Title

Author(s)

The political economy of urban space: centralbusiness district

development in Shanghai and Hong Kong

Ye, Ming;

Citation

Issued Date

URL

Rights

2005

http://hdl.handle.net/10722/134027

The author retains all proprietary rights, (such as patent rights)

and the right to use in future works.

THE POLITICAL ECONOMY OF URBAN SPACE:

CENTRAL BUSINESS DISTRICT DEVELOPMENT
IN SHANGHAI AND HONG KONG

by

MING YE

( # OA )

A thesis submitted in partial fulfilment of the requirements for

the Degree of Doctor of Philosophy

at The University of Hong Kong

July 2005

Abstract of thesis entitled

THE POLITICAL ECONOMY OF URBAN SPACE:

CENTRAL BUSINESS DISTRICT DEVELOPMENT IN

SHANGHAI AND HONG KONG

Submitted by

Ming Ye
for the degree of Doctor of Philosophy
at The University of Hong Kong
in July 2005

For the past twenty years, studies on urban space and the urban political economy of
urban development have been disjointed.

In other words, the studies on urban

in other
space by urban design scholars have rarely been collaborated by colleagues

disciplines as they study urban development. This study will fill the gap by
adopting the 'growth machine' model, which has been utilized by researchers in
various

academic

fields,

to

construct

an

explanatory

framework

for

CBD

development.
Growth machine is made up of the collective and concerted activities of growth

coalitions, who deliberately work to develop and change the urban landscape.

This

research will examine the role of the political interests of governments and planners,
and the profit-seeking of land developers and land owners in the formation of local

pro-growth coalitions in Shanghai and Hong Kong.

These groups are concerned

with land developments more as a bundle of place development than as urban space
modifications or social-cultural transformations.
In addition, it is expected that the different political economies

of these two

non-democratic systems at the municipal level will provide an interesting context for

comparing their urban redevelopment styles.

At the same time, a city-level

analysis allows for more focused and detailed studies, which will enhance the
empirical validity of the analysis.

The main contributions of this research could be

concluded as below.

in
First, through a comparative analysis on the process of CBD development

Shanghai and Hong Kong, this study supports the argument that: the pro-growth
coalition is the hidden force behind urban spatial changes, despite the contrasts in

Second, the empirical analysis on the project location of top 50

developers in Shanghai, and the monopoly of 10 large developers in Hong Kong,
political structure.

could finally prove that there is a difference in the pro-growth coalition formation
process between Hong Kong and Shanghai.
coalition

in

Shanghai

is

dominated

by

It is argued that the pro-growth

the

government

and

state-owned

developers(SODs), while Hong Kong's main coalition actors are private developers.
As for the implications, this research highlights an important link between public
and private sector's development, and advocates an institutional rules or regulations
on the public-private partnership, which could contribute to urban redevelopment.

Also, there is a need for a further research agenda on the growth machine, which
will be a significant theme of Chinese urban development in the coming years. (398

words)

Declaration

declare

that

this

thesis

represents

my

own

work,

except

where

due

acknowledgement is made, and that it has not been previously included in a thesis,
dissertation or report submitted to this University or to any other institution for a

degree, diploma or other qualifications.

Signed

CONTENTS

Declaration .......................................................................................
Table of Contents ...............................................................................

ii

Chapter 1
Introduction ................................................................................ 1

Chapter 2
Literature Review and Theoretical Framework ........................................9

Chapter 3
Case Study: CBD Development in Shanghai ......................................... 31

Chapter 4
Case Study: CBD Development in Hong Kong ...................................... 62

Chapter 5
Empirical and Institutional Analysis ...................................................... 79
Chapter 6
Conclusion and Implication ........................................................... 108

References ....................................................................................... 113

11

CHAPTER 1

INTRODUCTION

Much research on urban renewal and redevelopment programs acknowledge the

influence of the urban political economy on local decision-making and urban

(re)developments.

In other words, urban development represents the collective and

concerted activities of growth coalitions, which deliberately work to develop and

change the urban landscape.

Yet few researchers have examined the political

interests of the governments and planners and the profit-seeking motives of land

developers in the forming of local pro-growth coalitions of Chinese cities, which

concern the land developments more as a bundle of place development than an urban
space modification or a social-culture transformation.

In addition, it is expected

that the different political economies of these two non-democratic systems at the

municipal level will provide an interesting context for the comparison of urban
redevelopment styles. At the same time, a city-level analysis allows for more
focused and detailed studies, which will enhance the empirical validity of the

Indeed, a comparison across different cities has been a neglected area in a

comparative political economy, which deserves greater attention due to the growing
analysis.

importance of the study of governance. This research tries to argue that urban
development and redevelopment is largely affected by the coalition of business
speculators and local governments to earn more profit from land parcels.

1.1 BACKGROUND OF RESEARCH

Although there is a huge amount of literature on urban politics and the public-private
partnership in urban redevelopment, little of this literature mentions the political
economy of urban development in Chinese cities.
1

Chinese cities, on the one hand,

on the other hand,

experience a rapid growth of economy and very fast urbanization;
the negative effects of fast urban growth in large Chinese cities, such as deteriorated

old housing, higher population growth rate, traffic congestion, higher building

were increasingly significant

density, privatized and insufficient public open space,
of this research will be on
problems faced by municipal governments. Special focus
the two international cities, Shanghai and Hong Kong.
The 20th Century witnessed dramatic changes in the form and structure of Shanghai.
Over the past 20 years,

China's

large cities have

experienced continual and

form is both a
ever-accelerating changes. The transformation of Shanghai's urban
as the restructuring of
consequence of social, political, and economic changes such
investment pattems, political decentralization, and the growing need for transport
and housing alternatives.

Hong Kong was only a small fishing village before the 1840s, but the territory

developed at an incredible speed after it became a British colony. During the early
China
days of colonization, Hong Kong attracted people from many parts of South
and business entrepreneurs from both mainland and overseas countries.

They

brought large amounts of capital and labor to join in Hong Kong's development, and
eventually built Hong Kong into an international financial and trade centre, which
consequently resulted in spatial restructuring of Hong Kong.

1.2 RESEARCH PROBLEMS

According to the two cities' development process, this research tries to argue that
first, this study supports that growth machines, together with the pro-growth
coalitions, are the hidden force behind the landscape of the newly reclaimed CBD, in
which both Shanghai and Hong Kong prefer the rapidly increasing economy.

Second, this research claimed that there is a difference in the pro-growth coalition
formation process between Hong Kong and Shanghai. It is argued that the

pro-growth coalition in Shanghai is dominated by the government and state-owned

developers, while Hong Kong's main coalition actors are private developers.
Third, this research advocates a further research agenda on the public-private

partnership and growth machine of China cities in the coming years.

2

1.3 RELEVANCE OF HONG KONG'S DEVELOPMENT TO

SHANGHAI

Comparative studies on Shanghai and Hong Kong are well documented by many
researchers in the areas of urban economic development, industry structure, land
leasehold systems, and zoning systems (Yao, 1990; Wong, 1996; Sung, 1999; Jiang,

2001).

Hong Kong, a prototype of a market economy compared to China, has been

studied by Chinese and Hong Kong economists for a long time, whose main

exist
objective before 1997 was to study if the prosperity of Hong Kong will still
after 1997, when Hong Kong was returned by the UK to China (Ng, 1989; Davies,

1997; Arnote, 1996; Kwok, 2001).

Also, many advanced experiences in the

economic and governance fields were introduced to China, like the free port policy,
leasehold land use system, zoning legalization, and so on (Li, 1995; Yeh

Wu,

1999; Zhu, 1999a).

However, few researchers have mentioned the changes of the system of political
economy.

This research will focus on the differences in political economy during

the urban developments.

Although

Hong Kong and Shanghai

possess

some

similarities in land use and planning systems with long-term economic development

If we compare the

strategies, they have variant structures of political economy.

two cities in such conditions, the factors that account for the transition of urban
space could be discovered.

1.3.1 Crucial Differences and Similarities between Hong Kong and Shanghai

Generally, there are two major similarities between the two cities as the main
assumptions of this research (see Table 1-1), which stipulate that:
Table 1-1 Crucial Differences and Similarities between Hong Kong and Shanghai

Similarities

Differences

Shanghai

Hong Kong

Leasehold Land System

Since 1988

Since 1844

Pro-growth Strategies

Since 1984

Since 1984

Structures

Government-led

Business-led

of

political

economy

use system, so the

First, both Shanghai and Hong Kong adopted the leasehold land
the
main purpose of land development is for the government avenue. Under
of land
leasehold land system, the government becomes the main stakeholder

to adopt the pro-growth

development, and it is more convenient for the government
strategy.

more attention to long term

Second, both of the cities are growth machines and pay

such as
development strategies to provide a more attractive business environment,
and airport
Pudong development in Shanghai and new the CBD and port
CBDs as
development in Hong Kong. Both cities want to develop their
international banking and financial centers.
Then the crucial differences will be introduced as below.
There is a large difference in the structure of political economies between the two
cities.

In Shanghai, government and state-owned enterprises (SOEs) are the

dominant actors, which also are the main stakeholders of land. Also, Shanghai's
CBD development is much affected by the government-led model. In Hong Kong,

business elites perform the leading roles, and Hong Kong's CBD development is
much affected by the business-oriented model. Next several chapters will interpret

the two different models.

1.4 CONCEPTUAL FRAMEWORK FOR COMPARISON

Hong Kong and Shanghai are largely contrasted in political frameworks, urban
space, economic development, and cultural contexts.

Comparing the two cities

Since there are a lot of aspects within the

entails many difficulties and problems.

categories of comparison, this research can't include all aspects of the two cities.

It

is therefore necessary to develop a conceptual framework that focuses on particular

aspects.

Figures 1-1 illustrate the structure of a pro-growth coalition and how it

formed and worked to influence the urban spatial development.

The four main

actors in the urban development process include government bureaucrats, planners,

land developers, and land users (owners).

Figure 1-1 The Framework for Comparison

Background of Political Economy

Pro-Growth Strategies and Growth Machine

Pro-growth Coalition:
Governments, Planners,

Developers, Land Owners

*

l Urban Spatial Development

Indicators
I Evidences and

1
]

and
As shown in the figure, there is a coalition formed by governments, developers,

their support of
landowners, and this coalition could affect urban development by
urban planners.

The major difference in the coalition of Shanghai and Hong Kong

is in the structure of the pro-growth coalition.

In Shanghai, the relationships

are based on bargaining, guanxi (connections), and

among the land-based actors

rent-seeking, which have the legacy of bureaucracy from the previous planned
economy.

However, in Hong Kong, the coalition is based on a conspiracy between

governnent bureaucrats and business elites, which include many large developers.

1.5 RESEARCH METHODOLOGY

This research will provide statistic data, real estate industry documents, and planning
documents to examine the key actors, important decisions, and political struggles

surrounding urban planning and redevelopment efforts in Shanghai and Hong Kong,
especially on the developers' behaviour during the rapid development period from
the middle of 1990s to present.
1.5.1 Benefits and Constraints of Comparison
The benefit of comparative study has been well documented in the studies of social
sciences (Warwick

Osherson, 1973a; Hague, et al, 1992).

5

The Ancient Greeks

have practiced this research method since the 4th century B.C.

During the 19th

on
century, Marxism and evolutionism were also very similar in their reliance
cross-culture historical evidence.

Marsh (1967) claimed that the comparative

method is much distinct from other analyses in its data and objectives.

Lewis

(1961) commented that 'comparison is a generic aspect of human thought rather

than a special method'.

In general, comparison is a method to discover the

similarities and differences

among varied phenomena.

Furthermore,

it

is a

fundamental operation in scientific analysis, which is used to point out the variation
of certain factors that account for a phenomenon to occur.

For example, if political

scientists want to find out the conditions that will account for certain voting trends,

comparison is used to test any hypothesis, with the researchers holding some
conditions constant while allowing others to vary, and then comparing the results.
In

short, the

advantage

of the

comparative

method lies in the research on

These main advantages will be introduced

cross-social or cross-national systems.

below.

First, the comparison could display a platform to test any theory in a broader

territory, and could see if the hypothesis could be applied in another social system.
Any scientific theory must be a general truth in a wide range.
which is true in a city could be false in another city.

That is, a theory

So the testified theory could

be improved by a comparison.

Second, a comparison could develop explanations by the systematic manipulation of

parameters and operative variables.

If it is difficult to find the answer in a single

society, a comparison with another society will help investigators find the
explanations for their problems.
Third, comparisons have potential for prediction.

If we know some problems

happened in one society because of the implementation of a certain policy, we could

forecast that if another country tries to adopt the same policy, the similar problems
could also appear.

Finally, comparisons will make the features of the two cities so transparent that the
governance of the two cities could be more developed by the mutual exchange of

each experience.

Although this study can not implement some solutions on the

current problem, it is hoped that the comparison could draw more attention and

interest to the public space of city centers.

On the other hand, comparative research has some constraints and difficulties.

First, there are too many variables within two countries.

test all the explanations for the differences.

Therefore, it is difficult to

The comparison has to focus on the

fatal similarities and differences between the two societies.

Second, sometimes the

same phenomenon has different meanings, and it makes the problems more difficult
to clarify.

an easy way to generate

Third, the comparison of only two societies is

some bias.

Because different researchers will understand each society in their own

different ways, such limited values can't be testified in other societies.

Although comparison has some limitations, it could be effectively controlled by

researchers.

For example, they could keep some variables constant, and see to the

transformation of other variables.

could have many possibilities.

In addition, the explanations of comparison

So the comparison must be controlled to a certain

degree, because 'even half a comparison is far better than no comparison at all'
(Hague, et al, 1992).
1.5.2 Case Studies and Data Analysis

This research also tries to use case studies to show the different urban development

background and reveal how the pro-growth coalitions worked in the urban
development process. The case of Shanghai is the new CBD development in Pudong
Lujiazui, which showed the close relations between the government and state-owned
developers. The case of Hong Kong is the large reclamation in Central and Wanchai,
which reflects the separate roles of the government and private developers.
The objective of the quantitative investigations is to test whether the coalition was

formed and worked by structures between Hong Kong and Shanghai. 50 large

developers were selected from the top 100 developers in Shanghai, which account
for nearly 50% of the total private housing development. 10 large developers of

Hong Kong were selected to analyze, which also account for 50% of the private
housing market.
The findings prove that real estate developments in Shanghai are not only related to
the economic status, but also the coalition between developers and local district

governments.

Unlike Shanghai, Hong Kong private developers monopolize the

7

private property market, while the government monopolizes the land market.
1.6 OUTLINE OF RESEARCH

Chapter 1 introduces the research background, objective, and organization of this

research.

Chapter 2 discusses the literature review and theoretical framework of the research.
Theories of urban growth machine, urban regime, and place making, together with
their application, will be introduced.

This chapter will support the argument that

pro-growth coalitions are the forces behind urban development.

Chapters 3 and 4 describe the works of pro-growth coalitions in Shanghai and Hong
Kong.

The context of the formation will also be examined.

within the coalitions will be analyzed.

Then, the actors

This chapter will explain the different

structures of pro-growth coalitions in the two cities.

Chapter 5 is an experimental analysis of the coalition behaviors in the two cities.

This chapter could support the argument that the growth machines are formed by
different operators between Shanghai and Hong Kong.

Chapter 6 attempts to draw a conclusion of this comparative research, and explains

the findings and suggests policy implications concerning the political economics of
urban development.

CHAPTER 2

THEORETICAL FRAMEWORK AND LITERATURE

REVIEW

The following sections summarize and review previous paradigms and theories on
urban development. Two schools of research paradigms, globalization discourse and

political economy discourse, will be introduced. The political economy approach is

adopted to construct the theoretical framework.
2.1 REVIEW OF RELATED THEORIES

The following sections will review the literature and theories on the above fields,
and will try to establish an academic background of this research. In order to explain
how the pro-growth strategies were established, some paradigms of urban studies
should be introduced first as a background of this research.

These paradigms could

be categorized into two interlinked schools of discourses, which have been discussed

by many researchers in current urban studies fields (Wu, 2002; Sassen, 1991).

One

is the school of 'Globalization', which studies the city as a place of world production;
the other is the 'Urban Political Economy' theory, which studies urban development
from the political economy approach (Figure 2-1).

Figure 2-1 Two Schools of Research Paradigms

Political Economy Discourse

Globalization Discourse

Cities

World

and

Local Political Economy

Developmental State
4

4,
City Competition

Growth Machine
4

Place Marketing and Promotion

Pro-Growth Coalition
]

4,

[ Urban Representation
4

Growth or Anti-Growth
4,

Urban Spatial Development

(CBD Development)

2.1.1 Globalization Discourse

During the past several decades, the world economy has become more integrated in
capital flows
'globalization'.

and

productions across

state-borders,

which

is

defined as

Globalization 'implies a degree of functional integration between

internationally dispersed economic activities' (Dicken, 1992).

The intensity of

globalization is generally given by a number of trend indicators, including trade and

financial flows, foreign direct investments (FDI), communications (information

flows), and personal and business travel (Lo and Marcotullio, 2000).

In the

Asia-Pacific region, these trends have taken on a particular character.

In this

section, the changes of cities are described in the environment of globalization,

which is represented by the formation of 'world cities' and 'developmental state'.
2.1.1.1 World Cities and the Developmental State
World cities, as defined by Sassen (1991), are the cities serving as leading
international business and financial centers in which most of the international
business activities of the world economic system is concentrated. As stated by
10

Sassen (1991), world cities include New York, London and Tokyo. Other principal

are
large cities like Hong Kong, Shanghai, Kuala Lumpur, Singapore and Taipei
Kim, 1999; Short, et al, 1996). These

called 'wannabe' world cities (Short

These

'wannabe' world cities try to boast all the attributes of world cities.

attributes include hosting a Summer Olympics Game, an international airport,

signature buildings designed by big name architects, a tallest skyscraper, grand

conference or culture exhibition centers, and art galleries or symphony halls.
'Wannabe' cities have many opportunities for urban redevelopment and other urban

propaganda projects (UPPs) with a powerful growth coalition between the state and
business elites (Short, 1999).
In addition, some of these 'wannabe' world cities are strongly supported by the

developmental state.

In almost all 'wannabe' world cities, the state plays a major

role in the rapid industrial restnicturing of the economy, with Hong Kong being a

significant exception.

'Developmental State' is a theory that argues that 'strong

and autonomous developmental states' can lead economic transformations and

prevent dominant interests in a society from engaging in rent-seeking activity.

Thus, the growth of the administrative capacity of the East and Southeast Asian

regimes, through the development of a slrilled corps of administrators and

technocrats, was viewed as a key explanation for their rapid economic development
(Amsden, 1989; Chan, 1993; Clark and Roy, 1997; Evans, et al, 1985; Fallows,
1994; Hofheinz and Calder, 1982; Johnson, 1982; Wade, 1985; White, 1988).
However, the recent financial crisis in East and Southeast Asia in 1998 cast a
shadow on the developmental state model, especially from the neoclassical

perspective that public officials will almost inevitably distort an economy when they
intervene in the pursuit of political goals.

Wade (1998) has rather sarcastically

labeled this the 'Death Throes of Asian State Capitalism' perspective.

Previous

practices of state intervention should be reviewed once again. Thus, trying to

become a world city by the developmental state model is doubtful (Sassen, 2001).

Hong Kong, as an advocator of laissez-faire economics, could thus be a right case to

criticize the theory of the developmental state.

But no evident could prove that a

laissez-faire economy could accelerate the recovery of Hong Kong from the
fmancial crisis after 1998.

11

In short, world cities are facing the intensive competition of their surrounding

wannabe cities.
2.1.1.2 City Competition and the Quality of Life

Generally, intensive world competition requires that local governments increasingly

improve their urban conditions sufficiently in order to lure potential capital into their
premises. Place promotion and marketing have become the major part of the
attempts by cities to forge distinctive images and atmospheres, which 'act as a lure
to both capital and people' (Harvey, 1989).
As there are clear links between the attraction of capital and the quality of life, it is

unsurprising that quality of life has become a part of the promotional tools being
employed by city agencies to make their locations attractive to different global
capital.

There are many illustrations of the adoption of quality of life ratings as

part of place promotions to attract this capital.

For some, quality of life factors

have been added to other measures of locational advantage to aid the process of

attracting inward investment of global activities.

Many cities have used the quality

of life league tables to raise their profle in the national and international economic
arenas.

Shanghai, on the east end of the central industrial and commercial belt of

the Yangzi River Delta, for example, made much of its distinction in the 1990s in

trying to persuade the business community and secondly, visitors to the city (tourists
and potential residents).

Also, city wants to make them think that it was a desirable

place in which to live.

As with many aspects of place promotion and marketing, there are paradoxes within

the use of quality of life in this way.

The quality of life could be in term of either

place or space, but in most of the cases, the city is regarded as a place with a
character of commodity and not as a space to live.
2.1.1.3 Place Promotion

Place promotion is one element of city marketing, which is increasingly a key

element in the local economic development strategies of many West European and
North American cities (Barke and Harrop, 1994).
defined city marketing as:
12

Ashworth and Voogd (1988)

...

Speciic planning actions designed to initiate or stimulate processes that improve

the relative market position of cities with regard to particular activities. (Ashworth

and Voogd, 1988, p65)

Place promotion, the 'advertising' of localities to target groups such as investors or

Place
tourists, frequently forms a major part of any city marketing strategy.

the
promotion has become increasingly important as localities attempt to manage
impact of globalization and political change (Fainstein, 1990; Harvey, 1989;
Wilkinson, 1992).

Changes in the global economy have led to a decline in the

manufacturing base of many European and North American cities, leading to

under-investment,

have
unemployment, and other economic problems, which

combined to contribute to a negative perception of such cities.

Cities have to

and
compete to attract 'footloose' international investment, tourist flows, consumers,

public sector funding.

The result of place promotion is an intensification of inter-urban competition to
attract and retain resources in which the promotion of a positive image of the city is

widely held to be important.

Also, spatial changes in a city's central areas are

always the result of these promotion strategies.

A number of industrial cities have

developed place-promotion initiatives that aim to overcome negative images of

manufacturing, unemployment, and a poor environment by presenting a new
'post-industrial' image that stresses, for example, service sector employment or
clean, high-tech industries and a good quality of life (Barke and Harrop, 1994;
Griffiths, 1998; Madsen, 1992; Short, et al., 1996; Wilkinson, 1992; Paddison, 1993;

Young and Lever, 1997).

In summary, local governments need place promotion to sell land and properties to

foreign investors and attract more migrants from overseas.

Therefore, the city

could survive in the intensive competition.

2.1.1.4 Urban Representation and Urban Propaganda Projects (UPPs)

Urban representation refers to the naming of cities, the mapping of cities, and the
written and spoken description of cities (Short, 1999).

Urban representation and

place promotion are mutually beneficial and all driven by the growth machine.

In

the world of hypermobile capital and global competition between cities for both
13

fixed investment and capital, many cities in the developing world compete with
cities in the developed world for the benefits of the postindustrial economy.

During the global shift of manufacturing from the developed world to developing
countries, the world experienced increasing competition between places.

Haider

because city
(1992) used the term of 'place wars' to describe the competition,
investments with
governments have to compete for the limited and mobile capital
other places (Harvey, 1989).

At the same time, there has been growing literature

on urban representation and place promotion in recent years (Wu, 1998).

Every

city wants to construct its best possible image and ignore its shortcomings, which is

represented to other cities.

In addition, urban representation and place promotion can be reflected in building
UPPs.

UPPs could be described

hallmark events.

as

flagship projects,

urban spectacles, and

These political projects were legitimated by the governing

coalition of local business and political elites (Boyle, 1999).

As city governments wish to provide better living conditions for foreign investors
and professionals, UPPs also include cultural facilities, such as art galleries, opera

halls, museums, festivals, and symphony halls.

These projects could enhance a

city's cultural status and attract or retain the executive classes and skilled workers of
the high-tech industries of the present and future.

2.1.2 Urban Political Economy Discourse

As a consequence of the globalization and intensive city competitions,

urban

political economy system has to be adopted to increase the city's capacity for city
competition.

Next several sections will introduce how local political economy

system adopted to accelerate urban growth.

2.1.2.1 Local Political Economy and Growth
Since local governments are very dependent on the changing national and global
economy (Dear and Clark, 1981; Clark and Dear, 1984), many researchers have

recently begun to focus on the role of local governments, or the 'local state', in
affecting urban development.
Local governments have a common desire for 'growth' as well as other local private
14

be on a specific
actors and business elite groups, no matter how divided they may

issue or policy.

Because the leaders of local governments 'seek to sustain growth

become
to maintain governmental services and fiscal health, and local businesses

involved in local policies to maintain and increase their profitability by influencing

and
and shaping their cities regulation of land-use, tax and employment policy,

provision of services' (Molotch, 1976).

was
In pursuit of growth, growth machine, together with pro-growth coalitions,

formed within local cities, including the political system, as well as local utility

companies, unions, media, and cultural institutions such as professional sports teams,
theaters, symphony orchestras, and universities (Molotch, 1976; Logan

1987).

Molotch,

Molotch (1999) pointed out that the advantage of the growth machine

approach is that it provides a powerful heuristic to understand the effect of urban

change at the social psychological level and the connections between local, state,
economic, and global dynamics. Recent research also acknowledges the influence of

pro-growth coalitions in local politics and decision-making; in further, evidence and

conclusions consistent with the growth machine approach to urban politics and

growth policy.
Thus, next section will fully interpret the growth machine thesis, including its origin
and application in academic research.
2.1.2.2 Growth Machine Thesis

The growth machine thesis was raised by Molotch (1976) in his seminar paper 'The

City as a Growth Machine', which had successfully explained the urban land-based
growth mechanism.

The main insight of this theory is that coalitions of land-based

elites in a city will help construct a local pro-growth coalition to enhance economic

performance (Molotch, 1976).

Accordingly, Molotch (1976) wrote: 'the political

and economic essence of virtually any given locality, in the present American
context, is growth'.

Then the motivation for growth leads to the consensus of local

elites, which could influence the government's decision-making through political

frameworks.
In 1987, Molotch and Logan (1987) co-authored a book named 'the political
economy of place'.

This book elaborates the growth machine thesis on the political

15

into the nature of urban

economy of place, along with further critical inquiries

politics and local economic development.

Within the growth coalition, various

interest groups tried to influence the local government through their legislative,

fiscal, and administrative powers to protect or pursue their own interests.

But at

the same time, the government has a revenue stake in land-lease, and would rather

with other cities, regions, or

promote urban growth and land use change to compete
But this type of competition is a zero-sum

districts for attracting more investment.

winners and losers, because the total amount

game between different cities with both

of investment or invented jobs is limited at certain points or time periods.

Furthermore, urban growth is not only supported by government and business elites,
but also

appreciated by people for increasing

their job opportunities.

Here,

according to the neo-Marxist theory, there is a 'rentier' class in the growth machine
that is centered mainly around developers, realtors, and bands with main concerns
on land and property development.

They are supported by a number of auxiliary

players, such as the media, universities, utilities, chambers of commerce, etc.

Opposite to the rentier class, the resident class is comprised ofthe renters or users of
rentiers' facilities or services, and has many conflicts with the rentier class within
the growth machine.

When economic growth occurs, the built environment is

required to change, and results in some negative effects on local residential

neighborhoods and decreases the quality of community life.
But although the growth machine can lead to controversial effects, it achieves more
benefit to urban

growth than the loss of the built environment

to residents.

Otherwise, the growth machine won't work well and be sustained for further growth.
The growth machine model is one of the most successful contributions to urban

theory in recent years.

Due to growth machines were consisted of pro-growth coalitions, theories of growth

coalition should be mentioned, which mainly concerns public-private partnerships in

urban developments.
2.1.2.3 Pro-Growth Coalition
Much research has examined how urban pro-growth coalitions can unify many
different groups of investors and capitalists through the ideology of 'growth'.
16

Although empirical research is beginning to recognize variations in the influence

and effect of pro-growth coalitions on local politics, few studies have documented

the locally- and historically-specific sources of variation in the composition and

operation of a growth coalition.

Moreover, few scholars have clearly identified the

specific political, organizational, and historical and cultural factors that explain how
and why cities pursue some growth strategies rather than others.
As Logan, Whaley, and Crowder's (1997) recent empirical overview acknowledged,
'Few researchers have attempted to study explicitly the internal workings of

pro-growth coalitions, the various roles played by their different members, the
tactics these actors employ, the conflicts that develop among them, or the variation
in the efficacy with which various pro-growth actors attack their task.'
But there are many case studies and comparative studies of anti-growth coalitions
and opponents of growth (Swanstrom 1985; Vogel and Swanstrom 1989).

More

importantly, generalized statistical analyses of large data sets or reanalysis of

secondary sources have dominated scholarly research on growth politics. In most
variable analyses, growth strategies

and the growth coalition are treated

as

independent variables and analysis proceeds to examine the outcomes or

consequences of growth politics.
In short, there is a great gap in the institutional and empirical analysis of pro-growth

coalition, and more efforts are needed to be put into this research field.
2.1.2.4 Growth or Anti-Growth?

Under such an intense competitive environment like that of the world economy, the

debate over urban growth and anti-growth has been much concentrated in the urban

politics sphere.
On one hand, the growth machine thesis argues that city development represents the
collective and concerted activities of growth coalitions who deliberately work to

develop and change the urban landscape.

That is, stakeholders of growth coalitions

are concerned with the land developments more as a bundle of place development

than as an urban space modification or a social-culture transformation.

With the

goal of intensifying land use, increasing the local population base, and ultimately,
enlarging the demand for local goods and services, urban growth coalitions are the
17

urban scene.
agents behind development on the
tool
On the other hand, urban development and redevelopment is more than just a

for business speculators to earn more profits from land parcels.

A more important

issue is that urban space is for residents, pedestrians, and visitors to live in and

experience, and not just for growth.

So the debate between growth and anti-growth

can also be regarded as a debate over urban space.

the relationship
Next, the problem of growth will be reconsidered by discussing
between growth control and smart growth.

2.1.3 From Growth Control to Smart Growth

After the Growth Machine Thesis focused on the politics of urban growth and

redevelopment (Molotch, 1976; Peterson, 1981), the negative effects of urban

growth become extruded in the research of built environments. The problems
brought by growth in the U.S. were mainly the phenomenon of 'urban sprawl',
which resulted in the loss of open space, historical sites, incompatible land use, and
the deterioration of the community's living environment.

Also, it was found that

high-density, planned communities are less costly to build and live in than
low-density 'sprawl', and suggested that sprawl produces more pollution than
planned high-density developments. As early as 1975, growth was no longer taken
for granted, and growth controls were in effect in many counties throughout the
United States (Cohn, 1979).

growth.

Many local authorities started to restrict and control

Growth controls are designed to significantly limit population growth,

housing construction, and/or economic growth below levels that would otherwise be
achieved in an unconstrained real estate market.
White (1978) concluded that the 'no-growth movement' is a direct extension of

earlier exclusionary zoning policies, which strengthened local community power

over land use.

sprawl.

But the growth controls did not really control growth and urban

On the contrary, growth controls raised the property values of current

residents at the expense of future buyers, and even encouraged more sprawl of urban

developments (Plotkin, 1987; Logan and Zhou, 1989).

Due to the debate over growth controls, a new theory named 'Smart Growth'

appeared.

'Smart Growth' was enacted into state zoning laws in 1997 to stop
18

'suburban sprawl', which is also known as 'New Urbanism'.

Many states have

adopted similar restrictions aimed at managing growth by increasing population

The theory behind 'Smart Growth' is that

densities in already developed areas.

areas with existing

Infilling' and other means of increasing population densities in
infrastructure

and

population

will

be

less

costly,

and

will

produce

environmental and other problems than would development in open space.

fewer

Upon

deliver the benefits they

examination, Smart Growth plans cannot in any way

to
promise (Campbell, 1998). In fact, smart growth will likely lead higher population
density with pollution, crime, and infrastructure problems.
the public in
In conclusion, neither growth control nor smart growth could satisfy
the U.S., because of the unfairness brought about to current residents and future

An alternative option should be made to balance the interests of the two

buyers.

Some

groups.

researchers

promote

letting

the

land

market

dictate

urban

development, but the land market could still be modified by government policies.
2.1.4

Approaches of the studies on CBD Development

Asian cities have been actively engaged in CBD development for many years since
the 1980s.

main
Private-public partnerships, urban representation, place making,

street programs, design competitions, and such have increasingly become part of the
CBD planning vocabulary in cities.

Yet over the past 10 years, surprisingly few

scholarly studies have addressed comparative CBD development comprehensively,

and most of the studies is focusing on urban design and planning approach. This

research will pay more attention to the political-economic approach.

2.1.4.1 The Urban Design Approach

Notable

books

on

CBD

development

and

design

are

merely

Anastasia

Loukaitou-Sideti and Tridib Banerjee's 'Urban Design Downtown' (1998), Bernard

Frieden and Lynn Sagalyn's 'Downtown Inc.' (1989), and Richard Francaviglia's
'Main Street Revisited' (1996).

Building upon the work of Whyte (1980; 1988), Loukaitou-Sideri and Banerjee
(1998) focused on the design, function, and consequences of public open spaces in
CBDs that have increasingly become privatized.
19

Drawing on a wide array of case

studies in Los Angeles and San Francisco, they argued that corporate pla7ns have

CBD
replaced streets, sidewalks, and public open spaces as the guiding force of
urban form.
development, and have become the dominant features of the downtown
Besides the books mentioned above, another important study focusing on CBD open
Owned Public Space: The New York City
spaces is Jerold Kayden's 'Privately

Experience' (2000).

Kayden (2000) studied the incentive zoning techniques to

create better quality public spaces by public-private partnerships.

The aim of

research is to provide the maximum quality and quantity of public space through
incentive zoning.

Until the 1980s, the urban planning department of New York

City had declined using incentive zoning to create public space, according to the
evaluation of the integrated quality of 320 pieces of privately-owned public space in
the city, because of the uneven quality and use of public space among these cases.

This result showed that the quality and quantity of public space has little relationship
to the use of people in these spaces.

Moreover, downtown shopping malls have

become very popular in modem cities recently.

These malls can be treated as

privately-owned interior public space, and could attract many pedestrians.

This

new trend as a solution for the decline of retail in CBDs should be paid more

attention, because malls utilize less outdoor public space.

Kayden's study also

interests
supports Loukaitou-Sideri and Banerjee's arguments that private business
in CBDs are the dominant feature of urban public spaces.

However, this urban design approach overestimated the impact of privatization on

public spaces, and there are also the same problems in govemment-led CBD
developments such as Shanghai, where there are some large public-owned open
parks in the CBD that are deserted. Therefore, privatization is not always the cause
of all the problems with urban public space.
2.1.4.2 The Urban Planning Approach
This approach is always used by planning-oriented researchers to discuss the role of

planning in the conflicts between private business forces and citizens' interests.
Due to the different views of planners and residents towards CBD development,
CBD plans often ignore the demands of the public and pay more attention to
economic development planning for governments.

20

Recently, Gratz and Mintz's

Downtown (1998), took this

book, Cities Back From the Edge: New Life for

Gratz and Mintz (1998) opened their account on the changing

approach.

downtowns of many US cities.

The recent rebirth evident in many cases results

from the complex interweaving of all the constitutive facets of these.

Gratz and Mintz set out to

infrastructure, and policies.

look

at the

synergy between

In this book,

people

in cities,

In particular, they started to highlight what is often the

efforts at revitalizing their

disparity between planners' and citizens' views of and
downtown areas.

of 'Urban Husbandry' was

Throughout the book, the concept

presented as an alternative approach to that of 'Project Planning'.

While the

the latter former emphasizes the creativity of citizens and the brealcing of 'rules',
- prioritizes the more
still the predominant approach, suggested the authors
rationalistic plans of bankers, planners, politicians, and developers.
Another notable study in this area is by Keating and Krumholz (1991), who

American large cities

critically reviewed the 1980's downtown plans in six North
with analyzing the social inequity problems in the planning process, and finally
concluded that Toronto's 1991 plan was the model for future development.
Frieden (1990) also argued that while government functions become privatized,

'planners might perform some or all of the functions as private real estate developers:
they bring together land, financing, feasibility studies, plans, regulatory permission,
construction

teams, and brokers in

order

to build

and

manage property'.

Furthermore, these projects are not only for government use, but they also generate
economic revenue by offering properties for sale or rent in land markets.

Frieden's

argument also could be supported by the case in Shanghai's CBD development,

which was led by government planning professionals.
2.1.4.3 The Political-Economic Approach

Urban political economy is a discipline about the relationship between politics and

economics, which may include the aspects of urban politics and urban economic
theories.

In other words, the political economy has a special interest in the impact

of politics on the economy and not vice versa.

Studies in this field have tried to use

a political economy approach to explain the problems in the urban (re)development

process.

This perspective is usually applied by Marxist and Neo-Marxist analysis.

Opposite to neo-classical economics, the Marxist analysis emphasizes a broader

21

social and economic context.

Marxists have argued that market forces are

structured by broader social and economic processes in urban development (Bassett

and Short, 1980).
This perspective also provides many insights into the relationship between urban

Urban governments are dealing with the

spatial development and social systems.

issues of organization decision-making and policy implementation processes.

Sanders (1958) stated that the urban political system consists of three principal

subsystems, i.e. official subsystem, party subsystem, and citizen subsystem.

three

systems

development.

intervene

in

urban

policy,

land

markets,

and

urban

All

spatial

So in a socialist country, public interests become more ambiguous

citizens in the process of urban

among the interests of governments, the party, and

development.

The result could be that citizens acquire the good images, while

officials and the party reap the increase or growth on property values.

Throughout the 20th Century, the power and hegemony of CBD business interests
have been a recurring theme in the planning history of America's major cities.

The

typical comparative study on this approach is Stephen J. McGovern's 'The Politics

of Downtown Development: Dynamic Political Cultures in San Francisco and
McGovern's approach built upon theory

Washington, DC' (McGovern, 1998).

propagated by Marxist scholars. He focused on the successful and sustainable

growth-control movement in San Francisco during the 1980s and 1990s, and an
emerging, although less noteworthy, progressive politics in Washington, DC, during
the 1990s.

His detailed appraisal of the battle over downtown development

policies in San Francisco in the 1970s and 1980s demonstrates that a coalition of
activists seeking to control the city's growth and promote neighborhood interests

prevailed over a city planning and downtown business pro-growth coalition.

But in

Washington DC, local neighborhoods became a victim of the downtown growth

coalition, which ignore residents' interests.
In summary, the test of McGovem's (1998) approach to planning politics will

benefit future research on the politics of planning. Also, this research would go
further along this approach.

22

2.2 THEORETICAL FRAMEWORK

The political economy approach is adopted to construct the theoretical framework.

While economic forces are important in shaping urban spatial development in the
two cases studied, it will be argued that their economic development has to be

understood in a wider context.

One major component of the theoretical framework

is an analysis of the power relationship among key actors in a political economy.

Although the difficulties of transforming stnictural relationships are fully

appreciated, this study adopts a dynamic perspective in understanding the power
relationship between different actors. As can be seen in Figure 2-2, the tentative
theoretical framework depicts a dynamic relationship among the actors in the

political economy.
Figure 2-2 The Theoretical Framework of Research
Growth Machine

Globalization

The Political Economy of Place

V
f

Public Actors

The Goveniment

Planners

Private Actors
Public
Private

Developers

Partnership

LandOwners

Pro-Growth Coalition

It is essential to investigate the power relationship among key actors

progrowth coalition.

in the

Four major groups or actors can be identified: (1) the political

elites in the government, (2) the professional elites (planners, economists and other

scholars), (3) landowners (work units or community residents), and (4) developers
(local private or public developers and foreign developers).
In Shanghai, the four actors can't be divided by public and private groups. Because
the govenment determines how the urban planning mechanisms are established and
23

implemented, and the govenunent monopolize both the private and public land
market. The role of local private developers is to pursue their interests in increasing
land and property values, which is related to economic development stated by the

growth machine thesis.

However, state-owned developers, which were the former

branches of local governments, could still participate both public and private

developments. While in Hong Kong, public actors and private actors are not
permitted to collaborate with each other, except in urban renewal programs.
In the following chapter, background information on the two cases under study will

be examined.

Some comparative statistics will be analyzed before the histories of

the two political economies are discussed.

2.2.1 The Political Economy of Place

For the past twenty years, academic research on urban development has been

characterized by a curious and troubling disjuncture between urban space and the
urban political economy. This disjuncture will be illustrated by the so-called 'growth

machine' model, which addresses urban redevelopment issues.

Developed within

an urban studies framework, the growth machine perspective has been utilized by
researchers in various academic fields, such as urban sociology, political science,
cultural geography, economics, history, and so on.

Also, the growth machine

perspective is very influential and durable in explaining urban spatial change.

So

this section will draw connections between urban space and urban studies, which
will explain the ways of urban development in the future.

Following that will be

the two sections on the concept of place in the urban political economy and the

application ofthe growth machine thesis in this perspective.

Place, in Logan and Molotch's definition regarding legal statutes and ordinary

imaginations, is stated as 'the earth below, the roof above, and the walls around
make up a special sort of commodity' (Logan and Molotch, 1987).

So in a market

society, place will be exchanged in a market and obeys the rules of demand and
supply.

However, place has its social value that it is the basis for the urban

livelihoods of people.

The capital class pursues the exchange value of place, but

the increased market value can't maximize the social value of place for all people in
all classes.

There is a conflict between exchange value and market value, and this

24

conflict shapes the urban space, the distribution of people and the way they live

cities and
together. In further, this tension could explain the political dimension of
Molotch, 1987).

discover how the cities changed (Logan

which
In the 1970s, leftists in the U.S. criticized mainstream urban social science,

advocated the participation of local business elites in the decision making of urban

redevelopment (Peterson, 1981).

During the same period, Harvey (1973) and

urban
Caste lls (1978) claimed their viewpoint as one that challenged the traditional

in the U.S.
sociology and neo-classical explanations of urban development

Their

works reflect the principles of Marxist structuralism in which capitalism is the basic

engine of urban change (Smith, 1988; Swanstrom, 1993). The main objective of
capitalism is the accumulation of capital, and therefore, this limits the options for
local governments and determines local policy, because local govemments are much

dependent on business capital to develop.

So the local state favors the capitalist

class, and uneven urban planning and development will emerge.

Many scholars

criticized the relative significance of the economy, 'place-specific' competition for

capital investment, and the role of the state in urban development (Feagin, 1985).
People and organizations with interests in places are usually the users of those places,
and these interests affect the use and exchange values of place.

On the other hand,

property entrepreneurs want to increase local rents by attracting investment to their

sites, regardless of the subsequent increase in land use density, loss of urban open

public space, and deteriorating building conditions.

Also, the pursuit of exchange

value creates competition between entrepreneurs of different places to meet the

tastes of capital investment.
In conclusion, urban space has been regarded as a place with exchange values in
recent decades. Consequently, coalition of public and private sectors is easily to be

formed, which could be explained by urban political theories.

2.2.2 Urban Political Matters
This section concerns the theories of urban politics in various ways, which was very
vibrant during the 1990s.

Also, the section will not only review an the theories

which explain and assess the major studies of urban politics, but also present their
own positions and contribute to the critiques and criticism with their evaluations and

25

original insights.
Regime theory sees the world through the lens of building governing coalitions to
accomplish public purposes. It leads us to focus our attention not on how decisions
are made, but on how important goals are set forth and achieved, on social

production rather than social accounting (Stoker, 1995).

Regulation theory provides a new language and frame of reference for the study of
urban politics.

Its focus is on the social and politico-economic institutions that

underlie the prevailing set of relationships between production, consumption, and

investment, and the implications of these changing relationships for urban

government and governance.
Neo-Marxist theory looks at the urban world through the lens of class relationships
and interests.

Pickvance (1995) indicated that it is particularly concerned with the

role ofthe state in the reproduction of capitalism.

Elite theory is concerned with the contention that urban govemments are ruled by a

relatively small number of people with like-minded, usually business,.

Pluralism is the starting point for much of the recent work on urban politics

(Hampton, 1991).

But there is not a simple definition of pluralism, and a lot of

debates on the theory of pluralism.

Among the above political theories, regime theory paid more attention on the
goveming coalitions, which would be much more related to this research than other
theories. Besides regime theory, the public-private partnership (PPP) is a new and
very hot research topic during recent years, because urban (re)development policy
was much influenced by local business elites and the growth coalition formed by

public and private interest groups (Logan and Molotch, 1987). Therefore, PPP will
be discussed in next section.

2.2.3 Public-Private Partnership

The public-private partnership (PPP) is a major approach of urban studies in
Western literature after World War II (Levine, 1989; Stephenson, 1991; Stone, 1987,

1989; Clarke, 1998; Keating, 1998; Stoker, 1998; Pierre, 1998; Walzer and York,
26

1998; Peters, 1998).

PPP have become an increasingly important form of urban

in most cities.
governance in the urban development process

Peters (1998) stated

the five-point characterization of PPPs:

a
Involve two or more actors, at least one of which is public entit.
2. Each of the particpating actors can bargain on its own behaf
3. The partnership involves a long-term, enduring relationship.
to the
4. Each actor must be able to bring either material or symbolic goods
1.

relationship.
5. All actors have a shared responsibility for the outcomes (pp. 12-13).
the
For the past several decades, mobilizing public-private partnerships has been

preferred approach to implement urban redevelopment.

Local governments,

community-based organizations, foundations, neighborhood groups and other

community advocates represent the public. Real estate developers and investors,
commercial bankers, and tenants or their brokers represent the private sector. The
focus of these efforts has been finding ways to lower risks or increase returns to

private participants in order to attract investment capital to redevelopment projects.

Urban redevelopment projects now involve more actors on both the public and

private side. In many cities, the lead role has shifted from the public sector to the
non-profit sector, a change that has paralleled the growing importance of
non-govenmental organizations (NGOs) in international development. Land
development corporations (LDCs), have become the champions of public-private
redevelopment projects.
However, the PPPs are always dominated by private sector, and the public sector has
to depend on the resources from the private sector. Also, government officials are

apt to believe that government should be run like a business and dominate the PPP
in the urban (re)development.

partnership between the

But much evidence

has

proven that an equal

public and private sectors would

sustain urban

redevelopment for a longer term, and at the same time pursue the public interest,
although local officials should have a tough entrepreneurial attitude.

2.2.4 Towards an Equal Public-Private Partnership

Overall, the public and private sectors can never be equal in the coalition unless they
are in a joint venture and limited corporation, and the public sector can't act as a

27

factors that would undermine the business

partner in the coalition because of many

relationship between the public and private sectors.

For example, the unequal issues include asymmetries of information, risk, capital,
and power.

its best to
Under such circumstances, the business sector would try

to
collect as much information as possible in order to avoid risks and uncertainties

guarantee financial benefits.

However, if the opportunities to obtain information

have an advantage
and financial support are unequal, some private partners would
with the
and earn more profits from the project when they have strong relationships

So the government should reduce their policy and fiscal

public sector.

uncertainties and keep the information transparent to private partners.

the possibilities of
According to the game theory, private sector partners will count
benefits based on the limited information and bottom line reasoning in Figure 2-3.

Figure 2-3 Calculations of Potential Risks and Benefits by Each Partner

Potential risks

Potential

High

Low

High

Speculation

Sure thing

Low

Bad deal

Matter of indifference

Benefits

(Source: Cummings, et. al, 1989, p216)

In this figure, every partner would like to choose the 'sure thing' with low potential
risks and high benefits.

If the 'sure thing' is not possible, every partner would then

select the next best option of speculation, and if one doesn't, someone would do the
indifferent matter.

No one wants a bad deal.

When there is a lack of information

in the property market, and if most ofthe partners have the good abilities of cost and
benefit analysis or calculation, unpredictable events would happen so that either the

private or public sector will be at a disadvantage.

Figure 2-4 shows the

hypothetical relationship between the private and public sectors when they form a
coalition for development.

28

between Public and Private Partners

Figure 24 Types of Business Relationship
Public Benefits

Private

Benefits

High

Low

High

Equal partnership

Exploitation of public partner

Low

Public Enterprise

Depressed urban economy

(Source: Cummmgs, et. al, 1989, p

and private
There are two factors that produce major inequalities between public

partners.

The first is what Fried and Palmer (1984) called the 'capacity to exit'.

the coalition,
When the public and private sectors negotiate over the arrangement of

if one partner has more options than the other, inequality will result.

In other

the advantage of
words, if one partner has a greater 'capacity to exit', it will be to
the partnership.
The second factor is the unequal information available to partners.

Jones and

Bachelor (1984) analyzed the problems related to what they termed the 'corporate

to attract more
surplus' in their study on government place promotions that want
production plants to their local areas. In this process, city governments may
provide some incentives to private developers to undertake the projects. If private
about what governments could
partners have access to the completed information
concede in negotiations, they would be able to obtain 'surplus concessions' or more
benefits from governments, because government officials are usually eager for quick,
solid urban growth and development for political and economic reasons without

considering public costs.

Therefore, when public sectors become growth-oriented, private sectors are easy to
control the partnership and gain more benefits. Consequently, local public and

private sectors form a pro-growth coalition.

2.3 SUMMARY

This chapter summarizes the related theories on urban development, especially on

29

theoretical
the political economy approach. Based on the review of theories, the
framework is constructed. According to the literature review, there are few empirical
studies on the political economy of urban (re)development, compared with plenty of
researches on case studies and comparative studies. Also, fewer scholars study the
transitional economy

and political environment

in China,

except

for some

informational papers on urban spatial changes from the urban design approach.
This research could contribute to urban political economy discourse, and enrich the

empirical analysis in China, which has the fastest economic and urban growth rate.
Further, this research tries to use the growth machine thesis to explain the land

development in Shanghai and Hong Kong, though the two cities are not perfect
models of growth machine. Next three chapters will discuss the background and
detailed actors of the political economy in Shanghai and Hong Kong.

30

CHAPTER 3

CASE STUDY: CBD DEVELOPMENT IN SHANGHAI

This Chapter will discuss the political economy of the development process of the
CBD of Shanghai's Pudong.

a
Special focus will be put on the formation of

pro-growth coalition that influences urban development under gradual economic

First, the political economy

reforms and a decentralized administration framework.

background of the pro-growth strategies of governments will be introduced.

Second, the major actors of the coalition will be pointed out and the process of

gowth coalition formation will be interpreted. Third, the development of Shanghai

Lujiazui CBD will be introduced and discussed.

3.1 CHINA'S URBAN POLITICAL ECONOMY AS A

BACKGROUND

The main characteristic of the changing political economy in China could be

concluded as a process of decentralization since the 1980s.

As a consequence,

privatization and localization play key roles in the reform era.

However, the extent

of privatization is far less than one of localization.

The central-local relationship

has been changed by the decentralized fiscal system since the late 1980s.
was tightly controlled on finance during the early

1980s,

Shanghai

and then gained a

privileged autonomic status in the late 1980s, which contributed to the formation of
its local pro-growth coalition. Then, the overall changes of political economy of
31

China will be introduced at first.

3.1.1

The Change in the Chinese Political Economy

era have mainly focused

Studies on the Chinese political economy in the post-Mao
two major parallel routes:
on the process and approaches of reform, which includes

economic reform and political reform.

The fatal issue of the two routes of reform

and
is decentralization, which can be divided into property rights decentralization

intergovernmental decentralization (Schurmann, 1968; Gary

White, 1982).

The

former route is a decentralized process from public ownership to private ownership,

the
and the latter route is generally a process of political power redistribution from
central goverunent to local provincial governments and parallel system to sectoral
system, or even farther downwards to local district governments.

3.1.1.1 China's Economic Reforms

From 1978 to 1994, China's economic reforms could be roughly divided into five

In the first stage (1978-1984), along with agricultural

stages (Zheng, 1995).

reforms, decentralization of power from the central to provincial governments

happened in the southeastern part of China first in 1981, after Deng Xiaoping
returned to the political leadership stage in 1978.
In the second stage (1984-1988), the central government paid more attention to the

decentralization of power to local governments and enterprises by fiscal and

investment reforms.

period.

Local autonomy was significantly increased during that

At the same time, central revenue was significantly decreased.

In the third

stage (1988-1991), the central government realized the financial

difficulties after the decentralization of the fiscal system, and wanted to recentralize
power to control the economy through the instrument of adjusting the price of goods.

But the central government found it difficult to regain the decentralized power from

provincial governments.
32

initiated a new fiscal

Then, in the fourth stage (1992-1994), the central government
decentralization and reforms, but also prevents the
system, which not only promotes
which will do
central government's revenue from flowing to local governments,
harm to the state's capacity for further economic developments and reforms.
The fifth stage is from 1994 to the present.

During this period, China quickly

transformed as a result of local developmentalism.

In the coastal provinces, local

to promote rapid local

governments displayed their entrepreneurship and ambitions
economic

Also,

growth.

provincial-owned,

there

exists

competition

municipal-owned, collectively-owned,

among

state-owned,

and privately-owned

enterprises, along with foreign direct investments (FDI) under the market system
that opened in 1988.

However, collectively and privately-owned entetprises,

and efficiency
together with the FDI industries, have displayed higher growth rates
than SOEs, which are still the main component of the Chinese economy.
The above phenomena led to the further decentralization of property rights and
power to lower governments.

confrolled and adjusted

A greater percentage of resources are now being

by market price, rather than

by plan.

Moreover,

accompanying the rapid local growth, central power began to decline and the state
budget only took in a small part of the GDP--from over 60% before 1980 to less
than 20% in 1989 and 30% or more after 1994. This change also influenced the

patterns of investment financing from central support to local self sufficiency such
as infrastructure investment.

3.1.1.2 The Decentralization of Property Rights and the Fiscal System

Property rights, as Demsetz's notion, are a bundle of rights that include control,
income, and transfer rights (Demsetz, 1988; Pejovich, 1990).

According to the

theories of neo-classical economics, the value of an asset is determined by how

secure its property rights are.

If property rights are not clearly delineated, people

would have no incentive to pursue personal gains, which would lead to a tragedy of
33

the commons (Smith, 1776; Hardin,

1968).

The Coase Theorem states that

costless transaction cost in exchange will lead to the most effcient use of resources,

regardless of the allocation of property rights (Coase, 1960).

But in reality, if the

matters
transaction cost is not equal to zero, then the assignment of property rights
with the efficiency.

the right to
Generally, property rights are composed of three essential meanings:
receive the profit; the right to determine the usage; and the right to sell or transfer
the assets to another party.

In a market economy, the owner's profits depend on

the demands of the market, and owners have to compete with each other for higher

profits.

But in a planned economy like during Mao's era, all the enterprises are

public assets controlled by the government, and there is no competition among them.
In order to achieve higher economic growth, decision-making power must be

decentralized to individual enterprises to generate

competition.

However, in

the local
contemporary China, most property rights are only decentralized to
government level, and competition is not as perfect as mentioned in neo-classical
economics theory.

But this kind of localism or localization already leads to a local

rapid economic growth under intensive inter-district or inter-enterprise competition,

although most enterprises are state-owned or collectively-owned.

As a matter of

fact, competition among local governments in China has been very effective in

promoting economic growth.

At the same time, the central government seldom

intervenes in the market unless it involves state-owned firms.

But in the course of China's reforms, fiscal power has been radically decentralized
to local governments, which serves as an incentive mechanism

economic growth.

to encourage

Also, fiscal decentralization gives local governments a chance

to accumulate capital to develop local businesses and investments.

In turn, these

investments could benefit certain industries and fund economic growth again.
In conclusion, fiscal decentralization and property rights localization combine to

provide

an institutional setting for local economic

34

development.

Fiscal

decentralization helps to create an institutional incentive mechanism for local

local officials to participate

developments, and property rights localization enables
in the decision-making of local enterprises and financially support their development

and growth.

leads to protectionism, market

Although local economic intervention

to
competition can be realized among local governments and enterprises belonging
different type of ownership.

Unlike the market system advocated by neo-classical

and
economics, institutional property rights also lead to market competition
economic growth.

Moreover, only political power is decentralized within the

political regime, rather than from state to society like in Western democratic
countries, while property rights are decentralized to local governments and

enterprise groups, rather than to individual enterprises.

3.1.2 The Emerging of Land and Housing Market

A market environment emerged as economic reforms led to independent market

players, market mechanisms and rules, and sectoral markets.

At the national level,

SOEs were transforrmed into independent players, while non-state economies, such
as joint ventures and private businesses, grew rapidly in number and size (Leung,

1990; Han and Pannell, 1999).

finance to enterprises.

The banking system was reformed to provide easier

Numerous laws and regulations were endorsed to set up

rules for the emerging market to operate properly (World Bank, 1997).

Sectoral

markets for labour, capital, technology, land and housing, among others, were

rapidly formed.
The land and housing markets began to formulate in 1980s, when experiments were
conducted in selected cities. In 1982, the idea of introducing a land-use fee was
conceived in the National Planning Congress. In the same year, land-use fees were
collected in selected cities, including Shenzhen, for a trial test.

With experiences

and lessons in housing and land reforms in the selected cities, the central

government amended the Constitution in 1988 so that a land-use right could be

35

Consequently, the Land Administration Act was

transferred according to law.

amended to provide a legal base for the land and housing markets.

Today, the land

and housing market is active in China, playing a critical role in the national
economy (Han, 1998).
In Shanghai, the increase in independent market players undermined the state's

According to Lu, et al. (1995), the state monopoly

monopoly in economic affairs.

was replaced by monopolised competition or complete competition, as more and

more independent actors came

to play

in the market.

Indeed, joint-venture

enterprises and foreign investments became a major part of the economy, spreading
to a wide range of sectors including manufacturing, construction, commerce, and
finance (Gu and Xu, 1989).

Private businesses grew at an average rate of 30

percent per annum, in terms of the number of establishments, during the period
1979-91.

But during the early 1990s, this growth rate increased to 50 percent

(Chen, 1994).
The land and housing markets of Shanghai progressed through three stages.

From

1979 to 1987, the municipal government set up a goal of commercialising housing

provision, property investment, and land development.

An experiment was

conducted to convert some new housing stock into commercial housing, targeting

those who had relatives overseas.

This experiment led to the endorsement of

Administrative Measures on the Sale of Commercial Housing by the municipal

govenunent.

In 1986, a land-use fee was collected from foreign investors, thus

abolishing free land use.

In addition, this first phase prepared for other reforms to

follow by performing an inventory of housing and land stocks (Cai and Gu, 1992).
A major change was introduced in 1987 when the collection of the land-use fee was

replaced by a new scheme of land-use rights transfer.

allocation
directives.

Under this new scheme, land

was regulated by market conditions rather than by administrative

In late

1987, the municipal

government endorsed

China's first

regulation on the transfer of the land-use right (i.e. Rules on Land--use Rights
36

Transfer) in Shanghai.

In 1988, Shanghai successfully opened China's first

international bidding on land-use rights.

in the development
The year 1990 marked the third and also the most active phase

of Shanghai's land and housing markets.

In the Many Regulations on Land

in
Administration in Pudong New Area, endorsed by the municipal government

to the Pudong New Area.

1990, a scheme of land-use rights transfer*was introduced
if their
Then since 1998, land-use fees was also charged from domestic investors,

projects were commercial development. Until July of 2001, two separated market,
land
as
foreign and domestic land property market, was combined finally, higher
price was charged from foreign investors before 2001 in Shanghai.
After 2001, the united property market was formulated, and the property price went
much higher than before, which reflected the rising confidence of both foreign and
domestic investors. As to the land market of Shanghai, there are still some

dues to
ambiguous relationships existed between landowners and developers, which
the political administration system.

3.1.3 Reform of Local Administration in Shanghai

The term 'local government' in studies of China's urban politics often refers to the

provincial, county, or municipal governments (Chung, 1999; Duckett, 1998; White,

1991).

Comparatively,

inadequate

research has

understanding of urban administrative reform.

been

conducted

into

the

In Chinese literature, relevant

discussions could be found under various topics in different disciplines, for example,
'administration regions'

in geography (Pu,

1995),

economic institutions and

government regulation in economics (Yang and Yang, 2000), community studies in

sociology (Sun, 1997), urban management studies (Hua, 2000), and last but not least,
effective urban planning (Zhang, 1999). Along with the fiscal decentralization in

Shanghai, the main task of urban administration reform was also decentralization.

37

3.1.3.1 Decentralization of Administration Power to Local Districts

The changing fiscal system created an incentive for decentralised urban management.
the
In the early days of reform, economic decentralisation occurred mainly at

national and provincial levels.

However, the fiscal contract system continued to

force local governments who gained fiscal autonomy to take up responsibility for
revenue mobilisation and collection.

To cope with such a difficult task, local

municipal governments have to further 'sub-contract' the responsibility to county

and district governments.

The decentralisation of power to lower levels

of

in large cities
government now becomes apparent as a feature of urban management
such as Beijing, Shanghai, and Guangzhou.
3.1.3.1.1 The Power of Municipal Governments

Shanghai was granted a preferential fiscal contract package in 1988 (Yeung, 1996).
While the municipal govemment was allowed to retain certain local revenues, the
new policy transferred the responsibility from the central government to municipal

governments.

The pressure of revenue mobilisation plus the decreasing revenue

base due to the deterioration of SOEs forced the municipality to entrust greater
power to district and county governments.

Since 1990, the district governments

have gradually gained a whole array of administrative powers, including planning,

financial

management,

maintenance of public

works, the pricing

of staple

commodities, foreign trade, and industrial and commercial administration (Wu,

2000).

Between 1992 and 1993, the right of land-use planning was given to the

district and county governments who are now responsible for preparing detailed

development control plans (DDCP) and granting planning permissions.

Because of the shift of the CCP's central task in economic development, the role of

the city in organizing economic activities has been recognized.

seen as the economic center to promote regional development.

The city is then

In 1995, Shanghai

municipal government proposed a new administrative structure of 'two levels of

38

in the urban districts, and 'three levels

government and three levels of management'
in the suburban counties (Zhao, et
of govenment and three levels of management'

al., 1998).

districts
Since 1988, the fiscal relationship between municipalities and

has been the same with

which a
central-Shanghai relations, in

lower level

level government, and will only receive a

government has contracts with an upper
fixed amount of finds.

As a result, all levels of government have to entrepreneur

and infrastructure
their local areas for more revenue to support the administration
construction costs.

The structure and number of local governments are shown in

Table 3-1.
the End of 2003
Table 3-1. The Structure of Local Government in Shanghai at

Number

Layer

Type Note

1st
2nd

The Municipal Government

Urban Districts (Qu)

1
18

(Shi)

List
Huangpu, Nanshi, Luwan, Xuhui,

Changning, Jing'an, Putuo,

Zhabei, Hongkou, Yangpu,
Pudong New Area, Minhang,
Jiading, Baoshan, Jinshan,

Songjiang, Qingpu, Nanhui,

Fengxian
3rd

4th

Counties (Xian)
Street Offices (Jie Dao)
Towns (Zhen)

1
100

Townships (Xiang)

3 belong to Counties

Residents' Committees

3293

All belong to Street Offices

Villagers' Committees

1991

All belong to Town or Township

118

Chongming
All in Urban Districts
105 belong to Urban Districts; 13
to Counties

(Source: compiled from Shanghai Almanac, 2004)

The

four

layers

of local

govenunent,

Municipality,

District/county,

Street

Office/town/township, and Residents and villagers' committees belong to the

'territorial' system.

As a result of decentralization, municipalities now have

substantial power in regulating local development.

The role of municipalities has

changed from a complementary one that supported state projects to a more proactive
one that prepares local development strategies.

Municipalities are now using

various methods to mobilize resources to increase investment.

Decentralized urban

governance was consolidated by the further introduction of a new tax-sharing

39

system in 1994.

A uniform formula was adopted in revenue sharing across the

nation to substitute for the hitherto bilateral bargaining between the central and local

governments (Wong, 1995; Yeung, 1996).

The new system divides taxes into

the central
centrally collected taxes, locally collected taxes, and the taxes shared by
and local governments.

Thus, local governments have gained fiscal autonomy and

the ability to decide local taxes.

Local governments are keen to promote the growth of tertiary industries, in

particular the high-density commercial development and service sectors, because

these sectors can bring value-added tax and business income tax that are now the

main sources of local revenue (Wu, 2000).

3.1.3.1.2 The Power of Urban Districts
In Shanghai, district-level collective enterprises provide an important source of

employment outside the 'wholly state-owned sector'.

After the implementation of

social contracts and land leasing, urban districts became important in terms of

organizing land development.

pressure

of revenue

The municipality, confronted by the increasing

mobilization,

further

signed

'contract'

with

district

governments.
Since 1990, the urban districts of Shanghai have

gained a whole array of

administrative powers, including planning, public works maintenance, approval of

local foreign trade, and commercial administration.

Since then, the urban districts

have gained important functions relating to the organization of urban development.

Competition among urban districts for attracting investment has become intense.
For example, each district wants to set up its own commercial and business centre
and development zones to draw business to its jurisdiction.

The interest of local

business rather than the interest of the whole city is often seen as a priority by
distict govenunents.

Conflict between the municipality and districts/counties is

not unconunon.

40

COALITION
3.2 THE FORMATION OF PRO-GROWTH

in land development
As a result of the local government's entrepreneurial behavior

coalition is formed soon

and urban growth for higher local revenue, the pro-growth
will
for accelerating the urban development or redevelopment. Land development
the image of a city will benefit
attract more investment, and in return, the change of
investors as well as the leadership for their entrepreneur endeavors.

Shanghai's

and both
pro-growth coalition has been studied by Zhu (1999b) and Zhang (2002),
and
of them paid more attention to the coalition between foreign private companies

Shanghai's local government.

This research further discusses the coalition

formation in both domestic and foreign land development in Shanghai, which

This section will

includes both public-private and public-public partnerships.

how it works.
particularly analyze what the pro-growth coalition consists of and
3.2.1 The Actors of Pro-Growth Coalition

The pro-growth coalition in Shanghai was formed by four partners, including

and land holders.

governments, local planners, land developers,
coalition actors are dominated by fragmented public sector.

Shanghai's

Also, the fragmented

public sector fell under a bureaucratic framework due to decentralized property

rights and administration power.
3.2.1.1 Local Governments in Shanghai

China has had a top-down bureaucratic and authoritarian legacy since the 1950s.
Since the reforms starting at the end of the 1970s, authoritarian power has been
decentralized from central to local.

Local provinces and municipalities obtained

more fiscal and political autonomy than before, and after 1984, decentralization

began inside the provinces and municipalities (Teiwes, 1995).

The size of the

central government shrank, with power shifting to the market and local provinces
41

and municipalities.

However, the bureaucratic structure still exists in China's

levels of goverunents.
political and economic system. SOEs also belong to different
3.2.1.2 Planners

former Soviet Union's

The urban planning in China was much influenced by the

economic planning and

ideology, which took city planning as a tool to implement

political purposes.

Urban planning department usually has less power than the

economic department within municipal governments. Thus, planning ideology still

has

a legacy

of economic

planning, and planners were

much regarded as

subordinate branch of local government.

3.2.1.3 Developers

is
Land developers in Shanghai could be divided into two main types: the first type

the
foreign developer, who hails mainly from Hong Kong, Japan, Taiwan, etc.;
second type is the local developer, who is state or municipal-owned, shareholding,

collective, private, and other forms of enterprise.

According to the data shown in

Figure 3-1, collective and private developers only comprise a small part in Shanghai,
and are under bureaucratic patronage (Wank, 1995; Walder,

research

1992).

So this

will pay more attention to the state, municipal and district-owned

developers.
3.2.1.3.1 The Restrictions on Foreign Developers

Shanghai has a dual land market (i.e. domestic and foreign land market) before 2001,
which is separated for both buyers and developers.

This dual land market was

initially formed for the purpose of protecting local residents' interests from foreign
speculation.

From 2000, driven by China's accession to the WTO, the foreign and

domestic dual land markets mergered in the middle of 2001. As China entered the

WTO, foreign direct investments on real estate have largely increased since 2000.
However, foreign developers only occupy one third of the real estate investment in
42

control
Shanghai, and local state or municipal-owned or shareholding corporations
most of the land resources (see Figure 3-1 and 3-2).

2002
in
Figure 3-1 Real Estate Investments by Sectors Shanghai,
2110 -

1000 --

Foreign In''e
i

1993

1994

1993

1995

1997

1999

1939

2000

2001

-e-- TO Inveslma

2002

Year

(Source: Shanghai Real Estate Market, 2002)

Figure 3-2 Real Estate Investments by Foreign Investors in Shanghai, 2002

II Tate Investment
* Foreign knestmenli

1993

1994

1996

1996

1997

1998
YeN

43

199O

2000

2001

20

(Source: Shanghai Real Estate Market, 2002)

in
According to Figure 3-2, the increase of residential development and land supply
2001 was the double the amount in 2000, but foreign investment only increased less
than 70%.
In order to increase the transparency of land supply among developers, Shanghai's

municipal government stated that from July 1, 2001, all plots of land other than for
will only be available
purposes of public utility and other non-commercial purposes

through tenders and public auctions.

Exceptions only apply to urban renewal

projects, which are sold through negotiations and agreements.

However, this

policy was not well implemented by district governments, because many projects in
Shanghai are 'urban renewal' projects, which are still via private treaty.
3.2.1.3.2 Local Developers and Housing Reform

Shanghai's housing is provided by work units as welfare before the housing reforms.
Many local developers derived from the Division of Construction in SOEs, whose
task was to build houses or workplaces for their own units.

After the land reforms,

these developers could utilize their land both for commercial and private uses.

So

many developers were formed based on them.

Local Developers mainly include state-owned and shareholding developers.

Figure

3-1 showed that there is a decline of investment in SOEs, and a rise of shareholding

investments.

The reason for this is that China advocates an economic reform

policy to convert the SOEs' ownership to market-based ownership types, which is to

separate the right of ownership and management.

This kind of formation resulted

in a rapid increase of the number local developers to over 8,000.

But few studies

have focused on the formation of local developers and how they worked in the dual
land market before 2001, when the overseas and domestic sales of land merged.

44

3.2.1.4 Local Land Holders and the Emerging Land Market

to the land
Land in Shanghai is in the transition form administration distribution
of the 1980s.
market through the land reforms beginning at the end

The Chinese

use rights from the land ownership,

urban land reforms are to separate the land

the paid land use right

ensuring that the state owns all the land and the enterprise has
et
Y.,
(LUR) by land leasing. Many researchers in China (Li, H., al., 1988; Wang,
a number of publications in
1992a, 1992b, 1992c; Zhang and Zhang, 1991) and

of land reform, the

English (Dowall, 1993; Walker, 1991) have studied the process
land development process (Li, L. H., 1999; Wong and Zhao, 1999; Wu, 1997; Yeh
L. H.,
and Wu, 1996), the land valuation system and benchmark pricing behavior (Li,

case studies (Gaubatz 1999;

1995; Li and Walker, 1996), taxation on urban land, and
Li, L. H., 1997a, 1997b; Wu, 1999; Zhu, 1994).

However, the emerging urban

land market in China is still a constrained land market with ambiguous property

rights.

A number of fundamental issues have not been studied clearly.

3.2.1.4.1 China's Land Reforms and Emerging Land Market

the
China's urban land reform is divided into three stages: from 1984 to 1987, with
introduction of the land-use fee and arable land occupation tax; from 1988 to 1990,
with the establishment of the legal foundation for and the pilot practice in the paid
land and the introduction of the urban
conveyance of LURs in state-owned urban

land-use tax; and from 1990 until the present, with the nationwide development of
the paid conveyance and transfer of LURs in state-owned urban land.

Government

agencies and SOEs still obtain land through the land allocation process. Xue (1994)
points out that about 80 percent of the lands in urban areas are allocated.

'The

coexistence of the land allocation system and the LUR system is commonly known
as the double tracks system in mainland China (Zhou, Chen, and Chau, 1992). In

Shanghai, land allocation rights are arranged by a hierarchy of governments. The

hierarchy of land administration was legislated in November 1994 as indicated in the
Table 3-2.
45

in 1999
Table 3-2 The Hierarchy of Land Administration in Shanghai
Plot Size (10,000 sq.m)

Government

Administration Area

State Council

Acquisition of basic farm land

Acquisition of rural land

Acquisition of other land

35

Municipal Government

Special Areas and Streets

or
Central,
Army

70
District or county's limits
other

n.a.

Provincial's projects

County Government

3.3

Acquisition of rural land

Acquisition of other land

6.6

Bao Shan, Jia Ding and

Acquisition of rural land

Min Hang District

Acquisition of other land

District Government

Acquisition of rural land

Acquisition of other land

Ministry of Land and Resource (1999)

Source: Shanghai Municipal Govemment (1994)

Table 3-3. Urban Land Markets in Shanghai during the 1990s

Transaction types

Land

Transaction

Actors

ways

markets

Administration

I-1 Acquisition of Rural Land

Domesti

County

for administrative allocation

c Market

Municipality (Seller) Work Unit (User)

1-2 Acquisition of rural land for

Foreign

County

leasing

Market

Municipality (Seller) Foreign Developer

and negotiation

1-3 Acquisition of urban land

Foreign

Work Unit (Owner) Municipal or District

Tender, auction

for leasing

Market

Government (Seller) Foreign Developer

and negotiation

I1-1 Conveyance of LURs by

Domesti

Rural

Tender

acquisition of rural land

c Market

Govemment(Seller) Domestic Developer

11-2 Conveyance of LURs by

Domesti

Work

acquisition of urban land

c Market

District Govemment(Seller)

governments(Owner)

allocation

Govemment(Owner)

Government

Unit (Owner)

(Owner)

County

Municipality

or

Domestic

Tender, auction

and

negotiation
Tender

and

negotiation

Developer
11-3 Conveyance of LURs by
of
commodification

Domesti

Existing-User (Owner) New user (buyer)

Negotiation

Land-user (seller) New-user (buyer)

Negotiation

c Market

administratively allocated land

III Transfer of paid LURs

Domesti
c Market

Source: Based on Xie, et al (2002).

Table 3-3 showed that most of the urban landowner is SOEs initially, and rural land
is held by township governments.

All of the users (owners) regarded their land as

46

commodities after the formal land reforms in 1988.

3.2.1.4.2 Land Holder: Enterprise Groups
be achieved by two methods.
The supply of urban land to the market continues to

land is supplied by way of land

First, land is administratively allocated; Second,
is the commodification of existing
leasing. But the land for leasing sometimes
administratively allocated land as well as rural land.

SOEs and public institutions

allocation.
can apply for the requisition of rural land by administrative

Their costs

land leasing (Mok,

for LURs are far lower than the cost of obtaining LURs by way of

1996).
use rights to
The SOEs could seek profit from the land market by selling the land

land developers at a higher market price (Zhu, 1999).

continue to be major urban land-users.

Therefore, the SOEs

In Shanghai's inner ring area, which is

sites
about 106 sq. km., there existed 2,000 enterprises with 3,650 production

Inner Ring Area.

occupying land of up to 1,450 ha., which is nearly 15% of the
to Central or Municipal
Also, 85% of these enterprises were SOEs which belonged
industrial departments (Yang and Xia, 2001).

Table 3-4 shows the distribution of

land by the municipal departments of Shanghai in 1992.

Table 3-4 The SOEs Inside the Inner Ring of Shanghai in 1992

Municipal Departments

Number of SOEs

Land Area (ha)

Fabric and Textile

346

308.5

Second Light Industry

253

103.3

Light Industry

185

195

Electronic Mechanical Engineering

141

150

Chemistry

49

79.5

Archery

12

59.7

Material

12

88.7

Others

179

183.3

Total

1165

1168

(Source: adapted from Yang and Xia, 2001)

Also, the SOEs were very inefficient.
47

China's 118,000 SOEs are estimated to

employ about two-thirds of China's 210 million urban workers.

Due to their

in China's
inefficient operation, increasingly SOEs are playing a smaller share
industrial output.

China's
According to the China Statistical Yearbook released by

National Bureau of Statistics (2000), SOEs

industrial output in 1980.

contributed about 75 percent of

By 1990, the contribution of SOEs dropped to 54.6

28.2 percent of total industrial output.

percent, and by 1999 it plummeted to

Out of

about 1,000
China's 118,000 SOEs, the central government will continue to manage

large enterprises.

These large-scale enterprises are expected to face market

discipline by virtue of being listed in a regional stock market.

According to Zhu

or to fall into
Rongji's plan, the rest of the SOEs were allowed to go bankrupt
were increasingly willing to
private hands. Consequently under this plan, SOEs
sell their land and move from central location to outer fringes.

3.2.1.4.3 Land Holder: Rural Governments

When urban land becomes limited for real estate development, rural land then
During the past 20 years, coastal

became the target for developers and speculators.

township and village governments have tried to attract domestic or foreign profitable
enterprises by leasing rural land to collect revenue and setting up local social
security systems. Table 3-5 shows that urban districts only share less than 20% of
the land market in Shanghai.

As with SOEs in urban areas, the land parcels, which

belong to rural governments, are the main land resource in suburban areas.
Table 3-5 Land Leasing in Shanghai, 2000
Land Leasing for
Domestic Sales
(10000 sqm.)

Land Leasing for

Foreign Sales
(10000 sqm.)

Foreign Leasing for

Domestic Sales (10000
sqmO

Total Areas
(10000 sqm)

Urban Districts

361.49

16.09

21.33

398.91

Suburb Districts

155.86

139.41

31.47

326.74

Pudong New Area

514.04

19.24

533.28

Counties

647.83

227.92

47.53

923.28

Source: Shanghai Real Estate Market, 2001

48

3.2.1.5 Missing Actors

of residents and private

According to the above sections, the community power
been missing from the growth coalition in
business elites (foreign and domestic) had

Shanghai.

Although residents have the right to buy private ownership housing,

the decision-making process of urban planning,

they have no right to participate in
and can't protect their interests related to their properties.

If the government

some residents' interests, residents will not

changes a city plan and does harm to
are no laws protecting private
have the power to change things because there
interests from the government's policies.

Some cases happening in the real estate

field are only residents against developers.

Also, private business elites have less

controls most of
political power than in Western societies, because the government
the resources such as land, SOEs, and rural collectives.

Private elites have to

utilize guanxi or rentseeking to get the bureaucracies' support.

Also in Shanghai, the community was a basic administration unit at the lowest level,
the
and street offices have the decision-making rights, like directly instructing

community's affairs.

But the power of residents is weak, because communities in

in the villages and

Shanghai are still under the bureaucratic model as well as those
townships.
3.2.2 The Pro-Growth Coalition Hierarchy

There is a very complicated coalition relationship among governments, planners,

developers, and SOE land holders in Shanghai.

The main reason for it is that all

four actors were in a hierarchy of the bureaucratic system before 1995 (Naughton,

1992; Walder, 1992).

Within the hierarchy, land administration rights were

distributed to the governments on each level as shown in Table 3-6.

In actuality,

lower level governments didn't want to lose their control over their local lands,
which were larger than the limit of their administrative rights.

They usually

subdivided the land into smaller pieces, which were within the size for their control,
49

so they could retain the land for satisfying their local development strategies (Zhao
et al, 1998).

Bureau
In addition, the SOEs formerly belonged to the Industrial

into Enterprise
before 1988, and after the transformation of Industrial Bureaus

these large industrial groups.

Groups, their land was transferred to

Also, along

have the
with the decentralization of property rights, industrial groups in Shanghai

authority to handle their rights with support from the central government.

But

the
there are still some traces of guanxi existing between the lower governments and
industrial groups.

These traces of guanxi and related coalition actors are illustrated

in Table 3-6.

Table 3-6 The Hierarchy of Coalition among Actors

Government

Hierarchy of Local

Hierarchy of the SOEs

Hierarchy

Hierarchy of

Developers

Planning Bureau

Related Ministry

Industrial Groups belong to

Central

Ministry of
Construction

Municipal

Industrial Groups belong to

Quasi-Goverunent

Municipal

Government

Municipality

Developers

Planning Bureau

District or County
Govenunent

SOEs belong to District or

Government

Developers derived
from the SOEs

District or
County Planning
Bureau

Town or

Township or Villege Enterprise

Quasi-Government

Township

(TVE)

developers

Government

According to Table 3-6, within Shanghai, there are four levels of 'land' holders,
which are no longer in one bureaucratic system.

independent coalitions in land development.

Actors at each level would form

For example, Pudong Lujiazui, which

belonged to an industrial group at the municipality level, returned the land to the
muicipality and moved on to the new CBD project. As stated in Table 3-11, there
are two types of local developers in Shanghai: the first is the quasi-government

developer, and the second is derived from the SOEs.

In the game of land resources, actors on every level formed a fragmental pattern of

growth coalitions.

The top 100 land developers in Shanghai were listed every year

according to their development areas and incomes.

50

The top 15 developers from

1997 to 2000 are listed in Table 3-7.

the coalitions of
According to Table 3-7,

are obvious, and the reason is that many

large development groups and governments
before their corporatization in
of the large groups were quasi-government developers
the mid-1990s.

the administration
After their transformation into corporations,

coalition relationship in which

relationship was changed to a public-semi-public
governments became the land providers.
Area (1997-2000)
Table 3-7 The Top 15 Developers in Shanghai by Total
Rank

Developer

Size of
Development
(sq. m.)

Coalition Govemment

Zhongxing Group ( ''PE.

950,000

Municipal Government

Greenland Group (aiA[])

940,000

Municipal Government

Dahua Group (tt it)

850,000

Baoshan District

Jinqiao Property Development Inc. (k9.Ett,?)

510,000

Pudong Jinqiao DTZ

Zhuanqiao Property Develop Inc. (Ct#M.t)

410,000

Minhang District

Zhonghuan Group (+Tflt P1)

370,000

Putuo District

.,
Minhang Property Development Inc (Ji3,, 2 )

350,000

Minhanng District

Pengxin Group (11Mik[t)

320,000

n.a. (Private-owned)

Shanghai County Property Development Inc (.4R)

320,000

Minhang District

10

Dingxing Group (A t [] )

280,000

Qingpu District

II

Fengxian Urban Development Group (S,tgt%[])

270,000

Fengxian County

12

Yecheng Property Development Inc (1:t14911V)

270,000

Jiading District

13

China Housing Group (Shanghai) (rt'M h.fikii )

230,000

n.a.(state-owned)

14

Jinqiu Property Development Inc (tillt(fi)

230,000

Baoshan District

15

Shanghai Investment Properties (.t-.11:8 :t?)

230,000

Xuhui District

(Source: Real Estate Times, 10/10/2001; Developers' website)

3.2.3 Emergence of the Anti-Growth Coalition

3.2.3.1 Anti-Skyscrapers from Professionals

Shanghai has probably the world's biggest collection of postnodemist skyscrapers:

its vast skyline consists of more than 4,500 towers built almost entirely during the
51

economic boom of the past 15 years.

Soon, the skyline will be even more crowded.

Shanghai's leaders are demanding more green space, more historical preservation,
more

human-scale

buildings,

and

fewer

dense

city

blocks

of sun-blocking

monstrosities (Liberation Daily, July 15, 2003).

and planner who heads the urban space

Zheng Shiling, an influential architect
committee at Shanghai's planning commission, stated that:
The sryline of the whole city is in confusion...There are too many tall buildings.

Profit-chasing by developers has destroyed the urban space.

The competition for

and more
higher and higher buildings has created a dinosaur city, with more
It's not good for the lie of

gigantic buildings, and it's not on a human scale.

ordinary people (Southern City Daily, Feb 16, 2003).

Shanghai will also host the World Expo in 2010 and the Special Olympics in 2007.
a
It has won a place in the Formula One auto-racing circuit next year, lured

Universal Studios theme park, which is slated to open in 2006, built the world's first

high-speed magnetic-levitation train and the world's tallest hotel, and announced
plans for the world's tallest building, the biggest container port, the longest
steel-arch bridge and even the biggest Ferris wheel.

In many ways, it is a revival of

the boom of the early 20th Century, when Shanghai, known as the Paris of the East,
was one of the world's fastest-growing cities, filled with beautiful, new Art Deco

hotels and banking towers along the Bund.

Mr. Zheng also said that: 'The city didn't pay much attention to planning.

there is more thinking.

Now

Shanghai's recently completed Xintiandi neighbourhood a

cluster of boutiques and restaurants built behind the preservedfacades of beautful

brick buildings from the 1920s, has emerged as the symbol of the new philosophy of
historical conservation and street-level development.

It has garnered praise and

profitsfor its developer, inspiring similar plans in many other Chinese cities ...
......Shanghai's new goal is to create 'a harmonious ecological environment for

52

City
human beings, to establish a 21st-century international metropolis' (Southern

Daily, Feb 16, 2003).

has introduced new rules to lower
To curb and soften the excess growth, Shanghai
to expand the green space
the height of new buildings and density of neighborhoods,
are now evicting residents
and to preserve historical buildings. However, developers

and demolishing historical buildings to make room for parldand.

3.2.3.2 Sustainable Development Advocators

which is about the

In Shanghai, there is a famous event named 'Jiangwan Events',

Government
bargaining between self-organized ecologists and the Yangpu District
on the planning of a natural field 'Jiangwan' (an 8.6 sq. km. military airport before

1986) with high ecological values.

into civic use as a
In 1997, the district government converted the use of this airport

land
large community named 'New Jiangwan City', and created a quasi-government
leases on
development corporation, New Jiangwan City Development Co., to charge
the land piece-by-piece to local or foreign developers.

Up to 2000, due to the

demand for housing being lower than the increase of supply in Shanghai, there was
still plenty of land left empty.

At the same time, some self-organized ecologists

found that there were many cherished species of animals and plants living in this
abandoned area.

These ecologists included professors from local universities such

as Fudan University and Eastern China Normal University, professionals in public

institutions such as the Natural Museum of Shanghai, and other volunteers.

In

2002, they submitted an investigation report on the ecological value of Jiangwan to

the Shanghai People's Congress (SPC) to propose a special protection district for the
area.

But there was a property boom in Shanghai in 2002, and the Yangpu District
Govenunent (YDG) wanted to develop the area again.
future use of the area began.

Thus, negotiations over the

YDG also formed a group of professional ecologists

53

from the
to evaluate the area again, and their final report was very different

self-organized report submitted to the SPC.

YDG suggested that the community

would retain 10% of the area as a park and develop the other fields.

But the

self-organized ecologists suggested preserving at least 50% of the land, especially

other protected
the central 'green island', which contains 36 species of birds and

animals.

Negotiations are still in progress (Southern Weekend, 20/03/2003).

'Jiangwan Event'

reflected

an

emerging

anti-growth

force

of ecological

professionals on the protection of natural environment of Shanghai, but the influence

of the power is very limited.

3.3 THE EVOLUTION OF CBD DEVELOPMENT

3.3.1 Urban Development in the CBD of Shanghai

The economic development of Shanghai has been very fast and curious for Western

researchers.

From 1949 to 1978, Shanghai was still the largest industrial center in

China. During the 1980s, Shanghai had not yet adopted an open policy, which was

already being practiced in Guangdong and Fujian Provinces.

From the late 1980s

to 1990, the central government discussed preparations for the opening of Shanghai
to enter the global economy.

In 1988, the State Council designated Pudong a new

economic development zone with tax and policy privileges to attract investment.
From then on, the development of Shanghai began, and it hasn't slowed down since.

3.3.2 Urban Development in LCFD

'In the 14th CCP congress of 1992, the central government formulated a strategy to
seize the opportunity of development and opening of Shanghai Pudong, and to build

Shanghai as the dragon head and one of international economic, fnance, and
trade...so as to drive the growth of the Yangtze River Delta and in turn the take-off

54

of the whole economy of the Basin' (Wu, 2000).

The development of urban space

1992.
and new functions began to serve national strategy from

The floor area

m. in 1990 to 107.3 million sq. m.

under construction increased from 38 million sq.
32.5 million sq. m.
in 1996, and the completed floor area also increased from 21.4 to

After eight years'

during the same period (Shanghai Statistic Bureau, 1997).

Financial
investment and construction, the new CBD of Shanghai, Lujiazui Central

District (LCFD), was completed, and has attracted much foreign and domestic
investment as well as the revival of the previous CBD, the Bund (see Figure 3-3).

in
Figure 3-3 The Location of the CBD, LCFD, and Pudong Shanghai
Jiangsu
k

*......

Chonproing

@/n@
lele,o.

Jiangsu

Jiaing
.............-

ting Afteling
.........
..

.4.tkft,

EtaosnanWV:.

4*4r

')*

Honispao
intemutional
Airport
Somi0,7
.... CD

/.

SnK0'1 Wing.
Zllivelteno '71
-: .).

q-

Fenyziao

........
railway
*
satellite towns
r
ETDZ
(Emnornk Mmt 1M0M010010.1
Deneelopmero Zone}

Aruhanwel
ZheJlang

/ Hangzhou Bay

o kl

Source: Modified from Yeh, 1996.

The LCFD is located in the opposite side of the Bund across the Huangpu River,

55

which is the most important zone within the Lujiazui Finance and Trade Zone

(LFTZ).

In addition, the LFTZ is also an important area of 28 sq. km. within the

entire 522 sq. km. Pudong Area.

The Shanghai Municipal Government (SMG)

deems the LCFD a modern extension of the Bund Area, which was the historical
CBD for foreign companies before the 1949 revolution.

The late CCP leader Deng

Xiaoping said in 1992 that:

Shanghai used to be a financial center where people exchanged currency freely, and
it should continue to serve as the center.

To attain an international seat in banking,

China has to rely on Shanghai first (Quoted in Olds, 1997).

3.3.3 Urban Renewal in the Puxi CBD Area

Unlike Pudong, Puxi has more of a history to it. In 1930, Shanghai became a

business, financial, and industrial center in China and the Far East.

But from 1949

to 1978, Shanghai's importance declined to that of a pure industrial center.

After

1978, economic reforms and an open policy were adopted, and this has had a very

important impact on the urban development of Shanghai.

In 1987, urban land

reforms began through the adoption of a leasehold system, which allowed the paid
transfer of land use rights and established a land market.

This reform and the open

policy would enable foreign investment to enter the land market of Shanghai.

Also,

the government could draw revenue from land leasing, which could in turn finance

urban infrastructure.

The SMG would no longer depend on the state to develop

Shanghai (Yeh, 1996).

In the Puxi Area, the renewal of the old CBD area began after the fiscal reforms of
1988.

Before 1988, large amounts of tax income in Shanghai were remitted to the

central government.

From 1949 to 1988, only 10% of RMB476.9 billion in

revenue was retained by the SMG (Chan, 1996).

more fnancial autonomy

Guangdong province.

with a favorable

In 1988, the SMG was given

policy

like the one

adopted by

With the increase in revenue captured by the SMG, urban

56

in the Bund, which

renewal began in the old core area of Shanghai, especially
attracted more foreign investment than the other districts.

Also, the land leasing

renewal.
system would benefit urban
were leased for 'piecemeal' offce
From 1992 to 1995, about 600 parcels of land

development.

Due to height limitations in the old CBD, the Bund Area, for the

was slower than the

conservation of its historical skyline, the pace of urban renewal
and Xujiahui.
other hot commercial district on Huaihai Road, Sichuan Road,

The

old housing
land use pattern in the Bund is of a more mixed type, which includes
near the eastern Bund, and
with street level retail shops, historical office buildings

newly-built hotel and office in the western Bund.

In summary,

the
Puxi area showed a piece-meal redevelopment style, unlike

large-scale development style in Pudong Area.

3.3.4 Coalitions in CBD Development

of LCFD
3.3.4.1 The SMG and the SOE Coalition in Land Replacement

In 1992, there were 595 enterprises, including some controlled by Central Ministries,

and 27,300 households in the LCFD before the replacement.

the central

government

and SMG,

the

project was

Without help from

difficult

to

accomplish.

the
Fortunately, former mayor Zhu Rongji had been promoted to vice-premier of
state council by Deng Xiaoping, who also supported the LCFD project.

With the

coordination of the central government until 2000, only ten enterprises and 1,100
households remained in the LCFD, and there were already 31 projects finished, with
23 of them invested in by foreign developers.

That was a great success of the

Shanghai Lujiazui Development Corporation (SLDC), which is the manager or

LCFD development (Fu, 2002).
agency of the Pudong Government for the

57

33.4.2 Coalition of Governments and Planners

in the
a
Huang Fuxiang, as the chief planner of the SUPDI, was formerly professor
He had studied in a
Department of Architecture at Tongji University, Shanghai.
Christian Secondary School before the liberation of Shanghai by the CCP, and

gained fluency in spoken English.

When Zhu Rongji, as the mayor of Shanghai in

and Huang
1991, visited the West after the 1989's Tiananmen Events, Xu Kuangdi

Fuxiang were invited to accompany him.

As the representative of professionals in

urban planning, Huang showed his broad knowledge of urban planning with good

spoken English.

Xu Kuangdi, as the Chief Official of the Higher Education Bureau,

also caught the attention of Zhu.

Afterwards, the two professionals were promoted,

with Xu assuming the post of vice-mayor, and Huang being put in charge of the
LFCD's planning consultancy.
As a result, Huang became the person who had direct contact with Zhu, and reported
to the international consultancy rather than to the planning bureau as before.
and Huang's cooperation had a great impact on the LCFD's planning output.

Zhu
At

first, Huang selected the design companies that could participate in the consultancy.
Second, the requirements of planning were drafted by Huang and signed by Zhu.
Third, the entire planning proposal was put under the consideration ofthe leadership,
not the public.

There were a total of five proposals submitted by the international

consultant group, but none of them was adopted.

Finally, the revised proposal was

made by the SUPDI and ECADI, and became an output of the coalition of

government officials and planners without public participation.

3.3.4.3 The Coalition of the Central and Municipal Governments

The coalition of central and local government could be divided into three aspects.

First, since 1988, Shanghai has already been granted autonomy in handling local
revenue, with only a small part now submitted to the central government. Second,

the central government actually provided Shanghai with a certain amount of

58

in 1992. Third, Shanghai's

extra-budget funding to support Pudong's redevelopment
to foster it as a world financial
privilege is the special series of central policies
an option market, and a foreign
center, which included building a stock market,
market to permit foreign banks to do RMB business exclusively
currency exchange
in Pudong (see Table 3-8).
in Shanghai Pudong, but only if they built a branch

Table 3-8 The main projects in LCFD by 2004

Date

Investor

Yindu Building (iRX;f:X)

1995

The People's Bank of China

Century Finance Building (/1-.Piit;;lIE)

2001

Commercial and Industrial Bank of China

Zhongyin Tower ( eO tR t I )

2002

Bank of China

Jiaoyin Building (57111t1[)

2002

The Communication Bank of China

Jinsui Building (t$)q31)

1997

The Agriculture Bank of China

World Financial Building (t-57-gtt1I)

1996

The Construction Bank of China

Pufa Mansion (,11X9dl)

2003

Pudong Development Bank

;k:
Merchants Tower momtm)

1997

Merchants Bank of China

SecuritiesMansion (iEl-t Jll)

1997

Shanghai Stock Exchange

10

China Insurance Building ( * RX I)

1998

People's Insurance Company of China

II

New Shanghai International Tower (ilkI4gIlle,)dI)

1997

Shanghai Investment and Trust Co.

12

Huaneng Mansion (SEtli)

1 997

Huaneng Co.

13

]ifl t X)
Marine Tower (CM

1998

Marine Industry Company of China

14

Maori Building (a7mptk )X)

1998

Maori Co. ofJapan

15

Jinmao Mansion (A.E)

1999

Shanghai Foreign Trade Centre Co.

16

Universal Finance Centre (lit,l Wt 4,C,)

na

Financial Group ofJapan

17

Zhongshang Mansion (dP it x I)

1998

Commercial Ministry

Ig

Jingyin Building (ZIRt J[)

1999

Huaxia Bank of China

19

Shanghai Information Mansion ()hMStA[)

2004

Shanghai Information Committee

20

Aurora Intemational Tower (it J.LRIL) fJ[)

2003

Aurora Co.

21

Harbour Tower (45Gk: )I)

1995

Shanghai Harbour Administration Bureau

22

Shanghai Pudong Custom (iNitVN9C)

1995

Shanghai Pudong Custom

23

Construction Mansion (rk:S)

1996

Shanghai Facilitiy Bureau

24

Pudong Shangi-La Hotel (tf8AW43V.I(L

WE)

1998

Shangri-La Hotel Group

25

Itochu Development Mansion (dllfgYfXtat)

2001

Lujiazui Group

26

Shanghai Ocean Aquarium (.LgoczTi'1n')

2004

Baoli Group Singapore Investment Group

27

Shanghai Convention Centre (A'IDrritil{4a,l,)

2003

Shanghai Municipal Government

28

Orient Pearl TV Tower ( * h'llMsI,i:l)

1995

Shanghai Broadcast

29

Charoen Pokpland Shopping Mall GE:fC4Al.rk)

Sun Hung Kai CCM (i'RS ra 4..,)

2004

Charoen Pokphand Group

n.a.

Sun Hung Kai Properties (Hong Kong)

Building Name

30

Itochu Co.

Television Bureau

C means Central Govenunent; M means Municipal Government; F means Foreign investments

59

30 projects, 57% of
Table 3-8 shows the 30 projects in LCFD by 2004. Among the
were invested by
them were invested by municipal government, 20% of them

a
Central and 23% of them by Foreign investors. Such policies helped Pudong great
since Zhu Rongji was
deal during the early stages of the development of the LCFD,

3-5 shows the locations

promoted to the vice-premiership in late 1991. Figure 3-4

of the 30 projects.

Figure 34 Locations of the 30 projects in LCFD

.....
-- +.,--, .',
-.
....-/j .;.... , '.
'
. '.,.- / . ..-..m
,
.
.......
,Ji;
f'-'..'

, !

.
',,--,',i'C',

(8)

/'

,,,

,,

Figure 3-5 Overview of LCFD in 2000

60

'

s :--,'.. aC, .'-i,',,

....

.L ,7.--' ! I-:- i
,,

.. .--'

' ';k''--,,

3.4 SUMMARY

as two aspects: decentralized

China's economic reform could be summarized
decentralized property rights. As a result, local government
governance system and
their growth coalition. In
and SOEs got the stakes of urban development and forge

SOEs are the main actors in the coalition.

Shanghai, district govenment and related
and rural land is controlled by in county
As urban land resources are held by SOEs

became the largest land holder, except

government, district and county government
some of the SOEs
the land of SOEs which belong to Central Government. Although
or share compay, they still have
have changed their mask to a limited corporation
close

relationship

with the government, which

give

their

benefit on earlier

also be tested by next

information of urban policy and development. This could

Chapter.

61

CHAPTER 4

CASE STUDY: CBD DEVELOPMENT IN HONG KONG

This Chapter will discuss the political economy of the reclamation-based expansion
of the CBD in Hong Kong.

the
Special focus will be placed on the formation of

under the laissez-faire

pro-growth coalition that influences urban development
framework.

the transition from British

First, the political-economic background of

Hong Kong to the HKSAR will be introduced.

economy after 1997 will be explained.

Second, the change of political

will
Third, the major actors in the coalition

be interpreted.
be identified and the process of the growth-coalition's formation will

Finally, CBD expansion in Hong Kong will be analyzed.

4.1 HONG KONG'S URBAN POLITICAL ECONOMY

historic event.
Hong Kong's reversion to Chinese sovereignty was a special
Sustained economic stability and prosperity accompanied political uncertainty.
The economic downturn that occurred soon after the handover was unpredictable.
Because the post-1997 Hong Kong SAR government did not exist during the

transition years of 1984-1997, no political entity was officially held responsible for

Hong Kong's post-1997 economy.

62

4.1.1 Hong Kong's Political Transition

UK to China
4.1.1.1 Hong Kong's Return from the

after having been a British colony

1
Hong Kong was retumed to China on July 1997,
since 1841.

between Great Britain and the People's

A Joint Declaration was made

Afterwards, the Basic Law drafted in 1990

Republic of China in December 1984.
economic fabric of the HKSAR, together with its
promised to protect the current
as it had enjoyed before.
capitalist economy, and a system of property rights
been largely successful in maintaining a
The British and Chinese governments have

the 15 years of negotiations over

peaceful and very prosperous colony during
Sino-British Agreement of 1984
sovereignty transition from 1984 to 1997. The
of control.
was based on the rules of maintaining the original patterns

However,

soon after its

the newly established HKSAR faced severe economic challenges
return to China.

economic bubble
A drop in property prices in late 1997 burst the

caused economic deflation,

and, together with the emerging Asian Financial Crisis,

unemployment, and a budget deficit in 1998.

It seemed that the new SAR

of governance.
government had failed to continue the old style

But there was no

evidence to prove that greater democracy could solve the economy's problems.
The economic prospects of post-1997 Hong Kong have been debated.

Some have

be possible because Hong Kong

argued that post-1997 economic stability would not
would be absorbed into the growing Chinese economy and lose many of its pre-1997
characteristics (Hicks, 1988; Mushkat, 1989, 1990).

Others believed that stability

and economic prosperity in Hong Kong would be maintained.

Mainland China

would keep Hong Kong stable after 1997 because of massive investment in the
mainland by Hong Kong investors, and the resulting large number of jobs in
southern China (Huang, 1997).

63

4.1.1.2 The Post-Handover Political System

be purely explained by the 'Hong

Hong Kong's post-handover political system can't
Kong people govern Hong Kong' motto.

The Chinese and British Govemments

have both had much impact on the political and institutional transition of Hong

Kong.

Scott (2000) claimed that the post-handover political system has become

and
disarticulated, which were 'separate at the joints'. The executive bureaucracts,
the legislature today are working separately to pursuing their own interests and

agendas.

Scott (2000) also explained that there are five factors behind the

formation of the Basic Law and the transition of politics.

The first and most

the
important factor is the government of China, which wants to maintain
executive-led system and prefers the British colonial model of autocratic governance.

Second, as stated by the Basic Law, the directly elected legislature is still restricted
to only half of the members of Legco until 2007, and the functional constituencies
are dominated by business elites as usual.

Third, the last governor of Hong Kong,

Chris Patten, proposed a democratic way of governance, which was different from
the rule of his predecessors, and his legacy on Hong Kong was to limit the power of
the chief executive.

Fourth, from 1991 to 1995, democrats were very successful

and rose with increasing support from the people.

Finally, the decline of Hong

Kong's economy resulted in skepticism about the ability of the post-handover

government.

All of these factors have had an impact on the post-handover political

system, especially on the relations between the Executive and Legislative Councils.
The first HKSAR government under Tung Chee-hwa was widely expected to be a

pro-business administration (Lo, 2001; Cheung, 1997; Ngo, 2000).

The fact that

Tung Chee-hwa comes from the business community himself, and is supported by
prominent businessmen in Hong Kong. The departure of the British simply
represents the replacement of one business elite group by another.

The only

difference would be that instead of having a pro-British business orientation, the

SAR would shift towards a more pro-China orientation.

64

4.1.2 The Land Market of Hong Kong

economic system would be unchanged.

According to the Basic Law, Hong Kong's
the leasehold land use system since 1842, and the land
Hong Kong has followed
the government.
market only has a restricted supply controlled by

The aim of

was to avoid the complicated property laws and to

adopting the leasehold system
titles to land and reduce costs, to
create a simple system, which was to simplify

of title.
facilitate dealings in land, and to secure absolute certainty

The intention of

that is simple, cheap, accurate,

the legislature was to introduce a system of transfer

adaptable, and expeditious (Hai la, 2000).

Island (with the exception
The government is the landlord of all land in Hong Kong

of all land in
of St John's Cathedral) and Kowloon, and the principal leaseholder
New Kowloon and the New Territories (Wu, 1989).

After the handover, the

and the Sino-British Joint Declaration renewed the

government remained the owner
New Territories' leases until 2047 (Li, 1990 and 1997).

Before the handover, the

would be held by private

British Crown announced that all land in Hong Kong
individuals on lease from the Crown (Evans, 1971).
increased
Public land ownership is a resource that gives them power to capture the
value of undeveloped land, and thus prevent speculation.

In fact, the increased

of the
value does not go automatically to the state, but is controlled by the policy

government.

The point is that public land ownership makes it possible to prevent

the increased value.

speculative companies from sub-dividing the land and capturing
This often happens in the fringe areas of cities where land is privately owned (Edel,
et. al., 1984).

In Hong Kong, this speculative middle agent is absent, and the value

increment (rent) has been divided between developers and the government.

In

Hong Kong, the revenue from land and buildings has been an important source of

about one-third of its

public revenue. On average, the goverrunent has generated
revenue from the sale of leases on land (Wu, 1989; Schiffer, 1991; Henderson,

1991).
65

and land auctions has had

The system of public land ownership, leaseholds,

First, public land ownership prevents property and development

reserves and using these as a basis for a
companies from obtaining large land
reserving large amounts of land
monopoly position. But there are some developers
important effects.

in Hong Kong.

in
For example, Cheung Kong is valued by analysts (for example,

its land bank that will ensure it does not

Goldman Sachs and Morgan Stanley) for
China Morning Post, 18 October
have to rely on government land auctions (South

1999).

bid for
Second, the system of land auctions makes development companies

land and compete with each other.

restrictive
Third, the length of the lease and

the effect of decreasing the possibilities for

covenants, determined in advance, have

speculation with asset values.

and one of the major
However, the goverrment is also the land-use planner

developers in the territory.

It has been argued that the vested interest of the

land development
government in land sales has led to an economic growth-oriented
most profitable use of limited land resources
strategy, which emphasizes making the
under the disposal of the government, rather than a balanced, and comprehensive

environmental issues
development strategy that pays equal attention to social and
in
(Ng Cook, 1997). Therefore, one may argue that policy and decision-making
the

territory

are

largely

influenced

by

coalition

between

bureaucrats

and

land-based business elites.

4.1.3 The Public-Private Partnership in Urban Redevelopment

Studies on urban redevelopment have been dominated by notions of public-private

partnership (Bailey, 1994; Carley, 1990; Fainstein, et al., 1993; Healey, et al., 1992;
Stoker and Young, 1993). Because nearly all urban properties are under multiple

ownership, acquisition of such land for the purpose of redevelopment is very

difficult.

The developer must acquire full ownership of all land parcels, make a

successful town planning application, and obtain lease modifications before the land

66

could be redeveloped for the intended use.

a
Also, it was discovered that whether

a
or
agency is required to be
redevelopment project was purely private public, single
the scheme; otherwise there would
responsible to fund, coordinate, and implement
be

delays,

added

costs,

and

even

an

unduly

complicated

and

lengthened

Therefore, it was necessary to form a

implementation process (Todd, 1985).

private-public partnership in the urban redevelopment process.

This new

the private and public sectors.

corporation was supposed to have both the merits of
ofthe
Following this idea, the concept of the Land Development Corporation (LDC)

was derived (Yeh, 1990).

public-private development partnership
The establishment

development.

of the LDC

could be seen as

a public agency of urban

The corporation can either undertake the schemes with its own

firms or consortia of such firms

resources, or seek the participation of development
as joint venture partners for particular schemes (LDC, 1996).

to the LDC's operations.

However, there are several major constraints with regard

no legal powers of land resumption.

First, it has no control over developments and
those
Second, it receives no financial assistance from the government for rehousing

people affected by its schemes.

Those affected people, especially the lower income

slum areas in Hong Kong where the environmental

groups, can only move to other

quality is much poorer.

Third, much ofthe LDC's proposals are found to put great

for social gain

emphasis on commercial viability with less concern on potential
is ignored. The
(Deakin and Edwards, 1993). Finally, public participation
coalition was formed between the government and developers without input fom
the community (Yell, 1990).

Although the LDC was succeeded by Urban Renewal Authority (URA) in 2001, and
the government gave the URA more scope to care about the public interest with
as the LDC's,
more government subsidies, the URA's working process is the same

with no more power, but with better eficiency on the assembly of private land
leases.
67

4.2 THE FORMATION OF THE PRO-GROWTH COALITION

from a Marxist
Few researchers have studied the political economy of Hong Kong

ofthe coalition
perspective, which will contribute more to the deeper understanding
between the government and business elites of Hong Kong, except Lo (2001), Ngo

(2000), and Wong (1994).

Lo (2001) imported a viewpoint of Marxism from

a
Moore (1966) and Miliband (1976, 1995), and stated that Hong Kong is under

is the
governing coalition between the ruling class and the landed upper class, which
legacy of British Hong Kong and the product of the pro-business policy of the
HKSAR.

in an
Ngo (2000) studied the changing government-business relationship

urban governance perspective, which showed a more detailed explanation on the

pro-growth coalition of Hong Kong.

Wong (1994) analyzed the big business elites

and their impact on Hong Kong's political economy.

This section tries to further

discuss the formation of the pro-growth coalition in the urban (re)development

process.

4.2.1 The Actors in the Pro-Growth Coalition

In the case of Hong Kong, there have been many debates over the role of the

government in the pro-growth coalition.

Some scholars have taken the colonial

government before 1997 as a neutral executive-led administrative power that

adopted a laissez-faire policy (Haggard, 1990), while others maintained that there
edsted a coalition between bureaucrats and big business elites (Rear, 1971; Hughes,

1976; Davies, 1977; Leung, 1990; Beja, 1997).

The situation can be described by

an old joke: 'Hong Kong is governed by the Governor, the Hong Kong Bank,

Jardine Matheson

1976).

Co, and the Jockey Club in that top-down order' (Hughes,

These views oversimplify the complex relationship between state and

society in Hong Kong.

Recent studies have highlighted the analysis of different

actors in the formation of the coalition (Ngo, 1997, 2000).

68

As the Hong Kong

actors
Government adopts a leasehold system with public ownership (Ng, 1999), the
in the pro-growth coalition will include governments, large developers, planners,
and land holders.

4.2.1.1 Governments after 1997

of pro-business
The Hong Kong Government is characterized by its adoption

policies.

Before the political reforms, bureaucrats were not elected by popular vote,

and the unofficial members of Legco and Exco were almost all business elites and

professionals who were appointed by the Governor.

bureaucrats are both key policymakers and civil servants.

The non-elected senior

They are responsible as

well as accountable for their policies and decisions, but are actually not accountable
to an elected legislature or the general public.
Patten's

democratization

process

government as political bureaucrats.

brought

as

During the period 1992 to 1997,

many

political

elites

into

the

However, after 1997, conditions went back to

the old way.

The Hong Kong Government is an executive-led government with 'minimum

intervention and maximum

support'

policy.

The

governing

philosophy

is

pro-economic growth, which is reflected by the rule that 'there is no free lunch in
Hong Kong'.

Ng and Cook (1997) stated that Hong Kong has an unbalanced

political power structure with a strong bureaucracy and a weak civil society.
Coupled with the absence of a democratic culture and pluralist tradition, a
pro-growth ideology became the dominant interest of both bureaucrats and private
business elites.

4.2.1.2 Planners

Based on above context, the urban planners of Hong Kong, most of whom are

bureaucmts, share the same pro-growth ideology with other bureaucrats and
business elites.

They take the plaiming as a technical endeavor to aid the

69

govenment's decision-making to further economic growth and stability.

on the planners of Hong Kong that
Ng and Chui (1999) concluded in their study
and paid more attention to
most of the planners worked within the government

economic growth and development without much consideration to its social and

environmental dimensions.

In the top-down political structure of Hong Kong

in either planning or civil

planning, planners do not tend to take the initiative
society.
4.2.1.3 Developers

Land and buildings form a significant portion of the national production in most

is scarce, real estate

economies, but in Hong Kong, the small city-state where land
has an important role in the functioning of the whole economy.

Transnational

in Hong Kong.
property and development companies are important players

They

form an important part of the local stock market and have enjoyed considerable

wealth for
growth while providing substantial revenue for the govenunent and
individuals.
While high-tech industries rank at the top of the world economy, property-related

corporations play an important role and rank very high in developing countries such
as Korea, Hong Kong, Singapore, Malaysia, Mexico and Taiwan.

Table 4-1 shows some of the largest Transnational Corporations (TNCs) that are
based in developing economies.

In this table, companies such as Hutchison

Whampoa, New World Development, CITIC Pacific, and Keppel Corporation are
classified as diversified.

70

Table 4-1 Large TNCs in Developing Countries

Ranking

Corporation

Home Country

Industry

Cemex S. A.

Mexico

Cement

Hatchison Whampoa

Hong Kong

Diversified

Daewoo Group

Korea

Electronics

Samsung Group

Korea

Electronics

Jardine Matheson Holdings

Hong Kong

Diversified

Huyndai Motor

Korea

Motor Vehicles and

Parts

10

Genting Berhad

Malaysia

Diversified

11

Dong Ah Construction Ind.

Korea

Construction

13

New World Development

Hong Kong

Diversified

14

Keppel Corporation

Singapore

Diversified

19

CITIC Pacipic

Hong Kong

Diversified

21

Hong Kong and Shanghai

Hotels

Hong Kong

Hotel

41

CDL Hotels International

Hong Kong

Hotel

(Source: World Investment Report, 1995)

Hutchison Whampoa's principal activities include property holdings, investments,
management, and development.

Its chief executive is Hong Kong property tycoon

Li Ka-shing, and its major shareholders (Hoenig Guide to the Companies of Hong

Kong, 1998).

New World Development's principal activities are property

investment, trading, and management.

Keppel Land's principal activities are

property investment, development, management, and services.

Principal activities

of CITIC Pacific (a Hong Kong-listed 'red chip' company with a mainland China

parent), in addition to power generation, include property and industrial

manufacturing.

Its major shareholders include China International Trust and

Investment Corporation (CITIC).

In short, nearly all the large TNCs have certain amount of property investments in

Hong Kong, because real estate investment could earn more much more profits in a
short period than any other types of investments.

71

4.2.1.4 Missing Actors: Rural Landowner Class

In most Asian countries, land

communities.

was owned by

the state or by local (village)

The private ownership of land did not exist.

In Hong Kong, a

an important role in the political economy.

property state, real estate plays
However, almost all of the land in Hong Kong is publicly owned.

Thus, Hong

source of
Kong can be termed 'property state' where land rent is an important
revenue and profit.

Manuel Caste lls (1998) claimed that 'the absence of a rural, landowning class' has
been an important factor contributing to economic growth in the four tiger
economies of Hong Kong, Singapore, Korea, and Taiwan.
class was once

non-existent in Hong Kong.

A rural land-owning

The existence of a powerful

landowning class was an obstacle to development because of the usually speculative

character of their investments and their reluctance to embark on a process of

modernization that would jeopardize their social and cultural domination (Castells,

1998).

In the case of Hong Kong, 'the absence of a rural, landowning class' did

not mean the absence of powerful developers and property interests.

In Hong

Kong, large developers always possessed large amounts of land in the New
Territories, which were bought from local farmers.

They waited for the extension

of urban infrastructure to their plots of land before developing them for higher

profits.
In conclusion, without the rural landowner class, pro-growth strategies will be easily

promoted by pro-growth coalition actors.

4.2.2 Emergence of the Anti-Growth Coalition

4.2.2.1 Against Harbour Reclamation by Professionals

As a world city in East Asia, Hong Kong needs more land to develop new urban
fimctions such as the offices, housing, public facilities, and an international port
72

(Smith, 1996).

Because of the limited land resources of Hong Kong, expansion to

the water's edge becomes the main approach of urban growth.

The first urban

reclamation was carried out along the shores of Victoria Harbor in 1851, and other

significant reclamation projects were carried out in Kowloon Bay, North Point, and
However, the continuing need for new land

Wan Chai between 1924 and 1945.

the image of
requires more reclamation along Victoria Harbour, which symbolizes
During the past 150 years, land reclamation

Hong Kong as a prosperous large city.

has provided more than 1760 ha of new land for Hong Kong, and has increased by

8600
nearly one fifth the overall size of Hong Kong's urban land, which was around
ha (Ng and Cook, 1997; Smith, 1996).
The Central Harbour Reclamation Program began in 1981, and this program added
32 ha of new land especially for office development as part of the CBD expansion.
This would bring the government more revenue than residential developments.
From 1994, a new proposal for Victoria Harbour's reclamation was formed, which
would reclaim 78 ha of commercial land for office use and related infrastructure

(PELB, 1995).

In order to cope with demands for land and facilities, the

government plans to reclaim a substantial part of Victoria Harbour and other areas,
as it explained in the Territorial Development Strategy Review in 1996 (TDSR'96).
If the government's extensive reclamation plans are fully implemented, the territory's

famous harbour will be reduced to approximately one half of its original size in the

1800s, and Victoria Harbour will become a sea channel, with the narrowest point

only 860 metres wide at Kowloon Point.

This new reclamation plan has met unprecedented opposition, as articulated in an

unusually loud, public, and united voice from professional groups including
architects, planners, landscape specialists, engineers, and

professionals, as well as

academics, environmentalists, politicians, and even real estate developers.

The

Hong Kong Institute of Architects (HKIA) produced its own Alternative Harbour
Reclamation Study in June 1996.

The Society for the Protection of the Harbour

73

(SPH) built on that study and published A Response to 'Territorial-Development

a
Strategy Review 1996: Option for a Minimum Harbour Reclamation and Balanced
NT Development Pattern in December 1996.

The SPH also collected 150,000

1996 to
signatures from members of the public, which it presented on 30 December
the Governor-in-Council, Hong Kong's highest executive decision-making body, as
a petition to stop further harbour reclamation.
Victoria Harbour is internationally known as the natural heritage of Hong Kong, and

large scale harbour reclamation would destroy this historical heritage (Chu, 1995;
HKIP, 1995; Loh, 1996; Wong, 1995; cited in Ng and Cook, 1997).

Some

ecologists argued that the reclamation would decrease the volume of water flow in
Victoria Harbour and influence the self-cleaning ability of the water (FoE, 1996).
The dredging and dumping operations may adversely affect fishing areas and

important marine habitats (FoE, 1996).

Furthermore, Friends of the Earth (FoE)

(1996) stated that approximately 200 million cubic meters of sand have already been
extracted from the marine borrow areas of Hong Kong since 1992, and the figure
was total 400 million in 2000.

Other professionals argued that the narrowed

harbour after reclamation will not function as a green lung to improve the
environmental quality for residents living near the harbour.

Although business elites have also argued against harbour reclamation, their
concerns were about the oversupply of new land through reclamation.

Private land

developers had accumulated land banks in the New Territories and old urban areas,
and they were afraid that the newly reclaimed land would decrease the value of their
land banks.

42.2.2 Sustainable Development Strategies

Under such pressure, the government sought to carry out a solution to the problem
mther than plan for further reclamation.

It is encouraging that the government is

embarking on a Study on Sustainable Development for the 21st Centwy

74

values that reflect the beliefs and concepts

(SUSDEV21) in order to identify a set of
and such values should represent the essence of
important to society and its people,
to integrate economic,
a sustainable society and be at the core of decision-making

and programs (Planning Dept., 1996).

social, and environmental policies, plans

To

relevant government departments are required to

complementing SUSDEV21,
the following issues: (1)
submit proposals on how to develop and implement

in more
energy/water conservation and its efficient usage; (2) constructing buildings
conserve marine resources; and
resource efficient ways; (3) coastal management to

areas of special ecological value

(4) expanding country parks and preserving

(Planning Dept., 1996).

Furthermore, the Agricultural and Fisheries Department is

on ecosystem representation,
already be working on establishing a detailed database
and public
developing a long-term comprehensive coastal management plan
education program, and providing better protection for terrestrial habitats.
the TDSR'96, the
If the govemment is to push ahead with the full implementation of

which is opposite to the

city could have limited developable space for urban growth,
if the TDSR'96 could be
opinions of pro-growth elites. Thus, it is doubtful
implemented in Hong Kong.

4.3 THE RECLAMATION-BASED CBD DEVELOPMENT

The CBD of Hong Kong is located along the east-west axis, which is from the new

Wan Chai in the

Hang Seng Bank Building in Central in the West to the North of
East along the waterfront area facing Victoria Harbour (Lo, 1992).

However, as a

world financial and business center, Hong Kong actually needs more commercial
office development for different demand scenarios.

Its harbour reclamation

since 1851.
program has been the continuing source ofnew land for CBD expansion

Nearly all of the CBD area is located on reclaimed land and extends towards
Victoria Harbour.

75

since the
Reclamation has been used as a solution to accommodate urban growth
birth of Hong Kong as a British Colony (Ng and Cook, 1996).

Most of the land in

the 1960s from the

the CBD of Hong Kong Island was reclaimed from the 1840s to
coast towards the harbour.

occurred between

1981

The recent two reclamations in Central and Wan Chai

and mid-1990, and were

guided by the Territorial

1984 (see Figure 4-1).

Development Strategy (TDS,) from 1980 to

The new

because of public opposition

proposal for further expansion was not implemented
(see Table 4-2).

will fulfill the lack of

According to Table 4-2, the proposed plan of reclamation
one third of the plan was finished.
open space in the CBD, but only

reclamation is one of the major sources of government revenue.

Also,

However, the

reclaimed land only achieved the government objective of generating large profits
from the reclaimed land (Ho, 1992; cited in Shresta and Ganesan, 1996).
the CBD (ha)
Table 4-2 Existing, Committed, and Proposed Reclamation Projects in
Proposed Reclamations (1994- )

Existing and Committed Reclamations

(1980-93)
Central Phase 1

20

Central Phase 3

Airport Core

30

and related

Project

(Metroplan)
Central Phase 2

Wan Chai Phase 1

Total

32

For CBD expansion

Wan Chai

Growth of CBD

48

phase 2

infrastructure
Commercial and

infrastructure
development

Extension for
the Convention
Exhibition
Center
]

78

Land Use Distribution of the Whole Reclamation (ha)

Commercial

22

20%

Residential

2.7%

Comprehensive Development Area

3.6%

Govemment, Institution and Community

5.5%

29

26.4%

46

41.8%

Open Space
Roads etc.

(Source: information from PELB, 1995)

76

1840-1984
Figure 4-1 Victoria Harbour Reclamation,

'ir.-,e.-,.Jll-s-;

.iimJlL,.

'...

....

-7

)J

(Source: Planning Department, 1984.)

was much criticized by the

Hong Kong's reclamation-based CBD expansion

the Wan Chai District.

planning and urban design point of view, especially in
There was a lack of integration between planning for reclaimed and existing land,
and mixed land use was unplanned by the government for the sake of private

property rights.

Ohno (1992) claimed that the CBD of Hong Kong failed to satisfy

the public, civil identity and the government had no interest in historical building
conservation.

Cuthbert (1984) argued that the government often feared and

protected private property interests.

Cuthbert (1995) also pointed out that the open

for public needs, and these privately-owned

spaces in the CBD were not designed

public spaces around the commercial blocks were under surveillance by their owners.
Shresta and Ganesan (1996) found that the streets in the CBD were not fiendly to

pedestrians, and the waterfront area was not integrated with the surrounding land use
activities, with few pedestrians attracted there.

Although there was so much controversy over the reclamation plan, some
researchers claimed in their positive comments that Hong Kong has an effective

transportation system and vibrant urban living (Sparrow, 1988; Taylor and Kwok,
1989).

Konishi (1992) and Lo (1992) stated that Hong Kong's intensity of

77

decreased the cost of infrastructure and

development and mixed use of land
of its public
enhanced the overall efficiency of land use with a higher utilization

transport system.

social
However, these positive comments are related to

environment.
considerations of human habitation in such a high density

4.4 SUMMARY

institutions have not

Although Hong Kong was returned to China in 1997, the
What has been changed is the
changed as well as the leasehold land system.
to
stakeholders of property market that British business elites sold their property
the growth
Chinese large developers. Govenunent and large developers built
coalition and are still the stakeholders of land and property market. Unlike Shanghai,
which
the public-sector development is independent from the private land market,
accounts for half of the housing units in Hong Kong. Therefore, the growth machine

only control half of the market.

78

CHAPTER 5

EMPIRICAL AND INSTITUTIONAL ANALYSIS

four major
As stated in previous chapters, the pro-growth coalition was composed of
actors: the government, the developer, the planner, and the landowner.

four actors, the planner and landowner are under the government.

Among the

Therefore, the

urban
coalition between the government and the developer is significant to

development.

This Chapter will use empirical and institutional evidence to test the

with the local

hypotheses that developers in Shanghai have a closer relationship
district government than developers in Hong Kong.
While the decentralization and privatization of government functions has become an

is still
important trend in Shanghai and Hong Kong, real estate development
dominated by the public sector.

In Shanghai, state-owned property firms play a

leading role in private housing development.

public subsidized housing.

In Hong Kong, half the people live in

Frieden (1990) stated that public sector development is

broad, and its volume is significant in city development (Frieden

Sagalyn, 1989).

However, Shanghai and Hong Kong boast different aspects in the public-private

partnership during urban development, with Shanghal's state-owned developers

(SODs) playing the roles of public agency and private developer at the same time,
while Hong Kong's public and private developers are clearly separated (Yeh and Wu,

1996).

That is, Shanghai's developers are much more involved in the pro-growth

coalitions than Hong Kong developers.

79

coalition by
The following section will study the operation of the pro-growth

in Shanghai and
analyzing the project location distributions of large developers
cities. Few studies have
Hong Kong, which show different patterns in the two
factors in
offered prescriptive models that isolate the relative influence of strategic

developers' decisions to locate their projects.

In this study, logistic regression

are significant for real

analysis is used to predict which strategic location factors
to firms that
estate firms that locate their development sites in Shanghai, compared
locate in Hong Kong.

5.1 EVIDENCE FROM THE DEVELOPERS IN SHANGHAI

State-owned property firms in Shanghai, on the one hand, perform the same
functions as private real estate developers.

They bring together land, financing,

feasibility studies, plans, regulatory permission, construction teams, and brokers in

order to build and manage properties.

Furthermore, their projects are intended to

sale on the open

yield an acceptable economic return by offering space for rent or
such as schools or
market, in contrast to projects built for direct govenunent use,

hospitals.

On the other hand, these SODs have the privilege of acting as

land use rights in public

govenment agencies, which specialize in utilizing

ownership to promote private development.

Shanghai Lujiazui Property Group Co.,

Ltd. and Shanghai Property Group are examples.

5.1.1 Context: Land development coalition in Shanghai

The coming of market economies has turned Shanghai into a growth machine step

by step, which is reflected by the land reform process beginning in 1992.

Many

researchers have studied the land market transition in China (Dowell, 1993; Yeh and

Wu, 1996), especially land reforms in Shanghai (Walker and Li, 1994; Li, 1997;
Chan, 1999).

Before 1992, Shanghai's land market was not widely open to

Westem and domestic capital, and most of the land developments did not experience

speculation.

In 1992, Shanghai's land market was first opened to overseas

developers and investors.

After 1996, Shanghai's commercial land market was

80

opened to domestic investors.

In 1998, the land market has been fully open to

and foreign developers.

investors, but with a dual land price system for domestic
an integrated land market.
In 2001, the dual system was finally combined into

the government has had the

Throughout the transitional period of land reform,
dominant role in urban development and redevelopment (See Figure5-1).

The

within the four

close relationship between the government and SODs is very distinct

below.
stages of the land development process, as described

Stage I: Planning Negotiation

which could be
When the goverrment decides to develop or redevelop certain areas,
to help the
either rural or urban land, city planners have to provide proper plans

to make them, and what to

government decide where to locate projects, how large
build.

to
In this stage, some SODs might contact the government through guanxi

obtain some important information, or to directly express their willingness to

participate in the development or redevelopment.

Stage II: Land Treatment
After the planning proposals are completed and agreed to by the government, it will
start to select a developer to clear the land and prepare it for leasing.

In some cases,

certain SODs, which were formerly under the government, but retained a close

relationship with the government, could enter the growth machine at this stage as
coalition actors.

to
They could buy land through negotiation, which allowed them

sldp the formal leasing procedure.

Stage III: Land Leasing
All the land must be leased by tender and auction, according to Shanghai's rules

promulgated in 2001, except for some large urban renewal projects.

Before 2001,

all land transactions were completed through negotiation between the govenunent
and developers.

Stage IV: Project Construction

81

After the developer buys the land use right, construction will begin.

Before 2001,

IV.
most of the projects could skip Stage III and go directly onto Stage

Before 1992, the government acted as both the landowner and housing developer
with public finds.

After 1992, the government began to act as an operator of

with the main objective being to use the land to

speculation in a growth machine,
generate more revenue.

been protected by the

Despite the change in government policies, SODs have always
goverment.

For example, the dual land system protects SODs from foreign

competition.

The coalition between the government and SODs at least guarantees

all the large

extra-budgetary revenues from land development, because nearly
housing projects were undertaken by these SODs.
and construction
An SOD's major function is to implement the government's plans

projects.

Most SODs were from the lower branch of the local government or

certain SOEs.

Their CEOs were also appointed by the government, but after 1996,

they became financially independent according to the enterprise reform programs.

In 1998, all SOEs, including SODs, were forced to convert into market-oriented

limited liability companies.

However, they still retained additional advantages of

close ties to the government.

For example, SODs could acquire cheap land,

planning approvals, financial aid, and rare building materials more easily.

These

advantages made them even cherish their ties with their local district governments,
which could generate more profits for both of them.

Next, several sections will test the hypothesis that SODs have a closer relationship
with their district govenments through a project location analysis of these SODs.

82

Figure 5-1 Land Development Process in Shanghai

Public Land Mark et

Urban Sprawl
Rural Land
Rural Abandoned Areas

Stage I

//
I

-- -

Jv- I Planning Negotiation

[ .

] [
Urban Renewal
/
I
Old and Dilapidated Housing/

Banknpt Industrial Areas

Stage II

Planner
Muntcwal Government
District Gov emment

Land Treatment Coalition

State-Owned Developer
District Government

Growth Machine

'N

83

Private La

Sta

I
'

I
I

[
-H

Land
Local G

5.1.2 Project Locations Analysis

have received
The strategic implications of project location for Shanghai developers
limited attention in the existing literature. Both quantitative factors (transport costs,

factors (infrastructure, nature

exchange rates, land cost, and taxes) and qualitative
decisions
environment) have been identified as important for making location

according to land economics principles.

However, many of the project locations

were not decided by the above factors.

The fact is that the project locations will

were registered.
always be within the district where they

In other words,

one district that they

developers in Shanghai tend to focus their investment on
initially founded or with which they still have a close relationship.
5.1.2.1 Framework
The fundamental research question addressed here is why firms eventually located
their projects in one district as opposed to another while making their location

decisions.

An empirical study was conducted to compare project location

procedures in Shanghai.

Data was collected from 50 firms located there.

This

was an important comparison from the perspective of the land development process.
Investment in real estate and the choice of their locations will therefore be a

strategically critical managerial activity in the future.

Are firms that emphasize

certain factors in their location decisions more likely to locate in one district versus
another?

This question is of consequence to both practitioners and academics.

The explanation famework is showed in Figure 5-2, which illustrates the changing
role of SODs in Shanghai, along with the Chinese enterprise reform process.

According to the figure, most local developers in Shanghai hail from govemment
branches, and play a dual role in public and private development.
The rest of this section is organized as follows.
reviewed.

This is followed by a discussion of the litemture review, hypotheses,

and research methodology.

presented.

First, relevant literature is

Next, an analysis of the results and findings will be

Finally, concluding comments and future research directions will be

outlined.

84

in
Figure 5-2 The Changing Role of SODs Shanghai
2000-2003

1996-1999

Before 1996

Government Operator
Government Branch

District Government

I
Quansi-public Firm
State-Owned Developer

::

District Government

Growth Machine Operator

Privatized Developer

District Govertunent

5.1.2.2 Literature Review

one that is free

Although a perfect land market is regarded by some economists as
from government intervention, some scholars think that a public-private partnership
could benefit urban development as well as urban redevelopment.
Frieden and Sagalyn (1989) investigated the downtown revitalization projects in US

cities, and found that all were public sector developments.

They found that urban

renewal programs always needed over 15 years to be completed in the 1950s and

1960s, because ten or more years were wasted in land assembly and relocating

people before any work could commence.

Also, many of the projects might lay

idle for years before the government could find a developer (Sanders, 1977).

As a consequence, city governments sensed a need to think about their relationship

with developers to avoid more civil failures, as when lands were kept idle for years.
Governments began to contract with developers before they started drawing up plans,
which allowed

them to obtain early

feedback on whether

these

ideas were

marketable, and, if they were not, allowed them to rectify things.

Negotiating with developers could help governments learn how to build projects
with broad popular appeal, in contrast to earlier plans that were aimed at a narrow

objective.

As a result, developers need the assistance of the government to

assemble land, relocate people and business, and demolish existing buildings.

85

At

the same time, the govemment needs to negotiate face-to-face with developers

before any plans are carried out.

In short, public and private developments could

behaviors
both benefit through private-public negotiation, although rent-seeking
may also play a role.

5.1.2.3 Main Assertion and Sub-Hypotheses

As previously discussed, the main assertion here is:
of
The coalition of the government and developers in the urban redevelopment

the
Shanghai has had a significant effect on the eventual location distribution of
the
projects of one developer, unlike what happens in Hong Kong. Specifically,
objective is to identify those factors that significantly predict eventual project
location in Shanghai as opposed to eventual project location in Hong Kong.

Generally, state-owned firms are likely to locate their projects within their own
districts.

On the other hand, municipal-based, shared, or private firms are not

likely to locate their projects in just one district. Second, foreign firms are less
from
likely to focus on certain districts than domestic firms. Finally, firms
suburban or rural districts, which double as government agencies, are likely to

develop within their own areas.

The followving sub-hypotheses summarize the assertions:
Hl: State-owned firms are likely to locate their projects within their own district;
H2: municipal-based firms are less likely to locate their projects in just one district

than district-based firms, because they have

closer relationship with city

governments;
H3: established firms are more likely to focus on certain district than startup firms;
H4: firms from suburban or rural districts that double as govemment agencies are

likely to develop within their own areas;

H5: the higher the grade of developers, the closer their relationship to their district

governments;
H6: the more times a firm has appeared in the Top 100 list, the more likely it would

be to focus on its own district development; and

86

H7: the fewer times a firm was listed among the top 50 developers in 2001 and 2002,

the more likely it had ties with its district government, because of the policy

the
promulgated in 2001 regarding the control of the relationship between
governnent and developers.
5.1.2.4 METHODOLOGY
5.1.2.4.1 Sampling Procedures
The unit of analysis in this research is property developers in Shanghai or Hong

Kong.

These developers were chosen to reflect the variation in their cities' level of

economic development (i.e., Hong Kong is a highly developed city and Shanghai is
a city in a developing country).

In order to make a meaningful comparison

between these two cities, only large companies that had been listed in the top 50

development scales for at least two years since 1996 were included in this study.
The

Top

100

sales

list

of

Shanghai

developers

from

1996

to

2002

(http://www.stats-sh.gov.cn/shti/) was used as a starting point for selecting the firms.

A total of 328 companies were listed during the past seven years in Shanghai.

pilot test from 42 Grade-A developers in Shanghai was conducted in order to test the
survey instrument.

Credit

Information for each company was obtained from the Grade A

Documents

of

Chinese

0attp://www.realestate.gov.cn/credit/develop/).
result.

Real

Estate

Developers

The pilot test yielded a reasonable

Since no major problems were highlighted by the pilot test, the original

instntment was used for the final study.

Next four pages show the characteristics of top 50 developers in Shanghai, including

the rank in top 100 from 1996 to 2002, property rights, project location, percentage
of projects in their own district, company level and district level.

87

1996

1997

1998

1999

2000

2001

2002

Registed
District

Projects
in

Total
Projects

Registed
Districts

Shanghai Greenland Group(Jzte

W1]1)
Shanghai Dahua Group(tIMM)

Changning

l0

25

Baoshan

10

10

Shanghai Central Star Group

Ltd. (.]zMhFE ([I) 4441!*1)
Shanghai Central Investment
0Ptf
Development Group Ltd. (0'=
45t513T1t(WIT) illiii4)
Forte Land Group Co. Ltd. (JE}
(MU) NIA-Alskfl)
Shanghai Minhang Property
Development Ltd. (000,4A/:
X/AIMIi)
Shanghai Zhong Xiang Group
Ltd. (hit.:13- (Mil) AR-}4)
Shanghai Jinqiao EPZ Property
)i F3 ta
Development Ltd. (hill)ffl
TErniltI/Khiliq)
Shanghai Investment Property
Development Ltd. (1$0Th.[.45tMilt
194.14M4)
Shanghai Vanke City Garden
Development Ltd. (JJ(M)Y4V/4t
IglINAlki;t)
Shanghai Pudong Shangnan
Property Ltd. (JlefiRJzPW/4]e'

30

Hongkou

30

29

Putuo

10

23

27

Putuo

25

50

17

10

10

73

Minhang

12

12

15

11

22

18

17

Minhang

16

11

33

Pudong

51

21

93

11

Xuhui

11

23

17

23

Minhang

Pudong

12

14

53

27

50

74

50

Viti.zf)

88

Shanghai Lujiazui GroupLtd.

(SMVII (AM) AWiT)
Shanghai Zhuanqiao Property
Ltd. (01111Mailk?4Filh4)
Shanghai NGS Group Ltd. (1,MH
IkIAM?(Alli)A1U,A)
Tomson (Shanghai) PropertyLtd.
CLIOMEEMAIV9TIVIMA)
Shanghai Yecheng Property
Ltd. (ilonJ:[Mit,J=Li])
Shanghai Fengxian Civil
Construction Ltd. (1:[R]ilt
(VII) MIM])
Shanghai Jiading Property Group
Ltd. (Al$ZEMit?' (t[$)
RME)
Shanghai China Housing
Development Joint Ltd. (Jze.B
WikaMA e,M)
Shanghai Renheng Property
Ltd. (iNiLt/XlitAlSU;1)
Shanghai Dongyuan Property Group
Ltd. (Jzi4EgMtliEcFX (AM)
AIMM)
Jingan Property Group Ltd. (A

13

11

31

28

Pudong

Minhang

46

21

66

10

16

Changning

55

55

92

96

73

18

Pudong

20

14

65

32

Jiading

22

14

16

31

17

99

Fengxian

25

94

69

57

64

53

Jiading

71

34

64

30

Pudong

10

92

76

84

84

31

Pudong

54

66

37

40

Minhang

29

Jingan

Nanhui

Changning

13

24

99

41

11

45

76

86

23

68

96

86

95

10

iiP: (tll) ;1Z /iD

Shanghai Nanhui County Property
Development Co. ( [.400Lit git
?43ftglt,gz.])
Chinese Enterprise Ltd. (q.i;
AkiVR.kt)
Shanghai New Huangpu Group
Ltd. (Jtilf[X'1 (:l) A[MA)

15

52

84
45

32

100

Huangpu

89

Shanghai Dongxing Development

Group Ltd. (..IttjAfik (M)
ifFitiM)
Shanghai Shamin Development
Ltd. ($(1(thillifElk4111111)
Shanghai Jinqiu Property Ltd. LE
thallikahh?'ililiMfl)
Shanghai Pudong New Area
Property Group Ltd. (01M11Rfh
EMit?' () AlakA)
Shanghai Dongwang Property
Ltd. ( [- XtVE/JIIIJAliM fi)
Shanghai Caohejing TDZ
Development Co. (EOUBBigiuMIW

51

67

Qingpu

54

48

Jinshan

39

41

Baoshan

61

62

Pudong

18

51

78

Pudong

55

75

93

Xuhui

19

19

28

Pudong

22

93

41

Baoshan

23

30

Yangpu

20

Minhang

Pudong

13

13

Baoshan

Hongkou

15

16

19
37

19

2
18

33

71

12

A43fXERIffgAIT)
Shanghai Pengxin Group Ltd. (J:
Mkt (4W) 414M.)
Shanghai Qilian Property Ltd. (J
it1018.43'3TI,,4)
Shanghai Jiangwan NewTown
Development Ltd. (Jiii)EE.Jtff
tAlii:q)
Shanghai Xingsheng Property
Development Group Ltd. LEJAlg
AkIN ((21) Alqii:tl)
Shanghai Hengda Property Joint
Ltd. (..[.MicXJJhrcJ]14*4144z
f
!
f4)
Shanghai Baochen Ltd. (hOWIAZ
ViVall)
Shanghai Civil Engineering
Property Ltd. (J.SIJVAl[
Otl)

32

30

15

44

17
18

11

21

47
28

49

90

Shanghai Pudong Weiye Property

Development Co. (JMMMIS2k/1
illirc3f141:fi)
Shanghai Meiyuan Property Co. (JE
11#44MMA?E7F.IM)
Shanghai East China Property
Group Ltd. (ti3M4fik? (M)
VIROq)
Shanghai City Investment Land
Development Ltd. CtOMtitkithk44

42

26

53
21

28

56

37

Pudong

54

Minhang

Pudong

75

81

57

Minhang

13

15

Nanhui

Baoshan

fill-3)
Shanghai Cambridge Forest
Newtown Group Ltd. (Jh]4
(I11) 4111Mq)
Shanghai Gucun Property Co. a
fittfliV9TliT)
Shanghai Wanbang Enterprise
Group Ltd. (i4WPR4I.l,1K[tAili
.;7)
Shanghai Real Estate Group
Co. (IMtVI1W ( 14111)1)
14
Shanghai Orient Golden House
Property Ltd. (J:0MJ2514tOM
.111'2.:4)
Shanghai SID Property Ltd. (

54

73
48

46

Pudong

43

26

Huangpu

10

24

28

Changning

30

Pudong

29

Luwang

12

31

Putuo

33

EAWRAIsli'kfi )
Chinese Oversea Development
(Shanghai) Ltd. (13]))4 ()
A-Mi:7)
Shanghai West Enterprise Group
Ltd. (HION1f131kAk (XIII) A'
A)

91

5.1.2.4.2 Variables: Characteristics ofProperty Companies

into two
As referred to earlier, prior literature on project locations can be categorized
in the
streams: cost-based models and models that consider key qualitative variables
location decision.

However, the above factors can't explain the project location

decisions of Shanghai developers.

own district,
To interpret the possibility of a project being located in a developer's

such a possibility will be the dependent variable.

The independent variables

include seven factors listed in Table 5-1.

Table 5-1 Measurement of Independent Variables
Variable

Measures Used

Property Right (H1)

Dummy variable:
1 means SOD

Former level of firms (H2)

0 means other developers, like shared or private

Dummy variable:
1 means district or county level
0 means municipal level

Years of established (H3)

Dummy variable:
1 means the developer was established before 1996
0 means the developer was established after 1996

Corporate Location (H4)

Dummy variable:
1 means suburban and rural
0 means urban areas

Enterprise Grade(H5)

Dummy variable:
1 means Grade A

Years of listed in top 100

0 means a lower grade

From 1996 to 2002, the largest time was 7, and the

developers(H6)

smallest time was 2.

Years of listed in top 50

From 2001 to 2002, the number will be 0, 1, or 2.

developers(H7)

These frms represented a variety of property rights, such as state-owned (18.9%),

shared (14.4%), and private (20.2%).
offices in urban districts.
suburban (17.4%).

Almost a third of the firms (32.7%) had their

The next two major regions were rural (19.6%) and

Most companies had been in operation for over three years.

Sold areas is an indicator of firm size.

The top 50 firms accounted for 55.4% of the

total developments in Shanghai.

The ftmction of possibility of location can be expressed as a model as below:

92

P -- f(PR, FL, YE, CL, EG, YH, YF)

Where:
P = Possibility of project location in one district
PR= Type of Property Right
FL= Former level of firms
YE = Years of established
CL= Corporate Location

EG = Enterprise Grade
YH= Years listed among the top 100 developers
YF = Years listed among the top 50 developers

5.1.2.4.3 Choice ofAnalytic Technique

Descriptive statistics and univariate tests of significance were used to identify

differences between developers.

To detect a significant relationship in each

developer's factors, a correlation analysis was used to test for the equality of
variable means.
When it comes to selecting an appropriate statistical technique, the requirements of

the research situation need to be considered.

As described earlier, the interest was

in exploring the relative importance of each developer's factors in the eventual

selection of a location site.

As indicated in prior studies that had similar research

objectives, linear regression analysis is an appropriate analytical technique for this

type of research question (Menard 1995; Saimee and Anckar 1998; Waller, Flanagan,
and Deshpande 1996).
In the linear regression analysis,

five dummy variables are

independent variable's meaning is dichotomy.

non-SOD means 0.

used when the

For example, SOD means 1 and

All relevant variables in the models are used to compute the

probabilities of project location in only one district.

5.1.2.4.3 Analysis and Findings
Correlation Analysis

93

Table 5-2 shows the correlation analysis between each variable.

The results show

that all the location factors except YH and YE have a significance of correlation with

dependent variable P.
among them.

Also, there are no highly related independent variables

So the model is meaningful and reliable in statistics, and then could

be analyzed by the regession method.

Table 5-2 Pearson Correlations between Variables

I
P

Correlation

1
.

EG

Sig. (2-tailed)
Correlation

EL

Sig. (2-tailed)
Correlation

FL

Sig. (2-tailed)
Correlation

PR

Sig. (2-tailed)
Correlation

YH

Sig. (2-tailed)
Correlation

YF

Sig. (2-tailed)
Correlation

YE

Sig. (2-tailed)
Correlation
Sig. (2-tailed)

EG
.499(
)
.000

EL

FL

PR

YH

YF

YE
-.021

.374()

.679()

.463()

.118

.007

.000

.001

.413

-.366(
)
.009

-.180

.149

.445()

.227

.012

-.403(
)
.004

.210

.301

.001

.113

.261

.116

.209

-.310()
.028

.063

.146

-.065

.885

-.499(
)
.000

.374()
.007

-.353()
.012

1
.

.067

.423

-.403(
)
.004

.261

.312()
12(

- .042

.028

.775

-.391(
)
.005

.463()
.001

-.180

.116

.312()

.010

-.161

.140

.210

.423

.028

.945

.263

.332

.118

.149

.209

-.042

.010

-.040

.172

.413

.301

.146

.945

.784

.233

.445()

-.310()

-.161

-.040

.134

.001

.028

.775
.391(
)
.005

.263

.784

.355

.227

.063

-.065

.140

.172

.134

.113

.666

.651

.332

.233

.355

.679()
.000

-.366(
)
.009
-.021
.885

-.353()

.067

.666

.651

Correlation is significant at the 0.01 level (2-tailed).

Correlation is significant at the 0.05 level (2-tailed).

In the next section, these factors will be incorporated into a logistic regression-based

model and used to test the hypotheses.

Linear Regression Analysis
All variables in the model are included in order to measure the aggregate impact of
all the variables.

interesting results.

The regression analysis results outlined in Table 5-3 reveal some

This has a corresponding p value of 0.0000, which indicates

that the set of independent variables used in this research are statistically significant

predictors of whether the eventual project location is in or out of the developer's

district.

The R square value is 0.67, and also indicates a reasonable association

between the independent variables and the eventual possibility ofthe location.

94

Table 5-3 Linear Regression Results

Dependent Variable: P
Mean

Type III Sum of

Source

Squares

df

Square

Sig.

Corrected
Model

29673.926(a)

13

2282.610

5.635

.000

Intercept

62285.478

62285.478

153.763

.000

EG

2061.088

2061.088

5.088

.030

EL

544.328

544.328

1.344

.254

FL

3875.807

9.568

.004

5.751

.022

PR

2329.510

3875.807
2329.510

YH

3005.408

500.901

1.237

.311

YF

555.027

277.514

.685

.510

YE

103.854

103.854

.256

.616

Error

14582.654

36

405.074

Total
Corrected
Total

346743.000

50

44256.580

49

a R Squared = .670 (Adjusted R Squared = .552)

Table 5-3 also outlines the significance of the individual variables used in the model.
Three dummy variables - Property Rights (PR), the Former Level of firms (FL), and

Enterprise Grade (EG) - were found to be significant predictors of the possibility of

project location. Based on this analysis, we can see that firms that were SOD
(p=0.022), formerly District-based or County-based branches (p=0.004), and Grade
B or lower (p=0.030) were likely to carry out their projects within their district or

county.

Thus, HI, H2, and H5 were supported.

The finding confirms the a priori belief -

SOE reform in China has not been completed, and so has a long way to go.

SODs'

close relationship with district governments, especially in the suburban and rural
areas, has led to the development of an inefficient land market.

yields the benefit of quick access to a local land market.

Hence, an SOD

This finding supports the

assertion of Dowell (1993), Walker and Li (1994), Yeh and Wu (1996), and Li (1997)
that the close ties developers have with local governments have been an important

problem inhibiting land market reform in Shanghai.

Similarly, firms with Grade B

or lower (p=0.03) were more likely to be located in local districts.

also supported.

Thus, H5 was

This result broadly indicates that managers of firms with lower

95

and the
grades tend to aim for local rather than regional or global customers
government, and would like to be located close to them.
There was insufficient evidence to support the other hypotheses (H3, H4, H6, and

H7).

The significant contribution of this study, unlike previously published work

relating to land market price, is that it is among the very few reported empirical
studies to analyze the relative importance of project location factors in Shanghai.
In terms of market trend, the results indicated that lower grade SODs are losing out
on new development projects, and lag behind other Grade A developers.

finding broadly reflects the competence of developers in Shanghai.

This

The results

also confirmed that development managers consciously take these factors into

consideration.
5.1.2.4.4 Implications

This leads to the final issue of this study.

What is the implication for SOD

managers who make location decisions, and for government officials and planners,

who, through their actions, or lack thereof, have a significant impact on the various
factors analyzed in this research?

As discussed earlier, the results indicate that

while
managers of SODs place much emphasis on their government connections,
factors.
managers of private and shared companies emphasize market-related

The

current study is significant because it is one of the few reported empirical works that

pertains to project location distribution in Shanghai. SODs are facing property

rights reforms, and this is likely to continue in the future.
From the perspective of planners and officials, this study yields important insights.

Local governments compete with each other for property investments.

In recent

years, a fir and transparent market environment seems more important than merely

cheaper land and labor costs.

Separating the dual roles of SODs as both public and

private operators is an urgent task in Shanghai.

go to another extreme.

However, Shanghai's policy seems

The public land market is nearly pushed aside at first, in

favor of accelerating SOE privatization and reform, with the intent of pushing SODs
into the private land market.

This confirms the conjecture that China's growth

machine is in the making (Zhu, 1999; Wu, 2000), because Chinese society, including
local governments, is pursuing large extra-profits.

96

5.1.2.4.5 Limitations
The study examined the significant developer characteristics that contribute to

developers' choices of project locations within one district.

Since little empirical

research has been done on the impact of company factors on project location,

particularly with reference to the important region of Shanghai, an examination of

the land development process and developers' characteristics is a good place to start.

the influence of
However, future research could include some dynamic aspects of
such an approach is
property rights factors on company performance. Admittedly,

cost-prohibitive, if real data is to be gathered.

Perhaps, richer data on a few firms

would be an avenue to explore for future research.

Sampling issues need to be addressed in future studies as well.

was collected f.om 50 large developers.

In this paper, data

To some extent, there is a chance of

sampling error due to the omission of small developers. However, this effect was
considerably minimized because nearly half the projects in Shanghai were
undertaken by these developers.

Thus, future research could add more samples in

the analysis and generate more accurate results.

5.1.3 Conclusion
In summary, this study makes several contributions to Chinese urban development
literature.

the eventual
First, the link between the characteristics of developers and

* property rights, district or

project locations was examined. Three factors
county-based developer, and enterprise level - were found to have a significant
impact on the ultimate choice of project location.

This has major implications for

Chinese SOE and land market reform, and links these strategies to the competitive

goals of local governments.

Second, the impact of the three factors was found to

be crucial for the project location.

New insights for developer's managers, as well

as for local government officials and planners in Shanghai, were revealed.

5.2 EVIDENCE FROM HONG KONG

Unlike Shanghai's privatizing land market, Hong Kong's land market is clearly

separated into the public and private market.

In other words, private developers

only control half of the property market, and the government controls the other half.
97

a
Compared to Shanghai's growth machine in-the-making, Hong Kong is only half
growth machine. Within a half growth machine, several large developers dominate
the private property market as speculators in coalition with the government, while
there are no such monopolies in Shanghai.

We will discuss how this coalition was

formed, and how it works.

5.2.1 Context: The Land Development Coalition in Hong Kong
As a half growth machine, Hong Kong and its land market has been studied by many

researchers.

Schiffer (1991) and Tse (1998) concluded in their study that the

as an owner of land and as a

government has played an important role both

developer of public housing.

As the biggest landlord in Hong Kong, the

a major source of revenue.

government has relied heavily on land sales as

Throughout the 1980s and early 1990s, land-related revenue amounted to about
one-third of the government's total revenue (Ng

Cook, 1997).

Tse (1998) also

stated that there is a strong tendency for the government to release more land for sale
when the current property market is booming, and reduce land sales when the market
is sluggish.

Also, the government is the urban planner as well as the major 'developer' in the

territory.

It has been argued that the vested interest of the government in land sales

has led to a growth-oriented land development strategy, which emphasizes making

the most profitable use

of limited land

resources under the disposal of the

government, rather than a balanced and comprehensive development strategy that

pays equal attention to social and environmental issues (Ng

Cook, 1997).

Therefore, business interests are concerned by private developers as much as the

government in land development, though their coalition only works in half the Hong

Kong market.
According to Table 5-8, government development of housing accounts for more than
half the entire residential market of Hong Kong.

Also, the government fully

controls the land supply auctioned for private use, and by private treaty for public

housing and facilities.

98

Table 5-8 Public and Private Domestic Flats Completed by Year (Number of Flats)

1992

1995

1997

1998

1999

2000

2001

Private Flats

26222

22621

18202

22278

35322

25790

26262

Housing
Authority

22148

14559

17917

9759

31806

47552

33629

10652

14868

12040

3320

13788

23542

5080

Rental Flats
HOS Flats

(Source: Hong Kong Annual Digest of Statistics, 2002)

In Hong Kong, new land mainly comes from reclamation, the opening up of new
areas

(mostly in the rural areas

of the New Territories),

and redevelopment.

the
Redevelopment has accounted for more than half the new apartments from
private sector over the past few years. Reclamation and opening up new rural land
are undertaken by the government, but land transactions in urban renewal are by

private treaties between private developers and property owners.

The government controls about 75% of the residential land supply through public
land auctions (25%) and private treaties (50%), while only about one-fourth of land

housing developments are by urban redevelopment (see Table 5-9).

However,

when the real estate industry boomed from 1993 to 1998, the government obviously

leased out more land than before.

The land development process in Hong Kong is illustrated in Figure 5-3.

In this

figure, the three sources of new land and four stages of development are integrated.
Compared to the land market in Shanghai, the government and private developers
are much more detached in Hong Kong.

Even in urban renewal projects, URA or

LDC is not a government branch in the mold of public developers in Shanghai.

Because of this distinct difference, the method of analysis has to be different from
the study of Shanghai.
The four stages of the land development process in Hong Kong are shown below

(see Figure 5-3).

Stage I: Planning Negotiation
When the government decides to develop or redevelop certain areas, which could be
either rural or reclaimed land, city planners have to provide proper planning

99

requirements to help the government decide what to build and how much build.

In

this stage, the land information is not open to the public.

Table 5-9 Share of the Public Land Market in the Overall Land Market (1985-2001)

Year

Public Land Market

Overall Land Market

(HKSMillion)

(HKSMillion)

Share (%)

1985

2558

6920

37.0%

1986

2243

28122

8.0%

1987

3122

17915

17.4%

1988

2220

32410

6.9%

1989

10018

31176

32.1%

1990

2160

21420

10.1%

1991

7425

41072

18.1%

1992

9954

58225

17.1%

1993

15880

81791

19.4%

1994

14521

80977

17.9%

1995

18642

49656

37.5%

1997

42893

93750

45.8%

1998

15073

24311

62.0%

1999

9566

35670

26.8%

2000

15813

19921

79.4%

2001

3023

22964

13.2%

(Source: Hong Kong Annual Digest of Statis ics, 2002; Hong Kong Monthly Digest of Statistics)

Stage II: Land Treatment

Reclaimed and new rural land would be handled by the government.

In urban

renewal projects, land treatments will be undertaken by developers themselves or

coordinated by the URA.

Stage III: Land Leasing

Usually, the land will be leased out by public auction or tender.

Only when the

government wants to reduce the land supply could the land be leased by private
treaty.

Stage IV: Project Construction

After

the

developer

obtains the

land,

construction begins.

Public sector

development and urban renewal projects could skip Stage III and proceed directly to
Stage IV.
100

Figure 5-3 Land Development Process in Hong Kong

Stage I
Urban Spraw!
Rural Land
Rural Abandoned Areas

[[

Land Redaimatlen
Government

E=$

Urban Renewal
Old and Dilapidated Housing

Bankrupt Industrial Areas

Stage H

Land Transactkn
Priv ate Developer

Public Development
Public Developer

Planning Negotiation
Planning Board

Land Treatment
Gov ernment

Stage
I

Land Registration
Gov ernment

II[::::

Redevelopment Coalition I

LDC or URA

P riv ate Dev eloper

Growth Machine

101

Land
Gove

5.2.2 Large Developers in Hong Kong

5.2.2.1 Ten Large Developers
In Hong Kong, under the special leasehold system through public auctions, most of
the property market is shared by the 'ten largest' development corporations because

Before the 1980s, large British developers such as

of intensive competition.

the land and property

Jardines, Hong Kong Land, and Swire Properties dominated
markets in Hong Kong.

After the Sino-British Declaration in 1984, the British

sold out
hongs (overseas business branches) lost their confidence in Hong Kong and
their lands and properties to local Chinese large developers, such as Cheung-Kong,

New
Ltd., Sun Hung Kai Properties, Ltd., Henderson Land Development, Ltd., and
World Development Co., Ltd.

real estate
By the end of the 1990s, the ten largest

enterprises controlled over 60% of Hong Kong's property market (see Tables 5-10
and 5-11).
Table 5-10 The Largest Ten Real Estate Companies by Market Capitalization in
2002

Rank

Company

Market Capitalization

Percentage of Equity

(HK$Million)

Total

Hutchison Whampoa

208,052.49

5.85%

Cheung Kong (Holdings), Ltd.

117,545.34

3.30%

Sun Hung Kai Properties, Ltd.

110,921.92

3.12%

14

The Swire Pacific, Ltd.

42,898.86

1.21%

16

Henderson Land Development Co.,

Ltd.

40,298.08

1.13%

17

The Wharf (Holdings), Ltd.

35,977.91

1.01%

25

Hang Lung Properties, Ltd.

21,814.47

0.61%

41

Wheelock and Co., Ltd.

10,768.80

0.30%

46

Sino Land Co., Ltd.

9,658.58

0.27%

50

New World Development Co., Ltd.

8,448.99

0.24%

(Source: HKEx Fact Book, 2002)

Note: the Rank is by the company's market capitalization on the main board of the Hong Kong Stock
Market. Moreover, the Ranks of the Real Estate Companies were much higher in 1996 and 1997.

102

Real Estate
Table 5-11 Market Share of the Ten Largest Enterprises in Hong Kong

Development in 1995, 1996, 1998, and 1999

Year

End Use of

Percentage of Value Added

Percentage of Gross Floor

Area

Development
Projects

Commercial

1995
1996
1998
1999
1995

62.70
75.5%
68.7%
63.8%
48.4%

46.9%
78.1%
79.0%
67.4%
44.1%

Buildings

1996

45.0%

44.3%

1998
1999

33.3%
44.9%
41.0%
42.2%
55.0%
70.8%
55.9%
63.0%
61.7%

22.7%
67.4%
41.4%
37.9%
72.1%
59.5%
45.3%
65.3%
64.7%
67.3%

Residential Buildings

Industrial Buildings

Total

1995
1996
1998
1999
1995
1996
1998
1999

61.2%

Nov. 1998)
(Source: Hong Kong Monthly Digest of Statistics, Sept. 2001;
Note: The ten largest enterprises referred to here may not be companies quoted on the stock exchange.
The term is used to refer to a group of related companies, including parent and subsidiary companies.
In the private housing market, the ten largest enterprises controlled nearly 80% of

Hong Kong's real estate market in 1998.

intensive and time-consuming industry.

Property development is a capital

Participants in land auctions are also

required to bear huge cash outlays and high risks.

If developers cannot sell the

will assume greater risks

apartments soon and recoup what they have invested, they
and bear higher interest costs.

Cash-rich and backed by years of high earnings,

large developers could afford to hold onto their stocks if market conditions turn sour.
It has been argued that several giant developers tend to dominate the Hong Kong
land auction market.

In order to acquire any piece of land, a coalition between

large developers and banks would always be formed to assemble a huge amount of
capital against their competitors for public auctions.

This coalition further

accelerates the concentration of capital into fewer and fewer large developers in

Hong Kong.

The problem is that when capital is concentrated, competition among

developers is weakened, and it becomes customary for developers to seek profits

103

from the government through private negotiation.

In Hong Kong, the development

of the Cyberport, for example, was negotiated privately between the largest land

tycoon, Li Ka-shing (with his nominees' groups), and the government.

5.2.2.2 Large Developers as Landholders
In Hong Kong, the land market is highly concentrated, with a small group of

companies dominating a large volume of land resources.

more than 40% of the residential land bank (Table 5-12).

Four developers control

Also, large developers

tend to spend more time and resources on land acquisitions, because the public
auction is the main source of developable and profitable land.

Barlow (1993)

argued that in the real estate industry, skills in land purchasing and timing
completions to maximize gains from house price inflation tend to be more important
than the ability to compete through technical innovation.

Compared to other sources of land disposal, the land auction is a direct route for
developers to purchase developable land auctioned off by the government.

Land

provided by public auctions seems to be superior, and profits are guaranteed for
developers since they are readily developable and most of them are accessible.

Big

developers with strong capitalization have purchased large plots of farmland in the
New Territories

and spent years

on exploring

infrastructure to be built into the area.

or waiting for the necessary

Shea (1998) pointed out that although this

method of land acquisition guarantees major developers a place to build with a

potentially high payoff, few companies could afford to sit on a non-producing asset
for so long.

Instead, most opt to buy land at auctions, where profit margins of 25%

to over 70% are almost certain.

Hong Kong's Consumer Council (1996) examined

the residential property market, and concluded that it appears to be dominated by

some giant developers and is therefore not competitive enough.

The volume of each developer's land bank tends to vary with a change in interest
mtes (Tse, 1998).

In fact, the expected marginal returns of land holdings actually

represent the growth rate of land prices.

104

Moreover, large volumes of land holdings

can serve as a buffer for reducing the risk of uncertainties in production while the
land holding cost partly reflects the developer's risk aversion rather than a positive

strategy of trying to hold land in anticipation of greater capital gains.

Land

If
holdings do not mean that developers operate in conditions of excess capacity.
have invested, they
they cannot sell the apartments soon and recoup what they
would have assumed greater risk and borne higher interest costs.

On the other

find it increasingly
hand, when housing and land prices rise rapidly, developers

Thus, an appropriate amount of land banks

expensive to replenish their land banks.

may help iron out fluctuations in land prices (Titman, 1985).

Table 5-12. Total Land Area Acquired and Total Gross Floor Area Produced

through Land Auctions for the Period 1987-1995

Developer

Area (sq. m.)

Max GFA(sq.
m.)

Average Plot
Ratio

Number
of sites

Sino
Wheelock
Nan Fung
China Overseas
Sun Hung Kai

201429
94850
71083
64419
60196

706789
272473
173834
163636
181387

3.50
2.87
2.45
2.54
3.00

31
11
12
11
8

Kerry
Hang Kung

48270
45147

36242
78265

0.75
1.73

7
7

Henderson
Lai Sun

41244
34590

29971
68521

0.73
1.98

6
5

Cheung Kong

9801

9496

0.97

Other 50 Developers
Total market share of top 10
Total

254857
72.62%
930666

554331
75.63%
2274945

2.18

58

2.44

112

(Source: Tse, et al., 2001)

Tables 5-13 and 5-14 show the total market share of developers in the total area of
land acquired by auction and the total gross floor area generated from the auctioned
land.

It can be seen that Sino Property was very aggressive, grabbing about 22% of

the market share in the total area of land supplied, and more than 31% of the total
gross floor area during the period 1996-1998.

On the other hand, Wheelock had

the second largest market share, with about 10% of the total area and 12% of the
total gross floor area.

Nan Fung came in third with a market share of about 7.0%.

However, as indicated in Table 5-13, Sun Hung Kai, Cheung Kong, and Henderson
have been consistently ranked in the top-three in terms of net assets.
105

Table 5-13 The Percentage of Developers Profits from Public Land Auctions in All

Property Transactions for the years 1996 to 1998

Developer

1996

1997

1998

Share in Land Auctions

(1996-1998)

Sino

89.7

67.2

76.3

21.6

Wheelock

12.2

59.7

80.6

10.2

China Overseas

48.6

38.1

45.9

6.92

Sun Hung Kai

58.6

63.2

62.1

6.47

Kerry

50.7

56.1

37.0

5.19

Hang Lung

37.9

42.3

29.4

4.85

Henderson

84.1

84.1

70.4

4.43

Lai Sun

45.9

54.7

13.9

3.72

Cheung Kong

64.7

58.9

76.3

1.57

Average

54.7

58.3

56.0

7.22

Note: Since Nan Fung is not a public company, its fnancial report was not available.

Therefore, Nan Fung was

not included in this Table. (Source: Tse, et al., 2001)

Table 5-14 Rank of the Net Assets of the Top 10 Developers (1996-1998)
Rank in
Net Assets

Rank in
Profits

Rank in the
Number of Large

Developer

Projects
1

Sun Hung Kai

Cheung Kong

Henderson

Hang Lung

Wheelock

Sino Land

Kerry

Lai Sun

China Overseas

Note: Since Nan Fung is not a public company, its financial report was not available. Therefore,
Nan Fung was not included in this Table. Net Asset = Total Asset Current Liability (in millions

HK$). (Source: Tse, et al., 2001)

As for market concentration, the market share of the top four developers is 47% of
the total area and 56% of the total gross floor area.

This high level of concentration

indicates that there is oligarchic power in the land auction market.

106

Tse's study

(2001) also proved that the auctioned land for large-scale development projects has
been dominated by big developers.

But the dominant developers in land auctions

ones in the property market.

may not be the same dominant

Nonetheless, they are

at least among the top 10 developers in Hong Kong (see Table 5-14).

It is

important to note that even if a large company generates few of its profits from
still be very great.
property development, the amount of profit generated could
Table 5-14 shows the developers that possess the largest shares of land from public
auctions may not necessarily possess the most profitable land in the best locations.
5.2.3 Conclusion

Although it has been argued that Hong Kong's land market is monopolized by the
share has a strong
top 10 developers, Tse (2001) suggested that a developer's profit
correlation with the share of land acquired in large-scale developments.

However,

large-scale development carries a greater risk, and therefore requires a relatively

higher return to compensate for it.

This means that land developers in Hong Kong

should be financially strong in order to compete in the land market.

107

CHAPTER 6

CONCLUSION AND IMPLICATION

After comparing the pro-growth coalition in Shanghai and Hong Kong, the
conclusion will be interpreted by three aspects: structure of coalition, relations
between actors in the coalition, and the implication of the public-private partnership.
The fndings of this study also support the growth machine thesis, which has

accelerated urban development in China.

6.1

CONCLUSION

Because the growth machine needs to form a pro-growth coalition, which is formed

by the govenment, planners, landholders, and developers, this research supports the
argument that the pro-growth coalition is the important power behind urban spatial

development, as can be seen by the case studies of Shanghai and Hong Kong.
Then, this research draws a conclusion from the empirical and institutional analysis
in Chapter 5 that the government and SODs dominate the pro-growth coalition in

Shanghai, while Hong Kong's main coalition actors are private developers.

The

conclusions are stated in the two sections below.

6.1.1 Shanghai: A Growth Machine in the Making
When the land market mechanism was first introduced in Shanghai in late 1980s,
land and property became commodities and had exchange values.

According to the

CBD development in Shanghai, both the goverment and SODs realized the
108

Therefore, the growth machine of Shanghai

exchange values of land and property.

However, unlike Hong Kong developers, SODs still have the

is in the malcing.

dual function as both public developer (government agency) and private developer,
which has been explained by the empirical analysis in Chapter 5.

Although the

into
rules of property reform in Shanghai required the transformation of SOEs

modem

enterprise

institutions,

as

such

limited liability

corporations,

share

a close
companies, private holdings, and so on, they still have the legacy of
The pro-growth coalition model is
relationship with local governments.
summarized in Figure 6-1.

Figure 6-1 Model of the Pro-Growth Coalition in Shanghai

L
I
Growth

Machine

State-owned
Developers

DevelopcIrs

/'

........ ...

Land Holders

As shown in the model, SODs (SODs) take on a lot of burden by connecting with

the govenment, planners, and landholders, by performing their roles as public

agencies, by earning profits from the private housing market etc.

The model is not

a mature growth machine in which governments could fully utilize the exchange

value of land and property, due to the close relationship between the government and
the SODs.

Although the benefit of a growth machine is obvious, further studies

need to elaborate on its cost.

109

6.1.2 Hong Kong: A Half Growth Machine

Unlike Shanghai, there is a distinction between public and private markets in Hong

Kong.

Although Hong Kong's growth machine is only limited to half the property

market, the other half, the private property market, is fully monopolized by ten large

developers.

A case study of the Central

Wanchai Reclamation Project also

supports the separation of the public and private land markets, as the reclamation
program can't be completed without the support of private developers.

The

institutional analysis in Chapter 5 demonstrated the monopoly of the ten largest

private developers in Hong Kong's private housing market.

Therefore, the

is supported.
argument that private developers dominate the pro-growth coalition
The conclusion is shown in Figure 6-2.

Figure 6-2 Model of the Pro-Growth Coalition in Hong Kong

................

[ Growth

I, .,

Public

Machine

Market

Ii

'Pub! c

Private

Developers

l
*

/
....

Land Holders

Agenty-L

According to the above model, the public and private sectors never intersect in the
market, except for urban renewal programs.

Also unlike Shanghai, it is the public

agency, not the govemment or any government branch, that participates in urban

redevelopment.

The difference here gives rise to a further implication that if the

government only stands outside of urban redevelopment, it is doubtful whether the

public-private partnership could complete the urban renewal programs fairly and
smoothly.
110

6.2 IMPLICATIONS
6.2.1 Elaborating on the Public-Private Partnership
Urban redevelopment is always achieved by a partnership of the public and private
sectors.

Financial institutions act as a go-between between the public and private

for their projects.

sectors, because both sectors need the support of bank loans

Banks should

conditions, as

redevelopment.

know the information

well as

of local business clients' interests

their financial and

and

growth-related plans for urban

But there may be important gaps in this information.

Neither

about the
private developers nor the public sector could gain complete information
entire local market's condition.
In China, this may be exacerbated by the fact that local officials frequently desire to

be associated with dramatic, highly visible projects that cost much more than the
benefits.

Another problem is related to the financial institutions that participate in

the urban redevelopment process.

The four large state-owned banks have a legacy

of bureaucracy, with each local branch having a close relationship with its local

government, which is the main reason for so many bad loans.

The case study of

Pudong Lujiazui proved that the problems have not disappeared.

In Hong Kong, the Land Development Company (LDC), whose objective is urban

redevelopment, experienced the problem of the private sector dominating the

partnership and failing to satisfy the public need for urban renewal.

In 2001, the

Urban Renewal Authority (URA), which is a semi-public organization tasked with

pursuing the public interest in the partnership, replaced the LDC.

Further research

is needed to focus on the balance between public and private interests.

6.2.2 The Perspective of the Growth Machine

This study advocates a further research agenda on the growth machine thesis, which
could objectively explain the motivation behind urban development.

The growth

machine is the most influential analytic framework of the political economy of urban
111

development.

It argues that coalitions of land-based elites always want to sell the

maximum
place or property at a higher density and value, which could obtain
returns for them.

The growth machine system is also sustained by the mutual

reinforcement of political, cultural, and economic dynamics (Molotch, 1993).

in democratic countries, the
In China, where anti-growth power is much weaker than

growth machine will be legitimate and very durable.

For example, the government

and developers are building a coalition for a growth machine.

In Shanghai, on the

other
one hand, the government wishes for higher revenue from land leasing; on the

from land
hand, SODs and other private developers also want higher profits

development.

the
Although SODs sometimes act as public agencies to help

which weaken the growth

government with land replacement and treatment,
machine, economic reform policy is the prevailing force.

Therefore, growth

machine is still in the making in China.

This study does not want to criticize the growth machine that results in higher

housing prices.

Nevertheless, the benefit of the growth machine is accepted by the

public for its strength in accelerating urban spatial change.

The main problem in

the future is whether the growth machine could sustain rapid urban development.

Further studies should focus on this problem.

112

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