Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized lhe authors of these documents are solely responsible for the views expressed, which do not necessar- ily reflect the policies of the Systems Reform Commission of the People's Republic of China, the Swiss Development Cooperation, or the World Bank Contents i

CONTENTS

Introduction ...... l John Burfield with Di Xu and Songsu Choi

PART I: THEME PAPERS

POLICY INSTRUMENTS Technics ...... 7' Aprodicio A. Laquian

TOWN DEVELOPMENT FINANCING Finance ...... 7 Hafiz Pasha & A. F. Aisha Ghaus An Overview of Private Sector Financing of Urban Infrastructure Services...... 29 David E. Dowall

URBAN SYSTEMS Outside the Large Cities: What Role for Smaller Urban Centres? ...... 39 David Sa tterthwaite

TOWN LAND MANAGEMENT The Management, Costing and Marketing of Town Land ...... 65 Alain Bertaud

NATIONAL URBAN POLICY Urban Development Strategies, Planning and Decentralisation: Emerging Trends ...... 79 Ernie1 A. Wegelin

PROSPERITY AND SUSTANABlLlTY Prosperity and Sustainability of China's Towns: Lessons from North and South ...... 91 John M. Courtney ii China: Small Towns Development Development and Sustainability - A Case Study in Shenzhen, China ...... 99 Xiaochen Meng Policy Reform and Town Development in China ...... 105 Zhaoliong Hu

PART II: SUMMARY OF CHINESE WRlnEN CONTRIBUTIONS

OF FlClAL SPEECHES Complied by John Burfield Background Policy Guidelines of the Reform of China's Small Town5 ...... 1 1 1 Zhong Haoruo Speech at the Opening Ceremony of International Seminar on ChinaSmall Towns Development ...... 1 1 2 Mao Rubai To Bring Roles of the Agricultural Bank of China into Full Play andpromote Development of Small Towns in China ...... 1 13 He Linxiang Promoting the Healthy Development of Urbanization in Rural AreasAbide by Scientific Law and Pattern ...... 1 13 Li Baoku Basic Ideas on the Reform and Improvement of the Managementin System of Domicile China's Small Towns ...... 1 14 Mou Xinsheng Scientific Planning and Positive Guidance to Promote the HealthyDevelopment of Small Towns ...... 1 1 5 Ma Kai Effective Use of Science and Technology for Promotingthe Socioeconomic Development of Small Towns ...... 1 15 Wang Baoqing Observation on the Question of Reforming the AdministrativeManagement System of the Small Town ...... 1 1 6 Gu Jiaqi To Improve the Financial Management Systems of the Township Governmentls an Important Precondition for Promoting the Development of Small Town5 ...... 1 1 7 Ms. Gao Ying Deepening Rural Economic System Reform to Quicken thepace of Small Town Development... 1 18 Wan Baorui Small Town Construction-Reform on Small Towns LandUtilization System- Promotion of China's Rural Modernization Process ...... 1 19 Liu Wenjia Establishment of a Set of Statistical Indicators and Urbanizationlnformation Monitoring System for Rural Towns of China to Suit the Need of New Situation of Reform and Development...... 1 19 Lu Chunheng Contents iii

ACADEMIC PAPERS Complied by John Burfield On Development of Small Towns ...... 121 Fei Xiaotong Development of Small Towns Is an Important Means for Agricultural and Rural Modernization in China ...... 122 Chen Xiwen Urbanization: The Opportunities and Challenges Faced by Rural Development in China ...... 122 Du Ying. The Role of Government in Township Development and Its Policy Design ...... 123 Liu He Problem of Planning and Construction of Small Towns ...... 124 Zou Deci Small Towns Construction and Rural Modernization--on Road of Rural Modernization with Chinese Characteristics ...... 124 Gao Chengzeng The Value Increment Profit of Land Capital with Its Allocation ...... 125 Tiejun Wie and Shou Yin Zhu The Eastern Part Leads the Development of the Western Part and in a Bid to Push Forward the Urbanization of Rural Areas in China ...... 125 Bai Renpu The Key Points in Establishing Statistical Index System for China Small Towns Development ...... 126 Zhou Yixing Current Situation and Motivation of Land Market of Small Towns in Southern Jiangsu Province ...... 126 Yu Wenhua Estimation of the Dual Urban-Rural Socioeconomic Structure Will Accelerate & Improve Urbanization in China ...... 127 Ye Shunzan

PART Ill: SUMMARY OF WORKSHOPS AND CONCLUDING REMARKS

Strategy Overview ...... 129 Andrew Hamer Summary Remarks ...... 133 Katherine Sierra Workshop Summary and Findings ...... 137 John Burfield

ANNEX: LIST OF PARTICIPANTS -L...... 141 iv China: Small Towns Development Introduction

John Burfield, with Di Xu and Songsu Choi

Background and techniques for rational decision making in small towns develo~mentin China. 'The Bank, ince the beginning of economic reform in while agreeing to provide some limited support, the late 1970s, rural China has secured a funding from the Swiss Agency for witnessed unprecedentedly large Development and Cooperation (SDC) for study S tours and a conference to bring international per- increases in agricultural productivity. During the same period, the economic growth in urban or- spectives to bear on the effort, and agreed to eas has created substantial demand for labor. As help manage such activities. The consultant, a result, more than 100 million rural surplus Urbaplan, was hired to provide the support for laborers seek their livelihood in the cities. How- the activities. ever, this large influx of rural migrants has cre- ated tremendous pressure on land-use, infra- Conference structure and services in towns and cities, par- ticularly the large ones. The SRC, assisted by Urt~aplanand the Bank, or- ganized the Conference "China: Small Towns De- While the Central Government has consistently velopment" in Beijing during November 13-17, favored small towns development, few effec- 1995. More than 200 participants attended, con- tive measures have been employed other than sisting of policy makers. planners, academics administrative instruments to control population and international experts. Nine theme papers by growth in large cities. Numerous problems in international and local experts commissioned by small towns development, such as the lack of Urbaplan were presented. In addition. 34 offi- financing for infrastructure and social services, cial speeches and academic papers by domestic have not been effectively addressed. participants were addressed during the first two days of the Conference. The third day consisted In 1993, the Central Government established a of a field trip to the town of Shengfang. Hebei working group under the Systems Reform Com- Province. Two workshops were held on the fourth mission (SRC) to facilitate the development of day as follows: one focused on urban planning small towns. This working group requested the and land-use management, and the other on pub World Bank to help examine and evaluate issues lic and private financing issues. Each workshop 2 China: Small Towns Development was attended by a large contingent of local gov- Hafiz A. Pasha and A. F. Aisha Ghaus, in their pa- ernment officials, professionals and academics, per "Finance", addressed the financing issues for totaling more than 100 participants who contrib- small towns development. They first reviewed the uted to lively discussions. On the fifth day, the prospects and mechanisms available for financ- conference concluded with presentations of sum- ing the development of small towns in relatively maries and findings. low-income developing countries. Since small towns generally owe their existence to the pres- ence of rural-urban linkages, they argued, an ef- This Volume fort must be made to exploit the revenue-genera- tion opportunities created by such linkages. A This volume consists of three parts. Part I con- sound strategy for small towns is to select taxes tains the commissioned theme papers by inter- which have relatively large, buoyant and immo- national and local experts. Part II presents bile tax bases, and which involve low collection abridged versions of 23 of the written contribu- costs. Suggested candidates include head taxes, tions by domestic participants, for which English property related taxes, entertainment taxes, re- translations were made available. Part Ill gives source taxes, etc.. Moreover, the authors empha- the summary of the workshops findings and con- sized that inter-governmentaltransfers from higher cluding remarks. levels of government should also be an important component of the revenues of small towns. On the expenditure side, the authors argued that small Part Papers I. Theme town governments should perform the functions to provide only the key basic municipal services in The nine commissioned theme papers addressed order to ensure that limited financial resource and six themes of the conference: policy instruments; capacity be used more effectively. Additionally, town development financing; urban systems: town local governments must move towards recover- land management: national urban policy; and ing at least full operation and maintenance costs prosperity and sustainability. Most of these theme in services, such as water supply, by means of tar- papers by the commissioned experts drew upon iff systems which are relatively simple to adminis- general international experiences, rather than is- ter. Finally, they suggested that potentially high sues specific to China. The presentations were fol- benefits can be gained from improvements in the lowed by open discussions, some of which are re- financial systems, information management, ac- ported in Part II of this volume. counting standards and practices, staffing levels and qualifications, audit procedures, and expen- In the first theme paper "Technics", Aprodicio A. diture planning. Laquian discussed the policy instruments that have been observed through experience to help small The limited availability of government revenues to town development. He pointed out that the house- finance infrastructure will probably continue to hold registration (hukou) system which worked in hinder small towns development. There is a need the past in China will no longer work as effectively to look for private sector involvement, which was because China's economy has become more the topic of David E. Dowall's theme paper "An and more market oriented. Guiding direct rural- Overview of Private Sector Financing of Urban In- urban migration toward small towns would effec- frastructure Services". He argued that there are tively accomplished more through employment three important benefits of private financing to creation, Laquian suggested. Provision of physical both local and central governments: (1) it could infrastructure (roads, energy, water, communica- significantly enhance the efficiency and quality tions) also enhances small town development but of service provision; (2) it conserves scarce public is insufficient by itself to guarantee small town sector resources; and (3) it provides additional growth. He further noted that the lack of educa- sources of capital for financing infrastructure in- tion, public health and sanitation services and so- vestments. He noted, however, that the private cial welfare programs is an important problem that sector would be willing to finance urban infrastruc- migrants face in small towns. Finally, he concluded ture services if the latter would generate profit di- that technics of area-wide integration between rectly, or they are required as a condition of prof- rural and urban areas is one of the key policy mea- itable real estate development. Dowall then pre- sures that can be used for encouraging the de- sented a range of methods and approaches that velopment of small towns in China. create these conditions for private sector financ- ing of urban infrastructure services. These include Introduction 3 land privatization, development charges, leases agement should rest on basic "land accounting", and concessions, public and private partnerships, and ensure consistency between resources and privatization of services, and so on. planned use, and between supply and demand. He also discussed the cost recovery mechanism Pursuing the theme of urban systems, David for different land-use types and presented an Satterthwaite's paper "Outside the Large Cit- illustration of the land accounting system. ies: What Role for Smaller Urban Centers?" dis- cussed how and why small and intermediate ur- Emiel A. Wegelin's paper, "Llrban Development ban centers developed and how governments can Strategies, Planning, and Decentralization: best devise programs for the development of such Emerging Trends", discussed the experiences centers. The author first noted that each urban of national urban development strategies in the center has its unique possib~litiesand constraints South and Southeast Asian regions. The global for development, and that a government program and regional economic and demographic trends to develop one particular urban center may not support decentralization of government func- be appropriate for others. A nationwide or re- tions. He suggested that central governments gion-wide program for developing small and in- must support the multi-sectoral investment termediate urban centers requires local inputs. planning (MSIP) process at the local level, ad- Local governments know their local needs, po- just their legislative and regulatory frameworks tentials, and capacities and should be given the accordingly, and provide capacity building sup- authority to make their own choices as to what port for such processes. He stressed, strate- should be developed. To ensure local accountabil- gies of fiscal incentives to influence the loca- ity and fiscal and environmental responsibilities, tion of investment work best in conjunction with these local choices should t~emade within a MSIP processes, whereas they are less likely broader regulatory framework established by the to be successful in isolation. higher level of government. The author further discussed the links between agricultural and ur- Social and environmental sustainability of small ban development and pointed out that effective towns development is the theme discussed in government policies to support agricultural John M. Courtney's paper "Prosperity and growth may impact the economies of many small Sustainability of China's Towns: Lessons from towns more than any explicit development policy North and South." Courtney first pointed out that for the towns themselves. Finally, the author prosperity and traditional cultural values are in briefly reviewed the relevant third world expe- conflict in the rapidly growing urban China, and rience in developing small towns as a way to slow rapid urbanization has brought a number of en- large cities growth. He concluded that making vironmental problems. 'These problems are more large investments in developing "small urban serious in the larger cities. Acknowledging that centers" is unlikely to achieve positive results the economy and the environment need not be in if the reasons for differential growth are un- conflict, but are irrevocably interconnected, the clear. author argued that small towns in China provide an opportunity to accommodate future urban On the topic of town land management, Alain growth in a quality urban environment. A focus Bertaud, in his paper "The Management, Cost- for small town development should be the pro- ing and Market of Town Land" presented a frame- vision of access to environmental and social in- work which allows a local authority to define frastructure, such as clean water, sanitation, and quantify land development returns, costs and transport, education and. health services. The risks in a fast-growing small town. Because of sustainability of development requires govern- the status of land tenure during the transition ments to integrate urban poverty mitigation and period towards a market economy in China, he environmental upgrading into economic devel- suggested that the local authority of a small town opment initiatives, and responding to China's should play the role of land developer in addition special social-economic conditions. to its more traditional responsibilities concern- ing the provision of public services and the regu- In her paper "Development and Sustainability: A lation of land use. He noted that the principle of Case Study in Shenzhen, China", Xiaochen Meng land management for local government is not only addressed the problems associated with the fast to have the flexibility in adjusting its plan to urban development and their impact on eco- changing demand, but also to provide land de- nomic and environmental sustainability. She velopers with the confidence to invest. Land man- pointed out that the economic boom in Shenzhen 4 China: Small Towns Development in the past 15 years has caused a series of prob- Administrative, professional as well as theoretical lems such as the decrease of arable land, irratio- concerns from different perspectives were raised nal land-use structure and wastage, environmen- for small towns development in China which re- tal degradation, as well as social instability. To solve flected the range of the speakers' backgrounds these problems, attention should be paid to the and experience. Problems were identified in the transfer from rural to urban land management sys- areas of local government administration, land tems, development planning, protection of arable management system, domicile control system, land, and strengthening of various management social security system, urban system planning, and and regulations. She illustrated several lessons so on. Major recommendations of these written learned from Shenzhen in land policy and urban contributions include: (1) strengthening the capac- management. ity of local government by relating financial and functional responsib~litiesin small towns; (2) re- Also on the theme of prosperity and grouping of rural industries and combining re- sustainability, Zhaoliang Hu, in his paper "Policy sources towards concentrated development for Reform and Town Development in China", evalu- small towns; (3) overhauling the domicile manage- ated the linkages between economic reform and ment system according to residence and occu- town development in China. He noted that a se- pation, and freeing migration within county juris- ries of reform policies have favored town de- dictions strict controls being retained beyond velopment. These include rural economic reform, county boundaries; (4) reforming the micro orga- adjusting township classifications, and openness nization of the countryside and developing net- to the global economy at different levels. He fur- works of cities and small towns; (5) improving tech- ther discussed the existing problems in the cur- nology and computerizing management systems; rent system, such as the unbalanced develop- (6) pilot studies and projects to evaluate the ur- ment across China, the constraints of household banization strategy; (7) setting up standards for tax registration policy, township enterprise distri- collection and management; and (8) developing bution, and regulatory restrictions on town de- a national statistical index system for small towns. velopment. He concluded that China still has a long way to go in town development and imple- Part Ill. Summary of Workshops and mentation and improvement of policy reforms Concluding Remarks are very critical for its success. Three separate documents summarize the major Part II. Summary of Chinese Written findings and key conclusions of the conference Contributions and workshops. The strategy overview by An- drew Homer presented the elements of a work- Part II contains the summary of the Chinese writ- able town development strategy for China. He ten contributions which include 12 official stressed the value of privatelpublic partnerships speeches and 1 1 academic papers. The official in developing infrastructure as well as the im- speeches were presented by Chinese government portance of greater local autonomy for town gov- officials from the State Commission for Restruc- ernments, in line with the more market oriented turing Economic Systems, Ministry of Construc- economy. He further emphasized that experi- tion, Ministry of Civil Affairs, Ministry of Per- ments of town development strategy in differ- sonnel Administration, Ministry of Finance, Min- ent locations should be coordinated and monitored istry .of Agriculture, Ministry of Public Secu- in order to establish best practice experience. rity, State Administration of Land, State Sta- Katherine Sierra presented a summary at the tistical Bureau, Agriculture Bank of China, State closing of the conference and workshops. She Commission of Science & Technology, and Sys- noted that a major factor that holds back town tem Reform Commission. The academic papers development has been the deficiencies on the were provided by professors and researchers "software" dimension such as legal and regula- from universities and institutes. tory frameworks and resource mobilization mechanisms. She stressed that the success of town development lies in giving responsibility to, Introduction 5 and demanding accountability at, the lowest lev- els of government rather than by infrastructure-led town development schemes. Finally, the major findings and conclusions of the conference and workshops were presented by John Burfield in Workshop Summary and Findings which is placed at the end of this volume.

Acknowledgments

This Conference and thess proceedings would not have been possible without the efforts of a large number of people. In addition to the authors whose papers and speeches are printed in this volume, particular acknowledgments are owed to Mr. Li Tie of the System Reform Commission of the People's Republic of China for his efforts in co- ordinating the Chinese participants and in help- ing the creation of the conference agenda, to Ms. Zong Yan of the World Bank resident mission in Beijing for her strong support in organizing the seminar, and to hundreds of Chinese profession- als, academics and administrators for their par- ticipation and contributions in the workshop dis- cussions. 'Thanks also go to the Swiss Agency for Development and Cooperation for their gen- erous financial support to the Conference. 6 China: Small Towns Development PART I. THEME PAPERS 8 China: Small Towns Development and social and personal disorganization. Environ- The household registration system has drasti- mentalists also do not like cities, pointing to the cally changed since 1984 when peasants were degradation of urban environments due to over- allowed to leave the village and move to towns consumption and fascination with material things. provided they did not rely on the state for their Ideologically, both Communism and Confucian- food and other benefits. 'This change accelerated ism have strong anti-urban biases. Political phi- with the success of China's economic reforms, losophers (including Karl Marx and F. Engels) also especially the production responsibility system, considered urban life dehumanizing, mechanis- which made rural households richer and enabled tic and materialistic. They tended to romanti- them to live in towns relying on their own re- cize the notion of small town life as being warm, sources. This policy change has triggered off one nurturing and benefitting from the functioning of the largest population movements in history. of civil society. In 1983, China had 2,786 small towns contain- There are a number of economists, on the other ing 62.3 million people. By 1985, the country hand, who see large cities as good, arguing that had 7,511 small towns with a population of 166.3 they serve as the engines of rapid economic million. The number of small towns exceeded growth because of agglomeration economies, 10,000 in 1988 and it continues to grow. There economies of scale and openness to global capi- are an estimated 12,000 towns in China at tal, human and material resources and markets. present and if current trends continue, as many Some social scientists also like large cities, arguing as 400 million people are expected to leave that they bring about personality and social China's villages by the year 2000 and 200 mil- changes that favour autonomy and freedom, lion or more of these will be moving to small greater creativity, and a more rational rather than towns and cities. stultifyingly traditional attitudes and behaviour. Great cities, in popular thinking, are where great The question uppermost in the minds of those things happen. In engineering, architecture, com- interested in China's small town development, munications and the arts, the greatest accom- of course, is whether people currently living in plishments of humankind are seen in large cities. small towns will stay there or they will move on to small, intermediate andlor large cities. China has adopted the policy of encouraging the The issue of China's "floating population" growth of small cities and town as an integral part (liudong renkou) is of great concern to urban of its economic and social reforms and opening authorities, especially those in charge of family up to the outside world. This policy was probably planning (migrants are known to ignore locally based on normative grounds because, as I said set birth quotas), housing (migrants occupy un- before, the scientific basis for favouring small town controlled makeshift dwellings or live under growth is still a very debatable issue. bridges or on sidewalks) the police (migrants are associated with criminality and corruption), From the early 1950s when China's urban policy employment (migrants flood job areas), trans- was implemented with the help of the household port (migrants overload vehicles and clog rail- registration or hukou system and a system of in- road and bus stations), and environmental con- centives and disincentives, the policy worked quite trol (migrants throw their garbage around or well. With the exception of spurts of big city growth they engage in enterprises that cause water, air immediately after 1949, the Great Leap Forward and soil pollution). and the aftermath of the Great Cultural Revolu- tion, China's level of urbanization remained very Because of the problems mentioned above. Chi- low and for most of modern China's more than nese authorities are hoping that migrants will stay four decades, it remained way below 20 percent. in small towns and not float to cities. However, it is In fact, during the Great Cultural Revolution (1 966- already known that from 10 to 20 percent of large 76). China's rate and level of urbanization were city populations are migrants who are not officially much lower than its level of socioeconomic de- registered in the urban areas they are living in. It is velopment warranted. This was mainly because estimated that more than 1.2 million people in internal migration was strictly controlled. Mil- Shanghai, about 1 million in Beijing, 700,000 in lions of urban citizens were even sent out to the Tianjin and almost a million in Guangzhou do not countryside to learn from the peasantry, a policy that served to decongest the cities. Theme Paper: Technics 9 have official hukou status in those cities. The as rural growth rates and it is now expected that proportion of unregistered migrants in other cit- the world will become more than half urban by ies and towns is probably higher. the turn of the century.

Lessons from China and Other Countries Still, it is useful to review what lessons have been learned in many countries all over the world on China has not been alone in attempting to con- technics to develop small towns. Perhaps, from trol the growth of human settlements by encour- these experiences, China might be able to review aging the growth of small towns and discourag- its own small town development policies and strat- ing the growth of very large cities. Aglobal review egy and come up with better solutions. of such policies reveals that most of these were based on the normative notion that rural life was Migration Control good and cities were bad. An interesting obser- vation is that a review of such experiences clearly One of the most commonly used policy ap- shows that many of these policies have not been proaches to develop small towns is by controlling very successful. migration away from large cities and redirecting it toward small towns. Essentially, avthorities try to In the 1950s, many development planners, espe- prevent the movement of people to large cities cially those working with international organiza- with a system of incentives and disincentives. tions such as the Food and Agriculture Organiza- China, of course, is the main proponent of this tion, the World Bank and many bilateral aid agen- technic. cies, came to the value judgment that the prob- lem in developing countries was a rural one. This Most efforts to prevent people from coming into was based on the observation that in most of these large cities and to encourage them to go to small countries the great majority of people live in towns have failed. In the mid-1950s, for example, rural areas. The programs of such internationa: the Government of Indonesia tried to prevent agencies objected to the so-called "urban bias" people from migrating to Jakarta, the national of most governmental policies which showed the capital. They introduced an Identification Card biggest portions of development investments system that identified people born in the city. going to large cities. The value judgment was People who did not have the identification card made that the way to achieve more equitable de- were taken by bus to their province of origin. 'The velopment is to invest in rural areas. If one can authorities found the system unworkable because make life in rural areas comfortable and happy, it was too difficult to monitor all the migrants. 'The then people will not migrate to cities. In other system was also made more difficult by corrup- words, one can keep people down on the farm tion of the local level officials and the police who provided the benefits of the city are brought to were expected to implement the policy. them. Indonesia has also tried to control migration Experience has shown, however, that the mea- through resettlement or "transmigration" schemes. sures needed to extend an urban quality of life to Millions of people from the densely populated is- rural dwellers require massive investments. Villages land of Java and Bali have been resettled in outer and small towns do not have the economies of islands to form agricultural colonies. Evaluations scale and agglomeration economies that ac- of transmigration have generally been quite count for accelerated economic growth. Their favourable, although the cost per migrant has markets are too small to support commercial and been high. An important aspect of the evalua- industrial production that would, in turn, support tion (supported also by studies of the Malaysian the massive social and infrastructure investments Federal Land Development Authority schemes in needed to make them livable. Such schemes as Malaysia) is that success was often associated with integrated rural development, the "Green Revo- the development of small towns that served as lution," farm to market roads, agricultural credit, foci of the settlers' lives. Where small towns devel- agricultural extension, rural enterprise reforms, and oped, often through spontaneous migration that rural community development have been tried in supplemented the sponsored migration streams, many countries. The current global judgment is the settlers were happier with the social and that these schemes do not seem to have had too administrative services in the towns and they did much positive effect because the global rates of not abandon the transmigration schemes. urban growth continue to be almost twice as high 10 China: Small Towns Develo~ment Household registration systems to control mi- the outside world, however, internal migration gration have been used in the former Soviet in China has become more spontaneous. This Union, Vietnam, China, the Democratic People's means that migration patterns will probably not Republic of Korea, Cuba, and many Eastern Eu- be so easily influenced by governmental mea- ropean countries. For a number of years, the sures in the future. migration of people in these countries was suc- cessfully controlled. However, because many of The hukou system in China worked in the past these countries are now in transition to mar- because people were dependent on benefits ket-oriented systems, the household registra- such as food rations, housing, education and other tion systems are breaking down. benefits which were conditional on having the right local household registration. As China be- Studies of rural-urban migration in China are in- comes more market-dominated, however, people structive in this regard. According to a study by are able to get these benefits from the market and Ren Suhua in 1989, migration in China takes the they do not have to rely on the hukou system. 'The following patterns: system of "carrots" and "sticks" (incentives and disincentives) disappears with privatization and the (a) The volume of rural-urban migration in China flourishing of the market. The technic of migration has been traditionally low. Between 1951 -53, net control, therefore, will probably not work efficiently annual city-ward migration was 33.1 per 1,00O.'This under market conditions. dipped to -1 7.6 per 1,000 in 1961-65 when the fail- ure of the Great Leap Forward and the disasters Migration Data Bases that followed it forced the out-movement of 18 million workers and 26 million urban residents from Although the hukou system in China may not be cities to rural areas. From 1976-1986, however, net an effective instrument for controlling migration rural-urban migration had averaged 12.4 per under free market conditions, it can still serve as 1,000. an excellent data base for tracking peoples' movements and using the data derived from it for (b) Chinese migration is mainly rural-urban. With planning and administrative purposes. In a num- the exception of the periods of 1961 -65 and 1966- ber of European countries, especially the Nether- 76, the bulkof Chinese migrants have moved from lands, general information on peoples' move- villages to towns and cities. ments are tracked through a computerized sys- tem. Detailed information on the types of jobs being created in one place and supply of techni- (c) Internal migration in China has involved mainly cal and professional in another enables short distances. Since 1981. moves within the same human resource development planners to de- province have made up about 78 percent of all velop employment strategies. movements. Often, the migration data base can be added to (d) Internal migration until 1984, was primarily in- a full-blown civil registration system that takes note fluenced by government policies. The study by Ren of events in a person's life such as birth, marriage, revealed that 23.2 percent of people moved be- divorce or death. In some countries, an individual cause of job transfers, 8.8 per cent involved de- may be given an identification number and the mobilized soldiers (a special type of job transfer), important events in his or her life can be tracked 6.8 percent were recent graduates being moved by computers. to theii first jobs, 23.4 percent were moves made necessary by implementation of various govern- ment policies, 17.6 percent involved family mem- The important thing is to disassociate the migra- bers accompanying a person being transferred tion data base from migration control, which is because of a job, and 20.2 percent involved stu- seen by many as a violation of the basic human dents going to a school outside their place of origi- right to move. nal residence. Employment, therefore, was the predominant reason for internal migration. Employment Creation A more effective system for encouraging small Studies of internal migration in China prior to 1984 town development is by creating opportunities for revealed that ~o~ul~~~o~movements were mainly employment in small towns. Studies on the rea- influenced by government policies-Since the in- sons for ~ral-~rbanmigration have shown that the stitution of economic reforms and opening up to Theme Paper: Technics 11 real or perceived opportunity for employment the enterprises were completely private business constitutes one of the major motivations for mov- concerns. Only 23.7 percent of the enterprises ing. were state owned and managed. Interestingly, many of the state enterprises were larger ones and 'The best arguments for the use of employment were located in urban centres such as the Greater creation for encouraging growth in small towns Beijing region, Hebei Province, Jiangsu Province have been made by Professor Fei Xiaotong whose and the Shanghai-centred region. studies in Wujiang County in Jiangsu Province in the 1930s revealed the important role played by Based on the study mentioned above and obser- small factories and other enterprises in small town vations from small town growth around the world, development. Professor Fei stressed the impor- the following technics related to employment cre- tance of nonagricultural enterprises and small ation in small towns may be considered as very scale manufacturing and processing activities in important interventions: enhancing and augmenting the income of peas- ants. He proved that historically, China progressed (a) Small town authorities can encourage small when small scale enterprises were encouraged scale enterprises to locate in small towns by offer- and the country's rate of development suffered ing credit schemes. One of the most important when small town enterprises languished. During the needs of small scale entrepreneurs is capital. En- 1930s, for example, when cheap machine-manu- trepreneurs often do not have enough assets to factured silk became popular because of Japa- serve as collateral when borrowing investment nese manufacturing, China's small town silk indus- funds from formal sources. Public schemes to pro- try suffered tremendously and the country lan- vide low-cost capital will encourage such entre- guished. preneurs, whose success, in turn, will encourage the growth of small towns. The importance of employment creation was also supported by the work of Professor E.A.J. Johnson (b) Some small town authorities have encouraged in lndia in the early 1950s. According to Professor enterprises by constructing work places, markets Johnson, small towns acted as the social and eco- and other structures that they can avail of at rea- nomic "bridges" that connected rural villages and sonable prices. In Malaysia, for example, local cities together. In lndia and China, towns often government authorities have encouraged infor- served a very important marketing function. 'The mal sector food sellers to locate in small towns by rural farmers went to market towns regularly to sell building kiosks or hawker stalls. In Indonesia, the their products and to buy their supplies, equipment simple expedient of closing a street in a town to and other needs. These commercial activities cre- allow a night market to be held there is a tremen- ated a lot of formal and informal sector jobs in dous support for local entrepreneurs. town, which tended to attract more people and added to the town's prosperity. (c) Providing amenities and services to small scale entrepreneurs in small towns is also a good way of In a study of 36 small towns in six coastal provinces supporting small town growth. Reliable electric- of China that I conducted in 1985 to 1989, 1 ity supply, clean water, garbage collection and counted 2,546 small enterprises that had been disposal and sanitation facilities are needed in established since economic reforms were started markets and other centres of employment. Town in the country in 1984. Of the small enterprises, 29.6 authorities can invest in these services and ameni- percent were established before 1976, 12.4 per- ties and get back their investments through user cent between 1977-1980, 15.2 percent between charges, taxes and fees. 1981 -83, and 42.8 percent between 1984-87. It was clear from the study that the growth of small scale (d) Technical assistance by small town govern- village and township enterprises in the 36 small ments to entrepreneurs and migrants can help to towns grew very rapidly since 1984. The growth of make them succeed. Such assistance is especially these industries, in turn, coincided with the rapid useful in the fields of small business management, growth of small towns. product design, marketing, quality control, pro- duction techniques, and finding access to public Another important finding in my study of small town services. With the success of the enterprises, of development is the fact that the great majority of course, small towns also flourish. these employment-creating enterprises were col- lectives (63.1 percent). Another 12.4 percent of 12 China: Small Towns Development Housing and Basic Urban Services authorities should make sure that housing and ur- ban services are made available if they are to see Studies of migration to small towns usually discover their towns develop and grow. that many migrants encounter a number of prob- lems upon arrival in their town of destination. In a The housing issue, of course, does not actually re- survey of 7,676 migrants to small towns which I quire the construction of houses and their distribu- conducted in 1985 to 1989.47.1 percent said they tion to people. From a review of various technics encountered some problems. In their order of im- used in various parts of the world, the following portance, these problems were as follows: (a)dif- approaches have been found to be useful: ficulty of fitting into the new job, 71.6 percent; [b) difficulty in fitting into the iew community, 63.3 percent: (c)difficulty in finding employment, 52.3 (a) Sites and services may be made available to percent; and (d) difficulty in finding adequate migrants to small towns instead of finished hous- housing, 48.6 percent. [Note: interviewees could ing. In this technic, the town government or the give more than one answer]. work unit may allocate some land for housing and then provide basic services such as clean water, sewerage, drainage, a road network, garbage The pattern of answers mentioned above shows collection and disposal, etc. The people can then that while housing seems less important than em- be encouraged to build their own houses on the ployment and community integration for new mi- serviced sites. In this way, the housing will not re- grants, it was still a major source of concern. The quire too much capitalization from the very be- housing problem is particularly difficult to solve ginning. 'The housing recipients will also be able to because it requires a great deal of resources to build according to their needs, expanding the find good housing. In fact, in the survey, it was structure as the family expands and investing found that the housing problem was still unresolved money in the dwelling when they can afford it. five years after the beginning of the survey for more than 37.1 percent of thgpeople studied. (b) Housing can be provided by the work unit as close to the work site as possible. The high density By the last year of the survey, it was found that housing (usually multi-storey) can be build on land almost 70 percent of the interviewees still had a owned by the work unit. There are a number of housing problem. About 25.4 percent lived in advantages to the work unit in this technic de- rented accommodations belonging to their work spite the fact that it may require considerable in- units; 30.3 percent lived in public dormitories vestment up front. For example, workers assisted owned by the work unit (thesewere mainly young with their housing will be more loyal to the organi- unmarried workers), and 1 1.3 percent rented pri- zation. Living close by will also tend to diminish vate accommodations and doubled up with other absenteeism. Socially, being able to walk or take people because private rents were too expensive. a bicycle between home and work is, of course, The housing difficulties in the small towns were seen beneficial to the environment. in the fact that among married migrants who were accompanied by their spouses, 1 1-4 percent were still waiting for a housing allocation from their work (c) Housing in small towns can be made of indi- units more than five years after the start of the sur- genous materials and they can be constructed vey. with appropriate local technology. If future homeowners have the necessary construction skills, they may be involved in the design and con- Although housing may not be initially seen by mi- struction process and save some money. Upgrad- grants to small towns as a serious problem, it should ing of semi-finished dwellings has been found to be viewed as a medium and long term issue that be an effective strategy to cut down cost of hous- town authorities need to address if they are to suc- ing. In a number of countries, maintenance and ceed in enhancing small town development. other housing costs can be significantly lowered if Housing is the most expensive investment of a fam- this is delegated to organized residents. ily in its lifetime. Settling in a small town can be made easier if adequate housing and other ba- sic urban services (clean water, sanitation, edu- (d) Community organization and cooperative cation, health) are made available. In China, management among residents in a housing com- these may be provided by the work unit. Town munity can be used as a technic of lowering ser- vice costs, enhancing commitment to shared goals and making service delivery more efficient. Because rural-urban migrants may come from Theme Paper: Technics 13 different villages and other towns, it may be nec- buildings, clinics and hospitals, schools and essary to organize them into community groups. churches or mosques would be sufficient to at- This may require the services of training commu- tract people and keep them in the town. Experi- nity organizers and motivators who can facilitate ence showed, however, that even when these community cooperation. This community organi- physical infrastructures and social superstruc- zation is particularly useful in newly formed com- tures were provided, sometimes failed to flour- munities where people initially are strangers to ish. Employment opportunities, a sense of com- each other. munity, good local government leadership and other intangible factors seem to be more impor- (e) Housing and basic urban services may be used tant as indicators of success in small towns than as effective instruments in a policy of physical infrastructures. "reconcentration" where rural households widely scattered in space can be brought together in That physical infrastructures are insufficient as a dense settlements that can then be more effi- developmental technic is also exemplified in ciently provided with other urban services (piped Tanzania's ujamaa village development scheme. water, flush toilets, health clinics, neighbourhood In Tanzania, small town planners gave more em- schools). This policy of reconcentration has been phasis to social organization and the fostering of widely used in Cuba, for example, where five- community leadership than physical infrastruc- storey walk-up apartments have been con- tures. By stressing community development, co- structed for the rural people even in remote rural operation and commitment to the ujamaa ideal, areas. By concentrating people in dense settle- the small towns were able to mobilize the people ments, it became easier to extend services to them for development. and to manage community life. Environmental Technics Areawide and Regional Planning One of the main concerns about small towns in One of the main reasons for the failure of small China is the fact that the village and township towns as human settlements is that they are iso- enterprises on which the town's development lated from both their rural hinterlands and from depends are often the cause of environmental other towns. Areawide planning has shown that pollution. 'This is because these enterprises are too when siting small towns, close attention should be small and they do not have adequate capital to paid to their linkages with rural areas, other towns install the pollution control devices. Some small and intermediate or large cities. scale entrepreneurs also simply do not know enough about the negative effects their actions Often, there is a tendency for small town planners have on the environment. They dump acids, to consider a major function as the main basis for paints, used oil and other types of toxic waste into the creation of the town. Single purpose settle- drains or open streams unaware of the deleteri- ments, such as mining towns, tourist resorts, etc., ous effects of these substances on the environ- are difficult to make sustainable if they are not ment. linked with surrounding settlements. As much as possible, towns should be linked together function- An obvious intervention for countering environ- ally, i.e., comparative advantages of each town mental pollution in small towns is the establishment should be enhanced by networking. of local and national pollution control policies and standards and their strict enforcement in small . It is most important for small towns and their rural towns. National and local legislation can be and higher order urban settlements to be linked passed to control the polluting behaviour of local by a good system of roads, telecommunications, entrepreneurs. The policies and standards should and services. The linkages provide the synergy be widely disseminated, especially information necessary to make the different towns within a on the causes of pollution and the fines and pen- certain region far greater than the sum of their alties for polluting. parts. Authorities in small towns may also form technical Infrastructures alone, however, will not guarantee assistance groups to inform small scale entrepre- the success of a small town. In the "growth cen- neurs about the environmental consequences of tre" small towns strategy in Kenya, for example, their actions and to give them advice on how to government planners thought that roads, town curtail polluting practices. Enterprises may begiven 14 China: Small Towns Develo~ment enough time to make the adjustments before they the costs of going to the central city can be high are penalized. Often, this positive and supportive in both monetary and time considerations, the approach works better that purely punitive mea- small towns tend to develop with an inward fo- sures. cus. Perhaps, if and when rural-urban transport systems improve, the small towns will be swal- While small towns may affect the physical envi- lowed by the mega-city. ronment directly, it is also possible to plan small towns so that they fit into the demands of the physi- Mega-urban region planning approaches in re- cal environment. In the Democratic People's Re- cent years, however, run counter to these trends. public of Korea and in Cuba, for example, there is In many technologically advanced countries, a severe shortage of arable land. To adjust to this mega-urban regions are being planned and de- environmental limitation, small town planners have veloped as multi-nodal settlements. The preferred sited new town settlements on steep hillsides, rocky technic is "densification" or the concentration of promontories and unfertile terrain. 'The fertile val- people in smaller settlements. These densely inhab- leys are reserved for agriculture and other produc- ited settlements are, in turn, surrounded by pro- tive enterprises. 'The towns, by adjusting to the ductive agricultural green zones. They are also demands of the physical environment, are able linked together with non-polluting transport sys- to become more ecologically adaptive, perform- tems that enhance economic and social integra- ing their administrative, political and social func- tion. tions with minimal adverse effects on the environ- ment. A good example of this technic of integrating small town development into mega-urban region plan- Small Towns in Mega-urban Regions ning is seen in the Greater Vancouver Regional District in Canada. Greater Vancouver's vision is The polarized view that pits small town develop- one of a central city surrounded t~yeight "regional ment against mega-city development often ig- town centres" that have their own autonomous nores the fact that one of the best ways of en- character. 'The regional town centres are designed couraging small town growth is to link small towns as densely occupied settlements where jobs, hous- with very large cities in the context of mega-ur- ing, shopping and cultural and social services are ban regions. In a comparative study of Greater concentrated. 'The green areas between the cen- Beijing, Metropolitan Shanghai and Greater tres are kept as productive farm lands where very Guangzhou which I have been conducting since intensive and technologically advanced "urban 1991, small towns on the periphery of mega-ur- agriculture" based on hydroponics and intensive ban regions have been found to be thriving. In track gardening are practiced. the beginning it was feared that such small towns within the mega-urban regions were merely des- The decentralized mega-urban region planning tined to become satellite "bedroom towns" for approach is proving to be one of the most inno- commuters who work in the inner city. Further stud- vative technics in urban planning in recent years. ies are showing, however, that these towns have In some ways, it may be seen as an attempt to their own identities, their own pattern of enterprise achieve the social intimacy of the small town by development and their own political and admin- integrating it within the complex reality of the istrative dynamics. mega-urban region. If this balancing act suc- ceeds, small town development might continue Similar studies of small towns. within the hin- with its positive effects. terland of Hong Kong and Macau are also show- ing rapid development rates in these settlements. Conclusions Although these small towns mainly serve the food, labour and service needs of the large ur- The development of small towns in China has been ban areas, their prosperity is remarkably local. an integral part of the country's national urban The systems of local administration and urban strategy as Chinese authorities have considered management are also very particularistic. the positive and negative effects of small town life in their national development efforts. In some In part, the autonomous development of small ways, policies on small towns have been heavily towns within large mega-urban regions might be influenced by the debates on centralized or "com- due to the poor transportation services in China mand economy planning" or decentralized or that prevent more efficient commuting. Because "bottom up" planning. A country as large as China Theme Paper: Technics 15 is an extremely difficult one to govern. In the re- tinction between small towns and big cities. The cent past, there has been a strong tendency to information revolution is blurring physical dis- attempt to govern through centralized control, tances as ideas rather than people travel. In the which, in turn, has resulted in negative effects on United States and Canada, the distinction between small towns growth. rural and urban residence is already blurred. Ur- ban services that used to be hard to get in rural China's adoption of the policies of economic and areas are now easily available. One can live in a social reform and opening up to the outside world very small rural hamlet and still be connected has had most positive effects and impact on small with the main city by telephone, fax, modems, town development. The past decades have shown e-mail and the Internet. Right now, these tech- that people in small towns can pursue develop- nological marvels may just be the stuff of mod- mental activities that, combined together, re- ernist aspirations in China but it will not be long sult in rapid economic growth at the national before they become reality. At that time, the level. Of course there have been some negative technics discussed in this paper may come into effects of small town development, such as un- full play and enhance the development of small controlled internal migration, pollution, corrup- towns. tion. On balance, however, the release of the creative energies of millions of people in small towns have improved the quality of life of the Presented at the Conference and Workshop on Small Towns majority of China's citizens. Development in China, sponsored by the State Commission for the Restructuring of Economic Systems and the World Bank, Beijing, 13- 17 November 1995. A review of various approaches and technics for small town development in other parts of the world that China's current policies on small towns are strongly developmental. Small towns have boomed economically as their linkages with their rural hinterlands have increased. 'They have be- come good places to live as they have linked up with larger urban areas to take advantage of technological and social changes. Dr. Aprodicio A. Laquian Director Looking at developments of small towns else- Centre for Human Settlements where, one may conclude that in the city of the The University of British Columbia future, people would not make too much of a dis- Vancouver, Canada 16 China: Small Towns Development Finance

Hafiz A. Pasha and A.F. Aisha Ghaus

rbanisation is proceeding at a rapid pace modernisation efforts of the country will hinge cru- in most developing countries. For low and cially on the institutional and financial capacity U middle income economies of the world, the of small towns of China to provide employment, average annual growth rate of urban population housing and a modicum of basic municipal ser- is twice that of the overall population (see Table vices to the large number of rural migrants. 1). 'This growth differential is even more pro- nounced in China, where the growth rate of ur- The objective of this paper is to assess the pros- ban population at 4.3 percent per annum is over pects and mechanisms available for financing the three times the total population growth rate. This process of urban development in small towns of has led on the one hand to the emergence of relatively low income developing countries and 'mega' cities with populations in excess of 10 mil- to present the existing international experience in lion and on the other hand to a vast multitude of this area. Section 2 highlights the salient features smull cities and towns at the rural-urban interface of growth of small towns generally and derives performing a wide variety of service and trading implications regarding household levels of functions. affordability, levels of demand for municipal ser- vices and potential local sources of revenue. Sec- According to estimates of the World Bank for tion 3 discusses issues of institutional structure and developing countries, over one billion people lived capacity and focuses in particular on the range in 1992 in cities and towns with population of less and level of functions that can be performed effi- than one million. The corresponding number for ciently by municipal governments in small towns. China is over 200 million, where such settlements Section 4 highlights the problems of financial man- have exhibited considerable dynamism and agement relating to the operation of municipal growth and have increased their collective share budgets and the process of revenue administra- in urban population from 52 percent in 1970 to 65 tion. Section 5 describes the pattern of municipal percent by 1992. It is anticipated that over the next finances in smaller jurisdictions and identifies ma- decade these cities and towns will have to ac- jor potential sources of revenue. Finally, Sec- commodate an additional 160 to 200 million mi- tion 6 presents the conclusions. grants from the countryside of China. Therefore, the success of future development and

SOURCE: World Development Report, 1994, World Bank. 17 18 China: Small Towns Develo~ment

TABLE I EXTENT OF URBANISATION IN DEVELOPING COUNTRIES Population Share of Average Overall Population Country (Million) Urban Annual Population inCities1Towns 1992 Population Growth Growth with population be- (%) 1992 Rate (%) Rate (%) low 1 million (%) 1980-92 1980-92 1970 1992

Bangladesh India Nigeria Pakistan China Sri Lanka Egypt Indonesia Myanmar Philippines Thailand Turkey Brazil Malaysia Korea, Rep. of Mexico

Low and Middle Income Economies 46 1 0.0 3 6 3.7 1.9 5 9 6 3

Growth of Small Towns cultural inputs like fertilisers, pesticides, trac- tors, agricultural machinery, etc., while the Rural- Urban Linkages former involve wholesale trading in agricultural produce and agro-processing of agricultural raw Small towns generally owe their existence to the materials. Initially, most of the economic ac- presence of rural-urban linkages. As agricultural tivity in small towns is informal and small-scale development proceeds and the rural economy in character of labor-intensive nature. Devel- . makes the transition from subsistence to market- opment of small towns at the rural-urban inter- based farming, the prospect for stronger urban- face can potentially create a 'synergy' between rural linkages increases greatly. This explains why the process of rural and urban development the rate of formation of new towns and the rate rather than a conflict. of growth of existing settle-mentsincreases rapidly at intermediate stages of development, as is be- Economic Base of Small'Towns ing observed currently in many developing coun- tries, including China. Given the sources of growth of towns, the eco- nomic base of such urban centers consists prima- Smaller towns and cities often represent better lo- rily of trading and service activities for the rural hin- cations for agro-based industrial activity in view terland. As such towns grow they generally of greater proximity to agricultural production progress to also performing industrial, administra- centers and for the same reason are better tive and cultural functions. Much of this develop- equipped to provide services for the ment is spontaneous in character and needs to modernisation and improvement of agriculture. be supported by municipal authorities through Linkages are both forward and backward in char- provision of infrastructure which promotes rural- acter. The latter arise from the marketing of agri- urban linkages. Theme Paper: Finance 19 Income Levels and Affordability to fetch large surpluses over development costs because of low real estate values in relation to those observed in metropolitan cities. Small towns generally represent the first change of residence for rural migrants. There is evidence of the 'leap frogging' phenomenon whereby The search for revenues in smaller municipal juris- some migrants subsequently move on in search dictions, therefore, has to be oriented towards un- of better economic opportunities to larger cities. conventional sources. This requires an understand- The likelihood of this is greater if the prospects for ing of the economic functions and base of such gainful employment at the initial location remain areas and the exploitation thereof of any revenue uncertain. generating opportunities, frequently through the adoption of innovative tax instruments. For ex- ample, most urban jurisdictions in South Asia have Income levels are generally low in small towns found a large and growing tax base in the move- because human capital endowments of residents, consisting primarily of unskilled rural migrants dis- ment of goods from external (local and interna- placed from agriculture, are limited and because tional) sources to within the municipal boundaries. of the nature of economic activity pursued at such A tax called octroi has been imposed on goods locations which is characterised primarily by infor- entering the jurisdiction for sale, use or consump- mal and small-scale modes of production. Pov- tion and collected from transport vehicles at posts erty levels are high in small towns in relation to located at the urban periphery. Even with small, larger cities and per capita incomes are a frac- flat rates of taxation, revenue collections from the tion (112 to 213 usually) of the national average. tax are large and in many small towns account The consequences are that levels of effective for over 60 percent of total revenues. However, demand and willingness-to-pay for municipal ser- the common implication of entrylexit taxes is that vices are low. Simultaneously, the tax bases relat- they tend to fall mostly on basic items like food, ing to property values, incomes, value of sales, etc. building materials, etc., and are, therefore, regres- are small and narrow in view of the need to ex- sive in character. empt a high proportion of tax payers. The basic challenge confronting municipal governments in Non-tax revenues also represent a promising small towns is to raise enough revenues through source. The resource mobilisation strategy in this taxes and user charges to finance the investment area ought to focus on the nature of rural-urban and on-going provision and maintenance of ba- linkages. This will require relatively unconventional sic municipal services like drinking water, sanita- investments in urban development like farm ser- tion, roads, etc. vices-cum-community centers, weigh bridges (at product markets), upgrading of public transport terminal facilities, recreational facilities (for rural Potential Sources of Revenue households). construction of guest houses and development of markets for livestock products 'The international experience with regard to the and for general trading purposes, etc., and the development of municipal finances in small cities levy simultaneously of appropriate fees, licenses and towns is one of limited success in resource and rental charges. In many countries, there are mobilisation in view of the lack of taxable capac- significant examples of small, dynamic municipali- ity. Generally, the local tax to gross regional prod- ties which generate almost half the revenues from uct ratios observed are below one percent. Con- such nontax sources. ventional local sources of revenue like the prop- erty tax have small yields because residential prop- Institutional Structure and Issues erty values (rent or capital values) are low, the tax base of large-scale industry is limited and taxa- tion of commercial property is restricted by the Forms of Multilevel Government high degree of fragmentation and informal na- ture of trading activities. In fact, in many coun- 'The constitutional division of powers among vari- tries, small towns with populations below 25,000 ous levels of government can be broadly catego- are not declared as rating areas for purposes of rized as unitary or federal. A unitary country has a property taxation because of high costs of col- single or multi-tiered government in which ef- lection in relation to potential revenue yields. Land fective control, including decision making, of prices of publicly developed plots are also unlikely government functions rests with the central gov- ernment. A majority of countries have adopted a unitary form of government. Examples of multi- 20 China: Small Towns Development tiered unitary constitutions include Egypt, Japan, Korea, Indonesia, Turkey, Spain, United Kingdom I Criteria for Expenditure AUosation I and China. China, in fact, is a good example of a I . Efficient provision of public services: unitary government which is quite decentralised. Public services are provided most efficiently "by In 1980 subnational governments secured signifi- the jurisdiction having control over the minimum cant autonomy from the central government and geographic area that would internalize benefits and China can therefore be effectively considered a costs of such provision." However, some degree decentralised federation even though the legal of central control or compensatory grants may structure continues to be centralised. be warranted if: costs and benefits are realised by nonresidents; service requires area larger than a local jurisdiction for cost effective provision The federal form of government has a multi-tiered and administrative and compliance costs are high. structure with decision making shared by all levels of government. This system is conducive to greater 2. Fiscal Efficiency and Regional Equity: Differential net fiscal benefit (imputed benefit freedom of choice, political participation, inno- from public service minus tax burden) arising from vation and accountability. Federal countries differences in the fiscal capacity of the local broadly conform to one of the two models, dual jurisdictions introduces fiscal inefficiencies and federalism and cooperative federalism. In the regional (horizontal)inequities. It has been argued former, fiscal tiers are organised so that the na- that the national government should play a role to tional and state governments have independent correct these. authority in their areas of responsibility and act as 3. Redistribution of real income: while the equal partners. Local governments do not have predominant role of the national government in any constitutionalstatus and are simply extensions pursuit of vertical equity is well recognised, in- of state governments. In cooperative federalisms volvement of subnational governments in various levels of government have overlapping implementing specific programs is essential so that and shared responsibilities and all levels are such programs can be tailored to meet individual treated equally as partners in a federation. jurisdictions' circumstances. Canada, India and Pakistan broadly conform to 4. Provision of Quasi-Private Goods: Pub- the first model while United States and Brazil are lic provision of essentially private goods like edu- examples of the latter. cation, health etc., is justified on grounds of eq- uity. Since benefits accrue mainly to residents of There is a strong rationale for decentralised deci- separate jurisdictions. such services are better sion making on grounds of efficiency, account- provided by sub-national governments. ability, manageability and autonomy. Ideally de- 5. Economic Stabillsation: It is customary cision making should occur at the lowest level of to argue that federal government should be re- government consistent with the goals of allocative sponsible for stabilisation. efficiency. Thus the optimal size jurisdiction for dif- Fiscal federalism literature provides broad guid- ferent services will vary with the extent of econo- ance in delineating expenditure responsibilities mies of scale and benefit-cost spill-overs. Each among member units in a federation. These basic public service should be provided by the jurisdic- principles, presented in Box 1, are relevant'even tion having control over the minimum geographic for unitary states. Based on these criteria a guide- area that would internalize benefits and costs of line can be devised as to which functions are best such provision. provided by national and by subnational govern- ments respectively. Assignments of public func- tions to subnational (local or regionallstate] gov- Allocation of Responsibilities ernments can be based on various considerations like economies of scale. appropriate packaging of local public services to improve efficiency through Based on these principles of expenditure assign- information and coordination economies and en- ment and the guidelines discussed above the fol- hanced accountability through voter participation lowing options for decentralisation may be appro- and cost recovery, costlbenefit spillovers. prox- priate. Local public services that could be imity to beneficiaries, and consumer preferences. decentralised to local governments are presented in Box 2. These are services for which economies Box I of scale are not a major consideration, political proximity is essential, no significant cost-benefit siderations are not important. Furthermore, these spillovers are anticipated, and distributional con- could be decentralised to local governments re- gardless of their size or financial capability. Theme Pa~er:Finance 21 ------In addition, land use planning, secondary educa- allocation and use of public resources and require tion and public health are other local public ser- a high level of effective inter-agency coordina- vices that could be decentralised to larger urban tion which is rarely forthcoming. municipalities (populationover 100,000.) These are services for which there is some degree of scale The same problems arise because of fragmented economy but government proximity to the people service provision in which different parts of a ser- is important, distributional considerations are less vice are provided by different agencies. For ex- relevant, and benefit spillovers are not serious. ample, development planning and implementa- tion functions may be separated from operation, 'The intent of this analysis is to present a frame- maintenance and cost recovery functions. Fi- work for decentralization that could be imple- nally, there is lack of financial accountability mented uniformly across a country to avoid po- due to the weak link between the cost of local tential controversies arising from nonuniform services and perceived payment of local taxes. application. It is wrong to presume, however, that all subnational governments of a particular Another issue that arises is the lack of local au- category and size in a developing country would tonomy in planning, development, administrative be equally capable and interested in taking on and financial matters. This arises particularly particular functions. It is essential, therefore, in "dual federalism" in which local governments to retain some element of flexibility regarding are considered only an extension of the provin- who does what and how it is done. cial governments. In some countries local gov- ernment budgets are approved by the higher tier of government. This gives the state government Potential Services by Local Governments control over local development projects and fi- nances, including resource mobilisation. Further- Water Supply more, statelprovincial governments in some Fire protection cases have control over administrative matters Primary education like hiring, transfers, etc., of local council staff. Public Health This further affects the efficient working of lo- Refuse collection cal governments. Neighbourhood parks and recreation Streetlroads Finally, lack of administrative capacity, re- Local transit flected in inadequate staff level and poor qual- Traffic management ity, is also a problem constraining effective lo- Local libraries cal government functioning in developing coun- Local Bylaws enforcement tries, especially in small towns. Altogether, it seems that local governments in smaller towns *and cities should perform all the functions (de- velopment, maintenance, cost recovery, etc.) related to the provision of only a few of the ba- Issues in Management, Planning and sic municipal services like water supply, sani- Coordination tation, public health and intra-u~banroads. This will ensure that the limited financial resources The main factors which impinge on the capacity and institutional capacity are not stretched too of local governments and which are instrumental thinly. 'The objective of small town governments in determining their efficiency and effectiveness must be to do a few things and do them well. relate to accountability, autonomy, and admin- Other services like education, health, residen- istrative capacity. Accountability for local ser- tial plot development, etc., may be left to higher vices in developing countries is generally poor. levels of government. This is, in fact, the com- This can partly be attributed to the unclear func- monly observed pattern for most developing tional responsibilities whereby a number of agen- countries. The available international data indi- cies are involved in the provision of the same cates that on the average almost 90 percent of service. For example, in some countries state the municipal budget in small towns is accounted governments' provision of services such as pri- for by administrative overheads and costs of mary education and preventive health overlap services like water supply, sanitation and roads. and duplicate services provided by local gov- ernments. These creates inefficiencies in the 22 China: Small Towns Development Financial Management opment expenditure and hence the usefulnessf the accounting system is reduced. Third, bud- Institutional Capacity and Staffing levels getary control operates as a blunt tool with little regard for overall targets and priorities. Finan- cial control also needs to be extended to more In most municipal governments, especially in effective cash flow management and creditor1 smaller jurisdictions, the major constraints to finan- debtor management. cial management in terms of the operation of budgets (flow of income and expenditure) and revenue administration is the low quality of human Expenditure Planning resources available for performing this func- tion. This is the consequence of limited resources Expenditure planning is seldom undertaken in a and of the public sector remuneration structure multiperiod framework. Budgeting of expendi- which is uncompetitive in relation to the private tures tends to focus on detail rather than on stra- sector. 'The accountant in a small municipal gov- tegic decisions. Consequently, municipal budgets, ernment is usually a low level government func- especially in small towns, are of little use as plan- tionary with limited professional credentials and ning documents. The link between expenditure training. Revenue administration is also under- and income raising decisions, which forms the developed with inadequate recording of taxpay- basis of budgeting, is generally not clear. ers and billings. Frequently, this function has been privatised and handed over to contractors. Contracting systems vary ranging from fixed In many local governments, particularly those with commissions to pre-emption of revenue beyond elected councilors, the practice is for available a committed level of income. Privatisation has funds (especially for development) to be allo- proved to be efficient in raising revenues or re- cated, more or tess, equally among wards on the ducing costs as long as the bidding processes for basis of considerations of equity. This leads to a appointment of contractors remain competitive. fragmentation of the development effort and a strong bias against investments in trunk infrastruc- ture. Also, project-approval procedures tend to Accounting Standards and Practices be bureaucratic and cumbersome in character and involve little economic appraisal in terms of Financial practices are generally based on single costs versus benefits. entry cash accounting on an annual basis. 'The financial systems are traditional in character and Audit Procedures elaborate procedures of documentation have been established primarily to facilitate financial control and prevent leakages of funds. 'The finan- The audit function is centralised usually within the cial records are usually structured by a chart of relevent department at the statelprovincial gov- accounts which identifies main service catego- ernment level. The primary focus of audits is to assist the municipal administration in maintaining accu- ries and within each category separates costs of staff (establishment),supplies (contingencies),re- rate accounts and protect against fraud, misap- pairs and new works (development expenditure). propriations and waste. Audit manuals generally exist and specify the normal checks. However, the There is very little emphasis on development of management information systems to facilitate fi- overall planning of audit and the auditing stan- dards to be applied are not clearly defined. Fur- . nancial decisions. thermore, auditing techniques such as systems audit and statistical sampling are not used. Financial management reforms within local gov- ernments must include, first, improvements in bill- ing and collection. Separation of basic functional Revenue Administration responsibilities between assessment, record-keep- ing and collection is needed. Financial records fre- Revenue administration has generally not been quently do not show clearly who should be billed given the priority it deserves in view of the limited and by how much. Also, the gains from tax base available to small municipal govern- computerisation are high. Second, there is little ments. 'The incentive to raise collections is re- recognition of the need for proper cost account- duced in the case of local governments which ing by service to enable correct pricing deci- rely heavily on subventions and grants-in-aid from sions. Many maintenance items appear as devel- higher levels of government. In addition, the in- Theme Paper: Finance 23 ability to achieve economies of scale raises costs I I of collection in relation to revenues generated Crfferia for Tax Assignments and weakens the case for investments in tax ad- ministration. Consequently, in most small munici- Taxes suitable for economic stabilization pal governments departmental collection is frag- should be centralized; lower level taxes should mented and ineffective.The response is either the be cyclically stable. handing over of this function to a higher level of "Unequal tax bases between jurisdictions government or privatisation through appointment should be centralized. of contractors.The former runs the risk of reducing Taxes on mobile factors of production fiscal autonomy while implied costs and scope for should be centralized. taxpayer harassment in the latter case may be Residence-based taxes, such as excises, high. It is essential that even small municipal gov- should be levied by subnational governments. ernments develop an adequate tax administra- Taxes on completely immobile factors tion which can be deployed to collect revenues should be levied by local authorities. efficiently from a few major sources. Benefit taxes and user charges can be lev- ied appropriately by all levels. Altogether, the potential gains from improvements There should be efficiency in tax adminis- in financial management by municipal govern- tration, that is, the level of government likely ments are high. This will not only help in mobilising to have the best information on a tax base more resources but also in utilising them more effi- would be the level responsible for levying taxes ciently for maximum impact on the level and qual- on such a base. ity of services provided. Revenue means should be matched as closely as possible to revenue needs. Thus, tax Municipal Finances instruments to further policy objectives should , be assigned to the level of government hav- To finance their expenditure liabilities, local gov- ing the responsibility for provision of the service. ernments have access to two major sources of income. These can broadly be categorised into locally raised revenues and external revenues. Box 3 Local governments generally have fiscal powers to raise revenues from various taxes, user charges prevent overdependence of lower levels of gov- and other sources like licences, fees, rental income ernment on intergovernmental transfers, which etc. Substantial variation exists in the pattern of can otherwise distort local spending priorities. Cri- financing of local services among different cities teria used for the assignment of taxes are given in in developing countries. Taxes usually finance the Box 3. Broadly speaking, these emphasize equity highest proportion of local expenditures. For a (consistency of revenue means with expenditure sample of 50 small cities in developing countries, needs) and efficiency (minimizingresource cost). the average share of tax revenues is 45 per- cent. Nontax revenues consisting of user charges, fees, licenses, rental income, etc., have a share of about 30 percent and the remainder, Major Potential Local Taxes 25 percent, is accounted for by external rev- enues like grants-in-aid and revenue-sharing Based on the above principles, the major poten- transfers from higher levels of government. tial local taxes are presented in Box 4. These broadly include taxes on resources, property, sales, Tax Assignments badslsins and user charges. Taxes on resources is a good local government instrument because of 'The extent of self-reliance of local governments the immobile nature of the tax base. Taxation of crucially depends in the allocation of fiscal pow- real estate is suitable to recover costs of public ers. 'The division of revenue sources among differ- service provision related to properties. If the tax ent levels of government constitutes the tax as- base is harmonised, single-stage sales tax can be signment problem. Once expenditure assignment levied by any level of government and can pro- has been agreed on, tax assignment and design vide a broad-based and buoyant source of rev- of transfers become critical elements in match~ng enue for local governments also. expenditure needs with revenue means at vari- ous levels of government. Proper arrangements 24 China: Small Towns Development

Most local governments rely heavily on property I related taxes (including taxation of rental values I Potential Local Taxes and transfers). Sales tax, levied in various forms. is also an important source of revenue. As men- Pr Related Taxe tioned earlier, in some South Asian countries, like OD",Zn Annual Renfal Values Pakistan, octroi (an entry tax] constitutes the single Tax on Capital Values largest source of local revenue. Besides these, Tax on Transfer of Property popular local taxes include taxation of vehicles, EntryIExit Taxes gasoline and entertainment. I Octroi Export Tax The choice of which local taxes to exploit in small Entertainment Taxes municipal jurisdictions depends upon the size, Tax on Cinemas buoyancy and mobility of the respective tax base, Tax on Dramatic and Theatrical Shows incidence (burden by income group) and ease Tax on Feasts of collection. These characteristics are highlighted Tax on Advertisements in Box 5 for different local taxes. The largest po- Head Taxes tential tax bases are likely to be observed in the Tax on Professions, Trades case of entrylexit taxes and surcharges followed Tax on Hearths by taxes on sales or production. In small towns the Tax on Births and Marriages tax bases of entertainment taxes, transport taxes, Poll Tax taxes on 'bads', etc., will generally be small. Transport Taxes Registration and Annual Tax on Non- The most dynamic tax bases are likely to be ob- Mechanised Transport served in the case of entertainment taxes, prop- Registration and Annual Tax on Motor erty-related taxes, 'sin' taxes, taxes on sales and Vehicles surcharges. As opposed to this, the tax base for Resource Taxes head taxes, resource taxes and exitlentry taxes Royalties will tend to grow slowly. As highlighted earlier, lo- Conservation Charges cal taxes ought to be levied on immobile bases. 'Sin' Taxes This problem is likely to be most severe in the case Betting and Gambling Tax of entrylexit taxes, transport taxes, taxes on pro- Tax on Lotteries duction and sales. This will weaken the case for Tax on Race Tracks imposition of such taxes. From the viewpoint of Tax on Alcohol ease of collection, which is of particular impor- Tax on Delinquints tance in small towns with limited capacity for tax Taxes on 'Bads' administration, the best taxes are resource taxes, Taxes on Motor Fuels entertainment taxes, entrylexit taxes and sur- Effluent Charges charges. Congestion Tolls Taxes on Production Excises Altogether, based on the characteristics of dif- Taxes on Sales ferent taxes, the prime candidates for levy by Single-Stage Sales Tax small town governments are property-related Taxes on Transactions taxes, entertainment taxes, head taxes, re- Contracts Tax source taxes, taxes on animals and surcharges. Taxes on Animals This, of course, presumes that such taxes fall SlBox Saughter Tax within the domain of local fiscal powers. Also, Livestock Trading Tax there will always be exceptions and in particu- Surcharaes lar towns, depending upon the nature of the re- Personal Income Tax gional economy, imposition of other taxes may Sales Tax well be justified.

- -

Box 4 Theme Paper: Finance 25

Characterlsffcs of Different Local Taxes In Small Towns

Type of Taxes Size Buoyancy MOMMY Incidence Ease of Tax Base of Tax Base of Tax Base of Collection

I Property-Related Taxes SmallIMedium MediumIHigh Low Progressive Low High

I EntrylExit Taxes Large LowIMedium MediumlHigh Regressive MediumIHigh Medium I Entertainment Taxes Small High Low Progressive MediumIHigh High Head Taxes MediumILarge LowIMedium Low Regressive1 LowlMedium Neutral MediumIHigh Transport Taxes Small MediumIHigh High Neutral Medium Low Resource Taxes SmallIMedium Low Low Neutral High Medium1 High 'Sin' Taxes SmalllMedium MediumlHigh LowlMedium Regressive LowlMedium Low Taxes on 'Bods' Small LowlMedium Low Progressive LowlMedium Low Taxes on Production LowIMedium MediumIHigh MediumIHigh Regressive1 Medium Neutral Medium Taxes on Sales MediumILarge MediumIHigh MediumIHigh Regressive1 Low Neutral Medium Taxes on Transactions Small LowlMedium LowIMedium Progressive Low Low Taxes on Animals Small LowIMedium Low Neutral1 Medium Regressive MediumIHigh Surcharges Large MediumIHigh Low Progressive High High

Box 5

User Charges and Pricing Policies the political will to pursue an aggressive cost re- covery policy. 'The situation is exacerbated by the low willingness by beneficiaries to pay, given the A proper pricing policy which recovers costs is a generally low quality of service provision. In addi- pre-requisite for adequate and efficient provision tion, issues of cost recovery in some centralised of urban services. However, the concept of self- economies, like China, go beyond simply raising sustained provision of services by and large, is, the level of user charges. Charges for most urban underdeveloped in developing countries. Tradi- services like water. sewerage, housing, public tionally, there has been an absence of a strong transportation, etc. are all linked inextricably to the commitment to direct cost recovery through user wage policy. With privatisation some countries charges. The pattern of financing of local expen- have experienced the process of collection of diture is a manifestation of this as only about 20 charges, and the experience is mixed. As a prag- percent of expenditures are financed directly in 50 matic principle, small town governments must a sample of about cities analysed. 'This propor- move towards attaining at least full operations and tion is much lower in the case of social sectors. maintenance cost recoverv with the helc, of tariff systems which are relatively easy to administer and 'The major issues in cost recovery in most countries less prone to leakages. relate to the ability and wiiiingness by beneficia- ries to pay for service provision and the adminis- trative feasibility of collection. Since income lev- lnferg~vernmenfalFiscal Transfers els, in general, are low, especially in small towns, and the nature of services provided by local gov- On the whole, there is a strong case for fiscal emments like water supply and public health are equalisation because it allows the replication of 'basic' in character, governments generally lack the financial structure of a unitary state in a 26 China: Small Towns Development federalism while promoting decentralised decision Rationale for krscal Transfers making. Thus, efficiency and equity considerations Flscal Imbalance coincide. The design of arrangements for trans- fers is also of prime importance. Criteria for such A fiscal gap may arise because of structural imbalance transfers are presented in Box 6. between the assignment of revenue sources and of expenditure responsibilities. Such imbalances usually exist due to limited or unproductive tax bases and high level lntergovernmental fiscal transfers may be in the of federal/state taxation which limits local revenue-rising form of revenue-sharing, grants or fiscal potential. equalisation transfers depending on the rationale. Flscal lnequlfy and lnefffclency If the purpose of the Iransfer is to correct the prob- Redistribution, an important objective of fiscal policy, is lem of fiscal imbalance, unconditional grants or best performed by the federal government. However, in revenue sharing based on "the derivation princi- a federal system "redistribution in kind" through the ple" or the point of collection are generally advo- provision of certain 'merit goods' like education, health, cated. If the transfers are made to correct fiscal social security is undertaken by lower tiers of govern- ment. These levels of government due to inappropriate inequities or inefficiencies arising from a lack of tax assignments, factor mobility and tax competition common minimum standards than the desirable may underprovide such services and achieve the equity form of transfers is conditional, nonmatching objectives in only a limited manner. grants because they do not affect subnational Furthermore, common minimum standards for public incentives for cost recovery while ensuring services in a federation are advocated on economic compliance with the higher government objec- efficiency grounds. Common minimum standards help tives. Open-ended conditional matching grants reduce intenegional barriers to factors and goods mobility and thereby contribute to efficiency gains. are the most appropriate kind of transfer to cor- Given these goals of equity and efficiency, justification rect for interjurisdictional spillovers while fis- exists for transfer of funds to the lower levels of govern- cal equalisation transfers may be justified to re- ment. move differences in net fiscal benefit across ju- Infer-]urlsdicfional Spillovers risdictions. Spillovers usually occur because the benefit of a locally provided good or service itself spills beyond the local In practice, however, the design of intergov- jurisdiction to benefit those not contributing to the costs ernmental transfers is not entirely consistent of its provision. Examples include air and water pollution with the economic norms enunciated above. This control, locally educated students who relocate, etc. lntergovernmental transfers can be used to conect for is particularly true for grants. For instance, inefficiencies arising from such spillovers. equalisation transfer to eliminate differential net fiscal benefits among jurisdictions or selective Fiscal Harmonisaflon open-ended matching transfers to compensate Net fiscal benefits may vary between different jurisdic- benefit spillovers are hardly tried in developing tions because of factors like differences in fiscal capac- countries. Revenue sharing and conditional grants ity and natural resource endowment, differences in unit costs, etc. The presence of such differences encourages are the most popular mode of transfers. Ex- fiscally induced migration and leads to externalities like amples of taxes shared with local governments unemployment, congestion. etc. Therefore, to promote include property tax, personal income tax, turn- efficiency and equity of the federal system, fiscal over tax, VAT, liquor tax and excises. The trans- equalization transfers may be justified. fers are generally made on the basis of popula- Sfabillsaflon tion, per capita income, collection (origin),equal lntergovernmental transfers can also be used to help shares, fiscal gap, etc. As a whole, the form of achieve economic stabilisation objectives. Grants could. fiscal transfers from higher levels of govern- increase in periods of slack economic activity to ment to small towns should be a combination of encourage subnational expenditures and diminish during revenue-sharing transfers plus fiscal the upswing of the economic cycle. equalisation grants. Given the limited taxable capacity of smaller towns, the share of fiscal SOURCE: Shah (1994). transfers in total revenue should generally de- cline with an increase in municipal status and Box 6 population size. lntergovernmental transfers are an important source of revenue for local gov- Sources of Copitol Funding ernments in most developing countries. The eco- nomic rationale for transfers is presented in Box Municipal governments in most developing coun- 6. tries have limited access to capital funding for fi- nancing upfront development costs of lumpy in- Theme Pa~er:Finance 27 Some countries have established arrangements Elements of Design of Fiscal Transfers for capital funding for local projects through de- velopment transfers from higher levels of govern- I] Autonomy: The subnational governments should have complete independence and flexibility in setting ment through unconditional or matching grants priorities and should not be constrained by uncer- or project-specific assistance. These transfers are tainty associated with decision making at the center. generally discretionary in character and it is diffi- Formula-based revenue sharing or block grants, for example, are consistent with this objective: cult for local governments to base their develop- ment plans on these flows of funds. In other cases 2) Revenue Adequacy: Subnational governments municipal development funds (or banks) have should have adequate revenues to discharge designated responsibilities; been established. The general experience, how- ever, is that the demand for such funds at near- 3) Equity: Allocated funds should vary directly with market rates by small local governments remains fiscal need: low and the benefit from such schemes usually 4) Predictability: The grant mechanism should accrues to the richer councils. ensure predictability of subnational government's share by publishing projections.

5) Efficiency: The grant design should be neutral Investment Incentives with respect to subnational government's choices of resource allocation to different sectors or types of Given the relatively low public costs of providing activity: municipal services in smaller towns as compared 6) Simplicity: The subnational government's alloca- to metropolitan cities and the likelihood of less tion should be based on objective factors over which the individual units have little control: pollution, environmental degradation, congestion, etc., a case can be made for diverting private 7) Incentive: The proposal design should provide investments to the former locations for creating incentives for sound fiscal management and discour- age inefficient practices. For example, there should greater employment opportunities and thereby be no specific transfer to finance deficits. attracting a greater share of rural migrants to smaller towns. The above criteria, in certain cases, may be conflict- ing and therefore, a grantor may have to assign priorities to different factors in comprising policy Various approaches have been adopted to coun- alternatives. terbalance locational disadvantages to private investors by offering incentives. In many countries fiscal concessions are offered for location of in- SOURCE: Shah (1994). vestments in backward areas. These include tax holidays on profits taxes, customs duty exemption Box 7 on imported machinery, exemption from produc- tion or sales taxes, etc. However, in many cases these concessions lead to distortions and emer- gence of tax havens. The alternative approach vestments in infrastructure. In Pakistan, local coun- has been the offering of investment grants or cils, especially the small town committees, are subsidised provision of public services. 'The gen- compelled to finance development expenditures eral conclusion is that for investment incentives through revenue surpluses only and access to to be successful in inducing development of small the domestic capital market is precluded. Such towns, these have to be selective and carefully restrictions imposed by statelnational govern- targeted in character, otherwise they tend to ments are motivated, first, by the desire to control become diluted or are misused. the process of credit expansion and the money supply in order to achieve the goal of macro eco- Conclusions nomic stabilisation and, second, by the percep- tion that many local governments are prone to- 'The principal conclusions that emerge regarding wards financial indiscipline and are likely to bor- the development of municipal finances in small row in excess of their debt repayment capacity towns are as follows: thereby running the risk of default. These percep- tions are slowly changing but it is unlikely, that, (i) Given the fact that most small towns come even in the presence of greater financial into existence because of urban-rural linkages, an liberalisation, small town councils will be allowed effort must be made to exploit the revenue-gen- significant access to capital markets. eration opportunities created by such linkages. This 28 China: Small Towns Development may require resort to innovative tax instruments (vi) Intergovernmentaltransfers from higher levels and development of nontax sources by uncon- of government should be an important compo- ventional investments in urban development like nent of the revenues of small towns. These trans- farm services-cum-community centers, public fers should generally be a combination of rev- transport terminals, markets, etc., and the levy si- enue-sharing transfers plus fiscal equalisation multaneously of appropriate fees, licences and grants. Share of fiscal transfers in total revenue may rental charges. decline with an increase in municipal status and population size. (ii) Local governments in smaller towns and cit- ies should perform all the functions (develop- (vii)Investment incentives need to be offered to ment, maintenance, cost recovery, etc.) related divert and generate private investment in small to the provision of only the key basic municipal towns. However, these incentives should te selec- services like water supply, sanitation, public health, tive and carefully targeted in character to have roads, etc. This will ensure that the limited finan- the maximum impact. cial resources and institutional capacity are not stretched too thinly. Also, of vital importance to These are some of the conclusions based on the the effective functioning of local governments is available international experience in the area. the establishment of a legal framework for admin- Implementation of the above recommendations istration and a clear demarcation of functions and will enable small towns to play a more effective lines of responsibility. role in attracting the inRow of rural migrants and providing them with productive employment, (iii) Potential gains from improvements in financial housing and access to basic municipal services. management by municipal governments are high. These include reforms in financial systems, data References and information management, accounting stan- dards and practices, staffing levels and qualifica- Anwar Shah, The Reform of Inter-governmental Fiscal Relations tions, audit procedures and expenditure planning. in Developing and Emerging Market Economies, Policy and Research Series Paper No.23, World Bank, Washington D.C., In addition, revenue administration needs to be 1994. strengthened and the scope for privatisation of this function examined. The focus of revenue ad- Roy W. Bahl and Johannes F. Linn, Urban Public Finance in Developing Countries. published for the World Bank, Oxford ministration should be on a few promising sources. University Press, 1992. Roy W. Bahl and Christine Wallich, Inter-governmental Fiscal (iv) A multitude of local taxes are potentially avail- Relations in China, Policy Research Working Paper No.863, able to municipal governments. In small towns, the World Bank, Washington D.C., 1992. strategy should be to select taxes which have rela- Hafiz A. Pasha and A.F. Aisha Ghaus, Local Government tively large, buoyant and immobile tax bases and Administration and Finances in Pakistan, Applied Economics where the ease of collection is high and costs of Research Centre Research Report, Karachi, Pakistan, collection are low. Prime candidate taxes for levy 1987. generally by small town governments are head taxes, property-related taxes, entertainment taxes, resource taxes and surcharges on taxes of higher levels of government. In the case of individual towns, however, imposition of other taxes may be justified in line with the nature of the regional Hafiz A. Pasha economy. Director Institute of Business Administration Karachi, Pakistan (v) As a pragmatic principle, small town govern- ments must move towards attaining at least full operations and maintenance cost recovery in A.F. Aisha Ghaus services like water supply and sanitation with the DeputyIActing Managing Director help of tariff systems which are relatively simple to Social Policy and Development Centre administer and less prone to leakages. Karachi, Pakistan An Overview of Private Sector Financing of Urban Infrastructure Services

David E. Dowall

Introduction urban infrastructure, specifically transportation, telecommunications, energy, water supply, waste hina has the world's largest population, collection and treatment, housing schools and approximately 1.2 billion people. Of the public health services. Unfortunately, given cur- total, only 28 percent or about 324 million rent governmental policies, most of the small towns live in urban areas. China's low level of urbaniza- and villages are unable to generate sufficient fi- tion reflects its planning and development poli- nancial resources to provide infrastructure. cies which seeksto maximize resources avail- Changes in government policies and programs able for industrial development by increasing the are needed to enable local governments to mo- labor force participation rate and holding down bilize resources to finance infrastructure and ur- urban infrastructure investment. Since the 1950s ban services. However, public financial resources planners have controlled migration and popula- such as central government transfers or locally tion growth through a variety of programs. How- generated taxes are unlikely to keep pace with ever economic reforms and institutional changes urban development requirements. An alternative now make it more difficult to control popuiation source of financing for urban infrastructure is to movements and as a result, China's rate of urban- tap the private sector. This paper outlines a vari- ization is accelerating. During the 1980s urban ety of promising alternative techniques for mobi- population growth increased at an averqge of 4 lizing private sector capital. percent per annum. In the 1990s urban growth rates exceed 6 percent [Courtney, 19951. The ~enefitsof Private Sector Financing New policy directions taken during the 1980s of Urban Services have removed many of the constraints to small The private provision of urban infrastructure ser- town development such as permitting individu- vices yields three important benefits to local and als, families or production units to invest capi- central governments: 1) it significantly enhances tal in tertiary activities for profit. Now rural the efficiency and quality of service provision; 2) towns and villages contain numerous small busi- conserves scarce public sector resources; and 3) nesses and provide a range of commercial ser- it provides additional sources of capital for financ- vices. Many small towns are starting to attract ing infrastructure investments. This section of the industry. Continued urban growth and economic paper reviews the long-standingarguments for the development requires enormous investments in 30 China: Small Towns Develo~ment

public provision of infrastructure services and dis- Improving Infrastructure Efficiency cusses the new view of infrastructure provision which stresses private sector provision. In the 1980s, public finance experts and econo- mists began to seriously reassess arguments for the 'The prevailing wisdom over the years has been public provision of infrastructure services [Savas, that urban services are best provided for by local 1982 and Roth, 19871. Engineers and economists governments [Bahl and Linn, 19921. Most eco- looking at various infrastructure systems discovered nomic arguments stress the fact that urban pub- that government-provided infrastructure ser- lic services are largely natural monopolies and are vices were poorly planned and managed. Case subject to significant externalities. Some services studies revealed widespread inefficiency. Infra- such as water supply, wastewater collection and structure service output is frequently lost. In- treatment, schools, and security are so impor- frastructure systems are poorly maintained, and tant and confer such significant public benefits infrastructure services are underpriced result- (often referred to as "merit goods") that they ing in fiscal drains for governmental units. Elec- should only be provided for by government. Pub- trical power supply losses are typically two to lic infrastructure services are typically so ex- three times higher for poorly run public corpo- pensive that they are beyond the financial ca- rations than for the most efficient private cor- pacity of private businesses. Even if such sys- porations [World Bank, 19941. Water losses of- tems could be financed through tariffs, it may ten exceed 50 percent of water production in be difficult to exclude non-payers from using old poorly run municipal corporations. In Africa, them. These arguments have profoundly shaped nearly one third of the roads built in the past 20 urban public policies around the world and led to years are now useless due to inadequate main- the proliferation of urban infrastructure ser- tenance. During the 1980s electrical power tar- vices during the late 1800s in Western Europe iffs in developing countries were sufficient to and North America and the current massive ex- cover only 60 percent of the actual costs of op- pansion of infrastructure in Asia and Latin erating new systems. America. Table 1 illustrates trends in infrastruc- ture coverage for low-, middle- and high-income Over the past 15 years, studies of infrastruc- economies for 1975-1990. ture provision and management in developing as well as developed countries have pinpointed widespread inefficiencies and poor quality ser- vice. The consensus view of infrastructure economists is that the widespread inefficiencies Theme Paper: An Overview of Private Se ctor Financing of Urban Infrastructure Services 31 of infrastructure provision in developing countries concessions or long term servicelmanagement is the result of weak or inappropriate economic contracts [Kessides, 1 9931. Shifting infrastructure incentives built into existing institutional and orga- service provision responsibilities to private sector nizational structures. Extensive international expe- firms helps local and national governments to con- rience directed toward improving the efficiency serve scarce resources and to better target their of infrastructure service delivery suggests that re- limited resources on activities or services which forms should emphasize modifying the incentives only they can provide. which infrastructure managers face so as to en- hance their performance. Most recommendations Affructing Private Capital to Infrastructure center on introducing commercial principles to in- frastructure provision and increasing competition Investment between service providers [Kessides, 1993). In response to restrictions on local and central gov- Private provision of infrastructure services is an im- ernment indebtedness central and local govern- portant aspect of the overall reform of the sector. ments have looked towards the private sector for Private provision of infrastructure introduces com- infrastructure investment capital. Over the past ten mercial discipline into the operation and manage- years, a multitude of new financing tools have ment of infrastructure services. Increased effi- been developed to attract and channel private ciency is due to a number of factors including: 1) funds into infrastructure projects. Private financ- clarity of objectives of the private operator; 2) ing of infrastructure service provision can be ac- management autonomy of operator; 3) account- complished in a number of ways including: 1) ne- ability of operator to his investors; 4) provision of gotiated private contributions (development ex- managerial incentives to operator; and 5) com- actions) where a private developer pays for the petition from other firms or potential operators. infrastructure systems needed to support new de- velopment; 2) formation of joint ventures between public and private sectors to provide infrastruc- Conserving Scarce Public Sector Resources ture services; 3) contracting out of services (the contractor would then finance the purchase or During the 1970s and 1980s many OECD govern- leasing of equipment to provide the service); 4) ments became concerned about their large and provision of long term leases or concessions; 5) growing budget deficits [Butler, 1985). Conse- privatization of infrastructure services; and 6) pri- quently, throughout the 1980s, a main emphasis vate commercial or bond-based loans to govern- of economic policy was to control public spend- ments or public utilities. ing and borrowing [OECD, 19911. With borrowing restricted, many subnational units of govern- Motivated by concerns about inefficient infrastruc- ment have not been able to keep pace with grow- ture provision, the lack of public sector financial ing demands for infrastructure. Real, inflation resources, limitations on public sector borrowing adjusted, expenditures on infrastructure invest- and by changes in technology, financing meth- ment and maintenance have fallen dramatically. ods and institutional practices, the private provi- Given the lack of public sector capital to finance sion of infrastructure services is rapidly expanding and operate infrastructure, many local and cen- around the world. Over the past ten years private tral governments started transferring respon- sector provision of infrastructure is gaining accep- sibilities for infrastructure services from the tance and the share of urban services now pro- public to the private sector. For example, in the vided by the private sector is increasing. As of 1993, U.S. many cities have shifted solid waste col- private investment in developing country infra- lection and management to private sector firms. structure was averaging $15 billion per year. Pri- In such cases, local governments no longer need vate sector financing of all kinds currently ac- to allocate public funds to support the operation counts for about 7 percent of total infrastructure of solid waste management services [Savas, financing in developing countries. Over $60 billion 1982). Responsibilities for highway construc- dollars on BOT projects have been financed be- tion or transportation. has been shifted to pri- tween 1982 and 1995 [Public Works Financing, vate companies, through concessions and BOT 19931. During the next five years, the share of pri- (build-operate-transfer) systems [Gomez- vate sector financing is expected to increase to IbaAez and Meyer. 19931. In other cases, gov- 14 percent of developing countries' infrastructure ernments are shifting operating responsibilities for financing [World Bank, 19941. The dramatic growth water supply and wastewater collection and treat- in private sector financing reflects the increasing ment systems to private firms by granting such firms attractiveness of such investments and the signifi- 32 China: Small Towns Develo~ment cant changes in institutional environments which where private developers agree to provide or pay permit such forms of financing. The public sector for infrastructure, they do so because the eco- benefits created by private sector financing of nomic benefits they gain from real estate devel- urban infrastructure services is clear. The next sec- opment exceed the costs of the new develop- tion looks at the private sector benefits. ment. If the costs of development exactions are excessive or not commensurate with the benefits Why the Private Sector May Be Willing to of the project, developers will refuse to provide Finance Urban Infrastructures Services the services and not go forward. There are essentially two conditions under which Specific Methods and Approaches for the private sector may be willing to provide or fi- Private Sector Financing of Urban Infra- nance urban infrastructure services: 1 ) if it can earn a profit on the provision or financing; and 2) if the structure Services provision or financing of the service is a condition This section provides an overview of the principal for approval of real estate development. If urban methods used by central and local governments service provision follows market principles, busi- to foster the private provision and financing of ur- nesses may be willing to finance urban infrastruc- ban infrastructure services. The techniques in- ture on purely commercial terms. Tariffs for infra- clude: land privatization, development exactions, structure services must be high enough to provide special assessment and benefit assessment dis- adequate cashflows to cover operating and tricts, certificates of participation, private contract- maintenance costs, amortize capital investments ing of services, leases and concessions, BOT, pub- and provide net revenues as a return on invested lic private partnerships, the privatization of services, capital. Private investors are particularly con- commercial bank financing, infrastructure funds cerned with their rights to set and modify tariffs, and private bond financing. Each section de- the length of their contracts and the level of com- scribes the technique, provides examples of where petition they are likely to face. If these issues can it is used and discusses key implementation issues. be satisfactorily addressed, governments can suc- cessfully attract private firms to provide and op- erate urban infrastructure services. There are now Land Privatization many examples of companies around the world who are interested in providing urban services to Many local governments, whether they are in tran- cities and local governments-solid waste collec- sition or market economies, rely on the sale or long- tion, electricity, water supply, wastewater collec- term lease of government land to finance infra- tion and treatment, telephone services, roads, air- structure provision. Most of China's larger cities ports, etc. [Kessides, 19931 . have considerable experience in selling the de- velopment and use rights to urban land parcels Beyond contracting out, offering operating con- [Dowall, 19931. In most cases, local governments cessions, structuring joint ventures or privatizing identify their land resources and package sites for services, local governments frequently require the competitive tender. Developers bid for sites based private sector to provide urban infrastructure as a on their development potential, location, market- condition for gaining development approval ability and requirements for infrastructure provision. [Altschuler and Gomez-lbafiez, 19931. Even if ur- Payments for land-use rights are frequently paid ban services are not provided for on a profit-mak- "up-front," so that the local government can use ing basis, real estate development companies are the proceeds to finance needed infrastructure in- willing to provide such services if they are a con- vestments. In some cases, bidders for sites make dition of project approval. In many countries, lo- bids which include both cash payments and com- cal governments require that developers pay or mitments by the bidders to build specific infrastruc- directly provide urban infrastructure services ture facilities [World Bank, 19941. A major advan- as a condition of project approval. For example, tage of using land privatization to finance infra- developers have been required to provide road structure is that it allows government to retain con- improvements, construct subway stations, pay ur- trol of the operation and management of local ban service fees or exactions as part of the project infrastructuresystems. Land privatization is likely to approval process. In some instances when a pri- be highly marketable in high growth areas. vate sector firm is purchasing land from the gov- ernment. infrastructureprovision is included as part 'The municipal sale of land and/or land use rights of the compensation for the land. In all cases is commonplace all over the world. Transactions have been registered in Shanghai, Tianjin, Beijing, Theme Pa~er:An Overview of Private Sector Financing of Urban Infrastructure Services 33 Guangzhou and Fuzhou in China. Land Great care is taken to ensure that the new devel- privatization is common in Hong Kong, Singapore, opment will pay its own way, and that existing resi- and Seoul as well as in North America and West- dents not be forced to subsidize infrastructure in- ern Europe. Former socialist countries in Central vestments needed for new development. and Eastern Europe are experimenting with land privatization, and numerous demonstration A wide range of development impact fees are projects have been successfully carried out in Rus- used in the U.S. A survey by Purdum and Frank sia, Ukraine, Hungary, Poland and Bulgaria. The fi- [1987], found that exactions are levied for the fol- nancial potential of using land sales to finance lowing urban services: police and fire stations, infrastructure is enormous. In Guangzhou during parks, roads, schools, water lines, water treatment the 1980s, over $1 20,000,000 worth of infrastruc- facilities, sewerage collection and treatment fa- ture was financed by real estate development cilities, solid waste collection and disposal, and corporations [Dowall, 1 9931. affordable housing. 'The actual payment made by the developer is either based on a formula (using Land sales are complex transaction which require an impact fee calculation) or through negotia- considerable technical skill to successfully com- tion. A 1991 survey of impact fees and exactions pleted. Most cities start by preparing a land in 100 U.S. cities (mostly California] indicates that privatization strategy which is based on a urban fees for new housing averaged $12,000 per unit development program, inventory and selection of and $54 to $76 per square meter for commercial sites, a step-by-step process of soliciting, evaluat- buildings [Nicholas and Pappas, 19911. Exactions ing and negotiation of bids. Land privatizationpro- ranged between 5 to 10 percent of total devel- grams typically require about one to three years opment costs. to complete and require expertise in urban land- use planning, site evaluation, real estate market A critical consideration in designing and imple- and financial analysis and law [Dowall, 19911. menting development impact fees is whether they While these skills are frequently available in large are reasonable and whether the developer can metropolitan areas, they may be lacking in small afford to pay them. In a market economy, the towns. Staff training will be critical to ensure answers to these questions are complex and de- successful land privatization outcomes. pend on the incidence of the impact fees- that is, who ultimately pays them, the developer, the Development Exactions buyer or renter of the new facilities or the land owner. If the developer knows that he must pay the fee, he will typically try to pay less for the land, Many local governments in North America use de- and the incidence may fall on the land seller. If velopment exactions to finance infrastructure de- the developer can't get a reduction in the price velopment. The surge in the use of exactions can of the land, then he will try to push the cost on to be largely explained by rising concerns on the part the purchaser of the new units. If this can't be of citizens that growth pay its own way, growing done, then the developer will earn a lower profit. environmentalism and demands for costly mitiga- In centrally planned economies with land owner- tion of adverse environmental impacts, citizen re- ship vested with the state, the incidence of de- sistance to new taxes, cutbacks in federal aid to velopment impact fees and charges may be more local governments, growing concerns about lag- directly linked to the land and therefore the use ging infrastructure and the increased usage of fis- of land privatization and development exaction cal impact assessment to measure the probable methods of infrastructure financing should be fiscal consequences of new urban development closely coordinated. The main concern about us- [Altschuler and Gomez-lbariez, 19931. ing development fees and charges is not to try to overload the developer with too many fees and 'The most common form of development exaction charges. If the fees are too high, it may be impos- is the levying of impact fees or charges on new sible for developers to profitability build and sell development. 'The typical practice is for the man- projects. Research on residential redevelopment dated exactions to be paid by the developer as projects in large Chinese cities clearly illustrates the a condition for receiving a permit for develop- problems associated with trying to levy very high ment. Exactions may be financial or in-kind. In the exactions [Dowall, 19941 U.S. local governments set these fees or charges in relation to the actual infrastructure impact that a new project will impose on infrastructure systems. 34 China: Small Towns Develo~ment A significant advantage of using development ex- Certificates of Participation actions is that they do not require the surrender of government control of infrastructure service Some forms of infrastructure such as buses, trains, provision to the private sector. The government small power plants and other forms of infrastruc- merely has to adopt a program of development ture which are suitable for collateral can be fi- exactions. The fees can be collected up-front or nanced by leasing arrangements. Private inves- they can be combined with developer-initiated tors purchase certificates of participation or equip- speciallbenefit assessment districts. ment trust certificates- financial instruments backed by physical assets. Ownership of the in- 'The economic and financial analysis required to frastructure is held by a trustee as collateral, and design development impact fees and exactions the user makes lease payments which in turn are is relatively complex. Small towns and villages will used to pay debt service. At the end of the lease require significant technical assistance and train- period, the infrastructure is transferred to the in- ing. Model ordinances and methods for potential frastructure operator. application should be developed. Certificates of participation methods are well Developer-Initiated SpeckllBenefit suited for financing small infrastructure elements Assessment Districts where local governments are allowed to negoti- ate long-term leases. This may not be the case in China. Legal and financial research is neces- A number of local governments around the world sary. Legal and financial expertise is required have developed programs of special or benefit to negotiate acceptable lease agreements should assessment districts to finance the provision of in- they be permitted. frastructure [Porter, et. a/;, 19921. Usually ini- tiated by real estate developers, a district is formed (usually an area which is coterminous Private Contracting for Services with a new real estate development project) and the land and property within the district is taxed The previously described mechanisms for privately to finance durable infrastructure investments. financing urban infrastructure services are ones While special assessment district are quasi-gov- which allow the government to continue to ac- ernmental entities, in economic terms they are tively operate and manage service provision. Pri- very close to being private interest entities- vate contracting of services shifts the day-to-day property owners or lessors make payments to responsibilities for service provision on to private retire debt borrowed to finance infrastructure contractors. Many local governments around the improvements. Such districts are very common world have begun to contract infrastructure ser- in the United States. In California, Mello-Roos vices out to private companies. It is found to be a Districts, created in 1982 are used by private flexible and cost-effective tool for increasing the developers to establish small taxing districts quality and user-responsivenessof services. In such which require future owners or lessors of land cases the government offers, by way of competi- to pay for infrastructure improvements [Beatty, tive bidding, the right to provide the city with some et. a/., 19951 defined service. 'The private contractor is given a right to exclusively provide the service for a fixed Management control and operation of infrastruc- period and is allowed to levy charges for such ture systems remains with the local government. services. Cities usually require developers to establish dis- tricts as a condition for development approval. According to the World Bank, there are three types Creating such districts will require enabling leg- of contracts- performance agreements, man- islation and careful financial analysis to deter- agement contracts and contracting out. The type mine assessment amounts and schedule of pay- which should be used depends on the infrastruc- ment. In small towns financial and legal expertise ture activity and the specific objective or goal of may not be available, requiring technical assis- contracting. If contracting is being used as a ve- tance and training. hicle to finance new or expanded services, oper- ating contracts which specify services to be pro- vided, tariffs to be collected and periods of per- formance may be appropriate. To ensure that per- formance levels are maintained and that users get value for money, contracts should be periodically Theme Paper: An Overview of Private S,ector Financing of Urban Infrastructure Services 35 reviewed. By stipulating that agreements will be maintain an existing water supply system, under a periodically reviewed, contractors will face com- concession, the contractor would be required to petitive pressure from potential bidders to main- provide specified extensions and expansions or tain low prices and high quality of service (Baumol, replacements of a water supply system [Triche, Panzer and Willig, 19881. Mejia and Idelovitch, 19931. Concessions arrange- ments are used to provide urban transportation, A major factor which will determine the relative water supply and wastewater collection and treat- success of contracting out is whether tariffs for ment, and telecommunications. services are adequate to provide a return of costs and leave the contractor with an appropriate As in the case of contracting out, leases and con- profit. If government-set rates are too low, few cessions are very complex transactions to effec- contractors will be willing to bid to provide services. tively structure. Small towns and villages are un- If tariffs are not increased to adequate levels, gov- likely to have the professional expertise necessary ernments may have to subsidize the costs of ser- to design and negote such transactions. Again, vice provision in order to attract contractors. Ex- extensive technical assistance and training will perience with the contracting out of bus services be needed to implement leases and concessions. in developing and developed countries suggests that the efficiency gains from contracting out are Build Operate and Transfer (0073 greatest when services are not subsidized by gov- ernment [Meyer and Gomez-lbafiez, 19931. 'The BOT approach is starting to be widely used to privately finance the provision of urban infrastruc- Designing and implementing a contracting out ture. According to Public Works Financing, ap- program is highly complex. Small cities and towns lack adequate economic, technical, financial proximately 150 infrastructure projects worldwide and legal expertise. Technical assistance, training had been funded up to 1993, and another 360 projects were in the pipeline worldwide. The and the preparation of demonstration projects would be appropriate. funded projects have a combined value of $63 billion. The pipeline projects have an estimated value of $235 billion [Public Works Financing, 19931. Leases and Concessions BOT is a form of concession, where a private en- Surveys by the World bank indicate that leases and tity enters into a contract with the government or concessions for infrastructure are increasingly the utility to construct an infrastructure facility and common in developing [World bank, 19941. Thirty- operate it for a fixed period of time (15 to 25 years seven countries have been identified as using leas- is common). During this period, the contractor ing and concessions as a means of infrastructure collects user charges and fees from users of the provision. Leases and concessions differ from facility . 'The design of the facility, the term of the simple service contracts in that they are for longer operating period and the user tariffs and escala- periods and typically require a large financial tions, and what constitutes an acceptable return commitment on the part of the operator. Under a on invested capital (usually 15-20 percent) are part lease, the government typically provides capital of the negotiated BOT agreement. BOT projects facilities and the contractor operates the equip- are developed by large private corporations with ment. The operator pays the local government or experience in the provision of specific infrastruc- public utility a fee for using the equipment and it ture facilities (electric power, roads, transit systems has the exclusive right over the contract period and water and wastewater facilities). BOT projects to collect the revenue stream (from user tariffs). In are typically financed with a combination of eq- France, leases have been used for decades for uity (the company investing in the project puts in providing water supply to urban areas. Other de- its own capital) and long-term private debt veloping countries have also starting using leases [Augenblick and Custer, 19901. for private provision of water supply. Structuring BOT agreements is extremely complex. Concessions are similar to leases and incorporate Experience with projects reveals that it is better to all of the same elements but place more financial start with smaller less complex and risky projects. responsibilities on the contractor to provide addi- However, the transaction costs for putting BOT tional infrastructure investments. Whereas in the projects together is very high and relatively insen- case of lease. the contractor would operate and sitive to project scale. Therefore very small projects may not be financially feasible for BOT financing. 36 China: Small Towns Development For large projects, the risks are many and varied. cation and professional expertise to effectively Delays and cost overruns are common and will perform the duties of a partner. Small towns may impact tariff structures and operating terms. Re- lack the professional skills and therefore technical cent controversies in India and Thailand spotlight assistance and training will be required to help lo- the complexity and high stakes that big high pro- calities structure public-private infrastructure part- file projects take on. It is of paramount importance nerships. that the underlying BOT contract enforceable and clear. Provisions are needed for dealing with dis- putes. Some contracts rely on international arbi- Privatization of Infrastructure Services tration, using third party bodies to referee claims. Some contracts use the laws of a third party coun- An obvious option for financing urban infrastruc- try. For example a BOT project between an Indian ture systems is to privatize existing services through and German firm might use English law to deter- divestiture. Under this approach, infrastructure sys- mine contract provisions. tems are transferred to private entities. The pro- cess usually entails packaging systems for sale Attempting to introduce BOT financing into through competitive tender. Prior to tendering, the China's small towns and villages may be diffi- precise rights and obligations of the private entity cult given the extreme complexity of the trans- is defined, including the scope of services, the right action. Also given the high transaction costs as- to set tariffs (usually regulated by a utilities com- sociated with BOT financing, it may be difficult mission), and obligations to provide services to to structure projects in small towns. Given these customers in the service area [Kessides, 19931. limitations it may be more fruitful to look at Care must be taken to ensure that private enti- regional approaches to BOT projects which could ties do not exclude unprofitable routes or sub- be carried out at the Provincial or subprovincial systems from service, that they provide an ad- level. equate level of service and that rates reflect actual costs of service and provide the operator with an adequate return on invested capital. Di- Public Private Partnerships for Infrasfructure vestiture activities have increased dramatically Provisions over the last ten years. Evaluations of many of these privatizations suggest that substantial ef- Another approach to attracting private capital to ficiency gains result from divestiture. Obvi- finance infrastructure development is to form new ously, divestiture frees up considerable public corporations or utilities to provide infrastructure sector financial resources once infrastructure services. Instead of using leases, concessions or services are shifted off the public budget. Be- BOT methods, a local government would form a tween 1988 and 1992, infrastructure corporation with private investors. The local gov- privatization proceeds generated $21 billion in ernment would typically contribute land, existing developing countries [Sader, 19931. infrastructure system and/or cash to the partner- ship. The private partner would bring expertise and Privatizing public infrastructure systems re- capital on the enterprise. The partnership agree- quires careful and extensive financial and tech- ments specifically define the roles of the public nical analysis. In most cases, governments have and private sector partners. The agreement pro- retained independent expertise to package infra- vides a framework for financing operations, capi- structure systems for privatization. Once the dives- tal investments and sharing in the cashflow of the titure has taken place, professional burdens are project. significantly reduced and are generally limited to public utility oversight and regulation. Local governments in North America have estab- lished numerous partnerships to build and oper- Tapping Commercial Banks ate infrastructure systems [National League of Cit- ies, 19871. Parking structures are commonly built Large private infrastructure service providers typi- and operated by partnerships as are railway com- cally have direct connections with private com- panies, and hotels and visitor centers. Partnerships mercial banks. If local governments can attract provide the public sector with more active con- these large enterprises to purchase, lease or op- trol of the infrastructure activity than would often erate infrastructuresystems, then access to private be the case with long-term leases, concessions or commercial credit should not be difficult. On the BOT projects. They require a high level of sophisti- other hand, commercial banks are less interested 'Theme Paper: An Overview of Private Sector Financing of Urban lnfrastructure Services 37 in lending directly to municipalities (or if they are stitutional investors. They spread risks by investing willing it is usually for short time periods). To help in a range of projects across a number of coun- developing country local governments attract tries. A major barrier to the expansion of private private capital, multilateral and bilateral agencies capital into infrastructure financing is the lack of have developed loan guarantee programs. If information and institutional frameworks to sup- commercial lenders are provided with guarantees port high-value long-term investments. of repayment, they may be willing to make long- term loans to local governments and parastatals. Private Bonds The Government of Thailand has recently estab- lished a loan guarantee program for 10 cities. The guarantee facility will initially start with $75 million If countries have functioning bond markets, insti- and it will lend between 5 and 8 times this amount tutional investors such as insurance companies to municipalities. Eventually the program is ex- and pension funds can be tapped to finance in- pected to leverage up to $1.2 billion in loans for frastructure projects. Revenue bonds, which are water supply, wastewater collection and treat- used to finance new projects, use the cashflow ment and other environment-related infrastruc- from infrastructure operations to pay interest and ture projects [World Bank. 19941. return advanced capital to bond holders. They have been used to finance toll roads in Mexico and a power plant in the Philippines. As domestic To fully exploit funding opportunities, local govern- ments will need to tap both domestic as well as stock and bond markets evolve, it will be easier to foreign sources of capital. Given the enormous de- tap domestic savings. Bond markets are well-es- mands for infrastructure in China and other de- tablished in OECD countries and they play a sig- veloping countries, it is clear that domestic sources nificant role in financing municipal infrastructure of funding must be developed. A transitional step projects. In some cases, bonds are issued for spe- is to develop national level infrastructure banks to cific projects. In others, a pool of bonds are issued mobilize domestic savings and channel funds to- to cover several projects, which may be located ward infrastructure proiects. In Japan, for example, in more than one jurisdiction. the Japan ~evelo~mentBank has tapped po.stal savings accounts to provide long-term financing Prognosis for Increasing Private Sector for infrastructure development. Municipal banks Financing of lnfrastructure in Europe have also successfully mobilized savings and used these funds to finance infrastructure Over the past five years private sector financing projects. There is less experience in developing of infrastructure projects has dramatically in- countries, but India's new lnfrastructure Leas- creased. Several structural changes suggest that ing and Financial Services Corporation and its these trends will continue and likely accelerate. more traditional Housing and Urban Development First and foremost, the demand for financing capi- Corporation are working to sell their municipal tal is enormous and will continue to grow in devel- loans to private financial institutions once mu- oping countries, particularly Asia, requiring that nicipal borrowers establish adequate credit his- private sources of capital be tapped. Second, the tories [World Bank, 1994. capacity and willingness of governments to fund infrastructure through central government grants or loans is declining, and local governments and lnfrasfrucfure Funds utilities need to develop alternative sources of pri- vate capital. 'Third, infrastructure operators are Several developing countries have established under increasing pressure to operate systems ac- government-sponsored infrastructure funds to cording to commercial principles and such generate equity capital to finance infrastructure changes will make infrastructure project attrac- projects. Typically, governments advance funds tive opportunities for financing and lending. in order to attract private capital. Pakistan and Jamaica have both established funds to support The rate of increase in private sector infrastruc- energy-related infrastructure. Indonesia has set ture financing will greatly depend on how quickly. up a Regional Development Agency to handle the institutional environments develop and adapt to transition from grant to debt-funded local infra- the requirements of private lenders. Such changes structure projects [World Bank, 19941. Private funds are required in the administrative capacity of in- have recently started to operate internationally. frastructure and economic development institu- These funds tap pension funds and other large in- tions and in domestic capital markets. Initial financ- ing by the private sector have been on-off 38 China: Small Towns Development projects, using project-financetechniques like BOT. National League of Cities [I9871 Financing Infrastructure: In the next stage, countries typically establish spe- Innovations at the Local Level. Washington, D.C.: The National League of Cities. cialized infrastructure financing institutions and reform commercial banks which then start to fund Nicholas, James C. and Geoff Pappas [I9911 "lmpact Fees infrastnrcture projects. In the last stage, institutional on the Rise Again," Growth Management Studies Newsletter, Vol. 6, July. and individual investors purchase bonds or stocks which are traded on domestic stock and bond Organization of Economic Cooperation and Development markets. [l 9911 Urban Infrastructure: Finance and Management. Pans: OECD.

Porter, Douglas R., Ben C. Lin, Susan Jakubiak and Richard B. References Peiser (19921 Special Districts: A Useful Technique for Financing Infrastructure, Second Edition. Washington, D.C.: Altschuler, Alan A. and Jose A. Gomez-lbafiez [I9931Regulation The Urban Land Institute. for Revenue: The Political Economy of Land use Exactions. Washington, D.C. The Brookings Institution. Public Works Financing. [ 1 9931. Augenblick, Mark and B. Scott Custer [l 9901"The Build, Operate Purdum, Elizabeth D. a~dJames E. Frank [I9871 "Community and Transfer ("BOT") Approach to lnfrastructure Services Use of Exactions: Results of a National Survey," in James Projects in Developing Countries," Working Paper 498, E. Frank and Robert M. Rhodes, eds. Development Exactions. lnfrastructure and Urban Development Department. Chicago: Planners Press. Washington. D.C.: 'The World Bank. Roth, Gabriel [I9871 The Private Provision of Public Bahl. Roy W. and Johannes F. Linn (19921 Urban Public Finance Services in Developing Countries. Washington, D. C.: in Developing Countries. New York: Oxford University Economic Development Institute Series in Economic Press. Development. Baumol, William J. John C. Panzar and Robert D. Willig [I9881 Sader, Frank 119931 "Privatization and Foreign Investment Contestable Markets and the Theory of Industry Structure. in the Developing World, 1988-1992,"Policy Research Son Diego: Harcourt, Brace Jovanovich. Working Paper 1202. Washington. D.C.: World Bank International Economics Department. Beatty, David F., et. al. [I9951 Redevelopment in California, Second Edition. Point Arena, California: Solano Press Savas, E. S. 119821 Privatizing the Public Sector: How to Books. ShrinkGovernment. Chatham. New Jersey: Chatham House Publishers. Butler, Stuart [I9851 Privatizing Federal Spending: A Strategy to Eliminate the Deficit. New York: Universe Triche, Thelma, Abel Mejia and Emanuel ldelovitch [I9931 Books. "Ananging Concessions for Water Supply and Sewerage Services: Lessons Learned from Buenos Aires and Courtney, John [I9951 "Urbanization Issues in China: The Caracas," !nfrastructure Notes WS-10. Washington, D.C.: Role of Small Towns in Regional Development," Paper The World Bank. presented at The Sustainable Cities Conference: Hangzhou. China. The World Bank [I9941 World Development Report 1994: lnfrastructure for Development. Washington, D.C. The Dowall, David E. [I9941 "Urban Residential Redevelopment World Bank. in the People's Republic of China," Urban Studies, Vol. 31, NO. 9, pp. 1497-1516. The World Bank [l 9931 China: Urban Land management in an Emerging Market Economy. Washington, D.C.: The World Dowall, David E. [I9931 "Establishing Urban Land Markets in Bank. the People's Republic of China," Journal of the American Planning Association, Vol. 59, No. 2, Spring 1993, pp. 182-192.

Dowall, D.E. 119901 "Public Real Estate Development: A New Role for Planners," Journal of the American Planning Association, Vol. 56, No. 4., pp. 504-512.

Gomez-lbafiez, Jose A. and John R, Meyer [I9931 Going Private: The International Experience with Transport Privatization. Washington, D.C. The Brookings Institution. Kessides, Christine [I9931 "Institutional Options for the David E. Dowall Provision of Infrastructure," World Bank Discussion Paper Professor of City and Regional Planning Number 212. Washington. D.C.: The World Bank. University of California at Berkeley Outside the Large Cities; What Role for Smaller Urban Centres?'

David Satterthwaite

ost books, articles and research reports 'This paper will consider the importance of small about urban issues in the South are and intermediate urban centres both for their in- about capital cities or large cities. Most habitants and for their surrounding rural popula- of the concern expressed about urban problems tions. It will discuss how and why they developed. is for large cities. But only a small proportion of It will also discuss how governments can best de- the population in the South live in large cities - see vise a special programme for such centres and Table 1. In fact, far more people depend on what the links that must be forged with rural and agri- can be termed 'small and intermediate urban cultural development. The biases against smaller centres' than on large cities. Either they live urban centres in government's macro-economic in small- and intermediate-sized urban centres and pricing policies will also be described as will or they live in rural areas but depend on these the costs of improving basic service provision. So urban centres for shops, markets, and services.

The South's Urban Population in 1990 Total Number of Percent of total population Urban Urban (millions) Agglomerations Population 10 million plus inhabitants 98.5 8. 6.9 5 - 9.99 million inhabitants 1 13.3 15 7.9 1-4.99 million inhabitants 280.2 1 48 19.5 Less than one million 943.5 c. 30,000 65.7 Total urban population 1,435.5 1 00.0

Based on data in United Nations. World Urbanization Prospects: the 1994 Revision, Population Division, New York, 1995.

Table 1 39 40 China: Small Towns Development too will the possible role of small and intermedi- instance tourism, mining, or timber. Others devel- ate urban centres in helping to control the growth oped because they were well located close to a of large cities. metropolitan centre and became favoured loca- tions for new industrial, commercial or recreational In this paper, the term 'small and intermediate enterprises linked to that metropolitan centre. urban centre' will be used to include all urban Others developed because their location was centres except for national capitals and for other judged to be the right place to develop 'defence' urban centres which have concentrations of eco- industries. Some examples of the factors under- nomic activities which are of national importance. lying the development of different urban centres This rather loose definition is chosen deliberately, are given in Box 1. lsmailia in Egypt would not have since this paper wants to stress the importance of developed into an urban centre of more than considering urban centres within their national 200,000 inhabitants if the Suez Canal had not been context. In addition, this is not to imply that there built. The concentration of industry in Rae Bareli are necessarily similarities in different urban cen- in lndia owes far more to the fact that it was in the tres categorized as 'small' or 'intermediate'. parliamentary constituency of the late Mrs. Gandhi when she was Prime Minister than it does to any inherent advantage the urban centre offers to in- 'The Uniqueness of Each Centre dustries. Pereira's development was much helped Governments and aid agencies have become by the prosperous farmers living nearby. Owerri in more interested in 'small and intermediate urban Nigeria would be far smaller and less prominent if centres'. This is usually because they hope that it had not been chosen as capital of a new state these centres will take some of the pressure off in 1976. the large cities. There are many special govern- ment programmes for small and intermediate ur- The histories of different smait and intermedi- ban centres. But their success will depend largely ate urban centres reveal the complex mix of lo- on whether they help develop untapped poten- cal and regional factors --and often national and tial or under-utilized resources within these urban international factors--which influenced their de- centres. There is no point in encouraging the de- velopment. In regions with long histories of velopment of tourism or industry in urban centres settled population and of commercial agriculture, which have little potential to attract tourists or in- urban centres usually have long histories. For dustries. example, lndia has always been a predominantly rural nation and yet most of its urban centres It is not easy to identify the urban centres with have long histories. While India's urban popula- potential and ascertain the government actions tion increased more than 500 percent between needed to release this potential. The main rea- 1901 and 1981, the number of urban centres son is the uniqueness of each urban centre--so a increased by only 77 percent; since very few government programme to develop one urban urban centres decline to the point where they centre may be totally inappropriate for others. lose their status as 'urban centres'. this sug- Historical studies show the phenomenally rich and gests that most existing urban centres in lndia diverse set of reasons for the development of dif- were also urban centres in 1901.2 In fact, in ferent urban centres. many regions, a very high proportion of urban centres actually have histories which are cen- Many urban centres first developed because they turies old.3 were chosen as centres for provincial or state gov- In most nations, there is often a surprising de- ' ernment or centres of military control. Others de- gree of similarity between a list of today's ur- veloped because new businesses developed ban centres and a list of administrative centres there linked to prosperous commercial agriculture founded many decades or even centuries ago. Box nearby or to the demand for goods and services 2 give some examples. generated by those earning an income in agri- culture. Some urban centres developed as road Of course, there are many new urban centres or rail transport centres; others because they be- in regions being settled for the first time. Many came the constituency of a prominent politician areas have been settled in the last 40-50 years who steered public investments and public enter- which were previously either uninhabited or prises there; and others because enterprises there sparsely populated; the search for new farm- successfully exploited one specialized niche in a land and pasture, timber and minerals has usu- regional, national or international market--for ally been the reason. Many governments have Theme Paper: Outside the Large Cities: What Role for Smaller Urban Centres? 41

Examples of Influences on the choice as capital of a newly designated prov- Development of Some Urban Cenfres ince in the mid Sixties. These and the fact that ISMAII-IA (Egypt): With around 175,000 inhabit- it was on the crossroads for the highways link- ants in 1975, it had been established some 100 ing the region to Colombia's three largest ur- years earlier as the headquarters for the Suez ban centres explain its growth to become the Canal Authorities when Egypt was under Brit- region's largest urban centre. In 1951, it had ish rule. 'The Suez Canal Authority remains the 76,262 inhabitants but by 1985, there were largest employerwhile small scale shipbuilding, 328,000, including nearly 96,000 in Dos light manufacturing and service industries also Quebradas, a separate municipality which provide employment. developed next to Pereira, across the Otun river. OWERRI (Imo State, southeast Nigeria): with some 9,331 inhabitants in 1953 and 90,000 in RAE BARELI (India):With over 90,000 inhabitants the late Seventies, the modern urban centre by 1981, this has become an important indus- dates from 1901 when the colonial (British) gov- trial centre and a commercial and service cen- ernment established a small militaryladminis- tre for its region. It owed its early development trative headquarters there. Much of its early to selection as a district headquarters and a development related to the location there of centre for the colonial army under British rule in public services and facilities--a native court, the mid-19th century. It was a station on one of government station, barracks, prison, school. the earlier railway lines. But it remained a rela- It became a provincial headquarters in 19 14 tively poor, small urban centre, reflecting the but was bypassed by the railway; other urban poverty of most farmers in its region. With just centres nearby developed stronger economic under 17,000 inhabitants in 1901, it grew vefy bases. The residency and consulate of the slowly and still had under 30,000 inhabitants by Province moved to Port Harcourt in 1927. But 1961. But during the seventies, it attracted some with the creation of Imo State in 1976, many large government-owned industries which civil servants, professionals and traders came meant an unprecedented expansion and diver- to Owerri since it was chosen as the new state sification of its economy. 'The main reason why capital. It became the centre for numerous government-owned industries set up there state and Federal government departments, was that it was the main urban centre within parastatal organizations and corporations. the parliamentary constituency of the late Mrs. Gandhi who at that time was the Prime PEREIRA (Colombia): With 328,000 inhab- Minister of India. itants in 1985, it was founded by a group of entrepreneurs in the mid-19th century in SOURCES: Forbes Davidson, 'Ismailia: from what was then an inhospitable jungle. At that masterplan to implementation', Third World Planning time, forests in the region around it were Review Volume 3, No 2. May 1981; Geoffrey I. being cleared by thousands of settlers and Nwaka, 'Owerri. development of a Nigerian state capital', Third World Planning Review Volume 2, No 2, with rich volcanic soil, cocoa, sugar cane and Autumn 1980: Julio D. Davila. 'City profile: Pereira- coffee became the dominant crops. As cof- Dos Quebradas' in Cities Volume 5, No 1. February fee became the dominant export of Colombia, 1988: and Harikesh Misra, Chapter 5 in Jorge E. the region around Pereira grew rich. Pereira Hardoy and David Satterthwaite (Editors), Small and Intermediate Urban Centres: Their Role in Regional and shared this prosperity with a booming com- National Development in the Third World, Hodder and merce and agro-industry and local businesses Stoughton (Europe) and Westview (USA), 1986. re-invested their profits in such industries as textiles, clothing and electrical equipment. A further boost to its development was its

Box I sponsored such colonizations but there is usually and Ecuador, in Amazonia and in southern Nepal an additional spontaneous and uncontrolled colo- (in the Terai region),and in many parts of Indone- nization movement which may be larger than of- sia and Malaysia. Some of the most rapidly grow- ficial programmes. Examples of settlement in pre- ing cities over the last 30-40 years are those which viously uninhabited or sparsely inhabited regions grew as administrative, service or processing cen- are evident in the eastern regions of Peru, Bolivia tres in these newly settled areas. 42 China: Small Towns Develo~ment

Similarities Between Contemporary Urban EAST AFRICA: Virtually every urban centre which Centres and Old Administrative Centres had 20,000 or more inhabitants by the mid-sev- enties had been an established colonial admin- LATIN AMERICA: Most national and provincial istrative station by 1910. The size, location and capitals were founded under colonial rule - distribution of urban centres in East Africa today including all ten of today's largest citieslmet- is almost entirely the product of British and Ger- ropolitan centres, all of which were founded man decision making prior to the First World War. by the year 1580 (Mexico City, Sao Paulo, Rio In Tanzania, 17 of the 18 urban centres with 20,000 de Janeiro, Buenos Aires, Bogota, Lima, or more inhabitants were originally colonial town- Santiago, Caracas, Guadalajara, Monterrey]. ships; 12 of them were on the railway lines devel- All national capitals in the 20 Latin American oped under colonial rule to transport cash crops nations and in Jamaica and Trinidad and To- to ports for export. bago are colonial foundations with the excep- tion of the capital of Brazil. Thirteen were TWO REGIONS IN INDIA: In three districts in founded in the 16th century (although Mexico Karnataka state which have urbanized rapidly City had an indigenous precedent), two in the in the last 70 years (Bangalore, Mysore and 17th century, five in the 18th century and one Mandya), virtually all urban centres had been in the 20th century. With two exceptions the administrative centres set up by the British (Brasilia and Quito),they are their nations' larg- colonial government in the mid 19th century. The est urban centre. All national capitals which two most important administrative centres estab- were founded during the colonial period were lished by the British in the 19th century are much important administrative centres under colo- the largest urban centres today. In three districts nial rule as sites of Viceroyalties (Mexico City, in Uttar Pradesh state, which have not urbanized Lima, Buenos Aires and Bogota) in the 16th to rapidly (Rae Bareli, Sultanpur and Pratapgarh), the 18th century and/or sites of regional legal the three largest urban centres today were the courts (audiencias) and headquarters of uni- only military cantonments, the only district head- versities. quarters and the first municipalities under colo- nial rule in the 19th century. Most other urban NORTH AFRICA: The basic outline of cur- centres are also subdistrict headquarters desig- rent urban patterns was established during nated as such in the 19th century. the colonial period. The colonial extractive economies, which were well established in SOURCES: Janet Abu-Lughod, chapter on 'Urt~anizotionin the 19th century, tended to concentrate ur- North Africa' in B.L.J. Berry (Editor), Patterns of ban development in port cities - reviving old Urbanization and Counter-urbanization, Sage Publica- ports like Algiers, Tunis and Alexandria and tions, 1975: Jorge E. Hardoy, 'Two thousand years of creating new ones like Casablanca, lsmailia Latin American urbanization' in Jorge E. Hardoy (Editor) Urbanization in Latin America: Approaches and Issues, and Port Said. The urban centres that de- Anchor Books, New York, 1975; H.N. Misra 'Rae Bareli, veloped in the interior were essentially cen- Sultanpur and Pratapgarh Districts' and B.S. Bhooshan, tres for military control or served the min- 'Bangalore, Mysore and Mandya Districts' in Jorge E. ing of a resource or (gradually) expanding Hardoy and David Satterthwaite (Editors), Small and Intermediate Urban Centres: Their Role in Regional and European agriculture. National Development in the Third World, Hodder and Stoughton (UK) and Westview (USA), 1986.

Box 2

Although so much of the literature on cities in Af- ing or declining economy will usually mean slower rica, Asia and Latin America talks about 'rapid population growth or even no growth or popula- urban growth', in fact a considerable propor- tion decline. Urban centres in any region or na- tion of the urban centres there are not growing tion can be likened to businesses and each of rapidly while many have hardly grown at all in them compete with each other for investments recent decades and some have actually had de- and expenditures. Their economic growth (and clining populations. A growth in employment op- their population growth) is related to their success portunities (or the possibilities for survival) usually or failure in this competition. The literature on ur- fuels the growth of an urban ~entre.~A stagnat- ban centres concentrates too much on the ones Theme Paper: Outside the Large Cities: What Role for Smaller Urban Centres? 43 which grow rapidly and fail to reflect the range Certain authors have also claimed that generali- and diversity of all urban centres, including the zations can be made about the rates at which diversity in their population growth rates. small or intermediate urban centres grow6--and it is common to find statements such as "small There are hundreds of urban centres which have and intermediate urban centres are growing stagnated with little or no population growth or faster than larger cities" in the general literature. even population decline in the last 40 years. There But this too does not stand UP to detailed are also dozens of urban centres which were once examination. TO test this, an analysis Was done cities of great importance in their nation but then of population growth rates for small and inter- declined as other urban centres grew more rap- rYIediate urban centres for two or more in- idly. Box 3 gives some examples. tercensus periods in Mexico, Peru, Ecuador, Tanzania, the Sudan, Kenya, Colombia and Pakistan and for several intercensus periods in To state that every urban centre is unique may be stating the obvious. But it is necessary to do regions in Argentina, North and South India and so because so many inaccurate generalizations the Sudan. Moreover, this found no valid gener- alizations for such centres within nations or for have been made about 'urban centres' or spe- cifically about 'small and intermediate urban cen- international comparisons. In each instance, there was a large range of population growth tres' which imply that they are not unique. Sev- eral authors have generalized about 'the social rates among the different urban centres with no and economic functions of small and intermedi- correlation between the size of the urban centre ate urban centres'. Drawing on these generaliza- and the population growth rate. The only tions, advice is then given to governments on how exception was the obvious tendency for popu- to develop special programmes for these urban lation growth rates to slow for the very large centre^.^ But urban centres are so diverse that cities - because the larger the population at the few generalizations are accurate. Some do have beginning of the time period, the larger the enormous untapped economic potential while denominator and thus the lower the growth others have little or no potential. The potential rate. sometimes has little to do with the size of the ur- ban centre. And an urban centre's potential can In conclusion, many small and intermediate change; for instance, when coffee prices are high urban centres had comparable historical roles in the world market, many urban centres in cof- under colonial rule and often under postcolonial fee growing areas have more potential to expand rule as administrative or military centres. Many and diversify than if coffee prices are low. such centres have strong links with commercial agriculture. Many have considerable potential But there are hundreds of industrial estates in to develop larger and more diversified econo- small and intermediate urban centres around mies. But the extent of such common influences the world which lie empty or only partially used; and their importance relative to other influences these estates were often built at great expense. varies so much as to caution against generaliza- They were built without careful evaluations of tions. If governments want to develop these the potential of each centre to attract and urban centres, they must design policies which sustain industrial development. There are doz- encourage the development of each urban ens of factories in small urban centres which centre's unique needs and potentials. Each were located or pushed there by governments urban centre will have its own resources, devel- to 'decentralize' industry which have either opment potential, skills, constraints and. links with closed or are currently producing very expen- its surroundings and with the wider regional and sive goods, because the location was chosen national economies. for political reasons. Developing tourist facilities in small urban centres now seems more com- The Role of Local Government mon than developing industrial estates--but this too will waste scarce public investment if done If the possibilities and constraints on development with no evaluation of the real potential of each are so specific to each urban centre (and region), centre to attract tourist expenditures. Some then there is need for local input in designing any intermediate-sizeurban centres are also seeking nation-wide or region-wide government to develop "technopoles", research parks or programme for small and intermediate urban cen- other sites to attract high-technology industry or tres. Without local input. how can national or pro- services. 44 China: Small Towns Develowment

Examples of Ciffes Whose lmporfance in Their based on oil export and industrial development, Naffonal Economies Has Declined Hamadan lost its role as an important transport and manufacturing centre; it was by-passed by NORTH AFRICA: Many of the great historical the new interregional rail and road systems built cities of the Islamic period (9th - 15th century) during the thirties and forties. By 1976, its role were inland, reflecting the importance of land as a subnational administrative centre (it be- trading routes--Meknes, Fez, 'Tlemcen, came a provincial capital in 1966) and a cen- Constantine, Kairouan, Marrakesh being ex- tre for public services had become more im- amples. 'These generally had little role in the portant than its fraditional commercial and colonial economies which were largely based manufacturing activities. on mineral and agricultural export. Such illustri- ous cities as Tlemcen, Kairouan and Fez found POTOSI, BOLIVIA: Around 1640, Potosi was the their economic bases of handicraft production largest city in both North and South America and trade systematically undermined by the with some 140,000 inhabitants, and its rich sil- new commercial firms in the ports which grew ver deposits were a symbol of wealth around to serve the colonial economy. the world. During its peak years, silver mining there stimulated the economies in other regions BRAZIL: Under Portuguese colonial rule, in the with mule raising in central Argentina (themules late 16th and 17th centuries, urban centres were crucial for transporting minerals and developed to serve the sugar plantations pro- people and they were sold in the markets of ducing for export in the North-East. By 1600, Tucuman and Salta), mercury (quicksilver)pro- SalvadorIBahia was the most important and duction in Huancavelica (Peru), wines from prosperous urban centre and the national (co- Central Chile and Western Argentina and food lonial) capital. With Brazil's economy firmly from the lower and warmer valleys around based on the export of sugar, cotton, hides, and Sucre and Cochabamba (Bolivia).Potosi was fine woods from the North-east, Sao Paulo, to- never an important religious, administrative or day Brazil's largest city, was only a small frontier educational centre but was an important stop town. The gradual decline in the European on the old land route connecting Lima-Callao sugar market during the second half of the 17th (Peru) with Buenos Aires (Argentina) via century shifted the economic centre south. Rio Huamanga (Ayacucho),Cusco, Puno, La Paz, de Janeiro grew as the port serving the mines Oruro and Potosi and then Jujuy, Salta, and it became the national capital in 1762. As Tucuman, Cordoba and Buenos Aires. As sil- gold deposits became exhausted, coffee ex- ver became increasingly difficult and more ports became the main commercial activity costly to mine, Potosi's population declined, and the coffee boom helped develop the ur- as did the regional economies it had stimu- ban economy in the South-East with the expan- lated. It experienced a brief revival in the sion of railroads increasing the importance of late 18th century with the import of improved certain centres, notably Santos (a major port) extraction technologies, but then it declined and Sao Paulo. to 26,000 inhabitants in 1854 and 21,000 in HAMADAN, IRAN: Hamadan, with approxi- 1900. Today it has around 45,000 inhabit- mately 150,000 inhabitants in 1978, became ants and mining is still the main economic base. famous as one of the cities on the silk route during the 11th and 12th centuries, but col- SOURCES: Janet Abu-Lughod, chapter on 'Urbanization lapsed when invading armies over-ran it in in North Africa' in B.L.J. Berry (Editor], Patterns of the early 13th century. Its role as a major Urbanization and Counter-urbanization. Sage Publica- tions, 1975: Jorge E. Hardoy, 'Two thousand years of commercial centre was restored in the sec- Latin American urbanization' in Jorge E. Hardoy ond half of the 19th century with the flow of (Editor) Urbanization in Latin America: Approaches and goods between Britain and British controlled Issues, Anchor Books, New York. 1975: and Hiromasa India through Baghdad, Hamadan and Tehran. Kano, 'City development and occupational change in Iran: a case study of Hamadan', The Developing It has long been famous as a centre for leather Economies. September, 1978. goods and carpets. But as Iran became an in- dependent nation-state with its economy Theme Paper: Outside the Large Cities: What Role for Smaller Urban Centres? 45 vincial governments understand local needs, are more likely to do so if they receive a share of make best use of local resources or tackle local resources rather than simply acting as tax or rev- constraints? enue collectors for higher levels of government.

This implies the need for decentralizationof power Building a stronger and more effective local gov- and resources. If assessments of development ernment demands the reversal of policies appar- possibilities are so unique to each centre, it is lo- ent in many nations in the last 20 - 30 years. It must cal governments (mostly located in small and in- reverse the tendency for national government to termediate urban centres), not national govern- impose severe limits on local government's rev- ments based in the capital city, which should or- enue-raising powers and to take for itself the ticulate local needs (from their area of jurisdiction) more lucrative and easily collected taxes. And and influence resource allocations at higher lev- as stated by United Nations recommendations on els. Only through representative local govern- small and intermediate urban centres, it also ments is such an articulation of local needs likely demands a clear definition of the constitutional to take place. No national ministry or agency can and legal status of local governments (which is know the specific needs of each locality and the often still lacking) and the establishment of clear preferences of its population. lines of authority and respon~ibility.~As sug- gested in the current debate in Latin America on Local assessments of available skills and resources decentralization and democratization, this also and the monitoring of changes over time requires implies a more representative local government strong, competent and representative local gov- with the ability to generate considerable con- ernment. This is probably the most essential ele- sensus on local development initiative^.^ ment of a national programme for small and in- termediate urban centres and it brings with it many Again, there are no general recipes on how to developmental advantages. As a review of the increase local government revenues. The fact experiences with decentralization noted, central- that the employment base and economic trends ization can bring some heavy costs: can differ greatly even for urban centres within the same region suggests a need for consider- "A ministry of agriculture that applies crop able flexibility as national governments revise production quotas to all areas of the country their definition of the activities that local gov- without taking regional variations in soil and ernments can use to generate revenue. For in- climate conditions into account ... hinders stance, a small urban centre with a prosperous production and wastes resources. When (and growing) agricultural market could use central planners design rural development market fees or bus-park charges to raise funds projects in the national capital without thoroughly understanding local, social, to improve services and facilities in the mar- economic, physical and organization ket. A centre with a developing tourist trade conditions, they often generate opposition could utilize a "bed tax" for hostels, hotels and among local groups or encounter such boarding houses. Local taxes on beer, liquor and apathy that the projects are doomed to tobacco have proved important sources of rev- failure at the outset. Overworked and enue in many instance^'^ and have the additional cautious central finance officers, who advantage of raising prices for goods whose typically are responsible for approving even overconsumption produces serious health prob- petty expenditures for local development projects, often release funds for agricultural lems. Broad-based sales taxes can provide sub- projects so late in the fiscal year that optimal stantial revenues for local governments but few . planning times are missed. ...Central national governments allow their use;" how- administrators cannot know the complex ever, care must be taken not to tax basic com- variety of factors that affects the success of modities since this would fall very heavily on projects in local communities throughout the poorer groups. A property tax can fit much bet- country. In their attempt to cope with this ter both with ability to pay and extent to which uncertainty. they create highly centralized public infrastructure and services are used. and standardized procedures: or through fear While relatively complex to collect, it has the of making mistakes, they do nothing about urgent decisions that are essential for advantage that many local governments already implementing local projects and have the power to use it and already derive some programs".7 income from it. Support from national govern- ment may be needed to increase the tax-yield, Competent and representative bcal govern- not least because local property owners will ments can mobilize local resources more effec- oppose this. Cadastral surveys and tax assess- tively than higher levels of government. But they 46 China: Small Towns Development ments are often out-of-date and the revenues centres and their surrounds. This can allow their collected are far below potential yields. Up-to- effectiveness to be assessed before a commit- date cadastral surveys also help in physical and ment is made to a national programme. For in- land-use planning. stance, national government could support a scheme whereby inhabitants in one particular ur- But it is not only local governments which de- ban centre could choose to 'pay' local taxes or serve support from higher levels of government. fees by working a set number of hours in local In many nations, local associations or coopera- development projects; appropriately set ex- tives can implement certain development initia- change rates between the number of hours of tives. For example, an association or coopera- labour contributed in lieu of local taxes could en- tive of farmers might become responsible for sure that measures to increase local revenues do local road or bridge upkeep or electricity supply not fall heavily on lower income households. As in while local parents and teachers associations government's use of private associations to fulfill might help raise funds to maintain the school and certain tasks, this can easily become highly exploit- supply it with books or equipment. Perhaps the ative but it is far less likely to be so if local govern- possibility of government support for such ments are elected and are generally viewed by groups has been given too little consideration-- most of the local population as having as their especially where local government is particu- main concern, the interests of the locality. If larly weak. It is usually a short term measure; local nongovernment organizations are encour- richer governments often try to exploit private aged to represent local groups and interests, this groups like parent-teachers associations by de- too can provide a check on mis-use of power and manding that they meet certain costs formerly resources. met by government. But it may provide a valu- able stop-gap. National government might also support locat government schemes to generate employment Thus, one of the main justifications for a gov- in slack agricultural periods of the year. Public ernment programme on small and intermediate works with substantial long-term paybacks but urban centres is not related to these urban cen- which are unattractive for private investors could tres in themselves. It is about how local levels be especially important. For instance, activities of government can respond to local needs and such as rural feeder road construction or mainte- the ways in which these needs can be met. It is nance, bus-park surfacing or maintenance, refor- also about mobilizing local resources for national estation plus watershed management, installation and regional development. To achieve this re- of water pipes, construction or maintenance of quires a long term programme by national gov- flood control or irrigation channels can provide ernment to help build institutional capacity, rev- seasonal employment and much-neededincome enue base and skilled personnel at local level. supplements to many lower income households. Clearly, this must be backed by better censuses Important social and economic benefits could be and surveys to provide the information for local achieved at relatively low costs. development plans so these are more geared to local needs, resources and potentials than the In most instances, national government will have 'standard packages' for all smaller urban cen- to work out revenue-sharing arrangements with tres so often proposed and implemented by na- local governments. One relatively simple way to tional governments. Obviously it must be transfer resources from central to local levels is an matched by regulations and controls which en- annual block grant to each small oc intermediate courage fiscal responsibility and accountability urban centre (or each local government area] to the citizens within their jurisdiction. It must based perhaps on population size and an assess- also be matched by environmental controls which ment of need. The use to which the grant is put ensure no decentralization to these centres of would be decided locally (within broad guide- polluting industries that are seeking to avoid the lines) for projects relating to social and economic stricter regulations (or their application) larger development. This has been done for many years cities. in Indonesia through the INPRES programme, al- though no evaluation of this programme and the Given the scarcity of resources and the time extent to which local populations felt that their needed to build stronger and more competent needs were being addressed was found. Similar local governments, national governments could kinds of block grant are also being tried in some try out innovative approaches in selected urban Latin American countries, as part of decentraliza- tion and democratization processes. Theme Paper: Outside the Largle Cities: What Role for Smaller Urban Centres? 47 Pools of skilled personnel and specialized equip- rising prosperity for most of the local population ment could be shared by groups of local govern- and rapid urban development within or close to ments or local associations; this could lower con- the main farming areas. (Box 4) But this increase siderably the cost to each of purchasing and in agricultural production can also go hand in maintaining equipment and paying professional hand with rapid impoverishment for most of the salaries which they cannot individually utilize all local population so many move out of the area year. Groups of local governments could also to fuel the growth of large cities (Box 5). share accountants, engineers and road construc- tion equipment. Governments in smaller urban At least four factors are critical in determining centres can also borrow equipment or seek pro- the balance between the two extremes and the fessional advice from governments in larger urban extent to which growing agricultural production centres nearby; there are examples to draw on helps stimulate urban development within the where this has been done.I2 same area: the structure of land ownership, the type of crop or livestock raised, the use to which While such suggestions might seem somewhat re- profits are put, and government's policy on the moved from a discussion on small and intermedi- price of crops. ate urban centres, in fact they are of central im- portance in promoting social and economic de- To take first the question of land ownership, if velopment within and around such urban centres. there are many farmers making a good living by They are also of central importance in increas- intensive farming on relatively small farms (as ing the attraction of such centres to productive in Box 4) with relatively equitable land owner- investment. As Johannes Linn notes: ship, there is a very strong stimulus to growth in local urban centres as businesses meet farm- "the quality of management by the urban ers' needs. If a few farmers or absentee land- authorities may have an important effect owners own most of the land and there is rural on whether and how a city grows ... Among labour surplus (which is usually the case], land the elements of urban management at issue owners can keep wages very low for agricul- here are: the provision of adequate public tural labourers. This lessens these labourers' utilities for industry and commerce: the existence of a well functioning urban level of consumption and thus level of support transport system for the speedy for local shops and services. This is the case in distribution of goods and services: many plantations where agricultural production availability of developed land for new is highly profitable for the owners yet relatively wholesale and retail; a good communications few local people receive reasonable incomes and system (telephonesand postal); and a public there is little support for businesses in urban administration that minimises efficiency centres nearby. Large landowners may increas- losses and compliance costs for regulations ingly push small, subsistence farmers off their and taxes."l3 land as in the case illustrated in Box 5. In summary, national government must not gen- eralize about the kinds of activities which should Many studies of the impact of the Green Revolu- be developed or promoted in small and interme- tion in rural areas in Asia and of the development diate urban centres. They must develop the ca- of commercial farming in Latin America have pacity of governments located in such centres to shown that increasing agricultural production and make their own choices as to what should be productivity can mean impoverishment for many developed, based on local needs, potentials and rural dwellers. Inequitable land-owning struc- capacities but within broader regulatory frame- tures are usually the principal cause. works that ensure local accountability and fiscal and environmental responsibility. The type of crop or animal raised also influences the number of jobs and the incomes they gener- The links between agricultural and ur- ate. The amount of labour needed per hectare ban development of land can vary by a factor of 100 or more for different agricultural products raised under dif- Few governments appreciate that productive, ferent circumstances. At one extreme, pastoralists intensive agriculture can support both a prosper- may need 100-200 hectares or more of land per ous rural population and rapid growth and diver- person to generate enough income to survive. At sification in the economies of small and interme- the other extreme, an intensively cultivated farm diate urban centres. Increases in the value of ag- of only one or two hectares provides a reason- ricultural production can go hand in hand with able living for entire families in many parts of the 48 China: Small Towns Development world.I4 There are also cases of families surviving Cattle ranching in Uruguay illustrates how exten- on what they produce on landholdings as small sive agricultural production and inequitable land as one tenth of a hectare.I5 ownership can minimize employment generation in rural areas and small market towns. 'The con- centration on cattle ranching for export in the late

Positive links between agricultural, whole valley's population. rural and urban development Growing agricultural production also stimulated The development of the Upper Valley of Rio many urban-based enterprises. First, cold stor- Negro and Neuquen in Argentina illustrates the age plants were built. As fruit crops usually ripen possibility of positive links between agricul- within a relatively short period of time, this brings tural, rural and urban development. Within a enormous demands on the transport system over 700 square kilometre fertile river valley, to- a small portion of the year. Cold storage plants tal population has grown from approximately allowed the packaging and transporting of fruit 5,000 inhabitants in 1900 to over 300,000 in to be spread over a longer period. In addition, 1981. Although growth and diversification of industries developed to produce packing ma- agricultural production have been the main 'en- terial and boxes for the fruit and to produce ci- gine of growth', more than 80 percent of the der, apple juice, jams, and dried or tinned fruits. Upper Valley's population live in urban cen- Industries also grew to support the farmers, in- tres with 5,000 or more inhabitants. cluding a large agricultural chemicals factory and a factory producing machines for prepar- A hundred years ago, the first colonists had ing land and picking fruit. just begun to grow crops. The establishment of a military fort there in 1879 provided the In 1957, the two 'national territories' in which the nucleus for the first town and provided much Upper Valley was located became provinces. of the demand for food and fodder. But the Up- This meant a considerable increase in the power per Valley's prosperity began to grow when a and resources available to the provincial gov- railway linked it to Buenos Aires in 1899 and ernment and one of the Upper Valley's urban gave local farmers access both to the national centres was a provincial capital. This in turn also and the international markets and when gov- stimulated and supported urban development ernment investment in a dam and flood con- as the administrative machinery grew to cope trollirrigation system encouraged intensive with its increased responsibility--although this agriculture. stimulus was largely confined to the provincial capital. For the first quarter of the twentieth century. there was very rapid inmigration to the re- In recent years, the Upper Valley has experi- gion, including many immigrants. Initially, al- enced economic problems. Perhaps the most falfa was the main crop but this was gradually notable was in the second half of the Seventies replaced by fruit trees-especially apples and when the economic management of the (then) pears. The landowning structure was relatively military government made the Argentine cur- equitable: most of the land came to be farmed rency strong against the currencies of coun- by farm-owners with sufficient capital to in- tries which bought Argentine farm exports, vest in intensive production. Relatively small thus greatly reducing farmers' returns. But it farms producing a good income were the norm. does illustrate how rapid growth in agricul- . tural production can be accompanied by rapid The growing number of prosperousfarmers pro- growth inemployment linked to agriculture and vided a considerable stimulus to local urban rapid grow+hin urban population. development. Despite its small area of only 700 square kilometres, no single, dominant urban SOURCE: Mabel Manzanal and Cesar A. Vapnarsky. 'The centre emerged' A of urban centres de- development of the Upper Valley of Rio Negro and its veloped around railway stations, running along periphery within the Comahue Region, Argentina' in the river valley. Each had shops and businesses Jorge E. Hardoy and David Satterthwaite (Editors), selling to farmers in their immediate vicinity while Small and lnterrnediate Urban Centres: Their Role in National and Regional Development in the Third World, they them specialized busi- Hodder and Stoughton (UK, 1986) and Westview (USA, nesses and government offices serving the 986).

Box 4

------A------Theme Paper: Outside the Large Cities: What Role for Smaller Urban Centres? 49 19th and early 20th centuries is one reason why stimulus for small urban centres because there are Uruguay is among the world's most urbanized na- too few rural dwellers nearby with incomes to tions with so much of its urban population con- spend, save or invest in such urban centres' shops centrated in the national capital, Montevideo. and services. Businesses in these urban cen- Cattle ranching often goes with an inequitable tres also received little of the business from rich land owning structure since it produces good re- cattle ranchers who usually dealt directly with turns on capital but very low returns per hectare. banks, export houses and industrial and trans- In Uruguay, a combination of cattle ranching and port enterprises in Montevideo. Shops and firms inequitable land owning structures meant that only in small urban centres close to the cattle ranches a tiny proportion of the rural population earned a could not provide the range of goods and ser- good living. vices that the relatively few, rich families wanted.I6 Farming in the Upper Valley (Box 4) Cattle ranching requires far less labour than crop was completely different because many small1 cultivation; one family with one or two agricultural relatively well-off farmers bought goods and workers can look after cattle on several thousand services from local enterprises and sth~ulated hectares. Rather than having one or two house- localurbandevelo~ment- holds making a good income from agriculture every 5-10 hectares (as intensive crop produc- Another example of the influence of land owning tion] one or two households make a very high structure and crop type is provided by the North- income every 500-1000 hectares. 'There is little east of Brazil. The Northeast has long been a re-

Growth in agricultural production, Encouraged by government and supported by rural poverty and out-migration: favourable prices, citrus production has The case of Cruz das Almas grown at the expense of cassava and tobacco production. However, citrus production re- In Cruz das Almas in the Reconcavo region of quires less labour and more capital than cas- Northeast Brazil, most farmers cultivate sava and tobacco. As citrus cultivation ex- cassava (the main subsistence food crop) and pands. the demand for labour declines and citrus fruits or tobacco as cash crops. Small small farms are absorbed by larger farms. amounts of other food crops are grown for This has resulted in a sharp increase in mi- family consumption. gration out of the area. Between 1960 and 1975, there was a rapid drop in the number their mix of of tenants and sharecroppers, suggesting that crops to match the availability family they were forced out as part of the process labour; hiring labour is too expensive for of land small farmers. Those with the smallest hold- ings usually grew tobacco. Although low In this instance, government policies to en- prices from an exploitative marketing sys- courage growth in agricultural production en- tem ensures a low return for the work put couraged increasing concentration of landown- into cultivating it, tobacco produced the high- ership and increasing migration out of the est income per hectare. This is more impor- area, mostly to large cities. In effect, such tant than the highest return on labour, if you policies have encouraged an increase in wealth only have a small plot. On small holdings for a few and impoverishment for many. The with free family labour, maximizing income example shows how government policies to per hectare guides the choice of crop mix. stimulate agricultural development may in- But it is common for one or more members crease rather than decrease people's migra- of the family to migrate to a city, as family tion to cities--although the stated objective size grows too large for the farm's income. of many agricultural development policies is Cash sent to those on the farm from family to slow such migration. members in cities are important for many households- But as family members do move SOURCE:William s. saint and William D. Goldsmith, away from the farm, so too the mix of crops is 'Cropping systems. structural change and rural-urban adjusted as less family labour is available. migration in Brazil', World Development vol 8 11980) pp 259-272.

Box 5 50 China: Small Towns Development gion associated with great poverty (especially in programme [and other government programmes rural areas, many of which are prone to regular that had preceded it] suggested that groups out- droughts). 'The flight of poor people from this re- side the Northeast were always the main ben- gion has done much to fuel the rapid growth of eficiaries and those that did benefit within the large cities in the Southeast of Brazil and the settle- Northeast were not among the poor and did not ment of Amazonia. But the root cause of poverty need government help.20 The cost to govern- in the Northeast is not a lack of land. A World Bank ment of steering industry into this region was study shows that there are nearly one million farms also enormous--the equivalent of US$15,000 for or sharecropped plots in the Northeast which pro- every job ~reated.~'Consider what might have vide an acceptable standard of living for farm- been achieved if this same sum were spent on ers." 'There are also "nearly 30 million hect- purchasing unutilized and underutilized land and ares of under-utilized land of similar if not su- allocating it to those with no land or inadequate perior quality on the estates" on which "nearly land. Indeed, such a programme would probably another million families could achieve compa- have proved far cheaper as those who received rable living standard^".'^ Most of this land is the land paid back part of the cost, when their un-used or under-utilized but it is the property farms began to generate a good income. of large landowners; only four percent of land- owners own more than half the agricultural land The stimulus from a growth in agricultural pro- and only one in four families dependent on agri- duction to local urban centres can also be re- culture owns the land they work. moved by profits being steered elsewhere. This might simply be the result of absentee landown- If this land were transferred to those with no ers or foreign owners of cash crop plantations. land or too little land, this would provide ad- One example was the vast Gezira scheme devel- equate incomes for perhaps another million fami- oped by the Anglo-Egyptian condominium gov- lies. The smallest farmers in the region ernment in the Sudan to produce good quality cotton for Lancashire Mills and to lessen the cost 'employ 25 times more labour per hectare to the British government of maintaining the co- on their land than do the largest farms and lonial government. Between 1925 and 1950, the obtain vastly higher productivity levels. 'The company managing the scheme and the govern- smaller farms (less than 50 hectares) cover ment received good returns. But the tenant farm- only 10 percent of the agricultural land, ers received a very low return for the crops produce over 25 percent of the region's they produced and so had little or no income to sugar, cotton and rice and 40 percent of the spend. This meant little stimulus for trade, com- beans, corn and manioc. Yet two million agriculturally dependent families own no land merce and industry in local urban centres.22 at all while an area of land the size of France is un- or under-utilized."l9 The potential stimulus from agricultural produc- tion to local urban centres can also be removed Once again, this shows the importance of agri- by government influence on prices for crops. A cultural land owning structures to the question of study of agricultural pricing in 'Thailand, Egypt, small and intermediate urban centres. If unuti- Argentina and Pakistan found that government lized and underutilized land was transferred to intervention in setting prices for crops had the those lacking land with farm sizes sufficient to al- effect of taxing the farm sector with large in- low a good living, it would bring a major stimu- come transfers to urban areas.23In Pakistan, low lus not only to agricultural production (which urban food prices have helped keep low wages would help feed city populations) but also to small in industry which, combined with low prices paid urban centres there. for cotton and other raw materials, helped main- tain export industries' competitive position in Ironically, it is in the Northeast of Brazil that the world market.24Studies in the late seven- one of the longest running and best known gov- ties showed that farmers in many sub-Saharan ernment initiatives was launched to develop a African nations were receiving less than half the 'backward' area. During the sixties and early world market value of their crops from govern- seventies, special incentives attracted hundreds ment crop purchasing agencies. For example, one of new factories to the Northeast while many of the main reasons for the rapid decline in co- existing factories expanded their operations. But coa production in Ghana was the heavy tax im- this did little or nothing for the rural poor. Most posed on farmers by the government through the of the new jobs were in the largest cities within Cocoa Marketing Board's pricing policies; obvi- the richest states. One analysis of this Theme Paper: Outside the La1qe Cities: What Role for Smaller Urban Centres? 51 ously this too has an impact on rural incomes and no explicit urban or rural goals, i.e., policies aimed thus on the development of urban centres in or at reducing deficits in balance of payments or close to the cocoa growing areas.25 keeping inflation in check. Many 'nonspatial poli- cies' such as macroeconomic and pricing poli- Ironically, most of the advice given to Third World cies, transport tariffs and taxation systems and governments on how to develop their smaller ur- factors such as the relative strength of national, ban cen Ires (so often by Western consultants) says subnational and local levels of government are little or nothing about the influence of different important influences on which urban centres de- types of crop and laridowning structures on these velop rapidly and which do not. It is important centres. Indeed, many consultants see the prob- to understand how these factors influence the lem of backward regions stemming from a lack of spatial distribution of jobs and investments be- small urban centres. Their solution is the creation cause of the conflict between nonspatial and spa- of 'articulated hierarchies' of settlements (includ- tial policies. It may be that a government's eco- ing small urban centres). But this is muddling cause nomic and fiscal policies are indirectly a major and effect. Small urban centres with buoyant cause of the rapid growth of the capital city, economies develop because there are sufficient yet at the same time, another ministry or de- people and businesses with incomes to spend and partment in the government is trying to slow capital to invest in their shops and businesses. If this rapid growth. government builds some small urban centres be- cause no such centres exist in a backward re- The extent to which government policies and ac- gion, this does not provide these urban centres' tions can help concentrate population in capital shops and businesses with customers. As United cities is illustrated by the case of Lima in Peru (Box Nations Recommendations on this subject com- 6). With 4.4 million inhabitants in its metropolitan mented, area in 1981, it was 10 times the size of Peru's next largest city, Arequipa. "there is no obvious economic or social rationale behind the often recommended Import substitution policies have often helped policy for governments to create an concen.trateindustries in large cities. Many gov- articulated hierarchy of small and ernments supported the development of industries intermediate centres in backward areas."26 in their own nations to substitute for goods previ- Creating or imposing an 'articulated hierarchy' ously imported. In most instances, the effect of urban centres does little or nothing to deal was subsidizing industrial investment in the larg- with the most fundamental causes of poverty and est cities. One of the reasons for the growth of lack of development in so many regions--poor many of Latin America's largest cities (also now or depleted soil, inequitable land owning struc- among the world's largest cities) was the support tures (includingperhaps many absentee landown- given by governments to import substitution after ers) or lack of investment in flood control, irri- 1930. In Brazil, the states of Sao Paulo and Rio de gation and other essential infrastructure. If gov- Janeiro (with the two largest metropolitan cen- ernments can support growing agricultural pro- tres) have benefited most from government in- duction and intensification and full use of good centives to promote import substitution while quality land while at the same time preventing some of the poorest, most rural states benefited inequitable land ownership structures, they will do least.27In Nigeria, in recent decades, indirect sub- far more to stimulate the economies of many small sidies from national trade policies have favoured urban centres than any explicit. policy for these enterprises in Lagos (with more than 5 million centres. people in the conurbation) and the region around it.2eIn Thailand, one reason why Bangkok grew to Social and spatial biases in government become much the largest city in the country was that it received most of the benefits of the import priorities substitution policies during the 1970s. By the end Virtually every government policy, action or ex- of the sixties, protected industries were given full penditure has some influence on the spatial distri- duty exemption on capital goods and raw mate- bution of investments and jobs, and through this, rials. Most of these industries were located in on the spatial distribution of population (both ru- Bangk~k.~~ ral and urban]. Some of the most powerful influ- ences on the spatial distribution of investments and jobs come from government policies which have 52 China: Small Towns Development For countries which export agricultural crops, the ter, corn, electric power, diesel fuel and public exchange rate of their national currency against transport.33Furthermore, railroad freight rates those of nations to which they export affects farm- "were structured to favour routes to and from ers' incomes. An 'overvalued' national currency Mexico City" while property in the Federal Dis- (perhaps kept that way by the Ministry of Finance trict "was relatively undervalued for tax pur- to cheapen imports) reduces returns for farmers poses and other states were taxed at relatively producing export crops. One reason for rural-ur- high rates".34 Mexico City or the wider metro- ban migration in Nigeria during the seventies was politan area also received many of the new in- that oil exports kept the exchange rate of the Ni- dustries encouraged by the Federal Government's gerian naira high against the currencies of nations import substitution policy. which had previously been major markets for its agricultural exports. This led to extremely unattrac- Thus, many government policies and expendi- tive prices for export crops and lowered the costs tures whose objectives are social, economic or of imports, including imported basic foodstuffs. political have strong spatial effects. Many have Rural incomes suffered and so did the economies helped to cause very rapid growth rates in the of small and intermediate urban centres which largest city or cities in recent decades. Changes had served as markets and centres for goods and to these policies could help promote the devel- services for the rural population. Some urban con- opment of small and intermediate urban centres. sumers benefited.30Similarly, during the second As Andrew Hamer stresses: half of the seventies, the Argentine peso became increasingly strong against the US dollar and the "eliminating sectoral distortions may do more currencies of other nations to which Argentina for decentralized development than all the exported, seriously affected the income of farm- myriad spatial efforts conventionally ers producing export crops.31 proposed by Third World policy makers.35 But the fact that social or economic policies do A study of spatial development in Mexico illus- have strong spatial influences is not in itself the trates how various government policies helped issue. The issue is whether such spatial influ- ensure that Mexico City Metropolitan Area re- ences are judged to be contribute to or work mained the main focus for rural-urban migra- against other social and economic development tion throughout the 1950s and 1960~.~~'The Fed- goals. If governments do want to stimulate ur- eral District (the central part of the metropoli- ban development away from their large cities, tan area) received the highest share of public they must consider how nonspatial policies con- investment in transport, water and power, a tribute to or conflict with this goal. 'disproportionately large share' of total out- lays on education and subsidized prices for wa-

Capital City Bias: the Case of Uma, Peru low the world price, again benefiting Lima be- cause two thirds of the country's motor vehicles Lima has received a dis~ro~OrtiOnatel~high are concentrated there. Food prices have also share of infrastructure and public investments, been subsidized, shifting the internal terms of a the vocal political pressures trade against the rural areas and resulting in in the capital and greater awareness the heavygovernment support for the food import extent of pbblic service lags in Lima than else- bills for consumers. The persistent where. Utilities such as water and domestic ove~aluationof the currency harmed the ag- electricity have been subsidized more heavily ricultural areas and natural resource regions (i.e. in Lima. In an attempt to rationalize the inva- the peripheryi by eroding their export poten- sion of land by squatters seeking to build their tial and subsidizing the main focus of import own housing, the government has supplied free demand, Lima itself. lots in many peripheral areas to migrant house- holds' mortgage has been heavily s~'- SOURCE: Harm w, Richardron, .Planning strategies and sidized with most of the loans made in Lima. policies for Metropolitan Lima,, Third Until very recently, gasoline was priced far be- Review Volume 6, NO 2, ~ay1984.

Box 6

- - - 'Theme Paper: Outside the La1-ge Cities: What Role for Smaller Urban Centres? 53 Basic Service Provision in such provision were not necessarily higher in smaller urban centres and cost recovery was not Government expenditures on low-cost housing, necessarily lower. urban infrastructure and services have usually been concentrated in the largest city or in a few "The economies of scale in providing such large urban centres--although in recent years, physical services as protected water several governments have steered more invest- supplies and hygienic disposal of household ment to smaller urban centres.36 Many such and human wastes have been much over- projects have been partially funded by interna- stated in development literature. If the tional aid agencies and these have also been appropriate technology is chosen. and a concentrated in the largest cities, even if in recent suitable organization is set up for operation years certain aid agencies have consciously and maintenance, per capita costs in small and intermediate urban centres can be lower sought to fund more projects in small and inter- than in large urban centres. Many options are mediate urban centres. Certainly, only a small available to match the wide range of physical proportion of the inhabitants of small and inter- conditions, social preferences and economic mediate urban centres have water piped to their resources found in different settlements."39 house and household and human wastes removed. In most nations, only a small proportion of houses In regard to public transport, governments have are served by paved roads and storm drains. perhaps underestimated the extent to which ap- Few of the neighbourhoods within small and in- propriately designed and managed systems can termediate urban centres have within them first be largely self-financing. But with these and aid posts, dispensaries or other services to pro- other public services and facilities, the possi- vide their inhabitants with primary health care. bilities for improvement largely depend on a level Most small urban centres have very inadequate of skilled personnel and resources at local gov- or no public provision for emergency lifesaving ernment level which is rarely apparent. services. There is also the need to improve service pro- Most small cities and urban centres have envi- vision to rural inhabitants and small and inter- ronmental problems arising from a lack of piped mediate urban centres are the best locations for water supplies or water sources used for hu- many services. For governments intent on reach- man consumption being contaminated, lack of ing a higher proportion of rural citizens with provision for drainage and for the safe disposal health care, health education and preventive of excreta and lack of provision for garbage col- health coverage and more options for education lection and disp~sal.~'For most nations, smaller and training, an increase in services and facili- urban centres are likely to have a much lower ties within many small and intermediate urban proportion of their populations served by piped centres will be needed. While primary health care water systems and by sewage systems than units often need to be located in villages, small larger cities. For instance, in Argentina, the or intermediate urban centres will usually be the smaller the urban centres, the higher the pro- best location for hospitals (first referral level) portion of households lacking piped water and and for coordinating and managing local schools connections to sewers. The average for urban and health care centres. Similarly, primary centres with 200,000 to 500,000 inhabitants schools for rural citizens may be best located in is approximately 18 percent lacking piped water rural settlements but as education at secondary and 60 percent lacking connection to sewers. The and higher levels expand, many of the schools and average for urban centres with 5,000 to1 0,000 in- colleges will be best located in small and inter-. habitants is over 40 percent of households lack- mediate urban centres. ing piped water and more than 90 percent lack- ing connection to sewers.% In education, there is an evident need to lessen the centralization of school curricula. School Public provision for water supply and for removal programmes are often uniform for entire nations: of household and human wastes does not neces- rarely do they make allowances for local and re- sarily cost more in small urban centres, compared gional needs and resources. Skill training appro- to large urban centres. This was highlighted in the priate to local development possibilities is even recommendations given to governments by the rarer, although there are notable exceptions such United Nations which stressed that per capita costs as the Tiradentes project in Brazil. As Max Neef notes, vocational training, as traditionally prac- ticed in most countries of Latin America 54 China: Small Towns Development "discriminates in the sense that it tends to Small Urban Centres - and controlling benefit the large metropolitan areas more than the small cities, towns and villages. the growth of large cities Furthermore.... the orientation and content of Many governments in the South have adopted any vocational training curricula has to be special programmes for small and intermediate determined by - and adapted to - regional and local characteristics, and not by the urban centres in the last fifteen years. These extrapolation of national and global programmes go under many names, for instance trend~."~O special programmes for 'secondary cities', 'inter- mediate cities', 'medium size cities' 'growth cen- What distinguishes the Tiradentes project from tres', and 'migrant interceptors'. Some govern- most other programmes for small or intermediate ment programmes for small and intermediate ur- urban centres was the extent to which it was ban centres serve national political goals, for based on locally articulated needs and local skills instance consolidating population in a border area. and resources. The municipality has some 10,000 In others, they are seen as supporting local or re- inhabitants, divided into two urban districts and a gional development, serving a new land coloni- rural area of poor soils. In recent decades, its zation programme or the exploitation of some economy stagnated after a period of splendour natural resource. But most have a primary or when gold was mined nearby. The Tiradentes secondary goal of diverting growth away from project sought to build on old traditions of craft the largest city (or cities). skills and to allow the older generation, skilled in crafts, to pass on their knowledge to younger ap- One of the most ambitious plans to control the prentices. The project had many other aspects growth of large cities was launched in Egypt in such as the preparation of an exhibition of pho- the second half of the seventies. Cairo was de- tographs of Tiradentes taken during the past one clared 'overcongested'. So, too, was the city of hundred years, and the formation of a Guild of Giza nearby (which is part of Metropolitan Cairo) the Artisans. The relevance of this project to and Port Said. These cities were to have their other urban centres is not so much what was population reduced by the year 2000. Various done but how its plans were based on the re- other urban centres and areas were declared sources of that particular municipality and on 'saturated' and were to have no more popula- the needs of its inhabitants. tion growth. Meanwhile, most of the growth in population between 1978 and 2000 was to be in One important but rarely discussed aspect of various satellite cities around Cairo and Alexan- small and intermediate urban centres is the role dria, in the zone beside the Suez Canal and the of such centres as a focus for social life and so called 'virgin areas' (including the Red Sea social contacts in their area. In a review of some Coast, the New Valley to the south, the Sinai and 400 papers and articles on small and intermedi- the area around Mirsa Matruh on the Mediterra- ate urban centres in Africa, Asia and Latin nean coast). These four 'virgin' areas were to have Ameri~a,~'few considered this aspect. But in 14 million people by the year 2000. many nations or regions, there are likely to be friendship, kinship and family links between many At first sight, such an ambitious plan has consider- rural inhabitants and those in small and inter- able appeal. Cairo is very congested and its mediate urban centres. Such centres may be the growth is taking place over valuable fertile land; place where young people in the area socialize because only 4 percent of Egypt is fertile land, and where there are opportunities for engaging the loss is particularly serious. The cost of imple- in sports and recreation, and attending religious menting even a part of this plan would be pro- services and festivals. It is within many such hibitively expensive. To get 14 million people to centres that the culture of the area has its most leave the crowded cities, the Egyptian govern- concentrated expression. Simply because such ment would have to develop the virgin areas. aspects are less tangible and less researched Hundreds of thousands of jobs would have to be than the potential for increasing agricultural pro- created in order that tens of thousands of busi- duction, it does not mean that their role in mak- nesses would be persuaded to set up there. But ing smaller urban centres desirable places to live most businesses would never set up in these 'vir- and work should be underestimated. gin areas' because they need the labour force, the infrastructure, the goods and services and the contacts with government agencies which can only t~efound in or close to Cairo or Alexandria. Theme Paper: Outside the La1rge Cities: What Role for Smaller Urban Centres? 55 The government could never afford to develop tones and professional schools. For many busi- these virgin areas to the point where tens of thou- nesses, these are more important than cheap sands of new businesses would set up there. There la bo~r.~~ is already evidence of reluctance on the part of businesses to move to the large new satellite cit- A lot of research has tried to establish the 'opti- ies around Cairo. But a more worrying implica- mum size' for a city, i.e., the size at which a city tion of such a plan would be that it would starve has all the specialized enterprises noted above all other cities, municipalities and rural areas of but none of the disadvantages of very large cit- investment funds. While relatively few people ies. Some researchers have claimed that cities are being persuaded to move to virgin areas at with 140,000 inhabitants are the 'optimum size' great expense, conditions elsewhere--where while another has claimed that the optimum size most of Egypt's population lives--would dete- is between 1 and 2 million inhabitant^.^^ Such fig- riorate. ures make no sense because each city has its own unique advantages and disadvantages many of Many Third World governments are investing con- which do not relate to its size but do relate to its siderable sums of money in developing small and location and to the costs of drawing on certain intermediate urban centres to try to slow the resources nearby. Take the question of getting a growth of their largest cities. However, if govern- water supply. The cost of obtaining water varies ments are concerned about slowing down the enormously from place to place; for some cities growth of large cities or stimulating the develop- of (say) 1 million, the cost of doubling the water ment of smaller urban centres, they must look at supply so that heavy industry can expand is not why the large cities are growing rapidly and many so great; they are close to a major river or have small urban centres are not. As noted earlier, large ground water reserves which can t~etapped governments' macro-economic and pricing poli- without depleting them. Doubling water supply cies, their sectoral priorities and the fact that lo- in other cities of 1 million inhabitants can be very cal government remains weak and ineffective expensive if there is no water source nearby. In may be the real reasons. Investing large sums in short, it is not only size which determines such costs. developing some 'small urban centres' will not achieve much, if the more fundamental causes One very important reason for an over-concen- are not addressed. tration of industries and commercial and finan- cial businesses in large cities is that they are Box 7 lists some reasons why modern industries not charged for the costs they generate there. and service enterprises become concentrated The discussion about the optimum size for a city in one large city. forgets that most of the benefits of the large city go to businesses while most of the costs In relatively poor and un-industrialized nations, a are dumped on poorer citizens. Major indus- government's spending large sums of money try- tries and commercial or financial businesses of- ing to steer industries to locations which will not ten get all the advantages. 'They get the water suit them can damage the economy. Many of they need, the telephone service, electricity and their industries will need to be in or close to the solid waste collection, usually from government largest city. If they are producing consumer utilities. Their roads are paved and are served goods, costs are often greatly reduced by being with storm drains--paid for by government. In close to the largest consumer market. Because most cases, they pay little or nothing to dispose most nations' largest city is also their port, costs of their wastes; hence industries pollute the air and are also cut if they import machinery or inputs or dump untreated wastes into nearby water bod- they export some of their output. Large cities also ies or into the sewage or drainage system. Their have a greater variety of skilled people and spe- professionals and senior management usually live cialized services. Perhaps they are the only cities in neighbourhoods which also receive water, tele- with sufficient water and reliable electricity sup- phones, electricity. roads and garbage collection. plies. As Bertrand Renaud points out, only in rela- tively large cities can many specialized enterprises Meanwhile, low-income people live in areas with exist - for instance specialized business services, few or none of these public investments and ser- shippers and jobbers, financial offices, legal of- vices. They often live in areas having the most fices, trade unions, repairs, specialized printing, air and water pollution. They suffer most from consulting firms, equipment leasing firms, labora- traffic congestion, because they live in the worst located areas. If governments charged the rich 56 China: Small Towns Development

Factors which create or consolidate c) Investments in infrastructure (eg roads, rail- ways, power, water supply, ports, airports, the primacy of one large city phones and telecommunications.....) favouring Historical Factors primate city--and its region. a) Creation of a nation-wide administrative d) Concentration of richer income groups in hierarchy with power highly centralized in pri- or near primate city--so this remains the mate capital city major consumer market. Part of this may be due to the unwillingness of executives, pro- b) Initial development of a commercial fessionals and skilled labourers to move away economy based on the export of mineral or from the primate city because only here is agricultural products which focused develop- there the quality of services and facilities that ment on ports (which were also usually capi- they desire. tals). If profits were steered out of the nation (eg. foreign owned plantations or mines) the e) 'The government's macro-economic and low incomes of the labour force meant little pricing policies having net effect of subsidizing demand to support urban enterprises in the investments and consumers in the primate city producing areas f ) Industrial and service sectors not having c) For many nations in Africa and some in Asia, developed to the point where decentralization the colonial legacy created the necessity for of some activities (eg branch plants, routine centralized government control because of a administration, research, distribution) can take fragile national unity at Independence (and place spontaneously thus primacy of the national capital). g) Necessity for major enterprises to have close d) Concentration t~yGovernments on indus- contact with national government agencies ( trialization and on achieving sectoral planning eg to acquire licenses for imports or govern- targets; again the existing primate city was of- ment contracts) which in turn is linked to the ten the only one with the infrastructure and scale and nature of government involvement services and pivotal position on national and in production and trade international transport routes. h) A national economy strongly integrated e) The dominance, in nations achieving inde- into the world market which may focus atten- pendence, of one political party with a strong tion on major port cities --which for histori- support from urban union and labour interests cal reasons are primate cities. with headquarters or constituencies based in the capital city i ) Nations which remain depend on cash crop or mineral exports so primate city dominated Current Factors urban system imposed by colonial rule remains the one which best serves the economic model a) Businesses in the primate city not being and export crop dominated interregional charged the full cost of the publicly provided transport system. infrastructure and services they use and the costs they generate - including not having to j ) National capitals have to have various in- pay for the disposal of wastes or the control of stitutions and activities associated with being air and water pollution the centre of government for a 'nation state'. eg government ministry head offices, offices of b) Centralization of power and resources put~licagencies, national legislative, executive within national government. Governments in and judicial i~stitutions,foreign embassies and other cities lack power and resources to be all the higher order goods and services which able to compete with primate city for new all these require. Few if any of these can be investments since they cannot provide the located away from the national capital. In pre- infrastructure and services that new busi- dominantly rural nations, just these can create nesses need. a 'primate city'. In addition, in relatively rural nations, demand for higher order services such as insurance, international banks and other

Box 7 Theme Paper: Outside the Lar ,ge Cities: What Role for Smaller Urban Centres? 57 rich within the larger cities. The fourth is the point "producer services" and higher order con- noted above, making middle- and upper-income sumer services such as travel agents and spe- groups and businesses in large cities pay for the cialist medical services can be so small with costs they generate. demand for them so concentrated in the na- tional capital that they also help reinforce pri- In many of the richer and more urbanized nations macy. in the South, there are greater possibilities for a more decentralized pattern of urban develop- N.B. This is not a complete list and the extent to which some or all of these are relevant to one particular ment. In most countries in the North there has been notion will vary greatly, as will their relative importance. population movement away from many (or most) of the largest cities, especially those cities that grew to become the largest ports and industrial Box 7 (continued) centres. There is an increasing proportion of busi- nesses outside large cities, in small urban centres or 'greenfield sites' outside any urban centre or the full cost of all the public investments from which along major highways. There is some evidence of they benefit, government revenues would in- this also taking place in parts of Brazil, Argentina, crease enormously. It governments charged in- South Korea and Mexico, usually in and around dustries for the full cost of the roads they use and the richest and most urbanized regions (see Box air and water pollution they generated, again, 8). Again, this more decentralized pattern of ur- government revenues would increase and pollu- ban development will be greatly encouraged by tion levels would fall. If governments charged the strategy sketched in the previous paragraph. businesses for part of the cost of supplying the residential areas of their workforce with basic Population deconcenfration services, this revenue combined with that from full cost recovery from the rich would pay for within core regions improving conditions for poorer groups. But Important "counter-tlrbanization" or "counter- more importantly, the increased cost for ma- metropolitanization" trends have developed in all jor businesses in large cities would also encour- the world's wealthiest and most urbanized nations, age them to consider whether certain smaller including some in "the South." 'This implies an al- urban centres might not be cheaper and better most universal tendency for a more decentralized places for their factories or offices. Perhaps pattern of urban development within market or governments' failure to fully charge large busi- mixed economies above a certain per capita in- nesses located in the major cities for the costs come, although there is great variety in the they generate and the costs of servicing them is scale, nature and timing of these trends. It is also one of the most important reasons that these worth noting that "counter-urbanization" and businesses remain so concentrated in such cit- "counter-metropolitanization"trends were gener- ies. ally weaker in Europe and North America during the 1980s, compared to the 1970~~~Also, the Thus, the best long term strategy to slow the increasing globalization of the world's economy growth of the largest cities and to stimulate the is increasing the economic primacy of some ex- development of small and intermediate urban isting primate cities within their national urban sys- centres is a combination of four elements. The tems--essentially where primate cities develop an first is stronger, mo.re competent, more represen- increasingly important role within the world tative local government. With more funds, more economy. In other economies, however. most of trained personnel and more realistic local devel- the new enterprises linked to global markets are opment plans, they can attract and support more outside primate cities. Primacy is generally rein- new businesses and improve the quality and quan- forced within the command and control centres tity of basic services. The second is a more pro- of the world economy and within the cities which ductive and more diversified agriculture with ac- are important international centres linking their tions also to tackle problems of un- or under-uti- national or regional economy with the global lized land held by large landowners and poorer economy." groups' access to land. The third is adjustments to macro-economic and pricing policies so these For many of the world's largest cities, part of the do not have the effect of 'taxing' the poor and slowdown in their population growth is explained those outside the largest cities and subsidizing the by a rapid growth in population and production 58 China: Small Towns Development just outside their boundaries, with much of this pro- ably gone furthest in the United States where duction intimately connected to enterprises still population densities in outer suburbs are gener- within its boundaries. In general, all major cities or ally much lower than in Europe and where many metropolitan centres experience a decentraliza- enterprises have also developed close to major tion of population and of productionas they grow. highways outside the central areas. Some of the This generally begins with suburban housing be- most innovative and successful concentrations of ing developed at ever greater distances from the enterprises are not in cities but concentrated city centre and then a widening commuting field along major highways (for instance the firms along and an increasing concentration of enterprises in Route 128 in Massachusetts) or in Silicon Valley. This suburban locations or in belts around the metro- has led to new terms such as the "100 mile city" politan area. But the speed of this decentraliza- where there is no obvious "central city." De- tion of people and enterprises and its spatial con- centralization of production and of urban popu- figuration seems to vary greatly from city to city lation within core regions can also be seen in the and to change over time. There are also recent rapid growth of smaller cities that are close to the examples of city centres attracting new enterprises major cities or metropolitan areas as these attract other than those that concentrate in central busi- both industrial and service enterprises that previ- ness districts and also new re~id,ents.~~ ously would tend to concentrate in major cities. Regions with good quality transport and commu- This rearrangement of production within cities is nication networks encourage this, as does the perhaps best understood in terms of three sets of "just-in-time" system which needs some physical factors with different spatial implications. These are proximity. factors that One of the most remarkable examples is the re- encourage a movement of enterprises out of gion bounded by Sao Paulo, Belo Horizonte, Rio major cities, metropolitan areas or even wider de Janeiro and Porto Alegre in Brazil which in- metropolitan regions, discourage new ones lo- cludes a great range of cities of different sizes, cating there, and cause a decline in the enter- many of which have been successful in attract- prises that are concentrated in central cities: ing new enterprises that previously would have concentrated in the major cities. Many such cit- still concentrate enterprises within or close ies are within 200 km of Sao Paulo's central city to metropolitan areas (or urban regions) but and have many advantages and few disadvan- outside the central city; and tages when compared to investment in Sao Paulo itself. Private investment in Greater Sao Paulo was discouraged oy the well-organized trade union encourage enterprises back into central cit- movement, pollution, transport problems and a les. lack of suitable land sites. Investment in cities nearby was encouraged by a whole range of fac- The scale and importance of the first of these tors including better roads and telecommunica- sets of factors has long been evident and care- tions, the availability of land and fiscal incentives fully documented (summarized in Box 8). What in the smaller cities. The decentralization of pro- is less well documented, especially in the South, is duction was also boosted by the promotion and the fact that it has become common to have a support of the government in information tech- decentralization of population and of production nology in Campinas and in the aeronautics indus- away from the central city (and even its inner try in Valle del Parait~a.~~Motor vehicle compa- suburbs) but with a continued or increased con- nies such as General Motors, Volkswagen and centration of population and of production within Mercedes Benz have chosen different small cities the metropolitan area or wider region. Judged within this region." However, this model of a re- nationally, this remains an increased concentra- gion with a diverse but highly integrated urban tion of population and economic activity within system and a declining importance for any domi- what might be termed "core region" but a de- nant city, depends on good transport and com- creased concentrationof population and economic munications system and good quality infrastruc- activity within the core region itself. In most ture and services available in different cities. Many major cities in the North and many in the South, of the largest cities in the South remain more con- there has been a declining proportion of the popu- centrated, because of poorer transport and com- lation living in the central city and the outward munications system. As scarce infrastructure and sprawl of the urban agglomeration, especially along major roads and highways. This has prob- Theme Paper: Outside the Large Cities: What Role for Smaller Urban Centres? 59

Factors that can encourage a more Social factors decentralized paffern of urban development A combination of relatively high per capita in- Economic factors comes and equitable income distribution na- A combination of the growth of new consumer tionally - so in areas other than that around the industries which do not need to be close to primate city, demand for goods and services major city centres or ports and good quality encourage businesses to locate there. infrastructure and services available in smaller High level of literacy and education among cities where land and other costs are also the inhabitants of urban centres other than the cheaper both for enterprises and for their staff primate city including higher education lo- and where the city is linked to a national high- cated there - plus active regionalllocal busi- way system and (often)an airport closeby. ness communities Business support services like banking, devel- High levels of crime, violence, pollution and opment credit agencies, technical assistance congestion in major cities which encourages facilities, etc. in urban centres other than pri- firms to invest elsewhere and those able to af- mate city to assist in the 'birth' and develop- ford to choose where to live to move to other ment of local firms and good culturallentertain- areas. mentlrecreation facilities for managers, execu- tives, professionals and skilled labour Influential labour movements developing in existing industrially developed areas which Industrial and retaillwholesalelservice sector businesses can avoid if they set up elsewhere within a nation with a size, diversity and con- and reduce labour costs as a result centration of units within single enterprises to allow the decentralisation of branch units or A high proportion of particular age groups with routine operations (e.g., accounts, billing ...) incomes who prefer to live outside the major outside large cities to lower production costs cities and have the means to do so, e.g. re- or better tap markets there tired people and families with young children Good interregional transport and communica- lnstitutional and policy factors tions systems (e.g. telephones, cellular phones); Decentralized political structure which includes when combined with advanced systems of strong and efficient local government for ur- management and control linked to sophisti- ban centres other than primate cities and a cated communications systems, this allows the good da ta base to inform prospective inves- spatial dispersion of large enterprises' activities tors about local climate/water availabilitylre- (each seeking location best suited to its opera- sources tion) with no loss of management/control of whole enterprise from head office. Businesses and middle and upper income groups in large cities being charged the full Decaying economic base of what had been cost of the publicly provided infrastructure and the main industrial centres which may also services they use, and also businesses not prove unattractive locations for most new in- being allowed to dump solid and liquid wastes dustrial or service enterprises (including toxic wastes) and pollute the air. Successful, high value intensive agricultural pro- No need for businesses seeking permission to duction, especially if this creates good incomes invest or import or export to have long nego- for a large number of people and/or forward tiations with government agencies, located in and backward multiplier linkages supported primate city Strong and successful tourist industry in smaller towns and in rural areas linked to beaches, N.B. Many of these factors have contributed to a parks, lakes, rivers ... (although great variety in decline in population in many large cities or metropoli- the extent to which the incomes/profits are tan areas in the North and many seem to be acting in many of the South's most urbanized and industrially captured by enterprises within the small towns advanced regions within nations. as against travel agents, transport firms .... in nearby cities).

Box 8 -60 China: Small Towns Development skilled labour tend to be concentrated in large The reasons for inappropriate 'spatial goals' is not cities, so modern economic activity clusters simply ignorance. Many businesses would face around them.49 large increases in costs if they were charged real- istic prices for the public infrastructure and services Some concluding comments they used and were prohibited from dumping untreated wastes. Many special government In most nations, there are many small and inter- programmes on small and intermediate urban mediate urban centres where there is little or no centres are merely cosmetic operations to give possibility that strategic public investments or sup- the impression of government activity and con- ports will stimulate development. Some have too cern. Indeed, some seem no more than attempts poor or depleted a resource base. Others have to disguise the increasing centralization of power stagnant or declining economies because enter- in national government with the decline in the prises no longer sell goods or services at a com- power and resources available to local govern- petitive price or because demand for them has ment.52 declined and there is little practical possibility of finding more buoyant alternatives. The appropri- The whole subject of 'human settlements' which ate public response to such problems needs to brings in metropolitan centres, large cities, small be place-specific and case-specific. But the and intermediate urban centres and rural settle- widely used policy of steering some public enter- ments is very poorly understood outside a narrow prises to small and intermediate urban centres only group of specialists and researchers. Such people for them to struggle to survive because of inap- talk of 'urban systems'53because it is only pos- propriate locations and poor supporting infrastruc- sible to make sense of an urban centre if its role ture and services, or the policy of giving a large in relation to other urban centres is understood. subsidy to private enterprises to move there, are Thus, the 'urban system' is all the urban cen- unlikely to tackle the causes of such centres' prob- tres and the movements between them of goods, lems. Indeed, in many instances, they may have people, information and capital. 'The critical con- little or no effect on alleviating the poverty of such nections between urban centres include roads, centres' inhabitants, despite the high cost to the railways and sometimes aircraft but also all government. forms of telecommunications.

In considering the problems of large cities or of Since people, resources and economic activities small urban centres, one must not forget that it is are distributed in space around a region or na- people's needs, not urban centres' needs, which tion, it is through the 'urban system' that they are is the real concern. It is easy to muddle the two. connected. Tk.is 'urban system' and its connec- As Charles Gore states in an analysis of regional tions with rural settlements provides the backbone problems, it is very common for social problems on which all development projects or programmes located in cities and regions to be muddled with are planned. Yet governments and aid agencies the problems of those cities and regions or a con- still tend to treat 'urban development' or wider fusion of 'place prosperity' with 'people pros- 'human settlements' issues as if they were a sec- per it^'."^ This confusion is evident in much of the tor in their own right with their own ministry or divi- advice given by 'small and intermediate urban sion. 'Human settlements' are viewed as being a centre' specialists to governments. convenient, discrete component of development so that, like agriculture or industry, responsibility It is also evident in government policies. 'Many of for planning and implementing projects or the goals of such policies are explicitly 'spatial', programmes can be left to one agency. This e.g., to reduce the concentration of urban popu- hardly aids the needed coordination between in- lation in the capital city. If the proportion of urban vestments in infrastructure and investments in ag- citizens living in the capital city fell, this could be ricultural or industrial projects. It ensures that 'hu- counted as 'a success'. But this 'success' might man settlements' receive a low priority since in- be associated with increasing poverty and eco- vestments in them produce less visible and mea- nomic stagnation. Certainly in Argentina, the surable results than investments in agriculture or decline in recent years in the proportion of urban industry. Meanwhile, professionals' understand- citizens living in Buenos Aires has been partially the ing that each nation's human settlements and result of a decline in national output, an increase their many complex interlinkages are the physical in social inequality and a decline in the capacity of the metropolitan centre to generate new job^.^' Theme Paper: Outside the Lar ge Cities: What Role for Smaller Urban Centres? 61 context within which all investments are made is more realistic local development plans, to the mo- rarely reflected in national plans and government bilization and better use of resources and to agri- structures. cultural development

It is only through the urban system and its links with NOTES AND REFERENCES smaller settlements that farmers can be reached with agricultural extension services, inputs, credit, Background storage, marketing and processing. Similarly, only through an urban system and its links with smaller Table 1 gives examples of the proportions of na- settlements can governments increase the propor- tional populations and national urban populations tion of the population reached with health care, living in small and intermediate urban centres. education, postal and telephone services, emer- It shows how a lot of urban citizens do not live gency lifesaving services and so on. It is through in large cities, even if the trend in most nations the urban system that both agricultural and has been towards such increased concentration, nonagricultural enterprises have access to interre- at least until recent years [2]. lndia provides gional and intraregional transport and communi- an interesting example. India's urban problems cations systems. Finally, this paper has argued that are virtually always urban problems in Calcutta it is through the different levels of local govern- and Bombay. But these two cities contain little ment (most of which are located in small and in- more than 10 percent of India's urban popula- termediate urban centres) that local needs and tion. Even taking India's twelve largest urban resources are best assessed, most development centres each with more than a million inhabit- initiatives efficiently implemented and most ants in 1981, they contained only one quarter of multisectoral development programmes coordi- India's total urban population. In 1981, Havana nated. (Cuba's capital) contained just 30 percent of Cuba's urban population. In 1985, Colombia's The role of small and intermediate urban cen- capital (Bogota] contained only 20 percent of its tres within national and regional urban systems urban population while Bogota plus the next three and national production is usually given scant at- largest urban centres contained just 43 percent tention. Obviously the development roles of such of total urban population. These and other ex- centres cannot be considered in isolation from amples in Table 1 suggest that a very large 'ur- those of larger urban centres or those of the rural ban population' live outside large cities. economy. Small and intermediate urban centres (however one chooses to define them) are merely part of a range of different-size settlements I . This paper is developed from Chapter 9 of Hardoy, Jorge E. and David Satterthwaite. Squatter Citizen; Life in within any nation or region. An understanding of the Urban Third World, Earthscan Publications, 1989. trends in terms of changes in population or in Part of it was also published in Third World Planning economic structure within such centres can only Review in 1988. be achieved through an understanding of the role =.Mohan, Rakesh, "India: coming to terms with urbanization", of each particular centre within the wider system. Cities August 1983.

3. Bhooshan, B.S., "Bangalore, Mandya and Mysore Districts, Special government programmes for small and Karnataka Southern India", and Misra. H.N., "Rae Bareli, intermediate urban centres must be based on the Sultanpur and Pratapgarh Districts, Uttar Pradesh State, understanding that each centre will have its own North India" in Jorge E. Hardoy and David Satterthwaite, Small and Intermediate Urban Centres: their Role in Na- unique mix of resources, development potential, tional and Regional Development in the Third World. Hodder skills, constraints and links with the surrounds and and Stoughton. UK and Westview. USA, 1986. the wider regional and national economy. Of '. Of course. there are also many urban centres which grow course, the potential for development--or con- rapidly not as a result of a growth in employment opportu- straints on development--change over time. nities but because of the movement there of people fleeing Among the reasons for such change might be wars, droughts. famines but this growth is rarely perma- changes in the national economy or nent government's macroeconomic policies or the 5. See for instance: Mathur. Om Prakash. "The role of small world market. Governments cannot afford to view cities in notional development" in O.P. Mathur (Editor), SmaN too narrowly their 'small and intermediate urban Cities and National Development. United Nations Centre for Regional Development, Nagoya. Japan. 1982 and Rondinelli, centres'. Nor can they afford to ignore contribu- Dennis A.."lntermediate Cities in Developing Countries", Third tions that people. citizens, businesses and local World Planning Review, Volume 4. Number 4. November 1982. governments based in such centres may make to 62 China: Small Towns Development

6. As in the previous note and Rondinelli, Dennis A. "A Com- 22. El Agraa, Omer M.A., Ian Haywood, Salih El Arifi, Babiker A. parative Analysis of Demographic, Social and Economic Char- Abdalla, Mohamed 0. El Sammani, Ali Mohamed El Hassan acteristics of lntermediate Cities in Developing Countries" in and Hassan Mohamed Salih, "The Gezira Region, The Sudan", O.P. Mathur (Editor),Small Cities and National Development, in Hardoy and Satterthwaite (Editors) 1986, op. cit. UNCRD. Nagoya, Japan, 1982. 23. Bale, Malcolm D. and Ernst Lutz, Price Distortions in 7. Rondinelli, Dennis A., John R. Nellis and G. Shabbir Cheema. Agriculture and their Effects: an lnternational Comparison. "Decentralization in developing countries - a review of re- World Bank Staff Working Paper No 359. Washington DC, cent experience," World Bank Staff Working Papers. Num- October 1979. ber 581, 1984. pp. 3-4 24. Gotsch. Carl and Gilbert Brown, Prices, Taxes and Sub- a. UNCHS (Habitat). "Planning and Management of Human sidies in Pakistan Agriculture 1960-76, World Bank Staff Settlements with Emphasis on Small and Intermediate Towns Working Paper No 387, Washington DC, April 1980. and Local growth Points: Report of the Executive Director", paper HS/C/8/3 presented to the Eighth Session of the U.N. 25. World Bank, Accelerated Development in Sub Saharan Commission on Human Settlements, February 1985. Africa, Washington DC, 1981.

9. See the proceedings of the seminar on "Municipalities and 16. UNCHS (Habitat), "Planning and Management of Human Local Government in Latin America" held in June 1986 in Settlements with Emphasis on Small and Intermediate Towns Bogota in Revista Mexicana de Sociologia. Autumn 1987. and Local growth Points: Report of the Executive Director", paper HS/C/8/3 presented to the Eighth Session of the U.N. lo. Bahl. Roy, Daniel Holland and Johannes Linn, Urban Growth Commission on Human Settlements, February 1985. and Local Taxes in Less Developed Countries, Papers of the East-West Population Institute No 89, Hawaii, September 17. Tyler, William G.,The Brazilian Sectoral Incentive Sys- 1983. tem and the Regional Incidence of Non Spatial Incentive Poli- cies, Discussion paper UDD-31, Water Supply and Urban De- 'I. Bahl, Holland and Linn 1983, op. cit. velopment Department. the World Bank. 1983.

12. See for instance Davila, Julio D., Maria Errazuriz, Fran- Daly, M.. Development Planning in Nigeria. Planning Stud- cisco Londono and Consuelo de Marulanda, El Rol de las ies Programme, University of Ibadan. quoted in Michael Ciudades Intermedias y Pequenas en el desarrollo Nacional y Olanrewaju Filani, "Nigeria: the need to modify centre-town Regional - Estudios de caso de Pereira-Dos Quebradas y Santa development planning" in W. Stohr and D.R.F. Taylor (Edi- Rosa de Viterbo, Colombia, IlED Latin America, Buenos Aires, tors), Development from Above or Below?. John Wiley 8, November 1986. Sons, Chichester, UK, 1981.

". Linn, Johannes F., Cities in the Developing World, World 29. Douglass, Mike, "Thailand: territorial dissolution and Bank, Oxford University Press, 1983. pp. 57-58. alternative regional development for the central plains" in W. Stohr and D.R.F. Taylor (Editors), Development from 14. See energy budgets and land requirements in different Above or Below? John Wiley 8, Sons. Chichester, UK, 1981. farms and crop types in Leach, Gerald, Energy and Food Pro- duction, lnternational Institute for Environment and Devel- ". O'Connor. A.M.. Secondary Cities and Food production in opment, 1975. Nigeria. IIED, London, February 1984.

IS. See energy and land budgets for Chinese smallholders in 31. Manzonal. Mabel and Cesar A. Vapnarsky. "The Devel- Leach 1975, op. cit. opment of the Upper Valley of Rio Negro and its Periphery Within the Comahue Region, Argentina", in Hardoy and 16. Collin Delavaud. Anne. Uruguay; Medium and Small Cit- Satterthwaite (Editors) 1986, op. cit. ies, lnstitute des Hautes Etudes de I'Amerique Latine, Laboratoire Associe du Centre National de la Recherche 32. Scott, Ian Urban and Spatial Development in Mexico, Scientifique, Paris. 1976 Johns Hopkins University Press, Baltimore and London, 1982.

17. Kutcher. Gary P. and Pasquale L. Scandino, The Agri- 33 . Scott 1982, op. cit., page 1 1 1. cultural Economy of Northeast Brazil. Johns Hopkins Uni- versity Press, 1981, page 21 6. 34. Scott 1982, op. cit., page 118.

35. la. Kutcher and Scandiuo 1981, op. cit.. page 21 8 Hamer 1984, op. cit.

IP. Kutcher and Scandino 1981. op. cit.. page 218 36. Hardoy, Jorge E. and David Satterthwaite. "Govern- ment Policies and Small and lntermediate Urban Centres" in 20. See for instance Dickenson, John "Innovation for re- Hardoy and Satterthwaite (Editors) 1986, op. cit. gional development in Northeast Brazil, a century of fail- ures", Third World Planning Review Volume 2, Number 1. 37. For case studies, see for instance Meekyaa, Ude James Spring 1980, Gilbert, Alan and David E. Goodman,"Regional and Carole Rakodi "The neglected small towns of Nigeria", income disparities and economic development: a critique". Third World Planning Review Vol. 12. No 1. February. 1990, in Alan Gilbert (Editor) Development Planning and Spatial pp. 21-40. and Amis, Philip. Urban Management in Uganda: Structure, John Wiley 8, Sons, Chichester, 1976. pp. 113 - Survival Under Stress, The Institutional Framework of Ur- 142. ban Government: Case Study No 5, Development Adminis- tration Group, INLOGOV, University of Birmingham, Birming- 21 . Homer, Andrew M. Decentralized Urban Development ham, April 1992. 1 10 pages. and Industrial Location Behaviour in Sao Paulo, Brazil: A Synthesis of Research Issues and Conclusions, Discussion Hardoy, Jorge E., Diana Mitlin and David Satterthwaite. Paper. Water Supply and Urban Development Department, Environmental Problems in Third World Cities, Earthscan the World Bank, Washington DC, 1984. Publications, London, 1992. Theme Paper: Outside the Large Cities: What Role for Smaller Urban Centres? 63

PROPORTION OF NATIONAL AND URBAN POPLlLATlON IN SMALL AND INTERMEDIATE URBAN CENTRES (Selected nations)

% of national population in % of urban population in Small and inter- Large Small and inter- Large mediate urban urban mediate urban urban Country centres centres centres centres

Kenya 7.5 7.7 49.5 50.5 (1979) The Sudan 12.3 5.3 69.0 30.1 (1973) Tanzania 8.7 4.6 65.9 34.0 (1 978)

India Pakistan

Colombia 40.5 30.7 56.9 43.1 ( 1985) atxl 46.3 19.8 70.0 30.0 (1 981) Ecuador 23.7 25.6 47.9 52.0 (1 982)

N.B. Cross country comparisons are invalid since the choice as to which urban centres are 'large' is made within the urban context for each country. Note 3 gives more details and lists the sources for the statistics.

TABLE I

39. UNCHS (Habitat]. "Planning and Management of Human ". Boiroch, Paul, "Employment and large cities: problems and Settlements with Emphasis on Small and Intermediate Towns outlook," International Labour Review Volume 121. No. 5, Sep- and Local growth Points: Report of the Executive Director". tember-October 1982. paper HS/C/8/3 presented to the Eighth Session of the U.N. U.UNCHS (Habitat), An Urbanizing World; The Global Report Commission on Human Settlements, February 1985, page 6 - on Human Settlements ,Oxford University Press, Oxford and New drawing from information provided in Linn, Johannes F. "The York, 1996. costs of urbanization in developing countries", Economic De- velopment and Cultural Change Volume 30 (3).University of ". See for instance Sassen, Soskio, Cities in a World Economy, Chicago. 1982, pp. 636-637. Pine Forge Press, Thousand Oaks, London, New Delhi, 1994, 157 pages and Friedmann, John, "Where we stand: a decade of ". Max-neef, Manfred, From the Outside Looking In, Dog world city research". Paper prepared for the Conference of Hammarskjold Foundation, Uppsala, Sweden, 1982. page 121. World Cities in a World System, Center for Innovative Technol- Hordoy, Jorge E. and David Satterthwaite, "A survey of ogy, April 1993, 37. empirical material on the factors affecting the development of small and intermediate urban centres" in Hardoy and 4C Parker, John, "Turn up the lights; a survey of cities", The Satterthwoite (Editors) 1986, op. cit. Economist, July 29th. 1995. 18 pages.

47. Caride, Horacio E. and Jose A. Borello. Industrial Location in 42. Renoud, Bertrand. National Urbanization Policy in Devel- oping Countries. Oxford University Press (for the World Major Latin American Metropolitan Areas. report prepared by Bank], Washington DC. 1981. IIED-America Latino for the Business Council on Sustainable Development. 1995.

48. Caride and Borello 1995, op. cit. 64 China: Small Towns Development

4v. Hams, Nigel, "Bombay in a global economy; shctural ad- 52 . Harris, Nigel, "Spatial planning and economic develop- justment and the role of cities", Cities. Vo1.12. No.3, June 1995 ment", Habitat lnternational Volume 7, No 5/15, 1983. , pp. 1 75-184. s3. Bourne, L.S. and J.W. Simmons, Introduction to Systems Gore, Charles, Regions in Question: Space. Development of Cities, Oxford University Press. 1978. Theory and Regional Policy, Methuen, London and New York, 1984. page 263. Although this book concentrates on exam- ining the validity of theories on urban. regional and rural development which are used to justify regional policy in the Third World, it has considerable relevance to the subject of small and intermediate urban centres. Many governments have sought to justify their programmes on small and inter- mediate urban centres in terms very similar to earlier jus- tifications for regional policies.

51. Manzanal, Mabel. "Changes in Argentina's Urban Systems David Satterthwaite and the Economic Crisis". Cities Volume 5. No3. August 1988, International Institute for Environment and pp. 260-267. Development The Management, Costing And Marketing Of Town Land

Alain Bertaud

The Growth of Small Towns Of course a very high demographic historical growth rate is no guaranty that this growth rate n China, the population of small towns is grow- will continue in the future. The demographic ing at a very uneven rate. Some small towns growth rate is only an indicator of economic Iare growing at the astonishing rate of 20% per growth which in turn depends on many factors year, others at a high rate of 5 or 6% a year, which are independent from the control of the others are stagnating, some might be losing popu- local authority. For this reason small towns' Local lation. The methodology explained in this paper Authorities have to be very cautious in investing in concerns only the towns which are growing at a infrastructure for future growth. fast rate -more than 4% a year. Land develop- ment investment is made necessary by fast de- mographic rate. But international experience Why Land Management? shows that Investment In infrastructure and land development does not create In China, because of the status of land tenure growth. It is certainly possible to develop land during the transition period toward a market in advance of anticipated demographic growth, economy, the local authority of a small town is but developing land for more than, say, 3 years obliged to fulfill the function of a land developer anticipated growth is extremely risky and has . This is no trivial matter. A city like Zhili Town in no economic justification. Zhejiang Province which has been growing at around 20% per year (town proper) during the last Demographic growth requires land for town ex- 10 years, required to develop about 300 hectares pansion but it also requires a higher level of infra- of land to accommodate the demographic and structure investment per capita, and higher op- economic growth between 1985 and 1994 for an eration and maintenance costs. A town which additional population of about 25,000 people. This grows at 20% a year doubles in area in 3.5 would be considered a very large and complex years, a town growing at 10% doubles in 7 years land development project even in cities where a and a town growing at 5% doubles in 14 years land and a financial market already exist. (assuming the density stays constant). The Local Authority of a small fast-growing town should function as a land developer until this func- tion is taken over by specialized private develop- 66 China: Small Towns Development - - - ers. This will happen when enough land has been of revenues during a given period by selling land converted from agricultural to buildable land and use rights. But each land use right sold involve a when enough land leases have been issued to future expense for the Local Authority in terms create a land market between users. In China of construction of trunk infrastructure, treat- the transition period during which the Local Au- ment plants, provision of social services, refuse thority have to play the developer role may last dumps, etc. If the Local Authority spends its another 10 years. Of course Local Authorities current revenues to pay for liabilities incurred in should play the role of land developer in addition the past, it will become bankrupt as soon as that to their more traditional responsibilities con- growth slows down only slightly. Borrowing cerning the provision of social services, the op- money to develop infrastructure will increase the eration and maintenance of utilities and the regu- risk of bankruptcy. The principles and methods lation of land use. described below are aimed at avoiding this type of problem. The following remarks illustrates the methods that a small town could use to fulfill this role of Principles of Land Management land developer. I insist that these methods are useful only for towns with a demographic growth The management of land should be driven by an- rate of more than 5% a year. ticipated demand for land fueled by economic activities. A successful land development scheme In small towns with fast growth, Local Authori- depends on the confidence that end users will ties cannot be expected to finance out of their have in the developer, in this case the Local Au- own savings their requirement for infrastruc- thority. In establishing the regulatory framework ture. They have no choice but either to borrow under which the land market will operate there is to finance their needs or to let the environment a contradictory need for flexibility and cer- deteriorate for lack of adequate infrastructure. tainty. In the later case, ultimately, the bad quality of the environment will discourage growth and will Flexibility. Land-use plans are never established prove very costly to clean up, certainly much on a "scientific" basis. They are only a projec- more costly than if the town has beer) well man- tion based on the planner's judgment of future aged from the start. Therefore Local Authori- land users demand for land and infrastructure. ties should learn the preconditions which will give The end users and as a consequence their de- them the possibility to borrow to finance mand for land, are not known at the time the their growing need for infrastructure. To be able plan is prepared. The real effective demand might to borrow, Local Authorities should prepare the be quite different from what was anticipated. following: There is no point in forcing land users to modify a] a credible land management system and their demand in order to fulfill the plan. Land b] financial projections based on sound cost-re- users in small towns have the choice to move to covery principles another town where land and infrastructure have been planned to meet their needs. The Local Au- Professor Dowall in his paper given to this confer- .thority should therefore show flexibility in ad- ence "An Overview of Private Sector Financing of justing its plan to changing demand. 'The use of Urban Infrastructure Services" describes the finan- simple computer models greatly helps adjusts cial instruments which are available to a Local land-use plans rapidly while maintaining finan- - Authority to finance its infrastructure and its land cial viability. development needs. The method described be- low allow a Local Authority to define and quan- Certainty. Land users need to have confidence tify what these needs might be. to establish their business on land that the Local Authority has developed . This requires certainty. Too often, Local Authorities, when confronted Land users should be certain that the Local Au- with fast growth, content themselves in oper- thority will not change the terms of the lease, the ating what are called "Ponzi schemes". A Ponzi nature of the development rights given to them, scheme is an operation which allows financing the delivery of infrastructure promised, in par- current expenditures with current revenues ticular in terms of water, water treatment, without taking into account the future liability drainage, electricity and telecommunication. Any represented by the flow of current revenues. change made in the terms of the contract given For instance a Local Authority may receive a lot Theme Pa~er:The Ma1nagement, Costing & Marketing of Town Land 67 -- by Local Authorities to land users will weaken its consistent. For instance that the amount of water credibility and eventually will cause financial prob- provided by the water system be consistent with lems by slowing economic growth. the projected density of jobs and population, that the financial costs be consistent with the length Land management rests on basic "land ac- of construction time and the projected inflation counting" techniques. The base of the account- rate, etc. The use of computer models is nec- ing system is of course the area of the land to be essary to insure this internal consistency. The use developed and the cost of developing it and the of computers facilitates internal consistency, it market value of the area of land which would does not permit to calculate what will be the ex- eventually be sold. It is important to distinguish act value of the land developed. This value will the difference between "cost" and "value". Too always be estimates themselves based on surveys. often in China the two terms are used synony- mously. Costs are what it cost to develop the Finally, for each type of land use the cost recov- land. Value is what land user are ready to pay ery mechanism which will be used has to be for the land which has been developed. We should established in advance. For instance the cost of aim of course to develop land with a value higher developing land for schools or for industries will be than the cost to develop it. But this relation recovered in different ways which have to be should not be taken for granted. The cost of de- anticipated. The cost of developing land for school veloping land might at times be higher than what might be recovered through a surcharge on the the user wants to pay. If it is the case, the Local cost of residential land, or a surcharge on the cost Authority will go bankrupt. In the accounting of residential and industrial land, or through a tax system described hereafter land development on development paid by all enterprises and costs and land values are calculated indepen- households in the town. Whatever the system se- dently. Developed land costs are calculated based lected, it has to be explicit and become part of on the quantity of civil work and financial cost the accounting system. which are required, land values are based on what land users are currently paying for land Cost recovery may vary for each type of land use, with equivalent characteristics. The model could it can be direct or indirect. Refer to David at times show negative land values. It means that Dowell's paper for the different mechanisms the project as designed could not be implemented which could be used. without incuring a loss to the Local Authority. a) Direct recovery through Of course both land values and development costs i ) land sale or land lease price change over time. Some changes, such as infla- ii) user fees tion can be anticipated with a certain degree of b) Indirect recovery through tariffs certainty, at least in the short terms. Change in demand and therefore land values are more dif- ficult to anticipate. A large supply of developed The Components of Land Development land in adjacent towns may result in a drop of Models developed land value. Whatever the uncertainty in changes in values and costs, these changes To illustrate the use of a land accounting system have to be guessed but explicitly expressed in briefly described above we have prepared a land the land development accounting system. development model based on current and an- ticipated land use in Zhili Town.in Zhejiang Prov- It is important to insure internal consistency ince. The figures are only for illustrative pur- between land-use types, regulations and poses. The model is composed of 2 parts: demography, and projected demand for differ- a) A current land-use map and a projected land- ent land use type, for infrastructure and for social use map services. A land accounting system for devel- b) A table, itself divided into 3 parts: oping, for example, 100 hectares of land may i) land user/ builder model include more than 400 parameters. The value of ii) land developer model some of these parameters will be bcsed on esti- iii) cash flow mates -such as the rate of inflation or the value of a given plot of land--other will be based on quantities--such as area of roads, length of wa- ter pipes, densities, etc. It will be important that the value of all these parameters be internally 68 China: Small Towns Development The main role of this model is to ensure the Conclusions internal consistency of the parameter. Given the assumptions made on demand and inflation, The methodology described above will not solve the model typically provides an answer to the all the problems of fast-growing small towns. following questions: But it could avoid financial difficulties in the fu- ture, and it should allow Local Authority to borrow a) what will be the need for external borrowing with a minimum of risks for both the borrower and for the project? the lender. Borrowing in turn should allow to de- b) What could be the price charged for devel- velop a much healthier environment and a more oped land for different usen to recover all the efficient infrastructure, fostering more economic costs of the project? and demographic growth in the small towns in the c] what would be the effects of land use long run. changes on the financial viability of the project? The methodology explained above should be dis- This type of land-use models are built in 3 steps: seminated to all the Local Authorities of small a) Building of a geographical data base towns experimenting in fast growth. A manual i) creating adequate land classification and a software adapted to Chinese conditions ii) establishing building restrictions by land- should be developed and training sessions orga- use type nized. Training sessions should not be limited to iii) designing boundaries between zones the use of land development models but could also and designing infrastructure network include the use and dissemination of appropriate b) Establishing cost-recovery principles, and de technology for the development and construc- mand for land and floor space; tion of infrastructure, for waste management, and i) explicit cost recovery method for each for the operation and maintenance of city infra- type of infrastructure and for each type structure. Financial institutions should make of use; funds available for the financing of infrastructure ii) anticipated sale price for developed in small towns. Loans would be made to Local Au- land of different types based on de thority who prepare land development projects mand which would be appraised by lending institutions. c) Calculating development cost, of revenues Appraisals techniques would also have to be de- through sale of land use rights or leases, cash veloped in China for this type of lending. flow, borrowing needs.

Alain Bertaud Principal Urban Planner Urban Development Division The World Bank 'Theme Paper: 'The Management, Costing & Marketing of Town Land 69

8 Novrmbcr, 1995 Technical Anriex

The managemellt, Costing And Mnrketing OC'Sown Idand by Alilin Bennutl Example of a IJi1nd ncvclopment ~h'fodel which could be usc for thc dcvclopmcnt of small towns in Clrina

1. Some small towns in China are growing at a very fast rate. The local autliority responsible for land development need a tool to develop land which wor~ldinsure that they recover through the sale of land use leases the ru11 capital cost ol' infrastructure and social services. At present most towns have a land development plan, but very few are projecting their revenues and expenditure in a systematic manner. The current annex, based on a real case in China, illustrate the simple methodology which could be used to link current land use plans, to expected developed land market prices, infrastructure expenditures and financial cash flows.

2. The following example is based on a real land development plan provided by the town of Zhili in Zhejiang Province. 'l'he land use parameters are the ones measured fiom the map. 'The niarket price for various type of land and buildings are not real. They are provided only fir illustration purpose. 3. The annex includes the following documents: a) Map 1: Existing Urban Area and future extensioli b) Map 2: Projectecl land use c) Map 3. Detail of land Use Classification d) Table 1 : Summary Land Use corresponding to development Map 1 and 2 e) Fable 2 : Builder Model: Purchase of developed land Based on different lype of land use and market price this rnodel calculate the average price for developed land which could be recovered tiom developed land . f) Table 3: Land Use model: This part of the rnodel calculates the number ol' people and density oi'the total site to be developed; ) Table 4: Land Developer Model This part of the model calculates the cost of infrastructure per salable squnrc meter and compare it to the average developed land cost obtained in table 2. h) Table 5: Land Developer Cash ilow This part of the rnodel calculates the quarterly expenditure and income, thc need for borrowing per quarter, and the financial rate of return or the operation. i) Graph 1: Implementation schedule; This paph shows the projected implementatioil schedule for expenditure and revenues j) Graph 2 : Land developer cash flow: this graph shows the need for borrowing per quarter and the financial surplus or deficit of the project. 70 China: Small Towns Development

EXISTING URBAN AREA AND FUTURE EXTENSION

0ROADS -I PARKS & FOREST CANALS EXISTING URBAN AREA IPROJECTEDURBAN

Kilometers Theme Paper: The Management, Costing 8 Marketing of Town Land 71

PROJECTED LAND USE

RESIDENTIAL = 141 Ha - 25% COMMERCES = 48Ha - 8% INDUSTRIES = 99Ha - 18% FACILITIES = 15Ha - 3% UTII-ITIES = 16Ha - 3% 1. PARKS & FOREST = 57Ha - 10% CANALS = 104Ha - 18% 0ROADS S PARKINGS = 83Ha - 15% rn

Kilometers 72 China: Small Towns Development

XlLl - LAND USE ATTRIBUTES Theme Paper: The Management, Costing & Marketing of Town Land 73

8-Now95 TABLE 1: SUMMARY LAND USE CORRESPONDING TO DEVELOPMENT MAP 1 AND 2

ExlstingP~own(1995) Projected Town (2000) TO be developed (2000) Map ref. ha % ha I ha ah A. Salable land 43.05 88.14% 287.48 50.98% 244.43 49.01% of which: Commerce C2 Markets C26 Industry 1 M1 Industry 2 M2 Warehouse Wl Residential 1 R1 Residential 2 R2 Total Salable land

8. Non Salable Land of which: (i) Comrnunrty facilities of which: Government offices C 1 Cultural facilities C3 Sports C4 Hospital C5 Schools R22 total (i)

(ii)Parks and open spaces of which: Parks GI1 Forest G21 Environmental prot. G22 Tourist rest area S22 0.0% 0.22 0.4% 0.22 0.4% total (ii) 0.32 100.0% 57.47 100.0% 57.15 100.0%

(iii) Utilities d which: Utllity: water Ull Utility:power U12 Utllity: transport 1 U22 utility: transport 2 U29 Utility: telecom U3 utllky: waste water U4 1 Utility: Others U9 total (iii)

(tv) Roads 8 transport d which: bansport 8 square 521 Parklng S31 Transport terminal T23 Roads

(v) Canals 8 ponds W 4.32 6.64% 1 104.23 18.48% 1 99.90 20.03% Total non salable Ian 22.04 33.86%1 276.39 49.02%! 254.35 50.99%

I total Prolect Area 65.10 1oo.00~ 563.87 100.00~ 498.77 100.00xI 74 China: Small Towns Development

TABLE I - BUILDER MODEL: PURCHASE OF DEVELOPED LAND Figurer prondsd below are tor IllurtralNe Purpose only and do not reoresent real cars nor recommsndatm 1 ITERATION : I

8. Construction Cost

C. Developed land Prlce 30 Prlce of develo~edland per owell~ngUnll Y/du 135143 24,257 27.660 3.514 31 Floor Area Ratlo I 2.50 0.75 0.50 5.46 32 Salable land per dwelllng Unlt m2 80.0 400.0 240.0 14.0 33 Purchase prlce of salable Land Y/m2 1.689.29 60.64 115.25 250.97 I 35 Percent of salable land for each type 1% 1 14.4~1 38.0~1 1.9~1 45.7~1 100.0% 1 I I I I I I I I I I I I I I 37 Average Purchase Price of 38 Develoned Salable Land Ylm? 383.2

TABLE 2 - LAND USE MODEL Figures provided belo*, are lor 11lustnrNepurpose only and do not reoresent real case nor recommenaamn Theme Paper: The Management, Costing 8 Marketing of Town Land 75

TABLE 3 - LAND DEVELOPER MODEL: PURCHASE OF UNDEVELOPED LAND Fiqures prowded below are for rllustrative ourpose onlv and do not reoresent real case nor mommendaton ITERATION : 1

A. Total Sale Prlce of Developed Land Area (m2) alable m2 Total Yuan 8 Commerce 8 Markets 351.932 1.689 29 594.513.889 9 Industry 8 warehouses 928,710 60.64 56,319,612 10 Residential 1 46,435 115.25 5,351.690 11 Residential 2 1.116.896 250.97 280.304.944 12 Total Sale Price of Developed Land 2,443,973 383.18 936,490,135

1% recnvere (Total I Ylm21 ~lm21 B. Cost of Off Slte Infrastructure Cost (Y) ( directly 1 ~ecovered ( salable) 17 Roads 0 0.00 0.00 18 Water Supply 0 0.00 0.00 19 Sewerage 10,000,000 25% 2.500.000 1.02 0.50 20 Storm Drainage 0 0 00 0.00 21 Electricity 10,000,000 25% 2.500.000 1.02 0.50 22 Cornmun~tyFacilit~es 0 0.00 0.00 23 Sewerage Treatment 10,000,000 10% 1,000.000 0.41 0.20 24 0 0.00 0.00 25 Others 0 0.00 0.00 26 Off srte infrastrvcture base costs: 30,000,000 6,000,000 2.46 6.01 27 Design 8 Supervision % 8% 2.400.000 480.000 28 Phfsical Contingencies " 10% 3.240.000 48.000 29 Interest During Construction 5% 1,782.000 2.400 30 Total Off Site Infrastructure Cost 37,422,000 6,530,400 2.67 1.31 3 1 32 Total off site costs to be recovered from sde: 6,530.400 2.67 1.31 yIm2 ylm2 C. Cost of On Slte Infrastructure Cost (Y) salable gross 35 36 Land Fill 10,000,000 4.09 2.00 37 Site Preparation and Level~ng 20,000,000 8.18 4.01 38 Primar$ and SecondarS Roads 100,000,000 40.92 20.05 39 Internal roads and footpaths 10,000,000 4.09 2.00 40 Water Suppl$ 40,000,000 16.37 8.02 41 Sewerage 50,000,000 20.46 10.02 42 Storm Drainage 50,000,000 20.46 10.02 43 Electr~c~t$ 50,000,000 20.46 10.02 44 Street Lighting 50,000,000 20.46 10.02 45 Commun~t$fac~lities !construction) 50,000,000 20.46 10.02 46 Landscaping 5,000,000 2.05 1.00 47 0.00 0.00 48 Other 0.00 0.00 49 on slte infrastructure base cost 435.000.000 177.99 87.21 50 Design & Supervision % 5.0% 21,750,000 8.90 4.36 51 PhOsical Contingencies " 10.0% 45,675,000 18.69 9.16 52 Interest Durlng Construcbon 5.0% 25,121.250 10.28 5.04 53 Land Developer Profit 20.0% 105,509,250 43.17 21.15 54 Total on Site Infrastructure Cost 633,055,500 259.03 126.92

D. SummarS of lnfrast~cturecost to be recovered fram slte 571Total off slte costs to be recovered from srte 6 530 400 767 121 581Total on Site Infrastructure Cost 633 055 500 259 OR 176-Q? - - 59 I Relocabon costs: 100.000.000 40 97 70 ns

--- 61 Total infra. cost to be recovered from slte: 733,055,500 299.94 746.97 62 Total recovered from sale of developed land: 936,490,735 383.18 187.76 63 Market value of undeveloped land: 203.434.635 83.24 40.79 ITABLE4 -LAND DEVELOPER CASH+LOW 1 ITERATION: 1 A EXW!UMTM oaagn: 1 7lTnal Cost 01Ofl slle Wramhre. 6.UO.IW =lsb_3F32 i

0. *COYC I 16~SakdDFY~Land: 936.490.135 =lab 31F62 I

in i.mo~. . w on sb nn- 35 bSbHR-a 36 Relaanan 37prbuwd~~ Tcmbw-mres 39 WeE-Mn lPE) 40 ToW -0 + PE 41 lnc- bnplmnlatlon Schdulb 42 hcahrmsakdlnd 43 PncsEsc~UmlPE) 44 hCacWE 48 Caah Fla 46 OvrWtf Ca.h ~bm 47 Urrmw8c..kvm 40 tlan( cutlo Coratulm (IDC) i49 ~Cash(la~IDC Theme Paper: 'The Management, Costing & Marketing of Town Land 77

iteration 1 29-Mar-96

Implementation Schedule

+Relocation

Land Developer Cash Flow 78 China: Small Towns Development Urban Development Strategies, Planning and Decentralisation: Emerging Trends

Emiel A. Wegelin

Introduction (excluding Japan); by 1980 this number had in- creased to 16 and by 2010 there are likely to be rbanisation in Asia is proceeding at an 31 cities in this population bracket. In this frame of unprecedented rate. During 1970-1990 mind, attempts were made to control the growth Uthe rural population of Asia (excluding Ja- of urban areas through both measures aimed at pan) grew by 1.4% from 1,590 million people to restricting urban population growth directly and 2.1 15 million; urban population grew by 3.9% from through increased rural development efforts. 407 million to 879 million during the same period. It is estimated that the rural population of Asia will Gradually, however, perceptions of policy mak- have reached 2,217 million in 2025 (a growth from ers are changing. Increasingly accurate demo- 1990 of 102 million people or 0.1 % pa., with nega- graphic data show that in most Asian developing tive growth in the last decade of that period);the countries rural-urban migration accounts for only urban populationwill grow by 1,677 million to 2,556 at~outone half of urban population growth and million during the same period (growth of 3.1% that migrants generally move because of ratio- pa),with the urban population share increasing nal motives related to employment opportunity from 20% in 1970 to 29% in 1990 and 54% in 2025.1 differentials. Spatial economic and fiscal data tend to support this perception of migrants: cit- Initial policy responses to this staggering urban ies and towns are engines of economic growth population growth in the developing countries of and sources of employment [particularly in the Asia have generally been negative ones, based service sector). Urban areas are also major on the thought that urbanisation was undesir- sources of national, provincial and local tax rev- able and to be avoided. This image has been fed enue, in many cases not only outstripping rural by visions of unmanageable, ever-growing areas on a per capita basis, but often in absolute megalopolies: in 1970 there were six cities with a terms as well. population of five million people or above in Asia In consequence, policy diagnosis is changing too: there is an increasing awareness that the positive I United Nations. Department of Economic and Social economic functions which cities fulfill can be Information and Policy Analysis 'World Urbanisation Pros- made more effective through appropriate invest- pects: The 1992 Revision, estimates and projections of urban and rural populations and of urban agglomerations", 1993, ments in infrastructure, urban services and shel- pp.4-15. ter improvements. Provided that local urban 80 China: Small Towns Development managementlinstitutional capabilities are drasti- ~ational~rbanDevelopment Strategies: cally improved, these investments can generally Meaning and Evolution be financed by revenues generated in the urban areas themselves (i.e., not at the national For many years most countries in the region did exchequer's expense or at the expense of the ru- not harbour any specific urban development stra- ral sector). In other words, the increasingly recom- tegic notions to speak of at the national level. Only mended urban development path is: reduce the gradually did coherent policy making on dependency of urban areas on national fiscal re- urbanisation take shape, in most cases initially as sources through increased generation of local an articulation of the desire to decant urban revenues to finance more cost effective urban growth from the megacities to secondary towns. infrastructure/services development. Often this This flowed primarily from a negative perspective does not necessitate rateltax increases but of urbanisation as undesirable pressure, and want- rather improved assessment and collection prac- ing to reduce such pressure of urbanisation on the tices, improved local administration techniques, major cities. Later an additional argument was a more effective budgeting systems, as well as desire to spread the benefits of urbanisation spa- more efficient infrastructure investment plan- tially and across the urban hierarchy to smaller ning and programming, and operation and main- centres. Clearly this reflected a concern with spa- tenance improvements. This gradual change in tial equity. Additionally, it became increasingly policy perception, since around 1975, has led to recognised that urban areas are disproportion- increased attention of national policy makers in ately contributing to economic growth, and the Asian developing countries (and international hence, over time concerns added a different ur- assistance efforts) to local urban services de- ban strategy dimension. livery and, more recently, to strengthening of local urban management and finance practices Only in Indonesia and Pakistan has an attempt as crucial prerequisites to the development of been made during the early 1980s to develop a an effective delivery system. coherent urban strategy based on these consid- erations. In Indonesia, the National Urban Devel- However, if urban development is to increasingly opment Strategy Study, developed with LINDPI rely on local resource mobilization, the inevitable UNCHS support during 1982-85 served relatively corollary is decentralisation of authority and re- effectively to demonstrate policy trade-offs of ef- sponsibility for local urban services delivery:. Why ficiency (growth) and equity considerations to would local government otherwise be interested policy makers. In Pakistan, the National Human in more effectively levying user charges or local Settlements Policy Study and the National Man- taxes on their citizens? For a national government agement of Cities Policy Study, initiated around this seemingly poses the dilemma between being the same time, had the same objective. How- able to effectively pursue a unified national ur- ever, these studies did not have much influence ban development strategy and allowing local au- on policy making, mainly because they had been tonomy to thrive. It also raises the issue of interac- initiated at federal government level by the tion between national economic development (weak) sec toral ministry dealing with urban issues, planning and local investment planning. whereas the prime operational responsibility for urban service delivery constitutionally is a provin- This paper discusses the contents and meaning of cial government function. national urban development strategies as they have been conventionally perceived and as they More recently, policy makers have also become are evolving in the South and Southeast Asian re- aware of the urbanisation of poverty. While pov- gion; it suggests some implications for national-lo- erty for many years had been perceived primarily cal planning interactions and for decentralisation, as a rural problem, it has become clear in the Asian . drawing lessons from some of the initial experience region, that this problem is urbanising along with with such strategies in the region. demographic trends, providing a new equity di- mension to urban strategy considerations.

Fourthly, at least in Southeast Asia, economic suc- cess created its own new problems, i.e., the ris- ing aspirations of the increasingly well-educated urbanised middle class, who would no longer be content with paying taxes without representation and influence. 'This has added to the clamour for Theme Paper: Llrban Development Strategies,, Planning & Decentralisation: Emerging Trends 81 decentralisation and reinforced the necessity for cal level, by local governments4and communi- governments to be more coherent in their strate- ties themselves. Similarly, addressing urban en- gies for urban development. vironmental issues requires both national as well as local action. Fifthly, an additional consideration which has changed urban development policy perspectives This is not to say that national governments should in the region significantly is the growing concern leave urban development completely in the with environmental sustainability and how this im- hands of the [international] market place and lo- pacts on growth and poverty. cal government. Numerous ways still exist for na- tional government to express its spatial and Lastly, the end of the cold war, along with global sectoral priorities, particularly through the technological change (particularlyas it relates to regulatory framework governing private invest- data processing, information and communication ment, the regulatory framework governing the technology) and the global economic operation of local government, central liberalisation trends (whichhave been particularly government's coordinating mechanisms with important in Southeast Asia, but increasingly also provincial (or state) and local governments, and in other parts of the region) has heightened con- perhaps most powerfully, the allocation of its cerns with global and regional interdependence. investment resources for urban infrastructure Many governments in the region have correctly and poverty alleviation programmes. However, perceived the opportunities for economic growth the important point to make is that these instru- in this "globalising" economic environment, and ments increasingly have to be exercised in a have taken measures to liberalise their economies, highly competitive international economic envi- while being fully aware of the risks of having to ronment. operate in a global competitive environment. By and large the impact of this on urban settlements The above shifting balance of emphasis in national is that cities and towns increasingly compete at urban development strategies is clearly brought global and regional levels for direct private na- out in recent urban development policy frame- tional and international investments to generate work exercises carried out in the region and else- employment. Therefore, national governments where.5 have had to take a second look at their urban development strategies, trying to support their cities and towns as economic hubs in exploiting their comparative advantages, often in conjunc- tion with cities or regions in neighbouring coun- 2See: Fu-chen Lo and Yue-man Yeung, Global restructuring tries. and emerging urban corridors in Pacific Asia, in: Fu-chen Lo and Yue-man Yeung [eds.). Emerging World Cities in Pacific Asia: Growth and Adjustment to Global Restruc- The SlJORl triangle initiative of trying to turing, forthcoming. synergize the comparative advantages of Batam This in itself may well be beneficial for small towns (Indonesia),Johore (Malaysid] and Singapore in development: as e.g. noted in Jorge E. Hardoy and David terms of cheap labour supply, accessibility and Satterthwaite, eds (19851, Small and lntermediate Urban technology is a clear example, as is the Penang Centres--Their Role in National and Regional Development in the Third World, IIED, London, there are very few examples of (Malaysia), North Sumatra (Indonesia), South- effective consistent and coherent strategies for the promo- ern Thailand triangular cooperation, involving the tion of small and medium sized towns. Where explicit cities of Medan. Penang and Phuket. These re- national strategies to do so have been developed, these - cent trends are leading to a redefinition of what were often not consistent with macro-economic policies impacting in the opposite direction. For instance. overall national urban strategies' responses should be national investment strategies such as import sut~stitutionled vis-a-vis the traditional concerns of growth and growth behind protectionist baniers (tariffs and quotas] has equity. On both these counts it appears that na- generally implicitly favoured metropolitan areas at the tional governments' urban strategy increasingly expense of smaller towns and their rural hinterland. gravitates towards one of enabling and support 'See: UMP working paper: Options for urban poverty rather than a directive one. Obviously, the room alleviation actions at municipal level, draft, August 1994. for effective and efficient direction from the SAsexemplified by the Notional Urban Development Policy Framework Study in 'Thailand. which produced significant national level is less as globalisation of Asian inputs along these lines for the 7th Five-year National economies proceeds: Similarly, it is increasingly Development Plan (1992-1996).In Indonesia, a more recent recognised that effective urban poverty allevia- UNDPIUNCHS supported study, entitled "Framework for the tion calls for action not only at national, Urban Policy Action Plan Repelita Vl", Draft, June 1994 macroeconomic policy level, but also at the lo- developed a similar train of thought. 82 China: Small Towns Development Planning lmplicafions a) the government could allocate such funds as a fixed capital grant to selected local govern- ments on the basis of a formula, for instance on National and Local Development the basis of population, on the basis of indicators Planning of local poverty and/or physical infrastructure deficiencies, on the basis of indicators of the lo- National planning in most countries in the region cal government's financial viability or on the ba- has comprised variations of multiyear develop- sis of a combination of such factors; ment plans (mostly with a 4-5 years time horizon, mostly for fixed periods), complemented by gov- b) the governmen! could provide such funds to ernment capital project approval procedures and selected local governments by way of matching annual budgeting exercises to concretize govern- or incentive grants for local investment ment capital spending. The core of these exer- programmes, either on a cross-sectoral basis or for cises has consisted of sectoral allocations in the specific types of sectoral investments: central government capital budget, both in the multiyear plans and in the annual budget exer- c) the government could provide its support in cises. kind through specific projects executed by cen- tral government departments; the government At locai level, similar systematic planning exercises could require local governments to borrow such have been carried out for some of the major ur- support funds according to set terms, conditions ban areas in the region, but more often than not and proceedings. Obviously these types of sup- capital budgeting is not done on a multiyear ba- pod arrangements are not mutually exclusive, and sis and does not include provision for project in many countries a combination of such options funding from other than the local government's is used side by side. own resources. What is important, however, particularly in a What the above discussion in the previous sec- situation where increasing emphasis is placed tion seems to suggest, is that there is a need for on local level planning and priority setting, is a change in emphasis. The national planning sys- that these modalities are transparent and clearly tem as it has evolved is still useful for the pur- understood by local government, so that pro- pose of estimating the balance between pro- posed investments under these funding arrange- jected national investment and recurrent expen- ments can be easily integrated in the local plan- diture requirements and resource availability, both ning process. on a medium term and on an annual basis. This should be done both on an aggregate, macroeconomic basis, as well as from the na- Rural-Urban Linkages and Small Town tional government's financial viewpoint. Addi- Development tionally. existing procedures for project prepa- ration, appraisals and approvals at national level The rural and urban sectors both require devel- will still be needed for large investment projects, opment funds, but it is not necessarily true that which have a national or regional orbit, such as they compete for funds. Development of both major airport or seaport development, national sectors need not necessarily conflict, but can highways, etc. actually reinforce each other, particularly if an urban development strategy placing greater However, central priority setting for localised emphasis on the development of smaller towns types of urban infrastructure investments funded at the rural-urban interface is pursued. Smaller by the central government, such as local roads, towns and cities often represent better locations water supply, sanitation, flood protection, etc. for agro-based industrial activity in view of could be done on a generic basis. This would pro- greater proximity to agricultural production vide for central government support investment centres and for the same reason are better funds for local urban infrastructure initiatives, equipped to provide services for the modern- through which the central government could ar- ization and improvement of agriculture. The search ticulate its regional and sectoral priorities. This for viable intermediate growth centres, the devel- can be done in several ways: opment of which could be supported at least partially through external assistance, is consistent with such a strategy. Theme Paper: Urban Development Strategie!s, Planning & Decentralisation: Emerging Trends 83 As agricultural development proceeds and the Fiscal Incentives for Industrial rural economy emerges from subsistence farm- Developmenf ing to semi-capitalist forms involving the use of modern inputs and technology and oriented to- wards marketing of produce, the prospect for Fiscal incentives have been used in several coun- stronger urban-rural linkages increase greatly. tries in the region to promote the location of in- For example, in Pakistan the agricultural sector dustrial units in relatively underdeveloped parts in has reached a stage where the commercial cul- the country. Given that industry is a major com- tivation of cash crops like cotton, sugarcane, ponent of the economic base of towns, such in- edible oil seeds, fruits and vegetables has in- centives could play a major role in influencing the creased greatly and in which increasingly fer- pattern of urbanization. However, the effective- tilizer, pesticides, tractors, agricultural ma- ness of such fiscal incentives, both from the view- chinery, etc., are being used to raise yields. This point of the impact on the level of investment and phenomenon is perhaps the most pronounced in on locational choices has not been very high in the canal ~rrigatedareas of Punjab province, most countries where such incentives have been which has examples of small- to medium-sized provided. If comparative economic advantages cities (Gujrat, Daska, Sargodha, for instance), of a particular location are significant, industries which have strong backward and forward link- would locate there anyway. If there are no com- ages with their rural hinterlands. Much of this parative economic advantages, industries are development is private-sector driven and needs unlikely to be attracted to an unfavourable loca- to be suppoeed by local outhorities through pro- tion, no matter what fiscal incentives are offered. vision of infrastructure which promotes rural- The lesson of international experience in this re- urt~anlinkages. Initially, such linkages are likely gard clearly is that such incentives are only effec- to be marketing and service related and could tive at the margin, as the example from Pakistan grow to administrative and cultural linkages. (Box 1 above) illustrates. What is generally more important and effective is to remove regulatory Therefore, a programme for development of in- and administrative market impediments and to termediate-sized towns must explicitly include provide supportive infr~structure.~ as one of its objectives the promotion of rural- urban linkages. A number of selection criteria Local lnvestment Planning in an Inter- could be used for identifying settlements which Governmental Setting7 have the greatest potential for creating these linkages: 'This section focuses on multisectoral investment planning (MSIP) at the local level. However, as a) settlements should be located in areas with noted above, local authorities do not exist in a relatively developed agriculture and cropping vacuum. They are part of an intergovernmental patterns which involve significant marketing of system. lnvestment priorities for urban develop- outputs. ment may be set by national or provincial levels of government. A large part of local investment funding will continue to come, either directly or b) settlements ought to be relatively small, with populations generally below 500,000. indirectly, from these higher levels of govern- me~?t.~ c) they should, however, be large enough to have'significant institutional presence either at the provincial or local levels. It would be advanta- geous, as such, if such towns are district headquar- ters. This would ensure that some administrative linkages already exist with the rural hinterland. d) the existing local network of farm-to-market 5ee: Jorge E. Hardoy and David Satterthwaite: Govern- roads should be sufficiently developed. ment Policies and Small and Intermediate Urban Centres, in: Hardoy and Satterthwaite. eds. op. cit.(l985), Chapter 8, pp. 335-397. e) if possible, the selected settlements should al- For a more elaborate discussion, see: George Peterson, ready have some units engaged in manufacture1 G. Thomas Kingsley, and Jeffrey P. Telgarsky: Multi repair of agricultural machinery. Sector lnvestment Planning. UMP Working Paper nr. 3, June1994. 84 China: Small Towns Development

Incentives for industrial location in Pakistan Sindh, there is a general ban on any new unit Such fiscal incentives in Pakistan comprise pri- in Karachi, Dhabeji and Gharo, unless it can marily two categories: a] tax holidays whereby only be established at these locations (shio- a new unit is exempt from the payment of in- building and repairs, ship breaking, sea suit, come tax for a specified period, and b) cus- canning ~ndpreservation of sea food) or has toms duty exemption on imported machinery. downstream links with major investments like Other incentives which have occasionally the steel mill (engineering workshops! or has been offered include exemption from pay- a localized market (ice and cold storage, bak- ment of import duty on raw materials, zero rat- eries, prefabricated houses] or represents the ing of sales tax on output, concessionary terms application of complex, large-scale technol- of financing including a higher debt-equity ogy [petrochemicals].In the case of NWFP and ratio, tax credits on share capital and discounts Balochistan, there is no negative list of on purchase of electricity. Tax holidays are industries.Several studies conclude that ex- available only to investments made in desig- plicit locational incentives have had a limited nated industrial estates up to a particular date. effectiveness in influencing locational choices TI ~eperiod of tax holiday vanes from three years in far-flung backward areas, but that they to ten years, depending upon the location of have been influential in twinging about spatial the estate. Estates situated in more backward deconcentration in metropolitan regions. A areas tend to enjoy a longer period of tax holi- perhaps even more striking conclusion of vari- day. Tax holidays are also offered at the re- ous studies on fiscal incentives is that little gional level. All industrial units within specific success has been achieved in raising the over- administrative jurisdictions are eligible for this all level of investment in the economy. 'The exemption, meant to cover backward areas. majority of projects benefitting from fiscal Accordingly, virtually the entire province of incentives are diverted investments: i.e. Balochistan. NWFP, and selected nothern dis- where even in the absence of fiscal conces- tricts are covered by this scheme. In addi- sions the net present value of profits was tion, some backward areas in the more in- large enough to justify invesyment in a de- dustrially developed provinces, Sindh and veloped area elsewhere in the country. Only Punjab, fall under the purview of this scheme. a small part of the investment generated by Recently, the Government of Pakistan has the incentives can be considered as net new introduced a tax holiday for promoting rural investment (negative net present value in a industrialization, with the objective of stem- developed area in the absence of concessions]. ming the tide of migration to cities. Indus- It appears, therefore, that the bulk of the tax trial units located beyond a certain minimum savings (net of any additional private infra- distance from municipal limits can avail this structure costs] have benefitted industrial facility. The customs duty exemption on ma- owners in the form of transfer payments. The chinery largely overlaps with tax holidays. regionally differentiatedscheme of incentives Notable exceptions are industrial estates lo- also seems to have bypassed intermediate- cated in the cities of Karachi, Lahore and sized towns which have some agglomeration Islamabad Capital Territory.Complementing economies and could be cost effective in the these fiscal incentives, the Government has provision of industrial and shelter-related in- instituted several regulatory measures to frastructure. Given the proximity of some un- restrict investment in developed areas, pri- derdeveloped areas to these towns, there has marily through banning the establishment of been a diversion of investment away from certain industries. For example, in Punjab, these intermediate cities to backward areas, no industrial unit is allowed to be set up in often probably with higher costs of infra- Lahore district with the exception of export- structure provision. (source: Asian Develop- oriented industries (exceptions may be made ment Bank, Pakistan Urban Sector Profile t~yGovernment on a case-by-case basis). In Study (draft). 1993)

- - -- Box I Theme Paper: Urban Development Strategies, Planning & Decentralisation: Emerging Trends 85 Sharing lnformatlon on Capital Projects Support for Cross-Sectoral Local between Levels of Government Planning

In many countries, central government and/or Real-life problems, as they arise in urban areas, provincial ministries still bear the principal respon- do not fall into mutually exclusive sectoral catego- sibility for local-level investment. At a minimum. ries. Nor do they respect the administrative divi- local authorities need to he accurately and timely sions built into central government ministry struc- informed about these projects. They then can plan ture. They logically require a cross-sectoral plan- their local capital budget around the major invest- ning and action response. Local authorities often ments being put in place by others. In any kind of are able to see these connections, but their abil- integrated planning process, decisions about land ity to respond through public action is hampered development or water and drainage systems by the fact that they must obtain funds or author- need to be coordinated with new road construc- ity to act from central government agencies which tion. are focused exclusively on their individual sectors. Emphasis on rural-urban linkages would also re- ' Priority-setting for local projects will be greatly quire the consideration of relatively unconven- influenced by the kinds of complementarities that tional investments for inclusion in the local urban are possible with the large-scale infrastructure sys- development investment programme. This could tems being installed by national government. Per- include the following: haps of even greater importance, if local authori- ties know that a major local investment is planned (i) Farm Services-cum-Community Centre to pro- by higher authorities, they can monitor its progress vide improved access to institutional credit as well and help shape the project to fit locally defined as to other factor markets, and to disseminate needs. A routine system of intergovernmental marketing and technical information to farmers notification should be established. Without it, experience shows that central ministries will, (ii) We~ghBridges at the product markets to en- from time to time, neglect to inform local au- sure better returns to farmers thorities of their plans in a timely way. (iii) Upgrading of Slaughter Houses

(iv) Upgrading of Bus and Truck Terminals Integrated Publlc Investment System, Baja California, Mexlco (v) Recreational Facilities

The problem of intergovernmentalinformation (vi) Construction of relatively low-quality regarding public works projects is being ad- Guest Houses dressed by the State of Baja California in its lntegrated Public Investment System. The sys- tem generates monthly reports on the status (vii) Construction of of all public works underway, or planned for construction starts, in the state. It is used as a (a) Fish and Meat Market diagnostic tool for the timely delivery of pub- lic works. The dah generated by the system (b) Rental Shops . are used to prepare executive reports for the Governor and state authorities, and poster- (c) Livestock Pens sized information sheets displayed in public buildings throughout the state. The system is (d) Wholesale Markets now being modified so that, following each monthly update, information on individual ur- ban areas in the state will be automatically downloaded to the city planning authorities in larger cities. 'See: William Dillinger, Decentralisationand its lmpllcatlons for Urban Services Delivery. Urban Management Programme publication nr. 16, 1994. This report Identifies intergovemmen- tal transfer reform as one of the most important areas for Box 2 action on the decentralisation agenda. 86 China: Small Towns Development Supporting Local Budgetary Flexibility

Deceniralisatlon and Inter-Sectoral Planning A well-functioning MSlP system requires that local in the State of Karnataka, India authorities have discretion over the size of the In 1985, the Karnataka state government capital budget, as long as they are willing to fi- transferred development responsibilities to dis- nance project expansion from their own re- trict-level administration. The state govern- sources. Some additional revenues almost always ment also appointed a number of senior civil can be raised from better tax administration. service officers to staff each council to build Integrated programmes of urban management im- up their capacity. Most importantly, the rep- provement typically assist cities in improving resentatives of central line ministries in each tax collections and expanding the tax base at the district were made directly responsible to the same time they introduce new capital planning district council. District councils then were methods. given responsibility for formulation and imple- mentation of the district development plan, However, local governments also need the flex- formerly a state responsibility.Under this ar- ibility to raise tax rates, should this be appropriate, rangement, district councils can identify cross- and to employ market-based financing mecha- sectoral needs, draw up plans to respond to nisms such as user fees or betterment taxes. Often them, and enlist the support of the different central governments still restrict local control over line ministries through their representatives who this part of the local budget. A case in point is the report to the council. The system has pro- property tax: the authority to set local prop- duced a good deal more flexibility for cross- erty tax rates locally is not given to local gov- sectoral planning. However, local investment ernments in most countries in the region, where planning still is subject to national and state such tax legally is still a national (such as e.g., level sectoral norms. Indonesia) or provincial [e.g., Pakistan) tax.

Box 3 Governments have followed different strategies in enhancing local authorities' ability to generate Even in routine investments, the functional sepa- revenues. Often, decentralization has involved ration of central ministries may impede common increasing the national revenue-sharing amounts sense coordination and prioritisation at the local to which local governments are entitled. Such level. In Ghana, roadside drains are installed by steps have strengthened local government fi- the Transport Ministry at the time it t~uilds nances, and increased their ability to perform roads. Other types of drains are the responsi- capital planning and investment. However, these bility of another ministry. The Transport Min- measures do not address local governments' right istry has received more capital funding than to choose the size of their budget to be financed other agencies. As a result, in most of Ghana's from own sources. In some countries. devolution towns, the only drains are to be found alongside of service responsibilities to the local level has also roadways, even though this has produced a drain- been accompanied by granting local authorities age system that leaves most of the towns' needs new discretion to set tax and fee rates or to tap unattended. In most countries in the Asian re- additional tax bases. In some instances, central gion, basic responsibility for investment in most governments have gone so far as to provide sig- urban services is devolved to local government, nificant incentives for greater local revenue gen- which is responsible for establishing the cross- eration. In Pakistan, for instance, the 1991 National sectoral linkages it believes are critical. How- Finance Commission award adopts a one-for-one ever, full decentralization of this responsibility matching grant system. Every additional rupee is unlikely to occur. Even so, other kinds of in- that a local authority generates through restruc- tergovernmental arrangements can support lo- turing of its local tax system, will be matched cal int.ersectoral planning. The basic require- by the central government with an additional ment is that local authorities be encouraged to rupee of transfer payments. tackle problems across sectoral lines, and then be free to recommend solutions that involve co- ordination among different central-level minis- tries. Theme Paper: Urban Development Strategices, Planning 8, Decentralisation: Emerging Trends 87 Inter-GovernmentalCooperation in The Municipal Management Improvement Establishing New Investment Planning I Programme in Sri Lanka. Approaches-Indonesia's IUlDP as an From 1985 the Government of SF'~la.nka has Example embarked on an ambitious programme* Actions of the kind described above help set the improve municipal management in its 51 Ur- framework for local multisectoral investment ban Local Authorities (ULAs) within a broader planning and project selection. Except for the policy of decentralisation and strengthening seconding of central ministry staff, they do not of local government. Support inputs in the by themselves address the problem of inadequate programme are largely technical assistance capacity at the local level, or local authorities' lack and training, managed and coordinated of familiarity with the kinds of planning methods through an Urban Programme Unit (UPU) spe- suitable for an environment where they have cially established for this purpose in the Min- greater control. To change actual practice a more istry of Local Government, Housing and Con- direct collaboration between central and local struction. authorities is needed. This comprehensive ap- One of the programme's key features is that proach to planning change is illustrated by the it seeks municipal management and finance Integrated Urban lnfrastructure Development performance improvement before significant Programme (IUIDP) adopted in Indonesia. new capital investments are made. For each ULA participating in the programme perfor- Until the mid-1980s, virtually all urban infrastructure mance improvement plans are drawn up: a in Indonesia was planned t~ycentral government multiyear plan and a four-month plan. The agencies in Jakarta (primarily by the Ministry of plans contain a base line review identifying Public Works) and implemented by their field of- problems and potential solutions. Based on fices in the provinces. The programmes of one this review an action plan is designed for central office (e.g., water supply) were seldom improvements in areas like local revenue coordinated with those of another (e.g., drain- generation, financial reporting, management age), either spatially or temporally, and local offi- procedures, staffing, operation and mainte- cials had little chance to influence them. nance, as well as for preparation of invest- ment plans, if required. For each such ac- As urban areas began to grow much more rap- tion, area targets are set as well as dates idly, there was recognition that this approach for completion. 'The plans are formulated in could not be sustained logistically, let alone re- a process of discussion and negotiations be- spond sensitively to the varying needs of different tween the ULA and a technical assistance urban areas. Increasingly central government of- team from the UPU. ficials came to believe that the only satisfac- In implementing the programme the govern- tory long-term solution would be for local gov- ment relies on an incentive strategy, in which ernments to assume full responsibility for pro- it allocates an increasing portion of central viding (and largely financing) their own urban government grants for local government de- services. This approach was endorsed in the velopment to municipalities which have dem- National Urban Development Strategy (NLIDS). onstrated increased performance in the However, it was also clear that few of above areas. At the same time substantial Indonesia's local governments then had the ca- technical assistance and training advocacy1 pacity to assume this role effectively. The Inte- dissemination as well as technical training grated Urban lnfrastructure Development is provided to support the initiation and con- Programme (IUIDP) was a response to this di- tinuing implementation of the programme. lemma. It is a phased approach to integrated in- Both these features underscore the strong vestment programming and decentralization in government commitment to the programme which the central government supports local which is assisted by UNDP and IBRD. capacity building at the same time that it works I I with existing local staff in planning and imple- menting investment programmes. In its ideal- Box 4 ized form, the process entails the following steps: 88 China: Small Towns Development 1. Meetings are held with provincialgovernments pared for urban areas in all 27 provinces, cover- to review NUDS analyses and prioritize urban or- ing 56% of the urban population by the end of eas for attention 1993.

2. Project teams in the selected towns (localstaff Efforts have been made on a continuing basis to with technical assistance provided from the cen- improve the process. For example, the initial tre) review and update local master plans or de- guidelines and manuals have been regularly re- velop a new "structure plan" where none is avail- vised based on operating experience. A new able emphasis on operations and maintenance was in- troduced through the Performance Oriented Op- 3. Teams then use those plans as a guide in de- erations and Maintenance Management Sys- veloping a proposed local multiyear investment tem, which was designed and tested in eight cit- program [PJM) integrated across several sectors ies. Also notable was the effort by the Roads and and constrained by likely resource availability dur- Highways Directorate General (not initially in- ing the PJM period cluded in the original programming) to shift virtu- ally all urban road planning into the IUlDP frame- 4. The teams are also required to prepare a work. complete financing plan, based on projected re- source availability during the PJM period (in- Partly because initial targets were so ambitious, cluding a plan that covers the possible enhance- there have been a number of problems in ILllDP ment of local revenues) and on responsible local implementation. Particularly in the early years, government borrowing, as well as on probable central government sponsored consultants often support from the central budget and/or exter- dominated PJM preparation, in a number of cases nal donors without providing adequate opportunity for mean- ingful involvement of local officials. Many loco! 5. Plans are also prepared for building a com- governments have not yet internalized the pro- mensurate capacity of local government to as- cess or developed the capacity to operate it ef- sume increasing responsibility for infrastructure de- fectively. It also became clear that the initial velopment, operation, and maintenance guidelines were too cumbersome and did not permit enough flexibility to adapt to varying local 6. On the basis of the multiyear PJMs, indi- needs and priorities. vidual cities prepare annual budget requests Nonetheless, IUlDP has generally been regarded 7. The programmes and budget requests so de- as a major accomplishment. Its basic characteris- fined are reviewed at the provincial and central tics, integrated planning across sectors based on levels and decisions are made about the alloca- city-specific conditions, the linkage to financial tion of central loan and grant funds. discipline through revenue improvement action plans, RIAPs, and to capacity building through the To date, IUlDP has been limited to functions that local institutional development action plans, traditionally had been the responsibility of the Min- LIDAPs, in and of themselves have been a dra- istry of Public Works Directorates General for Hu- matic improvement over the approach of the man Settlements (water supply, sanitation, drain- past. Also, efforts continue to be made to rectify age, neighbo~rhoodimprovement) and Roads problems as they are identified by revising IUIDP and Highways (urbanroads). It was reasoned that guidelines. trying to cover more functions at the start would add more complexity and threaten programme A number of steps have been taken at the na- viability. Other functions could be added later tional level to reinforce and institutionalize the pro- after the validity of the IUlDP approach had cess. The Ministry of Home Affairs presently requires proved itself. that local governments that have PJMs and RlAPs developed through IUIDP, use them, as the basis IUlDP has now been implemented nationwide un- for their submissions in the traditional annual der guidelines initially issued in 1985 and peri- budget negotiations with the central government. odically updated since then. PJMs have been pre- Similarly it now prescribes the development of LIDAPsas a routine requirement for all local gov- ernments. Ministry of Public Works instructions Theme Paper: Urban Development Strategies, Planning & Decentralisation: Emerging Trends 89 now require that all agencies within the Ministry have been an attempt to force coordination by conform their own investment plans to local PJMs combining in a single master agency the respon- where they exist. More important, perhaps, than sibility for planning, financing, and actually build- instructions on paper is the political power the ing all of an urban region's major infrastructure existence of a locally developed PJM creates. In works, as well as owning and developing the the early 1980~when local governments had no region's open land. Some of the Metropolitan coherent capital improvement programmes of Development Aut;iorities have grown to be large their own, they had little rationale for complain- and powerful organizations.'The Karachi Develop- ing about a central agency implementing a ment Authority, for example, in 1991 had 8,996 project in their territories without sufficient prior employees and, over its lifetime, had had own- negotiation. Now, when a PJM exists, there is a ership and development responsibility for some sound basis for appealing to any central agency 800,000 building plots. However. the experi- initiative that does not conform to it. Interviews ence with MDAs demonstrates that consolidat- indicate that such appeals generally are upheld ing capital-related functions under a single roof and that, accordingly, central agencies are pro- does not guarantee effective coordination. More- gressively less likely to try to initiate projects incon- over, the MDAs have come to be viewed as mo- sistent with PJMs. nopolistic bureaucracies, disdainful of elected lo- cal government. Even their financial survival now Although Indonesia's planning reforms are specific is in question. The MDAs have relied to a great to its institutional setting, the approach to inter- degree on profits from land sales to sustain op- governmental collaboration can be applied in erations. As the explosion in land prices has cooled other settings. It is not sufficient for central gov- in some metropolitan areas, as a result of finan- ernment merely to hand over responsibilities and cial liberalization in competing markets, some of funding to local authorities. They also need to sup- the seemingly guaranteed income of the MDAs port a program of capacity building which equips has disappeared. local authorities to perform their new functions. It now appears that the answer to horizontal co- Indeed, a number of similar initiatives have been ordination lies not in the creation of massive insti- embarked on, both in the Asian region and else- tutions responsible for all development-related where, having similar features of multisectoral activities throughout the metropolitan region, but investment programming, intergovernmental rather in simplification of duties. There is need for collaboration decentralisation of responsibilities some institution at the metropolitan level to take and local capacity building? responsibility at least for compiling a single capi- tal-investment programme from the project lists of individual jurisdictions, wrapping these in an lntergcrvernmental Coordination at explanatory text with accompanying maps, and Local Level enunciating the basic policies that are shaping Vertical integration between different levels of investment selection. 'This body should simulta- government is not the only challenge to intergov- neously have strong links with local government ernmental planning. Coordination is equally im- and with nationallstate government. It does not portant between the different independent juris- have to have infrastructure construction and fi- dictions that often comprise an urban area. A simi- nancing responsibilities, or be charged with met- lar need exists where towns are administratively ropolitan-wide land development. part of a predominantly rural district. Once the entire set of planned capital projects No fully satisfactorysolution to the problem of hori- affecting an urban region has been laid out in a zontal integration has been found. The Metropoli- single document, conspicuous incompatibilities tan Development Authorities (MDAs) created in among projects can be pinpointed and attacked. several of the large urban regions of South Asia Appropriate strategies for tying together sectoral investments can be debated. The appropriate institutional framework for doing this will vary by urban region. At the start, an ad hoc structure to support voluntary cooperation is preferable to cre- * For a range of examples. see: Eemiel A. Wegelin, IUlDP in a comparative international context, in: Hendropranoto ation of yet another formal institution. Under India's Suselo, John L. Taylor and Emiel A. Wegelin, eds. (1 995): current decentralization efforts, the Calcutta MDA Indonesia's Urban InfrastructureDevelopment Experience: has itself evolved in this direction, shedding many Critical Lessons of Good Practice, Jakarta. 90 China: Small Towns Development of its direct construction responsibilities and be- one another, increasingly face local poverty and coming a metropolitan planning agency, respon- environmental problems and, (2)to finance their sible for area-wide coordination. investment programmes, increasingly have to rely on local resource mobilization. Similar institutional changes at the local level are often also required with regard to small and Adjusting to these realities, governments in the medium-sized town development. The existing region, as elsewhere. have embarked on local government system is generally compart- programmes in support of gradually devolving mentalized, with district administrations cater- responsibilities for local infrastructure development ing oniy to rural interests and municipal gov- to municipal levels, within certain boundaries ernments exclusively responsible for urban ju- imposed, such as the need to be financially re- risdictions. Consequently, there is little com- sponsible and the need to target infrastructure monality of interests. At the interface, in the smaller investments which will attract private venture towns, there is a need for coordination mecha- investments and to capitalize on rural-urban link- nisms to ensure effective exploitation of rural-ur- ages which will help generate jobs for growth and ban linkages. Also, urban local governments poverty amelioration. lo would need to be convinced of the significant revenue potential that exists in licenses and fees There appears to be little long-run rational alter- charged on services offered to residents of proxi- native, from the point of view of central govern- mate rural areas. In addition, there is significant ments, but to continue to support local govern- scope for involvement of the local private sector ments in their development strategies. Increas- in many of the rural support project investment ingly, economic activity is concentrated in eco- types suggested in section 4.2 above in so far as nomic hubs in urban areas and their hinterland, they are commercial in nature. with national boundaries declining in importance from an economic policy perspective. Conclusion This means that central governments must be As a result of the international economic liberal- ready to (1) support MSlP processes at the lo- ization the chance of possible adverse impact of cal level, (2) adjust their legislative and regu- macroeconomic policies on small towns devel- latory frameworks accordingly (particularly opment has reduced: an import substitution policy with regard to local government functional re- behind protectionist walls is increasingly less fea- sponsibilities and the financial resources re- sible. Therefore, even in the absence of an explicit quired to perform these functions), and (3) pro- policy to support small towns development, this vide capacity building support to such processes. less distorted economic environment will gener- These measures would help ensure that their lo- ate significantly more market-driven opportunities cal governments are as best equipped as pos- for small town development in the years to come. sible to compete internationally and to combat local poverty and environmental problems. Global and regional economic and demographic trends push for national urban development strat- Strategies of fiscal incentives to influence the egies in the region (1 j to increasingly rely on location of investments work best in.conjunc- and support local investment programming strat- tion with support for MSlP processes, whereas egies, as urban areas increasingly compete with such strategies are increasingly unlikely to be successful in isolation.

laIt is clear. however, that the path towards decentralisation will not be easy. As Oillinger. 1994, op. cit. observes (p.4): What is slow and difficult is the working of new regulatory relationships between central and local government: the Ernie1 A. Wegelin conversion of what had been annual budgetary transfers ~l~b~lcoordinator within a central government into intergovernmental transfers that are transparent and predictable. and the development L'NDP/UNCHS/WorldBank Urban Management of credible local political systems. Programme. Prosperity & Sustainability of China's Towns: Lessons from North & South

John M. Courtney

Introduction China's geographically uneven economic growth, combined with the knowledge revolu- his is the era of the town in China's develop tion based on the spread of telecommunications, ment. The rurallurban interface will become is producing a vast floating population that pre- T a major force for the next wave of economic sents an additional potential wurce of social dis- development. The prosperity and sustainability of order in the major cities and increasingly ar- this new frontier of economic and social change gues for alternatives through the strengthening is dependent upon a sound program with the right of the economic and social base of China's small incentives to support job creation, urban service towns. provision, the management of the urban environ- ment and the maintenance of a quality of life. Key For further details on the four major issues of China's issues to consider are: towns see Annex A.

In the pursuit of prosperity it is essential The Global View that the s~ecialvalues that are uniquely Chinese are not lost. Social and moral COS~are part of Today more than half the world's population lives the pursuit of unbounded prosperity. in cities and towns: by the year 2025 more than two-thirds of the world's people will do so. The stress Prosperity and traditional cultural values are of such population growth is overwhelming. De- in conflict in the presently emerging urban China. spite growing investments in environmental infra- -With prosperity there are costs and the abuses structure, approximately 380 million urban residents inherent in unbridled economic freedom. Does the in the developing world still do not have adequate small town provide a middle ground for continu- sanitation, at least 170 million lack access to a ity of Chinese values and culture at the same time nearby source of safe drinking water. achieving prosperity and sustainability'? Cities in both the North and the South are living China's small towns remain a repository of with ongoing environmental degradation. Llrban important Chinese values. In the rush for pros- population growth is universal on this planet and perity in the major urban centers it is clear leads to common problems: congestion, lack of something is being lost. money to provide basic services, a shortage of tiousing, declining infrastructure, and overworked and underfunded local governments. Despite these undeniable facts, urban environmental 91 92 China: Small Towns Development problems, the Brown Agenda, often takes a back "Environment and Sustainability" usually conjures seat in global debates. Yet, the human face of images of nature, rather than of the built environ- the urban environment, as reflected in the day- ment of cities--their roads, sewers, houses, and to-day problems of the individuals who live in businesses--or of human interactions with and highly polluted areas, is inextricably linked to within the built environment. Since Rio, discourse the highly publicized Green Agenda of preserv- about environment has focused on the Green ing the world's natural resources. Agenda of natural resources and biodiversity. However, to a large extent, it is human activities The critical nature of urban environmental prob- that create environmental reality. Human concen- lems raises the question of whether cities can con- tration in cities and towns leads to cumulative ef- tinue to be desirable habitats. Can cities remain fects not only on the natural environment but also productive when living conditions become so on the urban environment, in which millions of deteriorated? Must financial well-being be sacri- people live every day and China's towns are no ficed to make cities better places to live? Most exception. importantly, why are the poor in both Northern and Southern cities most at risk from environmental The traditional logic of urban agglomeration decay? What can China learn from these experi- economies, which has traditionally neglected the ences. environmental consequences of urban growth, has been challenged. There has been a focus on Urban Environment and Sustainability the increasingly critical nature of urban envi- ronmental problems, showing that different kinds In recent years, more "accommodating" defini- of environmental problems vary with income tions of sustainable development have evolved. level (see figure 2 and table I], and their relation- The common trend and theme has been to ac- ship to urban economic growth. Of primary con- knowledge the strong linkage between environ- cern is the impact of environmental problems on mental policies and economic development poli- the residents of cities and towns, especially the cies. Sustainable development recognizes that the poor. Degradation and depletion of resources economy and the environment are not necessar- have serious implications for the future viability of ily in conflict, but are irrevocably intercon- cities. These problems are faced by all cities nected. and China's are no exception. How do we reduce some of these pressures and provide a real al- Clearly, the concept of sustainable development ternative? Small town development in China is has served as the catalyst for seeking a better un- an option. derstanding of the relationships between environ- ment and development. Reintroducing the con- "Are cities sustainable?" Most major cities, cept of carrying capacity, it can be said that "en- and many secondary ones, do not live within rea- vironmental protection... is an investment in the sonable patterns of resource consumption. Nearly economic carrying capacity of urban areas. all urban areas face increasing marginal costs for such basic resources as water, where For cities in developing countries, achieving even overconsumption drives utilities to seek water minimal levels of economic growth is critical to sur- at longer distances and to use increasing amounts vival. Acknowledging the role and importance of of energy to transport it back to the city. It is cities for economic growth, the World Health Or- the poor who suffer most from these increasing ganization (WHO) recommends costs, either by paying relatively higher ser- vice fees or by having insufficient service, be- "susfainabk lAtxrn devdopmmP' cause cities supply primarily areas that can af- should have as its goal that towns ford to pay for the service. 'The fundamental is- continue to support more productive, sue is not whether cities are sustainable, but stakand innovcrtive economies yet how to make them so. Human behavior deter- do so with much lower levels of mines the quality of the urban environment and resome use. " the quality of the urban environment determines Sustainable development is an ongoing, iterative the quality of human life in cities. Small towns innovative and interactive process and not sim- in China provide an opportunity to accommodate ply an end result. "The question is not whether cit- future urban growth in a quality urban environ- ies are sustainable but rather 'what needs to be ment. done to improve their sustainability.'" 'Theme Paper: Prosperity & Sustainability of China's Towns: Lessons from North & South 93 Social Infrastructure andprograms adaptation of rural migrants to urban living.

The consequencesof inadequate social infrastruc- Implement programs, targeted at ensuring the ture have been recognized with the rapid growth sustainability of urban development; give special of urban populations. Programs on urban infra- emphasis to "high-yield" programs, including adult structure already unable to meet the needs of literacy, primary education, preventive health pro- existing residents are now stretched to the break- grams, and urban extension services; promote and ing point. Urban immigration will continue, and support training and apprenticeship programs for human, institutional, and financial resources to technical training. Among socioeconomic groups, address increasing needs are likely to remain give priority to ensuring the availability of ad- limited. equate services for women, the poor and disad- vantaged. The challenge is to develop innovative interven- tions to overcome these limitations. China's Accelerate efforts to improve information, and small town development provides such an op- accessibility to information, on the benefits of im- portunity. A renewed focus on effective land- provements in education and health, the avail- use planning must include adequate environmen- ability of services, and the costs of these services. tal infrastructure--water, sanitation, drainage, Give priority to poor communities with presently transportation, and solid waste management, in limited access to such information. addition to a sound social infrastructure capable of alleviating hunger, homelessness, ignorance, For further details see Annex B: Urban Service Pro- and disease. vision-- Getting the incentives right There is ample evidence that when people feel a sense of involvement in their communities, and People and Place realize that their own efforts can make a real Chinese towns are distinct from those of other de- contribution to better conditions and prospects for veloping countries in that they perform the func- themselves and their children, they are prepared tion of storage reservoirs. The towns have helped to assume their share of responsibility for shaping to reduce massive rural population exodus to the the future of their communities. " cities. While the towns have many rural migrants, it is not clear whether such towns can satisfy the Cities and towns in developing countries do not needs of the rural population for urban amenities need to blindly follow Western models in manag- and better paying jobs and thus prevent the mi- ing urban growth in an environmentally sustain- grants from moving ultimately to the cities. able and prosperous way. They should be urged to use their own reservoirs of accumulated tradi- As urban populations continue to grow through tional knowledge and local experience, supple- natural increase and migration, the capacity of mented with technologies and techniques from cities to absorb the additional burdens is cdlled external sources when appropriate, especially into question. Traditional economic reasoning has those that substitute local human skills for capital. argued for concentrated urban growth: cities China has such resources and know how. concentrate labor and resources, resulting in economies of agglomeration; increasing urban A human resource development program that productivity supports increasing populations. Cit- would help strengthen the social infrastructure ies will continue fo grow until "negative externali- would include: ties" outweigh productivity.

Update of the objectives for human resource Environmental degradation, resource depletion, development and should be linked with and an eroding quality of life are the most visible sustainability concerns and include the need for "negative externalities" of urban economic and individual fulfillment, as well as social productivity physical growth. What are the environmental lim- and labor mobility. Particularly rural to town move- its to growth? Is there a need to revisit assump- ment. tions of economic and planning models in light of environmental priorities? China has such an op- Update inventories of urban and rural human portunity with its Small Town Development. resources and highlight issues and opportunities; include analyses of successes and failures in the 94 China: Small Towns Development Sharing Security and Prosperity of the private automobile. Although the European model is assumed to be more efficient in terms of Food and water resources will be the most signifi- land use and transportation energy, the newer cant influences on urban growth in the near fu- American and Australian models reflect the real- ture. The world food balance is changing as food ity of most recent urban growth in both developed production falls and rising food prices favor the and developing countries. In these cases most countryside and small town scarce water re- travel occurs within and among suburbs and is sources may prevent rampant urban growth. On difficult to address with public transport. Develop- the other hand environmental problems inherent ing countries show a high rate of private car own- in the consumption of energy, nutrients, and ma- ership and have developed sprawling city forms. terials can be overcome by changes in technol- Urban sprawl is particularly detrimental to the ogy and practices. China has a history of concern poor, who often are stranded in areas ill-served about the balance of man and nature. by public transport, making access to jobs even more problematic. While planned suburbs usu- In terms of water resources, tremendous urban ally are served by public transportation, un- water shortages are causing cities such as Tokyo planned suburbs, where the poor are likely to to import water on a massive scale from increas- live, rarely have access. China must learn from ing distances. Other cities, such as Mexico City, this experience. are depleting groundwater resources and caus- ing irreparable environmental damage. Rising The U.S. National Llrban Policy, Empowerment: A water costs will lead to water efficiency, and ulti- New Covenant with Americas Communities pre- mately, will constrain urbanization. Decentral- sents a compelling national vision for connecting ized town development enables water resources poor families living in distressed communities to the to be addressed more systematically. opportunities that exist in- the larger metropolitan region. The National Urban Policy is founded on Cities disrupts nutrient cycles as nutrients go four operating principles. to cities in the form of food and are not returned to the land in the form of fertilizer. However, It links families to work technology and changes in practices can over- It leverages private investment come the problems of nutrient depletion and con- It is locally driven sumption of materials. Shanghai, for example, It demands a rebirth in traditional values has made concerted efforts to return nutrients to the soil around the city and has become a veg- and offers a blueprint for implementing these prin- etable exporter. Calcutta produces twenty tons ciples through economic policies that promote of fish per day with the help of nutrients re- sustainable investments that help poor people and trieved from the sewage system. Increased use distressed communities share in the fruits of an of recyclable materials and a shift by industries expanding national economy. away from primary dependence on raw materi- als to dependence on recycled materials are rec- The Clinton Administration National Llrban Policy ognitions of environmental imperatives. addresses some of the same issues that China must contend with in its small town development. A shift in the pattern of industrial location away from natural resources and closer to cities offer- Sharing the fruits of Chinas Expanding . ing recyclables, may be a source of sustainable growth for cities and towns, providing jobs, in- National Economy: Conclusion and come, and contributions to the tax base. In addi- Recommendations tion industries based on recyclables can improve the urban environment by using less energy in pro- The Asian experience in dealing with urban de- cessing and transport and reducing the amounts velopment problems is in contrast to Australia, of municipal solid wastes. China has a long his- Europe, and the United States. Examples assure tory of attention to such matters. continual urban economic growth and progress and do not consider the possibility that cities in The traditional European urban form, character- both the industrialized and developing worlds may ized by a high-density city center served by pub- decline and decay. The fundamental question lic transportation, contrasts with the American and should be how best to integrate a reduction of Australian pattern of urban sprawl based on use urban poverty and environmental degradation Theme Paper: Prosperity & Sustainability of China's Towns: Lessons from North & South 95 into sustainable economic development initia- Developing Regional Solutions: Because the des- tives. Although many Asian cities face environ- tinies of China's cities and towns are inextrica- mental problems similar to those in Australia, bly linked, regional solutions must be developed Europe, and the United States, differences arise to respond to the interlinked urbanlrural prob- from their different resource endowmenrs and lems that are now emerging. different stages of development. Due to the na- tional primacy of most Asian cities, industry and Building on the competitive advantage of Small population tend to be more concentrated than in Towns: Because the key to building prosperous Western cities. Thus, Asian cities face more in- communities lies in establishing self sufficiency tense and serious environmental effects from China's future national urban plan should build urban economic growth and long-term upon the strengths of urban areas, especially the sustainability and prosperity comes into question. towns.

What works in Asia might not necessarily work Promoting Environmentally Sustainable Urban in developed countries. However, it is critical Development: Because China must preserve its to develop cost-effective and implementable stock of natural resources for future genera- policy measures that are consistent with the tions, the urban solutions must sustain long-term social values of the respective communities. economic growth while protecting and improv- China must therefore develop a unique approach ing the environment. The development of China's to the long term prosperity and sustainability of small towns should be an integral part of this its small towns. An approach that responds to (wends. China's special socioeconomic conditions is es- sential and above all that draws on the experi- Annex A ence of others, both good and bad in this impor- tant commitment of the development of its small towns. Prosperity and Sustainability of Small Towns in China's Regional Development Major issues for develop in^ prosperity and sustainability in China's small towns will be 1. Urban Environment

i . creating the right conditions for prosperity China faces special development challenges in in the small towns these small towns with a need to imwrove infra- structure and satisfy a large real dema'nd for hous- 2. Creating a vision of a quality life in Chinas ing and urban services that require sizable invest- small towns and how to achieve it ments. It is now a question of how to meet the demands for rapid growth of infrastructure with 3. Making a moral commitment to long-term adequate policy responses for effective urban sustainability of the small towns and environmental management.

4. Promoting economic development, job Cre- Social Infrastuctureand Programs ation and social opportunity in small towns With the expansion of production and continuous 5. Changing attitudes and behaviour towards increase in population, many of the Chinese towns small towns resulting from improved informa- have suffered from inadequate social facilities. tion flow sanitation and water services, and power supply. Currently the Chinese government is unable to 6. Supporting and strengthening of traditional provide financial assistance for town develop- Chinese values through the small towns program ment. As most of the towns are unable to gener- ate adequate funds of their own to maintain even 7. Accepting the possibility that the process of the present level of urban infrastructure, the exist- change will be disjointed and incremental. 'This ing urban facilities are likely to face increasing should not be seen as a limitation pressure as the towns grow in population. To im- prove the towns' funding situation, government A plan of action for China to develop a prosper- policies and actions are needed to ensure that a ous and sustainable towns program would include: higher percentage of the taxes collected from the 96 China: Small Towns Development town enterprises is used for town development their first contact with the urban way of life, and and that local resources are mobilized and in- where they find basic health, education, and rec- vested locally. reational and social facilities.

People and Place Annex B

Chinese towns are distinct from those of other de- Urban Services Provision - veloping countries in that they perform the func- Geffing the Incentives Right tion of storage reservoirs. The towns have helped to reduce massive rural population exodus to the Urbanization is proceeding rapidly, and it is pro- cities. While the towns have many rural migrants, jected that by the year 2020 more than half of the it is not clear whether such towns can satisfy the population of the developing world will live in cit- needs of the rural population for urban amenities ies and towns. Yet even as cities increasingly be- and better paying jobs and thus prevent the mi- come the focus of economic and population grants from moving ultimately to the cities. growth, they do not deliver on the promise of a better quality of life as expected. The quality of Small towns have emerged as the most dynamic major services is poor. Millions of urban residents element of China's national development and ur- do not have potable water near their homes, ba- banization in the postreform era. This has been sic sanitation is often lacking, and access to health made possible primarily by the open market policy services and education pose serious problems in toward the towns and their growing economic ac- many cities. tivities. If the current policy is allowed to continue for an extended period of time, it is likely that the Failures in the coverage and quality of urban ser- towns will assume a more important position in vices in developing countries are the result of more China's urbanization and development. China's than a lack of resources. The evidence shows that, cities are still among the most egalitarian in the in many cases, the resources devoted to urban world. services are substantial but used inefficiently'. Therefore, it is essential to look to the system of mobilizing and managing these resources, i.e., Sharing Security and Prosperity the institutional arrangements for urban service delivery. Over the last several years and for a By the end of 1984, some 33 million surplus labor- variety of reasons, the way governments ad- ers were employed in enterprises located in towns minister delivery of urban services has been and rural market centers. They constituted as reexamined. Of the seventy-five developing much as one third of the workers in some towns. countries with populations over 5 million, all but Since the 1979 economic reform, numerous restric- twelve have initiated some form of transfer of tions on the development of the rural economy p,ower to local governments. At the same time, have been lifted, and the state has permitted in- the role of the private sector in many areas tra- dividuals, families, and groups of persons and pro- ditionally reserved for government is being re- duction units to invest their capital in secondary assessed. and tertiary activities for profits. 'The task of achieving the right mix of incentives The main economic activities of the towns today to promote. better urban service delivery in any go beyond their traditional marketing functions. given country does not lend itself to universal They are not only the nodes for the collection and blueprints or recipes for success. A range of distribution of goods, they have also become the considerations must be balanced to find the ap- centers for rural industrial development since 1982. propriate scope, speed, and sequencing of the The revitalization of towns since the reforms has reform process in a given country. also brought back their traditional cultural func- tions. 'The towns are again the centers for the dif- Although the process of reform will not be simple, fusion of modern values and technology to the the potential payoffs are high. Managing and pro- rural areas. 'They are the places where rural festi- tecting the urban environment may be either very vals are held, where most of the peasants make costly or simply ineffective if the capacity to de- liver key urban services such as clean water, sani- tation, waste collection, and efficient transport cannot be rapidly expanded in the future. Well- Theme Paper: Prosperity & Sustainability of China's Towns: Lessons from North & South 97 performing, demand-driven urban institutions are ply systems, for example, households are forced critical to this expansion. Strong institutions in ur- to purchase water from vendors, at several mul- ban areas and sound intergovernmentalarrange- tiples of the costs of piped water systems. ments are critical to the effective management of air and water resources. Finally, if urban services ource: e er r an Services: Finding the Right Incen- 'Onnot be made responsive to ives TheBd~rldUBEnk.Washington, D.C. ,995 and financed sustainably, then the evidence sug- gests that it is the poor who will suffer most from the supply rigidity and implicit rationing that fol- References lows. 1. Making Development Sustainable. The World Bank Group and the Environment, 1994. Cities do not deliver on the promise of a better 2. The Human Face of the Urban Environment: A Report to quality of life to the extent they could. Despite the Development Community on the Second Annual the relatively high incomes of urban populations, Conference on Environmental Sustainable Development, the quality of services in major cities is poor. 1994. Ed. lsmael Serageldin and Michael Cohen. April At least 170 million people in urban areas lack a 1995,The World Bank, Washington, D.C. source of potable water near their homes, and 3. Better Urban Services: Finding the Right Incentives. The in many cases, the water that is supplied is pol- World Bank, Washington, D.C., July 1995 luted. Nearly 350 million people in urban areas 4. China: A Nation in Transition. Ed. Debra E. Soled. lack access to basic sanitation--in many large Congressional Quarterly Inc. Washington, D.C., 1995 cities in developing countries, less than 70 per- 5. Governing China: From Revolution through Reform. cent of municipal solid waste collected and only Kenneth Lieberthal. 1995 50 percent of households are served. In Mexico City the average commute to work is between 6. China Wakes: The Struggle for the Soul of a Risbg Power. Nicholas D. Kristoff 8, Sheryl Widun 2.5 and 3.5 hours. Although data on the cover- age of education and health services in urban 7. China Pop. Jianying Zha. New York Press. 1995 areas Ore the aggregate 8. Who WillFeed China. World Watch Environmental Alert tics for developing countries are disturbing: in Series. Lester Brown, 1995 half of low-illcome countries. fewer than half of 9.Evening ,-hatsin Pmbing ,-.,inart school-age children are enrolled in primary Perrvlink, 1992 schools. 10. Beijing Striding Forward to the 2 1st Century. Beijing Municipal Institute of City Planning and Design, These service failures have wider economic and December 1992 distributional implications. Improving urban service delivery is essential to any strategy to protect the urban environment. Recent work on the infrastruc- ' In Jakarta. Indonesia, 800,000households have ture sectors notesthat a lack of accessto, or the installed septic tanks at a cost equal to three times the amount that would have been required to provide unreliability of, infrastructure services can have Connectionstocondominialpipedsewerage~ adverse effects on growth, forcing firms to seek more expensive alternatives, which may in turn have unfavorable impacts on profits and levels of production and consequently on investment and job growth.

Service failures also have distributional implica- tions. The economic benefits of urbanization have not been uniformly distributed. As countries have urbanized, poverty has urbanized as well. It is now roughly estimated that about 25 percent of urban populations is poor, which represents about 400 million people. Failures in urban service delivery disproportionately affect the poor. As a result, John M. Courtney many poor households must resort to alternatives School of Urban and Regional Planning that often imply not only lower quality but also University of Southern California higher costs. In the absence of piped water sup- Los Angeles, California 90089-0042 98 China: Small Towns Development PROSPERITY DEVELOPMENT AND SUSTAINABILITY A Case Study in Shenzhen, China

Xiaochen Meng

Abstract 1. Arable land is decreasing rapidly and is ac- companied by the agricultural shrinkage. Grain supply now depends on imports from national and Shenzhen is a municipality consisting of a special international markets. Even for vegetables, only a economic zone and 19 towns. It has experienced third are locally produced. fast economic development in the past 15 years but has also suffered from land misuse, agriculturalshrink- age and environment degradation. Thhis paper 2. The land development boom has been ac- starts from the economic boom in the 19 towns, companied by land waste. Huge areas of land analyzes the accompanying land-use problems. are lying denuded of top soil without green cover, points out the economic, social and environmental no longer suitable for farming, and are not needed effects, and concludes with the importance of land- use and management policy for sustainahlity. for new construction. 'This is a waste of an impor- tant agricultural resource.

3. Irrational land-use patterns reflect the current Introduction irrational economic structure and the lack of sound market analysis. Large areas of rural land henzhen is a city consisting of a special eco- are transformed for manufacturing and com- nomic zone and 19 towns which are or merce, but infrastructure and public services are S gan-ized into two districts, Baoan and in short supply. Longgang (B&L).The total population in B&L is 1.88 million and land area is 1962 sq. km. In the past 15 4. The environment is threatened by unsound years, these towns experienced fast economic de- land development. Cleared land causes soil ero- velopment, but also suffered from many problems. sion that leads to increased silting of rivers and One of the most serious problems is land use. flooding. The main issues and side effects are: 5. Land revenues provide an unstable base be- cause of the special social economic structure consistinf of local landlords, migrant laborers, and Hong Kong enterpreneurs. 100 China: Small Towns Develowment

GDP of 19 Towns (1980-1 994) the annual growth rate exceeded 40%. 12 the highest being 10 60% in 199 1. Only in one year was the E 8 .--0 rate under 20%. 6 c 4 2. At the be- ? ginning of 1980s. 2 these towns were 0 typical rural areas 1980 1982 1984 1986 1988 1990 1992 1994 with 75% of laborers 1981 1983 1985 1987 1989 1991 1993 working in the fields. Year Since then, the in- dustrial structure has Figure 1 rapidly changed. The secondary indus- From the experience of B&L districts, many lessons try GDP increased from 12% to 55%, and became can be drawn for town development nationwide, the most important part of the economy. Primary including transfemng land from rural management industry decreased to 1 1 % (Fig.2). In 1994, 77% of systems to urban systems in a timely r7'lannerl plan- labor worked in manufacturing and construction. ning before developmentf setting UP an arable Only 2.7% remained in agriculture. These figures land protection Program, and strengthening 10- highlight the industrialized noiure of the area. cal land market management and regulation. 3. GDP per capita improved significantly, from The Economic Boom 1980 to 1993. Population increased from 239,000 to 1 1.76 millions, at the same time, GDP per capita 1. Since the economic reform and opening to increased from 5 18 to 6,501 yuan ($783) (Fig. 3). It the outside world in late 1970~Shenzhen's was about 1.5 times larger than the national aver- economy has rapidly expanded. The towns in B&L age of 2644 yuan2($318). In the same period, ru- districts fell behind the special economic zone, but ral average income per person also increased also started taking off at the beginning of 1990s from 152 to 3,692 yuan, more than twice the na- (Fig.1). In the 15 years from 1980-1994, GDP in- tional average. creased from 123 million to 12 billion'. For 6 years, Rapid economic devel- opment is accompanied GDP Structure of 19 Towns (1980-1994) by many problems and one of them is land-use

80 I , I , I I I I I , I management.

seconaary lnausrry Land Use Problem and its Effects 1. Decrease of ara bie land. One of the costs of - economic development '--. is the loss of arable land. A-- In the past 15 years, ar- able land in 19 towns de- 0 I I I I I 1 I 1 I I I I 1986 1988 1990 1992 1994 creased from 28,600 1981 982 1983' 1985 1987 1989 1991 1993 hectares to 4,300. Only Year 15% of the arable land was left (Fig. 4). 'There are three peak periods of loss, Figure 2 each progressively Theme Paper: Development & Sustainability--a Case Study in Shenzhen, China 101

Land Use in Baoan & Longgang Districts Towns Towns Built-up Area Flattened Area Flattened/Built-up (sq. km.) (sq. km.) (sq. km.)

Xixiang Fuyong Shajing SoawQ Guargmhg Gongming Shiyan Longhua Guanlan Pinghu Buji wng Lowwng Pingshan Kengzi Pingdi Kuichong Naxx> m

- - Table 1 greater (Fig. 5). In the last peak (1992-1993),an- ing for non-agriculture construction but with the nual rates of decrease were 33% and 44% respec- depressed real estate market, they just remain tively. By the end of 1993, the ratio of arable land flattened and unused. The area of cleared flat- to agricultural population was 0.28 mu (0.046 ac), tened land is close to the total built-up area of 17% of .the national average. the 19 towns. For 9 of the 19 towns, cleared and flattened land exceeds their built-up area, Accompaning the loss of arable land was the and the highest, Longhua and Kengzi, is over decrease in grain production, from 110,000 tons 200% (Table 1). in 1980 to 5.100 in 1994, a 95% loss. Where did the farm land go? According to the survey in 1994, In addition to this land waste, the built area land 43% of arable land was transferred to non-ag- use is also inefficient. There are many empty riculture use; 13% was occupied by rural hous- new buildings and half-built buildings along the ing; 27% was transformed into fish ponds and or- main roads. The empty factory buildings account chards. It is reasonable that farm land be trans- for over a million sq. meters. In Baoan district, only ferred to other uses with higher marginal revenues. 15% of the houses in the market were sold in 1994. But has this land been used well and created This situation results from fhe hot real estate mar- greater returns? In fact, no. ket in the early 1990s which ignored the real de- mand. Many real estate companies wanted to 2. Land waste. According to the land use sur- rapidly make money from speculation, adding to vey data in 1993-1994, the developed land in the chaos in land management and the weak- B&L districts was 337 sq. km. including 161 sq. ness of imperfect regulation. As a result, consider- km. of cleared and flattened land, 48% of the able land resources have been wasted and com- total. Shenzhen is a hilly area with many small pounded by unsound real estate development. hills under 100 meters in altitude. These small hills are flattened and cover the surrounding 3. Irrational land-use structure. In the total built- farm land. The green cover is destroyed on these up area of the 19 towns, manufacturing and com- flattened lands and they are no longer useful for mercial land occupy 53%; housing 38%; and pub- agriculture. These cleared land areas are wait- lic service and infrastructure only 9% (the lowest is 102 China: Small Towns Develo~ment

GDP per Caplta in B&L nual soil loss of 960,000 tons, (1340 tons per sq. km3). Most rivers in Shenzhen area are quite small so eroded soil are deposited in these rivers, raising the river beds higher and causing floods. Starting in the 1 990s. floods in- creased year by year and have become a threat against eco- Year nomic development and people's lives. Figure 3 5. Special social 4.4%). With an average of only 6.8 sq. meters of structure. Large scale land development in B&L public land per capita, all towns are in serious districts occurred under the new market economy. need of public facilities such as libraries, hospitals, Regardless of the legality, most land rent goes into sports grounds and parks. Most towns do not have the peasants pockets. With the increased income, good water supply and sewage systems, and sani- they no longer work in the field, nor run businesses, tation is very poor. This is the result of haphazard or work in factories. They collect rent and become land development without planning. High profits landlords. On the other hand, hundreds of thou- attract companies to invest money in housing and sands of rural migrants are working for Hong factory building construction and without paying Kong enterprises in the buildings that the peas- for public facilities and urban infrastructure. ants built. The average monthly wage per worker is 300-400 yuan and living conditions are 2 sq. 4. Environment degradation. When hills were lev- m. per person with 12 people per room in a dor- elled and surrounding farm land was covered, mitory. This unique socioeconomic structure is soil was dispersed unevenly. The levels of lots are made up of approximately 19% local landlords, different and when the rainy season brings about 80% migrant workers, and 1% Hong Kong en- soil erosion on a large scale. Taking the Baoan dis- trepreneurs. Because the latter two fluctuate, trict as an example, we find the manmade ero- the structure is unstable. Hong Kong entrepre- sion area is 128 sq. km., adding to the natural ero- neurs arrive with export contracts, rent space in a sion area 204 sq. km., resulting in a soil erosion area factory building, employ workers and leave when of approx 47% of the total land area with an an- they finish the contract. New entrepreneurs will come with new con- tracts. However with costs increasing in Arable Land (1980-1994) Shenzhen, more and more enterprises 500 have moved to other V) places in the Pearl 400 River area. Migrant S workers are single 2 300 6 young people and of- g 200 ten change jobs. Be- B cause they do not 0 100 have families with I them, they leave when 0 factories move to 1980 1982 1984 1986 1988 1990 1992 1994 other locations. Local 1981 1983 1985 1987 1989 1991 1993 landlords construct the Year buildings and houses

Figure 4

------Theme Paper: Development & Sustainability--a Case Study in Shenzhen. China 103 for rent and are not engaged in the management cially the public facilities. Without planning, re- of factories. When the factories move, they have sources are unavoidably wasted. Urban planning only empty buildings left. This socioeconomic struc- in Shenzhen was limited to the special economic ture cannot support long-term sustainable devel- zone before 1993. When planners began to con- opment and will undermine prosperity in the re- sider the 19 towns in the municipal master plan, gion. they found that the existing land development had extensive problems. Almost every village had Policy and Management Issues developed manufacturing and the dispersed lo- cations made the infrastructure construction very 1. Transfers between two land-management sys- costly. The road system was formed already, so tems. 'There are two land-management systems that when pipes were laid, roads had to be dug in China, urban and rural. Urban land belongs to up again. It is very difficult to adjust the spacial the nation and is distributed the government distribution and rationalize land use because the through planning and the market. Rural villagers peasants do not like to give up land that is under om sural land belongs to the and they have to their control. get government approval when they change from farm use to non-agriculturaluse. The govern- 3. Protecting arable land with right measures. ment has the right to take over farm land for ur- China has a huge population but limited farm ban development with compensation to the peas- land, Food production is a crucial issue and will ants. In places with high rates of economic devel- be a disaster if the arable land is not well protected opment like Shenzhen, overdevelopment of land from unsound town development. Shenzhen gov- and waste occur if the management system does ernment created the arable land protection plan, not enable the timely transfer from rural to urban. to keep 300,000 mu (20,000 ha.) of farm land for Peasants often develop land without planning and food production. However the quota was subdi- without approval, which creates problems for the vided and allocated to every district, and further management and future development. Shenzhen to every town and to every village. Villagers set up two districts for the 19 towns and incorpo- choose land not according to land quality and rated them in urban management system in 1993. best use but location. Land next to roads and built- Later, the municipal government issued the land up areas was developed for markets and the ar- management regulations that allow every rural able land in remote areas was kept, usually being household to keep 100 sq.m. of land for housing, of poor quality, of small size, and dispersed. In 200-300 sq. m. for public facilities, and every per- many villages, the land allocation could not be son to use 100 sq.m. for non-agriculturaldevelop- implemented. This is not the right way to protect ment. When these regulations were issued, the de- arable land, we have to find better ways to do it. veloped land area in all of the towns had already exceeded these quotas. In some towns, it was more Arable Land Lost Every Year than 100% over the quota. The regula- 80- I I I I I I I T tions could not be u implemented. When 60 - peasants saw the huge land benefit, it a 40 - became very diffi- V) cult to take the land from their hands. 20 I

2. Planning for de- 0. I I I I velopment. Town de- 1980 1982 1984 1986 1988 1990 1992 1994 velopment requires a 1981 1983 1985 1987 1989 1991 1993 master plan to orga- Year nize land use for dif- ferent industries and ~i~~~~5 infrastructure, espe- a 104 China: Small Towns Development

4. Sfrengthenlng management and regulation. In to sustainable development is to achieve greater the hot real estate markets of the early 1990s. prosperity with less resources and establish harmo- many companies and enterprises were involved nious relations between human society and na- in land development in Shenzhen. Driven by the ture. Whether China's economic development attraction of huge profits, many illegal projects oc- moves toward sustainability or stays in a high re- curred. According to investigations in Baoan Dis- source-consuming mode, the role of small town trict4, of the total 173 real estate projects, 29 or development will be decisive. only 17% are legal. According to government regulations, rural collective-owned land is not al- lowed to be marketed. However, of the 173 I Statistical Yearbook of Shenzhen 1995. Statistical Yearbook of China 1994. projects, 1 15 or 67% used collective-owned land. Department of Urban 8, Environmental Science, Peking This situation is a problem of management and of University. Study on Environmental Planning of Baoan imperfect regulations. Shenzhen has set up three District, Shenzhen City. levels of land real estate market. The first level is Baoan District Government. The Investigation Report of controlled by government that decides on the Real Estate Market in Baoan District, 1994. amount of land for development every year ac- cording to the predictions of economic develop- ment and land market demand. Studies are needed in this area to analyze and predict the market.

Conclusion Town development in Shenzhen has many achievements, t~utat the same time, has brought with it many problems which threaten economic and environmental sustainability. Lessons should be taken from the Shenzhen experience in land policy and urban management. The interface of the urban and rural economy are the small towns and they will play an important role in China's economic development and urbanization. A sound Professor Meng development model for small towns will have Department of Urban and Environmental direct effects nationally because of their large Sciences numbers, wide distribution and close proximity to Peking University, Beijing 100871 the natural environment and resources. The key P. R. CHINA Prosperity, Policy Reform and Town Development in China

Zhaoliang Hu

Abstract The Concept of Town The reform policy and openness to the outside world n China, towns are those administrative units has accelerated town development in China. From that have a town government, and are 1983 to 1994, the number of statutory towns in- refereed to as statutory towns. This paper creased from 2,786 to 16.210. 1,100, an average of I new towns per year. The total population of the towns examines statutory towns. According to inter- increased from 45M to 107M. But the average popu- national standards, towns are small cities, which lation per town decreased because approximately are a basic part of the urban system. Usually 30 large towns have been upgraded to municipali- ties every year. towns are divided into two categories in China: large towns which are the centers of counties Policies that have favored town development are: and districts, and small towns. 'They form two (a) openness to the outside world at different lev- levels in China's urban system. The standards els including setting up special economic zones. for statutory towns are: opening the coast areas, river valley areas and border areas; (b) reforming the economic system including separating political und economic man- a. The place where county government is lo- agement and establishing a market economy: (c) cated; agricultural refom including setting up a respon- sibility system, developing township enterprises and commodity production: (d) population policies b. Townships with total population under 20,000, including household registration reform. labor * but with non-agriculturepopulation in the central market and technology market improvements and built-up area of over 2,000; family planning.

Town development in Chino still has o long way to c. Townships with total population over 20,000 go because (1) the agricultural labor is still 70% and the non-agriculturepopulation in the central of the total and is a strong driving force for town built-up area over 10%; development: and (2) the implementation of policy refom is a gradual and unbalanced process. 106 China: Small Towns Develowment - d. In ethnic areas, remote areas, mountain ar- cording to this source, the number of statutory eas, small mines, small ports, tourist areas and towns increased from 2,786 in 1983 to 16,210 in border trade ports, statutory towns can be estab- 1994, 5.8 times within 12 years. The population in lished when necessary even though non-agricul- towns reached 106.71M in 1994 from 44.86M in ture population is under 2,000.i2 1983, an annual growth rate of 7.5%. Town popu- lation nationally increased from 4.4% to 9.1%. Under the category of statutory towns, there are many places where there is a concentration of Town population was 41.7% of total urban popu- non-agriculture activities. Some could be towns lation in 1994. The increase in urban population based on international standards, but in China, from 1983 to 1994 included two-thirds in towns. they are trade towns and are included in rural area Towns are an important part of the Chinese ur- statistics. banization process.

Policy Reform and Town Prosperity Changes in Town Household Registration A series of policy reforms have improved the pros- Year Town Town Urban perity of towns. The most important ones are: Number Population Population (million) (%) (%) a. Rural economic reform. Policies have drawn 1983 2,786 44.9 4.4 14.6 surplus labor to the towns: e.g., setting up of the production responsibility system, develop- ing a commodity economy, township enterprises, allowing labor migration, long distance trading. b. Adjusting town standards. After the adjust- ing of statutory town standards in 1984, the number of statutory towns increased. c. Opening on different levels. Some special eco- nomic zones were opened in 1980, followed by the coastal area in 1984. In 1992, some river and border areas were also opened to the outside world. These areas prospered, the economy im- proved, and the towns increased in scale and number. d. Economic system reform. Commodity, real estate, labor, technology and finance markets were set up gradually. Reform forced enter- prises to operate within economic laws. Admin- Table 1 istration and economic management were split.

Reform, from planning to a mqrket economy, is a complicated process. Adding to the variety of Importance of Towns Is Not Reflected in differences among regions, the process of re- Household Statistics form has been long, unbalanced and incremental. These aspects are also reflected in the develop- The town population recorded in household sta- ment of towns. tistics contains only the non-agriculture population. With the development of the market economy, 3. Towns and Household Statistics the actual town population exceeds the statistics.

China has a three-thousand-~earhistory of house- a. Most people in the agricultural sector who live hold registration management. Household statis- in towns are working in secondary and tertiary in- tics are the main source of population data. Ac- dustries nowadays. The household statistics record 'Theme Paper: Prosperity, Policy Reform and Town Development in China 107 e. A temporary-popu- Land-use in Baoan EL Longgang Districts Towns lation survey made in Beiiina in 1994 found that actual Towns Built-up Area Flattened Area FlattenedIBuilt-up (sq. km.) (sq. km.) (sq. km .) temporary population was 5 times the census. Xixiang Fu yong f. The investigation of Shajing Jiangyin city, Jiangsu songgang Province found that 43% of Guangmhg the town population com- Gongrning mutes every day. They live Shiyan in surrounding rural areas but Longhua work in towns, like the com- Guanlan muters in developed coun- Pinghu tries. They are not reflected in Buji the above statistics. Accord- Henggang ing to the study in Jiangyin, Longgang non-agriculture residents in Pingshan the household statistics are Kengzi only a third of the number of Pingdi people who are actually Kuichong working in the town.6 Nun3 mew Unbalanced Distribu- tion and Table 2 Development The level of development of towns in China is re- them still as rural population, because the popu- gionally unbalanced. According to the household lation classification in statistics reflects the differ- statistics of 1994, the highest proportion of town ence in residence, not occupation. population to total population was 16.2% in Guangdong, and the lowest was 3.2% in Tibet. The b. Immigrants to the towns are not registered as unbalanced distribution of towns is a reflection of urban residents. 'They are classified as temporary unbalanced economic development among re- population. In fast developing areas, the tempo- gions. There are two types of areas that have a rary population has exceeded the local residents, high level of town development: by 3-4 times in some towns in the Pearl River area and 1-2 times in Zhejiang.3 a. East coast areas like Guangdong, Hainan, Jiangsu and Zhejiang had town populations above c. In the census of 1990, the temporary popula- the national average. These areas benefitted from tion living in towns for more than 1 year were clas- the fast economic growth of market economy sified as part of the town population. The census after reform, so town population increased rap- data are close to reality. According to the cen- idly. Guangdong and Jiangsu have the highest sus, the'urban population in 1994 was 343M, 29% town po~~lationincrease during this period. of the total, 31% higher than the household statis- tics data.45Based on this proportion, the town b. Northern industry, mining and forestry areas like population in 1994 should have been 12% of total Heilongjiang, Jilin, Neimeng and Ningxia, also have population. town population proportions above the national average. Because of the industrial structure, the d. There were 37,196 trade towns in 1992 with av- proportion was already high before the reform. erage non-agriculture population of 398 per town. Towns in these areas did not develop very fast af- The total was 14.8M Adding this to the town popu- ter reform. lation, the national total would be 13% or 1.4% more than the statistics. 108 China: Small Towns Development I I ~hedirection of reform of the population manage- Survey in 2 Statutory Towns and 26 Township ment system should be: first to classify rural and Centers, Jiangyin, Jiangsu7 urban population according to their residence; and second to classify agriculture and non-agri- Total Non- Agriculture culture population according to their occupation. Population Agriculture This will reflect the reality and integrate rural and Residents 1 78,170 1 14,855 66,315 urban household management, and improve town de~elopment.~ Temporary 22,148 1 3,028 9,120 Commuting 150,926 The Constraint of Township Enterprises Total 35 1,244 DistrCbution on Town Development Township enterprises have had rapid growth since I I economic reform. They have become an impor- Ta bie 2 tant driving force in the national economy; how- ever, they are very dispersed in location. There With deeper reforms and wider opening to out- were 20.8M enterprises in 1992, most of them side market, inland areas will have a high growth located in traditional villages. period in the future and will be accompanied by the high growth of town population. The advantages to locating an enterprise in a village are low start-up costs and convenience 'Che Restraint of Household Registration of taking care of the farm. But the major disad- vantages are: (a) Proximity: They are close to Policy on Town Development the village but far away from market, creating The household registration system is a serious con- difficulties for the supply of materials and in- straint to town development. The effects are as formation. (b) Dispersion: It is difficult to ob- follows: tain reliable infrastructure for the enterprises in dispersed locations. (c) Duplication: Basic in- dustry is duplicated and competed among vil- a. Because rural migrants cannot register in lages;. (d) Pollution: Small scale and backward towns, they are discriminated against in both technology do not have the ability to manage pol- employment and education, . lution. (e) Inefficiency: Infrastructure occupies large areas of land but is not efficiently used. b. Migrants cannot change their household reg- According to the investigation in Kunshan, istration from rural to urban, so they keep their ru- Jiangsu, the agglomeration of non-agriculture ral house and land. This presents a major obstacle land use can save 5-1 0% in land and 10- 15% of to the scale economy of agriculture. investment in infra~tructure.~(f) Personnel complications: It is difficult to run an enterprise c. With the registration constraint, many peasants with market standards with the interventions run their manufacturing enterprises in villages. The of the political and administrative leadership in dispersion of secondary industry in small villages is villages. This makes the personnel relations very not only inefficient, but also'slows town develop- complicated in the town en'terprise. ment. Dispersed distribution has become an obstacle for The above constraints have been weakened with the further development of township enterprises. the economic reforms and the setting up of mar- The only way to step out of rural community con- kets, like commodity, material, labor, technology trols is to build industrial zones and establish the and real estate markets. I I The Constraint of the Constitution Town Population as a Percentage of Total OnTown Development Population in Household Statistics The statutory town is both a residential and Provinces Municipalities Autonomous Regions administrative unit. According to the stan- 1 983 1994 1994-1983 dards set by the State Council in 1982. cen- tral economic towns with GDP over 200M National Total 4.4 9.1 4.7 yuan and non-agriculture population over 60 thousand can be upgraded to munici- palities. There are many towns at present Beijing 3.5 6.9 3.4 which have achieved this level but still re- Tianjing 1.6 5.1 3.5 main at town level. For example, Shengze, Hebei 1.4 5.6 4.2 a big town in Jiangsu, is one of the four na- Shanxi 2.8 9 .O 6.2 tional silk export bases with a population of Neimeng 10.8 12.5 1.7 80,000.Its GDP in 1993 was over 1500M yuan, Liaoning 7.7 9.2 1.5 among midsize cities levels and higher than Jilin 13.2 14.3 1.1 some county capitals in the northwest. Heilongjiang 10.8 15.1 4.3 Longang, a large town in Zhejiang, is the Shanghai 5.6 10.7 5.1 economic center of Aojiang river valley with Jiangsu 3.6 11.4 7.8 population of 135,000.There are also some Zhejiang 5.0 11.0 6.0 large and powerful towns in the Pearl river Anhui 3.3 7.4 4.1 area. Fujian 5.5 9.6 4.1 Jiangxi 5.2 9.6 4.4 There are two reasons that these large towns Shandong 2.0 7.8 5.8 could not be upgraded under the constitu- Henan 2.4 5.8 3.4 tion. (1) Usually municipalities are set up on Hubei 4.1 8.5 4.4 a county basis. County government loca- Hunan 4.2 7.1 2.9 tions are municipal government seats. Those QJwlCw 5.2 16.2 1 1 .O towns that are not the seats of county gov- Guangd 4.2 9 .O 4.8 ernment will maintain their position as towns Hainan 13.3 in this process. (2)The higher level of gov- Sichuan 3.8 8.7 4.9 ernment such as county or municipality do Guizhou 3.6 6.9 3.3 not like to upgrade these towns because of Yuannan 3.3 8.0 4.7 the financial implications. Upgrading large Xizang 3.5 3.2 -0.3 towns to municipalities will weaken their fi- Shannxi 4.2 7.7 3.5 nancial influence as centers of revenue col- Garw 3.8 6.7 2.9 lection. Qin hai 3.8 9.2 5.4 Ningxia 4.2 10.9 6.7 The side effects of these large towns that Xinjiang 7.4 9.0 1.6 could not be upgraded are first, the num- ber of towns is quite large and not suitable Table 3 for inclusion in the urban system; second, most revenue from these towns is turned over economies of scale as well as the externalities. to higher government so that they do not have These industrial zones will promote prosperity in the much money for investment in the town.'' towns and small cities. 1 10 China: Small Towns Development

References I The State Council, Ratification Circular on Ajusting the 1. The investigation group of town development and Standards of Statutory Towns Proposed by the Civil Adminis- migration in coastal areas of China, Town Development tration, 1984. and Migration in Coast Areas of China, China Financial References 3 Economy Press, 1989 Zheng, Kunshen, The Situation and Development of 2. Zhou. Erliu et 01.. The Study of Rural and Urban Small Town Construction in Rural Areas, in References 5, Coordinating Development People' Press of Zhejiang, pp165. 1991 The National Statistics Bureau, The Abstract of Chinese Statistics, China Statistics Press, 1995. 3. Gu, Chaolin, China Urban System. Business Press, 1992 References 9. 4. Shen, Yimin et al., Migration of China, China Statistics References 8. Press, 1992 The Statistics Bureau of Jiangsu Province, "Sample 5. Study group of the State Council, Town Development Analysis of Towns", Town Regional Anolysis, China Statistics Policy and Practice, China Statistics Press, 1994 Press. 1987. Ma, Kai, "Reform Deepening and Town Development", 6. Hu, Zhaoliang. "The Adjustment of Administration Position in References 5, pp17. and Town Development". Urban Studies, No.1, 53-55, 1994 References 5, pp5 1.57. 7. George C.S. Lin, Laurence J.C. Ma," The Role of Towns in lo References 6. Chinese Regional Development: The Case of Guangdong Province". International Regional Science Review, 17- 1; 75-97, 1994 8.Laurence J.C. Ma and Ming Fan," Urbanization from Below: The Growth of Towns in Jiangsu, China". Urban Studies, Vo1.30, No. 10, 1625-1645, 1994 Professor Hu Department of Urban & Environmental Sciences 9.Hu. Zhaoliang, Peter Foggin, "Chinese Cities after Reforrn and Opening to the Outside World". China City Peking University, Beijing 100871 Planning Review, Vol.11. No.1, 12-24. 1995 P. R. China PART 11. SUMMARY OF CHINESE WRITTEN CONTRIBUTIONS

Official Speeches

Complied by John Burfield

Official Speech 1 yet changed .Local government management is still unable to cope with overall planning and re- sponsible administration. The domicile control Background and Policy Guidelines of system, the land management system and the the Reform of China's Small Towns social security system are all in need of updat- ing and improvement. Weak town planning and the tendency to permit leapfrog and ribbon de- Zhang Haoruo velopment causes great difficulties with the pro- vision and maintenance and servicing of infra- In the 1950s the government of China adopted structure. policies restricting free movement of popula- tion between rural and urban areas compelling Recognition of these prot~lemshas led to a set of farmers to produce more and thereby driving reform policy measures being attempted on a prices of produce down. This resulted in low in- pilot basis in 57 towns. Numerous changes are come and consumption levels in the urban areas being attempted including: and contributed towards realizing the States In- dustrial targets. The success of the industrial- * ization policy was at the cost of rural economic The strengthening of the capacity of lo- development which led to excessive surplus cal governments by improving planning, rural labor of more than 120 millions increas- introducing innovative investment plan- ing by 10 millions annually. This led to mass ning, updating residence controls and in- migration towards the cities together with at- troducing new land management ap- tendant problems. The siting of industries in ru- proaches in the case of the disposal of ral areas frequently exacerbated the separa- farm lands by immigrants to the towns. tion between rural and urban society. More re- * cent policy reforms, while encouraging more The improving of revenue management, rapid development has shown that the separate accurate cost forecasting and responsible pattern between rural and urban areas has not fiscal management by introducing greater control t~ycounty level is recommended. Zhang Haoruo- First Vice Chairman, State Commission for Restructuring Economic Systems 1 12 China: Small Towns Development * The reforming of the social security system ment is now thought to be the appropriate ap- the promotion of holding shares in public proach. The current domicile registration re- enterprises, and the merging of small en- quirements mitigate against rural urbanization. terprises to counter dispersion are being considered. The Ministry of Construction is responsible for the planning and construction of small towns. * 'The strengthening of rural service net- Almost every small town now has a sanctioned works and the development of trade or- development plan which guides organized de- ganizations along with savings banks and velopment. Legislation with regard to city plan- cooperatives is to be encouraged, and will ning, the Planning Construction and Management all contribute to the improvement of the of Villages and Market Towns and the Ministry's investment climate. The absorption of own Regulation for Town Planing have all been rural migration will only be possit~lein promulgated since 1990. The Ministry supports backward and weakly managed small the pilot project approach with the following towns after heavy investments are re- objectives: alized in urban infrastructure. The pilot towns involved will then provide an ex- * small towns should be developed within a ample for other small regional planning context;

* their development is closely related to broader economic and social issues; Official Speech 2 * they should be planned with a view to ra- tionalizing land use and protecting the Speech at the Opening Ceremony of environment. International Seminar on China Small Towns Development Each of the 2200 counties in China has been asked to select 1 or 2 small towns for experimental programs. The aim is to have 5000 small towns Mr. Mao Rubai by the year 2000, and 8000 by the year 2010 which are to have a modern and proper layout In 1979 it was decided to reform the economic with sufficient infrastructure to respect the system, abolish the peoples commune system and urban environment. link remuneration to output. This change gener- ated incentives which greatly improved the ur- The degree of attention being paid to the devel- ban economy, solved the problem of food supply opment of small towns by the government can and encouraged the development of township en- be seen by referring to the important invest- terprises. In spite of these improvements it has ments made by the Ministry of Finance, the been found to be necessary to coordinate rural Peoples Bank Of China as well as the Ministry of and urban reforms. Small town development is Construction . Major efforts are being made to seen as supporting the development of modern stimulate and increase investments in small agriculture as well as township enterprises. towns, to improve land use planning and the bal- Modern agriculture depends for its services upon qnced integration of community facilities and rural centers and is seen as a large scale pro- services, to plan comprehensively- carefully duction operation which causes a shift in sur- coordinating the inputs of different actors in the plus labor. Small towns and rural industrializa- process, improving administration systems of tion need each other. But thus far this has re- small towns, and to reform policies regarding sulted in higher unit production costs as well as the domicile requirements and social security environmental problems, due to shortcomings in system. spatial distribution and infrastructure, which gives rise to congestion. Planning for the group- ing of industries as part of small town develop-

-~ Mr Mao Rubai, Vice Minister of Construction OfficialS~eeches113 Offlcial Speech 3 Official Speech 4

To Brlng Roles of the Agricultural Bank of Promoting the Healthy Development of China into Full Play and Promote Urbanization in Rural Areas Abide by Development of Small Towns in ~hina-~---Scientific Law and Pattern

He Linxiang Li Bauku

The Agricultural Bank of China is one of four state The successful accomplishment of the eighth 5 owned commercial banks and is engaged mainly year plan, and the launch of the 9th 5 year plan in financial services in rural areas. It has fifty is a significant time to chose to hold this semi- thousand branches and has business linkages nar. world wide. The bank is concentrating on farm- ing and animal husbandry, township enterprises China has an urbanization rate of 28.7% and by and commerce. The bank has been instrumental the end of 1994 had 622 cities. In the rural ar- in encouraging township enterprises to regroup eas there are more than 55,000 small towns, with a view to accelerating development in those grouped into 16,702 administrative units of gov- towns. The bank hasalso provided funding for ernment . Small towns are where people take technical improvements in existing township up non agricultural activities and live together enterprises and promoting commerce and indus- with township enterprises , commerce and in- try. The bank has not only boosted development dustry. The small town is a link between the in small towns but also makes the distinction countryside and urban tiving. The sclrplus agri- between long and short term development. cultural labor forms 50% of the total rural la- bor force. By the year 2000 there will be 200 The ninth five year plan for the year 2010 million rural workers that have abandoned the emphasises the strengthening and prioritizing of land and seek urban status and opportunities. This agriculture, as well as the integrating of town- translates into 300 or 400 new cities each with ship enterprises with the development of small a population of between 500 thousand and one towns. The bank intends to follow the principles million. At end 1992 China had 32 big cities of the plan and provide assistance towards sus- (population of 1 million+) and 41 of between tained development of small towns which act as 500,000 and 1 million, as well as smaller towns. influential links between the rural and urban The development of small towns is essential to economy. promote the type of urbaniiation needed to take up the floating population and to promote indus- The bank adheres to the principle of cost effec- try and enterprises. tiveness and takes into account the diversity and different needs of local conditions. Short term There are important problems of distribution, credits for the development of commercial resi- number and scale of small towns. dential buildings is a priority in relatively de- veloped towns. In less developed areas the em- As the speed of urbanization largely depends on phasis would be more towards guiding cost effi- economic growth, experience has shown that cient enterprises to form phased linkages and administrative interference plays an important providing credits to service industries and mar- part. Large towns tend to extend beyond the kets. reach of government managementwhereas small towns which have little scope for development The bank is committed to strengthening coop- tend to be overburdened by government. There eration with the departments concerned in the are difficulties inherent in providing capital for the development of small towns and participating in development of infrastructure of small towns be- the planning function. The development of small cause of a weak economic base. Government towns will result in a localized expansion of finan- has attempted to provide policy guidelines to cial activities.

He Linxiang, Executive Vice President of the Li Bauku, Vice Minister of the Ministry of Civil Agricultural Bank of China Affairs 1 14 China: Small Towns Development ensure development of small towns, but the physi- Official Speech 5 cal and social barriers between town and coun- tryside ,domicile registration and status, are all obstacles which need solutions. Basic Ideas on the Reform and Improvement of the Management in Development principles involve the reform of the System of Domicile China's Small Towns micro organization of the countryside .The Min- istry of Civil Affairs believes that the size of the large cities must be controlled while me- Mou Xinsheng dium and small cities develop, taking into con- sideration social and economic benefits, avoid- China is a country of 1.2 billion population of which ing mass action and aimless development which 900 million are in rural areas. The reform of the will slow progress. Greater emphasis is needed domicile management system is an essential step to develop network patterns of cities and small in the development of Chinas small towns. The towns. Imbalance between regions is marked and current domicile management system which planning policies need to narrow these regional gradually developed since the founding of the differences. The Ministry finds that broad poli- Peoples Republic no longer meets the needs of cies and plans for urban development are weak- the current situation. The 14th party congress ened by inadequate research and planning. This pointed out and provided a clear direction for results in random and short sighted development. the reform of the domicile management system . The three main policy documents concerned with Some localities have carried out pilot reforms and urban policy are insufficient. Standards which won public support. Conditions are now ripe for take differences of geography and economics into general reform of the system. The guiding principle consideration are needed. Pilot studies and will be to categorize according tc residence and projects are needed with a view to the develop- occupation Policies on transfer of domicile are ment of an urbanization strategy which takes being readjusted. Local governments will be able the social ,economic and other realities more to give priority to certain categories of settlers. fully into consideration. Reform of registration and management of records will be improved. The police will be respon- sible for establishing domicile management of- fices.

This reform and upgrading of the system covers many facets of public administrafion and will involve security organizations and community leaders to provide material support to the ef- fort.

Mou Xinsheng, Vice Minister of the Ministry of Public Security OfficialS~eeches 1 15 Official Speech 6 The planning of small towns is inadequate and leads to irregular development. There is a rush to establish industrial and commercial zones leading Scientific Planning and Positive to wastage of arable land, conflicting develop- Guidance to Promote the Healthy ment leading to high cost transactions. Properly Development of Small Towns plannedtown layouts are fundamental ,and need government regulation and guidance. In building a socialist market economy spontaneous and Ma Kai unchecked development cannot be allowed. Government guidance in planning should neither The next 15 years will be of major importance in restrict development nor encourage rash devel- China's development and reform when industry opment, but should serve to guide development becomes mature and the middle phase of urban- within a regional context. Regional integration ization is begun. Urbanization is currently at the requires interventions at program and administra- level of low income countries while industrializa- tive levels. Standards and guidelines for land use tion has made remarkable headway. This lag pro- and the handling of wastes arising from those uses duces economic and social problems which af- is particularly important. fect industry and the quality of life. This problem needs resolution during the next 15 years. To promote the rational development of small towns policies concerning planning and town ad- More rural industry located in small towns with ministration, domicile registration, land use and populations ranging between 30000 to 50000 social security should be developed comprehen- reflects Li Peng's thinking in 1992. During the sively, thus reducing heavier social charges. next 15 years China will change from an ex- tended growth mode to an intensive one. Small towns will clearly play an important role in this change. With the small share of arable land per capita, economy of scale and greater efficiency Official Speech 7 can only take place by reducing the number of farmers. Dealing with this problem and the re- sulting migration to the towns and cities leaves Effective Use of Science and Technology little choice but to develop the small towns for Promoting the Socioeconomic rather than the large cities. The development of Development of Small Townships small towns would effect a change in the eco- nomic growth mode. Rural industries account for Wang Baoquing output value of 40% of the nations total. 50% of total exports comes from rural industries. Prob- lems such as scattered and extended develop- The rapid development of small townships has ment, small scale operations and high environ- revealed serious problems Absorption of the mental pollution, poor communications, inappro- 300, 000 migrants foreseen in the 1984 policy priate land use and a high cost of transactions of food self sufficiency fell short due to limited have prevented rural industries from achieving absorption capacity . Land use requirements in economy of scale. A change in the growth mode small towns have proved to be nearly 3 times of the economy as a whole would be achieved by greater than in out county situations and nearly regrouping rural industries and combing re- 9 times higher than average county use.'The sources towards concentrated development. The migration of people into small townships occu- development of small towns is of great impor- pies 10000 more square kilometers than simi- tance in achieving fundamental growth in Chinas lar migration to medium sized towns. 'The de- national strength. centralization of rural industries causes heavy pollution. The scattering of rural industries is a

Wang Baoquing. Deputy General Director, State Ma Kai, Vice Chairman, State Planning Science and Technology Commission, Commission Department of Science and Technology 1 16 China: Small Towns Development brake upon development. A natural development Official Speech 8 process should be fostered in which those more favored places will expand and prosper. 0bservation on the Queslion of If China's Agenda 21 is to be sustainable , rural Reforming the Administralive industrialization and urbanization must be pri- Management System of the Small Town orities. This calls for the adoption of all aspects of development towards prosperity to incorpo- rate and employ systematic methods of planning. Gu Jiaqi Other objectives call for transformation for low-tech into high-tech. In 1992, pilot projects for Small town patterns of development are largely integrated social development have been initi- based upon the location of secondary industry. ated, half of which are in small townships. Much of the growth of small towns for example those of Jiangsu Province is based on the devel- While preserving rapid economic development, opment of small enterprises. The local bazaar new and appropriate technologies are encour- economy in those cases has expanded and their aged. Improving the quality of human resource surpluses are now exported. This has led to the development through education technology and development of transportation hubs which has culture ,adequate food and housing, and public had positive impact on the development of the services are being strengthened. Urban analysis rural economy. Similarly the pattern in which will strengthen the impact of land use zoning, industrial and mining enterprises have improved with urban infrastructure planned and carried their own infrastructure and gradually formed out comprehensively rather than piecemeal. In- a pattern of support and complementarity. dustry is the basis for rapid economic develop- ment, and cleaner production technologies, en- Tourism has acted as a leading factor in many vironmental protection and social infrastructure cases leading to improved infrastructure related will be provided. Computerized management sys- to commerce. Examples of growth and develop- tems will t~eintroduced on a pilot basis. The State ment in suburban areas where industry has ben- science and Technology Commission will be efited from locational advantage with the larger working to enhance modernization, industrial- city and formed a foundation for the further de- ization and the integrated development of small velopment suited to the conditions of the sub- towns. urb.

As reform and development of the rural areas remains an arduous problem, only by address- ing the issues pertaining to the small towns can these problems be attacked. Lack of planning and scattering of development has led to poor control of pollution, low effectiveness of infra- structure and energy use. The growing surplus labor force of over 160 million will inevitably be mainly absorbed by the small towns. The small towns can also act as extensions of knowledge and technology in developing high yield agricul- ture. These cpmplex problems can only be re- solved in line with the socialist market economy through reform of the administrative system, eliminating obstacles and bringing about faster and sounder development.

Gu Jiaqi, Vice Minister, Ministry of Personnel

------.- OfficialS~eeches 1 17 The small towns need their own administrative sys- Official Speech 9 tem which should be granted by the counties. The small towns should have their rights of decision defined: what should be government, -what TO Improve the Financial Management should be enterprises -what should be the mar- Systems of the Township Government IS ket. The towns would provide comprehensive an Important PrecondiHon for Promoting management of social, economic and cultural life. the Development of small T~~~~ This would mean an enhancement of government's role in providing public services. Town governments should add servicing insti- Ms. Goo Ying tutions from the county government such as agricultural extension and veterinary services, and strengthening the towns capacity for per- sonnel management. The county would retain its The hierarchy of government budgeting in China prerogatives so far as guidelines standards, etc., is in 5 tiers: central government, province, pre- and would support the towns efforts to become fecture, county and township. 90% of the small more efficient. Administration would be stream- towns provide elements of government. There- lined and the budget system reformed to enable fore rational budgeting is the basis to healthy small towns to manage their own budgetary af- planned growth, strengthening management and fairs and expenditures. Land use planning in investing in projects. Small towns exercise a which government monopolizes the land market ripple effect on their hinterlands which in turn needs reform The domicile registration system determines the economic development of the would incorporate incentives for rural labor to town. Therefore small towns, in order to fulfil transfer to industries and businesses in small their proper function need a proper town budget towns. Work on this complex task is included in and the strengthening of the exchequer can en- the 57 towns pilot project. In addition, reforms hance and expand the towns autonomy. are needed to the social security system, the ownership of town enterprises and investment mechanisms. Improving the towns financial system to enable the town to support development is an impor- tant task. Recent experience has shown that a Every small town should develop its develop- town financial department -whether it features ment plan in accordance with its resources. management of markets, trading, commodity circulation which brings about growth, or else developing rural industry, establishing mini in- dustrial zones, demonstrates that investment in infrastructure, support of rural industry through the use of revolving funds, etc. and the growth of wholesale markets plays an impor- tant role in speeding up development. This leads to a favorable investment environment. Town- ship financial departments have actively sup- ported the reform of the social security system and contributed to a well coordinated develop- - ment system. Overall development of township - economy has been uneven, some in the West hav- ing considerable financial difficulties. Basically town finance is for feeding the population. Many towns fall even to do this and are in debt and have insufficient skill and control to engage in developing the town. In some counties the lion's

Gao Ying, Deputy General Director, Ministry of Finance 1 18 China: Small Towns Development share of revenue is taken away from the towns. Official Speech 10 This seriously inhibits small towns, and reduces their ability to develop. Deepening Rural Economic System Budgetaw practices are not unified. Loopholes Reform to QU~Cken the Pace d Smas exist side by side with great difficulties. Nearly Town Development 40% of funds raised in 1994 were not incorpo- rated into township finance. Wan Baorui Small towns have to seek ways of developing themselves at the same time as serving their Accelerating small town development is a logi- hinterlands.'The town financial department should cal outcome of the economic system reform of reflect the requirements of comprehensive de- the 1970s. Firstly remuneration became linked velopment in their policies and functions. Rev- to output which made farmers part of the eco- enue distribution between central and provin- nomic system while the commune system was cial tiers of government have been rationalized. eliminated. This has contributed to the rapid gen- This is not the case for lower levels of govern- eration of rural labor surpluses which in turn ment . The Ministry of Finance is currently emphasise the opportunity and need for indus- studying the regulation of a revenue sharing sys- try and township enterprises to quicken small tem below provincial level, moving towards giv- town development. To increase the supply of agri ing support to the principle that the town man- products, greater investment is needed to trans- ages its own affairs, combining financial power fer labor to secondary industry. However, fluc- with functional power, giving priority to enrich- tuation of prices and the reduced capacity of town ing the town before the county. enterprises to expand and absorb additional la- bor makes the task a difficult one. The guiding principle for small town development should re- Fund management, replacing fees with taxes and sult from centralized and grouped industrial achieving increased transparency are the ot~jec- development in order to develop industry and tives. Overall, current experiments for com- urbanization jointly, in which stronger con- prehensive reform seek to set a standard for nection between urban and rural markets will tax collection and management. contribute towards the develo~mentof ~ublic service and infrastructure.

In many economically developed regions indus- trial development is the basis of small town de- velopment. There are many examples of devel- oping towns where despite limited public sector support self evident local advantages have gen- erated support and found funding sources on the principle of investor ownership. 'There are many examples of localities allowing full play to local, initiatives and creativity, reform in the domi- cile registration system, social security sys- tem, etc.

There are examples of small town developments which have made remarkable progress thanks to the involvement of government at all levels- overall planning, leadership, infrastructure plan- ning and execution, and a clean environment.

... Wan Baorui, Vice Minister of the Ministry of Agriculture. Official S~eeches1 19 Serious impediments include land use, floating important force for rural modernization. The de- employment and the domicile registration sys- velopment of small towns together with the nec- tem. The relationship between small town de- essary reform is contingent upon the land system. velopment and the growth of agriculture should be properly handled. The main criterion for judg- With 22% of the world's population to feed but ing the success of the development of a small only 7% of the world's arable land, the town is to ascertain whether the rural economy husbanding of this resource is a necessity. This has developed as a result and farmers' incomes will mean redeveloping and intensifying the land increased. The local economy and the small town use in towns, land reclamation and protecting should interact with each other. The strength- arable land. Prior to the sanction of any towns ening of organization and leadership, better co- development plan, after all necessary planning ordination between departments are necessary conditions have been fulfilled, the land manage- to facilitate relevant policies for development. ment department will implement what reforms are necessary. Any adjustments required by the town authorities will need to be submitted for approval to the land department. Official Speech 1 1 'The main task of the land management depart- ments are submitting working papers, exchang- Small Town Construction-Reform on ing information with other departments, coor- Small Towns Land Utilization System dinating policies and examining issues. Promotion of China's Rural Modernization Process

Liu Wenjia Official Speech 12

Since 1987 the government implemented the Establishment of a Set of Statistical reform of land use, targeted to the market opti- Indicators and Urbanization Information mizing distribution, protecting agricultural land Monitoring System for Rural Towns of and the natural environment etc. The reform, after 8 years has proved to be very successful, China to Suit the Need of New Situation especially in the central and western parts of of Reform and Development China. In its attempts to protect arable land em- phasis has been given to land reclamation wher- Lu Chunheng ever feasible. The development of small towns is the correct road for the absorptions of sur- plus agricultural labor. Farmers are now able to Most urbanized countries of the world experienced obtain land within urban areas as a result of the a favorable environment of industrialization and reform. Shortage of investment for town infra- manageable population size which absorbed the structure has hampered development. But now, rural population into large and medium cities. land leasing funds are being mobilized. Experi- China's conditions are quite different, with a rural ence now shows that the land utilization reform population of over 900 million.The heavy pressures has proved to make an important contribution to of this population and the absorption capacity of the development of small towns. Some problems the labor force are the problems China faces.. The persist, and there is a tendency to make money surplus population simply cannot be absorbed by through land speculation and neglect the protec- the large and medium sized cities. Improving the tion of arable land. The planning of small towns, opportunities for employment in the rural areas is and the organization and coordination is weak. the approach which will absorb this large popu- The reform of the land system has become an lation. Rural urbanization is a concept we have

Liu Wenjia, Deputy General Director, State Lu Chunheng, Deputy General Director, State Land Management Bureau Statistical Bureau of China 120 China: Small Towns Development studied, together with a full information gathering system. The small towns drive their local econo- mies and radiate influence into the hinterland.

This official speech goes on to present a discus- sion based on the town categories together with statistical information. It points out that the sta- tistical work and study on towns is very weak, the systematic collection of data or procedures for measuring towns or rural urbanization being inadequate. 'The statistical system has been set up at township level but is designed to measure the overall situation. Basic urban statistics re- main only estimates. An indicator system is required that will enable case analysis and evalu- ation on town development to be canied out, and progress monitored. International comparison in matters of urbanism makes statistical indica- tors indispensable. The speech then continues by presenting a draft set of Statistical indicators for rural towns and outlines a Rural Urbaniza- tion Monitoring System.

Mr. Lu drew attention to the availability of the paper "Preliminary framework of the set of Statistical Indicators for Rural Towns." Academic Papers

Compiled by John Burfield

Academic Paper 1 by the farmers after the commune period released a large part of the work force. Later this labor be- came part of a more productive workforce largely On Development of Small Towns due to the individual's own initiatives.

Professor Fei Xiaotong * The initial growth of the enterprisezone in the Pearl River Delta was due to the introduction of small This paper outlines the context of small towns, enterprises from Hong Kong following reform. In and describes the communities and activities of the country as a whole however there was no the households which form village communities, contact with overseas Chinese, and investment contrasting today's situation with that during funds were scarce. the peoples commune period and the process of rural economic development. With the develop- The paper describes the next stage of rural de- ment of industry during the 60s large numbers velopment as small factory enterprises setting of rural population were drawn to new job op- up in the rural areas, thereby rejuvenating many portunities. At this time a domicile registration of the small towns . This is a category of new system was established with the purpose of con- small towns, and introduces the 3rd stage of trolling food distribution. "Small town" in cur- rural economic development. rent usage means a new and transitional com- munity which is changing from rural to urban. It The new small towns are becoming exchange has broken away from the nature of a rural com- centers and have established trading ties with munity but not yet become urbanized. distant places, and are part of the global market place as well as having ties with larger cities. The paper then outlines the development of ru- Thus there is a consistency in the emergence of ral society and the economy during the period small towns coupled with complexity. Under- from the 70s until today. The initiatives taken standing this situation is a prerequisite to de- signing the overall program.

Professor Xiaotong. Vice Chiarman of Standing Committee of the National People's Congress, Professor, Beijing University 122 China: Small Towns Development Rural small towns provide a reservoir to mitigate absorptions of labor in these zones has slowed due and contain the impact of mass migration to the to competition demanding technical innovation cities. Issues of land, population infrastructure and and capital intensive investments. The dispersal of superstructure are discussed and concludes with enterprise zones leads to wastage in employment a plea for architectural sociology to be taught. opportunities which could have been achieved by concentration. This discussion leads Professor Chen to advocate that a realistic way to accom- plish large scale transfer of surplus agricultural la- bor to secondary industries is to develop small Academic Paper 2 towns. Professor Chen concludes that the devel- opment of small towns will attract some of the in- dustrial investments being currently scattered Development of Small Towns Is an which will also modernize agriculture. Important Means for Agricultural and Rural Modernization in China

Professor Chen Xiwen Academic Paper 3

China's modernization is dependent upon agri- cultural and industrial development, as 70% of Urbanization: The Opportunities and the population live in rural areas. Challenges Faced by Rural Development in China Professor Chens paper provides a summary of population growth and the place of agriculture in the economy at the time of the founding of the Du Ying Peoples' Republic. The large scale industrializa- tion started in the 50s quickly developed a mis- Against a background which takes the stand that match in that while agriculture's contribution the internal contradictions which obstruct the to GNP dropped the rural population became 82 development of both agriculture and the rural % of the total. The requirements of the domicile economy need resolution, this paper attempts control system are described and the impact of to analyze challenges to rural development, ur- the relative loss of arable land on a per capita banization strategies, policy adjustment and in- basis. The paper describes the onset of economic stitutional innovation. Analysis is provided reform in the 70s when the ever decreasing ar- which indicates that combining production fac- able land and the domicile permit system which tors to help them flow freely and sustain the restricted migration to the towns led to the growth of rural employment and farmers in- farmers having no alternative but to set up en- comes is a way out of the dilemma. The paper terprises in rural areas with their own funds. recommends that adjustment in rural industry 'Thus a dual system obtains in which government and employment should not only be carried out is investing in cities and large towns, and indus- within the context of agriculture and rural de- trialization is being financed in rural areas by velopment, but should incorporate adjustments farmers as principal investors. This second does to both rural and urban areas, with Urbanization not contribute to the concentration of enterprises as the centerpiece. This is dramatically differ- and population. and is a demonstration of the ent from the agricultural reform in the 1980s. urbanization process lagging behind industrial- ization. This will produce a protracted negative A strategy is outlined which addresses urbaniza- effect on the optimization of China's entire in- tion which lags behind and industrial structure dustrial structure and employment structure. which is unbalanced due to the excessive expan- sion of secondary industry. A discussion of growth and the distribution of en- terprise zones follows and it is argued that without Manufacturingin China is comparablewith middle the development of these enterprise zones the income economies, forming a unique pattern of employment situation will deteriorate. The rapid Industrialization being well ahead of Urbaniza-

ProfessorChen Xiwen. Director of the Rural Development Du Ying, Deputy Director General. Research Center for Research Center, State Council. Rual Economy, Ministry of Agriculture. Academic Pa~ers123 tion. Chinese cities and their enterprises are the Academic Paper 4 product of administrative forced resource mo- bilization rather than the free flow of produc- tion factors. This is the fundamental cause of 'The Role of Government in 'Township underdevelopment of urbanization, which has Development and Its Policy Design inhibited the development of tertiary industry, prevented industry from taking advantage of Liu He* concentrating efficiency but also weakened the functions of the city and its capacity to absorb rural immigration. Director Du points out that Given the need to solve small town development, excessive decentralization in the siting of rural it is necessary to formulate a policy with which industries has caused inefficiencies of land use. government can guide and promote proper town Transportation , scale of business development development. Analysis of 47 small towns dem- and resulting environmental pollution and waste onstrates that A) A farmer can earn 30 times of resources, now suggest that China has en- more income by working in industry. B] Little tered a phase of accelerated urbanization. funding for small town development comes from the public sector. Investment capital comes from * Only by the promotion of urbanization can land sales with some local funding. Clearly the central government policies on investment ac- agricultural productivity be raised by im- provement in agricultural management. tivities have little influence at this level. C) Our survey showed that there needs to be an * Only by the promotion of urbanization outstanding person to coordinate and deal with different interest groups and attracting talent can the overall efficiency of rural indus- in the process. 'This spontaneity, however, is try be improved. frequently at the cost of loss of arable land and * environmental deterioration. Where markets Only through the promotion of urbaniza- cannot deliver optimal outcomes government in- tion can the development of tertiary in- tervention is necessary in those areas on a short dustry be promoted in order to rational- term basis. Government guidance is needed to ize the industrial structure. Clearly this support urban planning operations, together with will exert fundamental importance to the legal, environmental and fiscal guidance. Resi- change of development strategy for the dential registration and social security issues whole national economy. In order to pro- require new policies. Our program is to expand mote urbanization it is necessary to re- 500 small towns to medium cities of up to move the institutional constraints on ur- 500,000 each, over a period of 10 to 20 years, ban development. The main task is to while ten thousand small towns develop their own change the mechanism and move the ur- functional identity. Different guiding principles banization process onto the path of mar- will apply to distinct regions. Small towns will ket economic operations. Guidelines for be prioritized in allocation of resources by the urbanization should be based on the na- state government, and towns administration will tional condition as well as the general be strengthened. rule. Self development mechanisms are necessary. The domicile registration system must be reformed, labor markets need to be opened free of discriminatory practices. Those things which can be achieved through market operations should be separated from government, and policies formulated to enhance the town financial management system.

Liu He, Deputy General Director. Long Term Planning and Industrial Policy, State Planning Commission. 124 China: Small Towns Development Academic Paper 5 Academic Paper 6

Problem of Planning and Construction of Small Towns Construction and Rural Small Towns Modernization - on Road of Rural Modernization with Chlnese Zou Deci Characteristics

The imbalanced distribution of small towns covers Professor Gao Chengzeng a wide range of development and living standards and conditions. Many are single industry depen- 'The vast majority of China's population of farm- dent "company towns" with a sub category of ers is afflicted by poverty and backwardness. export promotion towns. Specialized market towns Rural modernization is a prerequisite to China's and others dependent upon industries and leisure. modernization. The public sector is currently Isolated towns encounter difficulties in develop- unable to invest in enterprises capable of treat- ment, towns which are inter-linked grow faster. ing jobs sufficient to absorb a significant por- 50% of China's small towns contain a population tion of the rural labour force. While township between 10000 to 30000 and most small townships enterprises have demonstrated encouraging have developed into towns during the past 10 progress this approach should be pursued in a years. These trends suggest that adaptability of concentrated and coordinated fashion. The cat- infrastructure and transport planning needs inte- egory of Small Town can be sub divided into - grated planning on a different basis than in the County level town, - township level town ,- large cities. Design issues arise with regard to suit- village level town and trade centers under town- able housing, transportation and social and com- ship jurisdiction. The focus of investment and mercial equipment and facilities. Municipal ser- development should be the township level towns vices such as waste disposal are becoming in- with some village level towns, approximating creasingly important. The weakness of the plan- 40% of the total number of small towns which ning profession in China limits the anticipated de- are the link between the countryside and the cen- velopment of modes of transportation, mall towns tre for urban services. Small towns are infor- to 16000 in number in the foreseeable future. mation centres, distribution centres, production and service centres.

Prof. Gao then proceeds to describe the nine dif- ferent types of Chinese small towns and argues that a small town's physical being is not only the result of economics technology culture and art, but also the result of modernization in the rural areas.

Finally he recommends structural reform in all towns in order to carry out reform of the domi- cile registration and social security systems, and land reform.

Zou Deci, President of China Academy of Urban Planning Professor Goo Chengzeng. Science and Technology Corn- and Design. mission, Ministry of Construction. Academic Paoers 123 Academic Paper 7 quarters of the gross rural output value of China. Most of this is derived from non agricultural in- dustries. The Value increment Profit of land Capitai with Its Allocation Results are uneven. The disparities between the eastern, central and western economic belts of China are widening. Messrs. TieJun Wie and ShouYin Zhu 'The densely populated eastern economic Fixed assets in the towns and villages of China belt consists of 12 provinces and con- did not exist as state property but belonged to tains densely populated coastal areas the collective. Previous to the reform ,central government took the full surplus production from with advanced economies, and covers 14% of China's total area, containing agriculture through the highly centralized planned 41% of the overall population and 32% economy system in the process of accumulating of the arable land, equivalent to 0.64 state capital. But none of those assets were in- acres per capita. vested in the rural area.-apart from some in- dustries which were controlled by different parts of the government and located in the rural ar- The central economic belt refers to 9 eas. The total social assets in the rural areas provinces including inner Mongolia and were characterized as "collective propertyw- accounts for 30% of China's total area, neither private nor state owned. Land resources 44% of the arable land equivalent to 1 are scarce. Now with a market economy, the acre per capita. more scarce the resource the higher the price. The paper goes on to examine the Primitive Capi- The western economic belt totals 9 prov- tal Accumulation of the Government and the im- inces in the south west and north west, plications on the physical development of small accounts for 56% of the total land, 23% towns. of the total population and 24% of the total arable land, equivalent to 1.3 acres per capita. The ratio of gross industrial output between the eastern, central and western parts is 7:2:1, and gross rural Academic Paper 8 production 632.4: 1 Slow urbanization in the western belt is serious. Rural to urban migration is moving from north- The Eastern Part Leads the Development west to south east, the floating popula- of the Western Part and in a Bid to Push tion having increased in size 21 times Forward the Urbanization of Rural Areas since 1982. The time has come to push in China forward the development of the western part of China and change the preferential policies for the eastern part. The Euro- Professor Bai Renpu Asia continental bridge enhances the re- gional advantages of the western areas "The Eastern Part leads the Development of the Continuing the economic development of Western Part, and in a bid to pushes forward the eastern areas and focussing efforts the Urbanization of Rural Areas in China." on the western areas is to "stress two ends" which will ultimately reach the In 1979, 2600 settlements in China were desig- county's development goal for all areas. nated as Towns. By 1994 this number had in- creased to 16,433. China's rural population num- bers 920 millions- one designated town for 56000 population. Currently one fourth of the rural labour force are working in secondary and tertiary industries with an output value of three

ProfessorBai Renpu, Institute of Rural Development, China Agriculture University. 126 China: Small Towns Development Academic Paper 9 Academic Paper 10

The Key Points in Establishing Statistical Current Situation and Motivation of Land Index System for China Small Towns Market of Small Towns in Southern Development Jiangsu Province--Case studies of Cities Jiangyin, Zhangjiagang and Kunshan Professor Zhou Yixing Professor Yu Wenhua There are no stable and rationalized statistical criteria available to provide answers with re- The first way of developing a land market in small gard to small towns in China. Since the Peoples towns in China is by direct promotion by the Republic was established 4 censuses have been township or city government. The other is for carried out but each time with different statis- the local government to follow the central gov- tical criteria. After each census state govern- ernment guidelines. ments had to revise the published data. In 1991 the fourth census achieved accuracy without Generally local government's motivation in de- providing scientific certainty, and cannot be used veloping a land market is for short term gains on a comparative basis. Differences in criteria through different land pricing strategies. The for definitions for small towns-for example effect of these land pricing strategies on land some towns with a population of more than efficiency is not remarkable. 100,000 are considered small towns, whereas some cities with less than 100000 population are not considered small towns. There is not a Prof. Yu Wenhua provides tabulated survey ma- generally accepted criterion for small towns. terial for the towns named covering surface ar- Over bounding and underbounding problems-the eas, prices, and land use cost comparisons, inclusion of extensive rural areas within town analysis of land users, and differentials of land administrative areas and the inclusion of agri- costs. cultural population within the jurisdiction of towns distorts statistics are common. Accord- He concludes that land supply in those named cit- ing to the 1982 census 20.6 % of the population ies is mainly affected by local government pref- was urban. But the third census in 1990 pro- erences and not a market. vides the percentage of 53.2% urban . It is the fourth census which provides the criterion that Most land development activities are monopo- the urban population accounting for 26.23 % of lized by local government and the existence or China's total population. impact of a land market on allocation is limited.

Prof Zhou Yixing proceeds to make recommen- dations for developing a national statistical in- dex system and provides adjustments of popu- lation distribution between rural and urban on an annual basis starting in 1949.

ProfessorZhou Yixing, Department of Urban and Regional Science, Beijing University. Professor Yu Wenhua, Beijing Agriculture University. Academic Pa~ers122 Academic Paper 11

Estimation of the Dual Urban-Rural Socioeconomic Structure Will Accelerate & Improve Urbanizatlon in China

Professor Ye Shunzan

Professor Ye's paper identifies an apparent anomaly between the investment and growth of industry in China and the lagging pace of urban- ization. He points out that the domicile regis- tration system contributed towards the rapid industrialization of the country, but is now hin- dering the necessary evolution of social struc- tures. He points out that whereas the perma- nent population in medium and large towns has increased at a faster rate than the small towns which only officially contain 21% of the total urban population, in reality it amounts to about 60% of the total urban population. The contin- ued existence of separate urban and rural so- cioeconomic management impedes free move- ment of labour and actually hinders the devel- opment of small towns.

Another result is the increasing amount of non productive arable land which is caused by farm- ers abandoning their land in the rural areas, t~ut being allowed to retain their domiciliary regis- tration although the land goes out of production. A secondary effect is the additional burden that this is placing upon transportation systems caused by the retention of native domiciliary status, as well as the need to be present in the non domiciliary workplace.

Despite improvements in recent years the basic problem remains that outward migration is caus- ing desolation in the rural villages and the mi- gration to the large cities is paralysing urban systems. The author recommends the develop- ment of a unified residence registration system which would permit migratory movement within county jurisdiction but be strictly controlled beyond the county. This would have the effect of accelerating the development of small towns by providing permanent residence to county rural Professor Zhou Yixing, Department of Urban and Regional Science, Beijing University.

Researcher. Institute of Geography of Academy of Science 128 China: Small Towns Development PART 111. SUMMARY OF WORKSHOPS AND CONCLUDING REMARKS

Elements of a Workable Town Development Strategy for China: An Overview and Key Conclusions

Andrew Hamer

his Seminar on Town Dev?iopment in China requisite permits quickly--subject only to constraints has resulted from fortuitous coming together affecting public welfare, such as environmental Tof several groups interested in one subject: and health hazards. Their obligations to govern- the Interministerial Leading Group on Town De- ment in financial terms should be limited and rig- velopment that brought, under one roof, an un- orously codified. The rights of entrepreneurs to set precedented array of Government agencies to up businesses and hire staff should be free of po- tackle the issues involved; the generous finan- litical and legal interference. In this particular case, cial and organizational support of the Govern- prior residence in another locality (such as a rural ment of Switzerland and interest of the World area) should not be used as an excuse to deny Bank. full local citizen rights to new entrants into the economy. The Town Reform Agenda can be used to develop a full-fledged model for completing the Urban Re- More specifically, by completing the Town Reform form Agenda on an accelerated basis. 'This means Agenda rapidly, the way will be paved to solve stressing the value of private/public partnerships one of China's key development obstacles-trans- in developing infrastructure CIS well as the impor- forming its cities while integrating the rural popu- tance of greater local autonomy for town gov- lation into an ever-expanding urban world, under ernmehts. Instituting legal and regulatory reforms conditions of extraordinary expansion which will that end the stigma attached to those once born see 400 million more residents added to the popu- with a rural hukou but destined for an urban ca- lation of cities and towns by 2010. reer is also an element of this agenda. The move to a market-oriented economy with "small gov- Information is a form of infrastructure. Seizing the ernment" in mind-at least at the local level-means opportunity to dramatically expand the collection, that property rights reforms are vital . The driving analysis, dissemination and use of data, and al- force for economic growth in most towns is either lowing these to influence policy making in a timely the private sector or the cooperative and collec- manner will dramatically improve the perfor- tive sectors. All these need to enjoy a large mea- mance of local governments and the necessary sure of ownership and managerial independence oversight by higher-level authorities. Local and from government. They should be able to obtain 130 China: Small Towns Development regional authorities need to pay special attention cannot be ignored or "solved" by a Town Devel- to monitoring and actively using data on popula- opment Strategy. A leading group on urban de- tion, employment, incomes and land use patterns. velopment is needed.

Benchmarking is a process meant to continually International experience validates the fact that compare the performance of an enterprise, town local decision makers, given proper incentives bureau, or town administrator against the tough- and training, are the best suited to deal with est competitors. It involves continually collecting setting financial local priorities. information on both relevant inputs and outputs. These can then be considered measurements or It is possible to consider seizing the opportunity "benchmarks" to be equalled or exceeded in the provided by the "economic growth dividend" to quest to create local centers of excellence. provide long-termfinancing for critical bottlenecks China's town leaders and the provincial and cen- to town development, particular investments in tral supervisors should institute such a competitively water supply, wastewater treatment, and the dis- based system to inspire both the best and the least posal of solid and hazardous wastes. There is long- capable among the target towns in any experi- term financing that goes well-beyond conve- mental program of reforms. Later, the process of nience. Much infrastructure is "bulky" in size, re- benchmarking can be adopted for all towns and quiring funds, and generates benefits shared by cities across China. 'This is a critical issue now that many generations (as well as new migrants). It is preferential policies are being phased out and ideally suited for financing over time, with the cash localities will have to adapt to a socialist market flow proceeds (drawn from tariffs or locales and economy where good performers reap rewards fees) providing the collateral needed to guaran- and laggards suffer. tee repayment. Experience elsewhere suggests that higher-level governments give this responsi- Recasting and setting aside the role of govern- bility to commercial banks and that localities and ment as the giver of "Scientific Urban Planning their lenders be advised no "bailouts" would be Norms" is now timely. Norms should be flexible provided in case of bad performance. Instead guidelines that emerge from trial-and-error ex- higher level governments could threaten, at least perimentation that combine technical and politi- during a transition period, any nonperformers (in cal constraints. repayment terms) with stiff political and economic penalty ruthlessly enforced. With the abolition of scientific norms and the re- placement of these with guidelines comes a new Any long-term borrowing would need to link the responsibility at the local level. Public invest- financing to sustainable cost-recovery strategies ments must be carefully crafted, and preceeded .from beneficiaries based on well-defined and by good feasibility analyses. "Plan for tomor- understood fees and taxes whose collection and row but build for today" remains a critical dic- use are carefully monitored by supervisory bodies tum. The cemetery of unoccupied industrial and at higher levels of government. Self-financing high-technology parks dotting China's country- could also lay to rest the presumption that subsi- side is evidence enough that truly demand-driven dies are the birthright of urban citizens. Greater analysis cannot be ignored. local autonomy and accountability are inter- twined themes that cannot be avoided in this ac- The time has come to acknowledge that the mas- celerated process to give proper direction to fu- sive wave of urbanization facing China ovei the ture urbanization. The opportunity also exists to next 15 years makes town development, city recast local municipal and public utility budgets development, and regional interjurisdictional de- into planning documents that are multi-year in velopment all relevant and nonsubstitutable el- actual and forecasting terms. These documents ements of a comprehensive urbanization strat- should (1) separate recurrent expenditures from egy. investment ones; (2) detail all sources of revenue and expenditure; (3) provide predictions of future Very specifically, promoting towns will provide amounts to be expended over the next two to some rural migrants with alternatives to moves three years; and (4) set priorities and revise these to metropolitary regions; t~utthese regions will annually. The public at large or at least citizen continue to face rapid growth challenges that advisory review boards should be allowed to par- ticipate in this process, empowering citizens and providing yet another layer of accountability. Elements of a Workable Town Development Strategy for China: An Overview & Key Conclusions 131 Experience across countries suggests that cross- cess of rural-to-urbantransformation. That task, in boundary issues--as urbanization spills over or- any case, is beyond the intellectual and mana- tificial administrative boundaries--that cannot gerial scope of a small group of government cad- be avoided. Coordination and enforcement mecha- res. "Winners will self-select themselves and justify nisms are needed to avoid environmental degra- encouragement. Efforts to promote unsustainable dations, duplication of facilities, and the unnec- "model" towns that suit only political purposes but essary conversion of agricultural land to urban lack a sound underlying economic foundation is uses. self defeating.

Training administrators locally in short order to run Finally, China has outperformed all other transi- 15,000 statutory towns and 50,000 nonstatutory tion economies by a judicious combination of ex- towns is a daunting challenge never before faced perimenting, summing up and developing rel- in the history of urban economic and political de- evant national enabling legislation. A danger ex- velopment. China, large as it is, must develop the ists that, leading group structures aside, unco- capacity to train trainers, and provide these insti- ordinated and "propriety" experiments will be tutional vehicles to quickly spread the technical, undertaken by the various ministries and com- priority-setting, and financial skills needed to make missions involved in their "own" set of towns. this great urban transformation proceed smoothly This can only be counterproductive. The greater and with minimum disruption to social stability and value added would come from coordinated ex- the overall living environment. periments concentrated in a limited set of loca- tions for a limited period of time. 'There is little The legacy of the Planned Economy is still in our if any value in letting each government agency midst. There are still too many policy makers who try out partial experiments in locations of their wish to predetermine--in a way that disregards own choosing, making the "summing" process market forces--which towns should grow and how difficult and time consuming. This approach is large they should be in size. International experi- one China cannot afford, given the rural-to-ur- ence suggests technicians, usually sitting in capi- ban avalanche underway. Where state-of-the- tal cities, are very poorly equipped to outguess art experiments are to take place, they should the market. Economic growth , and the popula- be concentrated in a manageable number of lo- tion it attracts, is sensitive to the locations involved cations that can be monitored t~ythe leading group and demand-driven pressures to expand. The as a whole. Incased experiments and local au- coastal and the metropolitan clustering of fast- tonomy strategies can only succeed if central growing towns and cities has a sound rationale in and provincial officials recognize their respon- market terms that cannot be disregarded. Trying sibility: to enable change and facilitate reform to eliminate geographic disparities with costly while providing the legal and regulatory frame- and unsustainable financial incentives has never work that sums up the best results of experi- worked, worldwide. In particular, infrastruc- ments and gives them permanent legitimacy. ture development strategies that promote "geo- graphic equity" are a dangerous basis for ac- Andrew Homer tion, given limited public resources. Provided Principal Economist proper incentives, financing mechanisms, an China and Mongolia Department overall policy framework, and adequate train- ing--there is no need to "micromanage" this pro- World Bank 132 China: Small Towns Development Summary Remarks

Katherine Sierra Beijing, November 17, 1995

Ladies and Gentlemen: ing on towns' comparative advantages is another lesson. Strategies must be flexible in recognition have been asked to summarize the conclu- of regional, economic potential and constraints. sions of this international seminar on town Finally, town development must t~eintegrated into I development. an overall strategy for urban and regional devel- opment since towns will inevitably be only one part This is a daunting task since the themes discussed of the urbanization story. were so rich, the discussions so lively, and the points of view diverse. To put these conclusions in per- These are some of the many challenges still to be spective, it is useful to remind ourselves of the rea- faced. Both Chinese and international experience sons we came together for this seminar. We hoped highlight the overriding importance of ensuring to explore the experience to date on town devel- that this program is accompanied by a coherent opment in China to look at international experi- comprehensive policy framework. I would now like ence for useful lessons and to prepare an agenda to turn to that policy agenda. for the work. We have learned that much which holds back I believe we have been successful on all three of town development involves deficiencies on the these fronts. First, our understandingof the experi- "software" dimension. Among these one can un- ence to date has been greatly enriched by the derline the following aspects: interventions of both central and local govern- ment, as well as those of the academic experts There is a need for legal and regulatory reforms who joined us this week. that empower migrants and enterprises with the rights necessary to maximize the positive impact Second, the review of international experience on local development. Particularly important are has been useful in pointing out ways to improve increased access to permanent town residency the chances for a successful outcome. Interna- rights for migrants. Ownership rights, and dispute tional experience shows that infrastructure-led resolution procedures for private cooperatives of town development schemes are not successful. TVE ventures must also be strengthened. Instead, success lies in giving responsibility and demanding accountability for town development at the lowest level of government possible. Build- 134 China: Small Towns Development Urban land use and related infrastructure planning surance system would put into play both house- should be improved at the local level. Current hold resources as well as contributions from em- practices often lead to the development of ser- ployers. It would yield modest levels of security in viced land well ahead of demand and the un- case of loss, reduce the number of health care necessary use of agricultural land resources. This emergencies, and reduce income due to retire- problem arises in part because economic and fi- ment. nancial management tools available in other countries and certain Chinese cities are not well Monitoring key indicators, evaluating their signifi- understood. Physical planning must also be made cance, and using information to mold policy, is more sensitive to market forces, so that supply re- an important aspect of reform. Information is a sponses follow clear evidence of demand. Towns form of infrastructure and cannot be neglected should be able to adjust their land use plans to any more than conventional physical works. reflect shifts in demand. Each item on the reform agenda calls for a reori- Infrastructure and other local services cannot entation of government functions. A well function- serve market driven development simply through ing government is a critical element without which improved use of tools. Resource mobilization the reforms will fail. However, for local officials to mechanisms must be explored which provide pre- function properly, training is absolutely critical. A dictable and fair ways to pay for both investments final agenda item, therefore, calls for the assess- and operational or maintenance expenditures. ment of remaining needs and the preparation of Beneficiaries should pay for services, where prac- relevant materials and staff to implement training tical, as if they were commercial in natures. The agenda. scope for private provision, management and fi- nancing of infrastructure and services should be All of the recommendations listed so far give lo- explored. In doing this the private sector should calities more autonomy to decide their own af- be subject to competition and should work under fairs within a broad framework which is provided a regulatory environment which ensures that the by the state and provincial levels of government. public interest is served. Other recommendations call for greater coordi- nation among different levels of government and Currently enterprises help finance town develop- greater accountability on the part of local authori- ment through arrangements whereby they re- ties. The environment is a key area for which this spond to ad hoc demands from town leaders. As recommendation is immediately relevant. Inad- towns develop, this is not likely to be sustainable. equate planning monitoring and enforcement Towns should move to replace this with a more have created serious and growing environmen- equitable and transparent tax and fee regime. tal problems in and around towns. Solid wastes are Enterprises should be able to forecast the size and disposed of in a haphazard manner. Industrial nature of their payments to the town government wastes including hazardous chemicals are and to local public utilities. In return, the financial dumped without pretreatment. Air pollution from bureaus responsible for town resources mobiliza- local factories threatens public health and agri- tion would have dependable sources of funds cultural productivity. Unlike other reform items, whose amount would be forecast with confidence environmental policies and improved enforce- in the preparation of multiyear financial plans. ment must be marched by significant physical in- vestments to be successful. But, given improved Improved and more predictable flows of revenues economic and financial management better re- will also facilitate pilot experiments in longer term source mobilization, and a clearer definition of financing of infrastructure projects. Such experi- property rights, towns can overcome this chal- ments would allow China's towns to match the lenge. long list of infrastructure assets with term financ- ing of those investments. Experiments could involve What then will be the role of the World Bank in the commercial banks as well as the well super- implementing this agenda? Based on our review vised issuance of town development bonds. of experience to date and the results of this Semi- nar, we believe that there is a strong basis for co- Social insurance mechanisms must be gradually operation. In particular, we believe that our role put in place so as to extend the social safety net could be to help bring together the various ex- to towns, thus ensuring social stability in the transi- periments underway into a comprehensive policy tion to a market-orientedeconomy. The social in- framework, backed up by an action-oriented Summary Remarks 135 implementation plan. Comprehensive reform is ture development might also be supported. After needed to fully exploit the economic potential of this seminar, we will begin discussions with the rel- China's towns while ensuring social and environ- evant authorities on the principles for and avenues mental sustainability. We are interested in working of cooperation. We look forward to working with with the concerned Ministries to further develop you to put the conclusions of this seminar into ac- the agenda. We are also interested in working with tion. local governments who are committed to intro- ducing relevant reforms. We believe that to be successful, towns must concentrate first on the software parts of the agenda. Key to this will be institutional development of local governments, Katherine Sierra and the monitoring and evaluation of the small Chief of the China and Mongolia Division town program.To meet the objective, infrastruc- World Bank. 136 China: Small Towns Development Summary and Findings

John Burfield

he two workshops, took place on Novem- enues to governments, together with the paucity ber 16. They were held in parallel and the of competently trained small town officers, are is- Tfocus of each evolved on a more operational sues of the utmost importance. level and brought out additional concerns ex- pressed by town administration officials as well as Concerns expressed in Workshop 1 included - technical and professional members of design and planning institutes. 1. Infrastructure and equipment-while the plan- ning of urban infrastructure was stated to have The concerns expressed focussed upon the plan- improved since master plans now need approval ning and provision of infrastructure and its financ- by the National People's Congress, standards and ing, the household registration system, and its guidelines are lacking both for the provision of ur- broad implications upon urban development and ban infrastructure (water supply, sewerage, solid the institutional weakness of the local authorities and liquid waste management) and municipal in general. services ( local schools, primary health care ser- vices, markets etc.). Concern was expressed that As the conference and workshops unfolded, it the recovery of costs for these facilities and ser- became clear that the importance of public fi- vices was not being charged to the beneficiaries, nance and administration in facilitating (or imped- and the fact that guided land development was ing) urban development in general and in provid- not being generally incorporated into the plan- ing a supportive environment for specific urban ning function in order to relate development ob- projects, was recognised, whether funded by in- jectives to potential financial resources. The ratio- ternational agencies, the public or the private nal planning and financing of infrastructure invest- sectors. It became evident that the ability of small ments assisted t~yguidelines and standards in towns to maintain and expand their stock of ur- terms of performance targets, demand response, ban infrastructure in response to intense popula- appropriate technology and financial assessments tion pressure, depends upon astute administrative were perceived as major areas of concern. and managerial skill with financial resources on their part. The mismatch between the responsibili- 2. Local government revenues are largely de- ties of small towns to provide services on the one pendent upon central government transfers. Rev- hand, and their authority to raise revenue on the enue raising capacity at the local level is limited other, the issue of allocation of functions and rev- to license fees and local administrative charges. 138 China: Small Towns Development Investment planning at the local level is con- 3. Institutional structures involving town, munici- strained by the nonavailability of long term loans, pality county and prefecture levels leading to credit being limited to short term financing from negative competition for and dilution of limited institutions such as the China Agriculture Invest- resources; ment Corporation. Local governments need to enhance their own revenues in order to achieve 4. The line management system which renders greater fiscal responsibility and greater capacity the town mayor's office impotent in areas del- to plan and manage each town's development. egated by central agencies ( e.g. Finance, Con- This was identified as animportant area. struction etc.);

3. Concern was expressed with regard to heavy 5. Inability to systematically apply cost recovery levels of atmospheric pollution caused mainly by and user charges and the growing habit of fund- the combustion of coal, as well as water pollution ing infrastructure for the existing town areas by the caused by intensive use of chemical fertilizers. The proceeds from land sales, intended to support new adequacy and application of the existing envi- peripheral growth; ronmental regulations was questioned, require- ments for compliance and enforcement, whether 6. Difficulties arising from the complexities of the by the state or other means was stated to be in- household registration system such as dual domi- appropriate, and current exploitation of loopholes cile, and the application of social security mem- in current practice were said to run counter to en- bership and benefits; couraging private enterprise. 7. Limited purchasing power of the population; 4. A number of issues with regard to land use matters was raised, including the domination of 8. Local expenditures were stated to be gener- the State in determining compensation matters ally larger than deposits and local lending by particularly with regard to transfer from agricultural banks exceeded their guaranteed resources; to urban use. The demand for land is clearly influ- enced by the diversity of situations which obtains 9. Overemphasis on investments giving short term in Chinas small towns; Distortions in land prices are payoffs to the exclusion of long-term investment attributed to a number of causes ranging from planning; over involvement of the public authorities in some instances, to inadequate regulation or obser- 10. Limited employment possibilities for rural immi- vance of private sector dealing in others. 'The key grants due to lack of skills. issue of land and land pricing is recognised as a major concern for town development, but the The experts responded to these issues and through results of recently initiated revisions in this sub sec- open discussion the following issues emerged as tor do not appear to be widely understood. crucial elements affecting town growth and man- agement and suggesting the need of further study In workshop number 2, the following main con- and attention. (1) The planning and provision of cerns emerged from the discussions - infrastructure and its financing, (2) The household registration system and its broad implications (3) 1. Weak institutional capacity of town adminis- The institutional weakness of the local authorities tration, including inadequate funding, nonavail- in general. ability of funds due to excessive retention of tax revenues by higher echelons of government; Findings of the Workshop 2. Weak and insufficiently trained staff for urban 'There appears to be a strong need for town administration, practical difficulties of staffing and I. development to take place with better linkages career development due to personnel selection and understanding of development in other and recruitment by higher levels of government; towns. This suggests that towns be developed in a regional context. The interrelationship between Workshop Summary and Findings 139 local government, the private sector and the com- + Make recommendations for re-evaluating the munity needs strengthening. 'The current process effectiveness of the overall household registra- of rapid change requires interventions at all levels tion system, examine options for its overhaul of government. and redesign. The objective would be to re- duce the inefficiencies and anomalies in the 2. Interdepartmental relations need to be current system. strengthened and towns need to develop rela- tionships and linkages to develop dialog and stron- + Establish a program for the training of local gov- ger exchanges. The current top-down system ernment officials. 'This would include curriculum needs to be augmented at town level by bottom- development, in service training, fellowships. up systems which would encourage the greater use of local initiative and responsible manage- + Develop a program of local government ad- ment and reduce duplication. ministrative reform and strengthening to de- velop capacity for the growth envisaged and 3. Existing town management organizations the evolution of local economies. have not been designed to perform or adapt to the new tasks envisaged in the next few years. The + Develop an action policy for the training and human resources element which is crucial needs adaptation of rural immigrants to provide them major and rapid improvement. In addition, any with employable skills. strengthening of the towns management systems will also require MIS, GIS etc. to enable them to + Identify and develop criteria for the selection perform their evolving tasks of investment plan- of towns which are demonstrating strong de- ning. This planning will involve: velopment potential, enabling future invest- ments to be planned for priority projects iden- - structuring plans to bring together subsector tified in the individual town's master plans. investment programs and examine implemen- tation capacity and resources; The Reform Commission should continue with the steady and deliberate pace which has already - prioritizing infrastructure projects which emerge accomplished a great deal of progress while gen- from the structure plans; erally maintaining the stability that is a necessary prerequisite for urban reform. The market ap- - funding priority projects: local, central and ex- proach calls for a holistic approach with both ternal; central and local authorities playing their roles.

- Developing an appropriate O+M capacity;

- Delivering urban services and their planning, funding and operational management;

- Developing an evaluation capacity to iden- tify and monitor targets and objectives to as- sist the practical aspects of rapid change.

Next steps for consideration

The Reform Commission is well-placed to initiate the formulation of a strategic task force to develop a plan of action. The task force would identify eco- nomically and financially viable priority projects which are environmentally sound and relevant to the rapid changes envisaged; It would 140 China: Small Towns Development List of Participants

1995 International Seminar on China Small Town Development November 13-1 7, 1995 Beijing New Dadu Hotel

NAME AGENCY TITLE

Leaders from Sponsors Zhang Haoruo State Commission of Restructuring the Economic System Vice Chairman Shao Bingren State Commission of Restructuring the Economic System Secretary General Moo Rubai Ministry of Construction Vice Minister He Linxiang Agricultural Bank of China Vice President Li Dianjun Agricultural Bank of China Vice President A. Pellegrini Dept. of Transport & Urban Development of World Bank Director P. Bottelier World Bank Resident Mission Chief of Mission K. Sierra World Bank Dept. of China & Mongolia Division Chief D. Ahmad World Bank Resident Mission Chief of Unit Uli Sigg Embassy of Switzerland to China Ambassador

Officers from Chinese Ministries Duan Yingbi China Central Financial Office Deputy Director Mou Xinsheng Ministry of Public Security Vice Minister Ma Kai State Planning Commission Vice Chairman Li Baoku Ministry of Civil Affairs Vice Minister Gu Jiaqi Ministry of Personnel' Vice Minister Wan Baorui Ministry of Agriculture Vice Minister Li Yuan State of Administration of Land Deputy Director Ma Kewei State of Administration of Land Deputy Director Lu Chunheng State Statistical Bureau Deputy Director Wang Baoqing State Commission of Science Deputy Director Gao Ying Ministry of Finance Deputy Director

Chinese Experts Fei Xiaotong Standing Committee of the National People's Congress Vice Chairman Zhang Wenfan Ministry of Civil Affairs Director Chen Xiwen The Development & Research Center under State Council Minister 142 China: Small Towns Develo~ment NAME AGENCY TITLE

Du Ying Research Center of Ministry of Agriculture Vice Chairman Liu He State Planning Commission Deputy Director Zou Deci Academy of Urban Planning 8, Designing President Goo Chengzeng Ministry of Construction Professor Wie Tiejun Office of Agricultural Reform under MOA Deputy Director Bai Renpu University of Agriculture Institute of Rural Dev. President Zhou Yixing Peking University Director

Participants from the Foreign Agencies Kathy Ogawa World Bank Resident Mission Coordinator Zong Yon World Bank Resident Mission Project Officer Li Chunvan World Bank Resident Mission Assistant Hu Biliang World Bank Resident Mission Project Officer A.Rodrigues UNDP Deputy Representative Wang Yue LlNDP Division Chief Chingboon Lee UNDP First Secretary Ulrich Eckle European Commission First Secretary Laurence Guez European Commission Proiect Officer Stephen Megurk Ford Foundation Project Officer

Foreign Experts A.L. Laquian University of British Columbia, Canada Professor R. Frenkel Yogyakarta Urban Development Project Team Leader J Burfield Urbaplan Lausanne Principal Coordinator P. Nicolas Urbaplan Lausanne, Switzerland Managing Director Eveline Waas Urbaplan Lausanne, Switzerland Project Offlcer E. Wegelin UNCHS-Nairobi Professor H. Pasha College of Business Administration of Karachi, Pakistan President D. Satterthwaite Institute of Global Environment 8, Development, London Researcher D. Dowail Universitv of California, Berkeley, USA Professor A. Bertaud Urban Development Division of World Bank Principal Planner J. Courtney University of Southern California, USA Professor A Homer Dept. of China 8, Mongolia, World Bank Principal Economist K. Sierra Dept. of China 8, Mongolia, World Bank Division Chief

Chinese Participants Zhang Luxiong Rural Department of SRC Deputy Director Shi Wanli Rural Department of SRC Deputy Director Li Tie Rural Department of SRC Principal Coordinator Zhu Hongda Rural Department of SRC Division Chief Wang Qiang Rural Department of SRC D.ivision Chief Yu Yanshan Rural Department of SRC Clerk Wang Zhichen Rural Department of SRC Director Zhang Xiaowen Rural Department of SRC Division Chief Jiao Xueli Rural Department of SRC Clerk Yang Jun Rural Department of SRC Clerk Zheng Kunsheng Village 8, Town Dept., MoCon. Director Pan Xiuling Village 8, Town Dept., MoCon. Division Chief He Xinghua Village 8, Town Dept., MoCon. Deputy Division Chief Xu Zongwei Village 8, Town Dept., MoCon. Deputy Division Chief Moo Mingai Financial Dept., Ministry of Finance Clerk Li Baojin ~. Agricultural Bank of China Deputy Director Chief Li Bing Agricultural Bank of China Clerk Annex 143 NAME AGENCY TITLE

Zhang Wei Agricultural Bank of China Clerk Li Yaodong Ministry of Civil Affairs Deputy Division Chief Zhang Sen Registration Dept., Ministry of Public Security Deputy Director Shen Tirui Registration Dept., Ministry of Public Security Division Chief Chen Wenjun SPC Clerk Song Zheng SSTC Division Chief Xu Jun SSTC Division Chief Zhang PeiZhi 'The 3rd Dept, Ministry of Personnel Division Chief Pan Xiaojing World Bank Dept., M. of Finance Division Chief Guan Hong Local Dept., Mof Finance Clerk Ma Li Office of Rural Reform, M. of Agriculture Division Chief Zhu Shouyin Office of Rural Reform, M. of Agriculture Associate Researcher Zhang Naigui State Administration of Land Deputy Director Liu Yujie State Administration of Land Deputy Division Chief Zhang Yu State Administration of Land Director Xian Zhili State Statistical Bureau Deputy Director Liu Chunxin State Statistical Bureau Division Chief Zhang Ronghua CPC Secretary Li Haiting CPC Secretary Xie Yang Rural Dept. of Development & Research Centre Deputy Director Yang Zhaodi Exchange Centre of MOFTEC Division Chief Yan Jiantao Exchange Centre of MOFTEC Project Officer Hu Zhaoliang Peking University Professor Meng Xiaochen Peking University Associate Professor Ye Shunzan Institute of Geography of Academy of Science Researcher Ma Rong Peking University Professor Liu Shiding Peking University Professor Yu Wenhua Beijing Agricultural University Teacher Boo Zhongxin China Air. Investment 8. Trust Co., Hainan Branch Director Li Zuojun Dept. of Dev of ClTC Director Zhang Bo Hengtong Co Beijing Branch Gen. Manager Li Zhengyan Xinhua News Agency Correspondent Zhang Jianping Xinhua News Agency Correspondent Xia Jun People's Daily Correspondent Zhang Shulin People's Daily Correspondent Wang Chengjian CCTC Correspondent Xu Baojian Economic Daily Correspondent Zheng Xiuman Peasants' Daily Correspondent Li Shiyi China's Reform Newspaper Deputy Editing Chief Shi Keyi Reform Magazine Correspondent Ma Hong Construction Magazine Editing Chief Wang Lei Construction Magazine Correspondent Chen Gongde China's Construction Newspaper Correspondent Li Junhua Beijing Commission of Restructuring on Economic System (CRES) Director Liu Xuan Beijing Commission of Restructuring on Economic System (CRES) Division Chief Shen Yubao Changping County, Beijing Deputy Magistrate Yang Guochang Xiaotangshan Town, Changping County. Beijing Secretary General Fan Yushan Fuyang Prefecture, Anhui Province Vice Secretary General Liu Biaowei Digang Town, Wuhu. Anhui Province Town Adminislrator Zhang Qigang Digang Town, Wuhu. Anhui Province Director Zhu Yunze Digang Town, Wuhu. Anhui Province Manager Liu Chuanhui Maoji Town, Huainan, Anhui Province Deputy Town Administrator Sun Li Changchun CRES, Jilin Province Deputy Director 144 China: Small Towns Develo~ment - NAME AGENCY TITLE

Li Shenli Yushu Commission of Restructuring on Economy, Jilin Deputy Director Wu Zhenao Jiutai City, Jilin Vice Secretary Gen Li Chengzhi Kalun Town, Jiutai Town, Jilin Clerk Gao S hixing Jinlin Construction & Investment Co Vice President Wang Peijin CRES of Hubei Province Division Chief Gan Tixing CRES of Huanggang Prefecture, Hubei Director Huang Zhichao Xiaochi Town, Huanggang, Hubei Town Administrator Wu Xinguo CRES of Huangmei County, Hubei Director Wu Zhengting Jinsha Construction Commission. Hubei Deputy Director Wu Xianhuai Niekou Town, Huangpi County, Hu bei Vice Administrator Chen Renjun Guanyindang Town, Jinsha. Hubei Town Administrator Wang Qiwu Guanyindang Town, Jinsha. Hubei Vice Administrator Wang Jigi CRES of Jinsha, Hubei Deputy Director Huang Zishu Xiaojinkou Town. Huizhou, Guangdong Province Vice Administrator Luo Diannan Mazhang Town. Zhanjiang, Guangdong Town Administrator Wang Chuanqi CRES of Dalian, Liaoning Province Division Chief An Wanxi Pikou Town, Dalian Town Administrator Chen Biyan CRES of Guizhou Province Vice Chairman Ye Wenbang CRES of Liupanshui City, Guizhou Director Li Panshou Hongguo Town, Liupanshui, Guizhou Secretary General Chen Changfa Xiaohe Town, Guiyang City, Guizhou Administrator He Hongmin Maotai Town, Renhuai, Guizhou Administrator Lou Hong Maotai Town, Renhuai, Guizhou Administrator Zhang Zhanyi Shengfang Town. Bazhou City, Hebei Province Manager Wang Hanmin Li County, Hebei Magistrate Xu Huaiyu Liushi Town, Li County, Hebei Secretary General Liu Liqiang Liushi Town, Li County, Hebei Vice Sec Gen Wu Jianbin Chenyu Town, Yuhuan County, Zhejiang Province Secretary General Lin Zhengbo Chenyu Town, Yuhuan County, Zhejiang Province Deputy Director Xu Guanfu Xunqiao Town, Shaoxing, Zhejiang Vice Administrator Ye Jiantang Baoye Constructional & Industrial Group Co, Zhejiang Director Shao Lichun CRES of Fuyang City, Zhejiang Deputy Director Wu Zixing Huzhou Industrial Commission, Zhejiang Secretary Generai Wu Bolin Xili Town, Huzhou, Zhejiang Vice Administrator Wu Mingliang Qinggang Town, Bishan County, Chongqing City, Sichuan Secretary General Lan Zhifang Qinggang Town, Bishan County, Chongqing City, Sichuan Town Administrator Jiang Tiezhu CRES of Shanghai Vice Chairman Jiang Aolong CRES of Shanghai Division Chief Shi Liangui Hongmiao Town, Fengxian, Shanghai Secretary General Sun Chunjun Xiaokunshan Town, Songjiang, Shanghai Director Li Wenliang Hengshanqiao Town, Wujin, Jiangsu Province Vice Administrator Chen Yimu CRES of Wujin, Jiangsu Editing Chief Zhu Hongcai CRES of Kunshan, Jiangsu Director Wang Hande Commission of Construction of Kunshan, Jiangsu Director Zheng Zhangna~I Lujia Town, Kunshan, Jiangsu Administrator Xiang Jianguo Lujia Town, Kunshan. Jiangsu General Manager Lu Xinyi Jinsanjiao Group Co., Jiangsu Vice President Ma Quanzhen CRES of Weifang, Shangdong Province Vice Secretary Gen Wang Xueying Shifu Town. Changyi County, Shangdong Secretary General Guan Jianhua Jingzhi Town. Welfang, Shangdong Secretary General Yang Zhiyuan CRES of Huaihua Prefecture, Hunan Province Deputy Director Mi Qingdian Qianyang County Municipality, Hunan Magistrate Shi Mingxin Mengzhuang Town. Hui County, Henan Province Vice Administrator