Abstract
As a unique phenomenon of urbanisation in China, the emergence of urban villages has attracted considerable attention from the academic community. Adopting an institutional approach on land development, this study analyses how the land property rights regime affects village-led land development behaviours and spatial outcomes in urban villages. Using a set of reliable data from Shenzhen, the empirical study shows that, although unequal land rights under the current land property rights regime impose severe institutional constraints to the development of urban villages, they actually play a much more important and diversified role in China’s urbanisation than previously recognised. As the primary developers of urban villages, villagers have adopted various land development strategies in response to the changing market environment and internal economic conditions in the dynamic urbanisation process. These dynamic strategies have contributed to the coexistence of sub-optimal industrial development and high-quality housing development in urban villages.
Keywords
Introduction
Originally an agricultural economy with most of its population residing in rural villages, China is experiencing a widespread and rapid transformation into a country that emphasises urban economy. From the macroscopic perspective, the relationship between urban and rural areas has been redefined both economically and socially. From the microscopic perspective, most of the population’s lifestyles have been deeply changed. On the one hand, in remote rural areas, hundreds of millions of villagers have left for the big cities to make a better living. The villages they have left behind have become ‘hollowed villages’ (Long et al., 2012). On the other hand, the coastal urban area of China has grown and expanded rapidly. A large proportion of the land in villages located in the expanding urban area has been taken over by the local state for urban development, and the remaining parts are still controlled by the villagers. These villagers engage directly in urban economic activities. As a result, the landscape of these villages has changed fundamentally. The villages are literally called ‘chengzhongcun’ in Chinese and ‘villages in the city’ and ‘urban villages’ in English. For the sake of simplicity, we use the term ‘urban villages’ in this paper.
As a unique phenomenon that has extensively existed in the urbanisation process of China over the past years, urban villages have constantly attracted attention from the government and the academic community. The concept of informal development has been widely applied in the existing literature. The development of urban villages is regarded as informal (Liu et al., 2010; Wang et al., 2009; Wu et al., 2013) and suboptimal because of the lack of state regulation (Tian, 2008) and the institutional constraints to the collective land property rights (Choy et al., 2013; Lai et al., 2014). The concept of informal development provides a useful perspective on the development of urban villages by distinguishing it from formal state-led urban development, and the findings of existing studies are consistent with the public image of informal constructions in urban villages. However, the question as to whether informal development will lead to decreased efficiency and inferior spatial outcomes needs to be explored further.
Numerous studies have recognised and analysed the role of urban villages in providing affordable yet poorly constructed housing for migrant workers. Recent studies show that these villages play diverse roles in the urban development of many cities. For example, urban villages provide infrastructure (Po, 2012) and facilitate industrial development and commercial development (Hao et al., 2012; Lai et al., 2014; Wang et al., 2009). However, the manner and extent to which urban villages have contributed to these forms of urban development remain unclear. Most of the relevant literature is based on only a small set of urban villages because of the difficulty in collecting systematic data. Moreover, the coexistence of different forms of urban development contributed by urban villages suggests the necessity to examine these forms together, which is lacking in the existing literature.
This study therefore aims to provide a better understanding of urban villages in China. Adopting an institutional approach on land development, this study analyses how the land property rights regime affects the behaviours and spatial outcomes of village-led land development in urban villages. Based on a wide range of reliable data from Shenzhen, this study documents the spatial outcomes of urban villages and compares them with state-led land development. Furthermore, this study examines the conditions, processes and outcomes of village-led industrial land development and housing development, which are identified as the two major types of land development in urban villages. Rather than focusing on one single and static development pattern in urban villages, this study investigates how the changing land development strategies adopted by urban villagers have resulted in diverse spatial outcomes in the dynamic urbanisation process.
The remainder of this paper is organised as follows: the next section discusses the conceptual perspectives adopted in this study to understand the development process and outcomes of urban villages in China. We then introduce the empirical methods and the main data source for this study. The following section provides a citywide analysis to investigate the important and diversified role of urban villages in the urbanisation process in Shenzhen. It also illustrates how the land property rights regime has shaped the distinct land development patterns in the SEZ area and non-SEZ area, and has finally resulted in the spatial disparity of urban village development between these two areas. We then present and analyse the different outcomes and mechanisms in housing development and industrial development contributed by urban villages. The paper concludes with a discussion on the ongoing urbanisation process and a reflection on the dominant state-led urban development model in China.
Conceptualising urban villages: Beyond the ‘informality’ discussion
There has been rich literature on informality, paying particular attention to the development of poor squatter settlements in developing countries. Informality is distinguished from formality because state institutions do not recognise its legality. New informality is located in the rural/urban interface in the metropolitan expansion process (Roy, 2004). The creation of informal settlements is associated with the massive rural to urban migration in fast-growing cities. Informal settlements are generally residential areas in an urban locality inhabited by poor migrants or have no formal access to urban land and therefore ‘squat’ on either private or state-owned vacant land. Informal settlements play an important role in providing affordable housing to poor squatters who live in congested environments and sub-standard living conditions (Dowall, 1991). Informal settlements are conceptualised as the spontaneous response of people to the incapacity of state laws and regulations to satisfy the basic needs of the impoverished masses (De Soto, 1989; Dowall, 1991; Fekade, 2000; Roy, 2004).
The concept of informality has been widely applied to understand urban villages in China, which were previously traditional rural villages that were subjected to rapid urban expansion and have become de facto urban areas. Urban villages are perceived as informal settlements, which are distinguished from formal urban areas. Urban villages provide temporary livelihood for indigenous villagers and supply affordable housing, education and employment opportunities for rural migrants and other social groups (Lin et al., 2011; Liu et al, 2010; Song et al., 2008). Studies on the consumption side have focused on the role of urban villages as consumed spaces for different social groups (He et al., 2010; He, 2014; Li and Wu, 2013; Liu et al., 2014). Meanwhile, studies on the production side have emphasised the self-help housing strategies of indigenous villagers (Song, 2015; Zhang et al., 2003).
The formation of urban villages is related to particular institutional conditions, such as institutions on land, hukou and housing provision (He et al., 2010). In their recent study on urban villages, Wu et al. (2013) highlighted the dual urban-rural land market and land management system in the creation of informality in urban villages. Urban villages are characterised by a sub-standard built environment, poor living conditions and low quality infrastructure caused by the lack of state regulation and difficulty in enforcing regulation (Tian, 2008). From the perspective of informality, existing studies provide useful insights for understanding urban villages as an exception of the formal urbanisation in post-reform China. However, existing understanding of urban villages remains limited. For example, the key differences in the development process and spatial outcomes between informal and formal development remain unclear.
The present study therefore aims to fill such gaps by adopting an institutional approach towards development behaviours in the land market to conceptualise the development of urban villages in China. In their prominent paper published in this journal, Healey and Barrett (1990) emphasised the role of various actors (landowners, developers, planners and financiers) involved in the land development process and analysed the interests that guide their strategies, and the interactions between them. The developer is considered to be the most important coordinator and catalyst for land development (Healey, 1991). Analysing the land and property development process may be conducted better by linking the strategies, interests and behaviours of the main actors with the ‘structure’, which is ‘the framework within which individual agents make their choices’ (Healey, 1992; Healey and Barrett, 1990). This methodological framework provides a general approach to the analysis of land development, is applicable to different socio-economic contexts, and has the potential to advance the understanding of the development of urban villages in the Chinese urbanisation process.
To adopt this approach, we must first define the ‘structure’ and investigate its impacts on land development behaviours. In this study, ‘structure’ is defined as institutions, which are ‘the rules of the game in a society or, more formally, the humanly devised constraints that define and limit the set of choice of individuals and thus serve as the framework for human interaction’ (North, 1990: 3). The land property rights regime is considered an essential institution for understanding the mechanisms and dynamics of an immobile land and property market (Guy and Henneberry, 2002). Property rights can be viewed as an attribute of an economic good. This attribute is often referred to as a bundle of rights, which includes the right to use assets, the right to earn income from such assets, the right to change its form and substance and the right to transfer all or some of the rights specified above to others at a price mutually agreed upon (Pejovich, 1990). Institutions define, enforce and determine the costs of transacting and producing property rights. Human choices are shaped by the complex interaction between formal and informal institutions. Formal institutions are introduced and enforced legally by the state institutions, and are embedded in state operations based on laws that are enforced and monitored by the government. Informal institutions are behavioural regularities based on socially shared rules, which are created, communicated and enforced outside of officially sanctioned channels (Pejovich, 1999).
In this study, urban villages are defined as the products of village-led land conversion and development for urban activities under the land property rights regime. Local states play a dominant role in the rapid urbanisation and land conversion process in China. The relationship between the central and local states has been redefined since the implementation of gradual institutional reforms in post-Mao China (Qian and Roland, 1998). State institutions create strong incentives for local states to increase local revenue and economic growth, particularly in the case of fiscal decentralisation since the fiscal reform of the mid-1990s. The fiscal reform has redefined the financial responsibility of central and local states to increase the financial flexibility and legitimacy of local states in managing urban development by residual right (Zhang, 1999). The land reform has further encouraged the changing role of local governments in China. Since this reform, previously state-owned lands have become tradable properties (Yeh and Wu, 1996). In particular, ‘through enacting the Land Administration Law and City Planning Act, the state has defined the legitimate right of local governments, especially city governments (to pursue) land development while allowing them to retain most income thus generated within their jurisdictions’ (Zhao, 2002: 14).
The formal institutional arrangements on property rights for collective land are mostly state-led and emphasise government control and top-down planning. Two types of land, including state and collective ownership, coexist in the current land system. According to the law, urban land is owned by the state, whereas collectives own rural land. Urban land use rights and land ownership are separate, and urban land use rights can be transferred to markets. However, collectively owned land cannot be sold, transferred or leased for nonagricultural use (Land Administration Law of the People’s Republic of China 2004 Amendment). The key element of the institutional arrangements is the land requisition system. Under the urban–rural dual land ownership system, local states can acquire collective land from the village collectives and convert such land to state-owned land. By the formal institution of land transfer, local states have the right to transfer land use rights to external real estate developers. The village collectives then receive compensation fees for the acquired land based on its original agricultural use. Hence, through the land requisition process, villagers’ land development rights are forcibly acquired by the state (He et al., 2009).
The rapid urbanisation process has generated huge market demand for urban land in the coastal regions of China. As the original owners of rural land, village collectives have also become major agents in the urbanisation and land conversion process. To obtain the land rent produced by urbanisation, villagers in the coastal areas of Mainland China have spontaneously converted their land for urban use along with the state requisition process. Such village-led urban development process is not authorised by state laws and regulations and has therefore resulted in so-called urban villages. In sum, the village collectives and the local states are the two primary land developers competing in the land conversion process. The local states also play an important role in shaping the formal institutional arrangements for land development, therefore defining informal arrangements. Figure 1 illustrates the roles of the local states and village collectives.
The role of the states and village collectives in land development.
This bottom-up reform on farmland development allows villagers to benefit from the increase in land value in the urbanisation process (Po, 2008). However, it is also worth noting that village-led land development has suffered from institutional constraints and incomplete property rights based on its informality. First, the collective farmland owned by villagers is not secure because the local governments may expropriate it. Second, the unequal rights of landownership deprive villagers of a formal financial source. Collective land has no access to formal credit markets for urban construction. In contrast, local states have the right to use the state land, which was forcefully expropriated from villages, as collateral for land-related development, such as infrastructure and public service construction. Third, collective land transaction is legally forbidden because of the lack of de jure property rights and is thus not covered by the state land management and regulation system (Lai et al., 2014; Tian, 2008).
Land in urban villages can be classified into two types based on the property rights structure: housing spots (Zhaijidi) and farmland. Although both types of land are collectively owned, they enjoy different de facto land use rights. Housing spots are distributed to individual households and are built upon, whereas farmlands are consolidated voluntarily from individual households and are managed by village collectives. This study focuses on the development of collective farmland for two reasons: 1) the development of collective farmland is more similar and therefore comparable to state-led urban development, in that collective farmland is converted from vacant land to developed land; and 2) the area of farmland is much larger than that of housing spots. Therefore, the development process and outcome of farmland is highly important to urban development in China.
Empirical case and data collection
Shenzhen is chosen for the empirical study. As a reform pioneer city located in the southern part of China next to Hong Kong, Shenzhen has witnessed the rapid urbanisation of China since the reform began and the establishment of the national Special Economic Zone (SEZ). Similar to that of other Chinese cities, the urbanisation process of Shenzhen was based on the typical urban–rural dual land system. Both village-led development and state-led development have contributed to the urbanisation process in this city. Therefore, Shenzhen provides an appropriate case to study the development of urban villages. In addition, Shenzhen was originally an agricultural county before the economic reform. Hence, the urbanisation process of Shenzhen is similar to a natural experiment, which can display the effects of institutional arrangements on the development of urban villages and their role in urban development.
Notably, Shenzhen is distinct in the development of urban villages compared with the other cities in China. The urbanisation process of Shenzhen has different conditions. First, Shenzhen is the first SEZ since China launched its reform and open up policies. With its spatial and cultural proximity to Hong Kong, Shenzhen has attracted a great number of investors from Hong Kong since the early 1980s to relocate their factories because of the low cost of labour and land. This process enabled Shenzhen to develop rapidly from an agricultural economy into an industrial economy: its population increased from 0.33 million to about 14 million and its urban built-up area increased from 3 km2 in 1979 to 942 km2 in 2013. The industrial area accounts for a large portion of the urban area in the city.
Second, Shenzhen has two distinctive administrative divisions: the SEZ area and the non-SEZ area. The Shenzhen SEZ was established in 1980. The city government expropriated most of the collective land in the SEZ area for urban development and construction. The state-owned urban land use system was almost completely applied in the SEZ area. Two other adjacent districts (i.e. Bao’an District and Longgang District) were not incorporated into Shenzhen City until 1992. These districts are located in the non-SEZ area (Figure 2). Urban development activities in the non-SEZ area began in the 1980s and were largely based on collective land. Therefore, urban development in the SEZ area and the non-SEZ area has distinct mechanisms because of the different initial development conditions and different institutional arrangements for land development. These differences should be considered in empirical analysis.
Administrative divisions of Shenzhen.
Following the research gap identified and the conceptual framework established in the previous section, the empirical analysis serves two research purposes. The first is to examine whether the institutional constraints have made the development of urban villages less efficient than the state-led urban development in terms of the scale of land conversion from agricultural use to urban use. The main source of data includes a citywide survey on the construction land of Shenzhen (2006) and a survey on the development of village shareholding cooperatives in Shenzhen (2010). The other supporting material includes the following: 1) An official report on the housing policy and distribution of residential space in Shenzhen (2007); 2) An official report on the industrial development strategy and the distribution of industrial space in Shenzhen (2007); 3) The Shenzhen Statistical Yearbook (2007, 2011 and 2014); and 4) An unpublished report on the population governance of Shenzhen (2007). Urban villages are empirically identified according to the status of land property rights based on citywide land survey data. The research findings are presented in the next section.
The second purpose of this study is to analyse the different outcomes and mechanisms in village-led housing development and industrial land development, which are the two major types of land development in urban villages. More specifically, we investigate the rationale behind the coexistence of the substandard industrial land development and high quality housing development in urban villages, which seem to be very contradictory results produced by the urban–rural land ownership system. As the primary developers of urban villages, the villagers’ land development strategies directly shape the development mechanism and the resultant built environment of urban villages. To understand the rationales behind the diverse development outcomes in urban villages, we need to carefully examine the land development strategies adopted by the urban villagers in response to the changing socio-economic conditions in the urbanisation process. The empirical analysis is structured by the framework and complemented by our fieldwork on several urban villages in two non-SEZ districts from 2007 to 2014. To examine the socio-economic conditions, land development processes and spatial outcomes in urban villages empirically, we surveyed four villages in Bao’an District and three villages in Longgang District through site visits, observations, photographs, documentation and interviews. We identified and interviewed the main stakeholders to investigate their roles and relationships in the development of urban villages. The main stakeholders interviewed in this study include village leaders, villagers, manufacturing firms, migrant workers and housing consumers. We also interviewed several other informants to acquire relevant information on the processes and outcomes of industrial land development and housing development in urban villages. The interviewees included urban planning experts and real estate agents.
Extensive development of urban villages in Shenzhen and its spatial disparity between the SEZ and the non-SEZ area
Shenzhen has experienced rapid urbanisation in the past decades. All of its 622 original rural villages in both the SEZ and non-SEZ areas have been transformed into urban villages. The transformation of rural villages into urban villages in Shenzhen involves the intertwined processes of land use change and the organisational change of village collectives. To acquire the land rent created by urbanisation, village collectives in Chinese coastal regions have carried out spontaneous shareholding cooperative reform for land development (Po, 2008). Numerous Village Shareholding Cooperatives (VSCs) have been created voluntarily in Shenzhen since the 1980s. Collective farmland parcels, which were used by the individual households, were consolidated and developed for urban use. VSC shares are distributed equally to village members based on a formula, which takes into account the prior contribution of members for the collective assets of the mainly collective farmland. A VSC is run by a management committee, which is elected by the shareholders, who are village members. VSC incomes mainly come from land or property lease and are distributed among VSC members (villagers) in accordance with their individual shares. About 40–50% of the collective incomes are kept by the cooperative organisation for future collective development. Therefore, the VSC is a new organisational form of village collectives, within which the relationship between villagers has been changed significantly (Table 1). By the end of 2005, almost all villages in Shenzhen had established VSCs. All 310,000 indigenous villagers therefore became VSC shareholders. VSCs in Shenzhen were estimated to have accumulated a total asset of around CNY 131.2 billion by 2010 (Policy Research Institute of Shenzhen Municipality, 2010). As the original landowners and primary land developers of collective farmland, villager-run VSCs are crucial in the collective land development process. In the present study, the terms ‘villagers’, ‘villages’, ‘village collectives’ and ‘VSCs’ are used interchangeably to refer to the primary land developers of urban villages.
The change from village collectives to shareholding cooperatives.
Village-led land development is extensive and has resulted in a large amount of urban villages in Shenzhen, which exceeds formal urban areas developed based on state land ownership. At the end of 2006, urban villages (393.3 km2) accounted for 55.9% of the entire urban area (703.5 km2). Although the land property rights regime under the dual land ownership system imposed severe institutional constraints on the development of urban villages, they have actually played a much more important and diversified role in the urbanisation process than previously recognised (Figures 3 and 4). Urban villages have diverse forms of urban development, including housing, industrial and commercial development, infrastructure construction and public service provision. Furthermore, we found that urban villages play significant roles in industrial and housing development, occupying 66.2% of the industrial area and 61.7% of the residential area of Shenzhen. By 2007, over nine million people lived in urban villages (Zha, 2007).
Scale and spatial distribution of urban land use in Shenzhen in 2006.
Scale and spatial distribution of urban villages in Shenzhen in 2006.
The land property rights regime in Shenzhen has shaped distinct modes of urbanisation and land conversion in the SEZ and non-SEZ areas, and has ultimately resulted in a considerable spatial disparity in urban village development between these two areas. In the SEZ area, the city government has played a key role in the land development process since the 1980s. In 1992, the government initiated an urbanisation campaign and expropriated most of the collective farmland in the SEZ area to accommodate foreign investments. To facilitate the land requisition process, a portion of collective land with a total area of nearly 37.48 km2 was delineated to village collectives as housing spots (Zhaijidi) and non-agricultural land with specific development rights. During the 1980s to the early 1990s, over 120 km2 of collective land available for construction in the SEZ area was expropriated by the government from the villages and transformed into state land ownership. Nearly 6.83 km2 of collective land de facto was used and controlled by the villages.
Urban development in the SEZ area is largely led by the government based on state land, in which land property rights are clearly defined in the development process. State-led development is guided and regulated by the state land use planning. State land has been widely used as collateral to finance high-level infrastructure construction. Land use rights are leased to land users such as developers and firms in the market. Land transactions are regulated by a land management system. Most of the original collective farmland (which was available for construction) in the SEZ area was converted and developed for urban use until the mid-2000s. A majority of the built-up area was developed based on state land, resulting from a state-led urban development model. A relatively satisfactory development is thus enabled in most of the SEZ area, where the scale of urban villages (44.3 km2) is very limited.
Collective land in SEZ urban villages was developed mainly for residential and industrial use in the 1990s. Industrial sectors have experienced rapid growth in Shenzhen since the establishment of the SEZ. To attract foreign investments and profit, the villagers developed a large scale of their collective farmland for industrial use. To meet the housing demands of the increased urban population created during the rapid industrialisation and urbanisation process, urban villagers upgraded their household buildings on the housing spots (Zhaijidi) to maximise floor area. Urban villages in the SEZ area have therefore experienced constant restructuring in this dynamic process. Industrial land in urban villages has been upgraded gradually to accommodate land use with higher value, such as the construction of restaurants and office buildings. Some of the urban villages have already been demolished and redeveloped, such as Yumin village, Caiwuwei village and Gangxia village.
The non-SEZ area has also undergone rapid urbanisation since the establishment of the SEZ in Shenzhen. Urban development in the non-SEZ area is largely based on collective land and is led by villages. The non-SEZ area was included as part of Shenzhen City only in 1992. Before the early 2000s, the city government mainly focused on development in the SEZ area. Such emphasis imposes both opportunities and challenges to the development of the non-SEZ area. On the one hand, market demand for urban land use in the non-SEZ area is strong and diversified, created by urbanisation. On the other hand, the city government monopolises formal urban land supply. Formal urban land development requires the change of landownership from the village collectives to the state. This inevitably involves a land expropriation process, which is costly in terms of both money and time. It is impossible for the local states to expropriate all the collective land at one time due to the financial constraints and high transaction costs. Strong demand for urban land use always exceeds urban land supply by the city government. To meet the strong demand of urban land and realise the potential benefits from land conversion, non-SEZ villages use their land to attract investments and profits.
Non-SEZ villages have developed a large amount of collective farmland for industrial use within a very short period of time. The industries are mainly low-tech and labour-intensive manufacturing industries, which have created massive and diversified employment opportunities to the rapidly increasing numbers of migrant workers. The local villagers benefit significantly from the industrial development in their urban villages. By leasing land and industrial buildings to external individuals and enterprises, the villagers earn solid income far higher than their earnings from agricultural production. However, institutional constraints on land property rights have hindered the financial ability of villages and caused a low level of infrastructure construction and a poorly built environment. Industrial land development in urban villages is therefore characterised by low-value-added manufactures and sub-standard services (Lai et al., 2014).
Non-SEZ urban villages have also played an important role in the provision of urban housing in the urbanisation process. Aside from the self-built housing on Zhaijidi, another type of housing commonly exists in urban villages. This housing type is developed based on collective farmland and is referred to in this study as Small Property Rights Housing (SPRH). In previous studies, the term SPRH has been used to serve different research purposes. In general, the term refers to the housing developed on collective land (including both Zhaijidi and collective farmland) without state requisition, which is the only legal way to convert rural land into urban land (Deng, 2009; Paik and Lee, 2012). In this study, we use the term SPRH to distinguish that type of housing from village housing on Zhaijidi.
In 2004, facing the challenge that most of the state land in the SEZ area that was suitable for construction has been developed for urban use, the city government initiated another round of urbanisation that focused on the non-SEZ area. The stated objective was to integrate the development of the SEZ and non-SEZ areas and therefore to enhance competitiveness in the entire city. Land is a key issue in this new urbanisation campaign. The city government expropriated a large amount of collective farmland that was available for construction with a total area of 260 km2. The city government paid a total of nearly CNY 16 billion to the villages for the expropriated land. When the urbanisation campaign ended in 2006, all the village collectives were transformed into VSCs, and all the indigenous villagers were transformed into shareholders. However, state administration remained absent in urban village areas. VSCs in the non-SEZ area were estimated to have spent over CNY 6.1 billion on providing public services such as environment management and infrastructure construction from 2006 to 2008 (Policy Research Institute of Shenzhen Municipality, 2010).
Based on the land survey data, this study examines the overall urban spatial outcomes contributed by the two competing primary land developers in the non-SEZ area: the city government and the urban villages. Urban built-up area reached up to 532.8 km2 in 2006. The decentralised development of urban villages has resulted in a tremendous scale of collective land conversion in the non-SEZ area, exceeding that of the formal state-led urban land development. Urban villages account for 65.5% (349.0 km2) of the entire urban area in the non-SEZ districts. It is worth noting that village-led land conversion and development could be even more extensive due to the fact that a total area of 260 km2 of vacant land has been expropriated by the government in 2004.
Compared to the formal state-led urban land development which involves forceful land expropriation and the making and implementation of top-down land use plans, village-led development is more efficient in terms of the scale of land conversion from agricultural use to urban use because it uses a more market-oriented development model. The transaction of collective land is more direct and convenient between the land suppliers and land demanders, whereas state land provision and transfer is highly monopolised by the city government. In recent years, both the SEZ and the non-SEZ urban villages have been experiencing redevelopment. In the redevelopment process, urban villages (with collective land ownership system) are gradually integrated into the formal urban areas (with state land ownership).
The changing land development strategies and the diverse spatial outcomes of villages
The previous section suggests that housing development and industrial development are the two main types of urban development contributed by urban villages in Shenzhen. A closer examination finds that these two types of village-led urban development show distinct spatial outcomes. On the one hand, industrial land development in urban villages is fragmented and disordered, resulting in an inferior built environment with low-quality infrastructure, which is distinct from that in formal industrial zones. On the other hand, our field visits to non-SEZ sub-districts (including Shajin, Xixiang, Songgang, Guanlan, Buji and Pingshan) from 2007 to 2014 present a large number of high-quality housing estates developed by villages, which are similar to newly developed commercial housing in formal areas in terms of planning layout, building design and appearance. Although the precise number of high-quality housing units is unavailable in citywide land survey data, newspaper reports and other publications suggest that such village-led housing development is extensive (Li, 2009; Li and Zhuo, 2013; Liu, 2009; Nie, 2013), which is also observed in other Chinese villages (Paik and Lee, 2012; Song, 2015).
Why has the urban–rural dual land ownership system produced contradictory results on urban village development? What is the rationale behind the coexistence of substandard industrial land development and high-quality housing in urban villages? Addressing these questions requires an understanding of the land development behaviours of urban villagers. Guided by the conceptual framework we proposed above, we empirically examine the main actors and their interests and strategies in the village-led land development process under the land property rights regime. We analyse how the main actors behave within and beyond the formal institutional constraints to profit from land development and how their behaviours have shaped the different outcomes and mechanisms in housing and industrial land development in urban villages. Special attention is placed on the land development strategies of urban villagers, who serve as the primary developers of urban villages.
We argue that the coexistence of substandard industrial land development and high-quality SPRH development reflects the changing land strategies adopted by urban villages in the dynamic urbanisation process, which produced distinct spatial outcomes despite their similar institutional environments. The early stage of urbanisation takes place against the backdrop of global manufacturing relocation. To accumulate profit from this process, villagers sell and lease their agricultural lands to manufacturing firms for industrial use. Village-led industrial land development began in the early 1980s and flourished during the 1990s and early 2000s. Most of the existing industrial sites in urban villages in Shenzhen were developed from the early 1990s to the early 2000s (Shenzhen Urban Planning and Research Institute, 2007b). However, the village-led SPRH development flourished only in the 2000s amid significant changes in the macro socio-economic condition. In this sense, the built environment of urban villages can be understood as a mixed spatial outcome embedded in two different market environments.
Sub-optimal industrial land development under institutional constraints
Since the end of the 1970s, the reformation and establishment of the Shenzhen SEZ has attracted a large quantity of foreign manufacturing investments, especially from Hong Kong. The industrial development in Shenzhen from the end of 1970s to the early 2000s was characterised by the expansion of labour-intensive, assembly-type industries, such as textiles and dyeing, electronics, metal products, consumer electronics, rubber and plastics, garments and glass products (Shenzhen Urban Planning and Research Institute, 2007b). During this period, most foreign-invested industrial enterprises in Shenzhen involved assembly operations and simple processing, with foreign firms sending raw materials or parts and components to the zone and importing products home or to a third country for further processing into final goods (Wu, 1997). This pattern of industrial investment is attributed to the access to low-cost labour and the limitations in the skills and training of management staff.
To meet the rapidly increasing demand for industrial land caused by the manufacturing investment relocation process, village collectives have developed various strategies to convert their agricultural land for industrial use along with state land acquisition and state-led development in the urbanisation process. First, farmland is sold to external manufacturing firms, from which villages gain revenues. Second, the villages retain de facto ownership of a portion of collective land for development. The villages develop the land and construct industrial buildings, which are then leased to external firms. The villages’ land development behaviours are constrained by formal institutional arrangements on land property rights, which are largely state led and empower the local states in the land conversion and development process. Two key institutional constraints to village-led land development include: 1) the lack of land security caused by the possibility of government expropriation, and 2) unequal access to credit because of unequal land rights. The lack of land security provides villages with strong incentives for immediate interests to secure their de facto land rights. While the government widely uses state urban land (which is expropriated from villages) as collateral for development, villages are deprived of a formal financial source because of unequal land rights. These institutional constraints to villages’ land rights weaken land-related investment incentives and the financial ability of the villages in the earlier stage of the urbanisation process, and result in inferior infrastructure and sub-standard industrial sites in urban villages (Lai et al., 2014).
One example of industrial land development is that of Wulian village. Wulian village is located in Longgang District, a non-SEZ district. Originally a traditional rural village, Wulian village was rapidly transformed to an urban village in the urbanisation process. In 2013, nearly 1925 indigenous villagers and 5000 migrants resided in this village. As with other urban villages in Shenzhen, Wulian village established a VSC to manage and develop the collective farmland for urban use. The indigenous villagers are the shareholders of the Wulian VSC. To attract foreign manufacturing investments, farmland was gradually converted and developed for industrial use since the mid-1980s. Industrial development has played a dominant role in the collective village economy from the 1990s to the present (Figure 5). Our survey shows that industrial land area occupied 46.41% (113.4 ha) of the entire built-up area in Wulian until 2013. The building floor space of village-owned industrial properties is approximately 88,088 m2. In the early stage of development, a small portion of collective land was sold to external manufacturing firms through mutual agreements. A large portion of farmland was then developed and serviced by Wulian VSC. The serviced land and industrial buildings were then leased to external firms. Land service and building construction were mainly funded by informal land sales, self-financing and compensation fees for land acquisition from the government. Wulian VSC earned income mainly from the lease and management of the land and industrial properties.
The mode of village economy.
In 1986, Wulian village leased its first collective land parcel to a Hong Kong-funded manufacturing firm. Since then, more manufacturing firms have located their production in the industrial sites in Wulian. As of 2013, nearly 300 manufacturing firms were located in this village. Such decisions are largely influenced by the low rental price. Our field investigation suggests that in 2013, rental price for industrial buildings in Wulian ranged from around CNY 8 to CNY 12 per m2 per month. The main industries in the area included papermaking, mold manufacturing and plastic manufacturing, which remain at a low level with low value-added production. Most manufacturing firms are small and medium-sized, Hong Kong-funded and domestic enterprises. As with other urban villages, migrant workers are a major source of labour for manufacturers in Wulian village. Most migrant workers come from other Chinese provinces such as Sichuan, Hunan and Jiangxi provinces. These workers live temporarily in Wulian village and move out upon changing employment.
Compared with state-led industrial zones, which mostly accommodate high value-added industries, industrial sites in urban villages are characterised by a lack of infrastructure, irregular delineation of land parcels and an inferior built environment. Wulian has only two main roads, which were invested in by the village itself. The village also suffers a lack of water supply, drainage system and electricity supply. Industrial buildings are constructed with low-quality materials and low technology standards. This built environment has made village industrial sites significantly less attractive for high-quality investments. Considering that the urbanisation process remains underway, manufacturing in Shenzhen has moved into second or third tier cities as a result of real estate pressures and labour costs. Industrial land in Wulian has been decreased and updated to accommodate new urban uses such as commercial and residential use.
In sum, the spatial outcomes of industrial sites in urban villages can be understood from the land development strategies of villages in response to the following institutional constraints and economic conditions. First, the government has the power to expropriate collective lands that traditionally belong to villages. The risk of land expropriation provides strong incentives for urban villagers to occupy the land for immediate interests instead of long-term interests. Second, unequal land ownership rights have deprived the villagers of formal financial sources and weakened their ability to finance land-related investments, such as transportation networks and other infrastructures. In practice, villages rely heavily on self-financing and land acquisition compensation fees for land-related investments. Third, the relocation of the large amount of labour-intensive, assembly-type industries creates significant opportunities for villages to profit from the process by supplying land to these industrial firms. Such profit comes mainly from land rental and management fees paid by land users or industrial firms, who are sensitive to the costs of labour and land and comparatively less sensitive to the standard and quality of the physical environment. These factors collectively contribute to the sub-optimal built environment in many industrial sites in Shenzhen’s urban villages.
Small Property Rights Housing (SPRH) development as a new land strategy
The rapid and constant industrialisation since the 1980s has led to a rapid increase in population and a comprehensive economic growth in Shenzhen. The population was approximately 0.31 million in 1979 and 11 million in 2014. The GDP per capita of Shenzhen has reached CNY 149,500, making Shenzhen one of the richest cities in China. The economic growth and population increase created a huge demand for housing in this city. With the establishment of land and housing markets, the traditional centralised housing provision system was reformed into a market-oriented allocation system to meet the increasing urban housing demands. The main source of formal housing supply is the commercial housing based on state urban land developed by real estate developers. Public housing or other types of state-assisted housing are limited to low- and middle-income groups. To the majority of the urban population (except for local villagers and high-level government officials), housing choice is limited. An official report on the housing policy and distribution of residential space in Shenzhen, states that only 1.1 million formal housing apartments had been provided by the end of 2006 (Shenzhen Urban Planning and Research Institute, 2007a). This quantity hardly fulfills the housing demand of the entire population. Furthermore, the price of formal commercial housing has increased constantly and rapidly, therefore becoming unaffordable for the majority of the population.
The gap between the rapid increase in the middle- and upper-income populations and the limited supply of affordable and livable formal housing creates new profitable opportunities for urban villagers. The rapid increase in the prices of formal residential property since the 2000s further urged the villages to invest in real estate. Many urban villages in Shenzhen have adopted SPRH development as a new strategy since the mid-2000s. To make profit by supplying affordable and livable housing to the increased population, urban villages in Shenzhen have developed a large number of housing estates based on their original collective farmland. These housing estates are referred to as Small Property Rights Housing (SPRH) in this study and are distinguished from village self-built housing, which is based on Zhaijidi and is characterised by chaotic and inferior settlements. SPRH is targeted towards the middle- and upper-income populations, who are sensitive to the standard and quality of housing estates. To compete for high profits, the villagers and developers are provided with incentives to develop high-quality SPRH estates, which are similar to newly developed commercial housing in terms of planning layout, building design and appearance.
However, because SPRH development is legally prohibited, the property rights to SPRH apartments are incomplete; they lack legal protection because of the absence of formal titles (fangchanzheng) issued by the local state. Generally, the price of SPRH apartments is one-third to one-half of that of nearby commercial housing with similar construction quality. Although the market price of SPRH is considerably lower than formal commercial housing, the margin for profits from SPRH development is rather high because of its cost structure. As the primary developers of SPRH, villages do not need to buy the land and pay high land-use fees to the government, in contrast with developers of formal commercial housing. Hence, these profitable opportunities attract outside investors and capital for SPRH development in the urban villages of Shenzhen.
Although the formal institutional arrangements for collective land development remain unchanged, the investment skills and economic conditions of urban villagers have improved significantly in the later stage of urbanisation. Villages have adopted various strategies to avoid the formal institutional constraints on land development. For example, they choose different modes of SPRH production to cope with financial risks and technical issues. In the case of Shajin, most of the SPRH development is initiated and invested in by the VSCs. Using the collective income acquired mainly from the industrial land leases and other sources, the villages hire professional building constructors for the development and construction of SPRH estates. Capital gains from SPRH investments are enjoyed exclusively by the VSCs. In the case of Guanlan, most VSCs choose to form partnerships with real estate developers or building constructors. SPRH projects are financed by real estate developers and built on collective land contributed by local villagers. Mutual agreements on land development are established between investment capital and local villages. Incomes are shared between the villages and real estate developers based on the negotiated portion.
Strictly speaking, SPRH is illegal because it contravenes the state’s land law. Nonetheless, numerous SPRH estates have been developed throughout Shenzhen.
SPRH development in Shenzhen has been incredible in recent years. Many high-quality housing estates without legal permits have been constructed within a short period. It is difficult to tell which among the housing estates is formal or otherwise, because they have similar appearances. Some (SPRH) are even built into villas, targeting super-rich people in the city. (An experienced real estate agent, 2014).
Most of the new SPRH projects are located in the non-SEZ area. In the case of Shajin, a sub-district in Bao’an, over 50 SPRH estates with over 50,000 housing apartments are being sold or constructed.
Guancheng Garden is an example of a SPRH project developed through the partnership of the local villages and external real estate developers. Located in Longgang District, the Guancheng Garden project was initiated in 2006 and completed in 2007. The project covers a land area of about 1.5 ha and was developed as a gated housing community with convenient access to public transport, shopping centres, hospitals and schools (Figure 6). The project includes modern amenities such as gardens, outdoor sports facilities and underground parking lots. Buildings were constructed with elevators and were designed with a modern style. Guancheng Garden features 500 housing apartments, 150 of which are built with three bedrooms and two living rooms, 250 with two bedrooms and one living room and 100 apartments have one bedroom and one living room. All the housing apartments were sold before 2008, with some sold even before the completion of the project. In 2007, the price of housing apartments in Guancheng Garden ranged from CNY 3500 to 4000 per m2. The average housing price increased to CNY 7000 per m2 in 2014. The apartment owners are mainly businesspeople, professionals and middle managers from formal public or private sectors in Longgang District. Most of the households also own private cars. No indigenous villagers bought a property at Guancheng Garden because they already owned a large number of properties and were not interested in acquiring more (village head, personal communication, 2014).
Guancheng Garden.
Guanlan VSC and Hengjian Company are the two major agents involved in this project. Guanlan village was a rural village transformed into an urban village during the urbanisation process. The village currently has 2700 indigenous villagers. As with other villages, Guanlan village has established a VSC and relied heavily on industrial land and property lease before the mid-2000s. Since 2006, Guanlan VSC has decided to invest in SPRH development. Guancheng Garden was one of the earliest SPRH projects initiated by Guanlan VSC via a partnership with Hengjian Company. Hengjian Company is a registered local firm in Shenzhen whose main businesses are real estate development, building construction and property management. In their partnership for the Guancheng Garden project, Guanlan VSC provides the collective farmland for construction, and Hengjian Company is responsible for the entire construction process. Profits from this project are acquired mainly from the sales of housing apartments. Based on their contract, Guanlan VSC and Hengjian Company share 30% and 70% of the sale incomes, respectively.
As with other SPRH projects, although the Guancheng Garden project proceeded without state regulation and land use planning, its development process involved the participation of various formal sectors. For example, the site planning and architectural design were conducted by a formal planning and design institute (with a nationally recognised Class A qualification) hired by Hengjian Company. As a professional real estate and construction company, Hengjian Company was in charge of all the construction efforts in this project. A registered supervision company was hired to ensure construction quality and safety during the key stages of the project. A subsidiary property management company was assigned by Hengjian Company to deliver property management services. The property management fee of Guangcheng Garden is about 1.6 CNY per m2 each month, which is slightly lower than those of nearby formal housing estates. As with many other SPRH estates, the spatial outcome of Guancheng Garden is relatively formal and can hardly be distinguished from nearby formal housing estates.
Two factors enhance the viability of village-led high-quality housing development. The first factor is the availability of financial resources, which is the primary condition for investments in high-quality housing development. Although the land rights of villagers remained incomplete and limited under the urban–rural dual land system in the 2000s, their financial capability has greatly improved in the urbanisation process. Through VSCs, villagers have learned much about adapting to urban transition and profiting from the urban economy since the economic reform. They have also accumulated substantial capital during the early stage of urbanisation by leasing their land to foreign industrial firms. In the case of Bao’an District, 416 VSCs were registered at the end of 2008. Their total assets reached RMB 43.6 billion. Huaide, an urban village in Bao’an District, reported CNY 1.2 billion worth of assets and an annual revenue of CNY 220 million in 2009. The improvement of the investment skills and financial capability of villagers is vital in the large-scale development of high-quality SPRH estates in the urban villages of Shenzhen.
The second factor is the establishment and development of real estate markets, particularly because the land and housing reforms have created and nurtured numerous real estate developers, builders, planners and architects in the past decades. According to the China Statistics Yearbook (2008), the total number of enterprises for real estate development was 23,190 in 1996 and 62,518 in 2007. The report by the National Bureau of Statistics of China shows that the gross floor space of residential buildings constructed in 2007 was 2.6 billion m2 (NBSC, 2008). The growing formal housing market has allowed professionals such as real estate planners, architects and builders to gain practical experience in planning, designing and building modern housing estates. Their professional expertise has not only contributed to the formal commercial housing development on state land but also supported the village-led SPRH estate development on collective land. To ensure the quality of their housing projects, the developers (i.e. the urban villages or the village-constructor partnerships) have cooperated with skilled professionals in developing their land. This initiative has led to the similar development outcomes of the SPRH and formal commercial housing estates.
SPRH development has multiple implications to different social groups. To the growing urban housing demanders, SPRH development offers affordable and livable housing choices. To VSCs and villagers, SPRH development provides profitable opportunities from the increase in land value and the real estate boom. The villages gain larger profits within a shorter time from SPRH development projects than from industrial land development and from leasing industrial plants. A portion of the collective income is distributed to individual villagers (shareholders) as bonuses, whereas the other part is controlled and managed by the village leaders for further investment and collective economic development. As the production and consumption of SPRH involves a large number of parties with vested interests, its extensive existence causes difficulty for the government to implement its formal housing policies on collective land.
In sum, the coexistence of substandard industrial land development and high-quality SPRH development in urban villages reflects the different land development strategies adopted by urban villages in the dynamic urbanisation process (Table 2). The key factors affecting the land development strategies and outcomes in urban villages are the institutional context, external market environment and the internal economic conditions of the villagers. The economic conditions of villagers during the early stage of urbanisation, including their investment incentives, investment skills and financial ability, are closely related to their formal development rights over collective land, which are constrained and incomplete under the formal institutional arrangements. These constraints on land rights have wakened the long-term incentives of the villagers and their financial capability to deal with land-related investments. This condition has resulted in sub-optimal industrial land development. Although the formal institutional arrangements on collective land rights remain unchanged, the external market environment and the internal economic conditions of villages have changed substantially, therefore shaping different village-led land development strategies and producing diverse spatial outcomes in the dynamic urbanisation process.
Industrial land development and Xiaochanquanfang land development in the urban villages of Shenzhen.
Conclusion and discussion
Adopting an institutional approach on land development, this study analyses how the land property rights regime affects the behaviours of village-led land development and the spatial outcomes in urban villages. Using a set of reliable data from Shenzhen, the empirical study shows that although unequal land rights impose severe institutional constraints on the development of urban villages, they actually play a vital and diversified role in urbanisation. As the primary developers of urban villages, villagers have adopted various land development strategies in response to the changing market environment and internal economic conditions in the dynamic urbanisation process. These dynamic strategies have contributed to the coexistence of sub-optimal industrial development and high-quality SPRH development in urban villages.
Two points can be drawn from our analysis. First, the development outcome of urban villages encourages us to reconsider the state-led urban development model in China’s urbanisation. The Chinese local state has every right to the land and has imposed heavy institutional constraints to the land rights of villagers throughout the urbanisation process. However, we found that village-led land conversion and urban development has resulted in the large-scale development of urban villages, which exceeds that of formal urban areas. Village-led development is more efficient than state-led development to some extent because it uses a market-oriented development model. Urban villages are characterised by intense competition in terms of collective land transfer and development, whereas state land provision is highly monopolised by local states. Therefore, the current mainstream academic understanding of urban villages as informal development should be reconsidered.
Second, this study indicates that the absence of state regulation (land use planning) does not necessarily lead to disorderly and inferior built-up environment. Although state land use planning and development regulation is lacking in the development of urban villages, urban villagers have developed high-quality housing on a large scale. In many cases, the physical appearance and construction quality of village-developed housing are similar to those of newly developed commercial housing following state regulations. The existence of large-scale high-quality housing therefore challenges the traditional image of urban villages, which are always regarded as chaotic, inferior and sub-standard settlements. The dynamic urbanisation process has significantly improved the financial capacity of villages. The villages have become more experienced and skillful in investment, and they have successfully devised diverse land strategies to attract capital and make profits. The findings suggest that the villages have great potential to contribute to high-quality urban (re)development. As legal farmland owners and de facto developers of urban villages with rich local knowledge and urban experience, villagers must be formally recognised as an important group in (re)development. The values and interests of villagers must be carefully taken into account in the land policy-making process.
Footnotes
Acknowledgements
The authors would like to thank the Editor and reviewers for their constructive comments and suggestions.
Funding
This research is supported by research funding from Shenzhen University (Project No.: 201548).