Wednesday, June 9, 2010

City in a box? More adventures in Chinese urbanization

If you thought prefab housing was a tough sell, wait until you see the City in a Box being developed by Cicso Systems. The LA Times has some details here.
This explains who is buying these cities:
Delegations of Chinese government officials looking to buy their own cities of the future are descending on New Songdo City, a soon-to-be-completed metropolis about the size of downtown Boston that serves as a showroom model for what is expected to be the first of many assembly-line cities. In addition to state-of-the-art information technology, Songdo will emit just one-third of the greenhouse gases of a typical city of similar size.

Cities of a million-plus population are popping up across the developing world, but the foremost market for the prototype here is China, where a massive demographic shift from rural to urban already is underway, requiring hundreds of new cities.

"They come in here and say, 'I'll take one of these,'" said Richard Warmington, the former head of Hewlett-Packard Co.'s Korea operation and a Saratoga, Calif., resident who is president of Chadwick International School, which is setting up a campus in Songdo.

So then who pays for them?
The audacious plan is rising up from former mud flats along the Yellow Sea. Cisco and New York City-based Gale International hope the privately funded $35-billion Songdo project leads to at least 20 similar developments in China, India, Vietnam and other countries in coming years. Much of Songdo will be completed in 2014.

A-ha! Privately-funded complete cities! But that's not a full explanation of how things work. China doesn't have any property taxes and cities can't borrow money or issue bonds, so local governments are forced to be creative with regard to raising money. In order to generate revenues local governments are granted public land that they can develop. Such land is used as collateral to borrow from private sources, and those proceeds are spent on infrastructure such as electricity, water, roads and transit. Then the city sells the rights to develop the land, pays off the loans and keeps the rest. So the whole model is built on rapid growth and development funded privately. Often this model works, at least for a while, but there are empty cities such as Ordos and Kangbashi Where the model fails. There are obviously perverse incentives built into this model of local finance, and it is not at all clear how cities will pay for public services and infrastructure maintenance in a few years. One of the incentives is to build really large projects such as complete cities. And as the developer partnered with Cicso points out, the market for these complete cities is pretty big:
"Five hundred cities are needed in China; 300 are needed in India," said Gale, an exuberant, arm-waving developer who believes Songdo will be his legacy.

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