole. Different from previous PPPs, PCOs are a big breakthrough…they manage urban planning, industry development, investment attraction, and public goods and services. In other words, the traditional core functions of municipal governments are contracted out, and consequently, a significant neoliberal urban governance structure has become more prominent in China.

In the new business model, the China Fortune Land Development Co., Ltd. (CFLD) was undoubtedly the earliest and most successful. It manages 125 new cities or towns with a total area of over 4000 km2. Founded in 1998, the enterprise group has grown into a business giant with an annual income of CNY 83.8 billion in 2018. The company’s financial statements demonstrate that the annual return rate of net assets has grown as much as 30% annually from 2011 to 2018, which is the highest among the Chinese Fortune 500 companies.

As Rajagopalan and I argued in Lessons from Gurgaon, India’s Private City the key development has been to scale large enough so that the private operator internalizes the externalities. Quoting Jiao and Yu again:

The key to solving this problem is to internalize positive externality so that costs and benefits mainly affect the parties who choose to incur them. The solution of the new model is to outsource Gu’An New Industry City as a whole to CFLD, which becomes involved in the life cycle including planning, infrastructure and amenity construction, investment attraction, operations and maintenance, and enterprise services. In this way, a city is regarded as a special product or a spatial cluster of public goods and services that can be produced by the coalition of the public and private sectors. The large-scale comprehensive development by a single private developer internalizes the externality of non-exclusive public amenities successfully and achieves a closed-loop return on investment.

As a result private firms are willing to make large investments. In Gu’An, an early CFLD city, for example:

CFLD has invested CNY 35 billion to build infrastructure and public amenities, including 181 roads with a length of 204 km, underground pipelines of 627 km, four thermal power plants, six water supply factories, a wastewater treatment plant, three sewage pumping stations, and 30 heat exchange stations. The 2018 Statistical Yearbook of Langfang City illustrates that the annual fiscal revenue increased to CNY 9 billion, and the fixed asset investment was approximately CNY 20 billion, and Gu’An achieved great success in terms of economic growth and urban development strongly promoted by the collaboration with CFLD.

By the way, The Journal of Special Jurisdictions, is looking for papers on these cities:

Although a relatively recent phenomenon in urban development, Chinese Contract Cities already cover 66,000 square kilometers and house tens of millions of residents. They host a wide range of businesses and have attracted huge amounts of investment. In cooperation, local government entities, private or public firms plan, build and operate Chinese contract cities.  Developers obtain land via contracts with local government or long-term leases with village collectives and enjoy revenues generated from economic activity in the planned and developed community. Residents contract a management firm for housing and other municipal services. In that way, Chinese contract cities offer innovative solutions to urban finance, planning, and management challenges.

The Chinese Contract Cities Conference will offer the world’s first international gathering of experts on this important new phenomenon.

…The proceedings of the Chinese Contract Cities Conference will appear in the Journal of Special Jurisdictions.

See also my previous post on Jialong, China’s Private City.