People's Republic of China: Town-Based

People’s Republic of China Town-Based Urbanization Strategy Study ADB TA 4335-PRC

Final Report Volume 1: Main Report

Prepared for Asian Development Bank National Development and Reform Commission

Prepared by PADCO, Washington, DC CCTRD, Beijing

August 2005

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Table of Contents Volume 1

Executive Summary...... ES-1

Section 1: Introduction...... 1 1.1 Background and Objectives ...... 1 1.2 Study Methodology...... 4

Section 2: Urbanization Case Studies: Main Findings ...... 7 2.1 Town Management...... 7 2.2 Economic Development...... 11 2.3 Economic Infrastructure...... 13 2.4 Environmental Infrastructure...... 15 2.5 Property Markets and Housing Development...... 18 2.6 Social Development...... 20 2.7 Municipal Finance...... 24

Section 3: National Policies for Town Development ...... 29 3.1 Towards an Integrated Strategic Approach to Town Development...... 29 3.2 Employment Generation in Regions and Towns ...... 34 3.3 Increasing Access to Markets ...... 38 3.4 Improving Urban Environmental Services ...... 42 3.5 Meeting Housing Needs through Property Market Development ...... 46 3.6 Improving Access to Social Services and Benefits ...... 52 3.7 Mobilizing Revenues for Town Development ...... 57 3.8 Institutional Capacity and Town Governance...... 61

Section 4: Provincial Policies for Town Development ...... 67 4.1 Strengthening the Ability of City, County, and Town Governments to Guide Development ...... 67 4.2 Targeting Provincial Resources for Efficiency and Equity...... 69 4.3 Planning the Development of Sub-Regions ...... 71 4.4 Provision of Trunk Infrastructure ...... 80 4.5 Monitoring and Evaluation of Local Government Development ...... 82

Section 5: Action Planning ...... 89

Annexes Annex 1 Administrative Structure and Terminology Annex 2 School Fees in Development Planning Towns Annex 3 Teng’ao Land Development Process (Non-Agricultural Land)

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY ii FINAL REPORT

Acronyms

ADB Asian Development Bank BOD Biochemical Oxygen Demand BOT Build-Operate-Transfer CCTRD China Center for Town Reform and Development CMS Cooperative Medical System CPC Communist Party of China EPB Environmental Protection Bureau GDP Gross Domestic Product GIS Geographic Information System LG Local Government M&E Monitoring and Evaluation MLSP Minimum Living Standard Program NDRC National Development and Reform Commission PADCO Planning and Development Collaborative International, Inc. PDRC Provincial Development and Reform Commission PRC People’s Republic of China SME Small and Medium-Sized Enterprise SOE State-Owned Enterprise TVE Town and Village Enterprise UN United Nations WTO World Trade Organization

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY ES-1 FINAL REPORT: EXECUTIVE SUMMARY

Executive Summary

The Government of the People’s Republic of China (PRC) aims to increase economic productivity and narrow the urban-rural income gap through the development of towns. In support of those goals, the Asian Development Bank (ADB) contracted PADCO and the China Center for Town Reform and Development (CCTRD) to carry out the “Town-Based Urbanization Strategy Study” in 2004-2005. Drawing on urbanization case studies carried out in Liaoning and Shanxi Provinces, this Final Report sets out an integrated strategy for promoting the development of towns in the context of larger urban systems.

For years the debate among urban policy makers in the PRC has focused on the relative merits of developing towns vs. cities. While cities offer economies of scale and greater productivity, it was argued, towns held more promise for a more evenly developed urban system. The urbanization case studies in Liaoning and Shanxi Provinces revealed that cities and towns both have important roles to play in the urbanization process. Cities are the main engines of economic growth in China today. Most manufacturing takes place in large urban areas where enterprises can be grouped together and the marginal cost of infrastructure is low. In support of industrial production and administrative activity, the service sector in cities has expanded massively in recent years, creating large numbers of jobs per unit of investment. At the same time, many towns located within metropolitan areas or development corridors play important roles as manufacturing centers, tourist destinations, and agro- processing sites. In some metropolitan areas, towns serve as bedroom communities for center-city workers or transportation hubs for passengers or freight.

The contributions that cities and towns are making to the parallel processes of urbanization and economic development make it clear that PRC should grow cities and towns by facilitating the development of larger urban agglomerations made up of different types of urban settlements. Within that context, national and provincial governments should focus their efforts on towns with high potential for employment generation and economic growth. Provincial governments should also enable selected towns to formulate and implement their development strategies by granting them greater authority for planning, budgeting, revenue generation, and infrastructure investment. The main elements of the proposed strategy for promoting town development are described below.

Develop Towns in the Context of Larger Urban Agglomerations. Town development should be conceived and implemented as part of the development of metropolitan areas, development corridors, and other sub-regions. The PRC should foster development of physical and economic linkages among different types of urban settlements within the sub- region to improve access and take advantage of economies of scale and multiplier effects. This coordinated approach will be the most effective in enabling growth and generating employment. Public sector entities should lead a metropolitan or sub-regional planning process in which the roles and functions of urban settlements of different sizes are defined and the public investments in roads and environmental infrastructure are identified. • In metropolitan areas, identify optimal functions for different towns within the group of settlements and develop them to that end. Some towns can best serve as bedroom communities for the core city, others as manufacturing centers, and still others as transportation hubs, such as multi-modal centers. • In industrial corridors, town economies should be developed to extend the production chain of sub-regional industry or services, for example, linking steel production downstream to stainless steel production, or linking electrical power generation upstream to coal mining. Provincial or prefecture-level governments should take the lead role in studying markets, planning sub-regional development, and implementing

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY ES-2 FINAL REPORT: EXECUTIVE SUMMARY

sub-regional infrastructure projects, such as roads, wastewater treatment plants, and sanitary landfills. • Tourism zones can be created from clusters of towns with significant tourism assets. Using a more demand-driven approach, sub-regional planners can identify excess demand in particular market segments and can target advertising and other promotional activities to attract more tourists. Small and medium enterprise development will be critical for growth of the tourism-related service sectors, which have great potential to generate jobs in towns. • Agro-processing areas should be defined based on the marketability of specialty products, such as seafood and japonica rice (in Liaoning Province) and small grains and dairy products (in Shanxi Province). Local and provincial governments can join forces to streamline the regulatory environment, offer fiscal incentives to new investors in agro-processing, and develop feeder roads and trunk highways needed to deliver product to market.

Enable Development of Towns with High Employment and Economic Growth Potential. The National Development and Reform Commission (NDRC) and Provincial Development and Reform Commissions (PDRCs) should rationalize and upgrade their approach of channeling resources to key towns. Rather than selecting them on the basis of population or functional and regional distribution, towns should be targeted based on their potential to grow economically and provide jobs to in-migrants from rural areas. The overarching factor should not be growth of production, but rather growth of employment. The latter is will contribute more toward government’s goal of closing the rural-urban income gap. This will require a paradigm shift in the thinking of provincial and local level managers of the development process.

In the future, key towns should be selected based on their “employment rate of return,” that is, the number of jobs created per Yuan invested by provincial or central government. The analysis of employment generation and economic growth potential should be based on the overall development dynamics of the town and the sub-region in which is it located. Major factors will include location, access to trunk transport infrastructure, natural resource base of the town and sub-region, and the current and potential labor pool.

The analysis will yield a ranking of towns by employment and growth potential. The NDRC and PDRCs should channel most development assistance to high-growth potential towns in which public investment is needed to leverage private investment in productive facilities. This approach will tend to concentrate resources in a limited number of towns where returns on investment are highest.

Target Subsidies to Poor Towns. Parallel with the introduction of a demand-driven system in which towns compete to create the best conditions for investment and employment generation, government should introduce a town-based component of poverty alleviation programs. Towns below a certain income threshold—for example, the 20th percentile of income per capita measured at the town level in a given province—should be eligible to apply for provincial funding, technical assistance, and training. The objective of the assistance is economic growth and job creation. Block grant financing should be made available for infrastructure improvements that will facilitate economic investment, such as roads and water supply in an agro-processing park. Through a systematic technical assistance and training program, PDRCs can disseminate best practices, guidelines, and analytical tools to enable less well endowed town governments to mobilize local resources and lead their own local development process.

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In this respect, the approach to town development is both top-down and bottom-up. The recommendation is to adopt a more effective, integrated and analytical approach to state promotion of key towns, on the one hand, while empowering other towns with tools and limited financing to chart their own development course.

Incorporate Towns as Regulated Independent Entities. To assume the massive responsibility for facilitating the generation of 10–12 million jobs yearly for Chinese in- migrants, cities and towns need a solid legal and regulatory basis for financing and delivery of services. Central government should empower the provincial governments to incorporate cities and towns as independent legal entities with specific responsibilities for service delivery and authority to levy and collect taxes and fees.

Specified in the city or town charter, the responsibilities and authorities should correspond to the managerial and technical capacities of the local government. In practice, this means that they should be set at low to moderate levels for town governments in the short run, and increased with time as institutional capacity increases.

Proposed short-term town government authorities: • Prepare and approve budget • Calculate and set user fees and charges • Levy and collect property tax • Establish special assessment districts

Proposed medium-term town government authorities: • Take loans from banks • Issue municipal bonds

In all cases, revenue-generating authority should be set in such a way that it corresponds to service delivery responsibility.

The incorporation process provides provincial government with the opportunity to streamline and rationalize the structure of the local government sector. Provinces should consider incorporating only those towns that have high development potential, and allow other towns (and possibly all townships too) to be absorbed into their counties. This would produce a situation in which a typical county may have one, two, or more incorporated cities and towns located within its administrative boundaries, but for which it does not exercise direct oversight functions. The rest of the area within the county would be “unincorporated,” and would be administered by the county government. This would substantially reduce the number of local governments, allowing for consolidation of staff and resources and lowering public sector costs. Furthermore, the effectiveness of the remaining local governments would increase as a result of consolidation and their incorporation. The potential cost savings and efficiency gains of such a reform at the level of an entire province, or indeed of the entire PRC, are enormous.

Liberalize the Property Market and Introduce Property Taxation. As a result of over- regulation of property markets, many town governments are compelled to participate directly in the production of real property. By allowing greater access to urban land and opening the door to a wider cross-section of investors, towns governments can mobilize the production of real property that they need for economic and urban growth. Based on systematic estimates of future urban land requirements, towns should convert collective land to state land and “wholesale” it to multiple developers, thereby creating competition. Conditions for accessing vacant developable urban land should in some cases include the production of affordable

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY ES-4 FINAL REPORT: EXECUTIVE SUMMARY

rental or for-sale housing for migrants and low-income residents. At the same time, by allowing use rights to collective land to be traded, towns can capitalize on existing infrastructure in ping fang areas to encourage incremental densification and production of additional housing units. These reforms will help accommodate the rapidly rising local population at lower costs to the town government.

With the introduction of an urban real estate property tax, central government can provide cities and towns with an important own-source revenue to finance urban development in support of job creation. Today, infrastructure investments by local governments are contributing to rising property values. But town governments have no way to recover the “unearned increment” — that part of the rise in value caused by infrastructure investment. Taxing the market value of the improvements to the land will allow towns to capture the unearned increment and finance additional infrastructure improvements, including in low- income areas where services are inadequate. In order to avoid increasing the tax burden on local businesses, a corresponding reduction in other taxes may be required.

Create a Unified Social Services and Benefits System for All Citizens. The objective of this policy reform is to facilitate migration to towns by removing disincentives resulting from uneven delivery of social services and benefits. First, social benefits should be provided to all residents of towns, regardless of their employment status. This can be achieved by de- linking benefits from the employer or by adding an additional component to the existing system that will cover temporary and informal sector workers. Second, town governments should provide the same social services to all local residents under the same terms and conditions. Hukou status should be eliminated as a criteria for eligibility, service level, and price of social services, such as education and health. When rural peasants see that living in urban areas will not result in higher costs or lower-quality services, they will be more willing to migrate to towns and assume their place in the growing urban economy.

The proposed strategy described above is articulated in the national and provincial sections of Volume 1 (Main Report) of the Draft Final Report. Volume 2 presents Guidelines for Promoting Town Development, which provide provincial and town managers with step-by- step guidelines for building development partnerships, promoting economic growth, generating employment, managing land use, and facilitating the production of housing, urban infrastructure, and social services for the local population. The Guidelines present a number of specific analytical tools and implementation mechanisms, the application of which is highlighted in a series of case studies in Volume 3, Best Practices. Volume 4 presents outline strategic plans and packages of development proposals for six demonstration cities in Laioning and Shanxi Provinces. These plans are intended to serve as examples of how the strategy and guidelines can be used to prepare integrated, targeted, and realistic development plans for Chinese towns.

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY 1 FINAL REPORT: INTRODUCTION

1 Introduction

1.1 Background and Objectives

In January 2005, the population of the PRC reached 1.3 billion, of which the urban share is estimated to be more than 40 percent. About three-quarters of the annual population increase of 4.5 percent is attributable to rural-urban migration. Even these high figures underestimate the rate of urbanization, since an additional 100 million people are resident in urban areas, but not recognized by the official statistics.

The PRC has about 22,000 towns, and a roughly equal number of townships. (There are 660 cities.) Towns are making a substantial contribution to national economic growth. Across the PRC, towns had an average of 32,309 permanent residents and 16,719 workers in 2002. They produced revenues of 11.4 million Yuan annually, up from 7.2 million in 1999, meaning that they were growing at an annual rate of 16 percent.

However, towns face a growing number of challenges. Towns must generate employment for increasing numbers of residents and migrants. In many cases, key components of basic infrastructure, such as wastewater treatment and solid waste disposal facilities, are lacking. Property markets are constraining urban development. And financial resources are inadequate, making it difficult to provide social services, such as health care and education. These challenges, if not addressed, could constrain the growth of towns and limit their contribution to economic development in the PRC.

Through the present Town-Based Urbanization Strategy Study, the Government of the PRC is partnering with the Asian Development Bank (ADB) to formulate strategies for promoting the development of towns. The analysis of the existing situation was presented in the Interim Report in February 2005. This Final Report sets out the draft policy and operational proposals for deepening urban sector development in Chinese towns and cities.

Background

Since the 1950s, Chinese policy makers have debated the virtues of pursuing an urban development strategy based on settlement size. From the 1950s to the 1970s, the national urbanization strategy favored smaller settlements over larger settlements. The government pursued a policy of regional economic self-efficiency in order to reduce inequality and to address national security concerns. Industry facilities were scattered, sometimes located in towns in remote mountainous areas with little or no infrastructure. The restriction of labor mobility through the household registration system (hukou) allowed the government to control the size and growth of towns and cities.

By the late 1970s, 80 percent of the country’s population was living in villages and towns. The government’s determination to pursue a town development policy was articulated at the National Conference on Urban Work in 1978 and the National Conference on Urban Planning in 1980. The objectives were as stated: • Strictly control the development of large cities • Rationally develop medium-sized cities • Vigorously promote the development of small cities and towns

Policy reforms in the first reform phase (1979–1984), which emphasized reform in the agriculture sector, were to have a great impact on town growth. Policies with the most significant

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY 2 FINAL REPORT: INTRODUCTION

impact included the introduction of the “household responsibility system” in 1979 (the reorganization of agriculture), whereby contract farming replaced the communes. Also, the government introduced two important measures in 1984, permitting rural migration to towns and allowing for the private operation of non-agriculture enterprises (referred to as “town and village enterprises” or TVEs).

A greater emphasis on the role of small cities was given priority in the PRC’s first comprehensive set of urban planning laws that were introduced in 1989. After 1992, the government reached an agreement to promote town development despite the diverse range of opinions in official circles on this subject.

In 1995, 11 ministries and commissions embarked on a national pilot program of institutional reforms in selected towns, which was a prelude to accelerating nationwide town development. Both national and provincial pilot town programs were introduced to experiment with policies that would help facilitate urbanization in key towns. The success of these programs is debatable; many of the town development plans never achieved their goals. Several towns have been held up as success stories, but their success has derived more from unexpected growth than the implementation of the development plans.

In 2000, the central government made it official policy to actively develop towns when the Communist Party of China (CPC) Central Committee promulgated Some Opinions on Promoting the Healthy Development of Towns. The State Council also put forth guidelines and principles for the town reform and development, which covered such topics as town planning, household registration system reform, administrative reform, land use, governance, public finance, and law. In 2001, Urbanization Planning under the Compendium for the National 10th Five-Year Plan reiterated the guidelines and principles for the reform and development of towns. In 2002, the 16th Central Committee of CPC further emphasized that the urbanization process with Chinese characteristics should be one of compatible development of towns and cities. As this overview shows, this study is part of a long line of actions and policy modifications designed to promote the development of towns in the PRC.

Study Overview

The purpose of the ADB-financed Town-Based Urbanization Strategy Study is to help strengthen government urbanization strategies with a view to promoting efficient growth, poverty reduction and improved environmental quality. The consultant team consists of Planning and Development Collaborative International, Inc. (PADCO) of the United States and the Center for Town Reform and Development (CCTRD) of the PRC.

The Study consists of three main parts:

Part A involves the formulation of strategic urbanization models based on case studies for two provinces: Liaoning in the northeast and Shanxi in the northern region (see Figure 1.1, below). These two provinces were selected by NDRC and ADB because they face substantial challenges related to economic growth and town development. Moreover, they were considered representative of regions that have not directly participated in the economic boom of the last ten years. Unlike the high-growth areas on the coast and along the Yangtze and Pearl Rivers, provinces in central and northern China such as Shanxi have not been privy to the ongoing manufacturing boom and associated high urbanization rates. Liaoning Province, while historically an industrial heartland, has recently faced economic challenges related to the conversion of former state-owned enterprises.

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY 3 FINAL REPORT: INTRODUCTION

The analysis of urban settlement patterns in these two provinces led to formulation of practical policy instruments aimed at stimulating economic growth and creating employment. The output for Part A includes the two provincial case studies for immediate use as models on which to formulate and implement town development strategies in the study provinces.

Part B involves the assessment of: (1) national- and provincial-level trends in urbanization; (2) existing government policies and programs and their impact on the current patterns of urban development; (3) problems in the design and implementation of existing policies; and (4) existing barriers to efficient urbanization and the development of towns.

The major output for this part includes an analysis of the problems and barriers faced in applying national and provincial policies for urban development.

Part C involves: (1) collection and presentation of international best practices in channeling growth to secondary centers; (2) identification of policy instruments that can work in an evolving market economy; (3) identification of the types of towns that should be considered for priority activities; (4) development of guidelines for town planning and the management of urban development, with guidelines for public participation in the process; (5) analysis of the problems encountered in attempting to attract private investment and recommendations to overcome them; and (6) formulation of recommendations for policy changes to overcome the identified barriers and a strategy for their implementation.

The main output of Part C includes recommendations for policy changes that reflect international best practices, that provide effective and practical guidelines to achieve sound town planning, and that attract investment for urban development.

Figure 1.1: Shanxi and Liaoning Provinces in the National Context

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY 4 FINAL REPORT: INTRODUCTION

Draft Final Report Overview

Parts A and B were covered by the Interim Report. In the Interim Report, findings from the national, provincial, and town level were analyzed and preliminary recommendations made.

This Final Report covers Part C of the study, and is divided into four volumes. The contents of these volumes address the specific, observed challenges of towns in the case study provinces. They are intended to be used together, but can also stand alone, as each addresses a distinct set of challenges, and each is directed at a slightly different audience. • Volume 1: Main Report. After summarizing the main findings of the urbanization case studies in Liaoning and Shanxi provinces, this volume sets out the recommendations for national-level policy changes to promote the development of towns in the context of the larger urban system. Practical recommendations for provincial policy reforms, programs, and interventions follow the national-level recommendations. • Volume 2: Guidelines for Promoting Participatory Town Development. This volume includes a set of innovative guidelines and internationally tested implementation mechanisms for planning and implementing the development of towns. The guidelines are intended to be used by practitioners at the provincial and local government (LG) levels. Particular attention is paid to “sub-regional” interventions by provincial planners and town-specific initiatives undertaken by town governments. • Volume 3: Best Practices Compendium. This volume is a compilation of international best practices drawn from a range of developed and developing countries. The best practices are intended to illustrate approaches that achieved tangible results in other countries and that are potentially applicable in the Chinese context. • Volume 4: Proposals for Development Plan Towns. This volume includes development proposals for a total of six development plan demonstration towns in Liaoning and Shanxi Provinces. Outline strategic plans were prepared for three towns (Xiliu, Yangqu, and Wutong), while packages of development proposals were prepared for three others (Teng’ao, Goubangzi, and Gutao). These plans and proposals are intended to be used as a model for future planning exercises in other towns.

1.2 Study Methodology

In order to assess the development trends in the towns in the two provinces, the study team made field visits to the demonstration towns, met with key informants, and prepared and oversaw the implementation of two surveys in a total of 60 towns in Liaoning and Shanxi Provinces. The study team also conducted training workshops for officials in Shanxi and Liaoning Provinces.

Study Team Organization

In order to deal adequately with the complex range of topics covered in this study, the study team was organized into the following working groups. Each working group consisted of at least one international and one Chinese specialist: ! Urban Management, Institutional Structure, and Planning ! Economic Development ! Economic Infrastructure (this group studied transportation, central heating, and parks) ! Municipal Finance

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY 5 FINAL REPORT: INTRODUCTION

! Environmental Infrastructure ! Social Security

Selection of Towns

Seven towns in each province were chosen to be demonstration towns during the analysis phase, which culminated with submission of the Interim Report. Development planning proposals were then prepared for a total of six of the demonstration towns. The following criteria were used by the consultant and the Development and Reform Commissions of Liaoning Province and Shanxi Province in identifying the towns.

1. Economic function — The selected towns were generally representative of the economic functions of towns in each province. 2. Position in the economic development cycle — Both towns that have enjoyed recent success and some poorer or more marginalized towns were included. 3. Town size — Towns selected had a population in the range of 20,000 to 150,000. 4. Geographic distribution — Towns were selected from different prefectures, as well as those located in existing clusters or corridors of development.

Table 1.1: Development Plan Towns Liaoning Province Shanxi Province Goubangzi Gutao Tengao Wutong Xiliu Yangqu

Field Trips to the Provinces

The consultant team made seven trips to the provinces to gather information from town governments, to conduct first-hand observations of the towns, to meet with local political leaders and experts from relevant academies and universities, and to consult with local residents and business owners about their concerns and priorities. Throughout the study, the consultant team benefited from the enthusiastic support and involvement of town and provincial leaders and gratefully acknowledges their assistance with this study.

Surveys

The consultant conducted two surveys. The 30-Town Survey was used to gather information about population, economic base, social services, infrastructure, and the environment. An Enterprise Survey was also conducted to evaluate the performance of town government in facilitating economic development. The results of both surveys were discussed extensively in the Interim Report.

Training Workshops

Several workshops were conducted, including one workshop during the review of the Inception Report in November 2004, and two 1-day training workshops on demand assessment in January 2005 in Liaoning and Shanxi Provinces.

Figure 1.2: Liaoning Province Development Plan Towns Figure 1.3: Shanxi Province Development Plan Towns

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY 7 FINAL REPORT: URBANIZATION CASE STUDIES: MAIN FINDINGS

2 Urbanization Case Studies: Main Findings

2.1 Town Management

2.1.1 Administration

Towns are at the lowest level of the PRC’s elaborate administrative hierarchy, located below the central government, province, prefecture (city), and county. Towns report upward to counties and have supervisory responsibilities over villages. In this system, a town’s prospects are defined to a large extent by the policies and effectiveness of the governments above them. Many key town development actions (plan approval, budget approval, large- scale investment projects) require approval by counties. Moreover, budgetary funding of towns is determined through negotiations with higher-level governments. The weak administrative position of towns limits their ability to plan, finance, and implement urban and economic development initiatives.

2.1.2 Planning

Three instruments are currently used in planning the development of towns in the PRC: construction plans (master plans), land use plans, and socioeconomic plans (see Box 2.1).

Box 2.1: Planning System

Land Use Plan. Prepared by the Land Utilization Department, the plan regulates land use and development boundaries for a 10-year period. Approval is given at next-highest government level.

Construction Plan (Master Plan). This plan is prepared by the construction organization commissioned by the government, which contracts it to a design certificated institute. The plan specifies land uses in built-up areas and the corresponding infrastructure requirements, including transport, environment, water supply, sanitation, electrical power, gas, heating, broadcasting and telecommunication, etc. Timeframe is 10-20 years. The plan is authorized by the congress of the same government level.

Socioeconomic Plan. Commissioned by the government, the plan sets socioeconomic development goals and guidelines for a 5- or 10-year period. The plan is authorized by the congress of the same government level.

The Master Plans and Land Use Plans generally represent a thoughtful and commendable approach to the future physical and spatial development of small towns. Town leaders are well informed about the content of plans, and most towns have taken major strides toward implementing them. However, the Consultant identified several shortcomings common to the planning process in demonstration towns.

The most critical problem with the current master planning process is that it is incomplete. Master Plans generally do not include a strategic analysis of the town’s development direction, and so cannot help the town chart a course for its economic future. Such an analysis could help towns foresee problems (for example, downturns in an important market or the growth of a competitor) and take steps to address them.

The other major shortcoming of the Master Plans is that they are not inclusive enough. Because they deal almost exclusively with physical development, Master and Land Use Plans generally do not include any socioeconomic or development components or objectives, and few towns provided information on social or economic development goals to the

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY 8 FINAL REPORT: URBANIZATION CASE STUDIES: MAIN FINDINGS

planning institutes revising their plans. Should this information be available, it could help inform the planning of investments, including schools, health facilities, and the like. In addition, while the land use plan is intended to underpin the construction plan, in many towns the two plans are in conflict.

Another shortcoming with the master planning process is that the plans may not be flexible enough, or revised often enough, to keep up with the rapid pace of development in many Chinese towns. In several of the towns visited, the Master Plan no longer reflects the reality of development on the ground. A less rigid planning approach may be needed, or more frequent revisions required, to deal with this problem.

Few towns have prepared socioeconomic plans, which in theory could help knit together the two other plans and include such aspects as employment, education, environmental quality, and urban management. No study town had conducted a strategic planning process or prepared a strategic plan.

A more detailed analysis and critique of the planning process in PRC towns, along with general and specific proposals, is in Volume 4 of this report.

2.1.3 Management Structure

Three organizations participate in managing towns: the Communist Party, the People’s Congress, and the Town Government. The organization chart for Goubangzi Town in Liaoning Province (see Figure 2.1) is typical of towns across the PRC. Town leadership is shared among the Party Chairman and Vice Chairmen and the Town Mayor and Vice Mayors.

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY 9 FINAL REPORT: URBANIZATION CASE STUDIES: MAIN FINDINGS

Figure 2.1: Goubangzi Town Organization Chart

Goubangzi Town Organization 沟帮子镇机构派出机构 City Level Agencies With Town Management Responsibilities

公安局＊ Public Security* 国税局＊ National Tax Agency*

Communist Party 地税局＊ Local Tax Agency* 党委工商局＊ Industry and Commerce* People's Congress Party Secretary/Chair 供电局 Power of People's Congress

人民代表大会党委书记兼人大主席邮政局 Post Office 交警队＊ Traffic Police Union Chair 法庭 Courts 工会主席银行 Banks 司法所＊ Civil Cases Vice-Chair 人大副主席＂＊＂在工作上，镇 * Marks agencies with 政府有管理职能，人 shared responsibilities 事任免上有提建议的 between the town and 权利． the city

Vice-Secretary Vice-Secretary Vice-Secretary for Discipline for Economics for Trade Promotion and Development 副书记副书记副书记管党务群团工作管经济工作管招商引资工作 People's Congress 人民代表大会 78 people

Town Government 镇政府

Mayor 镇长

Vice Mayor 1 Vice Mayor 2 Vice Mayor 3 Vice Mayor 4 Vice Mayor 5 Eight Town Offices: Office for Party Urban Construction Agriculture and Economics Office Culture, Education, Family Planning, Finance Office Government Office Members and People Office Village Office Sanitation Office Public Security, Legal Office 八个办公室: 党群办公室城建办公室农业村庄办公室经贸办公室文教卫生办公室计划教育,社会治安,综财政办公室政府办公室合治理,民政,司法,公安办公室 8 people 8人 3 people 3人 2 people 2人 5 people 5人 3 people 3人 3 people 3人 4 people 4人 5 people 5人 Organization, Urban Construction, Agricultural Industrial Policies, Education, Sanitation General Financial Private affairs, Propaganda, Planning, Land Use Production and Commerce, Management, Public Management Dossiers, General Oversight, Media, Management Related Activities Investment Affairs, Public Services Youth, Women Promotion, Economic Security, Family Information Planning

组织, 宣传, 纪检, 城镇建设, 规划, 农业生产经营全面工工业,商贸,招商引资, 文教,卫生综合治理, 民政, 财务管理文秘,档案,总务监察, 信访, 共青团, 土地管理作经济信息公安公司妇联, 武装

Cable TV Station Middle Schools Technical Schools Hospitals Preventative Health 有线电视站中学小学职业技术教育医院防疫站

Hydro-power Agri-machines Husbandry Forestry Culture Station 水力农机畜牧林业文化站

Permits and Planning Unit Basic Infrastucture Water Company Public Housing Unit Environment and Central Heating Land Development Regulation Unit Unit Sanitation Unit Company Company 城管监察规划处市政处自来水公司房产处卫生处供暖公司开发公司 Aesthetics

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY 10 FINAL REPORT: URBANIZATION CASE STUDIES: MAIN FINDINGS

Town government has several offices, responsible for a range of economic, social, and financial functions. Each office has several sub-units below it, which generally provide town residents with basic services and facilities, including water, sanitation, central heating, and the like. The Party has several offices and positions of its own, which do not overlap with those of government. The Party also has indirect oversight over many aspects of government.

Some services, such as tax collection and public security, are shared between towns and their upper-level government (county or city). Others are handled entirely by the upper-level government.

2.1.4 Citizen Input

The main way that town officials receive input from residents is via the Village Boards and the People’s Congress (人民代表大会), which generally consists of 60-70 members. Repre- sentatives of both organs are chosen by town and village residents through elections. Only village or town residents who hold a hukou are allowed to vote; non-hukou holders and migrants are excluded.

By law, the People’s Congress must meet once a year, usually at the beginning of the year. Meetings can last from three to five days. People’s Congress meetings include reports by government officials on the previous year’s activities and budget. The congress also approves the government budget and work plan for the upcoming year, as well as any new draft plans. The congress also elects the town party chairman, vice chairman, town mayor, and vice mayors, who are nominated by the upper-level government (there may be only one candidate for each post).

People’s Congress representatives may also engage in other activities on an as-needed basis, including site visits to construction and education projects. Representatives also bring their constituents’ problems and complaints to the attention of city staff and leadership, raising quality of life issues (for example, noise and problems with schools, restaurants, and the like). Village/juweihui representatives may also meet to approve major expenditures at a more local level.

There are few other (non-official) channels for communication with town residents.

2.1.5 Roles and Capacity

The role of town government is changing in the PRC. From being the direct provider of employment, housing, and other services, towns are increasingly serving as regulators and providers of basic infrastructure and services. Towns do not always strike the most appropriate balance, and are often still engaged in activities that are better carried out by the private sector, e.g., industrial production. Completing the transition, and better defining the appropriate roles of the government, the private sector, and community organizations, will be a key challenge in the future.

Towns are growing rapidly, and their needs are changing. As they urbanize, they will face the challenges of urban areas: managing crime, creating jobs, delivering infrastructure, etc. To meet these needs, they will need greater financial resources (including access to private capital); appropriate levels of qualified staff; improved access to technology, such as computers; and better approaches, systems, and procedures. Assisting them in fulfilling these needs is a central task of provincial and national policy makers.

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2.2 Economic Development

The demonstration towns in Liaoning and Shanxi Provinces have made substantial progress in facilitating economic growth. On the supply side in particular, and with the help of provincial and national incentives, town governments are effective in providing key inputs to investors, such as serviced land, regulatory support, and adequate supplies of labor. They are less sophisticated on the demand side, rarely use market information to guide policy development, and do not systematically promote their assets to private investors. Further- more, the government-wide priority on gross domestic product (GDP) growth in recent years has privileged industrial development over service sector growth, which has limited the impact of investment for job creation.

2.2.1 Town Strengths in Economic Development Promotion • Clearly Defined Goals. Most studied towns have set key investment goals for the near term, and town leaders have a clear understanding about the role of the town in the larger regional and national economy. Investment policies and programs are clearly linked to the achievement of the overall economic goals. Town leaders deliver succinct and cogent presentations on the economic function of their towns, their development objectives, and the mechanisms for achieving them. • Local Assets and Resources. Many towns thrive off abundant natural resources, including minerals (coal in Wutong and Kanping), agricultural products (Fuzhoucheng and Goubangzi), and shellfish (Pikou). Other towns, including Gutao in Shanxi Province, contain important historical architectural assets, which form the basis of an emerging or developed tourism industry. In all of these locations, town governments have demonstrated their ability to attract investment in the processing of resources. Levels of investment and production are sometimes determined more by quotas set by higher-level governments rather than transactions with investors in the marketplace. • Regional Linkages. The success of such towns as Xiliu and Yangqu is due more to their access to larger markets than to local resources. The best locations for these towns are along development corridors or in metropolitan areas. Xiliu, for example, has taken advantage of its position in the Dalian-Shenyang corridor and its proximity to a large international port. Its immediate expressway access, rail links, and a dense highway have allowed it to develop its apparel market into a regional textile hub. Yangqu’s stainless steel industry is rapidly expanding to take advantage of its location near the steel plants in Taiyuan city. Teng’ao has developed downstream linkages with steel, producing machine tools, metals, and spare parts for vehicles; Teng’ao’s GDP has increased twelvefold since 1991 to Yuan 8.7 billion in 2003. • Industrial Parks. Many towns in the two provinces have developed industrial parks to ensure the timely provision of serviced industrial land. The parks are well managed and have played a key role in attracting domestic and foreign capital to towns. • Fiscal Incentives. Demonstration towns participating in provincial and national “key town” programs have made effective use of fiscal incentives, such as business income tax and value-added tax rebates for new investors. Enterprises have also benefited from waivers of land use rights fees in many towns.

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2.2.2 Town Shortcomings in Economic Development Promotion • Growth over Employment. Consistent with national policy, town leaders have put top priority on economic growth, as measured by investment, GDP change, and increased tax revenues. This policy has favored capital-intensive and high-value sectors that often do not employ many workers per Yuan invested. In this way, the impact of economic growth on employment generation has been limited. • Industry over Services. A corollary of the emphasis on GDP growth has been a tendency in many towns to favor industrial development over growth in the service sector. Although service sector development in many towns requires a strong industrial base, this policy has also tended to put downward pressure on employment generation. • Demand-Side Management Is Underdeveloped. Towns rarely carry out market analysis prior to establishing target sectors and investment priorities. Moreover, town governments have a passive approach to investment promotion; they do little branding, marketing, and direct courting of potential investors in targeted sectors. • Little Enhancement of Main Resource: Labor. What investors value most about towns is the availability of inexpensive labor with appropriate skill levels. Towns do surprisingly little to cultivate this resource. Towns and upper-level governments rarely work together to offer training courses to assist rural migrants to enter the urban labor market. Few towns have taken steps to make social services and benefits available to migrants on terms equal to those of local residents. • One-Sector Economies. The economic base of many towns depends almost entirely on one sector, often the processing of local natural resources. This dependency makes the town economies vulnerable to the business cycle of that commodity, increasing the risk of economic downturn and associated hardship of the local population.

2.2.3 Enterprise Survey

Many of the most significant findings of the case studies with respect to economic development were captured by the Enterprise Survey, a sample survey of managers of the five largest enterprises in each of the study towns. The survey showed that the most important factor for business expansion or development from the managers’ perspective is availability of labor. Availability of land, while valued, was not considered a major constraint in the study towns today. Urban infrastructure services and industrial park management was generally rated “good” or “very good.” Financing is considered critical by enterprises, although this input is largely beyond the scope of LGs. Towns are seen as generally responsive to private enterprises, suggesting that LGs are succeeding in the creation of an enabling environment for economic development.

2.2.4 Emerging Trends

Guided by national policy, town economic managers are looking for ways to vertically integrate their economies, creating linkages among different sectors and extending the value added chain. This has been particularly successful in manufacturing towns, where local producers in Yangqu, for example, have gone from steel to stainless steel sheeting and tubing, and then from sheeting and tubing to cookware. The policy applies to agro- processing, too, although progress has been relatively slow; the ratio of agro-processing output value to agricultural output value ratio is 0.85:1 in the PRC, in contrast to 3:1 in many developed countries.

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Tourism is a growth sector for Shanxi Province, where 70 percent of 1,000-year-old buildings in the PRC are located. The Shanxi Tourism Bureau has prepared a master plan for the sector in order to attract more tourists to the province’s Buddhist temples, merchants’ courtyard houses, and other historical and architectural assets. While the plan identifies tourist routes designed to encourage overnight stays in different towns and cities, it does not detail capital investments or other specific measures needed for implementation. Moreover, tourist planners have not carried out detailed market research, and do no actively promote Shanxi through tourism agencies in other parts of the PRC.

2.3 Economic Infrastructure

For the purposes of this study, economic infrastructure refers to transport (roads, including highways and expressways, rail, inter-modal facilities, ports, and airports), telecommunications, electrical power, and central heating.

2.3.1 Surface Transport

Local Road Transport

Traffic volumes are much less than road capacity in most study towns. In Liaoning Province, only one development plan town had an average traffic volume higher than capacity; and in only one other town was the volume more than three-fourths of capacity. In Shanxi towns, the traffic volumes are generally much less than capacity, although Wutong suffers from some capacity constraints.

Table 2.1: Volume/Capacity Ratios for Development Plan Towns Liaoning Province Volume/Capacity Number of Town Roads Surveyed Lowest Highest Average Goubangzi 3 0.37 0.83 0.59 Teng’ao 5 0.44 1.03 0.67 Xiliu 2 0.37 0.49 0.43

Shanxi Province Volume/Capacity Number of Town Roads Surveyed Lowest Highest Average Gutao 0 n/a n/a n/a Wutong 8 0.4 2.6 1.3 Yangqu 2 0.4 0.7 0.6 Source: PADCO/CCTRD, 2005.

The survey did not include traffic counts on rural feeder roads. Most villages in Shanxi have paved roads to all surrounding villages, although their condition is often quite poor. Towns in Liaoning have many village roads, and many are unpaved. Most village roads are 4-6 meters wide, but traffic is quite light. Typical vehicles are bicycles, motorcycles, tractors and agricultural vehicles, microbuses. There does not seem to be a great need to upgrade feeder roads between villages and towns.

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Expressways

Four of the six development planning towns had immediate access to expressways and thus speedy access to markets. Of the remaining two (Goubangzi and Wutong), access to the expressway is 20-30 minutes away or more, via first-class highways. Access to expressways and the markets they serve has been a critical factor for recent economic development in many towns. The Shenda Expressway in Liaoning Province has been a catalyst for the emergence of the Liaoyang-Yingkou industrial corridor. While the main trunk infrastructure (expressway, highways, and rail running north-south) in the corridor is well developed, the overall transport network—including east-west connections that would provide linkages among small cities and towns—is insufficient to realize the full development potential of this key sub-region.

Figure 2.2: Teng’ao Road with Ample Capacity

Rail

All but one of the six development plan towns studied have direct rail access in the center of town. Towns like Wutong and Yangqu (and Gutao to a lesser extent) have taken good advantage of their rail facilities to support local industry and tourism. Goubangzi is a town built around a rail junction. Xiliu has a rail line and a small station on the outskirts of town, but town managers do not take great interest in it. This is perhaps because the rail line does not provide immediate access to any large markets nearby.

Multi-Modal Access

The Interim Report underlined the potential of access to multiple modes of transportation to boost economic activity. These include the ability to handle freight and add value through manufacturing by virtue of the combination of different transport modes complemented by warehouses. For example, Yangqu Town in Shanxi Province has access to an expressway, highways, railway, and a warehouse complex, and is seriously considering expanding its role as a logistics center serving Greater Taiyuan. Xiliu is developing into a major production and distribution center, largely by virtue of its location next to the expressway and near Haicheng city.

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2.3.2 Telecommunications

The PRC is expanding its telecommunications services at an astounding rate of 20 percent per year, and towns are no exception. Competing private telecommunications providers supply copper wire (land-line or “POTS”) and cellular service to all but the most remote mountainous towns.

Broadband Internet is available in all development plan towns. While the number of subscribers per town is typically only in the hundreds, there is broadband service at popular Internet cafés. All towns in Liaoning have cable television, but, unfortunately, national regulations prevent cable operators from providing Internet service.

2.3.3 Electrical Power

Electrical power is managed by provincial electricity companies. Most towns and surrounding villages have 100 percent coverage to households; irrigation commonly uses electrical pumps, and industry and commerce have varying levels of demand. Per capita electrical consumption in the typical town varies from 200 to 1,000 kilowatt hours per capita per year, although industrial centers, such as Wutong, may consume several thousand kilowatt hours per person.

2.3.4 Central Heating

In some towns, central heating is provided to residents of the built-up area (zhenqu) living in apartment buildings. Systems comprise multiple central heating stations; boilers operate on coal. Some towns have plans to run future central heating extensions on coal gas, a byproduct of coke production.

2.4 Environmental Infrastructure

Environmental infrastructure consists of water supply; wastewater collection, treatment, and disposal; solid waste collection and disposal; and storm water drainage. Town construction offices have the responsibility to plan, develop, operate, and maintain environmental infrastructure.

In the development plan towns, water supply, wastewater collection, and solid waste collection are generally adequate. However, wastewater discharge and solid waste disposal are done in a manner that pollutes the environment. Table 2.2 summarizes findings for selected demonstration towns in Liaoning Province and Shanxi Province, respectively. While details are provided in the Interim Report, general information about each type of infrastructure is discussed below.

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Table 2.2: Environmental Infrastructure in Development Plan Towns Liaoning Province Infrastructure Component Goubangzi Xiliu Teng’ao Source Ground Water Ground Water Supplied by Anshan Water Supply Treatment None needed None needed Water Company Distribution 100% coverage in built-up area; service is intermittent in Goubangzi Collection 80% to 90% 80% 50% to 60% Wastewater Treatment Residential buildings have septic tanks; no towns have treatment plants Disposal Discharge into a river at one or more points Collection 100% coverage in built-up area; daily pick-up Solid Waste Disposal Open pit dumping; no covering, so refuse is wind- blown around the surrounding area Storm Water Collection Combined with wastewater

Shanxi Province Infrastructure Component Gutao Wutong Yangqu Source Ground and Ground and Ground Water (70%) Surface Water Surface Water Water Supply Treatment disinfection Disinfection None Distribution Not complete; areas without pipe network are self- provided by their own wells; Yangqu 12 hours/day Collection 75% covered Septic tanks Wastewater to open drains Treatment WWTP under None construction None Disposal Reuse planned Collection Collected by dustbins in front of homes Solid Waste Disposal Open pit, no liner; no cover Yangqu served by District landfill in Jiancaoping Storm Water Collection Combined with wastewater

2.4.1 Water Supply

In general, water supply is adequate in town built-up areas. Water in PRC towns is piped, and households use it for cleaning, cooking, and personal hygiene. For drinking water, piped water is boiled or bottled water purchased.

Many of the study towns use groundwater that is pumped and distributed without treatment for their municipal water supply. Water supply aquifers are under threat from over-exploitation and from pollution caused by inadequately controlled disposal of municipal and industrial liquid and solid wastes. In some locations, including Yangqu in Shanxi Province, the depth of wells is 200 meters, which makes pumping expensive but provides protection from surface contamination.

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There is no accurate measurement of water entering the distribution system, nor are “water audits” carried out to estimate water losses. Individual metering is expensive and may not be cost-effective, considering the small number of customers and the low price charged for water. Before expanding production capacity, it may be more cost-effective to make measurements and take corrective actions to capture lost water.

2.4.2 Wastewater Treatment

Residential block and office buildings have septic tanks, and all building wastewater passes through the tank before entering the main sewerage system, where it is conveyed by reinforced concrete pipe to one or more discharge points at a nearby water channel. The septic tanks are pumped several times a year, and the sludge disposed on an empty plot of land. The septic tank is an inexpensive treatment method that removes solids, provides biological treatment, and stores scum and sludge. For example, a properly operating septic tank can reduce Biochemical Oxygen Demand (BOD) by 40 percent in the tank.1 Thus, the wastewater discharged is relatively weak and contains fewer suspended solids.

Residents and offices of Yangqu town use dry-pit toilets, so no “black” wastewater is generated. Piped water is available only 12 hours a day, so a large quantity of wastewater is not generated. Water supply wells are at 200 meter depth, which mitigates potential contamination from wastewater.

2.4.3 Solid Waste Disposal

Waste collection is done by the town’s Environmental Sanitation Management Bureau, the responsibilities of which also include street cleaning, provision and maintenance of public toilets, and transport and disposal of wastes in an environmentally acceptable manner.

Solid waste generated in study towns consists primarily of: • municipal wastes from households, commerce, and institutions; • construction wastes from the rehabilitation and construction of urban roads, bridges, real estates development, and other building construction; and • other wastes from street cleaning and landscaping.

Most recyclable materials (ferrous metal, plastic bottles, cardboard, paper) are removed at the waste collection point, not at the dump site.

In the development plan towns, households pays 2 (Teng’ao) to 5 (Xiliu) Yuan per month as a “charge for maintaining hygiene” (bao jie fei 保洁费) for collection of wastes as well as for street sweeping. Pingyao uses a rate structure that invoices government and commercial customers at a rate based on building area (e.g. hotel, Yuan 0.2/m2).

When needed, the town excavates a pit into which solid waste is dumped, or simply dumps it directly on the ground. Thus, there are several uncontrolled landfills and refuse heaps surrounding a typical town. There is no leachate control system, so there is a risk of con- taminating groundwater. In addition, the pits are not covered; as a result, light-weight debris (e.g., plastic bags, coal dust) is blown by the wind, littering the landscape.

1 Literature about septic tanks cites reductions of as high as 95 percent BOD. This includes removal achieved by soil as wastewater percolates through. However, this is not applicable when septic tank effluent discharges directly to a water channel.

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2.4.4 Facility Management

Table 2.3 summarizes the management of environmental infrastructure facilities. Water supply is almost always provided by state-owned enterprises (SOEs) because costs can be recovered by user charges, thus achieving some level of self-sufficiency. Wastewater and solid waste collection is provided by a work unit in the town’s Construction Bureau. In four of the six demonstration towns, disposal is at a dump site excavated by the same bureau.

Table 2.3: Management of Environmental Infrastructure Study Wastewater Solid Waste Town Water Supply Collection Treatment Collection Disposal Goubangzi State-Owned Town --- Town Town Xiliu State-Owned Town --- Town Town Teng’ao From Prefecture Town --- Town Town Gutao State-Owned Town Private Company Town Plan BOT Wutong State-Owned Town --- Town Town Yangqu State-Owned Town --- Town District

Gutao (Pingyao) has awarded a Build-Operate-Transfer (BOT) contract to a private company to construct and operate a wastewater treatment plant. The private company expects revenues from invoicing the town for wastewater treated and from selling treated wastewater to a nearby coke manufacturing plant. Financial success will require continuous operation of the wastewater treatment system.

Gutao is considering a BOT contract for solid waste management. Project designers assume that substantial income can be made from recyclable materials. Given the extensive removal of such materials from trash by informal workers prior to collection, however, revenues may turn out to be lower than anticipated. But as household income increases over time, it is reasonable to assume that less of this material will be removed.

2.4.5 Regional Facilities

There are economies of scale associated with larger facilities that serve multiple urban settlements. Water supply, wastewater treatment, and solid waste disposal are suitable services for regional facilities. The determining factors are population sizes, distance among areas served, and capacity for cooperation among various levels of government. Towns with an industrial park should investigate the feasibility of conveying their domestic and commercial wastewater to the park’s facilities for treatment. Treatment facilities for industrial parks should be designed and sized to this end. For solid waste, a key factor is segregation of any hazardous or toxic wastes produced by industry from the usual domestic refuse (paper, glass, coal ash, food waste, etc.).

2.5 Property Markets and Housing Development

2.5.1 Land Markets

Well-functioning property markets are critical to the full development of towns. Land in the PRC is regulated by a complex set of planning and legal regulations that serve in some ways to facilitate the development of towns, and in other ways to impede it. Because all land in the

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PRC is either collective (集体土地) or state-owned (国有土地), it is important to understand both systems, and the restrictions and opportunities both provide.

State-Owned Land State-owned land is owned by the government of the PRC. Nearly all property in cities is state-owned, but a large proportion of land in towns is not. The maximum term of use rights to residential property is 70 years. Such rights can be traded freely among private citizens, with prices determined by market value. The system of state ownership of land imposes no particular constraints on the development of towns.

Collective Land Held jointly by members of the collective, collective land consists of plots with housing improvements on them (集体建设用地) and agricultural land. In both cases, members of the collective are given use rights to specific plots of land. All village land is collective, and a large proportion of land in towns, including land within the built-up area of the town, is collective as well. (This proportion is as high as 60-70 percent in many towns, and includes all land not developed for industry or new housing.)

Collective land cannot be traded freely, as only a member of the collective can be given use rights to collective land. Although use rights to collective land is sometimes exchanged in private transactions, the exchange is not formally recorded or legally sanctioned. When collective land is developed, it must be converted to state land first; holders of use rights are given compensation.

Collective land poses a series of challenges for towns. First, methodologies to set compensation for expropriation are problematic because use rights are not freely tradable. Market prices are only possible to ascertain through comparison with similar properties on state land, which in practice is difficult because of the very different type of structures found on state land in towns. Compensation generally includes only the improvements on the land (buildings), and does not encompass the use rights to the underlying land (which is often more valuable). Disputes over compensation for expropriated land leads to tensions between farmers and the government. In addition, without use rights to the land, farmers lack incentives to invest in improving their homes. These improvements include incrementally adding floors or buildings to respond to demand for rental housing or adding living space as farming incomes increase. Farmers would find it difficult to get loans for home improvements or other purposes in any case, because they have no real collateral.

2.5.2 Development Process

The process for development of collective land is complicated, and differs from town to town. The development of land is sometimes initiated by the government and is sometimes initiated by the private sector or by collectives themselves; it is not standard and is not clearly governed by national regulations. An example of this process from Teng’ao in Liaoning Province is included in Annex 3.

There are several problems with the land development process. First, the government is involved in nearly every step, which provides opportunities for corruption. Developers may induce government to initiate and approve the land development process, or attempt to evade regulations through informal transactions. Second, the process would appear to require a long period of time to complete, despite the indications by officials that it requires only months. Third, negotiations with households on compensation occurs late in the process, and direct negotiations of the developer with displaced households may put them at a disadvantage, especially if the development has by then been sanctioned by several

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government agencies. In addition, this price is generally estimated by an appraisal company that is hired by the developer, which could bias the price.

2.5.3 Housing Development

In their rush to modernize, towns are copying the housing models of PRC cities almost wholesale. Many require all new housing developments to be at least six floors and to meet other minimum design standards. The desire among officials for high-quality buildings is understandable. However, it does not allow towns to capitalize on their comparative advantage: cheap land. In addition, developers in several demonstration towns have had a difficult time selling new units because the unit price exceeds the ability of residents to pay. Units that are built are occupied primarily by middle- and upper-income families, reducing the diversity of neighborhoods and forcing lower-income families to live on the outskirts of towns. Finally, excessive regulation of building heights and design detracts from the aesthetic interest of towns.

Figure 2.3: Mid- and High-Rise Housing, Beijing

2.6 Social Development

Social development in this report refers to the range of social services and protections provided to or for town residents, including education, health care, and social insurance. It also encompasses the hukou, which determines the provision of many of these benefits and influences migration.

2.6.1 Education

Public education services in towns are getting worse, as many schools are being relocated upward to the county level for efficiency reasons. Town governments have few resources to

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make local improvements, since budget allocations from upper-level governments to towns are set as a function of the hukou population only (migrants excluded). School fees still vary greatly from town to town and by hukou status, perpetuating the disincentive to migrate to towns.

Public Finance for Schools

The provincial government allocates funds for education to the city- and county-level governments to cover teachers’ salaries and the cost of basic infrastructure. The county-/city-level government then matches additional funds from the local budget to cover the costs of local schools and those in the towns and villages. However, allocations for education from higher levels of governments to towns are discretionary: They depend in large part on the town’s size, importance, and revenue contributions.

Budget Allocations by Hukou

A major problem identified in Liaoning was that education finance is based on the population which holds a local hukou. For towns with a large migrant population, this implies that the local town and village governments must cover all costs not provided for by transfers from their own revenues. This has resulted in inadequate classroom space and equipment, a student-teacher ratio of up to 70 students per classroom (in Xiliu), and poor-quality education. The situation is more grave at the village level, where the revenue base is extremely small. In Xiliu’s villages, for example, the primary source of local revenue is an annual tax collected from each household. Hence, farmers are often forced to finance the construction of new classrooms and schools themselves. In Shanxi, however, budget allocations for education to counties and cities is based on the total number of students enrolled in school, including migrants.

School Fees

Despite national legislation requiring that towns create a level playing field for access to social services by hukou residents and migrants, school fees vary greatly from town to town in the case study provinces. In the Liaoning towns, the general attitude was that migrants should pay extra to compensate for the “additional” resource requirements imposed by them on the town/city. In Shanxi, however, the emphasis was on charging a “school change fee” to all students opting to study in schools other than the one assigned to them in their place of residency.

Senior middle school is not subsidized, and since these schools are at the county level, the cost of education is extremely high. Participants from focus group discussions in the towns reported figures ranging from Yuan 2,000 to 8,000 per year to cover the cost of senior middle school education and boarding.

Distribution of Schools

The school system is now in the process of being made more centralized; that is, all senior middle schools (formal and vocational) are being moved upward to the county level. The objective is to increase the efficiency of schools and quality of education, since it is felt that teachers prefer to work in a central town or city. However, by adding boarding costs to school fees, the policy creates a disincentive for poor families to send children for higher education.

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2.6.2 Health Care

Health care services in towns are much poorer than those available in cities. Despite recent government initiatives, only a small portion of town residents are covered by health insurance. Since town governments lack the resources to improve services, quality and coverage will likely be dependent on provincial and national government programs for the foreseeable future.

Quality of Service

Services related to family planning are provided free of charge in local hospitals (funded by the central government). However, migrants must pay for these services upfront and get a refund later in their place of origin. Most small towns report inadequate health care services, in terms of equipment and medicine. In addition, doctors (particularly “barefoot doctors” in villages) are reportedly unreliable, with limited skills and qualifications. For serious ailments, residents of small towns and townships go to the city hospital, which makes costs (including transportation and other expenses) prohibitive.

Health Care Insurance

In Shanxi, the concept of health insurance is still widely unknown, except to full-time government employees. Private companies, for the most part, provide only accident insurance. Liaoning, however, was recently selected for a government pilot program for social insurance (2000-2003) which includes four components: (i) social security/retirement pension, (ii) health care insurance, (iii) social assistance to low-income families, and (iv) unemployment insurance. Under this program, health care insurance can be purchased by anyone, regardless of employment or hukou status. Participation to date is low. This is attributed to the fact that health insurance is a relatively new concept in the country and the province and not yet widely known, especially among town and village residents. Some focus group participants assessed the costs of the insurance to be almost equal to the full cost of medical treatment. Moreover, additional charges for each dependent are as high as those for the employee.

Cooperative Medical System

The Cooperative Medical System (CMS) provides medical coverage in government hospitals to people with agricultural hukou. Government subsidies cover two-thirds of health care charges. Shanxi Province has some 25 CMS pilot projects currently ongoing. Liaoning Province conducted a feasibility study in 2001, but little progress has been made to date in implementing the program. Yangqu is the only demonstration town among the six in this study to have started the CMS (in March 2005), as part of an initiative by the county government.

2.6.3 Social Programs

Social Insurance and Security

Based on information from town officials, of the 42 million people in Liaoning Province, 7.67 million are currently enrolled in the government-funded retirement plan, and 7.82 million are in the health care insurance program.2 However, this includes mostly formal sector, full-

2 Some 6.16 million people are enrolled in the unemployment benefit program and 1.5 million are in the MLSP (Source: Local Development and Reform Commission).

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time government employees. Shanxi Province has made little progress so far in institutional- izing social security.

According to the national Labor Law, it is mandatory for private companies to extend social insurance to their employees, but enforcement of this rule has been difficult. Teng’ao is the only study town in Liaoning to have made social security compulsory in full-time formal sector employment (government and private). Still, the majority of the population—part- time/informal sector workers and the unemployed—do not have social security coverage. Half of the current jobs in Liaoning, roughly 10 million, are in the non-agricultural sector. The social security program primarily targets this non-agricultural population: Officials estimate that the current coverage is approximately 60-70 percent of the employed urban population. It is likely that much of this is centered in big cities, where competition, particularly from multinationals and foreign investors, forces employers to provide better benefits.

Minimum Living Standard Program

The Minimum Living Standard Program (MLSP) is a national social assistance program that targets the population below the poverty line. The central government subsidizes this program through funds that must be matched one-to-one by the LG. The amount depends on the local poverty line, on whether one has agricultural or non-agricultural hukou, and on the financial capacity of the LG. Due to funding shortages, some town governments restrict this assistance to specific sub-groups of the population, such as holders of non-agricultural hukou.

Displacement and Compensation Policies

Conversion of agricultural collective land to state land for industrial or other types of development affects two population subgroups: farmers whose land is being acquired and families that are being resettled to the other parts of town. In Gutao, for example, the town government is planning to rehouse some 20,000 residents from the central historic area to the periphery of the town as part of its tourism promotion and conservation program. In Wutong, there will undoubtedly be a need to relocate town residents to “planned” residential zones, away from the polluting coke and coal industries currently located in the town center. Other towns will likely face similar challenges as this trend for growth and development continues.

The national compensation policy provides guidelines to LGs to address the needs of farmers displaced by such developmental activities. However, implementation is uneven and there is little negotiation with the farmers or the affected population. In the case of expropriation of land in the center of towns, the compensation value is usually low in relation to the property’s market value, limitations on transferability of land use rights notwithstanding. In such cases, the benefits of development are not equitably distributed among the various stakeholders in towns.

2.6.4 Hukou and Migration

Agricultural versus Non-Agricultural Hukou

Migrants coming to small towns may be classified into three subgroups: (i) those with agricultural hukou from a village under the jurisdiction of the town; (ii) those with agricultural hukou from a village outside the town jurisdiction; and (iii) those with non-agricultural hukou of another town, county, or city. Based on observations in the six study towns, hukou is not a critical issue in small towns. This is largely because social benefits associated with urban hukou status in small towns are very minimal to begin with. Besides, allocation of farm land

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associated with the agricultural hukou status presents an inherent incentive to retain the rural hukou status.

Although the reform of the hukou system is under way, the hukou continues to be the primary form of identity for the local population. Some towns, such as Teng’ao, have formed a third category of hukou, which in effect is a local agricultural hukou without agricultural land. Although this does not entitle them to the benefits per se, it gives them legal rights of residency.

Preconditions to change one’s hukou from agricultural to non-agricultural typically include one or more of the following: ownership of a house, proof of job, relatives living in the town, and other requirements that vary by the town. Some towns require payment of a fee.

Migration

Although migrants enjoy equal “access” to education and health services as the hukou residents, they often have to either pay more or pay upfront and get a refund later for services subsidized by the government. They are also not entitled to social assistance programs, such as the MLSP or the CMS, or any “free” services or government subsidies.

Unlike the larger cities, many small towns encourage in-migration to meet the demand for labor in the local business enterprises and industries. For example, in Teng’ao “temporary” migrants constitute 80 percent of the labor (mostly unskilled) in the industrial sector. Focus group participants in both Yangqu and Gutao reported that local businesses mostly prefer to hire locals simply because they are “more stable, unlike migrants, who are likely to undergo the necessary training for the job, and leave.” As a result, much of the migrant labor in these towns is involved in temporary jobs in the construction sector.

2.7 Municipal Finance

Like many LGs worldwide, towns and cities in the PRC do not have the resources needed to shoulder the burden imposed by rapid urbanization, limited authority, and expanding responsibility. Several of their most important revenue sources have been reduced or eliminated. Tax sharing is determined by the central government and at the province level using an opaque distribution scheme. Many potential revenue sources that offer the greatest promise are unfamiliar to LG officials. Other sources, like the various forms of debt, are not a true income source but are “pay as you use” financing instruments, in which infrastructure improvements are financed through debt.

Another major problem is the failure to keep financial management authority in line with service delivery responsibilities. Furthermore, tax rates and service tariffs are generally set by the central government, with little regard for local requirements and unique circumstances, despite the fact that each town or city has an environment that is unique, with different demands on construction of infrastructure due to terrain and geographic setting.

2.7.1 Revenue-Sharing Framework

The framework for municipal finance determines the type and amount of financing available to towns for critical infrastructure. In the PRC, the finance system is divided into two levels: national (central) and sub-national (local). Revenue sharing between the central and subnational (province) levels is fixed (although the subnational share is decreasing), but the percentage that towns receive is not. Towns are at the bottom of the local system, which extends from the provinces down. Within these systems, however, there is great variation.

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The amount/proportion of taxes received by town overnments is determined at a local level, and differs from one location to another. This has led to a situation in which town revenues are insufficient and unstable.

In Liaoning Province, taxes are proportioned among four different levels. The provincial government determines the share it will keep and the share to be distributed to prefecture- level cities. The prefecture city then decides what percentage to share with its counties, towns, and townships. As shown in Table 2.4 below, Xiliu and Goubangzi belong to different cities, so they have a different tax share rate. In addition, some towns get a tax rebate or revenue from their county- or county-level city, based on the total revenue submitted by the town.

Also as shown below, there is no fixed tax-sharing proportion for towns in Shanxi province. Towns receive funds for salaries and an office operation fee from their county or county-level city only, which is allocated from budgets at the beginning every year. Usually, the office operation fee is very limited and not enough to cover the costs. A town may receive additional tax rebates or revenue, based on the total revenue the town submits. They may also seek to raise funds from extra-budgetary revenue sources in towns.

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Table 2.4: Revenue Allocations in Selected Towns in Liaoning and Shanxi Provinces, 2004 (%) Liaoning Shanxi No. Main Taxes Government Level Goubangzi Xiliu Wutong Gutao Yangqu 1. Value-added tax Central 75 75 75 75 75 Provincial 10 10 8.75 8.75 8.75 Prefecture- & County-Level Cities (combined) 0 5 Prefecture-Level Cities Only 5 3.75 0 County-Level Cities Only 11.25 12.5 16.25 Town 15 10 0 0 0 2. Business tax Central 0 0 0 0 0 Provincial 30 30 35 35 35 Prefecture- & County-Level Cities (combined) 0 30 Prefecture-Level Cities Only 20 15 County-Level Cities Only 45 50 Town 70 40 0 0 0 3. Income tax on enterprises Central 60 60 60 60 60 Provincial 20 20 14 14 14 Prefecture- & County-Level Cities (combined) 0 5 Prefecture-Level Cities Only 8 6 County-Level Cities Only 18 20 Town 20 15 0 0 0 4. Income tax on individual Central 60 60 60 60 60 Provincial 15 15 14 14 14 Prefecture- & County-Level Cities (combined) 0 10 Prefecture-Level Cities Only 8 16 County-Level Cities Only 18 20 Town 25 15 0 0 0 5. Housing property tax Central 0 0 0 0 0 Provincial 50 50 0 0 0 Prefecture- & County-Level Cities (combined) 0 0 Prefecture-Level Cities Only 0 0 0 County-Level Cities Only 100 100 100 Town 50 50 0 0 0 6. Agricultural tax Town 100 100 100 100 100 Source: PADCO/CCTRD, field investigations, 2005.

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2.7.2 Impacts

In practice, the great majority of tax revenues are retained at the central level, despite the fact that responsibilities for the provision of most basic infrastructure and services rest with LG. This mismatch of responsibilities and funding impedes ability of town governments to fulfill their designated role as facilitators of urbanization.

In spite of the relatively rapid increase in fiscal revenues, there is an expanding gap between revenues and expenditures at the local level. This is due to a lack of stable tax resources and low transfer levels in relation to responsibilities. The proportion of total taxes remitted directly to the sub-national level decreased from 78 percent in 1993 to 48 percent in 2001 (though these figures do not include remittances from the central to provincial governments. Figures for these transfers are not available). Despite this, the proportion of local expenditures as a percentage of total expenditures has remained at around 70 percent.3 This situation is a primary cause of the fiscal difficulties experienced by LGs.

2.7.3 Extra-Budgetary Revenues

To bridge the gap between income and needs, towns often resort to extra-budgetary revenues, such as fees for services and land transfers. These activities tend to undermine fiscal discipline, erode the link between expenditures and priorities, and distort incentives. However, they are often the only way that governments can provide essential infrastructure and services to their growing populations.

2.7.4 Challenges

The mismatch between responsibilities and resources is of particular concern from the point of view of town development. Funding shortages in towns have led to: • Shortfalls in meeting needs for rural compulsory education • Shortages of rural infrastructure • Difficulties in establishing a rural social security system • Poor conditions of rural medical and health care services • Inability to pay government staff (in particular those in central and western provinces)

Attracting private sector investment and facilitating the provision of housing and services to migrants will require massive investment in infrastructure. Currently, town governments do not have the authority to raise and retain sufficient taxes and fees to cover their investment requirements. Their only recourse is participation in bargaining with higher-level governments on redistribution of tax revenues, but towns do not have enough political clout to secure from that process the resources they need.

If town governments are to lead a process of local development that will make a significant contribution to restructuring the national economy, then they will require greater authority to raise and retain more tax revenue. In addition, towns will most likely need increased amounts of targeted, predictable transfers from the central and/or provincial governments for investment in roads and environmental infrastructure.

3 PRC Statistics, 2001.

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3 National Policies for Town Development

Section 3.1 sets out the proposed overall approach for promoting town development. Sections 3.2–3.8 describe in more detail the proposed policies for various aspects of town development, such as employment generation, transportation, environmental infrastructure, housing and land use, social services, municipal finance, and institutional development. Practical guidelines for implementing the policies in each of these areas are set out in Volume 2, Guidelines for Promoting Participatory Town Development.

3.1 Towards an Integrated Strategic Approach to Town Development

For years the debate among urban policy makers in the PRC has focused on the relative merits of developing towns vs. cities. While cities offer economies of scale and greater productivity, it was argued, towns held the promise of a more evenly developed urban system.

The urbanization case studies in Liaoning and Shanxi Provinces revealed that cities and towns both have important roles to play in the urbanization process. Cities are the main engines of economic growth in China today. Most manufacturing takes place in large urban areas where enterprises can be grouped together and the marginal cost of infrastructure is low. In support of industrial production and administrative activity, the service sector in cities has expanded massively in recent years, creating large numbers of jobs per unit of investment. At the same town, many towns located within metropolitan areas or development corridors play important roles as manufacturing centers, tourist destinations, and agro-processing sites. In some metropolitan areas, towns serve as bedroom communities for center- city workers or transportation hubs for passengers or freight.

The contribution that cities and towns are making to the parallel processes of urbanization and economic development makes it clear that the “city or town” choice is a false one; rather, the PRC should grow “cities and towns” by facilitating the development of larger urban agglomerations—metropolitan areas, industrial corridors, tourist zones, and other sub- regions4—made up of different types of urban settlements.

Central and provincial governments should focus resources on the towns with the highest employment and economic growth potential resulting from location, access to markets, labor pool, natural resource base, and other factors. Towns should be encouraged to compete among themselves for private and public sector investment.

This approach will tend to concentrate resources in a limited number of towns where returns on investment are highest. At the same time, government should introduce a town-based component into the poverty alleviation program that would allocate funding, technical assistance, and training to towns below a certain poverty threshold to enable development of disadvantaged towns.

To increase the capacity of towns to support economic growth, job creation, and urban development, towns and cities should be incorporated by provincial governments as regulated, independent entities with the authority to levy taxes, incur debt, and provide selected services.

4 The term “sub-region” is used here to describe an area that is part of a province; the term “region” is used in the PRC to denote larger economic areas comprising multiple provinces.

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By liberalizing the property market and introducing a property tax, the PRC can provide towns with own-source financing for infrastructure investment and incentivize the production of housing and other real estate products that meet the needs of migrants and other residents.

Government should create a unified social services and benefits system for all citizens. Benefits should be de-linked from employment status to ensure coverage of temporary and informal sector workers. Town governments should provide social services to all residents of the town—independent of hukou status—under the same terms and conditions. This will remove a significant disincentive to living in towns and encourage migration from the farm to new employment areas.

The six main elements of the proposed integrated strategic approach to town development are discussed in greater detail below and in subsequent sections. It is understood that some of these proposals represent significant departures from existing PRC policy, especially as concerns property market management and local government finance.5 For this reason, the proposals will require careful consideration by NDRC, line ministries and PDRC, and, if adopted, will necessitate revision of some existing laws and regulations.

3.1.1 Develop Towns in the Context of Larger Urban Agglomerations

Town development should be conceived and implemented as part of the development of metropolitan areas, development corridors, and other sub-regions. The PRC should foster the development of physical and economic linkages among different types of urban settlements within the sub-region to improve access and to take advantage of economies of scale and multiplier effects. This coordinated approach will be the most effective in enabling growth and generating employment. Public sector entities should lead a metropolitan or sub- regional planning process in which the roles and functions of urban settlements of different sizes are defined and the public investments in roads and environmental infrastructure are identified. • In metropolitan areas, identify optimal functions for different towns within the group of settlements and develop them to that end. Some towns can best serve as bedroom communities for the core city, others as manufacturing centers, and still others as transportation hubs, such as multi-modal centers (see Section 3.3 below). • In industrial corridors, town economies should be developed to extend the production chain of sub-regional industry or services, for example, linking steel production downstream to stainless steel production, or linking electrical power generation upstream to coal mining. • Tourist zones can be created from clusters of towns with significant tourist assets. Sub-regional planning is critical for the creation of marketable products, such as specific tourist routes and itineraries. Investments in transportation and regional environmental infrastructure should be carried out in a coordinated fashion among the town governments and higher-level entities.

As these examples illustrate, sub-regional development requires planning above the LG level. In some cases, existing provincial or prefectural entities, such as the Tourist Bureau, can take the lead role in planning sub-regional development and coordinating with agencies responsible for sub-regional roads and environmental infrastructure, for example. At the metropolitan level, cross-jurisdictional issues can be resolved through the expansion of the boundaries of the core city to encompass the surrounding centers or the creation of an

5 For description and analysis of existing policy and programs, please see the Interim Report.

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association of LGs in the metropolitan area. (For practical guidelines, see Section 2.2, Sub- Regional and Metropolitan Planning, of Volume 2 of this report.)

3.1.2 Enable Development of Towns with High Employment and Economic Growth Potential

The NDRC and PDRCs should rationalize and upgrade their approach of channeling resources to key towns. Rather than selecting them on the basis of population or functional and regional distribution, towns should be targeted based on their potential to grow economically and to provide jobs to in-migrants from rural areas. The overarching factor should not be growth of production, but rather growth of employment. The latter is will contribute more toward government’s goal of closing the rural-urban income gap.6 This will require a paradigm shift in the thinking of provincial- and local-level managers of the development process.

For the purposes of allocating state and provincial resources, cities and towns should be subject to the same type of growth potential analysis. At the end of the day, what matters is not whether a town or a city is the object of government’s efforts to generate employment, but rather how much employment is generated for what amount of public sector investment, and what are the impacts on rural-urban wealth distribution.

In the future, key towns should be selected based on their “employment rate of return,” that is, the number of jobs created per Yuan invested by provincial or central government. The analysis of employment generation and economic growth potential should be based on the overall development dynamics of the town and the sub-regional in which is it located. Major factors will include: • Location near or within cities, metropolitan areas, and sub-regions • Location along major transportation routes • Natural resource base of town and hinterland • Quality of regional food products to which value can be added • Current and potential labor pool of town

6 The relationship between wealth distribution/employment in rural and urban areas is complicated. A town with population of 100,000 in which half of the workforce is engaged in industrial production is not rural, regardless of how it is accounted for in official statistics. When towns grow and develop substantial secondary and tertiary economic sectors, they become urban areas in the conventional sense of the term: Their primary vocation is no longer farming. Residents of the town, including those who have come from other settlements, benefit from the economic growth to the extent that they find work and receive income for it. Does this contribute to reducing the rural-urban income gap? To some extent, yes, when workers send remittances back to their family in the rural area. But the income of migrant workers who live in towns is actually part of urban income, not rural. If the income of the town as a whole rises and the income of rural areas to which it is compared remains constant, then statistically it could be concluded that job creation and in-migration in the town have exacerbated the rural-urban income disparity. Perhaps the most appropriate measure of the impact of this process is not the ratio of urban incomes to rural incomes, but rather the share of income tomorrow that is received by today’s rural population. When rural workers and households move to towns, get jobs, and receive higher incomes, this serves to spread the benefits of development out among the previously segregated urban and rural populations, thereby contributing to the achievement of more equitable distribution of income in Chinese society. Progress in this regard can be measured by comparing the incomes of newly arrived workers in urban areas to their inflation-adjusted pre-migration incomes (at the household or extended family level) or by comparing the aggregate combined income of rural residents and “new” urban residents to the aggregate income of “old” urban residents (at the provincial or national level).

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The analysis will yield a ranking of towns by employment and growth potential. The NDRC and the PDRCs should focus development assistance to those towns. The exact number of towns is not important, nor is the geographical distribution of towns within the province. It should be assumed that the workers will come to the jobs where it is most efficient to create them. The number of towns will be determined by the amount of development assistance funding available and the amount invested in each town. Investment budgets for different towns should be determined not by formula or rote allocation, but again by a careful analysis of the development dynamics and identification of the public investments that will leverage the greatest amount of private investment and job creation. This will vary by type of town (see Volume 2, Section 2.3) and by individual town.

Some high-growth towns will not require assistance from higher-level governments to develop. The governments of these towns are capable of using their own resources and those of their private sector partners to facilitate investment and create jobs. These town should be highlighted in regional urbanization plans prepared by the PDRC, but will not necessarily be beneficiaries of development subsidies.

This approach will tend to concentrate resources in a limited number of towns where returns on investment are highest. At the same time, assistance should be demand-driven. Towns should be encouraged to compete for PDRC and NDRC funding for infrastructure. For example, a PDRC could establish the creation of a level playing field for social services for hukou residents and migrants alike as a prerequisite for applying for assistance.

3.1.3 Target Subsidies to Poor Towns

Parallel with the introduction of a demand-driven system in which towns compete to create the best conditions for investment and employment generation, government should introduce a town-based component of poverty alleviation programs. Towns below a certain income threshold—for example, the 20th percentile of income per capita measured at the town level in a given province—should be eligible to apply for provincial funding, technical assistance, and training. The objective of the assistance is economic growth and job creation. Grant financing could be made available for infrastructure improvements that will facilitate economic investment, such as roads and water supply in an agro-processing industrial park. Through a systematic technical assistance and training program, PDRCs can disseminate best practices, guidelines, and analytical tools to enable less well endowed town governments to mobilize local resources and lead the local development process.

In this respect the approach to town development is both top-down and bottom-up. The recommendation is to adopt a more effective, integrated, and analytical approach to state promotion of key towns, on the one hand, while empowering other towns with tools and limited financing to chart their own development course.

The design of a subsidy system for poor towns can draw inspiration from the European Union’s “Convergence Fund,” which channels subsidies to poorer nations (those with per capital GDP below a certain threshold) to help them catch up with the richer members of the EU (see Volume 3, Best Practices).

This town-based initiative should complement other poverty alleviation components that directly benefit households or individuals, since by nature town-based assistance cannot address issues of distribution of wealth within the population of a town.

Rather than being open-ended, the programming of assistance to poor towns should be correspond to the current demographic “window of opportunity” in which the PRC’s ratio of

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workforce to total population is high. As the ratio decreases, the poor town program should be phased out.

3.1.4 Incorporate Towns as Regulated Independent Entities

To assume the massive responsibility for facilitating the generation of 10–12 million jobs yearly for migrants, cities and towns need a solid legal and regulatory basis for the financing and delivery of services. Central government should empower the provincial governments to incorporate cities and towns as independent legal entities with specific responsibilities for service delivery and authority to levy and collect taxes and fees. Specified in the city or town charter, the responsibilities and authorities should correspond to the managerial and technical capacities of the LG. In practice, this means that they should be set to low to moderate levels for town government in the short run, and increased with time as institutional capacity increases. In all cases, revenue-generating authority should be set in such a way that it corresponds to service delivery responsibility.

Specific options for revenue-generating authorities that could be granted to cities or towns are discussed in Section 3.7 below.

3.1.5 Liberalize the Property Market and Introduce Property Taxation

As a result of over-regulation of property markets, many town governments are compelled to participate directly in the production of real property. By allowing greater access to urban land and opening the door to a wider cross-section of investors, towns governments could mobilize the production of real property that they need for economic and urban growth. Based on systematic estimates of future urban land requirements, towns should convert collective land to state land and “wholesale” it to multiple developers, thereby creating competition. Conditions for accessing vacant developable urban land should in some cases include the production of affordable rental or for-sale housing for migrants and low-income residents. At the same time, by allowing use rights to collective land to be traded, towns can capitalize on existing infrastructure in ping fang housing areas7 to encourage incremental densification and production of additional housing units. These reforms will help accommodate the rapidly rising local population at lower costs to the town government (see Section 3.5).

With the introduction of an urban property tax, central government can provide cities and towns with an important own-source revenue to finance urban development in support of job creation. Today, infrastructure investments by LGs are contributing to rising property values. But town governments have no way to recover the “unearned increment” that results from the improvements. Taxing the market value of the improvements to the land will allow towns to capture the unearned increment and to finance additional infrastructure improvements, including in low-income areas where services are inadequate.

3.1.6 Create a Unified Social Services and Benefits System for All Citizens

The objective of this policy reform is to facilitate migration to towns by removing disincentives resulting from uneven delivery of social services and benefits. First, social benefits should be provided to all residents of towns, regardless of their employment status. This can be achieved by de-linking benefits from the employer, or by adding an additional component to the existing system that will cover temporary and informal sector workers. Second, town

7 Single-story traditional detached housing.

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governments should provide the same social services to all local residents under the same terms and conditions. Hukou status should be eliminated as a criteria for eligibility, service level, and price of social services, such as education and health. When rural peasants see that living in urban areas will not result in higher costs or lower-quality services, they will be more willing to migrate to towns and to assume their place in the growing urban economy.

3.2 Employment Generation in Regions and Towns

The PRC has taken full advantage of its immense labor pool to sustain high economic growth during the past 25 years. Economic growth in the Pearl River Delta and the Yangtze River Delta, the PRC’s two fastest growing sub-economies, has greatly benefited from the development of labor-intensive sectors in which 56 percent of the country’s total 66.5 million trans-province migrant laborers are employed.8 It is also revealing that most of the enterprises (58 percent in Liaoning and 52 percent in Shanxi, respectively) participating in the Enterprise Survey identified labor availability, rather than land availability and access to financing, as the top priority for future expansion. These facts indicated that an abundant, inexpensive supply of labor will continue to be a key to future growth of the PRC as a whole and for inland provinces in particular.

Off-farm job provision not only serves as a growth engine, but also contributes to social stability. The rural-urban income gap will be narrowed by continued out-migration of under- employed farmers from the agricultural sector, which employs about 50 percent of the total labor force but produces only 13 percent in GDP. Moreover, the growth of labor-intensive industry in towns allows city economies to climb the economic value ladder, producing goods and services that require more advanced skills and, increasingly, higher levels of innovation.

As a result of long-term urbanization lag, however, it will not be easy for the PRC to meet its off-farm employment goals over the medium term. An estimated additional 8 million surplus agricultural laborers will need to be employed every year in the industrial and service sectors from now until 2010. Of these, Liaoning Province’s share is 0.3 million laborers per year, while Shanxi Province’s is 0.7 million. However, the jobs generated in urban areas, including towns, in recent years (6.41 million on average and 9 million maximum per year over the period 1996-2000) can hardly meet the employment needs of the existing surplus agricultural laborers, let alone those of additional laborers. The PRC faces a daunting challenge of employment generation in the coming years. To deal with the increasing employment need, central government should continue to reinforce its urbanization strategy by placing employment generation at the top of the development agenda.

Specific measures, discussed in more detail below, include: • Changing performance evaluation criteria of local party and town officials from growth (GDP) to employment generation • Achieving economies of scale by growing cities and towns • Focusing on tertiary sector development • Promoting the development of small and medium-sized enterprises (SMEs)

8 Calculated from the National Statistical Bureau data, from Li Tie and He Yupeng, “Review of PRC’s Urbanization Process,” unpublished Working Paper, CCTRD, 2005.

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3.2.1 Change Performance Evaluation Criteria of Local Party and Town Officials from Growth to Employment Generation

The PRC has set itself the objective of building a harmonious society characterized by development-for-all. However, the growth-driven, urban-oriented, identity-biased development model from the command economy era is still largely in place and is impeding the achievement of that objective. This is especially true when priority is given: • through a performance evaluation system, to growth at the expense of employment, environment, or social equality when tradeoffs must be made; • through a segmented labor market, to an urban hukou population when there are insufficient job opportunities; • through the settlement hierarchy system, to higher-level urban centers when financial resources are limited.

To build a truly inclusive society, government should make a transition from direct intervention in economic production focusing on GDP growth to the provision of public services that enable the creation of jobs. Within this policy framework, governments should set themselves a new set of targets: • creation of new jobs, broken down by different levels of government; • access to social services for the entire population, including migrants, within an integrated labor market and a single-standard social safety network; reform should be phased step-by-step over the medium term; • clear and predictable resource allocation between different levels of government so that the breakdown targets of employment generation and social service provision can be financially met.

3.2.2 Achieve Economies of Scale by Growing Cities and Towns

Chinese cities and towns are on average small in relation to the total urban population (see Table 3.1), which means that they have difficulty achieving substantial economies of scale for economic production.9 In 2002, 45 cities—7 percent of the total 660 cities—had a population with urban hukou of more than 1 million. Some 279 cities at the prefecture level and above produced 61 percent of the total economic output, but only accommodated 26 percent of the total population. The average city population was 1.18 million, of which 680,000 with urban hukou were covered by the social welfare system and were fully integrated into the urban labor market. The rest (about 500,000 migrants and others) were actually excluded from the formal economy. Towns accommodated the final one-third of the urban population, with an average population of 8,392, of which 1,669 (20 percent) were migrants. This size of settlement is not capable of achieving an agglomeration effect from investment or enabling the development of the tertiary sector.

9 Chinese cities are relatively small and equal sized, compared to most countries. For 1,657 metro areas with populations over 200,000 in 2000 for the world, the spatial Gini is 0.564. To calculate the Gini coefficient, cities are ranked cities from smallest to largest and the Lorenz curve of their accumulated share of total population for the sample (world cities in this case) is plotted. The Gini is the share of area below the 45° line that lies between the 45° line and the Lorenz curve. PRC’s Gini was 0.43 in 2000, far below the world’s, and compares to figures between 0.65 and 0.52 for other large countries, such as Brazil, France, Germany, India, Indonesia, Japan, Mexico, Nigeria, Spain, the United Kingdom, and the United States. Only former Soviet bloc countries have similarly low Ginis, Russia with 0.45 and Ukraine with 0.40. The small population of cities results in a slower development of the service sector. Sixty percent of Chinese cities are therefore judged to be below their peak for maximum productivity. Huge productivity gains could be achieved if populations were allowed to migrate from rural to urban areas. See Henderson, et al., 2002: Urbanization in PRC.

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Table 3.1: Urban Population Size by City and Town, 2002 Average settlement As % of Average Population As % of population Urban the total settlement with urban the total with urban population population population hukou population hukou Total 502,120,000 39 328,847,000 26 Cities 329,238,000 26 1,180,000 190,347,000 15 682,200 Towns 172,882,000 13 8,392 138,500,000 11 6,723 Source: Calculated on data from the PRC Statistical Yearbook 2003 and the PRC City Statistical Yearbook 2003. Note: Cities here refer to 279 cities at prefecture level and above; towns here include 20,601 county seats and administrative towns.

It is estimated that the PRC can resettle at least an additional 200 million people and employ an additional 75 million laborers in the urban areas should its urbanization pattern synchronize with the current industrialization pattern. 10 This suggests there will be substantial leeway for Chinese cities and towns to grow in population size; hence, the PRC should continue and accelerate its moves on liberalization of hukou and other mechanisms that limit the size of the urban population.

3.2.3 Focus on Tertiary Sector Development

As a partial result of undersized cities and towns, employment in the tertiary sector in 2003 only accounted for 29 percent of total employment in the PRC, in contrast to 50 percent of many other developing countries and 70 percent in many developed countries. Many observers have pointed out that while the secondary sector, mainly manufacturing, generates most economic growth, the tertiary sector creates more jobs. In the past five years, employment in the secondary sector shrank by more than 5 million, while the number of tertiary jobs rose by nearly 30 million. This national employment trend is true for towns in Liaoning and Shanxi as well (see Tables 2.2.2.B and 3.2.2.B in the Interim Report); in Liaoning the transportation/post and hotel/restaurant subsectors contributed significantly to employment growth in towns, while in Shanxi the key sectors for employment were trade and hotel/restaurant. As cities and towns become larger through the development and articulation of the urban system, employment in the tertiary sector will continue to rise. National policy should promote: • Development of upstream and downstream linkages among sectors. Yangqu Town in Taiyuan and Teng’ao Town in Anshan provide examples of how to create forward linkages from steel production to steel processing and to warehousing and distribution. In the process, these towns have not only satisfied employment needs of local residents but also those of migrants and laid-off workers. Potentials for vertical integration can also be found in many other sectors. Shanxi is famous for agricultural production in terms of “small variety” cereals, such as oats, naked oats, millet, buckwheat, and sorghum, but is poor in agro-processing of these products, short of capacity in cold storage, packaging, and branding, and lacks access to larger markets. These shortcomings translate to a loss of job opportunities. Coal, coke, and aluminum production are still at an initial stage of processing without conversion to secondary energies and refined products.

10 See He Yupeng and Du Ping, 2004: Implication of Foreign Urbanization and Town Development Experiences and Lessons for PRC, Unpublished Working Paper, CCTRD. G. H. Chang: PRC’s Urbanization Lag and Its Economic Costs.

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• Trade and transportation sectors. Xiliu Town in Haicheng sets an example of how to generate jobs through the garment trade and related services in transportation, hotels, restaurants, and real estate. Xiliu is now linking trade backward to textile and apparel production. Other towns along the Shenda Expressway in Liaoning have a lot to learn from the Xiliu experience. • Migrant population growth as a demand generator for local services. The existing seasonal migration cycle seriously limits demand for local goods and services and thus overall employment levels in a town. If migrants moved to towns and brought along their family members, housing, construction, and building materials could all develop into an additional pillar sector, besides manufacturing, to sustain local economic growth. The aggregate economic impact of increased housing construction and maintenance activity in many towns across the country has the potential to be immense. While the number of teachers and schools in urban areas has shrunk in recent years, an influx of migrants’ children could also fuel a revival of the education sector. Vocational training may become a promising sector, for there exists a huge demand by the unskilled migrant laborers to be trained as skilled workers. Other public services will need improvement as well. Durables consumption will grow with the income rise. Trade and service sectors are anticipated to grow significantly as population concentrates in towns and cities. • Tourism development. Towns are generally rich in tourism resources but poor in tourism services. Most town visitors do not spend the night in the town because hotel and restaurant facilities are insufficient and poorly equipped. Handicraft and entertainment services fail to retain and enhance their local cultural characteristics. Many towns rich in natural beauty and cultural heritages, like Qikou Town in Shanxi, are hardly accessible and poorly promoted. With respect to tourism promotion, Gutao is an example for other towns to learn from.

3.2.4 Promote the Development of Small and Medium-Sized Enterprises

The private sector in the PRC in 2003 consisted mainly of SMEs that provided about 70 percent of the total jobs in urban areas and about 82 percent of the total off-farm employment in the country. Yet the short-term loans from national banking institutions for urban private sector and TVEs accounted for only 4.6 percent and 3.4 percent, respectively, of total lend- ing. This fact helps explain why many enterprises in the surveyed towns (50 percent in Liaoning and 41 percent in Shanxi, respectively) put financing as the second most important factor (next to labor availability) for business expansion. This mismatch between employment and financial support is a clear indication that, despite the central government’s stated priority on employment generation, the policy and implementation mechanisms necessary to achieve that goal are to a large extent still not in place. Moreover, urbanization strategy alone is far from sufficient to release the potential of the service sector and SMEs for employment generation.

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Figure 3.1: Small Service-Sector Businesses Have Great Potential for Employment Generation

To encourage private sector development in labor-intensive sectors, the following measures may work as incentives. • Introduce a short-term waiver in business taxes for targeted sectors: retail, hotel/ restaurant, tourism, apparel, transport/communication. This could be done in combination with a phasing out of such fiscal incentives for sectors with low labor intensiveness, such as textiles and highly polluting manufacturing. • Provide business incubation services to start-up businesses in the same targeted labor-intensive sectors. Work with local banks to make start-up financing available. Waive business registration fees. • Promote the retail, restaurant, and sectors by creating new or rehabilitating existing shopping and entertainment areas. Develop urban design guidelines for selected streets. Beautify the streets with tree planting and sidewalk improvements. Work with private developers to build a few key stores/restaurants. Promote investment by other developers over time. • Invest in roads to and from existing and new market areas to enable growth of trade (e.g., county roads to neighboring towns). • Train town officials in investment promotion so that they can attract investors in key economic sectors with high growth potential and employment generation potential (e.g., chicken in Goubangzi). • Carry out a pilot project in towns in Shanxi and Liaoning in deeper reform of the hukou and social security system, including abolition of hukou and provision of single-standard social security benefits and social services to all residents of a town. • Develop housing that is attractive to migrants, e.g., medium-density 2-3 story terrace housing in which most units have private yards. Consider appropriate mix of rental and for-sale units. (Rental provides flexibility for part-year residency.)

3.3 Increasing Access to Markets

A town’s future growth ultimately depends on its ability to sell locally produced products or services to regional, national, and international markets. Without access to markets, towns are economically isolated, their growth constrained by their small size. Transport infrastruc-

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ture must be used to connect towns to cities, industrial centers, ports, and other large markets.

Government should support the expansion of national and provincial infrastructure networks in order to make large markets accessible to towns. This activity should be taken out concurrently with the densification of transportation networks in metropolitan areas, industrial corridors, and other sub- regions.

Access to markets is particularly important in the high-growth environment of the PRC today. Eastern port cities are growing fast, as are the towns and cities adjacent to them. Towns in inland provinces, however, have been largely left behind by this wave of coastal growth. The low level of their participation in the larger economy is in large part a function of their generally poor access to markets.

Today, towns are poised to play an important role in the restructuring of Chinese industry. Under the “provincial protectionist” policies of the 1990s and earlier, many vertically integrated SOEs produced their own inputs, rather than contracting other firms to supply them. With the decline of SOEs, firms located in towns can now supply industrial customers in distant markets. Moreover, most of the foreign companies operating in the PRC would prefer to source their inputs from within the country, rather than contract with foreign suppliers who must ship their goods over oceans and through congested ports. As a result, towns have the potential to grow by processing intermediate goods and even producing final goods that were once reserved to state-owned industries in large cities. Towns must acquire access to trunk infrastructure so as to seize today’s opportunities to find a place in distant markets.

This section provides recommendations on how national and provincial governments can promote development in towns through provision of trunk infrastructure. After identifying ways to evaluate investments in transportation projects, various approaches to configuring trunk infrastructure are discussed: the metropolitan approach, the corridor approach, the multi-modal approach, and access to airports and seaports. This section also discusses ways in which the province can promote development of towns near ports and airports through infrastructure extension and training in reaching international markets.

Major recommendations include: • Extend infrastructure from cities to promote metropolitan growth • Develop trunk infrastructure corridors linking towns and cities • Encourage multi-modal development at the town level • Improve links to ports, airports, and international markets • Incorporate benefits to towns in evaluation of transportation projects • Reform electric power sector policy

3.3.1 Extend Infrastructure from Cities to Promote Metropolitan Growth

National and provincial trunk infrastructure programs should improve linkages among towns and adjacent cities in order to: • integrate towns into larger economies (see Appendix B of the Interim Report, “Agglomeration Economies, Transportation Economies, Urbanization, Metropolitiza-

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tion and ‘Corridorization’” for a fuller explanation of the benefits of metropolitan development, as demonstrated in Guangzhou and Shanghai); • achieve high economic return on roads investments (extending trunk infrastructure from a city to a nearby town is much less expensive than trying to extend trunk routes to either the inner city or remote locations); • take advantage of the lower cost of land and rent surrounding towns; this is particularly important for manufacturers who must build production facilities and warehouses on large plots of land; and • make connected towns more attractive to investors seeking low-congestion, low-cost locations to establish operations.

3.3.2 Develop Trunk Infrastructure Corridors Linking Towns and Cities

National and provincial decision makers should seek to expand trunk infrastructure among cities, taking into consideration the growth effects of providing expressway, highway, and rail infrastructure to the maximum number of towns in between those cities.

Provincial planners should seek to develop high-capacity, multi-modal corridors linking two or more cities. This will provide the towns in between them the opportunity to participate in agglomeration economies represented by superior access to multiple markets. Towns that lie at junctions of highways and corridors between two cities enjoy good access to more than one market. Towns’ low density and large hinterlands allow them to expand outward where land is inexpensive. Towns lying halfway in between two different cities have the potential to become supply and distribution centers for the two cities and towns along the corridor. Corridors cover large areas and can thus stimulate the economies of more towns than is possible in the area surrounding a metropolitan area.

3.3.3 Encourage Multi-Modal Development at the Town Level

National and provincial planners should seek opportunities to expand more than one mode of trunk infrastructure to towns that can take advantage of different forms of access. The goal of multi-modal infrastructure is to promote growth of manufacturing industry and the logistics, warehouse, and distribution sector in towns where appropriate.

The provincial transportation profiles in the Interim Report describe the success of different towns with multi-modal infrastructure. Those that form the junctions of trunk lines linking the town to several cities have been particularly successful. Planners of trunk infrastructure need to be aware that multi-modal solutions offer many advantages to Chinese towns today. • Two or more modes allow manufacturers to produce a larger variety of goods for a wider range of markets. • Warehouses located in towns can provide a central location to unpack and repack- age goods as a wholesale distribution center. • Factories and warehouses occupy large horizontal surfaces, and the cost of large facilities in an urban area becomes increases over time. A town in a central location far from any one major city has the advantage of lower land costs. The cost of such facilities in towns will remain relatively inexpensive. • Retail sales in the PRC are growing at 10 percent or more per year. Chinese consumers are turning increasingly to high-volume “big box” retailers that will require logistics, warehousing, and distribution support as they grow.

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Provincial planners should closely study the existing infrastructure in existing towns, and then seek to identify where there exists a gap in one mode or the other. Planners and economists should further study the impacts of increased access to markets that such transportation represents and prepare studies based on their analysis. In many cases, the expansion of a small increment of one mode (e.g., expressway), complemented by the existence of other modes (e.g., rail), will make an enormous difference in terms of making the town more productive, able to serve more markets, and attract investments.

3.3.4 Improve Links to Ports, Airports and International Markets

A particular form of metropolitan development that the national government should seek to promote combines expressways, highways, and/or railways to towns located near seaports and international airports. Both types of ports are capable of providing access to world markets. Airports are suitable for towns producing fruits, flowers, seafood, and other perishable goods to the national and overseas markets. Seaports can handle bulky, heavy, and non-perishable goods for world markets. Governments simply need to extend the infrastructure necessary to provide that access to towns.

The PRC has developed as the “world’s workshop,” and many cities have thrived. But the basis of growth is threatened by ports operating beyond their capacity, not to mention general congestion and social pressures. Specifically, the national government should identify smaller or under-utilized ports, upgrade them, and seek to extend transport infrastructure to nearby towns. Section 4 below examines the possibility of expanding small ports in Liaoning Province.

The PRC constructed and upgraded 40 new airports between 2001 and 2004 alone; this investment is complemented by trunk infrastructure that links airports and cities. The national government should expand that trunk infrastructure to nearby agricultural towns that can take advantage of markets for perishable goods nearby.

3.3.5 Incorporate Benefits to Towns in Evaluation of Transportation Projects

The state and provincial governments should seek to extend a variety of trunk infrastructure to different towns, but should be selective and only invest in projects that have a good economic and social return.

Governments at the national level should expand their evaluation criteria in the trunk infrastructure projects that they finance by taking into account secondary economic benefits and social impacts. If town development is to be a priority aimed at correcting market forces and achieving a more equitable distribution of household income, then government should internalize these benefits in the evaluation of important trunk infrastructure. To begin with, the NDRC should develop guidelines to measure the induced traffic of transport investments by taking into account additional goods that will be produced in towns in the future as a result of increased access to markets and lower costs of transport.

3.3.6 Reform Electric Power Sector Policy

In addition to the transport recommendations above, government should introduce two policy changes in the electrical power sector to open up electricity generation markets in order to respond to unmet demand for power in many parts of the PRC.

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Many parts of China currently suffer power shortages. The state’s plans to address these failings would have adequate supply in place within two or three years. The power shortages are not a function of lack of fuel, but rather lack of generation capacity. More investment in generation facilities is required. Government should allow private producers to build and operate new generating facilities in response to market demand. Such generators would sell their power to state and provincial electricity companies, which would continue to manage the transmission and distribution grid.

Central and provincial planning authorities should relax approval requirements for generation of electrical power. The procedures should be simplified and the types of eligible producers expanded. For example, heavy industrial firms should be permitted able to produce electricity. This would result in improved, more dependable supply of electrical power and more efficient industrial production. Private on-site electric generation would also relieve demand pressure on provincial power companies, many of which are currently over- stretched. Private power producers should be allowed to sell excess capacity to neighboring firms or to the provincial power grid.

3.4 Improving Urban Environmental Services

LGs in the PRC are responsible for the provision of environmental infrastructure, such as water supply, wastewater collection and treatment, solid waste collection and disposal, and storm water drainage. However, they currently lack the financial resources—and the authority needed to generate them—to provide full treatment of wastes.

At the same time, town and county governments are responsible for enforcement of environmental regulations, which creates a conflict of interest for town governments charged with achieving investment and economic production targets. In practice, many governments must choose between a cleaner environment and higher economic growth.

Figure 3.2: Effective Environmental Enforcement Will Require Clearer Definition of Roles

National urban development policy should focus on increasing enforcement of regulations requiring LG investment in adequate, affordable environmental services. LGs should be required to make investments in the next three to five years to meet certain minimum

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standards for wastewater treatment and solid waste management. Standards can be raised over time, as towns and cities raise more revenue and improve their technical and managerial skills.

The six pillars of the proposed environmental services policy are: • Develop waste treatment standards appropriate for towns • Require governments at all levels to comply with national and local laws on environmental pollution control • Provide financial assistance directly to towns for environmental infrastructure • Promote integrated environmental management between town and industry • Merge water supply and wastewater disposal functions and institutions • Establish national programs for demand management of urban infrastructure services

3.4.1 Develop Waste Treatment Standards Appropriate for Towns

Facilities planning and design needs to focus on performance rather than meeting physical requirements of national or international standards. There should be flexibility in choice of technology depending on ability to pay.

For solid waste, the preferred method of disposal is a sanitary landfill with membrane liner and leachate control system to prevent contamination of ground and surface waters. At the site there would be a compactor to compress the waste and a dozer or loader to provide a daily cover of soil or some other material over the waste. For locations with limited income, an alternative would be to install a bottom layer of impermeable clay, treat leachate on-site by recirculation through the landfill, allow natural settling instead of mechanical compaction, and allow weekly covering of waste. This is not international state-of-the-art technology, but it is more affordable and provides better protection than the current practice of dumping refuse into an unlined open pit.

For wastewater, secondary treatment by activated sludge is the preferred option for domestic wastewater (residential, commercial) because it requires less land area and provides a higher level of treatment than other methods (e.g., oxidation ditch or aerated lagoons). For towns with limited funds, an alternative would be to continue the current practice of requiring each building to have its own septic tank that is connected to the wastewater collection system and to provide only primary treatment (solids removal) at the discharge point. The resulting effluent is not as “clean” as secondary, but the cost will be considerably less. When additional money is available, the wastewater plant can be expanded to provide an additional level of treatment.

3.4.2 Require Governments at All Levels to Comply with National and Local Laws on Environmental Pollution Control

Government offices and facilities, including TVEs and SOEs, are currently not required to comply with emission standards set by national and local laws and regulations. Environ- mental Protection Bureau (EPB) offices inspect private sector companies, but not government facilities, to monitor compliance with environmental laws and regulations. Government should provide an example of the conduct it expects people and the private sector to follow by enforcing environmental regulations with all polluters.

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This policy can create a difficult decision for towns whose TVEs employ many people yet produces substantial pollution: Shut down and unemploy or continue to pollute? However, this does not have to be an “either/or” choice. Scaling back production and using existing or improved on-site environmental pollution control equipment can allow enterprises to reduce emissions while continuing production.

To improve the effectiveness of EPBs, responsibility for environmental regulation enforcement should be moved up to the prefecture level. This would remove the conflict of interest currently facing town and county managers as promoters of economic growth and enforcers of environmental protection laws. Moreover, EPBs located at the prefecture level would be able to more easily report to and coordinate with the provincial EPB.

Provincial EPBs, in turn, should be granted primary responsibility for environmental planning, monitoring, and enforcement by the State Environmental Protection Agency. Provincial EPBs are much closer to the sources of pollution, have better local knowledge, and are therefore more capable, given adequate investment in personnel and equipment, of effectively carrying out monitoring and enforcement functions than a national agency.

3.4.3 Provide Financial Assistance Directly to Towns for Environmental Infrastructure

It is not realistic to expect towns, with their small populations and low incomes, to pay the full cost of waste treatment. In California (U.S.) in the mid-1970s, the federal government provided 75 percent of the funding for construction of wastewater treatment facilities through its Construction Grants Program, and the state (equivalent to the PRC’s provinces) provided an additional 12.5 percent. Thus, the local contribution for construction was only 12.5 percent. This program lasted 10 years and contributed significantly to the upgrade of wastewater treatment facilities and to the improvement in water quality (for details, see Volume 3, Best Practices).

The national government should provide grant funding for feasibility studies that evaluate alternatives to determine best location, size, and level of treatment for wastewater treatment facilities and solid waste landfills. Grant funding helps ensure a properly performed and comprehensive feasibility study by enabling a town to hire the best qualified individual or company to do the study and not be limited to selecting the lowest bidder.

To ensure consistent, cost-effective facilities, the Provincial Construction Bureau should take responsibility for preparing Master Plans for Wastewater Treatment and Disposal and Solid Waste Disposal for Towns. These plans should include estimated costs (based on province experience, not national costs) and a time-bound action plan for implementation.

The central government should prepare and implement a national, competitive urban infrastructure financing program that provides a mixture of matching grant and loan financing to eligible LGs for wastewater treatment plant construction. While the exact amount of assistance will depend on the LG’s ability to pay, a reasonable mix of funding might include 20 percent grant, 50 percent loan, and 30 percent local funds.

The private sector should also be considered as a source of financing for environmental infrastructure investment, although its greatest potential in towns is in the area of operation and maintenance. Private investors in water supply and wastewater are generally attracted to large markets (big cities or clusters of cities), where they can achieve economies of scale and provide services at reasonable prices, even after undertaking capital investments. It is unlikely that most towns in the PRC will satisfy these criteria. However, town governments

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should explore the possibility of contracting out such services as solid waste collection and disposal and operation and maintenance of water treatment plants, wastewater treatment plants, and water and wastewater distribution/collection systems. Garbage collection contracts can be combined with construction of a sanitary landfill under a Build-Own-Operate type of contract.

3.4.4 Promote Integrated Environmental Management between Town and Industry

Attracting and developing business and industry is a key component of town economic development plans. Five of the six project towns have developed or are planning the development of an industrial park. Except for toxic industrial wastes, which need to be treated separately, environmental systems should be integrated with the local community system. In this way, industrial park development can support development of environmental infrastructure for nearby communities in terms of economies of scale and revenue generation.

An industrial park is an area of land set aside for industrial development, usually located close to transportation facilities (highways, railroads, airports, and navigable rivers). It is a fully managed entity, with defined boundaries and adequate environmental and civil infrastructure. Advantages of an industrial park include: • establishing dedicated, integrated infrastructure in a limited area to reduce the per- business expense of that infrastructure; such infrastructure includes roadways, railroad sidings, ports, high-power electric supplies, high-end communications cables, large-volume water supplies, and high-volume gas lines; • reducing and controlling environmental impacts created by industry (air and water pollution, hazardous and solid waste materials); and • easing the collection of taxes and license fees.

An industrial park benefits business by providing reliable and sufficient infrastructure, benefits the community by confining and controlling environmental impacts, and benefits government by stimulating the economy.

To make industries locate in the industrial park, government could require it as a condition of the business license and could provide financial incentives, such as reduced taxes or reduced cost of utilities.

Environmental infrastructure for the industrial park could be sized to accommodate the liquid and solid wastes generated by the surrounding community. Integrating environmental infrastructure of the industrial park and the town makes better use of scarce resources, assures the community of getting more benefit than simply employment, and enables the community to provide better services for its residents.

3.4.5 Merge Water Supply and Wastewater Disposal Functions and Institutions

Water supply and wastewater services in some Chinese towns are provided by two separate organizations. Typically, there is a state-owned water company and a sanitation unit in the town’s Construction Bureau. Reasons for this separation include the fact that water supply developed first and that water supply generates revenues that can pay some or all operating costs. However, these services are essentially linked—without water there is no wastewater, and wastewater discharges become the water supply for downstream users.

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It may be appropriate for the town to continue to provide the wastewater collection system, but it would be better to make the water supply company responsible for the wastewater treatment plant, because it can more easily recover operation and maintenance costs by adding them to the invoice for water services.

3.4.6 Establish National Programs for Demand Management of Urban Infrastructure Services

Demand management is a series of actions to use resources, such as water and electricity, more efficiently and to reduce their wastage. Benefits of demand management include: • reduction of capital costs for infrastructure as demand is reduced; and • new economic activities to provide electrical power- and water-efficient appliances and processes, thus encouraging new business opportunities and job creation.

Government can put requirements for energy and water efficiency into regulations by: • writing water-efficient specifications for new government-owned and -funded facilities and public housing; • updating plumbing codes to be consistent with energy and water efficiency provisions; and • requiring manufacturers to label their products with efficiency labeling (the PRC already has a similar requirement for energy efficiency of electrical appliances).

3.5 Meeting Housing Needs through Property Market Development

Along with job opportunities, urban infrastructure, and social services, towns need to be able to provide adequate and affordable housing to realize their urban and economic growth potential. Housing needs of local residents and migrants should be met using a variety of housing solutions tailored to users’ preferences and ability to pay. This will require introduction of a wider range of housing types, greater participation by private sector housing producers, and liberalization of the property markets in urban areas.

It is recommended that government take the following actions to improve housing delivery and property market management in towns and cities: • Convert collective land in towns to state land • Allow management companies to develop and lease collective land • Establish and enforce national standards for land development and valuation of collective land • Increase private sector participation in land development • Guarantee rights of first refusal to displaced land rights holders • Provide residents displaced by industrial development with a stake in the new industry • Encourage the development of a variety of housing types • Achieve density through regulation at district or block scale • Conduct analyses of housing demand and end user ability to pay

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3.5.1 Convert Collective Land in Towns to State Land

The availability of land is a prerequisite for new housing, industrial, and commercial development. The current structure of state and collective land ownership constrains the development of new housing, as discussed in Section 2. To remove that constraint, most collectively held land in towns—and in particular that collective land with housing on it (zhaijidi 宅集地)—should be converted to state ownership. Farmers currently living on collective property should be given use rights to the land, which they could transfer freely to others. This would be especially appropriate in the construction land areas where farmers have built their homes.

This conversion would accomplish a number of goals. First, it would free more land for development. Second, it would encourage incremental development of collective property by those who use it. Farmers will have incentives to incrementally develop their homes, adding amenities, floors, extra rooms, and other improvements, because they will be able to sell the use rights to the land along with the buildings and receive compensation for them. Third, it would allow for more accurate valuation of land use rights; when farmers have use rights to the land on which their home is built and are able to freely transfer these rights, the market property prices will be easier to ascertain, which will make land use rights transactions—for example, in the case of expropriation by a local government—more transparent. Finally, this system would alleviate tensions between farmers and government officials by removing the necessity for the town government to always be involved in land development activities.

The conversion of collective land to state land is often effected in towns today on a project- by-project basis and requires no regulatory changes per se. However, generalizing the approach to convert most collective land in targeted growth areas in and adjacent to the existing built-up area of the town does require a policy change. This proposal is consistent with the overall goal of opening up the property market to a larger number of actors who can produce real estate (housing, commercial space, etc.) for sale and/or for rent, without requiring direct participation of local government in the development process. The role of the town government in such a development process would be in plan review, issuing land use and building approvals, and ensuring adequate provision of infrastructure and urban services.

3.5.2 Allow Management Companies to Develop and Lease Collective Land

An alternate or complementary approach to converting collective land to state land is to allow the collectives to use management companies to bring their land onto the urban property market. The collective would employ the management companies to develop portions of the collectively owned land, and to rent or lease this land on a short- or long-term basis. This solution allows collectives to benefit from expanded or more intensive use of their land and does not require the direct involvement of LG. Since the collective would retain use rights to its land, this would help diminish the reluctance of some collectives to develop and transfer land based on speculation about future land prices (see the Interim Report for clarification).

Since the two approaches above are new to the PRC, it is recommended that they be the object of pilot projects in selected towns in Shanxi and Liaoning to test their feasibility. The approaches could be piloted among selected collectives in given towns, and not throughout the entire town. If successful, the pilot projects could be rolled out at the provincial or national level at a future date.

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Figure 3.3: Ping Fang (One-Story) Housing Areas Can Be Targeted for Densification

3.5.3 Establish and Enforce National Standards for Land Development and Valuation of Collective Land

To the extent that land remains collective, land development and appraisal challenges will remain. As discussed in Section 2, town governments are deeply involved in the land development process. In addition, the PRC’s land ownership structure makes appraisal of collective land difficult, as it is nearly impossible to assess fair market value if land cannot be freely transferred. In addition, assessment focuses on the value of the improvements to the land (for example, the housing and structures built on it or the crops that were planted). However, a primary loss to the farmer is the use rights to the property, including future use rights, even though it was held in collective.

The involvement of government in the transfer and conversion of collective land, the challenge of adequately appraising non-transferable collective property, and the focus on buildings and structures means that farmers may feel they are not being fairly compensated for their property. This may raise tensions between farmers and the government. With a large fraction of land in towns held in collective ownership, as towns grow, so will these issues.

To address these issues, the national or provincial governments should issue standards for the development, appraisal, and compensation of collective land. The standards should address the role of town government in this development. They should also establish methodologies for determining fair compensation of the improvements to the land. Most importantly, the government must include, and determine a methodology for, compensation to individual farmers for the use rights to collective land. This compensation could be shared by the collective as a whole, but should be retained primarily by the individual farmer. Once established, these standards and practices should be periodically monitored by the provincial government to ensure that they are being followed.

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3.5.4 Increase Private Sector Participation in Land Development

As discussed in Section 2 of this volume, the development of land requires the extensive involvement of government agencies at many levels, which can result in bottlenecks and opportunities for corruption. As a result, the role of public and private sectors in land development should be clarified and operations improved. Town governments should move away from roles that are more appropriate for the private sector to play. To facilitate the development of property, governments should provide a hospitable regulatory environment, appropriate basic infrastructure, and incentives as needed. However, town governments should avoid direct intervention in the construction and sale of housing, office buildings, stores, factories, and other types of real estate. Recommended roles and responsibilities for the public and private sector are outlined below.

Public Sector • Analyze urban land requirements and prepare quantified, phased program of land conversion. • Prepare construction plans and land use plans that broadly identify zones for redevelopment and zones for new development. • Convert collective land to state land as required by above analysis and plans. • Prepare small and medium-sized tracts of land with access to off-site infrastructure and sell them to different private developers for the production of housing, commercial space, etc. • Ensure compensation of any displaced holders of land use rights. To do so, the town government should hire an valuation or negotiation firm to calculate land and property values and negotiate with land rights holders. The developer should not take the lead in this activity. • Issue development and building permits via a streamlined process.

Private Sector • Prepare and develop real estate projects on tracts of land purchased from town, in competition with other developers. • Design buildings. • Submit designs for structural/safety review. • Pay compensation to farmers. • Construct and sell buildings.

3.5.5 Guarantee Right of First Refusal to Displaced Land Rights Holders

Farmers and other residents who have been displaced when land is redeveloped for new housing are often forced to move far from their original homes. They may not be offered a place in the new communities, or may not be able to afford the new units. Displacement to distant locations creates hardships for people by breaking up their community networks and moving them far from employment areas.

To address these issues, residents who are displaced as a result of new private housing development should be given rights of first refusal to units in the new building. This means that they are guaranteed the right to purchase a unit at the market price when new units are offered up for sale, and receive priority over all other buyers. If displaced residents cannot

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afford the new units, the government should consider providing one-time assistance to bridge the finance gap. This assistance could be provided in a variety of forms, including loan counseling, cash payments, preferential interest rates, or other methods.

This suggestion will have the benefit of reducing dissatisfaction with the redevelopment activities, helping keep communities intact, and increasing the economic diversity of developed areas, while still allowing the development of new residential area in towns.

3.5.6 Provide Residents Displaced by Industrial Development with a Stake in the New Industry

Residents are displaced for the construction of industrial facilities as well as housing. In the former case, residents should be given an opportunity to share in the benefits created by the new industrial concern. Displaced residents can be given preferential treatment in the jobs that the new industry creates. Alternatively, where farmers are ill-prepared to succeed at these industrial jobs, displaced residents can be compensated with shares of stock in the enterprise or the project.

3.5.7 Encourage the Development of a Variety of Housing Types

When it comes to housing and land use, towns have certain implicit advantages over cities. In a market system, towns located at the periphery of metropolitan areas will have lower cost land prices/values than areas in the center. These relation- Figure 3.4: Land Prices ships are shown in Figure 3.4. All other things being equal, Rise in Relationship to land prices grow progressively higher toward the center of the Distance from Center ring of circles.

New for-sale housing in apartment buildings in demonstration towns is 500-1,000 Yuan per square meter less than in surrounding cities, and rental housing is 200-600 Yuan less per square meter. This pricing differential between land in towns and cities means that towns can provide lower-cost housing for residents, which, along with other factors, may attract migrants to towns rather than cities.

Lower land prices also mean that towns can provide a greater variety of building forms, at both low and medium densities. These building forms can be designed to appeal to a wide range of owner preferences and ability to pay, and can increase the aesthetic interest and visual diversity of a town. As discussed in Section 2, however, at present towns are not taking full advantage of this opportunity.

To alleviate visual monotony and to provide for a range of resident tastes, preferences, and ability to pay, a variety of building forms for new housing should be encouraged in towns, with a range of heights, amenities, densities, and prices. Towns should abandon minimum standards for specific buildings, and explicitly encourage the development of housing that: • Caters to a wide range of user preferences. For example, migrants and families with children may prefer two-level housing that has a small yard. Retirees may prefer housing that is single-level, apartment style. Catering to a wide range of user preferences means that housing form must be varied. • Caters to a wide range of ability/willingness to pay. For example, families buying their first home will have less money to spend, while more established buyers will

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have savings and can afford to spend more. Catering to a wide range of ability to pay means that new housing must be diverse in amenities, building quality, and size. • Includes both rental and for-sale units. The development of many towns is being fueled by an influx of migrants. While some migrants may wish to settle in towns permanently, others will desire to rent housing temporarily, and may prefer to live in newly constructed apartment buildings, rather than ping fangs. Towns must be able to accommodate these preferences if they are to thrive.

Alternative housing typologies are presented in Volume 2 (Guidelines) and Volume 3 (Best Practices) of this report.

Figure 3.5: Medium-Density Attached Housing in Washington, DC

Towns in the PRC are in their formative stages, but growing fast. Town leaders and developers have an opportunity now to provide an attractive built environment that will meet the needs of a broad range of residents, and they should seize it.

3.5.8 Achieve Density through Regulation at District or Block Scale

Where towns desire higher concentrations of people, they can regulate or specify the overall densities of various neighborhoods, districts, or blocks, rather than the design of specific buildings. Neighborhoods with four-story walk-up apartment houses and high ground coverage ratios often achieve the same population density as areas with 15-20 story apartment buildings, given the requirement for open space between towers. Having a range of building types within the same geographic area will allow people more choice in housing types and add to the visual interest of the town.

3.5.9 Conduct Analyses of Housing Demand and Ability to Pay

An analysis of housing desires and demand, willingness/ability to pay, and rental/purchase preferences will help towns determine the housing typologies that are most desired. Towns can learn about these aspects by conducting a shelter needs assessment, as described in Section 3.2 of Volume 2 (Guidelines). Information collected from both permanent residents and migrants should be used to set policy directions for the development of housing in towns, and should be provided to developers so that their construction decisions are better informed.

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3.6 Improving Access to Social Services and Benefits

The urbanization case studies in Liaoning and Shanxi Provinces demonstrated that social services in PRC towns are underdeveloped, for several reasons. The first is a chronic shortage of funding. Since the intergovernmental finance system sets funding for social services in a given location at a level proportional to local tax collection, poor towns always have the least resources to address local development issues. Second, with responsibilities for financing and delivering social services devolved to lower levels of government, towns are focused on activities that generate most revenue, and less on those that do not generate a cash flow. The “marketization” of public services has compromised coverage and service levels for some social services. Finally, the social development agenda, which was on the forefront until the Mao period, has taken a back seat to economic development and industrial growth in recent years.

Economic growth is critical for town development. However, equally important is the need for health care, education, and social security in order to address the existing inequities and the poverty of vulnerable groups—poor, elderly, rural people, and migrants. If towns are to grow and release some urbanization pressure from cities, they must first become attractive to locals and migrants alike. An often understated factor in a migrant’s decision to move to a town is the quality of social services, particularly educational facilities, that it offers.

This section sets out recommendations for the development of human and social capital in four areas: • Education • Health care • Social insurance • Migration and hukou

3.6.1 Education

Since funding for schools is the responsibility of LG, education quality and cost are both determined by the local economic conditions. According to a UN-Habitat report, more than 90 percent of the country’s education budget comes from sub-national governments, of which 70 percent are at the county and town level. For town governments, education makes up 60 percent of total expenditure. 11 The bulk of this money goes to paying teachers’ salaries, and very little is used for education subsidies for poor children. To address these issues, it is recommended that the government: • Improve access to post-primary education, particularly at the village and township level. " Reverse the policy of concentrating schools at the county and city levels. Instead, build higher-level schools at the town level, where they can be accessed by village residents as well. This will increase access and make higher education (post-compulsory school) more affordable and feasible for poorer families and help retain the population in the towns, which is especially important in light of the current policy of merging small townships to form larger towns. Unless these newly formed larger towns have local schools, families will send their children to

11 Source: PRC Common Country Assessment, Balancing Development to Achieve a Xiaokang (Well-Off) Society in PRC, United Nations Country Team, August 2004, Beijing.

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the nearest city, which will encourage out-migration from the town (as these young graduates find jobs in the city where they study) and increase pressure on the cities. " Create incentives for parents to send their children for higher education. This means removing all extra fees levied on migrant families; establishing linkages between schooling and vocational training or other part-time job opportunities, so that children can get practical experience and possibly even some income, as they attend school12; and increasing financial assistance programs for students from poor families, as well as merit-based scholarships. " Establish public-private partnerships and encourage (or create incentives for) private schools to enroll poor and/or talented children by providing scholarships. Establishment of more private schools targeted to middle-income families should also be encouraged. (Most existing private schools cater only to the higher-income groups.) For a start, this will ease part of the fiscal burden from LG, improve the quality of education in public schools (by decreasing the student- teacher ratio), and extend access to private school education to more students. " Allow children to take their higher middle school entrance exam in the place of residence rather than at their hukou residence. This may be done by extending the senior middle school entrance examination to include all students graduating from the local general middle school, regardless of hukou. • Reform the existing system of financing education. " Education budgets, regardless of the “importance” of the town in the economic context, should be based on the “total” number of students rather than the number of “hukou” students. This rule should apply to allocations from all levels of government, i.e., from the province to the counties/cities, from the cities/counties to the towns, and from the towns to the villages. " Progressively index allocations of education funds to lower levels of government. Introduce a factor that increases allocations for areas with a small revenue base, i.e., highest factor for the villages, next highest for the townships and towns, and so on. " Explore the possibility of attracting more qualified teachers in primary and junior middle schools in villages and townships by offering better salaries, comparable to schools in cities and counties (taking into account the cost of living). " Develop incentives in the form of matching funds or grants to encourage LGs to increase financing for education. This may include establishment of targets and indicators, and “bonus” allocations in subsequent years, if targets are met. " Include an education component in the subsidy program to poor towns (introduced in Section 3.1), whereby LGs meeting certain poverty criteria are eligible to apply for education grants from the special fund.

12 The provincial governments are also promoting vocational middle schools at the county level, with a full-time program like the formal school system, but one that is less intense and requiring lower scores in the entrance examination than the senior middle schools. This is to encourage students who do not get high grades, and those from poor families, to continue higher school education.

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• Expand vocational training to “retool” farmers for entry into the urban labor market. " Tie training programs in the public vocational schools to local sectors through better links with enterprises in the towns, in terms of both program design and job placement arrangements. " Provincial-/prefecture-level vocational schools should establish branches at the sub-regional level, especially in towns with high employment generation potential. Funding for these schools at the town level can be leveraged from enterprise income taxes.

3.6.2 Health Care

Since most public medical facilities are self-funded, LGs emphasize provision of services that generate the most revenue. Apart from essential medical facilities, including immuniza- tion, communicable disease control, and family planning programs that are run by central government, much of the health care in small towns is private. Government hospitals are located at the city and county level, and sometimes in large towns. Towns and villages have private clinics operating with licenses from the LG. Fee waivers and subsidies are granted to poor families for services in government hospitals. Other than that, everyone must pay out- of-pocket for medical treatment. A health insurance program was launched recently by the government, but its success has been limited so far.

It is recommended that government take the following steps. • Extend the coverage of the existing health insurance program. The increase in the number of customers/clients will lead to economies of scale that will ultimately lower the price of health insurance. " Extend coverage to include vulnerable groups—elderly persons, part-time and informal sector workers, unemployed and displaced people—through cross- subsidies to make it more affordable. " Extend “discounted” insurance to family members of the customer. The current system provides insurance to only the individual subscriber, which means that a full-time private sector employee will have to bear the full cost of insurance for his or her family members. " Extend coverage to elderly persons, as “dependents” of blood relatives who are employed but not necessarily part of the household. " Create incentives for private companies to provide health insurance to employees (through tax deductions, etc.).

• Reform the design of the health insurance program " Include a wider range of hospitals, both public and private, in the plan(s). " Make the program more flexible to meet the varying needs of the different population groups. For example, establish different plans based on income (low, middle, high), employment (full-time, part-time, unemployed), and so on. • Expedite the introduction of the CMS. Liaoning has already taken steps to reintroduce the CMS to its villages, but implementation has been slow. Instead of being based on agricultural hukou, the CMS should extend coverage to all “low- income” groups. This will facilitate better targeting of all the “poor” without access to health services or formal sector insurance programs in both urban and rural areas.

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3.6.3 Social Insurance

According to a UN-Habitat report, the ratio of working-age persons to elderly person will decrease from 5:1 in 2000 to 3:1 in 2040.13 The breakdown of the safety net provided hitherto by extended families (as a result of the one-child policy) will make people more reliant on formal systems of social security.

The retirement age for women is 55, for men 60. As reported in Liaoning Province, where the social security program is under way, contributions must be made for a minimum of 15 years to qualify for social security benefits. For women and men older than 40 and 45 years, respectively, this means that they cannot reap the benefit of social security at retirement age. (To do so, they will either have to wait longer to start receiving benefits or pay more over a shorter period, which is difficult, if not impossible, for poor families.) This is notable in light of the fact that the one-child policy came into effect in 1980: People who were then in their twenties and thirties are now in their forties and fifties, and will be effectively excluded from the social security program.

Recommendations include the following.

• Increase access to social security programs. " Create incentives, or make it mandatory, for private sector companies to provide social security to their employees. " Make the program more flexible to meet the varying needs of the different population groups, for example, by income (low, middle, high), employment (full- time, part-time, unemployed), location (urban, rural), and so on. In particular, identify means to include vulnerable groups—elderly persons, migrants, informal sector workers, unemployed and displaced people—in the social security program. " Invest in more retirement homes, and explore short-term assistance schemes for the fast growing elderly population.

• Reform the MLSP. " Reassess disbursements through the MLSP; increase them to a realistic amount. The current amount ranges from 180 RMB per capita per month in urban areas to 20 RMB per month in villages. This amount is extremely low, and inconsistent with the current cost of living. " Standardize and extend coverage of the MLSP to both the agricultural and non- agricultural population. The program should target the poor, regardless of type of hukou (agricultural or non-agricultural) or place of hukou (local or migrant status). As a national program, it should include a computerized system for monitoring and disbursing funds, whereby beneficiaries can receive assistance wherever they are, i.e., independent of the LG of place of origin.

• Establish and enforce standardized guidelines for determining compensation for farmers displaced by new development. " Establish a participatory process for town governments to determine compensation for displacement that is transparent and that involves consensus building with the stakeholders.

13Source: PRC Common Country Assessment: Balancing Development to Achieve a Xiaokang (Well-off) Society in PRC, UN Country Team, August 2004, Beijing.

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" Consider requiring private companies setting up shop in town to take social responsibility by employing the farmers they displace, or financing their training for alternative livelihood in the local vocational schools. " Consider extending compensation beyond cash transfers to include purchase of social insurance coverage for displaced families, especially for the older population who, unlike the younger population, may be at a disadvantage to find other jobs. " Design compensation packages with variable options, ranging from a one-time payment (the existing system) deemed more suitable for the younger population to periodic (annual, biannual) payments in cash or kind to shares in industrial development. " In cases where compensation is given to the Village Commission, devise process guidelines for local stakeholders to participate in deciding how best to use the funds in the interests of the community.

3.6.4 Migration and Hukou

Given the inherent structural problems with the existing social insurance program, many urban residents of small towns are without coverage. Hence, there is not a stark difference in social benefits accrued based on hukou status. However, as the systems for social insurance evolve and get reinforced over time, so too will the difference between the haves and the have-nots. Also, as these towns grow, it is inevitable that they will face the same problems of discrimination and inequity if the hukou reform is not institutionalized.

Recommendations include the following. • Institutionalize hukou reform in small towns. " Pilot test the removal of the hukou system in one of the two case study provinces. This may be linked with Liaoning’s ongoing program for hukou reform (which unfortunately has not made much progress in the demonstration towns covered in this study). " While towns await implementation of the reform, institute a category of permanent or temporary “residency,” which gives migrants the same benefits as the local residents without changing the hukou status. This will serve as a transition toward the reform and will fast-track standardization of the new identification system, starting with the migrants. (Rather than changing their hukou now per the current system, and getting another identification card later per the “reformed” system, this will allow migrants to skip the first step.) This gradual transition into the new system will ease the administrative burden on LGs, both now and in the long term, and will encourage mobility and migration.

• Reform social assistance programs to better target the poor, regardless of hukou status. " Reform the design of poverty alleviation and social assistance programs, such as the MLSP and the CMS, to make them target the poor based on economic conditions, not hukou status. For example, the reintroduction of the CMS is commendable, but falls short of effective targeting simply because it is based on the traditional hukou system, which, in effect, excludes the urban poor and includes the rural rich. " If the objective of the towns is to attract migrants and spur economic development, they must be able to provide the same services to the migrants as they do

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to the local hukou residents. This level playing field implies no additional school fees for migrant children, same access to government-subsidized health care and social assistance programs, etc.

3.7 Mobilizing Revenues for Town Development

To fully realize their urban and economic growth potential, towns will need access to and control over substantial amounts of financial resources. As described in Section 2.5, the main sources of funding today are intergovernmental transfers from higher levels of government. Towns, as the lowest administrative entity in the national hierarchy, have very little control over the amount of resources that they receive. This makes it almost impossible to effectively plan for development and finance large-scale infrastructure projects, since future revenue streams are unpredictable.

It is therefore advisable for towns to develop new “own-source” revenues that they can implement locally to generate and retain the funding necessary to support development. But it is not enough to pass laws on individual revenue instruments; rather, the very legal and regulatory footing of LGs needs to be strengthened before they can be given new authority to generate revenue. Major recommendations include the following: • Incorporate cities and towns • Introduce a range of revenue-generating instruments • Strengthen institutions for enhanced fiscal responsibility

For more details on the role of provincial government in the incorporation of town and city governments, please see Section 4.1 below.

3.7.1 Incorporate Cities and Towns

Provincial governments should be empowered to incorporate cities and towns as legally independent entities with the power to raise taxes and incur debt. National policy should promote this change by establishing the regulations by which provincial governments will incorporate cities. Provincial governments would then pass enabling legislation that specifies the process by which LGs are endowed with specific responsibilities and authorities. In turn, LGs should then adopt a “home rule charter” that outlines the powers, organization, and duties of its major components and responsibilities to the state, the province, and the citizens.

This proposal responds to the Government of the PRC’s stated aim of increasing the capacity of local governments to enable growth of towns. However, it represents a departure from the current position of local governments in the public-sector hierarchy of the Government of the PRC to the extent that would codify in the law the specific rights and responsibilities of some levels of government in relation to others. This can be viewed either as a step away from the unitary system government, or as a deepening and greater articulation of that existing system. Newly empowered local governments would not only be able to exercise their new authorities, but they would also (i) be clearly prohibited from exercising any authorities not articulated in the enabling legislation, and (ii) be clearly required to execute their assigned responsibilities with respect to service provision and growth management.

It is important to note that the incorporation process allows the provincial government, operating within national guidelines, to specify the exact responsibilities and authorities that will be delegated to a particular LG. The responsibilities and authorities should be com-

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patible with the technical and managerial capacity of the LG and are therefore likely to vary by type of LG. It is understood that many town governments are not financially strong enough today to issue a municipal bond. Such LGs should not in the short term receive from provincial government bond-issuing authority, but could rather be given authority to implement other new revenue-generating instruments that are consistent with their managerial capacity. Over time, LGs demonstrating responsible use of new authorities can be granted additional authorities through modification of their charters.

This proposal will require careful consideration by the GOPRC and, if adopted, revision of national legislation on public administration and/or local government.

3.7.2 Introduce a Range of Revenue-Generating Instruments

Once a town government has been placed on solid legal footing, it should consider introducing a range of new revenue-generating instruments. In principle, no LG should rely on a single revenue source or even a small number of sources. In general, the broader the range of independent sources, the more financially robust the LG. Town governments should plan in the future to generate revenues through taxes and fees, shared revenue, and service charges. The proposed role of each of these types of instrument is outlined below.

Property Taxes

LGs should be granted authority by provincial government to levy and collect annually a tax on privately owned improvements located on real property. The improvements can be either collectively or individually owned. The tax should be levied on the improvements, not the land. The basis for the tax should be the market value of the improvements.

It is not necessary to change land tenure forms to introduce the property tax. Property taxes can be levied on improvements on state land or collective land. The valuation process will be more simple for improvements on state land, since the value of the land use rights is implicit in the value of the improvements when the latter are sold on the open market.

Moreover, the introduction of a property tax will not necessarily result in a higher overall tax burden on local businesses, and therefore will not cause the local economies to stagnate. Other taxes — such as enterprise income taxes — can be reduced accordingly so that the net tax burden on the private sector does not rise. The proof of the possibility of levying property taxes without stifling economic growth can be seen in the vibrant local economies of towns and cites in North America and Western Europe, the large majority of which levy property taxes.

The LG should set the rate at which the improvements are taxed. Guidelines for setting the property tax rate should be established by provincial government. Details on how to implement a property tax are included in Volume 2 of this report.

Special Assessment Districts

The provincial government should grant the right to incorporated cities to levy a special tax on improvements that provide a benefit to an identifiable group of residents or businesses. When a specific group or zone within the city receives specific benefits from an improvement, such as a road or neighborhood park, that group or the properties within that zone should participate in the financing of the improvement.

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The zone in question is called a special assessment district. Special assessments are sometimes used as part of the funding package for a major infrastructure improvement in the area. The special assessment is usually levied on property holders within the district as an additional charge on the property tax. For example, if the property tax rate in the town as a whole is 2.5 percent, then property owners in the special assessment district might have to pay an additional 0.5 percent (or 3 percent in total) to pay for a road or a public transit facility, for example. Usually the assessment (or tax) is spread over several years to avoid overly burdening the residents and businesses of the area. A typical feature of a special assessment is that generally no property can be assessed a fee or tax in excess of the benefit (improved value of the taxed property).

Provincial governments should authorize town and city governments to receive “special assessment loans” to finance specified improvements in a special assessment district. The special assessment is used to repay the loan. Periods for such loans are generally medium- term—three to seven years.

General Revenue Sharing

The central government now currently uses a standard formula to share revenue with provincial governments. This commendable practice should be extended to cities and towns. Shared revenue should be based on a transparent and easily calculated formula using only three factors:

! Ten percent of the total revenue of the province allocated to cities and towns on a population-proportional basis; that is, each city should receive a share commensurate with the ratio of its population to the total urban population in the province or country ! An adjustment (progressive indexing) based on the average per capita income of the town’s population compared to the average per capita income in all urban areas ! An additional factor to compensate those towns with a high proportion of households under the provincial or national poverty line

To maximize transparency and predictability in intergovernmental finance, the exact formula for allocation of national and provincial funds to cities and towns as well as actual projections of the amount of future transfers to LGs should be distributed to LGs and made available to the general public.

Block Grants

The PRC should establish a block grant program designed to mobilize capital expenditure financing for infrastructure improvements that are consistent with the objectives of the state. These grants should be set at 50 percent of the total audited project capital cost with the remaining 50 percent financed through revenues or debt instruments of the city.

Service Charges

The provincial government should give cities the right to charge users for the services it provides. There are generally two types of service charge. The first is for a service that is closely connected to the health, safety, and well-being of the community at large, such as water supply, wastewater collection and treatment, and solid waste collection and disposal. These fees should be mandatory and sufficient to pay the full cost of operations and maintenance, and, where possible, capital debt service.

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Town governments should use ability-to-pay analysis as part of the infrastructure investment planning process and should set tariffs at levels that users can afford. Capital subsidies should be introduced where full cost-recovery tariffs are not affordable to all user groups (especially domestic users) and where the investment is considered critical for public welfare and/or the technical performance of the infrastructure service system (e.g., water pipe replacement).

Commercial Bank Loans

LGs demonstrating sound financial management should be granted the authority to take loans from commercial banks. The most appropriate use of commercial loans is investment in infrastructure or other capital investment projects for services that generate a revenue stream. Where the financial internal rate of return of the project (see “Capital Investment Planning Template” in Volume 3, Best Practices) is higher than the interest rate on the loan, then it is in the town government’s advantage to borrow money to finance the project. Use of commercial bank financing to pay recurrent expenditures is not advisable, but should be permitted when necessary to settle accounts with creditors.

The use of credit financing is only appropriate for LGs that are “creditworthy,” or capable of repaying the loan. Qualified, professional commercial banks are capable of determining the creditworthiness of a LG and deciding whether the risks of making the loan outweigh the benefits. However, provincial government should limit risk of default on loans by establishing stringent performance criteria with respect to financial position and financial management that towns will have to meet before they are granted authority to borrow from banks. The authority can be granted on a town-by-town basis according to specified criteria.

Achieving the level of creditworthiness necessary to borrow from a commercial bank will generally first require progress on successful introduction of other revenue-generating instruments identified above. This is true for both credit financing and debt financing.

Debt Financing

Provincial governments should grant selected cities and towns the authority to incur debt through issuance of municipal bonds. This is one of the best mechanisms for financing expensive, large-scale infrastructure, since it allows LGs to “flatten out the payment stream,” investing in the next 2–3 years but paying for the investment over 10–25 years.

Most towns are not yet ready to issue bonds. Cities should be granted this authority first and, if initial bond offerings are successful, then authority should be extended to towns. As for bank loans, authority should be granted on a city-by-city basis to those LGs that demonstrate the necessary financial performance by meeting specified criteria.

There are several types of debt that should be authorized. The first and most common are called “general obligation bonds.” General obligation bonds are a commitment of the full faith and credit of the issuing authority. For this reason, they usually command the best available interest rate in the market. The second type that is essential to the expansion of important infrastructure is the “revenue bond.” These bonds represent a call on the resources of the fee-based services financed by the bonds. For example, revenue bonds are used to finance water treatment plants, and user fees are then collected to repay the investors.

While bonds are now issued by the central government, the regulatory framework does not currently allow sub-national governments to float bonds. Nor can local government take out loans from commercial banks. (For detailed discussion and analysis of the current

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environment for local government finance, please see the Interim Report.) The proposals set out in this section would therefore require consideration by national authorities. It is the opionion of the Consultant that these mechanisms, deployed judiciously and in a timely fashion in creditworthy LGs, can great enhance the ability of Chinese city and town governments to promote higher-quality urban development.

3.7.3 Strengthen Institutions for Enhanced Fiscal Responsibility

Mobilizing additional revenues to finance development will require more than the introduction of new instruments. Improving the organization, systems procedures, and staff of LG finance departments is also critical. All incorporated cities should be required to: • develop, approve, and implementing performance budgets that designate the funds allocated for each segment of the work program, including the operations and maintenance of facilities and services under control of the LG; • operate a fully staffed, professional finance department, including divisions of Tax Assessment/Collection, General Accounting, Budget and Research, Purchasing, and Comptroller; and • ensure that heads of the construction department/office and the entities providing infrastructure services (water supply, wastewater, and solid waste) are trained, professional, and experienced engineers.

In addition, all chief executive officers of incorporated cities should be required to attend training in LG management, including financial management. This training should require attendance annually for at least three weeks and be repeated annually with increasingly complex course material for at least three years.

Government should initiate the creation of professional associations of LG officers for the purposes of education, development of entry qualifications, and definition of performance standards. Membership should be required at a minimum for all chief executive officers, construction and public works engineers, water and wastewater engineers, finance directors, and economic development directors.

3.8 Institutional Capacity and Town Governance

Effective governance is essential to the functioning and development of small towns. With the devolution of many vital public functions to the local level, town governments are now ultimately responsible for the provision of many basic services. These include ensuring adequate sanitation services and solid waste collection, maintaining law and order, and promoting the conditions necessary for economic growth. To improve the accountability, responsiveness, transparency, and efficiency of town governments, it is recommended that: • the roles of government, the private sector, and the community be clarified; • the functions of town governments be streamlined and redundancies reduced; • opportunities for citizen input be increased; • new opportunities for local leadership be created; • representation of migrants in LG be increased; • the capacity of town governments be strengthened; and • a strategic and socioeconomic planning approach be adopted.

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3.8.1 Clarify the Roles of Government, the Private Sector, and the Community

In the past, the PRC governments have taken on a wide range of functions, from the allocation and creation of jobs to the provision of housing and health care. Although government and economy are making the transition to a market-based system where many of these services are provided by the private sector and other organizations, town governments in China still play a wide variety of roles, some of which may not be appropriate in the long term. For example, the town government in Xiliu provided financing for improvements to the clothing market. Although the improvements were needed, these costs may have been borne more appropriately by the private sector.

Because the roles of government are changing so rapidly in China today, it is important to consider the appropriate relationship of town government to the private sector and community organizations. Different countries strike the balance in many different ways. The chart below sets out for selected functions a division of responsibilities appropriate to a market economy, where the government plays the role of enabler and regulator rather than direct service provider.

In general, the government should intervene in the following areas: • Provision of public goods, such as roads and parks • Correction of market failures, including monopolies, environmental externalities, and asymmetrical information

The private sector, on the other hand, should be the main driver for economic investment and employment generation. Supported by local governments through infrastructure delivery and timely permitting and approvals, private enterprises should finance, build and operate factories, warehouses, distribution facilities, wholesale and retail trade outlets, and service establishments such as hotels and restaurants. Local governments should not be directly involved in the development of production and service facilities, nor in real estate development.

Table 3.2: Illustrative Roles for Government, the Private Sector, and Community Organizations in Market-Oriented Town Development Community Task Government Private Sector Organizations Economic Works with stakeholders to Builds and operates Participates in development formulate development goals stores, factories formulation of Provides basic infrastructure Provides financing development goals to enable private investment for business, Offers tax and other industry, and real development incentives estate development Solid waste Regulates tariffs Collects and Monitor management Contracts with private sector disposes of waste environmental for collection and disposal of Collects fees conditions around waste dump sites Monitors contract Regulates waste disposal conditions

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Community Task Government Private Sector Organizations Housing Regulates construction Purchases and Provides feedback provision quality develops land on housing Influences density through Designs and conditions zoning constructs buildings Lobbies for Provides basic infrastructure improvement of housing conditions Guarantees housing to poorest citizens

Clearly defining the roles of government, the private sector, and community organizations will reduce the financial burden of public sector entities and will help foster the development of civil society. As discussed below, gradually reducing the role of the government may require the dissolution of several offices in the lower level of the town government hierarchy.

3.8.2 Streamline Functions of Town Governments and Reduce Redundancies

Town Government and Communist Party functions overlap (see Section 2), with redundancies in some functions and no clear demarcation in responsibilities between the two in others. (For example, both the party and government participate in economic development and trade promotion.) This situation could strain both finances and coordination in town governments. Given the financial limitations of towns, it may be appropriate to streamline some of these functions and give full responsibility to one entity or the other.

3.8.3 Increase Opportunities for Citizen Input

The People’s Congress is town government’s main instrument for gaining legitimacy and informing residents about government activities and plans. As such, it forms an important link between residents and town government. However, as discussed in Section 2, the town People’s Congress provides limited opportunities for communication with residents, and only a minority of town residents participate. As a result, towns should consider additional methods of collecting information from residents and informing them about policies and projects.

The following methods for receiving citizen input, discussed in more detail in Volume 2 (Guidelines) of this report, deserve consideration: • Focus group discussions • Surveys • Information dissemination • Resource centers • Citizen advisory committees • Community outreach activities • Public meetings • Public hearings

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3.8.4 Create New Opportunities for Local Leadership

Although there is no restriction on which candidates can be proposed to be a village/juweihui or People’s Congress representative, all candidates for town government, including the town mayor, vice mayor, party chairman, and other officials, are appointed by the higher-level government. In addition, there is often only one candidate for each position. Many candidates are not from the town, and may face a steep learning curve as they become familiar with the town’s needs and problems. More local autonomy in the selection of these local officials would ensure that they are truly representative of the town’s interests.

3.8.5 Increase Representation of Migrants in Local Government

Because the People’s Congress is the main instrument of communication with town residents, it is important that it be as representative of the population as possible. However, in many towns a large section of the population cannot participate in the selection of these representatives: migrants. In some towns, migrants account for a large proportion of the town population, and the development of towns depends on the retention of migrants. Therefore, understanding their needs is important.

The viewpoints and needs of migrants can be collected and analyzed using the methods discussed above, including surveys, focus groups, and public meetings. Alternatively, they could be allowed to participate in local elections.

3.8.6 Build Capacity of Town Governments

Town government officials generally indicated that the size of their staff is commensurate with the workload. However, few staff members have higher education degrees, which may constrain their effectiveness and efficiency. Instead, they have a mix of self-schooling, technical high school, and other training. There were very few urban planners, architects, or engineers with university degrees employed in any of the towns visited.

In addition, the use of technical resources that would make management tasks easier was not widespread. In generally, offices share one computer among many staff members. Few staff have good access to e-mail or use Internet-based resources regularly. Few towns employed technical computer programs, such as geographic information systems (GIS), which can assist with land use and infrastructure planning.

Hire Additional Qualified Staff and Increase Compensation

To address these challenges, towns should gradually seek to upgrade the skills of employees by hiring staff with university credentials and offering training in areas of need. The compensation available for entry-level positions should also be increased to entice skilled workers to live in towns.

Provide Training to New and Existing Staff

Ongoing training should be provided to new and existing town staff and officials. Town officials indicated a desire for improved skills in managing urban growth, delivering urban infrastructure, and coping with urban problems, such as crime. Training is currently provided periodically by higher-level governments, such as cities and provinces. However, it is infre- quent and often does not cover the most important subjects.

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Develop Curriculum and Training Resources at the National Level

For reasons of economies of scale, the national government is best positioned to develop a practical curriculum for the training of town officials, which should include the subjects listed below. The national government should also identify a pool of experts and specialists, skilled in the teaching and use of this curriculum, who can be used to conduct training of provincial trainers. More detailed information on this training program proposal is set out in Section 4 of this volume.

Urban management Municipal Urban Housing and Private sector and planning finance Infrastructure property markets initiatives Strategic plan- Cost recovery Demand Property market Market analysis ning for urban pricing for urban assessment management and and investment development service delivery development promotion Stakeholder Property Capital invest- Land valuation and Service sector participation taxation ment planning appraisal tech- development niques Land and infra- Performance Transport net- Housing design Training structure plan- budgeting works for sub- and typologies migrants to enter ning and man- regional develop- urban labor agement (GIS) ment market

Develop and Implement a Broad-Based Local Government Capacity Building Initiative

Long-term capacity building in the local government sector requires the intervention of a broad range of actors. While targeted public-sector training programs such as the one described above are valuable, they work best when placed in the context of a partnership between government, universities, civil society organizations and the private sector. Each of these actors has an important role to play in strengthening local government capacity: • Universities — Should work with different levels of government to analyse LG training needs and identify which gaps its programs should fill. For example, universities can design and implement local government management programs that qualify such professionals as town managers, chief accountants, chief economists, urban service provision experts and other specialists needed to efficiently run a town government. • Professional associations — Should set performance standards for their members, prepare and distribute methodological materials, offer training courses, monitor performance of LG professionals, and advocate at the national level for an improved operational environment for local government. • Domestic private firms and training institutes — Can build their capacity to deliver higher-quality training and technical assistance services to local governments.

3.8.7 Adopt a Strategic and Socioeconomic Planning Approach

The Consultant recommends that the towns adopt a more strategic and comprehensive approach to town planning and development. Some guidelines for approach are laid out in Volume 2 of this report. Socioeconomic planning, as is being conducted by the China Center for Town Reform Development (CCTRD) in selected Chinese towns, is another excellent model for a more comprehensive approach to town planning.

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In recognition of the fact that some, if not many, towns will be unable to prepare strategic or comprehensive socioeconomic plans, the Consultant identified several recommendations for improving the content of Master Plans under the current planning system. They are listed in detail in Volume 4: Development Proposals. They include the following: ! Resolve conflicts between Master and Land Use Plans ! Conduct a more sophisticated population analysis ! Conduct a housing/density analysis ! Conduct a migrant needs analysis ! Conduct a financial analysis ! Prepare a more complete implementation plan ! Involve the public more in preparation of plans

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4 Provincial Policies for Town Development

While central government defines the policy framework for development of towns and cities, provincial government takes the lead role in creating and operating a province-wide system for building the institutional capacity of LGs and facilitating the development of key sub- regions, cities, and towns. This section identifies the components of this LG development system and the specific tasks of provincial governments in creating and operating it. Treated separately in subsequent sections, the main tasks are: • Strengthening the ability of city, county, and town governments to guide development • Targeting provincial resources for efficiency and equity • Development of sub-regions • Provision of trunk infrastructure • Monitoring and evaluation of LG development

The recommendations set out in this section are formulated based on the urbanization case studies in Liaoning and Shanxi Province. While the sections on planning the development of sub-regions are specific to the economies of those two provinces, most of the recommendations are considered to be applicable to provincial governments across the PRC seeking to promote town development.

Step-by-step guidelines for carrying out the tasks discussed in this policy section are included in Volume 2 (Guidelines).

4.1 Strengthening the Ability of City, County, and Town Governments to Guide Development

4.1.1 Incorporation of Local Governments

As described in Section 3.7, LGs need a solid legal foundation for the mobilization of additional revenue to finance development. Provincial governments are well positioned to grant specific authorities to worthy LGs through the process of incorporation. Provinces should adopt enabling legislation (see Volume 2, Guidelines) that sets out the process and that defines the specific authorities that provinces can grant to cities, counties, and towns.

Provincial governments should grant authorities that correspond to the responsibilities of LGs and to their institutional capacity. The great service-delivery responsibilities shouldered by LGs today acts as a “push factor” on devolution of authority; the low institutional capacity of most towns acts as a “pull factor.” Provincial agencies should build institutional capacity through training (see next section) in parallel with the devolution of financial authority.

Provinces should start slowly and build up LG authorities over time. The mechanisms that provincial government should use to regulate this incremental, long-term process are the enabling legislation and home rule charters. Provinces draft and pass the enabling legislation; only authorities included in the legislation can be devolved to LGs. LGs then draft their “home rule charter” in keeping with the enabling legislation. The home rule charter outlines the organization, duties, and powers of the LG and defines its responsibilities to the state, the province, and the citizens. At least during an initial period, home rule charters should be approved by the provincial government.

To allow fine-tuning of the system over time, both the enabling legislation and the home rule charters should be amendable.

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In addition to granting additional power to levy local taxes and fees, the home rule charter will define the functions and areas of intervention of LGs. This provides an opportunity to exclude activities that are better left to the private sector, such as industrial production, retail sales, and real estate development. It also provides the opportunity to shift to higher-level governments some responsibilities for which the LG does not have sufficient authority, especially when the LG’s level of institutional development argues against granting additional authority. This may be true in the area of health care and social insurance, for example.

Finally, the incorporation process provides provincial government with the opportunity to reorganize the LG sector in general. Many provinces have been consolidating towns and townships in recent years to make LG more efficient. Provinces should consider the possibility of incorporating only those towns that have development potential, and allowing other towns (and conceivably all townships too) to be absorbed into their counties. This would produce a situation in which a typical county may have one, two, or more incorporated cities and towns located within its administrative boundaries, but for which it does not exercise a direct oversight functions. The rest of the area within the county would be “unincorporated,” and would be administered by the county government. Table 4.1 presents a hypothetical example of the impact of such a reform on the administrative structure of a county.

Table 4.1: Impact of Hypothetical LG Reform at the County Level Parameter Pre-Reform Post-Reform Number of cities 1 1 Number of towns 4 2 Number of townships 5 0 Total number of LGs 10 3

Such a change would substantially reduce the number of LGs, allowing for consolidation of staff and resources and lowering of costs to the public sector. Furthermore, the effectiveness of the remaining LGs would increase. The potential cost savings and efficiency gains of such a reform at the level of an entire province or indeed all of the PRC are enormous. For a case study in incorporating towns in rural areas, see Volume 3, Best Practices.

4.1.2 Local Government Capacity Building

Upgrading the skills of town government staff will be crucial to the sustained development of towns. This is a responsibility that needs to be shared at the national, provincial, and town levels.

As outlined in Section 3 of this volume, central government should take the lead in developing training modules targeted specifically to Chinese towns. Central government can also provide a pool of experts and specialists who serve as a technical resource for training programs in the provinces. For example, Beijing-based trainers can provide periodic training, lasting from one to two weeks, for province-based specialists who will train LG officials (training of trainers).

The role of the provincial government is then to create an operate a province-wide training system for LG officials by: • identifying province-based specialists and technical matter experts who will receive training from the Beijing-based experts; • financing the training of those trainers in cooperation with central government;

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• establishing technical resource and training centers in the provincial capitals and in regional centers, as appropriate; and • with province-based trainers, hosting a range of training opportunities for town officials; to facilitate attendance and reduce costs, training should be done at the prefecture level, and national training modules should be modified where necessary to suit local needs.

To ensure utilization of the program, provinces can require a certain number of training days annually for key staff members (for example, two weeks per year for accountants, one week per year for town mayors). Financing for the training should be provided primarily by the province, with some contribution from the LG, except in the case of poor towns (see “Provision of Subsidies to Poor Towns” in Section 4.2.2 below).

4.2 Targeting Provincial Resources for Efficiency and Equity

Provincial governments should create a competitive, demand-driven system for the promotion of town development. As described in the national policy framework in Section 3.1, the system should establish specific criteria that LGs have to meet to be considered for and/or ultimately awarded assistance from the provincial government in terms of infrastructure financing, channeling of private sector investment, technical assistance, and training.

The system should be “top-down” and “bottom-up” at the same time. Although provincial government should channel most investment into towns with high economic and employment growth potential, all towns are enabled, through incorporation and dissemination of development tools and best practices, to chart their own development course, drawing primarily on local assets. (Mobilization of local assets is critical for the development of high- growth towns, too, provincial assets notwithstanding.) All towns are also eligible to apply for technical assistance and training delivered by provincial authorities or designated organizations. To provide a “leg up” to the poorest towns, provincial government should provide “convergence subsidies” for delivery of urban infrastructure and social services.

Figure 4.1: Resource Flows for Top-Down and Bottom-Up Development of Towns

Provincial Assets

Growth Poor Towns Towns

Local Assets

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4.2.1 Components of Top-Down Development

Evaluation of Growth Potential and Designation of Key Towns. Provincial governments should systematically evaluate the economic and employment growth potential of towns and based, on the results, designate key towns into which public and private investment will be channeled. This is essentially a rationalized and upgraded version of the “key town” system that provinces employ today. The criteria of population, regional distribution, and functional distribution should not be employed to select key towns. Rather, provincial governments should analyze the development dynamics in towns and identify those towns that are most capable of attracting investment and generating employment.

The analysis can be carried out by the provincial government, PDRC, or a designated contractor, such as a research institute or consulting firm.

The designated entity should take into account the following key factors in the analysis of the development dynamics of specific towns: • Location near or within cities, metropolitan areas, and sub-regions • Location along major transportation routes • Natural resource base of town and hinterland • Quality of regional food products • Labor pool of town and hinterland

While the analysis is undertaken at the level of the individual town, it will also be necessary to evaluate the development potential of certain sub-regions (see Section 4.3 below) to understand their impact on economic growth in towns. Generally, it is preferable to analyze and plan the development of the sub-region first, then evaluate the growth potential of individual towns.

Step-by-step guidelines for analysis of growth potential are presented in Volume 2 of this report.

Implementation of Fiscal and Financial Measures. Provincial government should make financing available for investments in support of local economic development and job creation. These should include: • Short- to medium-term tax breaks for targeted industries or sectors • Business support services, such as SME incubators • Matching grant or grant/loan financing for public infrastructure investments that will leverage private investment

Note that the level of provincial subsidies will vary by province as a function of towns’ ability to enable their own development. In coastal provinces, many towns are attracting private investment without provincial level incentives. Where provincial government deems that towns are capable of this, no incentives should be provided. In many inland provinces, however, the incentives should be used if they will have a positive impact on private sector investment and job creation, and little or no development would take place in the town without them.

Channeling Private Sector Investment to Key Towns. PDRC and provincial governments should continue to channel large private investors in industry, agro-processing, tourism, and real estate to key towns. Information on development analysis and plans of sub-regions and

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towns should be made available to private investors. Carefully prepared analyses and full disclosure of data will serve to boost investor confidence.

As for the fiscal and financial measures above, this function of provincial government is not required where towns already successfully attract private sector investment.

4.2.2 Components of Bottom-Up Development

Incorporation of Towns. All towns will benefit from the process of incorporation in Sec- tion 4.1.1, which assigns responsibility for service provision and delegates authority for generating necessary revenues, including own-source revenues. This new, explicitly defined package of rights and responsibilities will benefit not only high-growth potential towns, but other towns, the governments of which will have increased capacity to chart and implement their own development.

Dissemination of Tools for Town Development. All towns will receive guidelines, analytical tools, and best practices, to be distributed by provincial authorities. The towns can use these tools to form partnerships with stakeholders, mobilize local assets, and plan and implement development programs that will facilitate private sector investment and create jobs. The analytical tools and best practices are included in Volume 3 of this report; the guidelines are attached as Volume 2.

Technical Assistance and Training. Towns will be eligible to apply for urban management technical assistance and training programs provided by the provincial government or its designated contractors (see Section 4.1.2 above). Towns would also be eligible to apply for worker retraining programs made available in selected sub-regions.

Provision of Subsidies to Poor Towns. Provincial governments should allocate development subsidies to the poorest towns in the province. The sole criteria for receiving these subsidies should be the average per capita income of the town population (including population with hukou and migrants). The income threshold could be set at the level of the 20th percentile of all towns in the province. Towns under the 20th percentile would be eligible for subsidy transfers. The objective of these transfers is to distribute development opportunities more equitably across the province. Eligible uses of funds would include infrastructure investments linked to job creation programs and delivery of social services.

4.3 Planning the Development of Sub-Regions

The most critical planning role for provincial government is at the level of geographical sub- regions (part of a province). Sub-regions are important because economic activity spheres are often larger than any single LG jurisdiction. Metropolitan areas, for example, are often defined by their commuter shed in order to “capture” the total geographical space in which people are living and working. Similarly, certain economic activities, such as manufacturing and tourism, often cover multiple, contiguous towns and counties. Unlocking the potential employment growth of these sectors requires regional infrastructure delivery and other interventions that go beyond the administrative boundaries of individual towns and cities. In fact, developing a town in a sub-region with a specific economic vocation often depends less on what the town does and more on the sub-regional policies, programs, and investments.

Since the geographic area includes multiple towns and/or cities, the planning process must be conducted at a higher administrative level than that of the town. Conceivably, this could be done at the prefectural level, but, in fact, given their higher technical and managerial capacity, provincial agencies will usually be the most appropriate choice for most sub- regional planning exercises.

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The following sections present a set of policy recommendations for how provinces can facilitate the development of three types of sub-region: manufacturing clusters, agro- processing areas, and tourism zones. The recommendations are specifically targeted at Liaoning (manufacturing, agro-processing) and Shanxi (tourism, agro-processing), but are largely applicable to other provinces as well.

4.3.1 Creation of Manufacturing Clusters

This section uses the example of a manufacturing cluster in Liaoning Province as an example of how provincial governments should take a lead role in promoting this type of sub- regional development.

Since the pre-reform period, the Liaoyang-Yingkou corridor has long been one of the main industrial sites in the PRC, accounting for a large share of domestic steel, machine tools, and vehicle parts production. Given the country’s nearly insatiable demand for steel and metal products during the current economic boom, the corridor continues to experience robust economic growth. Existing assets of the Liaoyang-Yingkou corridor include: • well-developed industrial production facilities; • skilled labor pool in two major cities (Anshan and Haicheng) and some towns; • Shenda Expressway running through the corridor and connecting it to the capital Shenyang in the north and the port city of Dalian in the south; • railway running parallel to the expressway; and • sea access within the corridor at the port city of Yingkou.

The construction of the Shenda Expressway through the corridor shows how important this sub-region is to the provincial government. Yet the corridor has not realized its full growth potential. The development is essentially linear, following the expressway and the railway; there are relatively few east-west connections among cities and towns. There are also too few highways and prefecture-level roads in relation to the land area and the number of settlements. By densifying the road network and increasing the number of east-west connections, it would be possible to increase access to markets and facilitate exchanges among producers at different points along the production chain. Much of the success of the corridor has been derived from backward and forward linkages among the industrial sectors of neighboring towns and cities; these linkages can be strengthened and extended by developing the road network further.

Liaoning Province should prepare a plan for development of the Liaoyang-Yingkou Industrial Corridor. The plan should be based on careful market analysis and identification of infrastructure improvements that will facilitate future investment and that will preserve and enhance the quality of the environment. Particular attention should be paid to demand-side interventions, such as investment promotion. The main proposals should include the following.

Create a Public-Private Partnership for Investment Promotion. The province should initiate the creation of an economic development corporation for the corridor. The board of directors would include chief executive officers of major corporations in the area and representatives of provincial development and infrastructure agencies. This forum would serve to build consensus on the needs of the sub-region and the ways in which the different parties will contribute to meeting them.

Study National and International Markets for a Range of Products. The proposals for developing the sub-region should be based first and foremost on real opportunities for reaching new markets or expanding the corridor’s share of existing ones. The market study

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should include all of the major products produced in the corridor, and some other products closely related to existing production (to test the possibility of selected linkages). Input-output analysis (see Volume 3, Best Practices) should be used to quantify the existing linkages among industrial sectors. Underexploited linkages will be identified and targeted in development proposals.

Densify the Road Network and Provide Additional East-West Connectors. The province should develop a package of specific roads improvements projects that will increase access and economies of scale within the corridor. The main focus should be on east-west connectors between the main north-south roads. Where towns are demonstrated to have high- growth potential because of their economic relationship to larger cities, the new connections should be built or existing ones upgraded. Specific guidelines on how to develop the road network in manufacturing clusters are included in Volume 2 of this report.

Develop Multi-Modal Centers in Selected Towns. The market study should identify the potential for creating viable multi-modal transportation centers that combine road, rail, and warehousing. The feasibility of constructing such centers in towns with good access to highways and rail lines should be explored.

Work with Towns to Provide Sub-Regional Environmental Infrastructure. Many towns do not generate the volume of wastewater or solid waste required to make investment in treatment facilities cost-effective. The province and/or prefecture should explore the possibility of providing regional (sub-regional) facilities that will serve more than one town. Sanitary landfills, for example, can be located along a good road between three or four towns, all of which can dump their solid waste in the facility. Similarly, wastewater treatment plants can serve more than one settlement, provided that they are located reasonably close to one another (e.g., within a 10-15 mile radius).

The economies of scale achieved through regional solutions may increase the size of the market enough to attract the private sector. Few private sector firms will be interested in investing in environmental infrastructure in towns because of the small population size and limited ability to pay. But small companies may be interested in larger contracts involving multiple towns, or towns and cities bundled together.

Develop and Implement Area-Wide Environmental Standards. Provincial government should set air quality standards for the entire sub-region and hold all polluters jointly responsible for meeting them. When standards are not met, all of the polluters are held accountable, and all must take action (such as reducing production or installing cleaner technology) to rectify the situation. Industries with a large financial investment in their facilities will not want to be forced to relocate or reduce operations because others in the same area are emitting excessive pollution. So this policy can encourage industries to establish their peer monitoring scheme to ensure universal compliance with regulations.

Market the Corridor with National and International Investors. The Liaoyang-Yingou Industrial Development Corporation should develop and implement a marketing plan to attract and secure investment by private companies in targeted sectors. Marketing expenses should be financed by the corporation through grants from corporations and provincial government. The corporation should hire a public relations/advertising agency to develop a brand and prepare a marketing strategy and marketing materials. Marketing activities should be undertaken by the corporation staff as well as members of the board of directors and their representatives.

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4.3.2 Agro-Processing Development

Agro-Processing Incubation

While China’s primary agriculture output has expanded at an astounding pace in recent years, growth in agro-processing has been modest. The ratio of agro-processing output value to agricultural output value ratio is 0.85:1, in contrast to 3:1 in many developed countries. Given domestic consumer income growth trends and the PRC’s integration into the world commodity market following World Trade Organization (WTO) accession, the pressure on the agro-processing sector to improve its performance is growing. Agro- processors need to adjust to increasingly diversified consumer demands, improve the quality and nutritional content of foods, introduce new food products, shift to more sophisticated processing methods, adopt innovative packaging methods, and comply with new labeling requirements.14 The central government has made it clear that vertical integration of agriculture and downstream links through agro-processing constitute a key to enabling town development. It is crucial for the study towns in Liaoning and Shanxi to take advantage of this emerging opportunity to “jump start” their economies.

Identify Comparative Advantages

Neither province is competitive in bulk commodities, but both are rich in other distinct food products.

Liaoning • Seafood (for example, Pikou). Liaoning can take advantage of its long coastline to develop fishing and farming for the domestic and international markets. • High-quality japonica rice (Goubangzi, for instance). Liaoning can maintain a share of the japonica rice market in the PRC and perhaps in Japan and Korea, too. • Other products, e.g., Goubangzi Roast Chicken, may function as a brand of Liaoning agro-processing products in domestic market.

Figure 4.2: Value Should Be Added Locally to Abundant Food Resources

14 See OECD: Agro-Food Processing Sector in China: Developments and Policy Changes, 2000.

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Shanxi • Small grains, such as oats, naked oats, millet, buckwheat, and sorghum, may have a high potential in domestic and international market, depending on the creation of demand and development of new processed products. • Red meat (beef and lamb) and dairy products can figure more prominently in the regional North China market. • Vegetable production is be mainly for provincial consumption. • Liquor and vinegar production processing has traditionally been competitive, but requires diversification in products and marketing skills in promotion. • Other traditional products, e.g., Pingyao beef and Shanxi dates, will continue to be distinctive Shanxi products on the domestic market.

While these products enjoy some comparative advantages, they are not sufficient to guarantee business success. The development of agro-processing sector depends on a number of factors besides resource endowment, including diversification of products, creation of novel foods, processing and packaging methods, marketing and branding skills, and meeting changing nutrition and safety standards. Entrepreneurs and provincial planners will need to join forces if the agro-processing sector is to meet this broad set of challenges. It is recommended that the PDRCs take the lead role in implementing the series of measures described below.

Carry out Market Analysis and Identify Niche Markets

Economic planning in the PRC has historically been supply-oriented. But success in agro- processing depends primarily on responsiveness to demand. Drawing inspiration from successful development of niche markets, such as asparagus production in Puzhou, provincial planners should team with industry associations to study the national and international markets for key products, such as those listed above. Through demand analysis, Shanxi Province can identify existing demand overseas for small grains, for example, and create additional demand by marketing the nutritional value of its specialty products to potential consumers. These activities should be carried out before taking steps to guide farm production.

Improve the Market Environment for Private Sector Investment in Agro- Processing

Agro-processing in general needs a relatively large initial capital input and a long period to receive an adequate return on investment. It is also exposed to the risk of natural disaster. But agro-processing should be a priority sector for economic development planners because it creates many jobs per unit of investment. Because of its great potential helping achieve government’s goal of closing the urban-rural income gap, agro-processing investment should be stimulated by provincial government by implementing the following measures. • Streamline the regulatory environment. Make it easier and faster for agro- processing investors to get licenses and permits. • Initiate tax holidays, e.g., 3-year business tax exemption for firms locating in priority agro-processing zones (industrial parks). • Facilitate access to financing. Consider incentives as required to make commercial bank financing available to SMEs. If necessary, introduce national/provincial government guarantees on a percentage of the capital portion of loan to agro-processing companies for development of expansion of facilities. • Give priority to agro-processing enterprises in accessing industrial land.

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• Provide business support services, e.g., technical assistance in management, sales, and promotion, etc. • Facilitate contacts between private agro-processors and farmers to help them do business together.

Develop Feeder Roads and Trunk Highways

A town that processes agricultural goods has different needs from those of manufacturing clusters or tourism towns. Provincial, city, county, and town planners should develop good feeder roads to bring agricultural inputs from nearby farms into town and trunk highways linking to those feeder roads to the agro-processing factories and the production centers to markets.

Perishable goods are normally shipped by truck. This allows individual farms, or groups of farms, to ship goods to an agricultural marketing center with minimal delay. Unfortunately, it is not cost-effective to build quality, high-class highways between several villages and the agro-processing town. However, the agro-processors will most likely choose suppliers from towns with good access to existing trunk infrastructure. Therefore, the town planners should focus on developing rural roads that lead to trunk road, and processing centers along trunk roads.

4.3.3 Tourism Promotion

Tourism is among the most labor-intensive sectors and will play a key role in employment generation in the coming years. China is expected to become the number one international tourist destination in the world by 2020, according to a WTO projection. Moreover, the Chinese people are becoming more affluent and will spend more on tourism as their disposable income rises.

While Liaoning is among the top 10 provinces in terms of tourism earnings and tourist numbers, Shanxi lags behind at 26th among Chinese provinces. This is a very low ranking in light of the fact that 70 percent of the buildings more than 1,000 years old in China are located in Shanxi. This mismatch indicates there is great potential for the province to diversify its economic base and to create more jobs through the expansion of tourism and related sectors. As most of the tourism sites are located in rural areas, it provides a unique window of opportunity for many towns along the tourism routes to take advantage of the tourism development to take off.

As seen in Figure 4.3, success in tourism development requires partnership building among provincial government, town government, and the private sector in four key areas.

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Figure 4.3: Partner and Areas of Cooperation for Tourism Development

Availability of tourism assets Provincial government

Accessibility of sites

Town government Marketability of products

Private sector Capacity of tourist services

• Availability of tourism assets. The availability of tourism assets in Shanxi in general is not a constraint. The Shanxi Tourism Development Master Plan 2000- 2010 identifies inventories 1,000 sites, of which about 150 have been developed. The question is how to capitalize on these resources. • Accessibility to the tourism sites. With the construction of trunk infrastructure like the Dayun Expressway and associated feeder roads, access to most sites has been greatly improved. Yet the question remains as of how to link the dispersed sites through tourist-friendly routes by using the trunk and feeder roads to create lively and diverse tourist experiences. • Marketability of tourism products. The provincial government’s marketing activities do not seem to have achieved the desired results. Alternatives must be found to package and market assets and experiences in an innovative way in order to fuel the take-off of regional tourism. • Capacity of tourism services. Domestic and especially international tourists must be offered higher-quality accommodation, dining, and other services for Shanxi to attract large numbers of new tourists. Environmental conditions around sites and in towns must also improve.

Provincial Government: Shifting from Supply-Side to Demand-Side Management

The existing Shanxi Tourism Development Master Plan 2000-2010 is essentially a portfolio of assets, but does not lay the groundwork for how to convert these products into marketable tourism commodities. The Provincial Tourism Bureau should adopt a more demand-driven approach to promoting tourism by systematically studying the market and defining with precision customer preferences and priorities. A more sophisticated approach should be adopted to look at supply and demand in different market segments, such as the Datong-

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Wutaishan religious cultural tourism sites, Pingyao-Jinzhong merchant and courtyard tourism mix, and Yuncheng cluster of historical and religious assets. Up-to-date, accurate data collected through the study should inform investment decisions on rehabilitating tourism assets, building trunk and feeder roads linking tourism sites into routes, designing pollution control measures, and investing in infrastructure, such as hotels, restaurants, and other amenities.

Figure 4.4: Temples in Yuncheng Cluster Can Attract More Tourists through Better Marketing

The Tourism Bureau should also develop a more systematic and creative approach to marketing Shanxi tourism. Consistent with the PDRC’s proposed emphasis on cultural tourism (“To know the real China, come to Shanxi!”), tourism promoters should disseminate better-quality information through more media, including brochures, videos, and advertising on television and in local newspapers in other provinces of the PRC where there are potential tourists to Shanxi. Public relations and advertising services should be provided by specialized private firms.

It is also recommended to integrate tourism into the overall economic development framework of the province. This requires definition of the anticipated contribution of tourism to the achievement of government goals in employment generation and economic growth. By incorporating tourism development into the overall socioeconomic planning process, provincial planners will have to address conflicts between tourism and other sectors, such as coal and coke processing. Tradeoffs between tourism and the polluting sectors along the Dayun corridor should be considered, agreed to, and implemented. Dayun corridor is home to more than 80 percent of Shanxi’s tourism sites and many of the province’s coal and coke producing areas. Since it is not realistic to reallocate coal and coke production, some sectors (such as Datong-Shuozhou and Jiexiu-Linfen) may continue to be too polluted to draw in large number of tourists. In Pingyao and Yuncheng sectors, however, provincial government should consider working with the coal and coke industry to try to control pollution levels, at least in the tourism season. Among the most polluted provincial capitals, Taiyuan should also control pollution if it intends to be a major tourism center in the future.

The process of integrating tourism into the overall development framework clearly goes beyond the mandate of the Tourism Bureau. A concerted effort by the Bureau working hand- in-hand with PRDC and provincial government economic and physical infrastructure

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planners will be required. Only this kind of broad-based, interagency effort, for example, under the leadership of an interagency task force, will be able to produce the varied types of inputs needed to successfully promote tourism development at the sub-regional level.

Finally, provincial planners should undertake supply-side measures to improve tourism experiences and spread out tourism benefits. • Diversify tourism circuits. A major weakness of the Shanxi tourism is the similarity of sights in any given region, which creates repetitiveness in the tourism experience. The public and private sectors should work together to develop routes that ensure diversity and complementarity of sites and experiences. • Decentralize tourism centers. Taiyuan should be the gateway to Shanxi, not the center of tourism in the province. Other towns—Pingyao, for example—should also be developed as “overnight” destinations of tourists in order to increase revenues in those centers and boost service sector development.

Town Government: Generating Employment for Local Residents through Tourism Development

The major function of town government in tourism development is to provide job opportunities for local residents, including surplus agricultural laborers and migrants. This can be accomplished through rehabilitation of tourism assets, creation of an attractive urban environment around the assets and in the town as a whole, and working with the private sector to facilitate the provision of tourist infrastructure, such as hotels and restaurants. Town government should: • Develop the arterial road network. A tourism center should have high capacity to accommodate traffic on peak visitor days (moon festival, spring festival, May Day festivals, and, of course, weekends, when most tourists visit the town). Arterials should link tourist sites to expressways and rail lines conveying visitors from distant location. Redundant road networks will provide release valves permitting traffic to move from one highly congested point to links that are operating below capacity. • Develop adequate parking. Several parking areas located at different sites throughout the road network are often necessary. The town should provide public transport links between the parking lots and the main attraction to tourists at no charge. An alternative is to have a few large “drop-off” points near the main attraction from which visitors will disembark and embark, and buses will go to distant parking lots while tourists enjoy the city. • Improve street cleaning and garbage collection and disposal. An attractive, pleasant environment is critical to the success of any tourism site. Cleanliness is a particularly strong factor in tourist site selection for many international tourists. Towns that seek to attract international tourism should improve the quality of these services, ensure adequate sanitation services to limit odors, and undertake street and open space beautification projects.

Private Sector: Meeting the Market Demand

The main functions of the private sector are to provide sophisticated market analysis and promotion services for the formulation and implementation of tourism plans on the one hand, and the construction and operation of tourism services and amenities (hotel, restaurant, travel services) on the other. Private sector firms should: • conduct market surveys, mainly by those large travel agencies, with the public sector in tourism promotion; these agencies should fully take advantage of their marketing

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expertise from a demand-side management point of view in supporting the government to capitalize the tourism assets and become “first comers” in the market; • participate in “tourism site” development in various ways, e.g., independent investment, shareholding, and subcontracting, etc., to introduce a business management in tourism development; • build hotels, restaurants, amenities, and other related services that are affordable to target customers; and • develop local crafts that are attractive to tourists.

4.4 Provision of Trunk Infrastructure

Provincial and prefecture-level governments should consider financing, building, and operating large-scale infrastructure facilities that will serve multiple LGs. This is true for transport infrastructure, such as expressways and highways, and for some types of environmental infrastructure.

Transport Infrastructure

Provincial and prefecture governments currently build and maintain trunk roads and should continue to do so in the future. Investments should be identified and programmed within a “sub-regional development perspective” that seeks to maximize physical and sectoral linkages between different types of urban settlements (cities, towns) to increase access to markets and to facilitate economic transactions.

Provincial and prefecture governments should also consider the development of road networks in areas around seaports in an effort to create manufacturing clusters. The map on the following page identifies a number of candidate seaports for development in Liaoning Province. In addition to the province’s largest port at Dalian, Liaoning has other major ports at Dandong, Yingkuo, Huludao, and Zhuange, and four or five smaller ports that are candidates for possible expansion. In addition, the huge port of Qinhuangdao in Hebei province is only 20-25 kilometers from Liaoning’s southwestern border. Some areas, Yingkuo, for example, are reasonably well served by trunk infrastructure. Other areas, such as those surrounding Dandong, Zhuange, and Bayquan, and perhaps some areas near Huludao, contain several towns with inferior access to trunk infrastructure. Planners from Liaoning Province and the state’s NDRC should study these areas more closely and consider the possibility of building industrial zones supported by trunk infrastructure leading to these ports. The ports may also require expansion. National, Liaoning, and Hebei planners should also consider the area surrounding Qinhuangdao, in as far as its industrial hinterland could extend into southwestern Liaoning Province.

Environmental Infrastructure

Provincial and prefecture-level agencies should take on primary responsibility for watershed management, including monitoring of ground and surface water supplies in relation to current and anticipated consumption and establishment of regulations to ensure that supply can meet demand in the future. Furthermore, provincial and/or prefecture-level agencies can in some cases get involved in bulk water production. Government can finance, construct, and operate (with or without a private sector partner) a water treatment plant that produces drinking water for a number of cities and towns in the region. The provincial or prefecture- level agency would “wholesale” the water to municipal water supply companies that would in turn sell it to end users: enterprises, government offices, households. Such a “regionalized” bulk water supply scheme can be effective where water supplies are short, endangered by pollution, or otherwise too expensive to be developed by town governments.

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As noted above, prefecture-level governments should also consider providing regional infrastructure for wastewater treatment and solid waste disposal. Taking advantage of more qualified staff, prefectures should prepare Master Plans for Environmental Infrastructure for their entire jurisdiction that identify the approximate location and service area of treatment and disposal facilities that support growth while protecting public health and the environment. Estimated costs and a time schedule for implementation should be included in the plans. Prime candidates for such regionalized facilities in the demonstration towns include: • Xiaoyi City landfill, currently under construction, which could receive domestic solid waste from Wutong Town in the future; and • Xiliu Town (Liaoning Province) and Haicheng City, which could co-develop a solid waste landfill that would serve both communities.

4.5 Monitoring and Evaluation of Local Government Development

One critical aspect of the provincial government’s role as enabler of LG development is monitoring and evaluation (M&E). The objective of the M&E system is to evaluate: • the performance of individual LGs; • the aggregate performance of all of the LGs in the province; and • the impact of the province’s measures in support of LG development.

The province should carry out the analysis in a systematic fashion and use the results to refine the LG development system and ultimately to improve the future performance of LGs.

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The technical approach of the M&E system is based on indicators for performance measurement. An indicator is a piece of quantitative information that lends insight into the achievement of a particular objective. The objectives that the province wants to measure are set out in the documents that define its LG development system. One such objective might be “to stimulate greater LG investment in urban infrastructure and services.” To measure progress on that objective, the province could define an indicator like “infrastructure investment per capita,” which is measured at the LG level. This quantitative indicator simply and efficiently conveys the total amount of investment that the town made in urban infrastructure during the year in question. It is also comparable across towns, and can be aggregated to generate a prefecture- or province-wide indicator value. Generally, the best indicators are expressed as ratios (such as total infrastructure investment divided by population, in the example) or percentages (such as the percentage of households that have an individual water supply connection), since data in this format are easily compared data for other geographic areas.

Table 4.2 below sets out a proposed set of LG development goals, strategies, and indicators. It is proposed that this set of indicators is finalized at the national level, and then distributed to the provincial level for implementation of M&E activities. At the provincial level, the PDRC should be responsible for managing this M&E system. Data for indicator calculation should be collected yearly by doing a survey of all LGs. The PDRC should tabulate the data, calculate the indicators, analyze the results, and prepare a short (say, 10-page) report on the performance of LGs in the province. The report should be distributed to the LGs, concerned departments of the provincial government, and the NDRC. The PDRC and provincial government departments should meet to discuss the findings and decide how the provincial system for LG development should be refined. Representatives of selected LGs should participate in the meeting. This feedback from the indicator collection and analysis process should be used to make specific proposals for introducing new policies, modifying or discontinuing existing incentives, and/or preparing other proposals for improving the effectiveness of provincial government as an enabler of LG development.

Table 4.2. Indicators for Performance Measurement in Town Development Goal Strategy Performance Indicator Urban Governance and Management Improve delivery of • Clarify roles of • % of new dwelling units financed by town services and government, the private sector better support eco- private sector, and the • % of new land development carried nomic and population community out by private developers growth • % of municipal services expenditure outsourced to private firms • Streamline functions • Existence of local government of town government charter stipulating functions of town government • Strengthen legal • % of local governments with foundation of local approved home rule charter governments • Increase opportunities • Number of publications dissemin- for citizen input and ated to public by town government representation • Number of town meetings/hearings • Create new • Average ratio of number of opportunities for local candidates to number of positions leadership in elections

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Goal Strategy Performance Indicator • Build the capacity of • Number of workshop days attended town government staff by senior managers last year over number of senior managers Municipal Finance Mobilize additional • Introduce new • % increase in tax revenues revenues instruments: property • Own-source revenues over total tax, special revenues assessments, block • % total revenue from property taxes grants, loans, and • % total revenue from special bonds assessments • Number of block grants received • % total infrastructure financing from bank loans • % total infrastructure financing from bonds • Capital and recurrent expenditure per capita • Increase use of • Tariff revenues over total cost of market-based pricing water supply and sanitation of services services • Tariff revenues over total cost of solid waste management services • Rationalize revenue • % increase in revenue transfers sharing with higher from upper level government levels of government • Strengthen capacity of • Existence of organigram for finance finance department office/department, showing divisions • % of towns using performance- based budgeting • Number of workshop days attended by senior financial managers last year over number of senior financial managers Economic Development Facilitate employment • Change performance • % of towns using employment, not generation and eco- evaluation criteria for growth, as main performance nomic investment town officials criterion • Increase town size • Average population of towns • Focus on tertiary • % of tax rebates/exemptions for sector development service sector over total tax rebates/exemptions • Change in average period for issue of service sector business license • Change in number of tourist visits • Change in number of tourist overnights • Change in number of service sector firms • Change in service sector employment

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Goal Strategy Performance Indicator • Promote development • % of tax rebates/exemptions for of SMEs SMEs over total tax rebates/ exemptions • Number of person-days of technical assistance provided to SMEs • Change in number of SMEs • % in SME employment Economic Infrastructure Increase access to • Expand links to • Minutes to nearest expressway important markets markets entrance • Minutes to nearest highway • Number of highways passing within 5 kilometers of built-up area. • Number of cities within 30 minutes travel • Number of daily bus departures to cities • Develop multi-modal • Increase in warehouse space (m2) access • % increase in freight handled • Number of rail lines • Number of cities within 60 minutes travel by rail and expressway • Improve rural roads • Increase in number of villages connected to town by road and paved road • Town–village roads: total km and total paved km • Daily bus departures to village Improve energy • Allow power • % increase in power produced by availability and generation by private private enterprises independence enterprises • % increase in total power generation • Total electricity consumption per person (kWh/capita) • Promote local power • % increase in local generating generation capacity • Capacity of local private generating capacity • Length of approval process for each application to expand local capacity Increase telecom- • Expand telecom- • % households connected by copper munications coverage munications coverage land-line (“POTS”) service to all citizens • % households covered by broadband service and cellular service Increase availability of • Expand size of parks • hectares (ha) of park and public parks and public spaces space per capita • % of built-up area that is park/open space

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Goal Strategy Performance Indicator Environmental Infrastructure Ensure provision of • Provide environmental • % buildings in built-up area that are adequate and efficient services (water, • connected to water supply environmental wastewater, solid • connected to sewer services to all users waste) to 100% of • within 100 meters of a trash occupied buildings in collection point built-up areas • % hours per day water supply available • % wastewater receiving some treatment • % days per year trash collected • % non-revenue water • % Bio-Chemical Oxygen demand reduction • % trash by volume disposed of in sanitary landfill • Provide financial • Environmental infrastructure assistance to towns expenditure per capita for investment in • Change in investment in environ- environmental mental infrastructure infrastructure Protect and enhance • Improve environ- • % of town governments not the natural mental regulations responsible for environmental environment in and compliance by enforcement around towns separating functions • Promote integrated • % of town’s wastewater treated by environmental treatment plant in industrial park management between town and industry Property Markets and Housing Meet housing needs • Convert collective • % of land in built-up area that is of all local population land in towns to state state land groups land • Allow management • % of collective land leased by companies to develop management companies and lease collective land • Increase private • % of land developed by private sector participation in firms land development • Diversity housing • % of new units that use alternative types housing models: terrace housing, garden apartments, other • Ratio of most expensive housing unit to least expensive unit produced last year • House price to income ratio • Reduce public sector • Change in total net expenditure on involvement in housing by public sector housing production

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Goal Strategy Performance Indicator • Conduct analysis of • % new units incorporating housing housing demand and analysis findings into design ability-to-pay process Increase equitable • Establish standards • % land compensation carried out distribution of benefits for land development using new valuation standards of land development and valuation • % displaced land rights holders that projects • Guarantee right of first received right of first refusal to new refusal to displaced housing units land use rights holders Social Sector Alleviate urban • Expand MLSP to • % of households below poverty line poverty include poor in both • % of poor households receiving urban and rural areas social assistance funds • Expenditure on poverty reduction per capita • Ratio of 20th household income percentile to 50th household income percentile • Improve access by • % of working age women in labor women to urban force services, employment, • Access to services by gender health, and credit Improve quality and • Introduce the CMS in • Ratio of households enrolled in quantity of social villages CMS to number of households infrastructure • Expand coverage of eligible existing health • Number of new persons added to insurance programs the CMS per year • % of persons with formal sector health insurance • Cost of health insurance over average income per capita per year • Reduce class size by • School enrollment rate 20% over next decade • Average number of school children • Encourage post- per classroom compulsory school • % of compulsory school graduates education enrolling in senior middle school • Town budget allocation for education (RMB per student per year) • Establish vocational • Number of vocational schools in facilities town • Increase job • % of compulsory school graduates placements enrolling in vocational middle school • Job placement rate • Remove restrictions • Additional fees required from on migrants migrants in public schools • Number of restrictions removed

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5 Action Planning

This section sets out a proposed framework for implementing the main proposals of the Town-Based Urbanization Strategy Study. For each initiative, the tables below identify the tasks, subtasks, parties responsible, and proposed start date and end date. Table 5.1 includes national policy and legal changes, while Tables 5.2 and 5.3 propose follow-on actions for Liaoning and Shanxi Provinces.

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Table 5.1. Action Plan for National-Level Changes Action Plan for National-Level Changes Task Subtask Responsible Party Start Date End Date SHORT-TERM DEVELOPING TOWNS IN THE CONTEXT OF LARGER URBAN AGGLOMERATIONS Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Revise urbanization policy to emphasize Prepare revised urbanization policy document NDRC Oct-05 Dec-05 regional development and links between Prepare guidelines for regional development NDRC Jan-06 Jun-06 towns and cities planning for use by sub-national governments Rationalize and improve assistance Prepare revised guidelines for selection of key NDRC Jan-06 Jun-06 programs for key towns towns for use by provincial governments EMPLOYMENT GENERATION IN REGIONS AND TOWNS Change performance evaluation criteria of Revise policy to give higher priority to employment State Council Jan-06 Mar-06 local government leaders generation than to production and investment

Revise local economic development policy to Develop and introduce tax holidays for firms in NDRC, Ministry of Jan-06 Jan-06 focus on tertiary sector and SMEs targeted sectors Finance Develop guidelines for local provision of business NDRC Mar-06 Sep-06 support services, including incubators for small and medium enterprises Develop guidelines for re-use of existing LG assets NDRC Mar-06 Sep-06 for promotion of retail and service center (e.g., conversion of buildings to shopping/entertainment destinations) MOBILIZING ADDITIONAL REVENUES FOR LOCAL GOVERNMENTS Introduce real estate property taxation at the Prepare and pass legislation introducing property Ministry of Finance Jan-06 Aug-06 local government level taxation Develop regulations for implementation of property Ministry of Finance Jun-06 Dec-06 taxation Develop guidelines for registration and valuation of NDRC, Ministry of Sep-06 Jun-06 real estate assets by local governments Construction, Ministry of Land Resources Introduce special assessment districts at the Prepare and pass legislation introducing special Ministry of Finance, Aug-06 Feb-07 local government level assessment districts Prepare guidelines for creation of special Ministry of Finance Mar-07 Sep-07 assessment districts Design block grant program for town Define implementing arrangements, NDRC PDRC Jun-06 Dec-06 development application/approval process, and subproject selection criteria Develop subsidy system for poor towns Define qualification criteria for poor towns NDRC PDRC Oct-05 Dec-05 Revise intergovernmental finance system to include NDRC, PDRC Jan-06 Jun-06 a progressive indexing factor for poor towns

INSTITUTIONAL STRENGTHENING OF LOCAL GOVERNMENTS Enable provincial governments to Prepare model enabling legislation for review and Ministry of Civil Affairs Feb-07 Aug-07 incorporate local governments as passage by provincial governments independent legal entities Prepare model town charter specifying Ministry of Civil Affairs Feb-07 Aug-07 responsibilities and authorities of local governments

Develop a national strategy for building the Create a task force with representation of local NDRC Nov-05 Jan-06 capacity of local governments governments, provincial government, universities, training institutes, professional associations and private firms Define objectives, interventions, responsibilities of Task force members Feb-06 Feb-07 different parties, timelines Enable provincial governments to prepare Develop standardized training modules NDRC Oct-05 Jun-06 and implement local government training Train provincial governments in implementation of NDRC Jan-07 Jan-08 programs province-wide training programs for local governments (including training of provincial trainers) Dissemination of ongoing policy change and Prepare summary of policy change initiatives NDRC Jan-06 Jan-06 institutional development initiatives to local Distribute institutional development strategy, NDRC Mar-06 Mar-07 governments training modules, best practices and policy change summary to all provincial governments At workshop in Beijing, agree on strategy for NDRC, PDRCs May-07 May-07 provincial government dissemination to local governments REAL ESTATE PROPERTY MARKET REFORM Revise urban land policies to promote Prepare land development guidelines for Ministry of Land and Mar-06 Dec-06 competition and facilitate investment by conversion of collective land to state land for use by Resources various actors local governments Prepare regulations allowing management Ministry of Land and Mar-06 Dec-06 companies to develop and lease collective land Resources Prepare guidelines for valuation of collective land Ministry of Land and Jun-06 Mar-07 and awarding compensation to displaced land Resources rights holders Revise housing policy to promote diversity of Prepare and distribute methodological materials on Ministry of Construction Dec-05 May-06 housing types and unit costs development of different types of housing Prepare and distribute methodological materials on Ministry of Construction Dec-05 May-06 analyzing housing markets and household ability-to- pay IMPROVING URBAN ENVIRONMENTAL SERVICES Develop new waste treatment strategy Create task force for strategy preparation NDRC Jun-06 Jun-06 Define appropriate standards for solid and liquid SEPA Jul-06 Jan-07 waste treatment in towns Develop guidelines for promoting integrated SEPA Jul-06 Jan-07 environmental management between town and industry Strengthen enforcement of environmental Develop and enact regulations to shift enforcement SEPA Jan-06 Aug-06 regulations responsibility up to the prefecture level

Issue directives to enforcement units to apply SEPA Sep-06 Sep-06 regulations evenly to publicly and privately owned enterprises Develop national financial assistance Create task force for program design NDRC Mar-06 Mar-06 program for local environmental Define implementation arrangements, eligibility NDRC, SEPA Feb-06 Oct-06 infrastructure investment criteria for towns and subprojects, flow of funds, sources of financing IMPROVING ACCESS TO SOCIAL SERVICES AND BENEFITS Mandate the provision of social services to Prepare and promulgate directives that require Ministry of Health, Mar-06 Sep-06 migrants on the same terms as to holders of equal fees for equal health and education services Ministry of Education urban hukou at the local level Revise intergovernmental fiscal system to provide Ministry of Finance, May-06 Sep-06 funding to local governments for social services NDRC based on total number of residents, not residents with hukou Strengthen vocational training to “retool” Develop guidelines for redesigning curricula of Ministry of Education, Jan-07 Jun-07 farmers to enter urban labor markets vocational schools based on assessed needs of Ministry of Employment emerging local industries and Social Security, Prepare and promulgate policy of building new Ministry of Education, Jan-07 Apr-07 vocational schools in high-growth towns Ministry of Employment and Social Security, Expand the coverage of the existing health Develop provisions to include vulnerable groups, Ministry of Health Jul-06 Dec-06 insurance program such as the elderly, unemployed, part-time workers Ministry of Employment and informal sector workers and Social Security, Develop provisions to extend coverage at Ministry of Health, Jul-06 Dec-06 reasonable rates to family members of the policy Ministry of Employment holder/employee and Social Security, Introduce temporary residency permits for Prepare and pass decree creating temporary Ministry of Public Security Jan-06 Mar-06 residents of urban areas that do not have residency permits hukou Design and implement pilot projects in selected Ministry of Public Security Jun-06 Jun-08 towns

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY 90 FINAL REPORT: PROVINCIAL POLICIES FOR TOWN DEVELOPMENT

Action Plan for National-Level Changes Task Subtask Responsible Party Start Date End Date MID-TERM LONG-TERM DEVELOPING TOWNS IN THE CONTEXT OF LARGER URBAN AGGLOMERATIONS Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Revise urbanization policy to emphasize Prepare revised urbanization policy document NDRC Oct-05 Dec-05 regional development and links between Prepare guidelines for regional development NDRC Jan-06 Jun-06 towns and cities planning for use by sub-national governments Rationalize and improve assistance Prepare revised guidelines for selection of key NDRC Jan-06 Jun-06 programs for key towns towns for use by provincial governments EMPLOYMENT GENERATION IN REGIONS AND TOWNS Change performance evaluation criteria of Revise policy to give higher priority to employment State Council Jan-06 Mar-06 local government leaders generation than to production and investment

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY 91 FINAL REPORT: PROVINCIAL POLICIES FOR TOWN DEVELOPMENT

Table 5.2 Action Plan for Liaoning Province Action Plan for Liaoning Province Task Subtask Responsible Party Start Date End Date SHORT-TERM REGIONAL DEVELOPMENT Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Develop manufacturing corridor Define sub-region to be developed PDRC Oct-05 Nov-05 Create public-private partnership for development (task PDRC, Dec-05 Jan-06 force or economic development corporation) Prepare sub-regional development plan PDRC and stakeholders Feb-06 Oct-06 Prepare capital investment program PDRC and stakeholders Aug-06 Oct-06 Seek and secure financing for capital investment PDRC and stakeholders Sep-06 Mar-07 projects from various sources (property taxes, block grants, private investors, etc.) Develop agro-processing area Define sub-region to be developed PDRC Oct-05 Nov-05 Create public-private partnership for development PDRC Dec-05 Jan-06 Prepare sub-regional plan PDRC and stakeholders Feb-06 Oct-06 Prepare capital investment program PDRC and stakeholders Aug-06 Oct-06 Seek and secure financing for capital investments from PDRC and stakeholders Sep-06 Mar-07 various sources (property taxes, block grants, private investors, etc.) PROMOTION OF KEY TOWN DEVELOPMENT Application of new guidelines for key town Evaluate employment generation of towns, including in PDRC Feb-06 Sep-06 identification targeted sub-regions (see above) Designate key towns into which public and private PDRC Oct-06 Oct-06 investment will be channeled Introduction of fiscal and financial measures to Design and implement short- to medium-term tax Dept. of Finance Nov-06 Jun-07 promote key town development breaks for targeted industries or sectors with high Assist selected town governments to initiate provision PDRC Feb-07 Oct-07 of business support services, such as SME incubators

Identification of infrastructure investment projects Preparation of feasibility studies and detailed designs PDRC, Town Jun-06 Dec-06 for urban environmental infrastructure projects to be governments partially financed using provincial block grants (see below) Preparation of transport infrastructure projects PDRC, Town Aug-06 Feb-07 necessary for sub-regional development governments LOCAL GOVERNMENT INSTITUTIONAL STRENGTHENING Incorporation of local governments Preparation and passage of provincial enabling PDRC and Dept. of Civil Sep-06 Dec-06 legislation based on new federally prepared model (see Affairs Table 5.1 above) Preparation and approval of model town charter based PDRC and Dept. of Civil Sep-06 Dec-06 on new federally prepared model Affairs Create of specific town charter for selected pilot towns PDRC and Dept. of Civil Jan-07 Apr-07 Affairs Approval of charter and incorporation of pilot towns Gov’t and People’s May-07 May-07 Congress of Liaoning Province Local government capacity building Create local government technical assistance and PDRC Jan-06 Apr-06 training (TA&T) unit for Liaoning Province Disseminate information about eligibility criteria, types PDRC May-06 Aug-06 of services offered, financial terms, etc. re: TA&T unit to local governments throughout the province

Disseminate methodological tools for town PDRC May-06 Aug-06 development to local governments, including best practices and guidelines prepared under Town-Based Urbanization Strategy Study Preparation of province-wide LG training program using PDRC Aug-06 Dec-06 federally developed training modules Participate in national training-of-trainers programs PDRC Jan-07 Jan-08 INTRODUCTION OF NEW REVENUE GENERATION INSTRUMENTS Introduction of property taxation Provide training to LGs in use of new guidelines for Dept of Finance Jul-06 Dec-06 registration and valuation of real estate assets Provide technical assistance to selected pilot LGs to Dept of Finance Jun-07 Jun-08 implement property taxation Introduction of special assessment districts Provide training to LGs in use of guidelines for creation Dept of Finance Jul-06 Dec-06 of special assessment districts Introduction of block grants Disseminate information to local government managers Dept of Finance Jan-07 Mar-07 about implementing arrangements, application/approval process, and subproject selection criteria Implement new measures for subsides for poor Disseminate information to local governments on poor Dept of Finance Jul-06 Sep-06 towns town subsidies Introduce new progressive indexing system; calculate Dept of Finance Jan-07 Dec-07 and effect transfers INTRODUCTION OF MEASURES FOR REAL ESTATE PROPERTY MARKET REFORM Mobilizing land for development Carry out cost-benefit analysis of converting collective Dept. of Land Resources Jan-06 Jun-06 land to state land in selected pilot towns Convert collective land to state land in existing built-up Town governments Jul-06 Oct-06 or targeted development areas in the pilot towns Experiment with use of management companies in Town governments Mar-06 Mar-07 development of collective land in other pilot towns Diversifying housing development models Provide training in housing demand assessment Dept. of Construction Jun-06 Aug-06 Disseminate new methodological materials on Dept. of Construction Oct-05 Dec-05 development of different types of housing Work with local government managers in selected pilot Dept. of Construction Sep-06 Sep-07 towns to undertake pilot projects in development of new housing types IMPROVING ACCESS TO SOCIAL SERVICES AND BENEFITS Provide social services to migrants on the same Modify access to and price of health and education Dept. of Health, Oct-06 Feb-07 terms as to holders of urban hukou services to comply with new federal directives (see Dept. of Education Implement federal mandates on revision of Dept of Finance Oct-06 Feb-07 intergovernmental fiscal system to provide funding to local governments for social services based on total number of residents, not residents with hukou Strengthen vocational training to “retool” farmers Redesign curricula of vocational schools based on Town governments, Dept Jul-07 Feb-08 to enter urban labor markets assessed needs of emerging local industries; use new of Education federal guidelines Dept. of Employment and Social Security Build new vocational schools in high-growth towns Town governments Oct-07 Oct-09

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY 92 FINAL REPORT: PROVINCIAL POLICIES FOR TOWN DEVELOPMENT

Action Plan for Liaoning Province Task Subtask Responsible Party Start Date End Date MID-TERM LONG-TERM REGIONAL DEVELOPMENT Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Develop manufacturing corridor Define sub-region to be developed PDRC Oct-05 Nov-05 Create public-private partnership for development (task PDRC, Dec-05 Jan-06 force or economic development corporation) Prepare sub-regional development plan PDRC and stakeholders Feb-06 Oct-06 Prepare capital investment program PDRC and stakeholders Aug-06 Oct-06 Seek and secure financing for capital investment PDRC and stakeholders Sep-06 Mar-07 projects from various sources (property taxes, block grants, private investors, etc.) Develop agro-processing area Define sub-region to be developed PDRC Oct-05 Nov-05 Create public-private partnership for development PDRC Dec-05 Jan-06 Prepare sub-regional plan PDRC and stakeholders Feb-06 Oct-06 Prepare capital investment program PDRC and stakeholders Aug-06 Oct-06 Seek and secure financing for capital investments from PDRC and stakeholders Sep-06 Mar-07 various sources (property taxes, block grants, private investors, etc.) PROMOTION OF KEY TOWN DEVELOPMENT Application of new guidelines for key town Evaluate employment generation of towns, including in PDRC Feb-06 Sep-06 identification targeted sub-regions (see above) Designate key towns into which public and private PDRC Oct-06 Oct-06 investment will be channeled Introduction of fiscal and financial measures to Design and implement short- to medium-term tax Dept. of Finance Nov-06 Jun-07 promote key town development breaks for targeted industries or sectors with high Assist selected town governments to initiate provision PDRC Feb-07 Oct-07 of business support services, such as SME incubators

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY 93 FINAL REPORT: PROVINCIAL POLICIES FOR TOWN DEVELOPMENT

Table 5.3 Action Plan for Shanxi Province Action Plan for Shanxi Province Task Subtask Responsible Party Start Date End Date SHORT-TERM REGIONAL DEVELOPMENT Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Develop tourism zone Define sub-region to be developed PDRC Oct-05 Nov-05 Create public-private partnership for development (task PDRC, Dec-05 Jan-06 force or tourism development corporation) Prepare sub-regional development plan PDRC and stakeholders Feb-06 Oct-06 Prepare capital investment program PDRC and stakeholders Aug-06 Oct-06 Seek and secure financing for capital investment PDRC and stakeholders Sep-06 Mar-07 projects from various sources (property taxes, block grants, private investors, etc.) Develop agro-processing area Define sub-region to be developed PDRC Oct-05 Nov-05 Create public-private partnership for development PDRC, Gov’t of Shanxi Dec-05 Jan-06 Province Prepare sub-regional plan PDRC and stakeholders Feb-06 Oct-06 Prepare capital investment program PDRC and stakeholders Aug-06 Oct-06 Seek and secure financing for capital investments from PDRC and stakeholders Sep-06 Mar-07 various sources (property taxes, block grants, private investors, etc.) PROMOTION OF KEY TOWN DEVELOPMENT Application of new guidelines for key town Evaluate employment generation of towns, including in PDRC Feb-06 Sep-06 identification targeted sub-regions (see above) Designate key towns into which public and private PDRC Oct-06 Oct-06 investment will be channeled Introduction of fiscal and financial measures to Design and implement short- to medium-term tax Dept. of Finance Nov-06 Jun-07 promote key town development breaks for targeted industries or sectors with high employment generation potential Assist selected town governments to initiate provision PDRC Feb-07 Oct-07 of business support services, such as SME incubators

Identification of infrastructure investment projects Preparation of feasibility studies and detailed designs PDRC, Town Jun-06 Dec-06 for urban environmental infrastructure projects to be governments partially financed using provincial block grants (see below) Preparation of transport infrastructure projects PDRC, Town Aug-06 Feb-07 necessary for sub-regional development governments LOCAL GOVERNMENT INSTITUTIONAL STRENGTHENING Incorporation of local governments Preparation and passage of provincial enabling PDRC and Dept. of Civil Sep-06 Dec-06 legislation based on new federally prepared model (see Affairs Table 5.1 above) Preparation and approval of model town charter based PDRC and Dept. of Civil Sep-06 Dec-06 on new federally prepared model Affairs Create of specific town charter for selected pilot towns PDRC and Dept. of Civil Jan-07 Apr-07 Affairs Approval of charter and incorporation of pilot towns Gov’t and People’s May-07 May-07 Congress of Liaoning Province Local government capacity building Create local government technical assistance and PDRC Jan-06 Apr-06 training (TA&T) unit for Shanxi Province Disseminate information about eligibility criteria, types PDRC May-06 Aug-06 of services offered, financial terms, etc. re: TA&T unit to local governments throughout the province

Disseminate methodological tools for town PDRC May-06 Aug-06 development to local governments, including best practices and guidelines prepared under Town-Based Urbanization Strategy Study Preparation of province-wide LG training program using PDRC Aug-06 Dec-06 federally developed training modules Participate in national training-of-trainers programs PDRC Jan-07 Jan-08 INTRODUCTION OF NEW REVENUE GENERATION INSTRUMENTS Introduction of property taxation Provide training to LGs in use of new guidelines for Dept of Finance Jul-06 Dec-06 registration and valuation of real estate assets Provide technical assistance to selected pilot LGs to Dept of Finance Jun-07 Jun-08 implement property taxation Introduction of special assessment districts Provide training to LGs in use of guidelines for creation Dept of Finance Jul-06 Dec-06 of special assessment districts Introduction of block grants Disseminate information to local government managers Dept of Finance Jan-07 Mar-07 about implementing arrangements, application/approval process, and subproject selection criteria Implement new measures for subsides for poor Disseminate information to local governments on poor Dept of Finance Jul-06 Sep-06 towns town subsidies Introduce new progressive indexing system; calculate Dept of Finance Jan-07 Dec-07 and effect transfers INTRODUCTION OF MEASURES FOR REAL ESTATE PROPERTY MARKET REFORM Mobilizing land for development Carry out cost-benefit analysis of converting collective Dept. of Land Resources Jan-06 Jun-06 land to state land in selected pilot towns Convert collective land to state land in existing built-up Town governments Jul-06 Oct-06 or targeted development areas in the pilot towns Experiment with use of management companies in Town governments Mar-06 Mar-07 development of collective land in other pilot towns Diversifying housing development models Provide training in housing demand assessment Dept. of Construction Jun-06 Aug-06 Disseminate new methodological materials on Dept. of Construction Oct-05 Dec-05 development of different types of housing Work with local government managers in selected pilot Dept. of Construction Sep-06 Sep-07 towns to undertake pilot projects in development of new housing types IMPROVING ACCESS TO SOCIAL SERVICES AND BENEFITS Provide social services to migrants on the same Modify access to and price of health and education Dept. of Health, Oct-06 Feb-07 terms as to holders of urban hukou services to comply with new federal directives (see Table 5.2) Dept. of Education Implement federal mandates on revision of Dept of Finance Oct-06 Feb-07 intergovernmental fiscal system to provide funding to local governments for social services based on total number of residents, not residents with hukou Strengthen vocational training to “retool” farmers Redesign curricula of vocational schools based on Town governments, Dept Jul-07 Feb-08 to enter urban labor markets assessed needs of emerging local industries; use new of Education federal guidelines Dept. of Employment and Social Security Build new vocational schools in high-growth towns Town governments Oct-07 Oct-09

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY 94 FINAL REPORT: PROVINCIAL POLICIES FOR TOWN DEVELOPMENT

Action Plan for Shanxi Province Task Subtask Responsible Party Start Date End Date MID-TERM LONG-TERM REGIONAL DEVELOPMENT Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Develop tourism zone Define sub-region to be developed PDRC Oct-05 Nov-05 Create public-private partnership for development (task PDRC, Dec-05 Jan-06 force or tourism development corporation) Prepare sub-regional development plan PDRC and stakeholders Feb-06 Oct-06 Prepare capital investment program PDRC and stakeholders Aug-06 Oct-06 Seek and secure financing for capital investment PDRC and stakeholders Sep-06 Mar-07 projects from various sources (property taxes, block grants, private investors, etc.) Develop agro-processing area Define sub-region to be developed PDRC Oct-05 Nov-05 Create public-private partnership for development PDRC, Gov’t of Shanxi Dec-05 Jan-06 Province Prepare sub-regional plan PDRC and stakeholders Feb-06 Oct-06 Prepare capital investment program PDRC and stakeholders Aug-06 Oct-06 Seek and secure financing for capital investments from PDRC and stakeholders Sep-06 Mar-07 various sources (property taxes, block grants, private investors, etc.) PROMOTION OF KEY TOWN DEVELOPMENT Application of new guidelines for key town Evaluate employment generation of towns, including in PDRC Feb-06 Sep-06 identification targeted sub-regions (see above) Designate key towns into which public and private PDRC Oct-06 Oct-06 investment will be channeled Introduction of fiscal and financial measures to Design and implement short- to medium-term tax Dept. of Finance Nov-06 Jun-07 promote key town development breaks for targeted industries or sectors with high employment generation potential Assist selected town governments to initiate provision PDRC Feb-07 Oct-07 of business support services, such as SME incubators

Identification of infrastructure investment projects Preparation of feasibility studies and detailed designs PDRC, Town Jun-06 Dec-06 for urban environmental infrastructure projects to be governments partially financed using provincial block grants (see below) Preparation of transport infrastructure projects PDRC, Town Aug-06 Feb-07 necessary for sub-regional development governments LOCAL GOVERNMENT INSTITUTIONAL STRENGTHENING Incorporation of local governments Preparation and passage of provincial enabling PDRC and Dept. of Civil Sep-06 Dec-06 legislation based on new federally prepared model (see Affairs Table 5.1 above) Preparation and approval of model town charter based PDRC and Dept. of Civil Sep-06 Dec-06 on new federally prepared model Affairs Create of specific town charter for selected pilot towns PDRC and Dept. of Civil Jan-07 Apr-07 Affairs Approval of charter and incorporation of pilot towns Gov’t and People’s May-07 May-07 Congress of Liaoning Province Local government capacity building Create local government technical assistance and PDRC Jan-06 Apr-06 training (TA&T) unit for Shanxi Province Disseminate information about eligibility criteria, types PDRC May-06 Aug-06 of services offered, financial terms, etc. re: TA&T unit to local governments throughout the province

Disseminate methodological tools for town PDRC May-06 Aug-06 development to local governments, including best practices and guidelines prepared under Town-Based Urbanization Strategy Study Preparation of province-wide LG training program using PDRC Aug-06 Dec-06 federally developed training modules Participate in national training-of-trainers programs PDRC Jan-07 Jan-08 INTRODUCTION OF NEW REVENUE GENERATION INSTRUMENTS Introduction of property taxation Provide training to LGs in use of new guidelines for Dept of Finance Jul-06 Dec-06 registration and valuation of real estate assets Provide technical assistance to selected pilot LGs to Dept of Finance Jun-07 Jun-08 implement property taxation Introduction of special assessment districts Provide training to LGs in use of guidelines for creation Dept of Finance Jul-06 Dec-06 of special assessment districts Introduction of block grants Disseminate information to local government managers Dept of Finance Jan-07 Mar-07 about implementing arrangements, application/approval process, and subproject selection criteria Implement new measures for subsides for poor Disseminate information to local governments on poor Dept of Finance Jul-06 Sep-06 towns town subsidies Introduce new progressive indexing system; calculate Dept of Finance Jan-07 Dec-07 and effect transfers INTRODUCTION OF MEASURES FOR REAL ESTATE PROPERTY MARKET REFORM Mobilizing land for development Carry out cost-benefit analysis of converting collective Dept. of Land Resources Jan-06 Jun-06 land to state land in selected pilot towns Convert collective land to state land in existing built-up Town governments Jul-06 Oct-06 or targeted development areas in the pilot towns Experiment with use of management companies in Town governments Mar-06 Mar-07 development of collective land in other pilot towns Diversifying housing development models Provide training in housing demand assessment Dept. of Construction Jun-06 Aug-06 Disseminate new methodological materials on Dept. of Construction Oct-05 Dec-05 development of different types of housing Work with local government managers in selected pilot Dept. of Construction Sep-06 Sep-07 towns to undertake pilot projects in development of new housing types IMPROVING ACCESS TO SOCIAL SERVICES AND BENEFITS Provide social services to migrants on the same Modify access to and price of health and education Dept. of Health, Oct-06 Feb-07 terms as to holders of urban hukou services to comply with new federal directives (see Table 5.2) Dept. of Education Implement federal mandates on revision of Dept of Finance Oct-06 Feb-07 intergovernmental fiscal system to provide funding to local governments for social services based on total number of residents, not residents with hukou Strengthen vocational training to “retool” farmers Redesign curricula of vocational schools based on Town governments, Dept Jul-07 Feb-08 to enter urban labor markets assessed needs of emerging local industries; use new of Education federal guidelines Dept. of Employment and Social Security Build new vocational schools in high-growth towns Town governments Oct-07 Oct-09

ANNEXES

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY Annex 1-1 FINAL REPORT: ANNEX 1 ANNEX 1

Administrative Structure and Terminology

According to its constitution, the government of the PRC is divided up into various administrative, with each level managing the one below it. Villages are at the lowest level, followed by towns and townships. Towns and townships are managed by counties, which are managed in turn by cities. Cities are managed directly by the provincial government. Each level retains control over the one beneath it. These relationships are shown in the figure below. There are several terms used for each administrative level; only the most commonly used terms are shown below.

Figure Annex 1-1: Administrative Hierarchy in the PRC

TOWNSHIP 乡 CITY 市

TOWN 镇 COUNTYCOUNTY县县

COUNTY 县

CITY 市

CITY 市 CITY 市

PROVINCE 省

VILLAGE 村 TOWN BUILT AREA 镇区

Villages (村) Villages are the most basic unit of government in the PRC. They are characterized as agricultural, and generally consist of areas with housing (construction land) and with farmland. Land in villages is collective land. People in villages hold rural hukou, while those in all higher administrative units have urban hukou. PRC: TOWN-BASED URBANIZATION STRATEGY STUDY Annex 1-2 FINAL REPORT: ANNEX 1

Towns (镇) “Towns” (zhen 镇) are administrative units extending beyond a dense “town-built area” (see below) to include villages, and the agricultural land in between. The administrative boundary of the town is marked by the zhenyu (镇域) line.

• Town • •

• Town Built Up • Area

• • Villages

A town (zhen) must meet either one of the following criteria: (a) population greater than 20,000, and non-agricultural employment is greater than ten percent of the total; or (b) population less than 20,000 persons, but includes at least 2,000 persons from non- agricultural households; or (c) is a county administrative center; or (d) special centers of tourism, research, minority groups, scientific research and so on.

“Town built up areas” (zhenqu 镇区) refers to the denser area of a town supporting administrative, industrial, service, tourism and urban activities. The town-built area is important to this study because this is where town administration sits, where the greatest concentration of infrastructure and services lie, and is where (or near where) investment is more likely to occur.

Most land in towns is state-owned, but there are usually pockets of collective village land within both the zhenqu and zhenyu.

Townships (乡) Townships are groups of predominantly agricultural villages. That is, a “township” is an area with an insufficient number of non-agricultural workers to meet the criteria of a town.

Some financial data is not disaggregated at the national level below the level of county. Therefore, town, township, and village financial information cannot be reported separately.

Counties (县) Counties are the administrative unit between towns and cities, and are generally responsible for the management of several towns within their boundaries. Some counties have renamed themselves to be “cities”, and are therefore called “county-level cities”.

Cities/Prefecture (市) A city (also called a prefecture) is larger than a town. It must have a minimum 60,000 people and a certain level of GDRP; or otherwise be a major center of tourism, research, minority groups, and scientific research and so on. Cities include counties, townships and towns, and villages within their borders.

Hukou The term hukou (户口) refers to the household registration system, in which all residents of the PRC are registered to a specific place and are characterized as rural or urban. The hukou system has traditionally been used to provide services and limit migration. Although its importance has diminished in recent years, it is still a key determinant of access to some social benefits.

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY Annex 1-3 FINAL REPORT: ANNEX 1

Counting the Urban Population Urban population is generally measured based upon hukou. That is, people who hold a rural hukou are counted as rural, even though they may live in a town, county, or city.

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY Annex 2-1 FINAL REPORT: ANNEX 2 ANNEX 2

School Fees in Development Planning Towns

Fee from students (RMB/ semester) Senior middle school in “Extra” fee Allocations from govt. Primary school Junior Middle School county from migrants For teachers’ salaries1, Mgmt Mgmt Books and (RMB/ scholarships, fee Books fee Books Boarding fee Boarding semester) infrastructure etc. Goubangzi N/A N/A 70-90 120 N/A N/A N/A 0 N/A

Xiliu ~100 ~100 ~100 ~100 N/A N/A N/A 100 1000 RMB/ student/ year Tengao 30 110 30 110 N/A N/A N/A N/A 70 RMB/ student/ year

Wutong ~70 70 ~80 80 350-450 800 600 200 1000 RMB/ teacher/ month (per 20 students) Gutao 66 65 80 80 N/A 800 N/A 200 50-70 RMB/ student/ year Yangqu 41 35 58 70 N/A N/A N/A 100-500 unknown

N/A = Not Available

1 Teacher salaries in primary and junior middle schools are approximately 1,000 RMB/month. PRC: TOWN-BASED URBANIZATION STRATEGY STUDY Annex 3-1 FINAL REPORT: ANNEX 3 ANNEX 3

Teng’ao Land Development Process (Non-Agricultural Land)

1. Planning—Confirm that land is designated residential in plans 2. Tender—The government urban construction department issues a tender 3. Establish the project—The developer registers the project with the county DRC 4. Permits—The developer applies for the planning permit, land construction permit, and construction engineering permit 5. Land permissions—The developer and the town apply to the Land Utilization Department of county for permissions together, and county applies for permissions to city and the province 6. Demolition and removal—Approvals from city 7. Negotiate compensation for removals—The developer negotiates prices directly with displaced households 8. Removal—Displaced households vacate property 9. Design plans—Construction designs are completed by a design company 10. Evaluation of designs—A qualified organization reviews designs 11. Bids—A construction company and inspection agency is selected by bid 12. Construction permission—The town issues construction permit 13. Sales permission—Once the apartment building construction is completed, the town issues a permit to allow sale of the units 14. Oversight and management—The town oversees the sale of the units 15. Approvals—The town government issues miscellaneous additional approvals

People’s Republic of China Town-Based Urbanization Strategy Study ADB TA 4335-PRC

Final Report Volume 2: Guidelines for Promoting Participatory Town Development

Prepared for Asian Development Bank National Development and Reform Commission

Prepared by PADCO, Washington, DC CCTRD, Beijing

August 2005

PLANNING AND DEVELOPMENT COLLABORATIVE INTERNATIONAL

Setting the Standard for Our Industry®

Table of Contents Volume 2

Section 1: Introduction...... 1

Section 2: Town Planning in a Provincial and Sub-Regional Context...... 3 2.1 Incorporation of Local Governments ...... 3 2.2 Local Government Capacity Building ...... 5 2.3 Evaluation of Growth Potential and Designation of Key Towns ...... 6 2.4 Planning the Development of Towns by Economic Function ...... 8 2.5 Developing Sub-Regional Trunk Transport Infrastructure...... 12 2.6 Provision of Block Grant Subsidies to Poor Towns ...... 16

Section 3: Promoting the Development of Towns ...... 19 3.1 Taking Stock of Strengths and Weaknesses...... 20 3.2 Anticipating Future Needs and Requirements...... 21 3.3 Working with Stakeholders...... 32 3.4 Maximizing Employment Opportunities ...... 36 3.5 Increasing Access to Markets ...... 41 3.6 Improving the Delivery of Environmental Services...... 45 3.7 Promoting Innovative Housing and Land Use ...... 52 3.8 Mobilizing Revenues for Financing and Implementation...... 60 3.9 Action Planning ...... 67 3.10 Investment Promotion...... 70 3.11 Monitoring, Evaluation, and Feedback...... 71

Appendices

A Enabling Legislation for Incorporation of Local Governments B Model City Charter C Enterprise Survey Questionnaire D Shelter Needs Assessment Model E Broker Survey Questionnaire F Details of Measuring Traffic Volumes, Capacity, and Projecting Future Growth in Traffic G Gutao Design Guidelines

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY 1 GUIDELINES: INTRODUCTION

1 Introduction

These Guidelines for Promoting Participatory Town Development (the Guidelines) were prepared under the Asian Development Bank-financed “Town-Based Urbanization Strategy Study” and constitute Volume 2 of the final report of the study.

The Guidelines are intended for use by local government and provincial government officials engaged in enabling the development of towns in the People’s Republic of China (PRC). The objective of the document is to provide town managers and their counterparts at the provincial level with step-by-step guidelines for building development partnerships, promoting economic growth, generating employment, managing land use, and facilitating the production of housing, urban infrastructure and social services for the local population.

The Guidelines relate closely to other volumes of the final report. While Volume 1 (Main Report) sets out the national and provincial policies for enabling town development, the Guidelines explain in detail how provincial and local government actors can implement those policies. The Guidelines introduce a number of new analytical tools and implementation mechanisms, for which actual case studies are presented in Volume 3, Best Practices. Section 3 of the Guidelines is structured to reflect the process of preparing a strategic town development plan. Examples of outline strategic plans for three towns in Shanxi and Liaoning Provinces are included in Volume 4, Development Proposals for Demonstration Towns.

Section 2 below presents guidelines for provincial officials engaged in the development of towns and sub-regions. Section 3 presents guidelines for local government officials involved in the preparation and implementation of development plans and other initiatives related to employment generation and the provision of housing, infrastructure and social services. Questionnaires and templates from selected analytical tools are attached as appendices.

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY 3 GUIDELINES: TOWN PLANNING IN A PROVINCIAL AND SUB-REGIONAL CONTEXT

2 Town Planning in a Provincial and Sub-Regional Context

The roles and responsibilities of the province as creator and manager of the town development system are set out in Volume 1 of this report. The “how-to” guidelines in this section explain in greater detail how provincial authorities should carry out selected critical tasks: • Incorporation of local governments • Local government capacity building • Evaluation of growth potential and designation of key towns • Planning the development of towns by economic function • Developing sub-regional trunk transport infrastructure • Provision of block grant subsidies to poor towns • Monitoring, evaluation, and feedback

2.1 Incorporation of Local Governments

As discussed in Volume 1, Section 4, provinces should incorporate local governments, thereby giving them a solid legal foundation for fulfilling their delegated public functions before the citizens and the state. This process will result in stronger, more capable local governments that can deliver the services needed to support urbanization and economic development. Incorporation of towns (LGs) also provides an opportunity to rationalize and streamline the local government sector, an ongoing trend that manifests itself today in consolidation of towns and townships.

It is recommended that provincial authorities: • incorporate all cities; • incorporate all counties; and • incorporate only large towns and towns with high economic growth and employment generation potential.

Step 1. Prepare and pass enabling legislation

Establish a legal framework at the level of the province for incorporation of local governments (see model legislation in Appendix A). The legislation should define all responsibilities and authorities that can be delegated to local governments. These can vary by type of local government; for example, cities may have greater revenue generating authority than towns. It is not necessarily the case that all “town authorities” listed in the legislation will be delegated to all towns; the institutional capacity of the towns will also be taken into account, and specific responsibilities and authorities will be defined in the LG’s home rule charter (see below).

Step 2. Identify high-growth towns

The process for evaluating the growth potential of towns is described in Section 2.3 below. Provincial authorities will use the findings of the analysis—in particular, a ranking of all towns in the province by economic growth and employment generation potential—to identify the towns that should be incorporated.

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY 4 GUIDELINES: TOWN PLANNING IN A PROVINCIAL AND SUB-REGIONAL CONTEXT

Criteria for incorporation should be defined by the province. Sample criteria include: • population size (for example, minimum of 5,000 in the built-up area of the town) • economic growth and employment generation potential

Growth potential is largely determined by location, access to markets, and access to natural resources, as discussed in Section 2.3. Therefore, some amount of sub-regional development potential analysis should also be carried out.

Identify functional economic areas, including metropolitan areas, and consider incorporating only one local government that will administer the entire area. Where there is currently one city surrounded by many towns with strong economic linkages to the center, the entire area could be incorporated into one large city. This “metropolitanization” of distinct local governments creates the opportunity for more rational, integrated urban development planning and infrastructure provision.

Step 3. Incorporate the cities, counties, and selected towns

Candidate local governments prepare draft home rule charters within the parameters defined by the provincial enabling legislation. The home rule charter stipulates the responsibilities and authorities of the local government before its citizens, the province and the state (see Appendix B for model home rule charter). The provincial government reviews and approves the charter, thereby incorporating the local government.

The question arises: what functions should be included in the home rule charter? The answer depends on the policy aims of the province and the capacity of the local government. A provisional answer is provided in the enabling legislation, which identifies all possible authorities and responsibilities that can be delegated to an LG of a given type (town, county, city). However, different towns will require different solutions. The principles that provincial government should consider when reviewing proposed home rule charters are: • Grant authority only for functions that correspond to public purpose • When devolving responsibility for a particular function or service, ensure that corresponding authorities are sufficient • Devolved functions must be commensurate with the capacity of the local government. The province should devolve only those functions that the LG is capable of carrying out. With respect to revenue generating authority of towns, consider delegating authority to set service fees and levy property taxes first; later, consider authority to incur debt.

Step 4. Dissolve the remaining towns and townships

Towns that were not selected for incorporation, as well as all townships, could be dissolved. Responsibility for administering their jurisdiction would be absorbed by the county in which the town and township was located. Some of the highest-qualified staff of the town and township governments can join the county government, thereby strengthening it.

The end result of the incorporation should be a smaller number of more capable local governments.

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2.2 Local Government Capacity Building

As discussed in Volume 1, Section 4, provincial governments should create and operate a province-wide training system for local government officials. Training materials should be provided by national government, but can be modified by provincial government to suit local needs. A training needs assessment can be carried out at the provincial level by consultants or a research institute for this purpose.

Step 1. Identify a core training staff

PDRC the provincial government entity responsible for local government training should first identify and hire a core staff of future trainers. Candidates should have experience in local government, service delivery, municipal finance, and other related fields. Experience in training is also desirable, but nor required.

Step 2. Train the trainers

Train the trainers as part of a national training-of-trainers program. Training should take place in Beijing. Participants should come from all over the PRC. Trainers should learn how to deliver the training modules prepared by NDRC. This includes gaining knowledge and skills in the subject area, as well as acquiring skills in training as a discipline.

Figure 2.1: Building Local Government Capacity through Training

Step 3. Create a provincial network of training centers

Training centers should be located in each prefecture, or perhaps one for every 2-3 prefectures. At each training center, provincial government should identify and procure training space, fit out the space with computer equipment and furniture, and establish a small secretariat.

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Step 4. Deliver training

Implement annual training programs for existing practitioners of local governments. Office and departments heads and key staff should attend 1-3 weeks of training per year in the training centers. Feedback from the participants should be used to update the training program and the training materials over time.

2.3 Evaluation of Growth Potential and Designation of Key Towns

Provincial governments should systematically evaluate the economic and employment growth potential of towns and based on the results, designate key towns into which public and private investment will be channeled.

While this analysis is undertaken at the level of the individual town, it will also be necessary to evaluate the development potential of certain sub-regions (see Section 4.3 below) in order to understand their impact on economic growth in towns. Generally, it is preferable to analyze and plan the development of the sub-region first, then evaluate the growth potential of individual towns.

The analysis can be carried out by the provincial government or PDRC, or by a designated contractor such as a research institute or consulting firm.

Step 1. Definition of Selection Criteria

The sole criterion for selecting key towns should be their potential to generate employment.

This is in turn dependent on investment in creation or expansion of enterprises in industry and/or services. In general, the main factors contributing to potential to attract investment and generate employment in towns are: • location near or within cities, metropolitan areas and sub-regions • location along major transportation routes • natural resource base of town and hinterland • quality of regional food products to which value can be added • current and potential labor pool of town

The criteria of population, regional distribution and functional distribution should not be employed to select key towns.

Step 2. Data Collection

Collect the following data on every town in the province. Tabulate the data and calculate an overall score for the town.

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Factor Data Location Distance from town center to nearest highway No. of highways that pass through town administrative area (zhen yu) Distance from town center to nearest expressway Distance to nearest city >250,000 population Number of cities >250,000 population within 50 kilometer radius Natural Resources Total reserve of mineral resources within 50 km radius Total value of annual agricultural production within 50 km radius Quality of agricultural land and farm products within 50 km radius Quality of fish/seafood in adjacent water bodies Labor Skill level of workforce living in zhen qu Skill level of workforce living elsewhere in zhen yu Skill level of workforce in surrounding towns and townships Capital No. of major investors living in the town No. of major investors living in cities within 25 km radius Total amount of capital investment in productive facilities in the town in each of the past three years Level of savings in the town Infrastructure Spare capacity in electrical power system Spare capacity in water supply system Availability of land for industrial and service development Total investment in infrastructure per capital by the town government in each of the past three years

Step 3. Evaluation and Ranking of Towns

Take into account qualitative factors influencing the growth potential of the towns such as political leadership, technical and management capacity, reputation among enterprises or in certain market segments, level of interest in the town on the part of investors, etc.

Combine the results of the quantitative and qualitative analysis into an overall score for each towns. Rank all of the towns from the highest to the lowest score.

Step 4. Designation of Key Towns

Select the top 15 to 25 towns on the list as key towns. The number of towns selected should depend on: • The trend in employment generation potential—as you go down the list, the cut-off point should be where the total score drops off sharply. • The total amount of development resources available to the provincial agencies and the marginal benefit of additional resources. For some types of towns, a little bit of public sector investment can generate a lot of private sector investment and new jobs. In other towns, a more significant amount of public funding is necessary to

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make a difference. The amount of provincial level of assistance per town must take these factors into account.

Generally, the provincial government should try in the future to select a smaller number of key towns than it currently has, and increase the amount of development assistance to each in order the maximize the impact of public funding. This is consistent with the “maximum economic return” approach to selecting key towns and assisting them to develop.

2.4 Planning the Development of Towns by Economic Function

As discussed in Volume 1, the most effective geographic level at which to plan economic development in towns is at the sub-regional level. The province and/or the prefecture should take the lead role in formulating proposals and implementing development initiatives for agro-processing areas, tourism zones and manufacturing clusters (see Section 4.3 of Volume 1).

This does not mean that PDRC or Provincial Government should divide the entire province up into a certain number of zones, with strategy for each zones. Sub-regional strategies should be developed and implemented for sub-regions with well-defined economic function (see for example the tourism zones from Pingyao to Taiyuan in Shanxi Province, or the Liaoyang-Yingkou Industrial Corridor in Liaoning Province.) These areas will generally represent well under half of the total area of a province. In other parts of province, the geographic focus of development efforts should be the town or city.

This section sets out strategies for developing different types of towns: manufacturing towns, food processing towns, mineral resource-based towns, tourism towns and market towns.

The first task is the classification of towns. Provincial governments should design their own classification systems by defining criteria and then classifying the towns in the province into the different categories. The categories, and therefore the criteria, will vary from province to province depending on the economic base. The following criteria can be used to classify towns in Liaoning and Shanxi Province, for example, into the five categories of towns above: • economic base of town or sub-region • agricultural products grown in sub-region • mineral resources in town or sub-region • access to trunk transportation infrastructure • access to nearby cities with which economic ties can be developed • existence of historical or architectural assets in town or sub-region

There is no overall quantitative formula for classifying a town. Rather, PDRC should collect data on these five criteria and then use judgement in determining what the main economic function of the town is or will be in the future. Towns that have two main functions can be classified by their dominant function. At any rate, the specific development strategy of such towns will have to include elements of the strategies for both types of town.

Note that the classification of Town X as a “manufacturing town” maybe more a statement of a goal, rather than a statement of fact; if the town has good access to trunk transportation or is located near a city with which forward manufacturing linkages can be developed, for example, than such a town may be classified as a manufacturing town. This signals the

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town’s and province’s intention to develop manufacturing as the main pillar of the town’s economy.

Note that “poverty town” is not defined here as a category. Poverty is not a vocation. Rather, it is a condition that should be addressed through investment promotion, employment generation and other initiatives. Some towns in the five categories defined here are poorer than others. But the strategy for a poor market town is not the same as that for a poor food processing town. Strategies are developed by function, not income. However, poor towns do require special assistance, as described in Section 2.5 below.

Once towns in a given province have been classified, the question arises, “How should the economy of these towns be developed?” Strategies should be tailored to economic function. Summary strategies for developing each of the five types of towns obtaining in Shanxi and Liaoning Provinces are as follows. Some cross-cutting issues are discussed at the end of the section.

Manufacturing Towns • Ensure adequate supply of serviced industrial land. Project future demand and produce serviced plots for industrial use in keeping with projections. Use enterprise surveys (see Section 3.2 below) to collect information on firms’ plans for investment in the town. • Develop transportation links to markets: build/upgrade roads from production areas to highways and expressways or to neighboring towns and cities where locally produced goods are sold. Where such roads are located partially outside the town boundary, work with county or prefecture governments to have them build the roads. • Develop backward and forward economic linkages. Use input-output analysis and market studies to identify opportunities for linkages with industries in neighboring cities and towns. Give priority to industries with high growth potential when allocating economic development resources such as industrial land, business support services and fiscal incentives. • Locate industrial parks or zones (i) along the road from input areas to markets, and (ii) away from and downwind of residential areas. • Invest in adequate wastewater treatment facilities to ensure environmentally sustainable development. Locate manufacturers in clusters (either in industrial parks or simply in the same area(s) of the town) in order to facilitate investment in wastewater treatment. • “Piggy-back” investments in domestic wastewater treatment onto investments in industrial wastewater treatment. In many manufacturing towns, industries will produce the greatest amount of wastewater or the highest-polluting wastewater. In designing and building a plant for the industrial park, it will therefore be cost effective to increase its capacity somewhat in order to receive domestic, commercial and industrial wastewater also.

Food Processing Towns • Build partnerships with producers of agricultural, fish or other food products. Create a “Food Products Promotion Commission” chaired by the town mayor and with participation from heads of agro-processing firms and producers of food products. Develop proposals (see below) to meet the needs of all three parties in an effort to increase the quantity and quality of food products processed in the town.

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• Ensure the provision of adequate warehousing and cold storage facilities in the town. Consider storage needs when developing transportation proposals. • Reinforce transportation links to farming areas and to markets. Invest in feeder roads to reduce the cost of bringing agricultural products to the production centers. Invest in prefectural or provincial roads to improve connections from town to highways and expressways, thereby reducing the cost and time of shipping finished products to markets. • Streamline town government regulatory procedures for licensing and infrastructure service provision for agro-processing firms. • Ensure adequate supply of serviced land for agro-processing. Project future demand and produce serviced in keeping with projections. Use enterprise surveys (see below) to collect information on firms’ plans. • Cluster agro-processors in one area of town or in an industrial park to minimize any negative impact on residential areas and to make the provision of environmental infrastructure more efficient. • Develop a wastewater treatment plant using appropriate treatment processing such as composting and anaerobic digestion. Size the plant to be able to receive agro- processing industrial waste and domestic and other wastewater produced by the town.

Mineral Resource-Based Towns • Develop mineral resource processing industries in clusters in order to effectively implement environmental protection measures. Require enterprises to locate their plants in industrial parks. • Define and enforce area-wide standards for air pollution for the whole industrial park. When standards are not met, require all industries in the park to take joint action to meet standards. Peer monitoring will help to limit pollution through installation of clean technology and better operating procedures. • Develop wastewater treatment plants in the mineral processing zone. Require financial participation in the form of tariffs or connection fees from all enterprises in the zone. “Piggy back” residential and other user wastewater treatment onto industrial wastewater treatment. • Develop a sanitary landfill to serve the needs of the enterprises in the industrial park and the general population.

Tourism Towns • Work with other towns and cities with significant tourism assets to jointly promote tourism in the sub-region (see Volume 1, Section 4). • Build partnerships with the private sector in tourism development and related service provision: ! co-study market demands with large travel agencies, ! guide the private sector, manly the small-and-medium sized enterprises (SMEs) in providing appropriate services for tourists based on market surveys, ! set favorable conditions, e.g., tax holidays, for individuals and small-and-medium sized enterprises in the initial stage of tourism development,

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! streamline regulatory procedures for licensing and operation of SMEs; ! encourage private sector investment in public facilities, e.g., in-town road construction, solid waste and wastewater collection and treatment, and restoration of ancient architecture, through measures including tax breaks, user fees and matching public investment funds. • Rehabilitate tourism assets and build required transportation infrastructure in collaboration with upper level governments and private sector. • Improve the attractiveness of the area around the sites and the town as a whole by: ! developing and enforcing urban design guidelines, ! improve sanitation conditions including street cleaning, solid waste management and wastewater collection and treatment, ! improve hygiene conditions including food safety and hotel cleaning, ! beautify selected mixed-use walking/shopping streets, ! ensure public security. • Corporatize “tourism site” management. • Market the tourism assets in cooperation with other towns and cities in the sub- region. • Evaluate the performance of tourism development in meeting the employment and growth targets and make improvement policies.

Market Towns • Adopt a customer-oriented approach to providing services to surrounding agricultural areas. Collect information on preferences and priorities of users of services and trade facilities in the town and take them into account in planning future improvements. • Systematize the delivery of commercial facilities such as markets. Study the market for commercial facilities, project future demand, and plan and program facility construction/expansion in keeping with projection. • Plan and program roads investments and public transit improvements in keeping with market study findings on the possibility of accessing new markets farther from the built-up area of the town or capturing a larger share of existing markets through better access. • Facilitate the emergence of SMEs by: ! Streamlining procedures for firm licensing and operation, ! Providing business support services in administration, accounting, sales and marketing.

Some elements of the strategies for town development are cross-cutting, and do not vary significantly by economic functions: • Housing: Provision of housing at affordable prices is critical for fast growing towns. Towns should facilitate the production of rental or for-sale housing to migrants at affordable prices. This will help ensure adequate supply of migrants and minimize upward pressure on wages.

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• Social services and benefits: Towns should try to offer social services and benefits that are better than those in rural areas and at the same level as those offered in cities. This will remove one of the incentives to migrate to cities rather than to towns.

2.5 Developing Sub-Regional Trunk Transport Infrastructure

Volume 1, Section 4 proposes that provincial authorities take the lead in developing sub- regions that have a specific economic function and character. One of the most critical provincial inputs to this process is the provision of trunk infrastructure. This section sets out guidelines for developing trunk infrastructure for manufacturing clusters, agro-processing areas and tourism zones.

Manufacturing Clusters

The optimal arrangement of transportation serving towns includes consideration of both trunk infrastructure and land-use. Manufacturers and transportation planners should work together to align trunk infrastructure on the most direct path to market. Then land use planners should site industry on the outskirts of the built-up area, so as to have more immediate access to the trunk infrastructure. This reduces congestion arising from other trip purposes within the town, and limits industry traffic’s interference with town traffic.

If one form of trunk infrastructure (e.g., rail) is already well developed in the town, and manufacturing industry can take advantage of an additional mode (e.g., highway), the province should align the new infrastructure and specify land use so that industry has maximum access to both modes:

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If it is not possible to relocate industry on the outskirts of town closest to the market, a bypass highway is an option that will relieve congestion in the center:

If the town has two industries, then it likely serves two different markets. In this case, the process is the same as the original prescription, but with two trunk infrastructure links. The industry location should be along the appropriate route to market.

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If there are two major markets for one product, provincial and town planners should develop two trunk routes, with a link between the two.

Although the illustration suggests that trunk infrastructure is one single route that leads directly to the market, more often the trunk infrastructure link will simply be a short highway connecting the town to a higher-capacity long-distance highway or expressway. In either case, the provision of trunk infrastructure and land use implications are the same.

Agro-Processing Areas

A town that processes agricultural goods has different needs from those of manufacturing clusters or tourism towns. Provincial, city, county and town planners should develop good feeder roads to bring agricultural inputs from nearby farms into town; and trunk highways linking to those feeder roads to the agro-processing factories, and the production centers to markets.

Perishable goods are normally shipped by truck. This allows individual farms, or groups of farms, to ship goods to an agricultural marketing center with minimal delay. It is not cost- effective to build highways between several villages and the agro-processing town. But rural feeder roads should be in good condition, allowing reasonably fast, low-cost transportation of food products to processing centers. Processing centers should be well-linked to markets. Transport planners should consider the following: • Rural roads in good condition should link production areas to trunk road • Processing center should be located on trunk road • Trunk road should link processing center to market.

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As agro-processing towns grow, they will require more inputs from farms further away from the processing center. Provincial and town planners should ensure timely extension of trunk infrastructure and feeder roads to additional towns and production areas.

Tourism Zones

A tourism zone should have sufficient capacity to accommodate traffic on peak visitor days (moon festival, spring festival, may-day festivals, and of course weekend, when most tourists visit the town). This requires both trunk infrastructure and good arterial roads. Planners at the county and town levels should develop arterials linking tourist sites to expressways and rail lines conveying visitors from distant locations.

Towns also need redundant road and parking capacity. A redundant road network will provide release valves permitting traffic to move from one highly congested point to links that are operating below capacity.

Town planners should also give high priority to parking lots. If buses cannot find adequate parking and are forced to stop on the shoulder for extended periods, tourism will be harmed. Several parking spaces located at different sites throughout the road network are necessary. Public transport links between the parking lots and the main attraction are a complimentary service tourists will enjoy. (Gutao already provides electric bus service between parking lots and the rail station into the walled city.) An alternative is to have a few large “drop-off” points

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near the main attraction from which visitors will disembark and embark; and buses will go to distant parking lots while tourists enjoy the city.

2.6 Provision of Block Grant Subsidies to Poor Towns

Provincial governments should allocate development subsidies to the poorest towns in the province. The objective of these transfers is to distribute development opportunities more equitably across towns in the province. Towns meeting the criteria can apply for block grants that provide matching funds for specific economic development projects.

Step 1. Define eligibility criteria for towns and projects

The sole criteria for applying for the subsidy should be the average per capita income of the town population (including population with hukou and migrants). The income threshold could be set at the level of the 20th percentile of all towns in the province, for example. Towns under the 20th percentile would be eligible to apply for block grants.

The criteria for the projects to be financed through the block grant should be: • job creation ratio: number of jobs created per public Yuan invested • private sector leveraging ratio: total private sector investment as a result of the public investment over the amount of the public sector investment • matching funds ratio: LG government funding over PDRC funding. LG should have to cover 25% of cost of project; if they cover 50% or more, their application should be scored higher.

Towns should be encouraged to identify projects in labor-intensive economic sectors in order to maximize job creation.

Step 2. Publicize subsidy program and call for applications

The subsidy program should be demand-driven. Towns meeting the eligibility criteria can apply for subsidies. To drum up interest, PDRC should publicize the new program through public-sector channels and other media. Local governments should be encouraged to work with other stakeholders, including private businesses, to define the proposed projects. By defining “private sector leveraging ratio” as a project selection criterion, provincial government in effect requires private sector participation in the formulation of the project. Specific investment commitments by private firms should be specified in writing and included in the application.

Step 3. Review applications and award block grants

PDRC should review and evaluate the applications by the criteria. Quantitative scores of each application should be communicated to the local governments and posted in the public domain, to ensure transparency. Grants should be awarded to winning towns on a one-time basis.

2.7 Monitoring, Evaluation, and Feedback

As described in Section 4 of Volume 1, PDRC should create and operate a province-wide monitoring and evaluation system. The indicators for the system should be first agreed at the

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national level (by NDRC) in order to ensure comparability of results across provinces. A draft set of indicators is set out below. Once the set is finalized, NDRC should develop 1-page guidelines for the calculation of each indicator. The guidelines will identify the data requirements, the sources for such data, and the method for calculating the final value of the indicator.

The guidelines will be incorporated into an annual LG survey in each province. PDRC will send out the survey questionnaire and the guidelines to all participating local governments. It is recommended that the survey be carried out not in all local governments (sub-provincial administrative entities), but rather in all cities, counties and towns in the province. The LGs will be given one month to complete the survey and return the completed questionnaire to PDRC. PDRC will then check the data, correct any discrepancies through communication with LGs, enter the cleaned data into a spreadsheet, and tabulate and analyze the results. The province-wide “Local Government Sector Performance Report” will be a 10-page document which summarizes the achievements and shortcomings of local governments in the province during the year in question. The effectiveness of provincial-level measures to support LG development will also be evaluated.

PDRC should use the report to increase awareness of LG sector performance. The report should be distributed to all participating LGs, provincial agencies engaged in LG development, and NDRC. PDRC should organize and chair a meeting of the provincial level agencies, with participation by a few representative local governments, at which the report findings are presented and discussed. Participants should reconsider current policy and measures for promoting LG development in light of the reported performance of the sector. Which measures are producing good results? Which ones are not and why? Based on the results of this discussion, PDRC and partner agencies should revise their policies and implementation measures so that they are more effective in promoting local government development. This feedback is the ultimate purpose of the M&E system: to make changes that will ultimately improve the performance of local governments in the province.

This analysis and policy revision process should then be repeated at the national level under the auspices of NDRC. The results of the analysis should inform changes to national policy and implementation measures on local government development in PRC.

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3 Promoting the Development of Towns

As discussed in Section 2, strategies for town development will vary by economic function. However, the process of working with stakeholders to identify, prepare and implement development proposals is similar across types of towns. This section sets out a set of general guidelines for promoting town development.

The focus here is on developing a specific town. The guidelines provide a step-by-step approach to analyzing the development potential of a town; building partnerships with stakeholders; and formulating and implementing specific development proposals.

The underlying assumption of the guidelines is that the town seeks to grow. Consistent with the national government’s policy of promoting the growth of towns in order to narrow the rural-urban income gap, it is assumed that the town will have among its development objectives: • increased investment • job creation • attraction of rural migrants to work in the town • urban development: creation of housing, commercial areas, institutional facilities, and urban infrastructure and services to support the new/expanded businesses and the growing population.

Within these overall goal, the specific objectives of the town—such as which economic sectors to target, how much growth, and what type of urban development—should be established by the town government working hand-in-hand with stakeholders such as the local community, business leaders and civil society organizations.

The guidelines include sections on evaluating existing conditions and trends, working with stakeholders, maximizing employment, increasing access to markets, provision or urban environmental services, housing and land use, and municipal finance. Concluding sections focus on action planning, investment promotion, and monitoring and evaluation. The organization of the sections essentially mirrors the process of preparing a strategic plan, and the Guidelines can be used sequentially, on a section-by-section basis, to prepare a strategic plan for the development of a given town. However, each section focuses not only on planning, but on implementation. And a practitioner in a given area (for example, road development) can refer only to the section that deals with that topic (Section 3.5, Increasing Access to Markets) for guidance on how to plan and program roads improvements or create multi-modal centers.

The Guidelines are intended, therefore, to be used either as a whole or in parts. Sections 3.1, 3.2, 3.3 and 3.9 are more closely focused on the participatory, integrated strategic planning process, while Sections 3.4 through 3.8 and Section 3.10 are intended to provide stand-along recommendations and guidance for practitioners in those sectors.

The planning process can be carried out by town leaders and managers with assistance from consultants or research institutes, as required. The town government should first create a strategic planning committee chaired by the Mayor and including heads of the main town offices: Economic Development and Trade, Construction, Sanitation and Environment, Social Affairs, Finance, etc. The planning committee will do preliminary analysis of the

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development context, build partnerships with stakeholders and ensure their input, delegate tasks to different departments, and lead the preparation of the Action Plan.

3.1 Taking Stock of Strengths and Weaknesses

The town government should first take stock of the town’s existing strengths and weaknesses by carrying out a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats). The SWOT analysis will (i) give the town managers a preliminary understanding of the development potential of the town, (ii) serve to develop some assumptions for the strategic planning process, and (iii) focus the planning process on realistic and feasible development proposals.

The strategic planning committee will convene a “brainstorming” session in which members will work together to rapidly identify the strengths, weaknesses, opportunities and threats related to the development of the town, as described below.

Town Strengths: • Natural resources • Location near an expressway, national highway or port • Location near a major city or in a major industrial sub-region • Location in highly productive agricultural area • Historical or architectural assets • Connections with major actors in different economic sectors • Capacity of town government to enable growth by attracting investment, building infrastructure, facilitating housing construction, etc.

Town Weaknesses: • Far from transport infrastructure and markets • Absence of significant natural resources • Lack of experience with investment promotion • Lack of housing and services for migrants • Low town government capacity to enable growth

Opportunities for Future Development: • Adding value to local natural resources • Expanding market share or developing new markets for existing products • Developing backward or forward linkages with products and services produced in the town or in neighboring towns and cities • Assuming specific economic role within metropolitan area or industrial sub-region

Threats to Future Development: • Environmentally unsustainable development: pollution undermines production quality and/or quality of life for local residents

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• Lack of financing • Provincial Government targets a different sub-region for accelerated development • Lack of opportunities for institutional development in order to improve town government capacity to lead the development process

The result of the SWOT analysis should be a 2-3 page bulleted list, with a short explanation of each bullet item. (For examples, see the SWOT analyses of towns in Liaoning and Shanxi Provinces presented in Sections 2.7 and 3.7 of the Interim Report).

3.2 Anticipating Future Needs and Requirements

Next the town government should deepen its understanding of the development context by evaluating future needs for urban land, housing, infrastructure and services. This analytical phase of the work will help to refine the assumptions made during the SWOT analysis above. The conclusions of the needs analysis and the SWOT analysis will be presented to stakeholders in Section 3.3 below in order to get their input into the planning process. The main analyses and their objectives are outlined in the table below.

Table 3.1: Tasks and Tools for Evaluating Future Needs and Requirements Tasks/Tool Objective Enterprise Survey To evaluate the performance of the town government in facilitating local economic development and to assess the needs of local firms with respect to future investment Employment and Population To project the future population and employment levels Projections of the town Shelter Needs Model To project future requirements for housing for permanent and migrant population by type of housing unit and by income group Rapid Land and Infrastructure To project future requirements for industrial, Assessment commercial and residential land associated infrastructure and services

Enterprise Survey

Town governments are responsible for enabling investment and generating employment. The main vehicle for both activities in the future will be private sector investment in factories and other productive facilities. But what exactly to the private firms need in order to invest in the town? What would make them invest in this town and not in another one? What are their specific preferences and priorities with respect to land, infrastructure, labor, administrative support, etc.? In order to get answers to these questions, which in turn will allow the town to make more targeted and efficient investments in support of development, the town government should interview local firms using a standard questionnaire in order to collect primary data from the firms on these issues.

The Enterprise Survey questionnaire (see example in Appendix C) includes sections on: • ownership structure of firm and type of business activity • output and employment levels over the past three years

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• firm’s evaluation of the services provided by the town • priority factors influencing future expansion of the firm in the town and concrete plans for expansion • institutional environment for business in the town • any financial and other incentives the firm received to locate in the town

The town government should hire a third party to carry out the firm. When interviewed directly by town officials, firm representatives may not be candid about their evaluation of the town’s performance with respect to infrastructure service delivery, business support services, etc.

The implementer of the survey should develop a small, representative sample that includes large and small firms and enterprises from the key economic sectors—those that underpin the town economy today and those that are poised to grow in the future.

The results of the surveys should be entered into a Microsoft Excel spreadsheet and statistically analyzed. At the least, the maximum, minimum, mean and median values for each variable should be calculated and tabulated. The results should then be distributed to the members of the planning committee for discussion. In addition, the head of the Economic Development and Trade Office should summarize the main findings of the survey in bullet form and draw preliminary conclusions about the implications for future investment plans of the towns.

Employment and Population Projections

It is important to prepare population Using the Results of the Enterprise Survey: projects accurately because they will large Example Scenarios determine the requirements for land, • If firms say that local roads are poor and that housing, infrastructure and social services improving local roads is a priority, prepare a that the town government must provide or roads improvement project. ensure the provision of. As described in • If firms complain that local government is Volume 4, current methods for projecting unresponsive, train staff to make they more population for Master Plans are too service-oriented. rudimentary and do not provide sufficiently • If firms require land for expansion and supply accurate data for planning purposes. is short, prepare a land development project.

Towns with different development dynamics should employ different population projection techniques. Towns that are growing fairly slowly (<5% per year) should use a standard age cohort method for population growth. Towns that are growing faster 5% or higher annually should estimate future employment, and then convert jobs into total population figures.

Age Cohort Method

This is the international standard for projecting future population of an urban settlement. As the calculation is fairly sophisticated, it is recommended that the town government contract out the analysis to a consulting firm or research institute. In summary form, the method is as follows:

1. Determine the period of the analysis. The base year should be the last year for which census figures are available.

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2. Divide the population up into age cohorts of 5 years each (e.g., 0-5 years old, 6-10 years old, etc.). (This may have been done already in the census.) 3. Enter the population of each age cohort into a spreadsheet. 4. Calculate the rate of increase or decrease of each age cohort by comparing the population at the time of the last census to the population at the time of the census before that. 5. Project growth rates (positive or negative) for each age cohort into the future, taking into account historical growth rates, current rates of in-migration, any major ongoing or planned investments that are likely to generate additional in-migration, and other factors. 6. Sum the future population of each age cohort into a total town population by year.

Employment Growth Method

This method is more appropriate for fast-growing Chinese towns, where the development situation is in great flux and the past patterns of population growth have little bearing on future population levels. In those towns, the major determinant of future population will be the amount of investment in productive facilities like factories, the number of new jobs created, the number of migrants that come work in the town, and whether or not they bring their families. The Employment Growth Method for population projection takes into account all of these variables in evaluating future population growth.

This calculation of population using this method is less complicated than in the age cohort method and relies more on local knowledge of economic development trends. It is therefore appropriate for the town statistician or other senior analyst to carry out the projections. The work can also be contracted out to research institutes or consulting firms.

Step 1. Collect Data on Current and Future Job Creation

Enter data on growth in production and employment in primary, secondary and tertiary sectors for the last 3-5 years into a spreadsheet. Break sectoral data down by key subsectors (those that are large, growing fast, or have high growth potential). Calculate annual average percentage growth rates.

Then collect data about the future employment production in the key sub-sectors. Sources for this data include:

• Enterprise Survey, which includes plans for expansion (including number of additional employees) of individual firms; • Personal contacts with leaders of large firms in towns about future employment levels; • Official or personal contacts with planners of province, sub-region, prefecture or city level development (e.g., if sub-regional or prefectural development plan calls for promotion of agro-processing in the town and is in negotiations with two enterprises that would hire 500 people each, these data should be included); • Other sources knowledgeable about future investment and job creation in the town.

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Step 2. Project Future Employment by Sector and Sub-Sector

Then set up a separate spreadsheet table that includes rows for each sector and key sub- sector and columns for each year in the planning period (see analysis tables in Volume 4 for examples). Include a column for projected annual growth rates. Project future employment for each sub-sector by:

1. Adding in the future additional employment figures gathered in Step 1 above, and/or 2. Multiplying the employment level of a given year by the annual growth rate.

Usually it is advisable to use both methods. The actual additional employment figures collected by town officials will be the most valuable and accurate data for projecting future employment. But they will inevitably not include all future employment, as some plans will remain unknown to the officials and other plans are not yet formulated. So the analyst should project future growth through a combination of conservative projected annual average growth rates plus the figures on additional employment collected from primary sources.

Annual future growth rates can be set as: • Straight line projections from the previous period, where the development dynamics are expected to change little (in this case, use the calculated annual average percent change as the future annual growth rate); • Higher growth rates than the recent figures, if it is known or expected that investment will increase and new jobs will be created; • Lower growth rates than the recent figures, if it is known or expected that investment rates will decrease or firms will reduce their workforce or keep employment levels constant.

Setting annual future growth rates is more of an art than a science. The analyst should rely to the extent possible on detailed knowledge of the dynamics of the sub-sector, existing and planned investments, and stated intentions of key actors to invest or promote investment in the town.

Step 3. Convert Employment Projections into Population Projections

Employment projections from Step 2 above for the entire planning period are then converted to population projections based on average household size. Current household size figures should be disaggregated by hukou residents and migrant households. Then future household size figures should be set for both groups. Future household size for hukou residents can be a straightline projection—or slightly higher or lower, depending on local socioeconomic trends—from the recent figures.

Household size for migrants households, on the other hand, should be set to reflect the town’s future policy and programs for the creation of migrant housing. If the town government plans to continue an existing trend of most migrants coming to the town by themselves and living in rented rooms, then future household sizes for migrant households can be expected to be quite small. If the town plans to promote the production of rental housing for migrants in which the spouses and children will also live, then future household size should be set higher.

Divide total population by household size for the two population groups (hukou residents and migrant households) for key periods, for example, after 5 years and after 10 years. (It is not

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necessary to do the calculation for every year of the planning period). This will yield the number of new households by residency status that the town must accommodate in the future. It is now known roughly how many dwelling units must be produced in order to house the future population of the town. What type of dwelling units these households will live in, however, depends not just on demand, but on supply—the policy of the town re: housing production, the capacity of builders and developers, and the availability of land for residential use.

In a rapid evaluation of housing needs, it is possible to make assumptions about the breakdown of the future housing stock and multiply the number of new households (assumed to be equal to the number of new dwelling units) by the corresponding percentage figure. This is how the calculation was done for the outline Strategic Action Plans presented in Volume 4. If town sets a target of making 30% of all housing produced over the planning period apartments in multi-story buildings, then the number of new apartments needed is equal to:

(future number of households – current number of households) x 0.30

A similar calculation can be done for future garden apartments, terrace housing, low-rise (ping fang) housing, or any other types of housing to be produced over the period. These quantities of housing units can then be converted to residential land requirements by dividing households by gross density (households per hectare), as described in the Rapid Land and Infrastructure Assessment section below. Alternatively, planners can carry out a more accurate but time-consuming Shelter Needs Model.

Shelter Needs Model

The Shelter Needs Model is a spreadsheet tool that evaluates physical and financial requirements for housing and shelter-related services in a given town. The assessment starts with an inventory of the quantity and condition of the housing stock by type of housing. After making assumptions about what standards should be attained in the future for each type, the model then identifies the types of investments that will be needed to attain the standards and how much they will cost. Finally, the model evaluates the affordability of the investments to different income groups of the population.

The first step in the assessment is collection of basic data on housing condition and tenure, household incomes and expenditures, and availability and quality of shelter-related services. The most comprehensive and effective way to collect this information is through a household sample survey; focus groups are also a cost-effective way to supplement the survey data (see Section 3.3 below for methodology). The following data should be collected from both permanent residents and migrants, in order to provide an accurate snapshot of housing needs among the entire community: • Monthly household expenditures (list by specific expenditure, including housing and infrastructure service charges) • Monthly household income, including income from building rental • Lot size • Dwelling unit characteristics: age, size, condition, number of rooms, etc. • Tenure • Services, including water and sewer connections, electrical connections

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• Current expenditures on housing-related expenses, including fees for utilities, waste collection • Satisfaction with current housing: size, condition, location, and services and amenities.

In the same survey, the following information about housing desires and ability-to-pay should be collected: • Desired housing type (options include mid-rise apartment buildings, garden style/low- rise apartment buildings, attached housing, or detached housing) • Desired housing size ! Square meters ! Total number of rooms ! Total number of bedrooms • Ability/willingness to pay for new housing (increase in rent or mortgage) • Desired housing amenities (water, electrical, sewer) • Ability/willingness to pay for improved amenities (water, electrical, sewer)

Data should be entered into a spreadsheet, cleaned, and tabulated. Much of this data will be entered directly into the Shelter Needs Model; other data will be useful for housing developers (see conclusions of this subsection).

The four tables in the Shelter Needs Model and their function are described below. See Appendix D for example tables. The user of the model must enter data in cells in normal font; cells in bold font are calculated automatically by the model.

Table 1. Population and Household Estimates

This table starts with existing figures from the census on population and households in the town. It then allocates those data to different housing types (one per column in the table) such as villas, apartments, courtyard housing, etc. either from census data or from analysis of remote imagery and field surveys (see Rapid Land and Infrastructure Assessment below for details).

The table then projects population growth over the planning period using an annual average population growth figure, projects future average household size by housing type, and calculates the total number of households by housing type. This demand-side analysis establishes an overall target for the supply side: the assumption is that the town must ensure the provision of enough dwelling units to accommodate all new households. The data can be adjusted for anticipated levels of overcrowding, where relevant.

Table 2. Replacement, Renovation, and Upgrading of Existing Stock

The next table looks at the condition of the existing housing stock and calculates the requirements for upgrading both the building and the infrastructure that serves it. It is assumed that buildings in very poor condition will be replaced, while other buildings will be repaired. This is a safe assumption in towns where the disposable income of households and of the town government is low. Where more income is available, it is possible to assume greater levels of redevelopment of existing housing areas.

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Table 3. Housing Cost Estimates

Table 3 calculates the cost of renovating existing housing and building new housing. The user can adjust the relative amounts of renovation and new construction, including redevelopment of existing housing. The table yields total costs for producing specific quantities of dwelling units in each proposed “investment type.” Note that investment housing types are proposed, and are not necessarily the same as existing housing types shown in the other tables. The investment types should be described in a separate document.

Table 4. Affordability

Finally, the model compares the cost of the proposed housing improvements to the incomes of the end users. Income data comes from household surveys or other sources. For each group of residents of a particular housing type, the model calculates total housing finance requirements, total borrowing capacity and the total financing gap.

The model explicitly acknowledges that different segments of the population will require different housing solutions. The cost of each solution can be modified to fit the income by changing unit size, construction cost/m2, plot size, location, etc. The process is iterative: where Table 4 shows that the proposed investment type is not affordable to the target group, the cost of the unit can be lowered by changing unit size and construction cost (related to materials, land cost, etc.) in Table 3, Housing cost Estimates. The calculations should be redone until an affordable housing solution is identified for each income group. Where necessary, a subsidy can be designed to meet any residual financing gap for low-income groups.

The results of the shelter needs assessment should guide the planning of new housing areas and the design of new housing by private sector developers (as implementers) and the town government (as plan approvers). Accurate information about the housing marketplace will help prevent situations in which there is a mismatch between the cost of the available new units and buyer/renter ability-to-pay, or a mismatch between built units and size and amenity preferences of perspective users.

Rapid Land and Infrastructure Assessment

As shown in Figure 3.1 below, the Rapid Land and Infrastructure Assessment (RLIA) is a cross-sectoral set of analytical tasks that provide detailed insight into the ongoing urban development process in the town. While the land use change analysis and infrastructure and services review provide time series data on the growth of the built-up area and its infrastructure networks, the broker survey provides information on current market prices for real estate property. The physical and market data are then combined in a calculation of future development requirements and an assessment of the development potential of different parts of town.

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Figure 3.1: Tasks and Outputs of the RLIA Tasks Outputs

Land Use Change Analysis Land and Infrastructure Requirements Population Projections

Development Potential Infrastructure and Assessment Services Review

Broker Property Survey Market Profile

Land Use Change Analysis

Current land use patterns are compared to previous ones, and changes over time analyzed quantitatively to gain a deeper understanding of the ongoing development dynamics.

Step 1. Acquire Remote Images

The town government or implementer of the RLIA should procure remote images—either satellite images or aerial photographs—of the town for a recent year and a previous year, usually 5-10 years ago.

Step 2. Create a GIS

The images should be imported into a Geographic Information System (GIS) and geo- rectified using ground truthing (take measurements in 5-6 places around the town with a portable GPS [geo-positioning system] device). ESRI ArcInfo is appropriate software to use for creation of the GIS.

Step 3. Define Land Use Classification and Draw Land Use Maps by Hand

One land use classification should be developed for both periods. See example land use classification in Volume 4.

Lay tracing paper over the remote images and draw polygons around the different land use areas. Each land use (e.g., commercial) can be made up of many different polygons in different parts of the towns.

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Step 4. Digitize Land Use Maps

Digitize the hand-drawn land use maps into the GIS. Print out a set of draft maps with the remote image gray-scaled in the background.

Step 5. Field Check Land Use Maps

Take the draft land use maps for the current period into the field and field check the use of selected polygons in order to correct mistakes and improve accuracy.

Step 6. Calculate and Tabulate Land Use Change

Using the GIS, generate a table showing the total area by land use type for the previous period and the current period (uses in rows and years in columns; see table in Volume 4 under Goubangzi). Calculate the total area of change over the period for each land use. Calculate the average annual rate of change over the period for each land use.

Infrastructure and Services Review

This task is a rapid assessment of the technical conditions and trends in the major urban infrastructure and services sectors: roads, storm water drainage, water supply, wastewater collection and treatment, solid waste management, electrical power supply and central heating. For each sector, the review will identify and describe the current facilities and analysis service levels and coverage, including identification of any unserved or underserved areas.

Step 1. Collect Existing Data and Maps of the Networks

Collect existing data on coverage and service level for each type of service. Procure copies of any existing maps showing networks and location of other facilities.

Step 2. Prepare Time Series Maps of System Development

Using the GIS, prepare a map that represents the existing network and facilities for each type of service today. Prepare another map that represents the existing network and facilities for the previous period (for which a remote image was procured), if it will illustrate a substantial change in the network. Then prepare maps for each infrastructure service showing coverage or service levels today, if there are currently substantial differences among services in different neighborhoods (if for example some parts of town receive solid waste collection on a house-to-house basis, while others have neighborhood skips).

Step 3. Tabulate Data by Neighborhood

Tabulate the available data on coverage, service, facility capacity, etc. by neighborhood of the built-up area and where possible by land use so that the land use information and the infrastructure data can be overlaid later in the analysis. This will be important for evaluating the development potential of different areas of town.

Step 4. Identify Supply Constraints and/or Service Delivery Bottlenecks

Identify any sectors and/or areas of town where there are significant supply constraints (such as not enough drinking water available to support residential development, or inadequate

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electrical power supply to support industrial development.) Identify the reasons for the supply constraints and any other service delivery bottlenecks.

Broker Survey

To complement the physical information collected in the two previous tasks, the Broker Survey collects up-to-date, accurate data on prices for different real estate products in the town. Given the state of the property markets in Chinese towns today, the most important data will be sale price of buildings on state land. Data can also be gathered on any informal transactions of buildings on collective land.

For a more detailed discussion of the Broker Survey and its role in property market assessment, see David Dowall’s “Land Market Assessment” (World Bank/Habitat/UNDP, Urban Management Series Publication No. 4, http://www.unhabitat.org/programmes/ump/ publications.asp).

Step 1. Identify Brokers or Other Local Actors Involved in Real Estate Transactions

Identify brokers involved in buying and selling real property. These may be official registered brokers with offices, of informal representatives of property owners that know the local market. Often informal brokers will spend time in certain places in town. Adopt an attitude of respect for this line of work so that people will share their information with you. Have a preliminary conversation with a few brokers in order to understand what types of property they deal with and how they define different neighborhoods (market areas) in the town.

Step 2. Develop Survey Questionnaire

Develop a simple, short questionnaire to gather information about characteristics of real property being bought and sold in the town (see example questionnaire in Appendix E). Divide the town up into a certain number of neighborhoods (market areas) consistent with the brokers’ geographical perception of the town. Define the types of property on which data will be collected: for example, apartments in 5-6 story buildings, ping fang houses, retail spaces on main roads, retail spaces on minor roads, industrial plots, etc. Define the infrastructure characteristics that best reflect different sub-markets, e.g., house on a paved road or an unpaved road, house with a private toilet or without a private toilet.

Step 3. Implement Survey

Tell the brokers to think of a hypothetical piece of property (e.g., apartment in 6-story building on main arterial road), not an actual piece of property that he/she sold. Describe to the brokers in detail during the interview the type of property in question. Make him/her think of the most typical unit of that type (in middle of block, not on corner, on middle floor, etc.). Ask him/her what size it is (m2 built area) and whether or not it has the infrastructure in question. Then ask how much the apartment would cost on the market today; emphasize again that we are talking about a typical unit, not an actual particular one. Then ask how much it would have cost last year and the year before.

Interview as many brokers as required to get three independent cases for each neighborhood (i.e., from three different brokers) for each land use type. If a neighborhood has only industrial buildings, then only three industrial cases are required.

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Step 4. Enter, Analyze, and Tabulate Data

Enter the data into a spreadsheet. Discard the high and low values for each land use type in each neighborhood and year. Retain the median value only.

Using the analysis of variance technique, compare the means of property value in similar locations with and without infrastructure (to estimate the impact of infrastructure improvements on property values) and with similar infrastructure characteristics by location (to estimate the impact of location on property values). Develop a property price gradient, a graph that depicts property values by distance away from the city center.

Multivariate regression analysis can also be used to evaluate the factors that influence observed property values.

Calculate the annual average rate of increase/decrease of property values by land use and geographic location over the past three years.

Draw conclusions about the observed trends in the property market and the factors contributing to property values.

As shown in Figure 3.1 above, the outputs of the RLIA are three: • Land and Infrastructure Requirements—Calculate residential density (dwelling units/hectare) of different residential land use types by relating census data to different housing polygons in the GIS and/or by counting dwelling units in the field. Adjust estimated densities of each housing type until the sum of the densities and the area of each residential land use type (from the GIS) equals the total number of households in the population estimates. Then convert projections of future households to future residential land requirements by dividing the number of households by the calculated residential densities. Calculate the employment density of existing industrial and commercial land by dividing the number of employees (see “Employment Growth Method” above) by the area of each land use type (from “Analysis of Land Use Change” above). Estimate future industrial and commercial employment densities based on primary data about future investments and sectoral trends in production. Then convert employment projections to future industrial and commercial land requirements by dividing the number of employees by the estimated future employment densities. Calculate the infrastructure requirements of the future residential, commercial, mixed use and industrial areas. Use existing figures on consumption per person, per household or per worker to estimate future consumption figures based on existing conditions and trends. Calculate the future requirements for water, electrical power and heating, as well as the future production of wastewater and solid waste. • Property Market Profile—Combine the results of the broker survey and the land use change analysis into a property market profile that identifies and describes the types of real property being produced and traded in the town. Draw conclusions about the rate of change of agricultural land to urban uses, trends in production of apartment complexes and other residential projects, commercial and mixed use buildings, and industrial areas. Summarize the market prices of these products in different locations around town (e.g., central, along expressway or highway, peripheral, etc.). • Development Potential Assessment—Combine the infrastructure and services review with the property market profile to evaluate the development potential of

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different areas of town. Identify a number (e.g., 5-6) of vacant land or agricultural land areas for possible expansion of the town. Evaluate each area by (1) accessibility to employment and housing areas on the existing road network, (2) availability of water supply and power supply adjacent to the area, (3) development cost, including the cost of procuring the land either by purchasing it (if state land) or expropriating it with fair compensation and then converting it, as required, to state land, (4) environmental impact, (5) social cost related to resettlement of any existing residents.

With this information and the results of the previous analyses described in the section, the planning committee now has a deep enough understanding of the development dynamic in the town to begin formulating specific development proposals. But first, other stakeholders must be brought into the planning process.

3.3 Working with Stakeholders

Community participation is a key determinant of good governance and development sustainability. It serves to (i) increase transparency and accountability of local government, (ii) promote public awareness of planning issues, (iii) improve the ability of government to design programs responsive to the needs and priorities of the local population, and (iv) reduce miscommunication and public mistrust of government agendas.

This section presents illustrative tools for community involvement in town-level planning. The objective is to facilitate, and possibly institutionalize, a participatory approach in town development in the PRC that best utilizes a key asset of every community, its social capital. The following techniques constitute the basic building blocks of community participation, and are widely practiced around the globe to gather and disseminate information pertaining to specific projects, and elicit ideas and feedback from the public during each stage of project development and implementation (see Figure 3.2).

Project Identification and Development: Gathering Information on Stakeholder Preferences

Focus Group Discussions (FGDs) and Surveys are effective means of gathering information on stakeholder priorities, preferences, and problems. These are usually carried out to assist with project identification, and also to inform project design development on a host of issues including cost, financing, design, technology, timing, sequencing, and so on.

Focus Group Discussion

A Focus Group comprises a small group of formally invited individuals, selected to represent the target community. Carefully facilitated discussions with these community representatives allow for an exchange of qualitative information with the public and solicit feedback for the government’s local development agenda. FGDs can be used to elicit input from various population subgroups with regard to their priorities, preferences and problems, and hence assist government in project identification and packaging. FGDs can also provide indication of the broader public interest and help anticipate the reaction to a proposed or on-going project.

A group of 8-12 people is the ideal size for this type of discussion, and requires a good facilitator capable of engaging every participant. An informal setting for discussion is preferred, since participants are likely to be from varying economic and social backgrounds. A list of potential topics and issues to be covered should be prepared prior to the meeting, with open-ended questions to stimulate the discussion.

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Figure 3.2. Tools for Participatory Planning

Gather information: Project Identification Focus Group Discussions Surveys

Disseminate information: Information Publications Project Development Resource Center

Feedback

Build partnerships: Citizen Advisory Committee S T A K E H O L D E R S S T A K E H L O C A L G O V E R N M E N T L G O V E R N M L O C A Feedback

Solicit input: Community Outreach Public Meetings

Project Implementation

Survey

Like FGDs, surveys may be used to help in both project identification and design development. However, unlike FGDs, surveys are most effective when used for eliciting quantitative information.

Several survey techniques can be used to elicit information from a target population about a specific project. For example, surveys may be administered through mail, personal interviews, and over the phone. Preference of method over the other is based on availability and capability of staff to administer the survey, time constraints, output requirements, geographic coverage, and so on. Phone and interview-based surveys require training of the survey enumerators for consistency and accuracy. Also, for consistency, the number of enumerators should be kept small.

Regardless of the survey method used, the survey instrument must be precise and close- ended, ideally with multiple choice questions. This is to minimize errors and maximize

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consistency in administering the questionnaire across the sample. While it is often tempting to include all possible questions in a questionnaire, a practical reality is that: (i) respondents have a limited attention span, and the emphasis should be on the quality rather than the quantity of information gathered, and (ii) there is little benefit in collecting information which cannot be used productively as it just makes data processing more complicated. Hence, while designing the questionnaire, it is useful to have a good understanding of the outputs, i.e., which information is required for what aspect of the project, and work backwards to design the instrument.

Project Development: Disseminating information to Stakeholders

Sharing information about projects and proposals as they evolve from the conceptual to the final stage of implementation will keep the public informed, foster ownership and responsibility, and minimize miscommunications that results in mistrust or confusion regarding the project intentions. Two relatively simple methods to share information are Dissemination of Information and Resource Centers.

Dissemination of Information

Information about proposed projects or actions may be effectively relayed to the general public through radio and television broadcasts, or in newsletters and local newspapers. Brochures and hand-outs distributed by mail are also an effective means of disseminating information, especially when a specific segment of the population is targeted. This is among the best methods of sharing information quickly and effectively, and allows people to absorb the information at their own pace.

Resource Center

A Resource Center may be used to disseminate information and elicit feedback on a proposed project or action. It may serve as an introductory source of information at the preliminary stages or continue through the life of a project, and even be a permanent space shared for other public participatory activities. Local malls and community centers in easily accessible areas, preferably ones which attract considerable pedestrian traffic, are good places to locate a Resource Center. Information about the project can be presented to the public in the form of reports and maps/plans in simple language comprehensible to the target audience. There should be a system for recording and documenting feedback and comments from the public. Finally, care should be taken to set the hours of operation to accommodate working persons, i.e., before and after working hours, and over the weekends and holidays.

Project Development: Building Partnerships with Stakeholders

To build credibility and ownership into the project, it may be useful to establish a formal body that serves as a link between the government and the community, such as the Citizen Advisory Committee.

Citizen Advisory Committee: A Citizen Advisory Committee is usually made up of a small number of community volunteers, say 10-15, representing various interests and expertise. Members can be selected by the local government or a neutral third party, or elected by the community at a Public Meeting. A Chairperson is selected from among the members, someone who can encourage discussion and promote consensus building.

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The Committee can serve various functions with respect to the project, for example, representing the community’s viewpoints, making decision on particular aspects, and even providing technical advice. Since this is a formally selected group, it serves to build partnership between the local government and the community it represents. Transparency is key: It is critical to inform the public of all outcomes of the Committee meetings to ensure that (i) public sentiments are reflected, (ii) lend credibility to the process, and (iii) avoid the potential for mistrust and allegations from special interest groups who may feel underrepresented.

Project Development and Packaging: Soliciting input for proposals

Wider participation of the public on proposed projects may be sought through various Community Outreach activities and Public Meetings, open to all members of the community, and designed specifically to get their feedback and comments on proposed activities.

Community Outreach

This involves direct interaction with local communities and leaders to elicit their opinions regarding a particular project. Community outreach activities could be designed as a formal event, or may simply comprise a series of informal interactions with members of the community. This method has the advantage of involving citizens who would otherwise not opt to participate in the planning process.

Community fairs are a popular venue to generate public interest through public displays and presentations about a particular project. Alternatively, simply meeting with the community and the residents in their place of residence can be an effective means of eliciting informal feedback. Sometimes people might be uncomfortable discussing issues with the government officials, so this might require soliciting assistance of local leaders or agencies to initiate the discussions.

Public Meeting or Public Hearing

A Public Meeting is a process for information exchange, where the local government can share information about a project through a formal presentation after which the public has the opportunity to provide feedback in a plenary question-answer session. A Public Hearing is a legal form of Public Meeting, usually carried out to meet legal requirements. Public Meetings require relatively few resources to plan for and manage, and are among the most effective methods for communicating with large groups of people.

The timing and venue should be set so as to attract participants from the widest cross- section of society. Enough notice needs to be given, so people can plan to attend, usually two weeks. The venue should be a recognized place, such as a school, library, or community center. A good facilitator is required to conduct the question-answer session, particularly with there are contentious issues for discussion. All written information provided to the public in the form of hand-outs or reports should be marked “Draft” so as to avoid confusion later on issues subject to frequent change.

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Figure 3.3: Public Hearings for Stakeholder Input

3.4 Maximizing Employment Opportunities

The number of jobs that a town can generate is a function of the level of investment in industry and services, on the one hand, and the labor requirements of those investments, on the other. This section focuses on how the public sector—the town government working in collaboration with city and provincial governments—can enable investment in labor-intensive sectors and attract migrants from rural areas to fill the new jobs.

Target Labor-Intensive Economic Sectors

The ratio of jobs created per monetary unit of investment varies widely in China, as in every country. Since job creation is the ultimate goal of town development, it is critical to focus economic development activities on sectors that have high labor requirements. Generally, services employ more people per unit of output than industry does. But industry is the back- bone of the economies of many towns, and so is also important; the key here is to focus not on heavy industry, which is capital-intensive and employs relatively few workers, but on light industry.

Labor-intensive economic sectors that towns should focus on include:

1. Light industry • Apparel (rather than textiles) • Food processing • Handicrafts • Furniture manufacturing • Electronics and computers • Instruments, meters, and office machinery • Cultural, education, and sports goods

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2. Services • Retail and wholesale trade • Hotel and restaurant • Transportation • Tourism

3. Construction

Construction is a labor-intensive activity that lies somewhere between industry and services. Developing construction as a sector may not be a part of a town’s economic development plan, since the level of production will depend primarily on the local demand for real estate. Nevertheless, growth towns should facilitate construction activity because where the demand for real estate is high, the sector can employ many workers.

Market Analysis to Identify Growth Opportunities

Town governments in China need to be more sophisticated about identifying opportunities for growth in particular sectors, and then finding ways to enable investment in those sectors that are capable of producing more jobs. This section presents a summary description of the methodology for assessing markets and identifying sectors with growth potential. While this methodology is fairly standard and practiced in many countries around the world, the required skills will not be found in many town governments. Moreover, the opportunities that are presented by a particular economic sector will in general not be limited to one town, but shared by the economies of many towns in the same sub-region. Rather than conducting market analyses themselves, therefore, town governments should consider should alternative arrangements for the implementation of such studies such as: • joining forces with cities and with provincial government to carry out market analysis at the sub-regional level; • contracting market studies out to private firms or research institutes that have specialized staff in this area.

For a discussion of factors influencing the market analysis of some particular sectors, see the sections in Volume 2 of this report on manufacturing clusters, agro-processing areas and tourist zones.

Step 1. Estimate Current and Future Demand

First, estimate current consumption. This involves collecting and aggregating statistical data on consumption in recent periods of the good or service in question. If we take the example of buckwheat in Shanxi Province, then the analysts should collect data on consumption of buckwheat in the province (if possible by prefecture or smaller geographic area), in other provinces in China, and overseas. The geographic scope of the analysis should be determined based upon the analysts’ understanding of the potential market; where there is a possibility of expanding the sale of Shanxi buckwheat in another country, that country should be included in the market analysis. The data should be collected tabulated for recent years (e.g., last 5 years or in some cases last 10 years) and estimated for the current year.

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Then identify any recent or pending legal/regulatory changes that will affect future consumption. For example, if there are pending changes in the taxation of the consumption buckwheat, the potential impact of these changes on demand should be estimated. Any changes in buying power of consumers in key markets, such as rising disposable income, should also be taken into account.

Finally, project future demand. Looking at current trends and any expected changes in consumption due to the regulatory framework, buying power of consumers or other factors, estimate future demand in different geographical areas and calculate the total effective demand for the project in the defined market area. Present the results in tabular and graphic form.

Step 2. Inventory Existing Supply

First, inventory existing facilities by geographical region. Collect data on production for recent years and illustrate any trends. Supplement the quantitative analysis with a discussion of the factors that are contributing to observed trends. Break down the production by market segment, that is, by particular category or type of product currently being offered on the market and being purchased by different types of users. Segments are generally defined by some combination of product quality and cost.

The enterprise survey, discussed in Section 3.2 above, can be used to collect information on the type, quality, cost and amount of different products that are produced in a given geographic region.

After analyzing recent and current trends, collect information on the “pipeline,” that is, goods or services that are currently in the planning or production stage and are expected to come onto the market in the near future.

Then identify any current or future anticipated supply constraints: • Are there new regulations that will impede production by making it more costly? • Are there barriers to entry into the market, such as licenses that are difficult to acquire? • Do other countries or regions impose import quotas that effectively close off markets from international competition?

Present the results of the supply analysis in tabular and graphic form.

Step 3. Compare Demand to Supply

Finally, overlay supply map on demand map. Identify any identify existing markets that are not saturated or highly competitive, that is, in which demand is greater than supply in the near to medium term. Then identify any potential new markets, in which the good or service is not currently being consumed, but that could become a consumer in the near future. Project “excess demand” (demand minus supply) on a region-by-region or country-by- country basis for the next 5, 10, or 20 years.

It is this projection of excess demand that determines the extent to which a potential sector holds future potential. Typical conclusions of the market analysis might include:

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• There exists excess demand in a given geographic area and market segment in the near future; • There are future markets (geographical areas or market segments) that could be opened up over a given time period; • The degree to which these current and future markets can be tapped by producers in our sub-region will depend on factors X, Y and Z.

Armed with this information, town governments, in cooperation with provincial, prefecture and/or city governments, can begin to put in place the factors that will enable the local production of goods and services that target the markets identified in the study. These factors might include, for example, reliable infrastructure services in an industrial park or access roads from production areas to sales markets. Such interventions are discussed in the following section.

Facilitating Supply-Side Investment through Infrastructure Provision

What types of infrastructure do investors need in order to build a new factory, hotel or shopping center? Which of these infrastructure investments are merely desirable, and which are absolutely indispensable for development of a new facility or expansion of an existing one? The answers to these questions should guide the infrastructure improvements process undertaken by the town government and its sub-regional partners.

Sources for this information include the market analysis discussed above; enterprise surveys; and informal contacts with business leaders in the town and the sub-region. In general, the more systematic the data collection method, the more precise and useful the findings. The objective of the investment is to remove any bottlenecks in infrastructure requirements of private sector investors in industry or services.

The specific infrastructure needs of industries such as tourism, agro-processing and manufacturing are discussed in Volume 1, Section 4. These include roads, electrical power supply, water supply, wastewater treatment plants, and sanitary landfills. Town governments should link the infrastructure improvements project cycle to employment generation and investment promotion efforts.

This means that the outputs of the market analysis and enterprise surveys should be taken into account when identifying priority infrastructure improvements to be undertaken in the town or sub-region. Other factors include technical needs as evidenced by an engineering diagnostic and financial feasibility.

The potential benefits of infrastructure improvements with respect to leveraging private sector investment and creating jobs should be quantified and analyzed as part of the justification of such projects (for instance, as part of the calculation of financial internal rate of return (FIRR) or economic internal rate of return (EIRR), see Section 3.6).

In addition to infrastructure provision, two other activities that are critical for creating jobs are: • investment promotion, discussed below in Section 3.10. • ensuring adequate labor supply, which in towns usually requires attracting migrants through advertising employment opportunities and improving access to social services.

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Attracting Migrants by Improving Access to Social Services

Along with job potential, access to social services is an important factor for migrants that determines where they move to, with or without the family. Small towns already have a comparative advantage over cities in attracting migrants by virtue of: • their physical proximity to migrants’ homes and families in the surrounding villages; • bearing cultural similarities and social linkages with traditional systems in villages; • having a lower cost of living than cities.

To facilitate growth and economic development, towns must be able to attract migrants to meet the demand for labor. This includes not just short term unskilled labor, but more importantly, migrants who will choose to stay long-term, bring their families, treat the town as their “home,” and share responsibility for and contribute to the its economic development. In order to encourage migrants to bring their families, the town must be able to provide more than simply a job; it must also provide adequate and affordable access to education, healthcare, and social assistance programs for the family.

For the local government, this implies improving the quality of social services, making the quality of comparable to that offered in counties and cities, and doing away with practices and policies that discriminate between migrants and locals. Granted, this might be difficult so long as the hukou system exists. But rather than waiting for the hukou reform to get fully implemented, a phased transition is recommended:

Step 1. Establish Legal Residency Status for Migrants

Given the slow pace of the hukou reform, it is recommended in the interim period to institute a category of permanent or temporary “residency,” which gives migrants the same benefits as the local residents without changing the hukou status.

Step 2. Equalize Access to Social Services

In terms of education, this residency status will entitle migrant children to attend school without the burden of additional fees.

In terms of healthcare, subsidized/cheaper health plans (insurance, other medical services) should be offered to include “legal residents” without full-time employment, especially since most migrants initially start out with temporary jobs. Free or subsidized services provided by the government at the place of hukou should be extended to the “current” place of residence, regardless of “temporary” or “permanent” stature. Since funding for these services is coming from the central government anyway, there is no reason why it cannot be channeled to the local government of the place of residence instead of the original hukou town/village.

The same applies to social assistance programs such as the MLSP, and the rural health insurance program, CMS. These should target the poor, and be based on income levels, rather than the type of hukou (agricultural or non-agricultural) or place of hukou. The proposed legal residency status should entitle the migrants to these benefits as well.

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3.5 Increasing Access to Markets

To gain access to larger markets, towns should seek to develop links to higher-capacity provincial and national trunk infrastructure. Where possible, towns should bring trunk infrastructure directly to production facilities. The process requires identification of markets, quantification of traffic to markets, and identification of needed improvements to road infrastructure.

Step 1. Identify Markets

Section 3.4 above presents the methodology for identifying national and international markets for products produced in a given. This section breaks down those sectoral markets by geographical location, and measures access to production or consumption areas. The steps are: • Identify concentrations of households consuming the product. • Identify likely industries consuming the product. • Measure time to travel to market, in minutes (this will require some measure of distance in kilometers, and typical travel times on different classes of roads and/or railways). • Focus on those market(s) with shortest travel distance for further study and planning of trunk infrastructure.

Measuring the time to travel to markets may or may not require analysis. If the markets are relatively close (e.g., Anshan is about 20 minutes from Teng’ao, and offers a large diversified market for the town’s products), the travel time will be well-known by all decision makers. In many cases where the travel time is not readily known, it is worthwhile to (a) measure the distance from town to potential market, on each kind of road; (b) calculate the time based upon typical kilometer-per-hour speeds, and (c) add up the total minutes from town to destination.

The following illustration may help to bring the concept of travel times out. Imagine this is the shortest path between a town and a market for its outputs:

8 km 30 km 3 km National Highway County Road Expressway Market (City)

Town officials are likely to know the travel times for portions of the routes (e.g., town to expressway entrance): if so they should simply assign the known travel time. Where the travel time is not well known, the distance on a map should be divided by the by the kilometers-per-hour speed associated with different types of roads. The following the table above provides some useful parameters.

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Travel Speed Parameters for Different Road Classes and Grades Normal Speed Class of Road (Km/hour) Expressway 94 National Highway 68 Provincial Roads 68 County Roads 58 Grade of Road/ Number of Lanes Width Per Normal Speed Highway (in both directions) Lane (meter) (Km/hour) 1 4 (2 x 2) 3.75 100 1 4 (2 x 2) 3.50 60 2 2 (2 x 1) 4.50 80 2 2 (2 x 1) 3.50 40 3 2 (2 x 1) 3.50 60 3 2 (2 x 1) 3.00 30 4 2 (2 x 1) or 1 3.00 40 4 2 (2 x 1) or 1 3.00 20

The road speed parameters come from two sources: design specifications prepared by the Ministry of Communications in their Technical Standards for Highway Engineering and from the Consultant’s empirical observations.

Dividing the distances by the parameters for speed provided, it is easy to calculate the total travel time from town to city. To use the example illustrated above:

Distance Travel Time Segment (km) Travel Speed (km/ hour) (hours) County Road 8 58 0.14 Expressway 40 94 0.43 National Highway (Grade 1) 3 60 0.05 Total (hours) 0.61 Total (minutes) 37

The above calculation should be repeated to calculate the travel time necessary to reach each potential market.

A little more analysis may be needed to determine where in the city consumers of the good in question are located. Estimates should be modified to reflect the time needed to travel through town in congested traffic, as required. The cities with the shortest travel times should be targeted as high-priority markets.

The supply of goods is just as important, although the inputs needed to make the product typically come from other towns and cities nearby. The town must identify where its inputs come from and what access exists to those supply areas.

Step 2. Estimate Current Traffic Volumes

The next few steps require good estimates of the town’s traffic levels today. This requires doing a traffic count survey, and some calculations to produce reliable estimates of daily traffic. More specifically:

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• Collect counts of traffic on key roads leading out of town, by mode. • Estimate the total daily traffic, expressed in car-equivalents.

The term “mode” refers to different kinds of vehicles: cars, bus, trucks, even bicycles and horses. “Car equivalent” simply means that we make adjustments for those modes that have large vehicles and take up more road space than normal cars (such as trucks), others that are small (such as agricultural vehicles). Adjustments are also made for the speed at which different modes travel.

To count traffic, individuals stand at points on the outskirts of town along trunk infrastructure and count the number of bicycles, motorcycles, cars, buses and trucks separately, for a series of 15-minute intervals. Appendix G, “Details of Measuring Traffic Volumes, Capacity, and Projecting Future Growth in Traffic” provides more details on the forms, data collection processes, and other particulars.

It is possible to do a full, day-long survey at all observation posts around town. To be thorough, it should be repeated on more than one day so as to eliminate variations. But this usually proves to be too great an effort, especially for a small town. Counting traffic for a few 15-minute periods at each observation post much is practical and will generally provide satisfactory estimates. The ideal situation, perhaps, is to do a thorough 12- or 24-hour survey every five years, and then rely on samples in intervening years. Please refer to “Estimate Daily Volume” in the appendix “Details of Measuring Traffic Volumes, Capacity, and Projecting Future Growth in Traffic” for more details on how to estimate total traffic per day, based on sample traffic count surveys.

Step 3. Project Future Traffic Demand

Once the daily traffic volume has been prepared, it becomes a fairly easy and straight- forward process to estimate future traffic demand. The process is as follows: • Acquire estimates of town growth for the next 5 and 10 years. • Develop growth factors as they relate to different traffic modes (motorcycle, car, truck, etc.) • Apply growth factors to traffic counts each mode. • Calculate future transportation growth for next 5 and 10 years.

The estimation of future demand requires inputs on the town’s future growth of population, industrial, and agricultural employment; and if possible, income growth. This will be developed by other planners: see section 3.2 “Anticipating Future Needs and Requirements” above.

The other details of projecting future traffic demand appear under “Projecting Future Traffic Volumes” in the appendix “Details of Measuring Traffic Volumes, Capacity, and Projecting Future Growth in Traffic” for more information on developing growth factors for different modes.

Step 4. Identify and Program Road Infrastructure Improvements

The purpose of this exercise is to increase access to markets. All the steps above lead to this step: estimate and schedule needed improvements to, and expansion of, road infrastructure:

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• Estimate existing capacity of roads • Compare capacity to present and future traffic volumes. • Identify years in which traffic volumes begin to approach, or exceed, capacity. • Propose scheduled improvements.

The estimation of capacity involves many factors, not all of them quantitative. The sections on “Estimate Capacity” in the “Details of Measuring Traffic Volumes, Capacity, and Projecting Future Growth in Traffic” appendix provide guidelines on assigning capacity to particular roads.

The future traffic volumes derive from the above and should be set along side the capacity:

Volume/ Present Volume Volume/ Volume Capacity Present Volume/ + 5 Capacity + 10 + 10 Capacity Volume Capacity years + 5 years years years Trunk Road 1 Trunk Road 2 Trunk Road 3

The shaded area—the volume over capacity—is the best measure of congestion. As the estimates of volume over capacity approach or exceed 1.0, then the improvements must occur beforehand so as to avoid congestion and ensure adequate capacity.

The most important roads are those leading to markets. A simple map with indicators of volume versus capacity can shed more light on the likely constraints to arise. There are two possible remedies: • Expand width of roads to increase capacity. Or where this is not possible, • Build new roads to avoid congestion points.

The section option—construction of new roads—is often more expensive. If anticipated growth is substantial, then the cost of a new road that enables that growth may be well warranted.

Strengthen Transportation Infrastructure with Multimodal Configurations

Multimodal transportation allows a town to make use of a wider range of transportation modes for different purposes. Consider the appropriateness of different transport modes for different goods: • Roads are most appropriate for small and discrete products. • Rail is better for heavy, bulky and non-perishable goods. • Airports are ideal for transporting high-value, light-weight or perishable goods to distant markets. • Seaports for carrying heavy, bulky and non-perishable goods to foreign countries.

Towns that have a greater variety of mode choices have more options in obtaining goods from different markets, and producing more goods for more markets.

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A town can utilize a combination of transportation infrastructure well if they can configure roads to run parallel to rail, with production facilities in between. Warehouses and cargo handling equipment can strengthen links among modes.

A small town is unlikely to exist near a high-capacity port: the settlement there is usually already a city. But trunk infrastructure that provides multiple links to a seaport can certainly strengthen a city. An airport is usually located in a rural area, and nearby towns can benefit in terms of handling perishable and “just-in-time” freight, or just-in-time production.

Optimize Access to Markets with Appropriate Land Use

It is best to locate industry on the outskirts of town, on that part of town closest to markets. This involves inputs and cooperation with other parts of the planning process to ensure the following occurs. Transportation specialists should work closely with other planners and officials to ensure: • Agreement on location of industry. • Designation of industrial zone, with perhaps legal implications forcing investors to locate in this area, and possible construction of industrial park. • Land development: site preparation, installation of water supply, wastewater and other infrastructure. • Agreement on trunk transportation infrastructure improvements to be carried out.

Once this zone is built, it should be clear to investors that location of their investments in this zone is desirable.

3.6 Improving the Delivery of Environmental Services

To respond to today’s significant environmental challenges, town government should carry out a comprehensive, demand-driven capital improvement planning process that identifies the infrastructure investments that will contribute the most to enhancing the local environment and facilitating economic investment and job creation.

This section sets out a process for development of a Capital Improvement Program (CIP). The CIP provides a systematic approach for planning and budgeting urban environmental service improvements. The CIP takes into account technical imperatives and end-user preferences in identifying and programming a package of investments over a given period of time. The CIP also matches the cost of the improvements to public infrastructure and community facilities to anticipated revenues, such as taxes and bonds. The CIP links the town’s development to its fiscal planning process, thereby helping to maintain the town’s long-term goals, while maintaining financial stability.

The process for development of urban infrastructure is shown in Figure 3.4 below.

Figure 3.4: Infrastructure Development Process

evaluate assess plan estimate operate & current budget design build needs improvements costs maintain condition

PLAN BUDGET DESIGN & CONSTRUCT

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Special expertise is needed to design and build facilities for water supply, wastewater treatment, and solid waste disposal, so the usual practice is to hire a design engineer and a construction company for those steps of the process. Thus the primary task for government is to plan and finance the works, and to organize staff or a private company to do the operation and maintenance.

The typical CIP includes a multi-year schedule of proposed public facility expansions and a detailed budget specifying the source of funds for these capital improvements.

Figure 3.5: Format for CIP Summary Total Source Project 2006 2007 2008 2009 2010 Cost of Funds

Every CIP has the following elements: • An assessment of all public facilities and services, such as, roads and other transportation facilities, water supply facilities and pipelines, wastewater collection system, schools, parks, and safety services (police, fire) • A plan for the replacement and expansion of existing public facilities or the construction of such new facilities as required to meet expected growth and economic development. The plan must include projections of when and where those facilities will be required. Typical plan duration is five years. • An estimate of the anticipated costs for replacement, expansion or construction of public facilities; an identification of revenue sources available; and recommendations for funding the costs required to implement the plan.

Procedure to Develop CIP

Organize • Assign Responsibility. Assign one specific office or work unit to coordinate and manage development and monitoring the CIP. All capital improvement projects are submitted, evaluated, approved, funded, and monitored by this office • Identify Stakeholders. Identify groups or individuals (“stakeholders”) most likely to be affected by implementation of a CIP and invite them to participate in the process of developing the program. It is important to get involvement and cooperation of any separate agencies or authorities that provide public facilities and services within the town’s jurisdiction, as well as higher levels of government. Refer to Section 3.3 above. • Review Future Land Use. Review the section of the town’s development plan to identify the types and locations of development that your community is seeking to achieve. Also review the plan to identify land areas that should be set aside from development in order to protect critical environmental resources such as scenic areas, historic properties, or prime agricultural lands.

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Evaluate Current Conditions • List Existing Facilities. Prepare a detailed inventory of existing capital facilities. See Figure 3.6 for a sample form. • Evaluate Current Condition and Capability. Assess the condition of existing facilities and estimate when major repair or replacement of these facilities is likely to be required. Condition of assets is determined by on-site inspections, interviews with staff, and review of operations and maintenance records. Summarize condition using a 3 to 0 scale where: 3 = “works now, is adequate, and will be so for the next 5 years” 2 = “works now but may not during the next 5 years” 1 = “does not work or is inadequate, but can be repaired or upgraded” 0 = “does not work or does not exist”

The lower the score, the worse the condition. See Figure 3.6. • Determine Level of Service Currently Provided. Estimate for each infrastructure sector the percentage of people and buildings receiving service: ! Define boundaries ! Estimate total number of buildings and people within the boundary and number of each receiving service ! Calculate % coverage (% coverage = number of people (or buildings) connected/ total number)

See Figure 3.7 for a sample form.

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Figure 3.6: Summary of Inventory and Condition Assessment

ENVIRONMENTAL INFRASTRUCTURE INVENTORY AND CONDITION ASSESSMENT Existing Facilities Current Capacity Current Condition Sector Component Description units amount 0 to 3 scale Source m3 / day Treatment m3 / day Storage m3 Water Supply Distribution Pipes meters Estimated Water Loss m3 / day total score = average = Collection System Pipes meters Treatment m3 / day Disposal of Wastewater m3 / day Wastewater Disposal of Sludge m3 / month Reuse total score = average = Collection m3 Transfer Stations number Disposal m3 Solid Waste Street Sweeping km / day Recycle m3 total score = average = Collection m3 3 Drainage Disposal m total score = average =

km / day kilometers per day of streets that are cleaned by sweeping or washing meters meters (length) of water distribution or wastewater collection pipes m3 / day cubic meters per day total score = sum of all scores for a particular component average = average score = total score / (number of components scored) missing component (e.g. no wastewater treatment plant) is scored as 0 Interpretation: the lower the score the worse the infrastructure

Scoring 3 = "works now, is adequate, and will be for the next 5 years" System 2 = "works now but may not during the next 5 years" 1 = "does not work or is inadequate but can be repaired or upgraded" 0 = "does not work or does not exist"

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Figure 3.7: Summary of Coverage for Environmental Services SUMMARY OF PERCENT COVERAGE [ year = 200x] NUMBER RECEIVING SERVICE SECTOR LEVEL OF SERVICE PEOPLE BUILDINGS % of Total TOTAL NUMBER IN THE SERVICE AREA

Water Supply piped connection to building water available 24 hours/day water available <24, but >4 hours/day water available <4 hours/day Occupied Residential & Commercial Buildings with No Water Service

Wastewater from Building to septic tank from Building directly to sewer from Building directly to nearby water course or drainage channel (i.e. no sewer connection)

Solid Waste Buildings where solid waste is collected Buildings where residents carry solid waste to a drop-off location < 20 meters away Buildings where residents carry solid waste to a drop-off location > 20 meters away

Determine Future Needs and Estimated Costs to Provide • Set Goals for Level of Service and Percent Coverage. The ultimate goal should be 100% coverage to all residents, businesses, and buildings for all environmental services; however, considering costs and other priorities, it may be necessary to make incremental improvements over a period of years. Example: Moving from 80% coverage at rate of 2% per year takes 10 years to reach 100%. • Determine Future Facility Needs. Use the existing facility inventory and condition assessment and analysis of desired development patterns to identify when and where new public facilities are going to be needed. Also consider market trends, population growth rate projections, and facility replacement estimates (from the existing facility inventory) in determining future facility needs.

Facilities to achieve 100% coverage of current population + Facilities to provide service to new (increasing) population = Future Facility Needs • Estimate Costs to Provide Future Facilities. Compile costs of recent previous projects in your town or surrounding area or elsewhere in the Province. Calculate: Unit Costs = [Cost of Project] / [Size of Project]

It may be necessary to adjust for inflation: (Unit cost for previous project) x (1 + inflation rate)exp

where exp = (current year – year of previous project)

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Figure 3.8: Example: Average Cost to Construct

Average Cost of Wastewater Treatment Plants in Liaoning Province LOCATION TYPE (Year) SIZE (m3/day) million RMB RMB/m3-day Panjin (Liaoning Province, southwest) Secondary, 200x 100,000 237 2,370 Yingkou (Liaoning Province, south) Secondary, 200x 100,000 150 1,500 Dishuihi (Jinzhou; Lianoning Province) Secondary, 200x 100,000 226 2,261 3 average 2,044

Identify Projects for CIP • Compile Project Requests. Provide an opportunity for the various departments of your local government and other local public agencies to submit capital improvement proposals for consideration. Provide a standard form and set deadline for submittal. You should also allow citizen groups to submit proposals. Each proposal should include a detailed description and justification of the project, proposed location, timing, anticipated cost and funding source.

Figure 3.9: Sample Form to Nominate Capital Projects for CIP

FORM TO NOMINATE CAPITAL PROJECTS FOR CONSIDERATION IN CIP

TOWN Goubangzi

NAME OF PROJECT Wastewater Treatment Plant

LOCATION CONTACT FOR DETAILS: (name, telephone)

SIZE or CAPACITY [number and units] 9,000 cubic meters per day secondary treatment of domestic wastewater from residential and commercial customers and DESCRIPTION government offices (including schools)

ESTIMATED COST [million RMB] 18

LAND REQUIREMENTS [hectares] 2 Town Population and those living downstream of EXPECTED BENEFICIARIES the presently untreated sewage discharge User charge (invoiced with water services) Sale of treated wastewater to local industry and PROJECTED REVENUES farmers PROJECTED OPERATING EXPENSES [million RMB per year] 3

PROJECT JUSTIFICATION

PROJECT NEED

• Prioritize Projects. Compile all project proposals received and future facility needs that were identified. Evaluate and compare projects to determine priorities for each year of the CIP. One method to prioritize projects is to classify according to:

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! Urgent: The health or safety of citizens is dependent on the project. ! Needed: The project is important to achieving community goals for economic growth, environmental preservation, quality of life, etc. ! Not needed: The project has no foreseeable impact on community goals and objectives or clearly runs counter to these goals and objectives

Figure 3.10: Sewer Main Installation, Manhattan

Another method is to rank projects by the financial or economic return. Carry out Financial Internal Rate of Return (FIRR) for all projects that generate cash flow; for other projects, carry out Economic Internal Rate of Return. FIRR calculates the annual average return on the investment over the time period in question by comparing the initial investment cost to the future benefits. To interpret the results, it is necessary to compare the FIRR to the “discount rate,” or the normal rate of return of alternative investments in a given economy. FIRR is calculated according to the formula:

NCF FIRR = n −1 I

where FIRR = Financial internal rate of return of the investment project NCF = net cash flow І = investment cost The FIRR and EIRR are quantitative, unbiased methods for evaluating the “performance” of an investment project. Other factors—such as technical expediency, stakeholder priorities, or relationship of an investment project to the town’s development plan—may eventually outweigh the FIRR/EIRR as a ranking factor. But in that case, it is important to specify why a given project was ranked higher than its FIRR/EIRR would otherwise have warranted. • Schedule Cost Requirements by Year. Costs for environmental infrastructure include studies, design, construction (civil works, mechanical and electrical

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equipment), commissioning and start-up. For most capital construction projects this sequence of activities can be scheduled over more than one year. • Perform Financial Analysis and Identify Sources of Financing. Review historical trends in overall revenues, expenditures, and debt of your local government. Use these trends and growth projections to estimate amount of money available to fund capital investments for each year of the CIP. Compare costs of the high priority projects identified for each year with anticipated funding availability. If the total expenditures will exceed the available funding, consider other potential means for financing capital projects such as user fees, loans, bonds or grants.

Prepare and Approve CIP • Develop and Adopt the CIP. Based on the financial analysis, make decisions on which projects will be funded each year. Summarize the results as a multi-year schedule of proposed public facility improvements, including a detailed budget specifying the source of funds for each capital improvement. Provide opportunity for public comment and input prior to official adoption. • Implement and Maintain the CIP. Once the CIP is officially adopted, the town can start implementing the projects approved for the first year of the project schedule. The CIP will need to be updated and re-adopted each year. The process for updating the CIP each year should follow essentially the same steps, except that previously identified projects would be carried over for the priority setting and financial analysis. It will be necessary to periodically reevaluate development patterns in the town and make adjustments in the list of future facility needs as needed to maintain rational and orderly growth of the community.

3.7 Promoting Innovative Housing and Land Use

Providing an attractive and functional built environment is key to the successful development of towns and cities. The term “built environment” refers to buildings, infrastructure, and the other man-made elements that make up a human settlement. It can be thought of as horizontal infrastructure (such as roads, sewers) and vertical infrastructure (buildings). Many towns are in the early stages of constructing their built environment. This section provides some suggestions for improving the outcomes of future investments.

The Land Use Mix and Siting of Industrial Parks

In general, Chinese towns do a good job of providing a lively, healthy mix of commercial and residential uses. In particular, buildings in which shops are on the ground floor, with living areas for the shop owner and family above, should be encouraged. Other positive models include larger apartment buildings with ground-level retail.

Although most commercial uses are compatible with residential development, some industrial uses, including those which are heavy polluters, are not. These uses may be more appropriate in an industrial park, which is an area of land set aside for industrial development that provides a concentration of employment opportunities. Industrial parks help rationalize the urbanization process; provide a safe, productive workplace for private investors and migrant workers seeking non-farm employment; and minimize environmental impacts of local industrialization.

An industrial “cluster” is not the same thing as an industrial “park,” which is a fully-managed entity with defined boundaries and adequate environmental and civil infrastructure. An

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industrial cluster covers a broader geographic area, often connected by a transportation network; but does not provide site specific utility services. An industrial cluster can be composed of multiple industrial parks in close proximity.

Establishing an industrial park requires more than simply marking an area on the map or fencing off an open area and posting a sign. Planning and developing a successful industrial park includes consideration of: • Distance from sources of raw materials and destinations to deliver finished products • Location relative to transportation facilities (highways, railroads, airports, and navigable rivers); • Infrastructure for electricity; water supply; disposal of liquid and solid wastes; telecommunications • Labor work force of adequate size • Education system to develop skilled workers in the relevant industries • Local conditions such as cost of labor and taxation.

The first two factors (distance from source and from customers and location relative to transportation) are dominant determinants for siting parks. Once the site is selected, planning environmental infrastructure for the industrial park should take into consideration linkages to the nearest urban center to increase facility economy-of-scale. Within the industrial park it is possible to exercise a degree of control over what type of industry to allow. Haicheng Textile Park, for example, will be dominated by textile and apparel companies, and companies likely to emit nuisance odors, e.g., fertilizer production, slaughter- houses, can be denied entry.

In North America and Europe, most industrial parks have been developed by the private sector. It is an attractive investment to developers because an industrial park can generate money quickly through sales or leases of plots of land. In East Asia (coastal China, eastern Thailand, Singapore), on the other hand, most successful industrial parks have been developed by the public sector.

In China, government at all levels should encourage industries to locate an industrial parks by a combination of regulations (e.g., a condition of the business license) and financial incentives (such as tax holidays for the 3-5 years of operation). Industrial parks are often most efficiently developed by county or city governments, which can channel the efforts of numerous towns, thereby minimizing duplication of effort.

Urban Design

Urban design refers to the layout and design of open spaces, streets, and the buildings that shape them. Urban design is important because it influences the attractiveness and functionality of a town. In market economies, most people move to or stay in cities or towns because they appreciate the jobs, housing, and other amenities that it provides; they may also choose to live in a given town because it is an attractive and vibrant place to live.

An attractive built environment can be constructed, over time, primarily with investments from the private sector. The role of town governments is to provide a regulatory and planning environment that is conducive to this development, and to provide the public infrastructure investments (roads, etc.) not provided by the private sector.

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Scale. One of the most important factors in determining the feel and look of a town is scale, which refers to the height and footprints of buildings in relation to streets and open spaces. In addition, it is relative (and not absolute scale) which matters. In general, very large buildings should be built together with other large buildings, and smaller ones should be built with smaller ones. For example, in many towns, where most of the existing land use is single-story residential housing (平房), appropriate adjacent land uses include 2- to 4-story buildings. An abrupt jump from single-story buildings to 5-6 story buildings is visually jarring. In Chinese towns, taller buildings may be appropriate in the center of the urban area, where they are surrounded by 2-4 story buildings. This hierarchy is shown in the figure below.

Achieving an appropriate scale is especially important in historic areas, because the visual and aesthetic feel of the town determines the attractiveness of the town to potential visitors. In historic towns like Gutao, where the central area is a mix of 1-, 2- and 3-story buildings, it is appropriate to limit the height of buildings surrounding the historic core in order to protect sightlines and achieve the desired scale. It is worth noting that Washington, DC restricts buildings to 12 stories for precisely this reason.

Figure 3.11: Historic Street with Small Scale, Tianjin

Although it is most important in historic towns, scale is important everywhere. Towns can achieve appropriate scale by limiting heights and sizing lots appropriately.

Density. Population density is another important consideration in the design of towns. The more people in a town, the more viable the commercial areas. In addition, higher residential density can help conserve quality agricultural land by reducing land requirements for

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housing. As discussed in other sections of the report, many towns seek to achieve high densities by regulating the height and size of new apartment buildings, usually to a minimum of six stories. However, it is possible to achieve higher population densities, while still allowing for a variety of building heights and an appropriate scale for towns.

In demonstration towns, estimated residential densities range from around 15 households per hectare (in the ping fang areas) to around 50 households per hectare in some of the apartment block areas. The density of the ping fang areas can be doubled or tripled, by adding floors to the existing units, or by replacing the existing units with 2-3 story walk-up apartments, terrace housing with less common space, or other models.

Towns can achieve appropriate densities by providing minimum densities for development parcels. Towns should not mandate building form, but rather define the “envelope” within which the private sector may build. Towns can also encourage the incremental development of ping fang areas by adopting policies discussed elsewhere in this report.

Materials. Choice of building materials is another important factor that can either add or detract from the aesthetics of a town. Most new buildings in China use a concrete frame. However, there are many other materials available, such as brick, wood and stone. Often, the older and more traditional housing uses materials use bricks with red tile roofs; this attractive combination could serve as inspiration for new buildings. In general, a great diversity of materials (and their colors)—mixing of concrete, brick, stone, and wood—adds to the visual vibrancy of towns. Painting concrete to achieve this visual interest is a poor substitute for using a variety of materials.

Material choice is especially important in historic areas, where protecting the original character and feel of the town is a goal. In these cases, it is appropriate to require new buildings to be consistent with existing, historic building materials.

In general, however, towns should avoid regulating the types of materials used in buildings, except to ensure that buildings will be structurally sound. Where towns have materials restrictions that are not linked to structural soundness, they should be lifted. To the extent that town governments call for tenders for development projects, they can encourage developers to use a mix of building materials.

Diversifying Housing Types

As discussed above, one of the primary advantages of towns is the flexible housing solutions and typologies that they can provide for all types of residents, including migrants. In order for them to fulfill this potential, towns should offer a mix of rental and owner-occupied housing, as well as a mix of housing types. Some potential housing types are discussed below. For photographs of each type, please see the “Washington, DC” Best Practice in Volume 3.

Housing Typology 1: Garden-Style/Terrace Apartments

Garden-style or terrace apartments have many designs. However, they are typically 2-3 stories. They may have a larger common area central courtyard, and balconies or other amenities. They may face the street or be more inward looking. They are appropriate for a range of households, including families with children.

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Figure 3.12: Garden-Style Apartments, Costa Rica

Housing Typology 2: Low-Rise Apartments

Low-rise apartments are usually 3-5 stories and also come in many designs. They typically have a range of apartment sizes, and may have balconies and other interior/exterior amenities. Low-rise apartments can have retail on the ground floor, such as small stores or restaurants. Low-rise apartments are appropriate for a range of household and income types.

Housing Typology 3: Row Housing/Attached Housing

Row housing consists of relatively narrow 2- to 3-story houses attached on both sides to adjacent houses. They have a range of designs, but are often 6-9 meters wide and 15-20 meters deep. They typically have two to three bedrooms, and have a small yard in front and/or back. Terrace housing is often attractive for families with children or to people who are used to living in the country, since the houses have a small private yard.

Figure 3.13: Row Housing, Washington, DC

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Housing Typology 4: Mid-Rise Apartments

Common in PRC, mid-rise apartment buildings are typically 6-8 stories. They consist of a mix of two- and three-bedroom apartments, and generally have ground-level common spaces. They are appropriate for all family and income types, but may be less attractive to migrants from rural areas because they do not have private yards.

Figure 3.14: Well-Designed Courtyards and Public Spaces, Shenyang

Mixed Use, Pedestrian Oriented Streets

In addition to providing a crucial transportation function, streets in cities and towns are the places where residents come together to engage in conversations and commerce. Where they are vibrant, they can add to the economic vitality of urban areas. Where they are dull and declining, they can detract from urban growth and sap excitement from downtown areas.

The following are guidelines for streets in urban areas. They do not apply to inter-urban roads, which serve a different function and correspondingly have a different form.

• Consider all functions and users of streets

Streets in urban areas are not just used for getting from one place to the other. Instead, they are places for commerce, with storefronts that face the street and small stalls selling everything from fruit and magazines to offering services such as bicycle repair. They are places for walking, as people move from one store to another or go for a stroll for leisure or exercise. They are places for bicycling; bicyclists can share the sidewalks with pedestrians, roads with cars, or they may have their own lanes in which to travel. They are places for children to play under the watchful eyes of parents and shopkeepers. Without this mix of users and uses, streets will become dull, uninviting spaces, and will gradually lose their economic vitality.

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Streets should not be designed, therefore, based on the sole criterion of facilitating vehicular movement. The design of streets should respond to the needs of all users.

• Mitigate the impacts of vehicles

Vehicles will take all the space they are allowed. It is up to the designers of streets to protect the safety of pedestrians and bicycles on streets, and to mitigate the noise and pollution that vehicles bring. This does not mean that pedestrians and bicyclists should be completely separated from vehicles, as is the case when pedestrian bridges are used. When pedestrians and bicyclists are forced to use bridges to cross over lanes of traffic, streets become less convenient for them and they will visit them less. The street may decline as a commercial space as a result. The following recommendations strike a balance between users of streets.

Streets should not have more than two vehicle travel lanes in each direction. Parallel parking areas on either side of the streets create a buffer between pedestrians and traffic. If necessary, parking can be restricted to certain periods in order to allow more traffic to pass through at peak times.

Sidewalks should be required on all streets. Sidewalks should allow for the passing two couples, one from either direction, and should ideally be about 3 meters wide. Dedicated bicycle lanes should also be used.

At every intersection, pedestrians and bicyclists should be provided with designated spaces where they can safely cross. These areas should be clearly marked with a crosswalk or traffic and pedestrian signal. Where blocks are longer than 60 meters, mid-block crossing locations should be identified.

• Discourage sidewalk interruptions and use of sidewalks for parking

Many building owners want their own loading and unloading areas or parking lot driveways in front of their main doors. Interruptions such as these to the continuity of the sidewalk should not be allowed. Instead, loading and unloading zones can be established on the street. Delivery vehicles should be sent to the back of the building.

• Design a public realm that is pleasant and inviting

Inviting public realms are interesting, clean, brightly lighted in the evenings, with good pedestrian and bicycle facilities and ample shade.

Lighting, where it is provided, should be focused both on the roadway and also on sidewalks. Where there is a lot of commercial activity in the evening, stores will also provide lighting.

Street trees are essential ingredients in good public realms. Trees improve urban air quality, provide shade for pedestrians, provide opportunities for recreation and leisure, and add to the aesthetics of an area.

For street trees to grow tall and healthy, they need sufficient soil and water. Ideally, trees should be planted in “strips,” which are continuous areas, about 1 meter wide, that run the length of the sidewalk. Ideal spacing between trees is 5-8 meters. If sidewalk width is limited, street trees they can also be planted in boxes. Tree boxes of 1.5 meters X 1.5 meters are

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ideal, though they can be slightly smaller if the sidewalk is narrow. If the growing area is not large enough, trees will become stunted 15-20 years after planting.

Figure 3.15: Small Tree Boxes, Anshan

• Encourage interaction between buildings and the street

Commercial storefronts help to make streets lively by giving passers-by something to look at and somewhere to go. Blank walls, such as those common with warehouses, banks, and some large office buildings, should be discouraged. Instead, these buildings should have commercial space on the ground level.

Figure 3.16: Streetfront Retail, Teng-ao

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Buildings should “face the street.” That is, they should have their main doors on the primary street. Buildings should not be oriented with their front doors towards an inner courtyard or back street. In addition, buildings should have a small setback (1-1.5 meter) from the street and sidewalk, or no setback at all. Limiting building setbacks increases the interaction of buildings with the street and helps to more clearly frame the street space, resulting in more attractive and engaging public spaces.

A mix of building types, designs, and sizes will also add to the visual interest of the street. For example, variety in rooflines will attract the eye of passers-by, whereas rooflines that are all the same height and design appear dull and monotonous.

Figure 3.17: Large Building Setbacks and Repetitive Design Lead to a Poor-Quality Street, Ukraine

Although commercial areas are vital to the vibrancy of streets, so are residential areas. A good mix of commercial and residential areas will help keep the street active at many times of the day and night.

3.8 Mobilizing Revenues for Financing and Implementation

Local government is well advised to employ a range of revenue sources to generate financing for administration, services and investment. Each tax or fee will tend to fall heaviest on one or more selected groups. By using a number of different taxes and fees, LGs can “spread the burden” among different segments of the population. This responds to equity concerns and also reduces the risk of revenue shortfalls when and if an economic downturn impacting a selected population segment. In short, local governments should diversify their income sources.

In addition, each LG must take into account local characteristics in determining its revenue system. For example, in a tourism town, particularly promising instruments would include: an admissions tax, business and occupations licenses on gross receipts basis, cigarette and tobacco tax, gross receipts tax on public utilities, recreations fees, parking meter fees,

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licenses on mechanical and amusement devices, a beverage consumption tax, and a selective sales tax on hotel meals, services and amusements.

For an industrial town, promising taxes include business licenses based on volume of production, an earned income (wage, payroll) tax, beer and liquor tax, earnings of city- owned utilities, garbage and refuse collection charges, parking meter fees and sewer charges.

Each city needs to tailor its sources according to its needs and its characteristics. In choosing the best mix the following criteria should be taken into account: • Is the tax legally feasible? • Will it bring in the desired revenue? • Can it be economically administered? • Is the tax simple and certain? • Will the taxpayer understand how the tax is computed? Will he be able to anticipate the amount of liability? Is provision made for hearing complaints with need of counsel? • Is the tax equitable as to benefit and ability-to-pay? Will the addition of the proposed new source make the total tax burden more equitable?

Guidelines for some of the more common potential revenue sources are described below.

3.8.1 Use of Selected Revenue Instruments

Property Tax

Property tax is generally levied on the value of the real property improvements and personal property physically within the geographic boundaries of the incorporated city. Frequently, local governments divide real property into Commercial, Residential and Agricultural. Commercial and Residential property should be valued on the current sales value of the permanent improvements on each the property in the incorporated area. Therefore, if a piece of property is in commercial use, in a productive area, it will have a higher price due to the economic opportunities available at that location. Residential property may have a higher value because of the desirability of the location due to the proximity of schools, play and recreation areas, transportation systems, and utility service.

The value of the immoveable structures on the property is termed the appraised value. Value is generally assumed to be the market value of the land and the improvements to the property (buildings, and other valuable structures). Since land is owned by the State in PRC and not bought and sold as such, the appraised value should be the market of the improvements to the land. The market value of the improvements will in practice reflect the market value of the use rights to the land that the owner of the improvements enjoys.

Agricultural property is frequently treated quite differently. In most parts of the world agricultural property is valued on its net productive value. This is because on the bases of area of land surface, agricultural property often has market value considerably higher than its agricultural production would justify. That is, if a piece of agricultural property were taxed on the same basis as residential or commercial property the agricultural property frequently would not produce enough income to pay the taxes.

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The property tax is most often used to finance basic services like education, fire protection, street maintenance and repair, traffic control devices, parks and recreation facilities, administrative functions, bond debt service and other services where a specific identifiable customer is difficult or impossible to identify. In other words, property tax is used to finance those facilities and services defined as public goods.

The first step in creation of a property tax is passage of a law authorizing its use (see box below for model legislation). Then the town carries out a valuation of real property. Then the taxes for each owner are determined, levied and collected.

Model Property Tax Law The Incorporated city’s Chief Executive will assess a tax on property, except as provided below, based on the economic value of the property. The tax is limited to two and one half percent (2.5%) of the economic value per year. The economic value is set by the city’s Chief Executive on recommendation of the Board of Tax Equalization and transmitted to the Executive by the Tax Assessor Collector. The Tax Assessor Collector is required to survey and list all property in use with improvements, residential, commercial and industrial, in the incorporated city with the value of the improvements thereon and assemble a roll (list of each real property and the value of any improvements) and will use guidelines prescribed below to evaluate property and recommend approval of that role by the Board of Tax Equalization. The Tax role must be completed and submitted to the Board of Tax Equalization no later than the last day of March of the year prior to the year for which the tax will be levied and collected. Board of Tax Equalization is obligated to publish the proposed tax role and provide opportunity for each person listed as owner of property improvements to appear before the board to challenge the value of his or her property as determined by the Tax Assessor Collector. Values unchallenged by the owner are assumed correct and may not be challenged after July 31 of the same year. By August 31, the Board of Equalization must approve the tax role and submit it to the Chief Executive for approval. The Chief Executive must approve a tax role not later than September 30 of the same year. Property owned by government and religious organizations, not use for commercial purposes, is exempt from property tax. In this case, commercial purposes mean producing a monetary income to the owner.

Valuation of Real Property

The appraisers are officers of the city and working in its behalf. As such they have the authority to enter and view all property in their assigned district or districts. Probably the most demanding and difficult task in implementing a property tax is locating and evaluating the property for taxation. The generally accepted method these days is based on an aerial photograph. From the aerial photo the Tax Assessor Collector divides the incorporated area into tax districts of approximately 100 to 300 hectors depending on the density of building in the area.

An enlarged map of each district is printed and given an alpha numeric code designated for each district. Each district is then usually again divided into smaller squares with the square again designated by an alphabetically designated letter horizontally and vertically numerically. The Tax Assessor Collector then assigns an appraiser to each district and requires that each building be independently appraised and the owner identified. In the first years of implementing a property tax it is wise for the mayor to ask each owner of improvements to property to come to the government building and to identify their property and declare a value for the improvements. These values may not correspond with the value later determined by an appraiser but there is value in having the owner identified.

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The most important factor in determining the value is the market value. This is estimated by several different methods depending of the properties characteristics. If the property has not changed hands in several years nor has similar property in the area the appraiser must make a judgment based on the size of the building or improvement, its structural composition and its state of deterioration. It must be remember that the property may have been built at almost no cost many years ago but the criteria is what would the building sell for on today’s market. The Tax Assessor Collector may require each appraiser to photograph each building or improvement to be included in the file that must be assembled on the property. Each building is further identified by distance from the north and west edge of the sub district. Each appraiser must make notes related to his or her observations and be as precise as possible in describing the location and structure being appraised. If any property improvement has been built in the area or sold this should be noted along with the cost of construction and/or the sales price. It may become necessary to provide the rational for the appraisal to the Chief Executive Officer or others including the owner.

Calculating the Property Tax

The property tax is calculated on each individual property containing an improvement as determined by recommendation of the Tax Assessor Collector and set by the legislative body. The value of that improvement is multiplied by the rate also set by the Chief Executive no later than October 1 of the year prior to the fiscal year for which it is assessed.

Example: Appraised value of commercial building…. 100,000.00 Yuan Rate set by the Local Government…. .0175 Yuan Taxes due on property for fiscal year… 1750 Yuan

Appraised value of residential building… 5,000 Yuan Rate set by Local Government (should be the same as Commercial) .0175 Yuan Taxes due on property for fiscal year… 87.5 Yuan

Appraised value of industrial property… 1,500,000 Yuan Rate… .0175 Yuan Tax due on property… 26,250 Yuan

The taxes due on all property in the corporate city are added together producing the tax role.

If all the improvements in the city have a combined value of 10,000,000 Yuan the local government can expect property tax revenue of 175,000 Yuan for the fiscal year.

Special Assessments

Special assessments are a compulsory charge on selected property for a particular improvement which presumably benefits the owners of the selected property and which is also undertaken in the interests of the public.

Some cities use special assessments as a means of distributing the cost of a public improvement in a manner designed to place the highest charges against properties that appear to benefit most. Some cities resort to special assessments only when other sources of income have reached a reasonable limit or when anticipated pressure on the general revenues is thought to be too great. The special assessment is frequently used by rapidly growing municipalities in their efforts to meet the cost of needed public improvements. For

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example, during periods of explosive growth municipalities need to use all existing means of financing frequently surge to the use of special assessments.

Three major methods are used to allocate cost on benefited property owners: the front measurement of the property bordering on the improvement (such as a road), the area of the property, and the assessed valuation of the property. Many cities use two or more of these factors in combination. The steps in levying a special assessment are as follows: 1. Determine the cost of the improvement 2. Delineate the special assessment district: the geographic area within which the property owners that will most benefit from the investment are located 3. List all of the property owners within the special assessment district 4. Determine the length of the frontage of their property bordering on the improvement, the area of their property, or the market value of their property, depending on the method used. 5. Apportion the cost of the improvement to the properties 6. Levy and collect the special assessment as part of the property tax or a separate charge

Block Grant Shared Revenue

The state should set aside 10 percent of its revenue for designated purposes consistent with its national goals and objectives. These funds would be administered by a State agency and granted directly to local governments who will make competitive applications for undertaking work specifically in an area of particular interest to the State. Possible project areas for consideration might be economic development, environmental projects such as water or waste water projects, housing or other national or regional needs. Block grants are discussed in more detail in Section 2 of this volume.

Fee-Based Sources

There are a multitude of fee-based charges wherein the cost of an improvement is passed on the end user. Examples of this might be entrance fees to publicly financed sports stadiums, theater tickets, airport taxes, bus and rail charges, or toll roads. The calculation of these charges frequently includes operating and maintenance cost as well as debt repayment. In many cases, government will assess part of the cost of these types of improvement to general obligations and a part (sometimes operations and maintenance) to user fees. The distinction between fees and service charges is more than a little vague. At one time, fee-based services usually included at least some public good features. In recent years the definition of a public good has broaden somewhat making the distinction increasingly vague.

3.8.2 Financing for Capital Improvements

Sources for financing for capital improvements include bonds, current revenues, user fees, loans, and grants from government, investment of anticipated clients, special taxes and improvement district assessments. It is a prudent rule that any chosen financial source should be related to the improvement under consideration. This means that a water system improvement would be paid out of water revenues. An investment for economic development

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is expected to pay for itself in returns from use of the facility or from increased taxes generated by the improvement or improvements ancillary to it.

Some improvements don’t generate easily identifiable revenues but are nevertheless of great economic value. Examples of this type of improvement are schools and educational facilities, parks, and major thoroughfares. It is usually considered prudent to pay for this type of improvement from general revenues.

A second guideline is that the funding source needs to be adequate to meet the needs of all demands placed on the source. For example, if the improvement is a sanitary landfill, anticipated revenues from its use should be sufficient to amortize the debt incurred in its development as well as normal operating and maintenance costs.

When a potential investor (bank, bond purchaser, or other institutional investor) considers making a loan for an improvement, it must feel confident that the potential revenue source is reliable over the life of the debt.

Many improvements are financed under the full faith and credit of the government. This is generally discouraged in financing improvements that have an identifiable income source because over time such debts can burden a governmental entity to the extent that other necessary general improvements must be delayed or rejected. The advantage is that by pledging the full faith and credit of the entity a lower interest rate is offered making the choice very desirable.

Municipal bonds are among the most powerful financial instruments for economic development and the provision of local services. Successful utilization of this instrument is dependent upon several prerequisites: • Legal authority to pledge revenue to payment of debt service—that is, the interest on the debt, principal payments as required, and an emergency reserve to protect, maintain or repair the infrastructure if necessitated by unforeseen natural disaster or emergency. • Legal authority to pledge transfer of financial management of the infrastructure developed by the bond funds to an investor’s agent in the event of the local government’s failure to meet all bond covenant requirements. • Authority to set and collect fees, taxes or other revenue sources within the boundaries of the local government at sufficient rates to provide for the operations, maintenance and debt service requirements of the infrastructure subject to the bond issuer. • Review of all proposed debt instruments by the provincial government which must certification that the commitments within the bond issue and the debenture documents conform to law and are within the local government’s power and authority to commit before the agreement can be concluded.

In the medium term, local governments should implement and operate less sophisticated revenue instruments like user fees and property taxes in order to build their institutional capacity and improve their financial position. Later, they should take out small loans from commercial banks to finance capital improvements with high financial rates of return. After establishing a good credit records, local governments should consider issuing bonds to finance large infrastructure projects under provincial government supervision.

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3.8.3 Internal Control and Financial Organization

Introduction of new revenue sources and increased revenue-generating authority will require towns to strengthen their financial management and internal controls. Principles for the organization of local government finance systems are as follows: 1. Appropriate division of duties-- Internal controls rely on the segregation of duties in the executive financial function. This means no single person or office handles a given transaction from beginning to the end. Basic functions that should be performed by three different divisions or offices include: authorization (approvals) of transactions, recording of transactions, and custody of assets (cash and other property). 2. Qualified personnel -- Positions should be filled with most qualified and competent persons possible. Special training may help. The financial personnel perform their duties much better if there is good understanding among employees of the duties and responsibilities of each employee. Local governments should prepare position descriptions detailing the responsibilities and duties of the person employed on specific position. 3. Sound procedures for authorizing, recording and reporting transactions -- Logical, consistent procedures that describe in detail the duties that must be performed, how they are to be performed and who is to perform them.

Below is a suggested structure and an organizational model that incorporates the division of responsibility required by international accounting standards and a brief description of the standard duties of each office of the modern finance department. These elements include offices of accountant, treasury, purchasing, budget and of the tax assessor collector. The organizational structure is also guided by the concept of internal control and audit.

Figure 3.18: Finance Department Structure

F i n a n c e D e p a r t m e n t

Office Tax Office of Office of Office of Office of Assessor Budget Purchasing Accountant Treasury Collector

The Office of Budget makes work measurement studies to develop and administer budget system, assembles the budget estimates and assists executive authority in preparing budget documentation.

The Office of Purchasing should be created to serve the chief executive and charged with responsibility to make purchases and direct the accusation or disposal of all property of the local government.

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The Tax Assessor Collector is responsible for creating and maintaining records of all property improvements in the geographical area of the local government. As buildings are completed, the construction department notifies the Tax Assessor collector’s office and an assessor is assigned to collect building plans, locate the property on the departments tax map and enter the value on the ledgers of the office. All existing improvements and new improvements are added to the role in preparation for the annual tax billing and receipting.

Office of Accounting is where all general ledgers and the major subsidiary ledgers are maintained. The office usually is responsible for pre-auditing all receipts and disbursements. This division prepares the payroll from information provided by the operating departments, prepares all checks, keeps the general accounts including the single treasury account as well as subsidiary accounts, bills local taxes, fees for public services and maintains records of physical assets.

The Office of the Treasury is responsible for collecting all taxes, fines, utility services charges and other billing of the municipal government. The Treasury disburses all funds of the municipal government on the basis of valid warrants, vouchers or proper instruments of authorization. The Treasury has custody of all municipal funds and plans all cash flow management.

3.9 Action Planning

Sections 3.4 through 3.8 above set out guidelines for formulating different proposals for economic development, land use, housing, infrastructure, and finance. Having gone through those steps, the town government will have a “long list” of different interventions and ways to finance them. All of these proposals will have been analyzed independently as part of the formulation of the component to which they belong; for example, a proposal to build a new water treatment plant will have undergone financial and/or economic feasibility analysis before being included in a capital investment plan. Now it is time to analyze the proposals— or “actions”—as a group in order to answer the questions: • What is the interrelationship between the actions? Does the implementation of some actions have an effect on the feasibility of others? • Where are there “synergies” between actions? That is, in considering together the outcomes of two or more actions, in what instances is the whole greater than the sum of the parts? • Where are there contradictions between actions? • How can the individual actions be modified so that the entire set of actions will more effectively achieve the town’s development objectives?

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Figure 3.19: The Action Planning Process

Employment Infrastructure Housing and Social and Services Land Use Services

Action Planning

Synthesized Set of Feasible Actions (Strategic Plan)

Achievement of Objectives (Implementation)

Step 1. Analyze the Long List of Proposals as a Whole

The town government should convene the inter-agency strategic planning committee established earlier in the strategic Examples of Impacts of planning process in order to consider Some Sectoral Proposals on Others the long list of sectoral proposals and • Municipal finance proposals for generating to synthesize them into a coherent additional revenue will impact the ability of the package. As shown in the figure town government to finance environmental above, this process starts with the infrastructure projects. “sectoral” proposals (economic devel- • Social services proposals may contribute to opment, land use and housing, infra- achieving economic development objectives by structure, etc.) and considers them as attracting migrants and expanding the labor pool. a whole. The committee should take a • Roads investments may impact the ability of the cross-sectoral or interdisciplinary look town government to attract investment in key economic sectors. at the proposals and analyze the • Public participation may improve the ability to extent to which they impact each other deliver urban services on a cost recovery basis. (see box).

Step 2. Synthesize the Long List into a Coherent Set of Actions

The strategic planning committee should retain those actions that most directly and effectively contribute to achieving the goals of the town, as defined with stakeholders (see Section 3.3 above). Where there are contradictions, some actions should be modified in order to resolve the contradiction or should be eliminated altogether. Any identified synergies among actions should be capitalized on: planners should modify the actions so that they

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achieve the intended results, and at the same time make it easier for other actions to achieve their intended results. For example, by modifying housing designs to make apartments smaller, apartment will be more affordable to end users such as migrants, who may have limited disposable income; at the same time, this action can result in higher residential densities, thereby helping urban service providers to provide water supply and wastewater collection and treatment services at lower cost.

The planners should verify the financial feasibility of the individual actions and of the package as a whole. Where financing is not sufficient for some actions, such as capital improvements included in the capital investment plan, then additional sources of financing should be sought. When sufficient financing cannot be identified, the unaffordable actions should be deleted from the long list, or put into a “contingency” section for inclusion when and if financing becomes available. All actions retained in the short list must have identified, real sources of financing. This is necessary to ensure that all actions are feasible and that the strategic plan is implementable.

The planners should examine the impact of the proposed actions on the urban environment. To what extent will the set of actions achieve any environmental goals set in the early planning stages? What is the expected environmental impact of selected actions, such as construction/extension of a wastewater collection network or expansion of activities related to natural resource processing? What types of air, land and water pollution are proposed industries likely to create and what mitigating measure should be included in the plan?

Step 3. Rank the Actions According to Priority

Prioritize actions by the degree of their contribution toward achieving plan objectives. The highest-priority actions should be those that are absolutely essential to achieving the objectives. Other actions that are expected to yield valuable benefits but are not essential for achieving the main objectives should be ranked lower.

Step 4. Develop Timeline and Assign Responsibilities for Specific Actions

The prioritized set of actions should be put into one table as shown below. This table is called the Action Plan. The first row (after the header row) is for the highest priority action, the second row for the second-highest priority actions, etc.

Each action should have a start date and an end date. These should be established so that where one actions is dependent on another, the prerequisite actions will be carried out first. All actions must start and finish within the plan period.

Table 3.2: Illustrative Action Plan Template Action Cost Start Date End Date Responsible Party Creation of Economic Y 100,000 Oct 2005 Dec 2005 DRC Development Corporation Improvements to Route Y 4.4M Apr 2006 Sep 2007 Construction Office 105 Wholesale Land to Housing Y 670,000 Sep 2005 Dec 2005 Land Management Developers Board ….. …..

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Moreover, each action is assigned to a specific entity. That entity will take lead responsibility for carrying out the action. Other entities may also support the implementation of a given action, but only one entity will ultimately be responsible for it. This direct assignment of responsibility will help to ensure that the plan gets implemented well and on time.

3.10 Investment Promotion

Town governments should take a more proactive approach to economic growth in their towns. Having identified key sectors and provided necessary infrastructure as described in Section 3.4, local governments should actively court potential investors and try to convince them to build new productive facilities in the town. The main activities associated with investment promotion are: • Branding • Marketing and outreach • One-stop investment office

Some of these activities may most efficiently be conducted at the level of the sub-region rather than that of the town. For example, branding of cultural tourism related to sacred Buddhist sites in northern Shanxi province is best done by an association of local governments (e.g., Datong and Wu Tai Shan) working together with the tourist bureau; by working together, the local governments in the sub-region can achieve economies of scale by bundling their tourist attractions and can save money on development costs associated with preparation of marketing materials. In other instances, town governments can promote investment on their own, for example, by creating a one-stop investment office to provide comprehensive data to manufacturing firms and facilitate the process by which they will invest in a local industrial park. For more information on sector-specific investment promotion activities, see the sections on agro-processing, tourism and manufacturing in Volume 1, Section 4 of this report.

Branding

Developing a distinct “brand identity” is important for the success of investment promotion activities. Town governments, either independently or in collaboration with other local governments in a sub-region, should forge a brand image for the town/sub-region and prepare marketing materials to convey that image. The brand image should reflect the current and proposed strengths of the local/sub-regional economy and should be targeted to a particular type or types of investor. The brand should, to the extent possible, distinguish the town/sub-region from other competing towns/sub-regions, in order to highlight what is special and distinct about the town/sub-region in question.

Xiliu Town in Liaoning Province has been successful in developing a distinct brand for its local economy. The town’s brochure clearly articulate Xiliu as an apparel and textile trade and manufacturing center with good access to markets.

Given that local government staff are generally not specialized in advertising and public relations, the town/sub-region should contract out this activity to a professional advertising firm. The specific skills of this type of firm are critical for forging a brand image that will be effective in attracting private sector investment in targeted sectors.

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Marketing and Outreach

Once the brand is defined and articulated in marketing materials, the town government should, either independently or in collaboration with other local governments in the sub- region, undertake marketing and outreach activities to try to convince specific investors to locate in the town/sub-region. The targets of such marketing activities are varied: town leaders and their representatives should attend conferences in targeted sectors, establish contacts with national and international trade associations, and call upon individual investors that are deemed likely to be interested in investing in the town/sub-region.

Marketing specialists can be engaged to prepare marketing strategies, identify potential targets, and prepare presentations. However, town leaders and/or their representatives should undertake most of the outreach activities personally.

One-Stop Investment Office

After particular firms become interested in investing in the town, they will require information about procedures and investor support services. The town government should facilitate access to such information and generally make it easy for the investor to get what they need by creating a “one-stop” investment office. The office will be the one and only vis-à-vis for investors, the single office through which investors will get all the information and support required. Through a new unified, comprehensive database, the investment office will provide information on: • Available land and urban services • Licensing procedures • Development controls, including procedures for building approval • Business support services • Transportation facilities • Fiscal and financial incentives

Where necessary, the investment office will provide liaison services to other town departments that provide services to or regulate private investors.

3.11 Monitoring, Evaluation, and Feedback

Like their counterparts at the provincial level, town governments should monitor the performance of plans and programs and provide feedback to decision-makers.

First, the town government should fill out and deliver the survey questionnaire for the province’s annual local government survey, described in Section 2.6 above.

Second, the town government should collect data on the implementation of its plans and programs by: • Carrying out enterprise and household surveys to gauge “customer satisfaction” once a year • Provide feedback from the surveys to implementing agencies including infrastructure providers, the local investment office, permitting departments or agencies, managers of industrial parks, etc.

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DRC should conduct the surveys, coordinate the date collection, tabulate and analyze results, and circulate it to local end users. DRC should then organize a stakeholder committee meeting to discuss the findings and decide how existing plans and programs should be modified, in light of recent performance, to better achieve the town’s development goals in the future.

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Appendix A Enabling Legislation for Incorporation of Local Governments

Home Rule

A home-rule municipality has the following Powers:

1. To prohibit the use of any street, alley, highway of grounds of the city by any telegraph, telephone, electric light, street railway, gas company, or any other character of public utility without first obtaining the consent of the governing authorities expressed by ordinance and upon paying such compensation as may be prescribed and upon such condition as may be provided by any such ordinance,

2. To determine fix and regulate the charges, fares or rates of any person, firm or corporation enjoying or that may enjoy the franchise or exercising any other public privilege in said city and to prescribe the kind of service to be furnished by such person, firm or corporation and the manner in which it shall be rendered, and from time to time alter or change such rules, regulations and compensation; provided that in adopting such regulations and in fixing or changing such compensation, or determining the reasonableness thereof, no stock or bonds authorized or issued by any corporation enjoying the franchise shall be considered unless proof that the same have been actually issued by the corporation for money paid and used for the development of the corporate property, labor done or property actually received in accordance with the laws and Constitution of this state applicable thereto. In order to ascertain all facts necessary for a proper understanding of what is or should be a reasonable rate or regulation, the governing authority shall have full power to inspect the books and compel the attendance of witnesses for such purpose.

3. Provided that in all cities of over twenty-five thousand (number arbitrary and should be set by the State or Province government) inhabitants, the governing authority of such city, when the public service of such city may require the same, shall have the right and power to compel any public utility corporation to extend its lines of service into any section of said city not to exceed two miles, all told, in any one year.

4. Whenever any city may determine to acquire any public utility using and occupying its streets, alleys, and avenues as hereinbefore provided, and it shall be necessary to condemn the said public utility, the city may obtain funds for the purpose of acquiring the said public utility and paying the compensation therefore, by issuing bonds, notes or other evidence of indebtedness and shall secure the same by fixing a lien upon the said properties constitution the said public utility so acquired by condemnation or purchase or otherwise; said security shall apply alone to said properties son pledged; and such further regulations may be provided by any charter for the proper financing or raising the revenue necessary for obtaining any public utilities and providing for the fixing of said security.

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Definitions

Section 1

In this Act:

1. “Municipality” means a home-rule city.

2. Declaration of governmental Function. The planning, acquisition, establishment, development, construction, enlarging, improvement, maintenance, equipping, operation, regulation, protection, policing and leasing facilities by municipalities and other public agencies, separately or jointly exercised, are declared to be public purpose and matters of pubic necessity and, in the case of a municipality, are declared to be municipal functions and purposes as well as public and governmental. All land and other property and privileges acquired and used by or on behalf of municipalities or other pubic agencies are declared to be acquired for public and governmental purposes and as a matter of public necessity and, in the case of municipality, for a municipal purpose. Nothing in this act shall operate to confer or convey any governmental immunity or limitation of liability to any entity which is not a governmental entity, authority, public agency, or subdivision thereof.

Validation Section 2

(a) Any real estate transactions or any acquisition or operations of any property by a municipality or municipalities that occurred before the effective date of this Act, are validated as of the dates they occurred. The transactions, acquisition, or operations may not be held invalid because they were not performed in accordance with law.

(b) This section does not apply to any matter that on the effective date of this Act:

(c) (1) Is involved in litigation if the litigation ultimately results in the matter being held invalid by a final judgment of a court of competent jurisdiction; or

(2) has been held invalid by a final judgment of a court of competent jurisdiction

Cumulative Effect

Section. 3. The provisions of this Act shall be cumulative of all other laws or parts of laws, general or special.

Severability

Section 4. If any provisions of this act or the application thereof to any person, entity, or circumstances is held invalid, such invalidity shall not affect other provisions or applications of the Act which can be given effect without the invalid provision or application and to this end provisions of this Act are declared to be severable.

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Appendix B Model City Charter

ARTICLE I POWERS OF THE CITY

Section 1.0.1 Powers of the City.

The city shall have all powers possible for a city to have under the constitution and laws of this state as fully and completely as though they were specifically enumerated in this charter.

Section 1.02. Construction.

The powers of the city under this charter shall be construed liberally in favor of the city, and the specific mention of particular powers in the charter shall not be construed as limiting in any way the general power granted in this article.

Section 1.0.3. Intergovernmental Relations.

The city may participate by contract or otherwise with any governmental entity of this state or any other state or states or the United States in the performance of any activity which one or more of such entities has the authority to undertake.

ARTICLE II CITY COUNCIL

Section 2.0.1. General Powers and Duties

All powers of the city shall be vested in the city council, except as otherwise provided by law or this charter, and the council shall provide for the exercise thereof and for the performance of all duties and obligations imposed on the city by law.

Section 2.0.2 Eligibility, Terms and Composition,

(a) Eligibility. Only registered voters of the city shall be eligible to hold the office of council member or mayor.

(b) Terms. The term of office of elected officials shall be four years elected in accordance with Article V.

{In determining the size of the council, charter drafters should consider the diversity of population elements to be represented and the size of the city.}

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Section 2.0.3. Mayor.

(a) Powers and Duties.

The mayor shall be the chief executive officer of the city, responsible to the council for the management of all city affairs placed in the mayor’s charge by or under this charter. The mayor shall:

(1) Appoint and suspend or remove all city employees and appointive administrative officers provided for by or under this charter, except as otherwise provided by law, this charter or personnel rules adopted pursuant to this charter. The mayor may authorize any administrative officer subject to the Mayor’s direction and supervision to exercise these powers with respect to subordinates in that officer’s department, office or agency;

(2) Direct and supervise the administration of all departments, offices and agencies of the city, except as otherwise provided by this charter or by law;

(3) Attend all city council meetings. The mayor shall have the right to take part in discussion but shall not vote;

(4) See that all laws, provisions of this charter and acts of the city council, subject to enforcement by the mayor or by officers subject to the mayor’s direction and supervision, are faithfully executed;

(5) Prepare and submit the annual budget and capital program to the city council, and implement the final budget approved by council to achieve the goals of the city;

(6) Submit to the city council and make available to the public a complete report on the finances and administrative activities of the city as of the end of each fiscal years;

(7) Make such other reports as the city council may require concerning operations;

(8) Keep the city council fully advised as to the financial condition and future needs of the city;

(9) Make recommendations to the city council concerning the affairs of the city and facilitate the work of the city council in developing policy;

(10) Provide staff support services for the council members;

(11) Assist the council to develop long term goals for the city and strategies to implement these goals;

(12) Encourage and provide staff support for regional and intergovernmental cooperation;

(13) Promote partnerships among council, staff and citizens in developing public policy and building a sense of community; and

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(14) Perform such other duties as are specified in this charter or may be required by the city council.

Section 2.0.4. Compensation; Expenses.

The city council may determine the annual salary of the mayor and council members by ordinance, but no ordinance increasing such salary shall become effective until the date of commencement of the terms of council members elected at the next regular election. The mayor and council members shall receive their actual and necessary expenses incurred in the performance of their duties of office.

Section 2.0.5. Prohibitions.

(a) Holding Other Office. Except where authorized by law, no council member shall hold any other elected public office during the term for which the member was elected to the council. No council member shall hold any other city office or employment during the term for which the member was elected to the council. No former council member shall hold any compensated appointive office or employment with the city until one year after the expiration of the term for which the member was elected to the council, unless granted a waiver by the Board of Ethics.

Nothing in this section shall be construed to prohibit the council from selecting any current or former council member to represent the city on the governing board of any regional or other intergovernmental agency.

(b) Appointments and Removals. Neither the city council nor any of its members shall in any manner control or demand the appointment or removal of any city administrative officer or employee which the mayor or any subordinate of the mayor is empowered to appoint, but the council may express its views and fully and freely discuss with the mayor anything pertaining to appointment and removal of such officers and employees.

(c) Interference with Administration. Except for the purpose of inquiries, and investigations under Section 2.0.9, the council or its members shall deal with city officers and employees who are subject to the direction and supervision of the mayor solely through the mayor, and neither the council nor its members shall give orders to any such officer or employee, either publicly or privately.

Section 2.0.6. Vacancies; Forfeiture of Office; Filling of Vacancies.

(a) Vacancies. The office of a council member shall become vacant upon the member’s death, resignation, or removal from office or forfeiture of office in any manner authorized by law.

(b) Forfeiture of Office. A council member shall forfeit that office if the council member:

(1) Fails to meet the residency requirements,

(2) Violates any express prohibition of this charter,

(3) Is convicted of a crime involving moral turpitude, or

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(4) Fails to attend three consecutive regular meetings of the council without being excused by the council.

(c) Filling of Vacancies. A vacancy in the city council shall be filled for the remainder of the unexpired term, if any, at the next regular election following not less than sixty days upon the occurrence of the vacancy, but the council by a majority vote of all its remaining members shall appoint a qualified person to fill the vacancy until the person elected to serve the remainder of the unexpired term takes office. If the council fails to do so within thirty days following the occurrence of the vacancy, the election authorities shall call a special election to fill the vacancy, to be held not sooner than ninety days and no later than 120 days following the occurrence of the vacancy, and to be otherwise governed by law. Notwithstanding the requirement in Section 2.11(c), if at any time the membership of the council is reduced to less than ______, the remaining members may by majority action appoint additional members to raise the membership to ______.

Section 2.0.7. Judge of Qualifications.

The city council shall be the judge of the election and qualifications of its members, and of the grounds for forfeiture of their office. In order to exercise these powers, the council shall have power to subpoena witnesses, administer oaths and require the production of evidence. A member charged with conduct constituting grounds for forfeiture of office shall be entitled to a public hearing on demand, and notice of such hearing shall be published in one or more newspapers of general circulation in the city at least one week in advance of the hearing.

Section 2.08. City Clerk.

The city council shall appoint an officer of the city who shall have the title of city clerk The city clerk shall give notice of council meetings to its members and the public keep the journal of its proceedings and perform such other duties as are assigned by this charter or by the council or by state law.

Section 2.0.9. Investigations.

The city council may make investigations into the affairs of the city and the conduct of any city department, office, or agency and for this purpose may subpoena witnesses, administer oaths, take testimony, and require the production of evidence. Failure or refusal to obey a lawful order issued in the exercise of these powers by the council shall be a misdemeanor punishable by a fine of not more than $______, or by imprisonment for not more than ______or both.

Section 2.10. Independent Audit.

The city council shall provide for an independent annual audit of all city accounts and may provide for more frequent audits as it deems necessary. Such audits shall be carried out in accordance with Section 5.12.

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Section 2.11. Procedure.

(a) Meetings. The council shall meet regularly at least once in every monthly at such times and places as the council may prescribe by rule. Special meetings may be held on the call of the mayor or of____ or more members and, whenever practicable, upon no less than twelve hours’ notice to each member. Except as allowed by state law, all meetings shall be public; however, the council may recess for the purpose of discussing in a closed or executive session limited to its own membership any matter which would tend to defame or prejudice the character or reputation of any person, if the general subject matter for consideration is expressed in the motion calling for such session and final action on such motion is not taken by the council until the matter is placed on the agenda.

(b) Rules and Journal. The city council shall determine its own rules and order of business and shall provide for keeping a journal of its proceedings. This journal shall be a public record.

(c) Voting. Voting, except on procedural motions, shall be by roll call and the ayes and nays shall be recorded in the journal. ______members of the council shall constitute a quorum, but a small number may adjourn from time to time and may compel the attendance of absent members in the manner and subject to the penalties prescribed by the rules of the council. No action of the council, except as otherwise provided in the preceding sentence and in Section 2.06(c), shall be valid or binding unless adopted by the affirmative vote of _____or more members of the council.

Section 2.12. Action Requiring an Ordinance.

In addition to other acts required by law or by specific provision of this charter to be done by ordinance, those acts of the city council shall be by ordinance which:

(1) Adopt or amend an administrative code or establish, alter, or abolish any city department, office, or agency;

(2) Provide for a fine or other penalty or establish a rule or regulation for violation of which a fine or other penalty is imposed;

(3) Levy taxes;

(4) Grant, renew, or extend a franchise;

(5) Regulate the rate charged for its services by a public utility;

(6) Authorize the borrowing of money;

(7) Convey or lease or authorize the conveyance or lease of any lands of the city;

(8) Regulate land use and development;

(9) Amend or repeal any ordinance previously adopted; or

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(10) Adopt, with or without amendment, ordinances proposed under the initiative power.

Acts other than those referred to in the preceding sentence may be done either by ordinance or by resolution.

Section 2.13. Ordinances in General.

(a) Form. Every proposed ordinance shall be introduced in writing and in the form required for final adoption. No ordinance shall contain more than one subject, which shall be clearly expressed in its title. The enacting clause shall be “The city of______hereby ordains…” Any ordinance which repeals or amends an existing ordinance or part of the city code shall set out in full the ordinance, sections or subsections to be repealed or amended, and shall indicate matters to be omitted by enclosing it in brackets or by strikeout type and shall indicate new matters by underscoring or by italics.

(b) Procedure. Any member at any regular or special meeting of the council may introduce an ordinance. Upon introduction of any ordinance, the city clerk shall distribute a copy to each council member and to the mayor, shall file a reasonable number of copies in the office of the city clerk and such other public places as the council may designate, and shall publish the ordinance together with a notice setting out the time and place for a public hearing thereon and for its consideration by the council. The public hearing shall follow the publication by at least seven days, may be held separately or in connection with a regular or special council meeting and may be adjourned from time to time; all persons interested shall have an opportunity to be heard. After the hearing, the council may adopt the ordinance with or without amendment or reject it, but if it is amended as to any matter of substance, the council may not adopt it until the ordinance or its amended sections have been subjected to all the procedures herein before required in the case of a newly introduced ordinance. As soon as practicable after adoption, the clerk shall have the ordinance and a notice of its adopted published and available at a reasonable price.

(c) Effective Date. Except as otherwise provided in this charter, every adopted ordinance shall become effective at the expiration of 30 days after adoption or at any later date specified therein.

(d) “Publish” Defined. As used in this section, the term “publish” means to print in the contemporary means of information sharing, which includes but is not limited to, one or more newspapers of general circulation in the city, and, if available, in a web site: (1)the ordinance or a brief summary thereof, and(2)the places where copies of it have been filed and the times when they are available for public inspection and purchase at a reasonable price.

Section 2.14. Emergency Ordinances.

To meet a public emergency affecting life, health, property or the public peace, the city council may adopt one or more emergency ordnances, but such ordinances may not levy taxes, grant, renew or extend a franchise, regulate the rate charged by any public utility for its services or authorize the borrowing of money except as provided in Section 5.07(b). An

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emergency ordinance shall be introduced in the form and manner prescribed for ordinances generally except that it shall be plainly designated as an emergency ordinance and shall contain, after the enacting clause, a declaration stating that an emergency exists and describing it in clear and specific terms. An emergency ordinance may be adopted with or without amendment or rejected at the meeting at which it is introduced, but the affirmative vote of at least _____ members shall be required for adoption. After its adoption, the ordinance shall be published and printed as prescribed for other adopted ordinances. It shall become effective upon adoption or at such later time as it may specify. Every emergency ordinance except one made pursuant to Section 5.07)b)shall automatically stand repealed as of the sixty-first day following the date on which it was adopted, but this shall not prevent re-enactment of the ordinance in the manner specified in this section if the emergency still exists. An emergency ordinance may also be repealed by adoption of a repealing ordinance in the same manner specified in this section for adoption of emergency ordinances.

Section 2.15. Codes of Technical Regulations.

The city council may adopt any standard code of technical regulations by reference thereto in an adopting ordinance. The procedure and requirements governing such an adopting ordinance shall be as prescribed for ordinances generally except that:

(1) The requirements of Section 2.13 fro distribution and filing of copies of the ordinance shall be construed to include copies of the code of technical regulations as well as of the adopting ordinance, and

(2) A copy of each adopted code of technical regulations as well as of the adopting ordinance shall be authenticated and recorded by the city clerk pursuant to Section 2.16(a).

Copes of any adopted code of technical regulations shall be made available by the city clerk for distribution or for purchase at a reasonable price.

Section 2.16. Authentication and Recording; Codification; Printing of Ordinances and Resolutions.

(a) Authentication and Recording. The city clerk shall authenticate by signing and shall record in full in a properly indexed book kept for the purpose all ordinances and resolutions adopted by the city council.

(b) Codification. Within three years after adoption of this charter and at least every ten years thereafter, the city council shall provide for the preparation of a general codification of all city ordinances and resolutions having the force and effect of law. The general codification shall be adopted by the council by ordinance and shall be published, together with this charter and any amendments thereto, pertinent provisions of the constitution and other laws of the state of _____ , and such codes of technical regulations and other rules and regulations as the council may specify. This compilation shall be known and cited officially as the _____ city code. Copies of the code shall be furnished to city officers, placed in libraries, public offices, and, if available, in a web site for free public reference and made available for purchase by the public at a reasonable price fixed by the council.

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(c) Printing of Ordinances and Resolutions. The city council shall cause each ordinance and resolution having the force and effect of law and each amendment to this charter to be printed promptly following its adoption, and the printed ordinances, resolutions and charter amendments shall be distributed or sold to the public at reasonable prices as fixed by the council. Following publication of the first _____ city code and at all times thereafter, the ordinances, resolutions and charter amendments shall be printed in substantially the same style as the code currently in effect and shall be suitable in form for integration therein. The council shall make such further arrangements as it deems desirable with respect to reproduction and distribution of any current changes in or additions to the provisions of the constitution and other laws of the state of ______, or the codes of technical regulations and other rules and regulations included in the code.

ARTICLE III DEPARTMENTS, OFFICES AND AGENCIES.

Introduction.

This Article provides for the creation of the departments, offices and agencies which perform the day-to-day operations of the city. It provides that the mayor appoint and supervise department heads. It makes exceptions in the case of the city attorney, acknowledging the close relationship of the department of law and the city council in some cities. Finally, the Article addresses planning, focusing on environmentally sensitive planning that takes the needs of the surrounding region into account.

Section 3.0.1. General Provisions.

(a) Creation of Departments. The city council may establish city departments, offices, or agencies in addition to those created by this charter and may prescribe the functions of all departments, offices, and agencies. No function assigned by this charter to a particular department, office, or agency may be discontinued or, unless this charter specifically so provides, assigned to any other.

(b) Direction by Mayor. All departments, offices and agencies under the direction and supervision of the mayor shall be administered by an officer appointed by and subject to the direction and supervision of the mayor.. With the consent of council, the mayor may serve as the head of one or more such departments, offices, or agencies or may appoint one person as the head of two or more of them.

Section 3.02. Personnel System.

(a) Merit Principle. All appointments and promotions of city officers and employees shall be made solely on the basis of merit and fitness demonstrated by a valid and reliable examination or other evidence of competence.

(b) Merit System. Consistent with all applicable federal and state laws the city council shall provide by ordinance for the establishment, regulation, and maintenance of a merit system governing personnel policies necessary to effective administration of the employees of the city’s department, office and agencies, including but not limited to classification and pay plans, examinations, force reduction, removals, working

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condition, provisional and exempt appointments, in-service training, grievances and relationships with employee organizations.

Section 3.03. Legal Officer.

(a) Appointment. There shall be a legal officer of the city appointed by the city council.

(b) Role. The legal officer shall serve as chief legal adviser to the council, the mayor and all city departments, offices and agencies, shall represent the city in all legal proceedings and shall perform any other duties prescribed by state law, by this charter or by ordinance.

Section 3.04. Land Use, Development, and Environmental Planning.

Consistent with all applicable federal and state laws with respect to land use, development, and environmental planning, the city council shall:

(1) Designate an agency or agencies to carry out the planning function and such decision-making responsibilities as may be specified by ordinance;

(2) Adopt a comprehensive plan and determine to what extent zoning and other land use control ordinances must be consistent with the plan;

(3) Determine to what extent the comprehensive plan and zoning and other land use ordinances must be consistent with regional plan(s); and

(4) Adopt development regulations, to be specified by ordinance, to implement the plan.

The designated agency, and the mayor and council shall seek to act in cooperation with other jurisdictions and organizations in their region to promote integrated approaches to regional issues.

ARTICLE IV FINANCIAL MANAGEMENT

Introduction.

This article provides for the development of a comprehensive financial program, allowing maximum flexibility within the boundaries of sound fiscal practices. The budget and the budget approval process constitute the most viable and important activity undertaken by the government. The annual operating budget and multi-year capital plan are the products of the translation of disparate and other conflicting community goals and objectives into comprehensive financial documents. The financial planning process establishes a set of short- and long-term goals for the community and aids in resolving disagreements that arise in the execution of the operations of the government.

The complete financial plan involves two major elements: 1) the current annual budget, and 2) the multi-year capital program which is coordinated with the annual budget.

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Section 4.01. Fiscal Year.

The fiscal year of the city shall begin on the first day of _____ and end on the last day of ______..

Section 4.02. Submission of Budget and Budget Message.

On or before the _____ day of _____ of each year, the mayor shall submit to the city council a budget for the ensuing fiscal year and an accompanying message.

Section 4.03. Budget Message.

The mayor’s message shall explain the budget both in fiscal terms and in terms of the work programs, linking those programs to organization goals and community priorities. It shall outline the proposed financial policies of the city for the ensuing fiscal year and the impact of those policies on future years. It shall describe the important features of the budget, indicate any major changes from the current year in financial policies, expenditures, and revenues together with the reasons for such changes, summarize the city’s debt position, including factors affecting the ability to raise resources through debt issues, and include such other material as the mayor deems desirable.

Section 4.0. Budget.

The budget shall provide a complete financial plan of all city funds and activities for the ensuing fiscal year and, except as required by law or this charter, shall be in such form as the mayor deems desirable or the city council may require for effective management and an understanding of the relationship between the budget and the city’s strategic goals. The budget shall begin with a clear general summary of its contents; shall show in detail all estimated income, indicating the proposed property tax levy, and all proposed expenditures, including debt service, for the ensuing fiscal year; and shall be so arranged as to show comparative figures for actual and estimated income and expenditures of the current fiscal year and actual income and expenditures of the preceding fiscal year. It shall indicate in separate sections

(1) The proposed goals and expenditures for current operations during the ensuing fiscal year, detailed for each fund by department or by other organization unit, and program, purpose or activity, method of financing such expenditures, and methods to measure outcomes and performance related to the goals; (2) Proposed longer-term goals and capital expenditures during the ensuing fiscal year, detailed for each fund by department or by other organization unit when practicable, the proposed method of financing each such capital expenditure, and methods to measure outcomes and performance related to the goals; and (3) The proposed goals, anticipated income and expense, profit and loss for the ensuing year for each utility or other enterprise fund or internal service fund operated by the city, and methods to measure outcomes and performance related to the goals. For any fund, the total of proposed expenditures shall not exceed the total of estimated income plus carried forward fund balance exclusive of reserves.

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Section 4.05. City Council Action on Budget.

(a) Notice and Hearing. The city council shall publish the general summary of the budget and a notice stating: .: (1) The times and places where copies of the message and budget are available for inspection by the public, and (2) The time and place, not less than two weeks after such publication, for a public hearing(s)on the budget.

(b) Amendment Before Adoption. After the public hearing, the city council may adopt the budget with or without amendments. In amending the budget, it may add or increase programs or amounts and may delete or decrease any programs or amounts, except expenditures required by law or for debt service or for an estimated cash deficit, provided that no amendment to the budget shall increase the authorized expenditures to an amount greater than total estimated income.

(c) Adoption. The city council shall adopt the budget on or before the ______day of the______month of the fiscal year currently ending. If it fails to adopt the budget by this date, the budget proposed by the mayor shall go into effect.

(d) “Publish” defined. As used in this article, the term “publish” means to print in the contemporary means of information sharing, which includes but is not limited to, one or more newspapers of general circulation in the city, and, if available, in a web site.

Section 4.06. Appropriation and Revenue Ordinances.

To implement the adopted budget, the city council shall adopt, prior to the beginning of the fiscal year:

(a) an appropriation ordinance making appropriations by department, fund, service, strategy or other organization unit and authorizing an allocation for each program or activity;

(b) a tax levy ordinance authorizing the property tax levy or levies and setting the tax rate or rates; and

(c) any other ordinations required to authorize new revenues or to amend the rates or other features of existing taxes or other revenue sources.

Section 4.07. Amendments after Adoption.

(a) Supplemental Appropriations. If during or before the fiscal year the mayor certifies that there are available for appropriation revenues in excess of those estimated in the budget, the city council by ordinance may make supplemental appropriations for the year up to the amount of such excess.

(b) Emergency Appropriations. To address a public emergency affecting life, health, property or the public peace, the city council may make emergency appropriations. Such appropriations may be made by emergency ordinance in accordance with the

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provisions of Section 2.14. To the extent that there are no available unappropriated revenues or a sufficient fund balance to meet such appropriations, the council may by such emergency ordinance authorize the issuance of emergency notes, which may be renewed from time to time, but the emergency notes and renewals of any fiscal year shall be paid or refinanced as long-term debt not later than the last day of the fiscal year next succeeding that in which the emergency appropriation was made.

(c) Reduction of Appropriations. If at any time during the fiscal year it appears probably to the mayor that the revenues or fund balances available will be insufficient to finance the expenditures for which appropriations have been authorized, the mayor shall report to the city council without delay, indicating the estimated amount of the deficit, any remedial action taken by the mayor and recommendations as to any other steps to be taken. The council shall then take such further action as it deems necessary to prevent or reduce any deficit and for that purpose it may by ordinance reduce or eliminate one or more appropriations.

(d) Transfer of Appropriations. At any time during or before the fiscal year, the city council may by resolutions transfer part or all of the unencumbered appropriation balance from one department, fund, service, strategy or organization unit to the appropriation for other department or organization units or a new appropriation. The mayor may transfer funds among programs within a department, fund, service strategy or organization unit and shall report such transfers to the council in writing in a timely manner.

(e) Limitation; Effective Date. No appropriation for debt service may be reduced or transferred, except to the extent that the debt is refinanced and less debt service is required, and no appropriation may be reduced below any amount required by law to be appropriated or by more than the amount of the unencumbered balance thereof. The supplemental and emergency appropriations and reduction or transfer of appropriations authorized by this section may be made effective immediately upon adoption.

Section 4.08. Administration and Fiduciary Oversight of the Budget.

The city council shall provide by ordinance the procedures for administration and fiduciary oversight of the budget.

Section 4.09. Capital Program.

(a) Submission to City Council. The mayor shall prepare and submit to the city council a multi-year capital program no later than three months before the final date for submission of the budget.

(b) Content. The capital program shall include:

(1) A clear general summary of its contents.; (2) Identification of the long-term goals of the community; (3) A list of all capital improvements and other capital expenditures which are proposed to be undertaken during the fiscal years next ensuing, with appropriate supporting information as to the necessity for each;

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(4) Cost estimates and recommended time schedules for each improvement or other capital expenditure; (5) Method of financing upon which each capital expenditure is to be reliant; (6) The estimated annual cost of operating and maintaining the facilities to be constructed or acquired; (7) A commentary on how the plan addresses the sustainability of the community and the region of which it is a part; and (8) Methods to measure outcomes and performance of the capital plan related to the long-term goals of the community.

The above shall be revised and extended each year withy regard to capital improvements still pending or in process of construction or acquisition.

Section 4.10. City Council Action on Capital Program.

(a) Notice and Hearing. The city council shall publish the general summary of the capital program and a notice stating:

(1) The times and places where copies of the capital program are available for inspection by the public, and (2) The time and place, not less than two weeks after such publication, for a public hearing(s) on the capital programs.

(b) Adoption. The city council by resolution shall adopt the capital program with or without amendment after the public hearing and on or before ______day of the ______month of the current fiscal year.

Section 4.11. Independent Audit.

The city council shall provide for an independent annual audit of all city accounts and may provide for more frequent audits as it deems necessary. An independent certified public accountant or firm of such accountants shall make such audits. Such audits should be performed in accordance with Generally Accepted Auditing Standards (GAAS) and Generally Accepted Governmental Auditing Standards (GAGAS).

The council shall designate no fewer than three of its members to serve as an Audit Committee. This committee shall:

(1) Lead the process of selecting an independent auditor; (2) Direct the work of the independent auditor as to the scope of the annual audit and any matters of concern with respect to internal controls; and (3) Receive the report of the internal auditor and present that report to the council with any recommendations from the committee.

The council shall, using competitive bidding, designate such accountant or firm annually, or for a period not exceeding five years, but the designation for any particular fiscal year shall be made no later than 30 days after the beginning of such fiscal year. The standard for independence is that the auditor must be capable of exercising objective and impartial judgment on all issues encompassed within the audit engagement. No accountant or firm may provide any other services to the city during the time it is retained to provide independent audits to the city. The city council may waive this requirement by a majority vote

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at a public hearing. If the state makes such an audit, the council may accept it as satisfying the requirements of this section

Section 4.12. Public Records.

Copies of the budget, capital program, independent audits, and appropriation and revenue ordinances shall be public records.

ARTICLE V ELECTIONS

Section 5.01. City Elections.

(a) Regular Elections. The regular city election shall be held {at the time established by state law} on the first _____ {day of week}, in ______{fall or spring month of odd- or even- numbered year}, and every 2 years thereafter.

(b) Registered Voter Defined. All citizens legally registered under the constitution and laws of the state of ______to vote in the city shall be registered voters of the city within the meaning of this charter..

(c) Conduct of Elections. The provisions of the general election laws of the state of _____ shall apply to elections held under this charter. All elections provided for by the charter shall be conducted by the election authorities established by law. Candidates shall run for office without party designation. For the conduct of city elections, for the prevention of fraud in such elections and for the recount of ballots in cases of doubt or fraud, the city council shall adopt ordinances consistent with law and this charter, and the election authorities may adopt further regulations consistent with law and this charter and the ordinances of the council. Such ordinances and regulations pertaining to elections shall be publicized in the manner of city ordinances generally.

(d) Proportional Representation. The council may be elected by proportional representation by the method of the single transferable vote.

(e) Beginning of Term. The terms of council members shall begin the ____ day of ____ after their election.

Section 5.02. Initiative, Citizen Referendum, and Recall.

Provisions Provided by State Law. The powers of initiative, citizen referendum, and recall are hereby reserved to the electors of the city.

ARTICLE VI GENERAL PROVISIONS

Section 6.01. Conflicts of Interest; Board of Ethics.

(a) Conflicts of Interest. The use of public office for private gain is prohibited. The city council shall implement this prohibition by ordinance, the terms of which shall include, but not be limited to: acting in an official capacity on matters in which the official has a private financial interest clearly separate from that of the general public; the acceptance of gifts and other things of value; acting in a private capacity on matters dealt with as a public official; the use

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of confidential information; and appearances by city officials before other city agencies on behalf of private interests. This ordinance shall include a statement of purpose and shall provide for reasonable public disclosure of finances by officials with major decision-making authority over monetary expenditures and contractual and regulatory matters and, insofar as permissible under state law, shall provide for fines and imprisonment for violations.

(b) Board of Ethics. The city council shall, by ordinance, establish an independent board of ethics to administer and enforce the conflict of interest and financial disclosure ordinances. No member of the board may hold elective or appointed office under the city or any other government or hold any political party office. Insofar as possible under state law, the city council shall authorize the board to issue binding advisory opinions, conduct investigations on its own initiative and on referral or complaint from officials or citizens, subpoena witnesses and documents, refer cases for prosecution, impose administrative fines, and to hire independent counsel. The city council shall appropriate sufficient funds to the board of ethics to enable it to perform the duties assigned to it and to provide annual training and education of city officials and employees, including candidates for public office, regarding the ethics code.

Section 6.02. Prohibitions.

(a) Activities Prohibited.

(1) No person shall be appointed to or removed from, or in any way favored or discriminated against with respect to any city position or appointive city administrative office because of race, gender, age, sexual orientation, disability, religion, country of origin, or political affiliation. (2) No person shall willfully make any false statement, certificate, mark, rating or report in regard to any test, certification or appointment under the provisions of this charter or the rules and regulations made there under, or in any manner commit or attempt to commit any fraud preventing the impartial execution of such provisions, rules and regulations. (3) No person who seeks appointment or promotion with respect to any city position or appointive city administrative office shall directly or indirectly give, render or pay any money, service or other valuable thing to any person for or in connection with his or her test, appointment, proposed appointment promotion or proposed promotion. (4) No person shall knowingly or willfully solicit or assist in soliciting any assessment, subscription or contribution for any political party or political purpose to be used in conjunction with any city election from any city officer or city employee. (5) No city officer or city employee shall knowingly or willfully make, solicit or receive any contribution to the campaign funds of any political party or committee to be used in a city election or to campaign funds to be used in support of or opposition to any candidate for election to city office or city ballot issue. Further, no city employee shall knowingly or willfully participate in any aspect of any political campaign on behalf of or opposition to any candidate for city office. This section shall not be construed to limit any person's right to exercise rights as a citizen to express opinions or to case a vote nor shall it be construed to prohibit any person from active participation in political campaigns at any other level of government.

(b) Penalties. Any person convicted of a violation of this section shall be ineligible for a period of five years following such conviction to hold any city office or position and, if an

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officer or employee of the city, shall immediately forfeit his or her office or position. The city council shall establish by ordinance such further penalties as it may deem appropriate.

ARTICLE VII CHARTER AMENDMENT

Section 7.01. Proposal of Amendment.

Amendments to this charter may be framed and proposed:

(a) In the matter provided by law, or (b) By ordinance of the council containing the full text of the proposed amendment and effective upon adoption, or (c) By report of a charter commission created by ordinance, or (d) By the voters of the city.

Proposal of an amendment by the voters of the city shall be by petition containing the full text of the proposed amendment and shall be governed by the same procedures and requirements prescribed in Article V for initiative petitions until such time as a final determination as to the sufficient of the petition is made, except that there shall be no limitation as to subject matter and that the petition must be signed by registered voters of the city equal in number to at least {5 to 10} percent of the total number of those registered to vote at the last regular city election. The petitioners' committee may withdraw the petition at any time before the fifteenth day immediately preceding the day scheduled for the city vote on the amendment.

Section 7.02. Election.

Upon delivery to the city election authorities of the report of a charter commission or delivery by the city clerk of an adopted ordinance or a petition finally determined sufficient, proposing an amendment pursuant to Section 80.01, the election authorities shall submit the proposed amendment to the voters of the city at an election. Such election shall be announced by a notice containing the complete text of the proposed amendment and published in one or more newspapers of general circulation in the city at least thirty days prior to the date of the election. The election shall be held not less than 60 and not more than 120 days after the adoption of the ordinance or report or the final determination of sufficiency of the petition proposing the amendment. If no regular election is to be held within that period, the council shall provide for a special election on the proposed amendment; otherwise, the holding of a special election shall be as specified in state law.

Section 7.03. Adoption of Amendment.

If a majority of those voting upon a proposed charter amendment vote in favor of it, the amendment shall become effective at the time fixed in the amendment or, if no time is therein fixed, 30 days after its adoption by the voters.

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ARTICLE VIII TRANSITION AND SEVERABILITY

Section 8.01. Officers and Employees.

(a) Rights and Privileges Preserved. Nothing in this charter except as otherwise specifically provided shall affect or impair the rights or privileges of persons who are city officers or employees at the time of its adoption.

(b) Continuance of Office or Employment. Except as specifically provided by this charter, if at the time this charter takes full effect, a city administrative officer or employee holds any office or position which is or can be abolished by or under this charter, he or she shall continue in such office or position until the taking effect of some specific provision under this charter directing that he or she vacate the office or position.

(c) Personnel System. An employee holding a city position at the time this charter takes full effect, who was serving in that same or a comparable position at the time of its adoption, shall not be subject to competitive tests as a condition of continuance in the same position but in all other respects shall be subject to the personnel system provided for in Section 3.02.

Section 8.02. Departments, Offices, and Agencies.

(a) Transfer of Powers. If a city department, office or agency is abolished by this charter, the powers and duties given it by law shall be transferred to the city department, office or agency designed in this charter or, if the charter makes no provision, designed by the city council.

(b) Property and Records. All property , records and equipment of any department, office or agency existing when this charter is adopted shall be transferred to the department, office or agency assuming its powers and duties, but, in the event that the powers or duties are to be discontinued or divided between units or in the event that any conflict arises regarding a transfer, such property, records or equipment shall be transferred to one or more department, offices or agencies designated by the city council in accordance with this charter.

Section 8.03. Pending Matters.

All rights, claims, actions, orders, contracts, and legal administrative proceedings shall continue except as modified pursuant to the provisions of this charter and in each case shall be maintained, carried on or dealt with by the city department, office or agency appropriate under this charter.

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Appendix C Enterprise Survey

ADB/People's Republic of China Town-Based Urbanization Strategy Study Enterprise Survey

NAMETOWN Name of town CASENO Name of firm Address Title of interviewee

GENERAL INFORMATION TYPBUS Type of business: TYPFIRM Type of firm: 1 Manufacturing 1 Private Product: 2 Individual 2 Agro-Processing 3 Collective 3 Warehousing and Distribution 4 SOE 4 Trade 5 Joint venture 5 Mining 6 Other (specify): 6 Tourism and Cultural 7 Fishing 8 Construction 9 Other (specify):

2003 2002 2001 NOEMP03 No. of employees AVGSAL03 Avg. salary/mo. AVGSS03 Avg. social security cost/employee/month REVEN03 Revenue PROFIT03 Profit VALUE03 Value added

YEAROP In what year did this facility first go into operation? EXPAND Has this facility been expanded since then? 1 YES 2 NO YREXPAND If yes, in what year was the biggest expansion? EMPEXPND By how many employees did you expand in that year?

EVALUATION OF THE TOWN AND ITS SERVICES ACCHIGH Do you have easy access to a highway? 1 YES 2 NO ACCRR Do you have easy access to the railway? 1 YES 2 NO ACCAIR Do you have easy access to an airport? 1 YES 2 NO ACCWATER Do you have easy access to a seaport/waterway? 1 YES 2 NO AVBLLAND Is land available in the town for future development? 1 YES 2 NO CLOSSUPP Are you located close to suppliers of inputs for your business? 1 YES 2 NO CLOSBUYR Are you located close to buyers of your product/service? 1 YES 2 NO CONSCOST Are construction costs low in this town? 1 YES 2 NO TECHSCHL Is there a technical school or university nearby? 1 YES 2 NO SKILLABR Is there an abundant supply of skilled labor here? 1 YES 2 NO UNSKLABR Is there an abundant supply of cheap, unskilled labor here? 1 YES 2 NO

Please rate the quality IN THIS TOWN of each of the following items: 1234 Very good Good Fair Poor LOCLROAD Local roads ELECPOWR Electrical power supply WATER Water supply services SOLIDWST Solid waste management services TELECOM Telecommunications services HOUSING Housing HEALTH Health facilities SCHOOLS Public schools RECREATN Recreational facilities POLICE Police/security services

RANKING OF FIRM'S PRIORITIES FOR FUTURE DEVELOPMENT PRIORTY1 Please identify the TOP THREE (3) most important factors for future development of your business: 1 Abundant labor (skilled or unskilled) 6 Lax enforcement of environmental regulations 2 Good local roads 7 Access to highways, railway or waterways 3 Good water supply services 8 Access to additional financing 4 Good electrical power supply 9 Town government tolerant toward migrants 5 Availability of land 10 Other (specify):

INSTITUTIONAL ENVIRONMENT ENVIENFC Does the town strictly enforce environmental regulations? 1 YES 2 NO TOWNSUPT Is the town government supportive of your business? 1 YES 2 NO TOWNPERM Is it easy to get permits or licenses from the town government? 1 YES 2 NO PROVPERM Is it easy to get permits or licenses from the provincial government? 1 YES 2 NO INDUPARK Is the industrial park well managed? 1 YES 2 NO MIGRTPOS Does the town have a positive attitude toward migrants? 1 YES 2 NO SATINFRA Are you satisfied with the infrastructure services in the town? 1 YES 2 NO PAYINFRA If not, would you be willing to pay higher charges in return for better services? 1 YES 2 NO

TAXATION AND FEES Please provide information on any tax or fee rebates that you received from the TOWN government in recent years: 2003 2002 2001 TOWBUS03 Business tax rebate TOWVAT03 VAT rebate TOWLAN03 Land rights fee rebate

Please provide information on any tax or fee rebates that you received from the PROVINCIAL government in recent years: 2003 2002 2001 PROBUS03 Business tax rebate PROVAT03 VAT rebate PROLAN03 Land rights fee rebate

TRANSPORTATION

INPUTSIN How to you transport inputs TO your facility? 1 Truck 2 Rail WEIGHTIN What is the total weight or volume of inputs transported in per year? (specify units of weight or volume) WTCARIN What is weight/volume of goods transported in on 1 typical truck/rail car? (specify units of weight or volume)

GOODSOUT How to you transport finished goods FROM your facility? 1 Truck 2 Rail WEIGTOUT What is the total weight or volume of goods transported our per year? (specify units of weight or volume) WTCAROUT What is weight/volume of goods transported out on 1 typical truck/rail car? (specify units of weight or volume)

PLANS FOR EXPANSION EXPNPLAN Do you plan to expand this facility? 1 YES 2 NO YEAREXPN In what year? NEWLAND How much new land area (m2)? NEWBLDG How much new building area (m2)? NEWJOBS How many new jobs? NEWREVS How much new revenue/year?

Thank you very much for taking the time to complete this questionnaire. The results will be used to advise the town and provincial governments on how to promote development of local businesses in this town and in other towns in China.

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Appendix D. Shelter Needs Assessment Model

Housing Sector Study "CITY X" SHELTER NEEDS ASSESSMENT: 1994-2004

Table 1: POPULATION AND HOUSEHOLD HOUSING TYPES (HSS)

ESTIMATES Year TOT/AVG Villa Apartment Squatter Courtyard TYPE 5 TYPE 6 TYPE 7

PROPORTION OF TOTAL UNITS (%) 100.0% 3.2% 36.1% 11.0% 37.2% 12.4%

NUMBER OF DWELLING UNITS 19,808 634 7,151 2,179 7,369 2,456

City Population (CSA) 1994 96,140

Occupancy Rate for City (CSA) 4.85

Occupancy Rate by Type (HHS) 7.17 4.57 8.87 4.85 6.86 5.97

Relative Occupancy Rate (adjtd to CSA data) 4.85 3.09 6.00 3.28 4.64 4.04

Population by Type (base year) 96,140 1,959 42,910 7,151 34,203 9,917

Average Household Size in City (CSA) 4.61

Average Household Size by Type (HHS) 5.03 4.39 5.72 4.18 5.08 4.93

Adjusted Household Size 4.61 4.02 5.24 3.83 4.66 4.52

Number of Households 1994 20,857 487 8,186 1,867 7,347 2,195

% of Total Households 100.00% 2.33% 39.25% 8.95% 35.23% 10.52%

Annual Population Growth (LMA) 1994-2004 4.90% 4.90% 4.90% 4.90% 4.90% 4.90%

Total Population End Year 2004 155,117 3,160 69,233 11,537 55,185 16,001

Projected Average Household Size 4.61 4.02 5.24 3.83 4.66 4.52

NUMBER OF HOUSEHOLDS 33,652 786 13,208 3,012 11,854 3,542

% OF TOTAL HOUSEHOLDS 100.00% 2.33% 39.25% 8.95% 35.23% 10.52%

TOTAL NEW HOUSEHOLDS 12,795 299 5,022 1,145 4,507 1,347

ANNUAL NEW HOUSEHOLDS 1,279 30 502 115 451 135 Notes: The following data sources are indicated in parentheses in the tables: CSA Central Statistical Authority, 1994 census HHS Household Survey (PADCO/WAAS/NUPI, 1996) LMA Land and Housing Market Assessment (PADCO/WAAS/NUPI, 1996) CBA Cost-Benefit Analysis of Representative Housing Investments (PADCO/WAAS/NUPI, 1996) SSI Supply Side Interviews (PADCO/WAAS/NUPI, 1996) Numbers may not add up due to rounding. Numbers in normal font are calculated; numbers in bold are calculated by the model.

Table 2: REPLACEMENT, RENOVATION HOUSING TYPES 125

AND UPGRADING OF EXISTING STOCK TOT/AVG Villa Apartment Squatter Courtyard TYPE 5 TYPE 6 TYPE 7 Mud Brick Units: % total 85.00% 96.00% 85.00% 88.00% 79.00% 80.00% (HHS) % good condition 16.34% 26.90% 16.40% 6.10% 20.40% 10.50% % fair condition 18.87% 3.80% 14.80% 15.20% 24.50% 21.10% % poor condition 47.80% 38.50% 57.40% 42.40% 42.90% 42.10% % non-reparable 16.94% 30.80% 11.50% 36.40% 12.20% 26.30% Brick & Plaster Units: % total 1.00% 0.00% 0.00% 3.00% 2.00% 0.00% (HHS) % good condition 37.20% 0.00% 0.00% 0.00% 100.00% 0.00% % fair condition 11.00% 0.00% 0.00% 100.00% 0.00% 0.00% % poor condition 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% % non-reparable 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Modern Units: % total 14.00% 3.00% 16.00% 10.00% 20.00% 20.00% (HHS) % good condition 45.94% 100.00% 54.50% 0.00% 58.30% 11.10% % fair condition 24.13% 0.00% 18.20% 25.00% 25.00% 44.40% % poor condition 27.07% 0.00% 27.30% 75.00% 16.70% 22.20% % non-reparable 2.75% 0.00% 0.00% 0.00% 0.00% 22.20% Replacement Non-reparable Brick Units 2,811 187 699 698 710 517 Replacmnt Non-reparable Brick & Plaster Units 0 0 0 0 0 0 Replacement Non-reparable Modern Units 109 0 0 0 0 109 Total Replacement of Units 2,920 187 699 698 710 626 Annual Replacement of Units 292 19 70 70 71 63 Households/Dwelling (HHS) 1994 1.32 1.04 1.55 1.16 1.35 1.21 Desired Households/Dwelling 2004 1.00 1.00 1.00 1.00 1.00 1.00 Total Units to Achieve HH/DU 7,853 19 4,502 299 2,572 461 Annual Units to Achieve HH/DU 785 2 450 30 257 46 TOTAL DWELLING UNITS REQUIRED 23,568 506 10,223 2,142 7,789 2,433 ANNUAL DWELLING UNITS REQUIRED 2,357 51 1,022 214 779 243 Average plot size (M2) 200 Average No. of DUs per plot 1.1 TOTAL RESIDTL LAND REQUIRMTS (ha) 536 ANNUAL RESIDTL LAND REQUIRMTS (ha) 54 Renovation of Brick Units (fair) 3,055 23 900 291 1,426 415 Renovation of Brick Units (poor) 7,861 234 3,489 813 2,497 827 Renovation of Rendered Brick Units (fair) 65 0 0 65 0 0 Renovation of Rendered Brick Units (poor) 0 0 0 0 0 0 Renovation of Modern Units (fair) 849 0 208 54 368 218 Renovation of Modern Units (poor) 831 0 312 163 246 109 TOTAL RENOVATIONS REQUIRED 12,661 257 4,909 1,388 4,538 1,569 ANNUAL RENOVATIONS REQUIRED 1,266 26 491 139 454 157 % Units Requiring Water Connection (HHS) 37.00% 96.00% 32.00% 54.00% 26.00% 0.00% No. Units Requiring Water Connection 5,989 609 2,288 1,177 1,916 0 % Units Requiring Electrical Connection (HHS) 5.00% 18.00% 3.00% 9.00% 0.00% 0.00% No. Units Requiring Electrical Connection 525 114 215 196 0 0 % Units Requiring Access (HHS) 17.00% 36.00% 12.00% 29.00% 7.00% 14.00% No. Units Requiring Access 2,578 228 858 632 516 344 % Units Requiring Latrine (HHS) 48.00% 90.00% 55.00% 66.00% 36.00% 58.00% No. Units Requiring Latrine 10,019 570 3,933 1,438 2,653 1,425 TOTAL INFRASTRUCTURE UPGRADES 19,110 1,521 7,294 3,443 5,084 1,768 ANNUAL INFRASTRUCTURE UPGRADES 1,911 152 729 344 508 177

Table 3: HOUSING COST ESTIMATES INVESTMENT TYPES (CBA)

New Units $ TOT/AVG I TYPE 1 I TYPE 2 I TYPE 3 I TYPE 4 I TYPE 5 I TYPE 6

Plot Size (m2) 75 175 175 50 42

Plot to Total Land Ratio 1.00 1.00 1.00 1.00 2.08

Acquisition Price of Raw Land per m2 3 3 3 3 172

Cost of Site Preparation per m2 3 3 3 3 3

Cost of Water Connection 550 550 550 275 550

Cost of Electrical Connection 336 336 336 168 336

Cost of Wastewater Facility 800 2,000 2,400 400 2,000

Cost of Road 1,000 1,500 1,500 500 1,500

Total Cost of Serviced Plot 2,137 3,498 4,108 1,286 25,746

Unit Size (m2) 16 30 37 22 37

Construction Cost per m2 (SSI) 485 485 850 485 1,042

Structure Cost 7,760 14,550 31,450 10,670 38,554

Total Cost of Finished Unit 9,897 18,048 35,558 11,956 64,300

Annual Real Increase in Land Cost 4% 4% 4% 4% 4%

Annual Real Increase in Construction Cost 0% 0% 0% 0% 0%

Number of New Dwelling Units* 3,879 7,268 3,894 5,515 2,433

Total Cost of New Dwelling Units (Br '000s) 530,451 38,393 131,173 138,477 65,943 156,465 HOUSING TYPES

Renovation Birr '000s TOT/AVG Villa Apartment Squatter Courtyard TYPE 5 TYPE 6 TYPE 7

Mean Unit Size (HHS) 39.02 36.39 43.86 21.61 44.85 39.55

Cost of Brick Unit Renovation (fair) 15,393 102 4,784 764 7,756 1,988

Cost of Brick Unit Renovation (poor) 78,530 2,067 37,107 4,260 27,161 7,934

Cost of Brick&Plaster Unit Renovation (fair) 171 0 0 171 0 0

Cost of Brick&Plaster Unit Renovation (poor) 0 0 0 0 0 0

Cost of Modern Unit Renovation (fair) 9,237 0 2,379 307 4,305 2,247

Cost of Modern Unit Renovation (poor) 16,975 0 7,137 1,840 5,751 2,247

TOTAL COST OF RENOVATION 120,307 2,169 51,408 7,342 44,972 14,416

ANNUAL COST OF RENOVATION 12,031 217 5,141 734 4,497 1,442

Upgrading Birr '000s

Cost of Water Upgrading 3,294 335 1,259 647 1,054 0

Cost of Electrical Upgrading 176 38 72 66 0 0

Cost of Latrine Construction 3,415 183 1,716 1,517 0 0

Cost of Road Upgrading 8,627 570 5,899 2,157 0 0

TOTAL COST OF UPGRADING 15,512 1,126 8,946 4,387 1,054 0

ANNUAL COST OF UPGRADING 1,551 113 895 439 105 0

TOTAL COST OF HOUSING INVESTMENT 666,270 41,688 191,527 150,205 46,026 14,416

ANNUAL COST OF HOUSING INVESTMENT 66,627 4,169 19,153 15,021 4,603 1,442 *Makes the following assumptions about which investment types will satisfy the need for new units among the different housing types: Housing Type Investment Type 1Invt 1 2 1/3 Invt 1, 1/3 Invt 2, 1/3 Invt 5 3Invt 5 4 1/2 Invt 2, 1/2 Invt 3 7Invt 6

Table 4: AFFORDABILITY HOUSING TYPES

$ '000s TOT./AVG. Villa Apartment Squatter Courtyard TYPE 5 TYPE 6 TYPE 7

Median Monthly Household Income (HHS) 204 108 240 175 300 150

% Income Allocated to Housing 0.2 0.2 0.2 0.25 0.2

Mortgage Interest Rate 16.00% 16.00% 16.00% 16.00% 16.00% 16.00%

Mortgage Term (years) 20 20 20 20 20 20

Loan to Value Ratio 0.70 0.70 0.70 0.70 0.70 0.70

No. HHs Requiring Mortgage Loans 23,568 506 10,223 2,142 7,789 2,433

Total Value of Mortgage Loans 418,255 3,503 94,228 17,925 146,134 156,465

Borrowing Capacity for Mortgage Loans 87,777 777 34,912 5,333 41,561 5,194

Home Improvement Loan Interest Rate 15.50% 15.50% 15.50% 15.50% 15.50% 15.50%

Home Improvement Loan Term 5 5 5 5 5 5

Loan to Value Ratio 0.70 0.70 0.70 0.70 0.70 0.70

No. HHs Requiring Home Improvement Loans 12,661 257 4,909 1,388 4,538 1,569

Total Value of Home Improvement Loans 84,215 1,519 35,985 5,139 31,480 10,092

Borrowing Capacity for Home Improvmt Loans 26,921 221 9,367 1,931 13,530 1,871

Upgrading Loan Interest Rate 15.50% 15.50% 15.50% 15.50% 15.50% 15.50%

Upgrading Loan Term 5 5 5 5 5 5

Loan to Value Ratio 0.70 0.70 0.70 0.70 0.70 0.70

No. HHs Requiring Upgrading Loans 19,110 1,521 7,294 3,443 5,084 1,768

Total Value of Upgrading Loans 10,859 788 6,262 3,071 738 0

Borrowing Capacity for Upgrading Loans 10,859 1,306 13,918 4,790 15,159 2,109

TOTAL HOUSING FINANCE REQUIREMENTS 513,329 5,809 136,476 26,135 178,352 166,557

TOTAL HH BORROWING CAPACITY 125,556 2,304 58,197 12,054 70,250 9,174

FINANCING GAP 387,773 3,505 78,278 14,081 108,101 157,383 GAP AS % OF REQUIREMENTS 76% 60% 57% 54% 61% 94%

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY Appendix E-1 GUIDELINES

Appendix E BROKER SURVEY QUESTIONNAIRE

Name of interviewer: Town: Date: Broker No.:

Qualifying question:

How many years have you worked as an broker in this town?

If the answer to the previous question is greater than or equal to "5 years", then proceed with the interview. Otherwise, cancel the interview.

How many employees do you have? Do you have a company office separate from your home? How many plots of vacant land have you brokered in the last 3 years? Which neighborhoods do you usually work in? Do you usually sell residential, commercial or industrial property?

INFORMATION ABOUT MARKET SALE PRICES OF RESIDENTIAL UNITS

Adjacent road Private Unit price Unit price Unit price Plot size Unit size paved? toilet? in 2005 in 2004 in 2003 Neighborhood (m2) (m2) (yes/no) (yes/no) (RMB) (RMB) (RMB)

INFORMATION ABOUT MARKET SALE PRICES OF COMMERCIAL SPACE

Adjacent road Private Price Price Price Plot size Built area paved? toilet? in 2005 in 2004 in 2003 Neighborhood (m2) (m2) (yes/no) (yes/no) (RMB) (RMB) (RMB)

INFORMATION ABOUT MARKET SALE PRICES OF INDUSTRIAL SPACE

Adjacent road Private Price Price Price Plot size Built area paved? toilet? in 2005 in 2004 in 2003 Neighborhood (m2) (m2) (yes/no) (yes/no) (RMB) (RMB) (RMB)

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY Appendix F-1 DRAFT GUIDELINES

Appendix F

Details of Measuring Traffic Volumes, Capacity, and Projecting Future Growth in Traffic

Traffic projections require a traffic count survey, estimation of daily traffic volumes, estimation of existing road capacity, projection of future traffic volumes, and calculation of the adequacy of existing roads in future years.

Traffic Count Survey

The town should know the current traffic volumes on all trunk infrastructures leading into and out of town. This requires a traffic county survey, in which surveyors stand on the side of the road and conduct a traffic-count survey.

A traffic-count survey should measure traffic in 15-minute intervals, with attention to the mode—type of vehicle—passing in and out of town. The traffic counts should occur at well- understood observation points on the outskirts of town, so as to monitor the traffic moving in and out of town along trunk transportation routes.

It is best for each person engaged in the survey to have a sheet with the time period written on the left-hand side, along with the direction of the traffic, and have headings for different vehicle modes along the top.

• Time Motorcycle Agricultural Car (Sedan) Medium Bus Bus Large Small Truck Large Truck • (15-minute • Dire Bicycle/Tricyc

interval) ction • le • (2-3 wheels) • Vehicle • • • • tons) (2-5 • (>5 tons) • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

The traffic counters should write the time in the left-hand column, the direction (in or out of town) in the next column, and write running totals of different vehicle types in the eight columns to reflect the number of vehicles. They should enter one 15-minute period on each line. The sheet should also record the place, the date, day-of-week, and the weather conditions. (It is best to do the survey under good weather conditions.)

The counters should repeat 15-minute traffic counts at the same observation point at least two twice a day, and at different times of day (e.g., morning and late afternoon.) Three or four one 15-minute traffic counts in one day are even better. It should not be necessary to repeating the survey on successive days: one day per year should be sufficient.

Traffic counting is not a high-skilled job, although it does require individuals who can keep track of several numbers in their head, and do quick additions. An entry-level engineer is a good profile for surveyors, as are university students.

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY Appendix F-2 DRAFT GUIDELINES

Estimate Daily Traffic Volumes

Once town officials have traffic counts collected from the field, town staff should enter the traffic for each observation post in a spreadsheet. Each row in the spreadsheet will represent a 15-minute total.

The challenge is to estimate the daily volumes from a few 15-minute intervals. To do so: Enter traffic counts in spreadsheet, Multiply the results for each mode by technical multipliers for each time of day, to produce two, three or four daily estimates, Note the median value for each mode, Calculate the daily car-equivalent volume for each day.

Specifically, the traffic count for each observation post (each highway/ expressway entrance), for each time of day, and for each mode, should be entered in a spreadsheet; and each 15-minute interval multiplied by the technical multiplier (see table below) to derive the daily volume for that mode.

To take one example, imagine that the traffic count (observed) for the period 8:15 – 8:30 for cars is 13. In this case, we multiply the observation for that 15-minute period times the multiplier (see technical multiplier table further below) for that time of day, to derive the estimate for the daily car volume:

• 15- • Estimate minute • Techn d Daily Traffic Count ical Traffic Observation • Multiplier • Volume • 13 •• 51.25 • • 666

The technical multipliers are shown in the table below.

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY Appendix F-3 DRAFT GUIDELINES

• Technical Multipliers to Apply to Each Mode of Traffic to Estimate Daily Volumes • 15- minute • Bicycl Period e/ • Agricul • Car • Mediu • Small • Large within • Tricycl • Motorc tural • (sedan m • Large Truck Truck Hour: • e ycle Vehicle ) • Bus • Bus (2-5 tons) (>5 tons) • 0600 - • • 98.01 • 163.23 • 176.57 • 193.20 • 96.73 • 91.86 • 177.23 • 105.66 0700 • 0700 - • • 21.58 • 33.59 • 63.48 • 80.51 • 67.58 • 39.58 • 101.63 • 156.99 0800 • 0800 - • • 36.78 • 34.04 • 52.09 • 51.25 • 51.36 • 32.75 • 64.57 • 184.23 0900 • 0900 - • • 80.68 • 55.10 • 56.62 • 48.26 • 45.19 • 48.38 • 67.14 • 147.23 1000 • 1000 - • • 90.09 • 67.48 • 46.77 • 54.34 • 50.74 • 54.02 • 63.35 • 120.27 1100 • 1100 - • • 84.63 • 79.16 • 49.53 • 59.23 • 65.94 • 73.17 • 69.61 • 116.58 1200 • 1200 - • • 133.90 • 80.65 • 52.37 • 90.87 • 54.77 • 82.19 • 80.68 • 116.37 1300 • 1300 - • • 56.63 • 52.43 • 44.38 • 80.93 • 57.84 • 67.29 • 80.43 • 99.23 1400 • 1400 - • • 72.00 • 89.88 • 57.76 • 54.87 • 55.92 • 65.44 • 68.84 • 119.44 1500 • 1500 - • • 58.72 • 88.90 • 56.51 • 55.14 • 41.09 • 83.32 • 53.69 • 103.64 1600 • 1600 - • • 109.67 • 86.06 • 54.85 • 60.30 • 65.57 • 114.01 • 60.84 • 142.04 1700 • 1700 - • • 56.84 • 45.20 • 66.74 • 52.76 • 55.59 • 36.09 • 59.95 • 163.17 1800 • 1800 - • • 42.82 • 39.24 • 67.26 • 53.27 • 59.49 • 54.41 • 64.72 • 86.96 1900

To expand the example and do the whole exercise for three observations, it is necessary to repeat the calculations for each of eight modes, three times a day; that takes up a lot of space. The following table shows the calculation of estimated daily traffic volumes for each mode and each 15-minute period in the grey columns. After that, the median of estimated daily traffic volume for each mode is written below. The median estimates for each mode are multiplied by a conversion factor to represent them in car equivalents (more on this further below.) This involves a lot of numbers and calculations. The table illustrating this process is therefore broken into two parts:

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY Appendix F-4 DRAFT GUIDELINES

Daily Traffic Estimation Sheet, Part 1 • 15- • Agricultural min. • Bicycle/Tricycle • Motorcycle • Car (sedan) Vehicle interval • T • T • T • Te • beg • O ech • E • O ech • E • O ech • E • • Es ch in: bs. • F st. bs. • F st. bs. • F st. bs. t. Factor actor actor actor • 081 • 1 • 3 • 47 • 2 • 3 • 85 • 5 • 2 • • 51 • 66 • 5 5 3 6.78 8 5 4.04 1 2.09 60 3 .25 6 • 100 • 9 • 72 • 1 • 6 • 94 • 4 • 1 • • 54 • 54 • 8 • 4 0 0.09 1 4 7.48 5 6.77 87 0 .34 3 • 173 • 1 • 5 • 90 • 1 • 4 • 81 • 6 • 4 • • 52 • 63 • 6 0 6 6.84 9 8 5.20 4 6.74 00 2 .76 3 • • • • • • • • • • • • • • Median • 72 • 85 • 2 • 63 • • • • • • • Volume 1 1 60 3 • • • • • • • • • • • • • Car-Equiv. • 0. • • • • 1 • • • 2 • • • 1 Factor 2 • Car- • 14 • 85 • 5 • 63 Equivalent • • • • • • • 4 1 21 3 Volume • • • • • • • • • • • • • Total, Car- • 6, • • • • • • • • • • Equivalent 920

Daily Traffic Estimation Sheet, Part 2 • 15- • Small Truck (2-5 • Large Truck (>5 min. • Medium Bus • Large Bus tons) tons) interval • T • T • T • Te • beg • O ech • E • O ech • E • O ech • E • • Es ch in: bs. • F st. bs. • F st. bs. • F st. bs. t. Factor actor actor actor • 081 • 5 • 20 • 3 • 19 • 6 • 5 • 18 • 16 • 4 • 6 • 8 • 5 1.36 5 2.75 6 4.57 17 4.23 58 • 100 • 5 • 30 • 5 • 16 • 6 • 5 • • 12 • 15 • 6 • 3 • 8 0 0.74 4 4.02 2 3.35 07 3 0.27 64 • 173 • 5 • 22 • 3 • 18 • 5 • 3 • • 16 • 27 • 4 • 5 • 6 0 5.59 2 6.09 0 9.95 60 7 3.17 74 • • • • • • • • • • • • • • Median • 22 • 18 • 5 • 16 • • • • • • • Volume 2 0 07 58 • • • • • • • • • • • • • Car-Equiv. • 1. • 1 • • • • 2 • • • • • 2 Factor 5 .5 • Car- • 33 • 36 • 7 • 3, Equivalent • • • • • • • 4 1 60 31 Volume • • • • • • • • • • • • • Total, Car- • 6, • • • • • • • • • • Equivalent 920

So in this example, the estimated equivalent of all modes, in terms of normal sedan cars, is 6,920.

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY Appendix F-5 DRAFT GUIDELINES

When doing traffic counts, surveyors are confronted by different sorts of vehicles. Some are large, some small; some are fast, others slow. Because of these differences, it is not possible to easily add up bicycle and large trucks in one column, as if they represented the same sort of traffic. But since the ultimate aim of this exercise is to anticipate traffic congestion, and since the size and speed of the vehicles determine the level of congestion, the methodology employs “Car-Equivalent Factors” to calculate the “Car-Equivalent Volumes.” We express the final result in car-equivalent volumes to represent as a number of cars the total set of collection of bicycles, agricultural vehicles, cars, trucks, etc. that use the road on any given day. The factors (i.e., multipliers) appear in the second-to-last line up above, and are repeated here for reference sake:

• Conversi • Mode on Factor • Bicycle/Tricycle • 0.2 • Motorcycle • 1.0 • Agricultural Vehicle • 2.0 • Car (sedan) • 1.0 • Medium Bus • 1.5 • Large Bus • 2.0 • Small Truck (2-5 tons) • 1.5 • Large Truck (>5 tons) • 2.0

It is necessary to repeat the above steps to produce estimates for each observation post. It would be useful to do traffic counts and estimate daily traffic volumes every one to two years, so as to monitor the growth in traffic over time.

Project Future Traffic Volumes

To project future traffic volumes, the technique is to use the car-equivalent volumes for each mode in the spreadsheet, multiply it by a growth factor, and then total the results. More specifically: Determine growth factor for each mode Multiply growth factor by car-equivalent value Total all results

The specific growth factor for each mode will differ from town to town and the state of the economy. Usually it will take the form of two growth rates raised to a power representing the number of years, multiplied by each other. In abstract form:

y y (1 + %∆1) * (1 + %∆2)

Where ∆1 and ∆2 are two different growth rates (e.g., population and industrial employment), and “y” is the number of years in question.

For instance, if population is growing 5 percent per annum and tourism employment 7 percent per year (to take a slightly different example), and the projection is for five years forward, then the above formula would appear as (1 + 5%)5 * (1 + 7%)5 = (1.05)5 * (1.07)5 = 1.276 x 1.403 = 1.79.

The result (1.79) is the growth factor to multiply against a particular mode of traffic (e.g., large bus) in the current year. To follow from “Daily Traffic Estimation Sheet” above 1.79 times 361 car-equivalents of large buses, or 646 buses (again in car-equivalents) five years forward.

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY Appendix F-6 DRAFT GUIDELINES

The growth factor for each mode should be multiplied by the current year’s estimated traffic volume for each mode. The result is the projected traffic volume for that mode in a future year. Adding the results for all modes will give the anticipated volumes in future years.

One can be creative in the use of different growth factors. Industrial growth is more appropriate for trucks. Population, and maybe school-age population, are more appropriate growth factors for buses. In the case of a mode of declining popularity (for instance, a bicycle) or a declining industry (such as agriculture in a rapidly industrializing town) the growth rate (e.g., ∆1) might be a negative number.

Estimate Capacity

Transportation infrastructure capacity represents the number of vehicles (again, car- equivalents) that can travel over a road or highway without suffering undue congestion. It is not the maximum number of vehicles that can pass over the road in one day; rather it is the number that can pass through at reasonable speeds.

Much of the purpose behind counting vehicles and estimating daily numbers is to compare volumes to the road capacity—not just in the present year, but also in future years, thus anticipating future improvements.

There is no exact number for capacity. One can not simply measure the width of a road and determine its capacity. There are many factors that determine capacity: principally the number of lanes, and the width of those lanes; but also the surface quality, straightness, the steepness, the width of the shoulder, and the presence of pedestrians or other activity that cause traffic to slow.

The Chinese Ministry of Communications produces a Technical Standards for Highway Engineering that provides some useful benchmarks for road and highway capacity. This publication provides road construction standards and a range of values for the capacity that represents.

• • • • • Number of • Widt • • • • • Capacity • Clas Lanes h Per • • Med • Emb • Norm (Passenger-Car s of • (in both Lane • Should ian ankment al Speed Equivalent, Highway directions) (meter) er (meter) (meter) (meter) (Km/hour) • per day) • 1 • 4 (2 x 2) • 3.75 • 2.75 - • 1.5 – • 0.75 • 100 3.00 2.0 • 15,000 - 30,000 • 1 • 4 (2 x 2) • 3.50 • 0.50 - • 0.0 – • 0.50 • 60 1.50 1.5 • 2 • 2 (2 x 1) • 4.50 • 0 • 0 • 1.50 • 80 • 4,500 - • 2 • 2 (2 x 1) • 3.50 • 0 • 0 • 0.75 • 40 10,750 • 3 • 2 (2 x 1) • 3.50 • 0 • 0 • 0.75 • 60 • 1,500 - • 3 • 2 (2 x 1) • 3.00 • 0 • 0 • 0.75 • 30 6,000 • 4 • 2 (2 x 1) or • 3.00 • 0 • 0 • 1.50 • 40 1 • 300 – 2,250 • 4 • 2 (2 x 1) or • 3.00 • 0 • 0 • 0.50 • 20 1

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY Appendix F-7 DRAFT GUIDELINES

The following illustrations help shed some light on the variables listed in the table above. ! 1st Class Highway

4 lanes, 100 km/h

25.50 (24.00)

2×3.75 2×3.75 3.00 0.50 2.00 0.50 3.00 0.75 (2.75) (0.25) (1.50) (0.25) (2.75) 0.75

4 lanes, 60 km/h

22.50 (20.00)

2×3.50 2×3.50 2.50 0.50 1.50 0.50 2.50 0.50 (1.50) (0.25) (0.25) (1.50) 0.50

! 2nd Class Highway: doubled lanes

12.00 (17.00) 8.00

9.00 (14.00) 7.00

1.50 1.50 0.75 0.75

80km/h 40km/h

! 3rd Class Highway: doubled lanes

8.50 7.50

7.00 6.00

0.75 0.75 0.75 0.75

60km/h 30km/h

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY Appendix F-8 DRAFT GUIDELINES

! 4th Class Highway: doubled lanes

7.00 6.50 (4.50)

6.00 3.50

0.50 0.50 1.50 1.50 (0.50) (0.50) 40km/h 20km/h

The standards published above do not refer to highways with more than four lanes. The construction code does not allow six-lane (three lanes in each direction) highways. However, some road builders seem to stretch the standards by building extra-wide lanes and shoulders. For instance, the Taian road west of Teng’ao has a four-lane road with 5-meter wide lanes (total 20 meters), plus another 10 meters of shoulder (two 5-meter shoulders.) The combined width of lanes and shoulders is far above that of a first-class road. The shoulders appear to be designed as if they were true lanes. So the capacity is in fact much more than 30,000 meters. Moreover, it is a very smooth, straight and flat road. We might estimate this road’s capacity at 45,000 meters, or more. The width of the lanes is perhaps an extreme example, but the large shoulders that work as true lanes are common on many highways.

Dividing volumes by capacity, a road with 0.75 or higher V/C ratio must suffer some sub- optimal speeds and congestion, which are likely to increase over time.

Estimate the Adequacy of Existing Roads in Future Years

Divide projected traffic volumes by today’s capacity—Vy/ C0—and see if the result is near 1. If the result approaches 1 (i.e., is greater than 0.75), then there is reason to believe the roads as they exist today will have too much traffic in relation to its capacity. It is therefore important to estimate when improvements will be necessary. If the number is greater then one, then there is an urgent need to make improvements.

Capacity in the Center of Town

The above concentrates on traffic as it enters and leaves the city on trunk infrastructure lines. It is also necessary to think about traffic in the town center. For a town’s purposes, the following is adequate: Factor out traffic that is going to industrial centers (trucks) or bus terminals (buses) outside the center Consider that remaining volumes will increase nearer the center because of local traffic Consider that capacity will be decreased near the center by half or more: partly because roads are often narrower, and even if they are the same width, the “side friction” of people walking buy, tucks and buses stopping… will reduce capacity Compare likely volumes in the center to estimated capacity on center roads

Given the volume and capacity estimates, it may be necessary to expand the network in the town’s center, or it may be necessary to build a bypass. Generally some “release valve” will be necessary to accommodate growth in traffic and divert it from the center so that traffic can move between trunk infrastructure and among production centers with minimal delays.

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY Appendix G-1 DRAFT GUIDELINES

Appendix G

Gutao Design Guidelines

Preserving the character of Gutao is critical to developing it as a tourist destination. In recognition of this fact, the Pingyao People’s Congress passed legislation in 1998, protecting and regulating development of the area inside the old city walls. Some critiques of this legislation are offered below, as well as some suggestions for other directions that the town may wish to explore.

Area within the Old Walls

Legislation Overview

The 1998 legislation establishes a series of districts within the walls (protection areas, limited construction areas, and protected streets), in which there are different levels of restrictions on demolitions and new construction. The Pingyao County and Provincial-level governments are given mandates to implement the legislation. The Consultant was not given a map demarcating the areas (and the legislation does not reference it), so it is unclear which restrictions apply in which areas. In general, though, in some areas, buildings and other structures are to be strictly protected, with all new construction fitting with the character of the town, while in the limited construction areas certain incompatible buildings will be demolished and new ones built.

The legislation also establishes restrictions on certain activities (certain types of advertising, stalls along the roads), calls for gradual improvements in municipal services such as solid waste collection, and encourages the government to promote compatible activities like museums, hotels, and restaurants. Finally, the legislation establishes penalties for violation of the regulations.

This legislation lays out a very positive framework for the protection of the character of the old city. The Consultant particularly supports measures to protect the existing architecture, develop appropriate industries and limit inappropriate ones, and improve the quality of the environment in the old town. All are critical to the sustainable development of tourism in the town. In the interests of improving the existing framework, the Consultant offers the following recommendations.

Legislation Suggestions

Mapping. While the boundaries of the restrictions established in the 1998 legislation are unclear without a map, the concept of varying protection stringency is a good one. If the districts are not yet laid out on a publicly available map, the government should ensure that one is produced (with adequate explanations) and is distributed to the relevant land holders, residents, and business owners. Many of the restrictions in the legislation apply to private citizens and business owners, and it is important that they understand the rules.

Preservation. In the area within the old walls, it is critical to preserve and protect the existing ancient architecture. Where buildings or structures must be demolished due to a deteriorating condition, they should be replaced in kind, with the old architectural details and character replicated as closely as possible. The legislation lays out a framework for accomplishing these goals. With five years of experience in implementation, the town government should conduct an examination of the degree to which the goals of preserving

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY Appendix G-2 DRAFT GUIDELINES

the existing architecture are being met. If they are not, adjustment of the requirements or penalties is recommended.

New Construction. For new construction within the protected areas, more specific design requirements may be needed. The current legislation merely indicates that new buildings and structures must be consistent with the layout, form, character and materials of the old ones. However, the original buildings will vary in these aspects, and a more prescriptive approach (for example, defining building height, setbacks from the street and lot lines, materials, colors, etc.) would help guarantee that new buildings are indeed compatible with the old city.

The legislation also touches only briefly on building height, and does not mention size or massing (floor area). Both are critical to preserving the character of the old town. The intimate scale and feel of the old town is directly related to the size and height of the old buildings, and it is important to preserve this scale. Again, a survey and analysis of recent construction would assist the town government in assessing the success of controls on new development.

Streets. The legislation discusses the architecture alongside the streets in the old city, but does not discuss the streets themselves. Streets provide the backdrop for all interactions of tourists and the public with the old town. Therefore, the town should consider elements of street design such as trees, lighting, and sidewalk and pavement construction materials, which can be selected so as to enhance the historic character of the town. The town should not widen any streets to facilitate vehicular access, and should avoid modifying curb radii.

Arbitration. Although the legislation identifies responsibilities for enforcement of the rules, the process is not spelled out. Inevitably, complying with regulations (for preservation) will cause hardship for building owners and may be resisted. A process for reviewing and approving exceptions to the rules, appeals of fines, and other relief from regulations is necessary. This process should be spelled out and given the force of law.

Outside Old City Walls

The area outside the old city walls sets the stage for the experience inside. Many tourists who visit the town will stay in hotels outside the old city, and all will traverse the new city in order to access the old one. Therefore, it is critical that the new city be developed in ways that are compatible with the old. Legislation or planning documents regulating this development should be prepared.

Street Design. The town should follow the street design guidelines defined in the Guidelines section of this report. Streets are important to historic towns, because they are where visitors and residents will spend a lot of their time. As a result, streets in Gutao should be designed and constructed with care.

Architectural Character and Urban Design. The town should follow the urban design guidelines laid out in the Guidelines section of this report. In particular, it is important that the area immediately surrounding the old city (1-2 hectares all around) not exceed the height of the old city walls, which means that development in this area should generally be limited to around three or four stories. The town should also consider limiting heights in development in the rest of the town built up area, in order to preserve sight distances and the small scale of the rest of the town.

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In addition, the housing developed throughout the town is also important, and the town is in a great position to build more attractive, diverse housing types than usual. The traditional “cave” housing types of the town could provide inspiration for new housing designs.

In the new city, many of Gutao’s doors are constructed using a special design. This design is a characteristic of Gutao that distinguishes it from other towns and should be encouraged in homes on the approach to the old town.

Figure Appendix G.1: Traditional Type Doors in Gutao

Management

In Gutao, the town government is charged with the management of the old city. However, there are many activities associated with this management that it may be inappropriate for government to undertake. These activities include raising funds from private individuals for preservation, conducting guided tours, buying advertising space in newspapers and magazines, running information centers, and so on. As a result, it is very common in the West for these activities to be undertaken by a private or semi-public organization which is set up with a specific mandate to promote and market the town. An example is the Colonial Williamsburg Foundation in Williamsburg, Virginia (online at http://www.history.org). These organizations may receive a mix of public and private funding, and are often staffed with volunteers. In addition to the activities listed above, they may also do the following: advise government agencies on matters of preservation and policy; conduct research on town history; restore buildings; and work with and train local business owners on better business practices.

Although the economic conditions of Gutao town differ from that of tourist towns in the West, the primary dilemmas (between the promotional and regulatory roles of town government, limited resources, and the like) remain. As a result, the Consultant recommends that Gutao town consider the establishment of a quasi-public organization which would initially be tasked with promotional activities, and could, if successful, later be asked to conduct other activities such as building restoration.

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Other Opportunities

Gutao should seize opportunities to develop itself as a substantive tourist destination. Most tourists do not spend the night in the town, but stay for just a few hours. Tourists need to be given reasons to spend time in a town, to learn about it and experience it. The following methods are often used in western tourist towns and cities to communicate historical information and stimulate tourist interest: • Installation of plaques on the outside of selected buildings with information on the building’s history, age, former residents, etc. • Posting of signs on sidewalks, with maps and other information about the location, neighborhood, and history. • Creation of self-guided walking tours. Information for these tours could be provided in written maps and fliers, and could follow the posted sidewalk signs or be independent of them. • Guided tours of streets and buildings.

Risks

Gutao is poised to develop as an important tourist destination in north China. However, increased tourist traffic brings with it certain risks. More and more businesses may cater to tourists only, turning the town not into a living destination but into a museum. These businesses may grow large, and their advertising and promotional activities may undermine the charm and vibrancy of the town. In short, the town may become a victim of its own success. If this happens, the town’s economy will peak: tourists will eventually stop coming, because the town will have lost its interest to them, and the town will go into decline.

The town government should consider these risks, and endeavor to strike a balance between preserving the charm and character of the town, and developing it as a tourist destination, with hotels, restaurants, and other amenities. Fostering a diversity of non-tourist businesses will help to achieve this balance, but it will also require a constant reevaluation of the desired pace and scale of tourism growth by town leaders.

People’s Republic of China Town-Based Urbanization Strategy Study ADB TA 4335-PRC

Final Report Volume 3: Best Practices Compendium

Prepared for Asian Development Bank National Development and Reform Commission

Prepared by PADCO, Washington, DC CCTRD, Beijing

August 2005

PLANNING AND DEVELOPMENT COLLABORATIVE INTERNATIONAL

Setting the Standard for Our Industry®

Table of Contents Volume 3

Section 1: Property Markets and Urban Planning ...... 1 Land Market Assessment: San Miguel, El Salvador ...... 2 Rapid Land and Infrastructure Assessment: Tirana, Albania...... 5 Regional Planning of Export Oriented Development: Tunisia ...... 8 Smart Growth: Portland, Oregon, USA ...... 10

Section 2: Housing ...... 13 Shelter Needs Model: Ethiopia...... 14 Condominium Formation: Ekaterinburg, Russia...... 17 Public-Private Housing Partnerships in Transitional Economies: Bulgaria ...... 19 Housing Design Types: Washington, DC...... 21

Section 3: Infrastructure Planning ...... 25 Capital Investment Planning Model: Ukraine ...... 26 Reducing Water Demand: Canada ...... 29 Transport-Oriented Metropolitan Development: Curitiba, Brazil...... 31 Multimodal Transportation Center: Texas, USA...... 33 Pedestrian-Oriented Mixed-Use Streets: 8th Street SE, Washington, DC, USA...... 36

Section 4: Infrastructure Finance...... 39 Construction Grants and Loans for Environmental Infrastructure: USA...... 40 Utility Service Provision for the Poor: General ...... 42 Market-Based Financing: South Africa...... 44 Independent Power Production: Pakistan ...... 46 Private Financing of Transportation Infrastructure: U.S. Inner-City Toll Roads ...... 48

Section 5: Stakeholder Participation ...... 51 Stakeholder Participation: Urban Management Program, Venezuela...... 52 Stakeholder Participation in Urban Upgrades: Westfield, Texas, USA ...... 54

Section 6: Mixed and Worst Practices ...... 57 Regional Development Policy: Malaysia (Mixed Practice) ...... 58 Regional Industrial Deconcentration: Venezuela (Worst Practice)...... 60 National Urbanization Policy: Cuba (Worst Practice)...... 62

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY ii BEST PRACTICES COMPENDIUM

Acronyms

BRT Bus Rapid Transit BOT Build-Operate-Transfer CA Condominium Associations CIP Capital Investment Planning CWSRF Clean Water State Revolving Fund GIS Geographic Information System GOE Government of Ethiopia IBRD International Bank for Reconstruction and Development ILO International Labor Organization IPP Independent Power Producers LMA Land Market Assessment MIIU Municipal Infrastructure Investment Unit PADCO Planning and Development Collaborative International, Inc. PRC People’s Republic of China RFP Request for Proposals RFQ Request for Qualifications RLIA Rapid Land and Infrastructure Assessment RSA Republic of South Africa SOE State-Owned Enterprises ULF Ultra Low Flow US United States USA United States of America USAID United States Agency for International Development USEPA United States Environmental Protection Agency

CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 1 BEST PRACTICES COMPENDIUM: PROPERTY MARKETS AND URBAN PLANNING

Section 1: Property Markets and Urban Planning

CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 2 BEST PRACTICES COMPENDIUM: PROPERTY MARKETS AND URBAN PLANNING

Best Practice: Land Market Assessment Case Study San Miguel, El Salvador

Background and Rationale

Following the end of the civil war in El Salvador in the early 1990s, many expatriate El Salvadorans living in the United States begin to send large amounts of money to their relatives in the form of remittances. The City of San Miguel, second city of El Salvador with a population of about 1 million at the time, was receiving about US$1 billion per year in remittances from abroad—or about $1,000 per capita. With few alternative investments in a country with underdeveloped financial markets, many people invested in real estate. By the time PADCO begin to prepare the Master Plan for the City of San Miguel in 1996, it was clear that supply had outstripped demand: not only were there many new, largely vacant housing subdivisions at the periphery of the city, but the prices of land and housing had dropped sharply in the previous six months.

This situation threatened to undermine the nascent economic recovery of this provincial city and could have posed a threat to the financial system, given the possibility of high loan default rates on undersold housing projects. It was important therefore for the City of San Miguel to get answers to the following questions: • To what extent is the market glutted? How many vacant units are there now and how long will it take to absorb them? • To what extent should the city continue to expand horizontally given the current housing surplus? • What were the proportions of the boom and bust cycle for real estate in El Salvador and at what prices are various real estate products selling now?

Description of Activities Undertaken

As part of the diagnostic for the Master Plan, PADCO set out to answer these questions by carrying out a Land Market Assessment (LMA). Developed by Dr. David Dowall and PADCO in the late 1980s as a way to rapidly assess the demand, supply and prices of urban land and real estate, the LMA has since been published by the World Bank and UNDP as a methodological tool under the Urban Management Programme.1 The LMA includes three separate analytical tasks: • Broker Survey: Real estate brokers are interviewed to collect primary information on the sale prices of vacant land, houses, apartments and/or other real estate products. Surveyors collect at least three independent values for each neighborhood or zone in the built-up area of the city. Data are collected for land and housing with and without infrastructure (such as an individual water connection or a private toilet) in order to evaluate the impact of infrastructure investments on land values. Prices are normally collected for each of the past three years (for a detailed discussion, see Volume 2, Section 3.2). • Developer Survey: Developers are interviewed on their planned and ongoing projects. Data are collected on the type of land, dwelling units, commercial space,

1 Dowall, David E. “The Land Market Assessment: A New Tool for Urban Management,” Urban Management Programme Publication No. 4, IBRD/UNDP/Habitat, 1995. (http://www.unhabitat.org/ programmes/ump/publications.asp) CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 3 BEST PRACTICES COMPENDIUM: PROPERTY MARKETS AND URBAN PLANNING

etc., being produced; when it will come on the market; and what the asking price will be. • Land Use Change Analysis: As described in Section 3.2 of Volume 2, this involves comparing remote images of the city from two different time periods to detect changes in land use. Draft land use maps are verified using “ground truthing,” or driving around the town to verify the land uses of what has been observed in the remote images.

The results of the three tasks are then combined in order to represent recent changes in the land and real estate markets. Prices by zone are mapped for the current year and the two previous years. Changes in prices by zone are tabulated and mapped. The results of the developer survey are used to estimate the production of housing and real estate products during the current year and the following few years. This allows for comparison of supply and demand for housing and quantification of any mismatches. Where demand is exceeding supply, local governments can take steps to facilitate the production of more serviced land or housing units; where supply exceeds demand, cities and towns can stimulate demand (through subsidies, for example) or limit production (through rezoning of land or restriction of building permits).

PADCO carried out a broker survey, developer survey and land use change analysis for the City of San Miguel. The developer survey showed that many more housing projects were in the pipeline, and that local investors continued to show interest in financing them. PADCO was able to accurately quantify not only current housing supply, but anticipated future housing supply.

The broker survey accurately traced the magnitude of the boom and bust real estate cycle in San Miguel. Over the period 1992-1995, prices for residential land rose on average about 50%, and in many central-city districts between 100% and 500%. But in 1996, the market crashed, and land prices dropped between 35% and 75% in most parts of the city. Overall, the market lost in a 6-month period roughly what it had gained over the previous three years.

Results

The Land Market Assessment gave the City of San Miguel a clear understanding of the exact nature of the boom and bust cycle that the local real estate market had experienced. The City now had detailed quantitative information on the loss in real estate values due to over-investment in housing. Moreover, the City knew, through the developer survey, what the current and near-future housing surpluses were likely to be. This gave them a clear rationale to implement policies to bring housing supply in line with demand. The City agreed that the proposed Master Plan for 1996-2016, at that moment under preparation by PADCO, should include a time program for production and release onto the market of serviced urban land that corresponded to projected demand. In practice, this meant zoning very little new land for residential use over the 1996-2001 period, and programming most of the future land development in later phases of the plan.

CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 4 BEST PRACTICES COMPENDIUM: PROPERTY MARKETS AND URBAN PLANNING

GIS Maps of Land Use and Price Changes in San Miguel

Relevance to PRC Accurate, up-to-date information on real estate markets is an important ingredient of good urban management. Many fast-growing Chinese towns can use this tool to develop a snapshot of current conditions in the housing or industrial land markets, for example. They can then use this information to formulate policies to stimulate an appropriate supply response, such as production of apartments for residents and migrant workers at affordable prices and in keeping with actual in-migration flows, or production and release of serviced industrial land in line with the needs of manufacturing enterprises. CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 5 BEST PRACTICES COMPENDIUM: PROPERTY MARKETS AND URBAN PLANNING

Best Practice: Rapid Land and Infrastructure Assessment (RLIA) Case Study Tirana, Albania

Background and Rationale

Tirana, the capital city of Albania, was inundated with rural migrants in the 1990s, which led to dramatic expansion of the urbanized area. Massive informal settlements sprang up in the fields in neighboring towns to the north and west of the city center. While most housing was built of permanent materials, roads were unpaved and most areas lacked basic infrastructure such as storm water drainage and wastewater collection and treatment systems.

PADCO was contracted by the Government of Albania to prepare a Strategic Plan for Greater Tirana 2002-2012 under the International Bank for Reconstruction and Development (IBRD)-financed Urban Land Management Project. Three background studies were carried out: Urban Economic Study, Land Market Assessment, and Rapid Land and Infrastructure Assessment (RLIA). The overriding objective of the RLIA was to evaluate the recent growth of the built-up area and to evaluate the potential for future development on a zone-by-zone basis. Specifically, the RLIA sought to answer the following questions: • How much has the city physically expanded in the last decade? What is the land use pattern today? • What is the coverage and service level of urban infrastructure and services in the city center and the new peripheral informal areas? • What are the future needs for urban land for different uses and urban infrastructure and services? Where should new development take place?

Description of Activities Undertaken

The RLIA was composed of three separate tasks: land use change analysis, infrastructure and services review, urban environmental analysis. (Population projections were prepared under the Urban Economic Study and a broker survey was carried out under the Land Market Assessment.) The RLIA also included calculation of land and housing requirements and an analysis of the development potential of different zones around the city (see figure below).

PADCO procured satellite images for 1994 and 2001, created orthophoto maps for each year, and prepared land use maps through analyses of the images and “windshield” surveys in the field (for a more detailed discussion of methodology, see Volume 2, Section 3.2). It was determined that the built-up area of the town increased almost fivefold, from 12 square kilometers in are to 32 km2 over the period. Housing accounts for three-quarters of the urbanized area. Informal housing alone makes up two-fifths of the urbanized area. Public open spaces are few and far between, representing only about 3 percent of the built-up area.

CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 6 BEST PRACTICES COMPENDIUM: PROPERTY MARKETS AND URBAN PLANNING

Figure 1.1: Main Tasks and Outputs of the RLIA

Tasks Outputs

Land Use Change Analysis Land and Infrastructure Requirements Infrastructure and Services Review Development Potential Urban Assessment Environmental Analysis

The infrastructure review covered the water supply, sewerage, roads, solid waste management, electrical power, and telecommunication sectors. Data on networks, other facilities, coverage and service levels were collected and entered into a geographic information system (GIS). It was determined that the available water supply is sufficient to meet the needs of a population of 1,134,000 people, or twice the current population of the metropolitan area. There were therefore no bulk water supply constraints in Greater Tirana during the planning period. Centralized wastewater collection was only carried out in the city center. All collected wastewater was dumped untreated into area rivers. Buildings in outlying areas used on-plot wastewater disposal solutions. These findings were presented in map and tabular form.

A windshield survey of all roads in the peripheral informal areas was used to gather information on right-of-way width, road width, materials and condition. It was shown that road development had not kept pace with urbanization in peripheral areas. Seventy-five percent of the metropolitan road network was located outside Tirana Municipality, the large majority of it unimproved. Three-quarters of peri-urban roads were unpaved, and only 10 percent were paved and in good condition. Most local and access roads in the metropolitan area lacked stormwater drainage.

The environmental analysis identified current or potential environmental problems that should be addressed by the Strategic Plan. It was found that continued use of on-plot sanitation solutions would further pollute the underground water supplies in the Kamza area, posing a health hazard for the local population. Investment in piped sewerage was necessary to achieve sustainable development in this area. Some zones were found unsuitable for development because of subsidence (around a mine) and noise pollution (around the airport), or erosion (hills east of the city).

Results

The land use change analysis showed that there was great potential for densifying the existing urban fabric. It was therefore assumed for planning purposes that the informal housing areas could be densified up to a level of 25 dwelling units per hectare. On that basis, 55,000 of the necessary 86,000 housing solutions over the planning period could be created within the existing urban fabric. Only 900 hectares of new development at 33 CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 7 BEST PRACTICES COMPENDIUM: PROPERTY MARKETS AND URBAN PLANNING dwelling units would be required. This conclusion meant that Greater Tirana did not have to grow outwards as much as previously thought in order to accommodate future population growth. Through densification, the city could achieve a more compact and efficient urban form. It was decided to create a greenbelt around the existing and planned development area in order to limit urban expansion.

Albania Land Use Map

The assessment of development potential showed that it would be (i) environmentally unsound to promote development in the hills to the east of the city and (ii) costly to develop outlying areas that would require extension of trunk infrastructure. Zones with large groundwater reserves that could potentially be damaged by excessive development were excluded. The analysis focused the planners’ attention on zones closest to the built-up area with relatively low slopes. The cost of the Strategic Plan for Greater Tirana was therefore reduced, and the environmental impact improved.

Relevance to PRC

It would be appropriate for planners in towns to use the RLIA in order to assess recent urban growth and establish requirements for future growth. By increasing the precision of future needs estimates, the RLIA can help towns decide how much collective land should be converted to state land in order to accommodate future needs. Moreover, this analytical tool provides a rational framework for analyzing the development potential of different parts of the town, a key input into the physical and spatial planning process. CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 8 BEST PRACTICES COMPENDIUM: PROPERTY MARKETS AND URBAN PLANNING

Best Practice: Regional Planning of Export Oriented Development Case Study Tunisia

Background and Rationale

Tunisian cities fall into two groups: manufacturing clusters, which are coastal, export-led cities with good trunk transportation infrastructure, and secondary cities: smaller cities in the hinterland with less access to national transportation system. Traditionally, manufacturing clusters have grown very fast, with secondary cities lagging behind.

Tunisia’s national 1984 plan attempted to improve conditions in secondary cities by distributing national benefits on an equitable, per capita basis. Although the intention was to more equitably distribute services, in practice the policy created complex problems, described below.

In the late 1980s, as Tunisia’s national economic planners decided to take the country on an export-oriented development course, they undertook a review of all aspects of the country’s urban development. PADCO was invited to review current urban conditions and recommend changes to the nation’s urban programs, in line with the new development strategy.

Description of Activities Undertaken

PADCO carried out a thorough inventory of urban conditions, including economic and financial development. The study began by appraising conditions in manufacturing clusters, and comparing them to those in secondary cities. The following areas were examined: employment, housing, land use, water, sanitation, solid waste, environment, energy, telecommunications, transport, and parks.

PADCO found that housing conditions and services in secondary cities were generally as good or better than those in manufacturing clusters, despite the fact that the economies in manufacturing clusters were stronger, and growing more quickly. The export-led growth in the clusters, combined with rapid population growth due to migrants seeking employment, placed higher burdens on infrastructure. However, the government’s policy of equal distributions to all cities meant that slow-growing secondary cities received the same per capita allocations as manufacturing clusters.

In manufacturing clusters, the following problems were identified as the result: • Industrial water consumption disrupted household supplies • Wastewater contaminated the sea coast, harming the fishing and tourism industries • The labor force suffered from poor accessibility when traveling to workplaces

The national planning and provision of infrastructure meant that solutions for each city were frequently inappropriate. Towns were left with little scope or capacity for long-term planning, and whatever efforts they could initiate faced national interference. Similarly, financial controls were too top-down and reduced local-level initiative. There was no scope to initiate private sector provision of infrastructure.

CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 9 BEST PRACTICES COMPENDIUM: PROPERTY MARKETS AND URBAN PLANNING

Results

PADCO’s study led to two different sets of recommendations. They included the following: • Tunisia’s urban program should be based upon an “efficiency approach,” which would focus on addressing social and economic needs in manufacturing clusters with better export prospects and growing populations. This was superior to the “equity approach,” which attempted to promote secondary cities, despite the fact that they had limited economic prospects. PADCO’s principal recommendations to the national planning authority in this regard were the following: ! Pay greater attention to economic trends and demands on urban services ! Allow greater decision making at the municipal level ! Increase capacity for local economic development and investment promotion. ! Allow more public-private joint ventures in service provision • Improvements should be made in all cities, with special attention to those cities on the coast that offered greater prospects for an export-based economy. In these cities: ! Multimodal road, rail, sea and air links should be developed along the east- coast corridor, between manufacturing clusters ! Land use and housing densities should increase to improve the access of labor to manufacturing employment ! Municipalities should develop serviced land and allow private sector to provide housing ! The government should pay greater attention to environmental monitoring and enforcement. ! Capacity building in export development, investment promotion, and local commercial finance institutions should be strengthened.

Relevance to PRC

As towns in the PRC grow, the government must make important decisions about how to allocate limited public resources. This study shows the benefits of performing thorough, multi-sector assessment of urbanization to identify the most important needs and constraints, as well as the importance of balancing social equity and economic efficiency.

CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 10 BEST PRACTICES COMPENDIUM: PROPERTY MARKETS AND URBAN PLANNING

Best Practice: Smart Growth Case Study Portland, Oregon, USA

Background

The term “smart growth” refers to an urban development pattern that has the following characteristics: • Compact and efficient use of land, with relatively high density housing • Mix of commercial, retail, and residential areas • Integrated land use and transportation planning • High use of all forms of transit (including subways, buses, and light rail) • Pedestrian- and bicycle-friendly streets • Revitalized older urban centers and suburbs • Reduced air and water pollution, and efficient use of basic infrastructure services • Preservation of farmland and forests in areas around cities

Various communities in America have pursued the goals of smart growth, which lead to an improved quality of life for community members and an improved quality of the environment. As described below, Portland, Oregon has been at the forefront of smart growth efforts since the 1970s.

Description and Results

In the 1950s and 1960s, Portland, Oregon began to experience high population and housing growth on its suburban fringe. Concerned about the environmental and quality of life impacts that this growth would bring over time, the Oregon legislature responded by establishing an urban growth boundary law in 1973. This law required each municipality to draw a boundary which would mark the outer limit of allowed urban development.

The city of Portland established its urban growth boundary in 1979. All land within the boundary must be planned and zoned according to the plan. In 1978, Portland voters established “Metro,” an organization governed by elected leaders, and tasked it with creating regional plans for land use and transportation. In 1994, Metro led the way in drafting Portland’s “2040 Plan,” which sets goals for the city’s land uses, density, and transportation systems.

Portland’s urban growth boundary and other policies have had the effect of concentrating and increasing the density of urban development, creating more compact and efficient communities. From 1970 to 1990, land use in the Portland metropolitan region grew just 2 percent, although the population grew by 50 percent. In addition, a recent study found that housing density had increased in the Portland area from five dwelling units per acre in 1994 to eight units per acre in 1998.

Portland has also invested in a light-rail system in its downtown area. It built a streetcar on the east side in 1986, and expanded it to the west side in 1998. Since then, light-rail has expanded service to several more areas. Streetcars provide links inside the city, as well as CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 11 BEST PRACTICES COMPENDIUM: PROPERTY MARKETS AND URBAN PLANNING to nine neighboring districts. To facilitate transit-oriented development, minimum density requirements were adopted around stations. Improved public transit access has helped lead to the revitalization of Portland’s oldest urban neighborhoods. Portland has also emphasized pedestrian friendly street design, as well as making efforts to increase street connectivity and pedestrian access to commercial areas and transit stops.

All of this has added up to a more vibrant downtown area and improved urban quality of life. Portland, like most other American cities, is still struggling to find the right balance between development and development restrictions. However, Portland is generally recognized as a successful model of efficient and compact land use choices and integrated transportation and land use planning.

Sidewalk Retail Photo: Livable Oregon Light rail in downtown Portland Photo: Livable Oregon

Relevance to PRC

Portland residents made early, deliberate decisions about what the city’s growth trajectory should be. Over several decades, these decisions have borne fruit, and the city is now more compact, livable, and efficient than it would have been under the typical American planning scenarios. Many of the PRC’s towns are now in the early phases of development. The planning decisions and development patterns they adopt now will shape their future urban form. Dense, transit- and pedestrian-friendly development will lead to a higher quality of life for town residents.

CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 13 BEST PRACTICES COMPENDIUM: HOUSING

Section 2: Housing CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 14 BEST PRACTICES COMPENDIUM: HOUSING

Best Practice: Shelter Needs Model Case Study Ethiopia

Background and Rationale

In the mid-1990s the Government of Ethiopia (GOE) was facing a housing crisis. Almost 40 percent of the urban housing stock was in poor condition or beyond repair, space per person was less than 5 square meters, and one-third of all housing units had no wastewater disposal facility. Clearly, public sector intervention was required to improve existing housing and produce new housing to meet the needs of future households. But funding was extremely limited. This made it essential to assess the overall housing needs in urban areas and target limited public funding to have the maximum impact on improving shelter conditions.

Under the World Bank-financed Ethiopia Housing Sector Study, GOE contracted PADCO to carry out a housing needs assessment using PADCO’s Shelter Needs Model. This spreadsheet model evaluates physical and financial requirements for housing and shelter- related services in a given town. The assessment starts with an inventory of the quantity and condition of the housing stock by type of housing. After making assumptions about what standards should be attained in the future for each type, the model then identifies the types of investment that will be needed to attain the standards and how much they will cost. Finally, the model evaluates the affordability of the investments to different income groups of the population.

Description of Activities Undertaken

PADCO used the Shelter Needs Model to evaluate conditions in the capital city of Ethiopia (Addis Ababa) as well as in nine provincial capitals. The results were aggregated to draw conclusions about the urban housing sector in the country as a whole. The main four steps of the evaluation are described below:2

Table 1. Population and Household Estimates

Population and number of households in different types of housing (such as villas, apartments, traditional wattle-and-daub units, courtyard houses) were calculated by using census data, analysis of remote imagery and field surveys. PADCO then projected population growth and future number of households for each housing type. Additional units needed to relieve existing overcrowding were taken into account. This demand-side analysis established an overall target for the supply side: the assumption is that the town must find ways to facilitate the provision of enough dwelling units to accommodate all future households.

Table 2. Replacement, Renovation, and Upgrading of Existing Stock

PADCO then examined the condition of the housing stock through a household survey and field observation and calculated the requirements for upgrading the houses and the infrastructure that serves them. It was assumed that buildings in very poor condition would

2 Section 3.2 of Volume 2 of this Final Report includes a step-by-step description of the methodology for using the Shelter Needs Model; examples of the four tables that compose it are included as an appendix to that volume. CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 15 BEST PRACTICES COMPENDIUM: HOUSING be replaced, while other buildings would be repaired. This is a safe assumption in towns where the disposable income of households and of the town government is low. Where more income is available, it is possible to assume greater levels of redevelopment of existing housing areas.

Table 3. Housing Cost Estimates

Next the study team calculated the cost of renovating existing housing and building new housing. The analysis yielded total costs for producing specific quantities of dwelling units in each proposed “investment type.”

Table 4. Affordability

In the last step of the analysis, the cost of the proposed housing improvements was compared to the incomes of the end users gathered through the household surveys. For each group of residents of a particular housing type, the model calculates total housing finance requirements, total borrowing capacity and the total financing gap.

Results

The results of the national-level analysis are shown in the following table. Given the massive needs for renovation and replacement of deteriorated housing units, the total cost of the program came to about twice the total financial resources available to the public sector.

Ethiopia Shelter Needs Assessment (Ethiopian Birr millions)* Annual Average, Cumulative, Cost/revenue 1994-2004 1994-2004 % Total Costs New Units 902 9,017 74% Renovation 271 2,706 22% Upgrading 51 506 4% Total 1,223 12,229 100% Revenues

Sale of Govt-owned Hsg Sale of AARH Housing 538 5,380 90% Land Leasing* 28 280 5% Rental Income Tax* 24 240 4% Petroleum Levies 8 80 1% Total 598 5,980 100% Revenues minus costs -625 -6,249 -- % Shortfall 51% 51% -- * In 1996, US$1 = 6.30 Ethiopian Birr

This massive financial shortfall highlighted need for greater private sector involvement in financing house construction. In particular, it was proposed that households should be able to borrow financing from private commercial banks to finance their own house construction and renovation. Proposals were therefore developed (i) to introduce adjustable rate mortgages to entice banks to issue more mortgage loans, and (ii) to increase access to CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 16 BEST PRACTICES COMPENDIUM: HOUSING home improvement loans, which are medium-term (3-5 year) loans that households can use to renovate or extend their existing dwelling unit. In this way, the Shelter Needs Model assisted the GOE in adopting an affordable national housing policy based on greater private sector participation.

Relevance to PRC

For Chinese towns that face high population growth rates and need to facilitate the production of large amounts of housing, it is essential to be able to calculate with reasonable accuracy overall housing needs and the costs of different housing policy interventions designed to meet those needs.

Section 3.2 of Volume 2 shows how to calculate total housing requirements by estimating the future number of households that will need housing units. But there are many ways to reach that overall target of “units produced.” Town governments could formulate a number of different policy interventions for future housing production such as: • Redevelopment of existing ping fang areas into apartment blocks • Redevelopment of existing ping fang areas into terrace housing • Construction of new garden apartments on vacant land • Upgrading of selected existing ping fang areas

Town governments and their designated analysts can calculate the costs of these policy interventions, compare them with available public sector and private sector resources, and select a realistic, implementable package of different policy and program interventions that will allow the town to meet its future housing needs. CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 17 BEST PRACTICES COMPENDIUM: HOUSING

Best Practice: Condominium Formation Case Study Ekaterinburg, Russia

Background and Rationale

PADCO, along with partner OKM Associates, was hired to assist the Government of Russia in developing the policy infrastructure needed to enable the formation and efficient operations of condominium associations (CAs). To do so, this demonstration project identified several buildings and trained their leaders and local staff. The project also identified the legislative and bureaucratic obstacles to the efficient operation of condominium associations, and worked with city administration representatives to address them.

In the mid-1990s, residents of apartments and the government of Russia were interested in forming condominium association to address the following problems: • Vandalism, thefts, and increased levels of wear and tear on buildings • Poor quality and deferred maintenance on buildings, due to both a lack of funding and maintenance system deficiencies • Lack of funding for capital repairs • High resident dissatisfaction with current housing conditions, cleanliness, and utility provision (including poor water quality, plumbing)

Condominium associations organize private owners to improve management and maintenance of the buildings in which they live. Apartment owners are charged a fee, which is used to pay for repairs, cleaning, and routine maintenance of the property, as well as insurance on common property and the building structure. Condominium associations are jointly responsible for the safety and maintenance of common areas, including yards, hallways, and entrances.

CAs are governed by their charter and bylaws, and decisions are generally made by a Board of Directors. CAs also adopt rules and regulations which residents must obey (for example, when and where trash may be set out for collection). CAs may contract out for maintenance and management services. They may also sanction apartment owners for violating the CA rules (for example, failure to pay condominium fees or obey restrictions on construction internal to an apartment).

CAs provide a method for apartment residents to jointly provide for the management and maintenance of their apartment buildings, without the involvement of the government.

Description of Activities Undertaken

The project began by identifying obstacles to the creation of condominium associations, including issues of city policy, incomplete and conflicting legislation, lack of understanding of the concept (including benefits and rights). From the resident’s perspective, obstacles included the inability to enforce fee payments, excessive fees, fears that it would result in higher maintenance fees, and fear of city government interference.

To address these issues, the project conducted the following activities to establish the pilot program: CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 18 BEST PRACTICES COMPENDIUM: HOUSING

• Evaluated current situation • Identified city administration departments having a role in the approval and registration process • Determined criteria for and selected pilot buildings • Outlined steps necessary for establishing CAs and provided documents necessary to complete registration process • Formed a working group with key supporters of the initiative • Developed a training process ! Located and hired a team of local staff ! Determined and prioritized training needs ! Prepared course materials

Results

The results of the project included, among other products: • Detailed city policy on condominium formation in the form of a Mayoral Resolution • Development of model condominium charter and bylaws, sample condominium rules and regulations, and operating procedures • Step by step registration process adopted by city departments • Education of city facilitators in the legal basis, concept, and operations of CAs • Registration Handbook for distribution to residents • Acceptance of city administration towards CAs

Relevance to PRC

Many new apartment buildings in the PRC are managed by privately operated companies which charge resident fees for activities. In older apartments, work units are responsible for maintenance and management activities. In both cases, maintenance services are often substandard, with common areas and exteriors deteriorating. Establishing associations of residents which are responsible for the long-term upkeep of buildings could help mitigate these issues. However, these associations must be properly trained and have an appropriate legal and regulatory framework. CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 19 BEST PRACTICES COMPENDIUM: HOUSING

Best Practice: Public-Private Housing Partnerships in Transitional Economies Case Study Bulgaria

Background and Rationale

Following the tumultuous socio-economic-political changes that swept Central and Eastern Europe and the Soviet Union during the late 1980s and early 1990s, the United States Agency for International Development (USAID) pursued in 1993 and 1994 the formulation of technical cooperation programs that assisted a number of municipal governments in the promotion of the development of land for housing through the use of public-private partnerships. PADCO, Inc., in association with U.S. and local partners, introduced municipal officials and private developers in Bulgarian cities to the use of Requests for Proposals (RFPs) as a means to structure public-private partnerships for the delivery of land for housing.

Bulgaria is located in Eastern Europe on the Black Sea and has a population of approximately 9 million. Up until the early 1990s, Bulgaria’s housing sector was modeled after the Soviet system, dominated by large state and municipal enterprises that constructed high-rise, concrete apartment buildings. As the majority of these enterprises fell victim to the collapse of the state planning system, a new class of entrepreneurs emerged: the private developer. Although public-private partnerships had never been created in Bulgaria, the RFP approach was viewed with interest and enthusiasm by both these private developers and municipal officials.

From the municipal officials’ perspective, RFPs enabled them to provide compensatory housing for residents whose property was expropriated for public purposes in the 1980s. They were able to fulfill these obligations by requiring developers to give a certain portion (typically 20-30 percent of the total) of housing in developed sites to the municipality. From the private developer’s perspective, the process provided access highly desirable municipally owned sites for development.

Description of Activities Undertaken

RFPs are intended to: announce and encourage an open, fair competition between developers; elicit proposals that provide a complete and detailed description of a developer’s plan, allowing for the judgment of an offeror’s capability to carry out the proposed project; and protect the municipality’s financial and legal interests. In general, an RFP should include at least the following: mandatory performance standards; general and special conditions or terms under which the developer will operate; a time frame for construction; a recommended format and specific procedures for preparing and submitting proposals; criteria by which competing proposals will be evaluated; and a schedule and process for reviewing the proposals and selecting a “winning” developer.

As an alternative to issuing an RFP, a municipality can first issue a request for qualifications (RFQ), which typically explains the objectives, time frame, and parameters of the proposed public-private partnership and also requests interested developers to submit their qualifications (e.g., experience, personnel, financial statements) for review. Hence, RFQs can be used to “pre-qualify” or “short-list” developers interested in participating in the project. Once this short list is determined, the municipality can issue an RFP inviting the qualified developers to submit detailed project proposals. CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 20 BEST PRACTICES COMPENDIUM: HOUSING

Steps involved in issuing an RFP include the following: 1. Establish Specific Development Objectives 2. Identify Municipal Sites for Development 3. Prepare an RFQ and/or RFP 4. Prepare a Model Development and Disposition Agreement 5. Review Development Proposals and Select Winning Developer(s) 6. Negotiate and Sign Development Contract with Developer 7. Monitor Project and Enforce Contract

Results

The technical assistance program after the workshop was structured to assume a hands-on, consultative approach. The team made regular visits back to Bourgas, Rousse, and Stara Zagora at strategic phases during the overall RFP process. During these visits, the team essentially served as consultants to the municipal officials who were responsible for designing and implementing the public-private partnership projects in their respective communities.

The actual results of the demonstration project vastly exceeded initial expectations. By January 1995, only 13 months after the initial workshops, the three municipalities of Bourgas, Rousse, and Stara Zagora had selected sites, prepared RFPs, reviewed proposals, and awarded development rights for eight sites. In total, the demonstration project promoted the creation of public-private partnerships for the development of more than 300 housing units plus additional office, retail, and garage space in the three participating municipalities.

Relevance to PRC

Due to China’s land ownership system, town governments in China are often very involved in the development of land for housing and other uses. The RFP process provides a rational, publicly open way to bring land on-line for development, and to structure the sharing of public and private benefits from development projects and partnerships between the public and private sectors. CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 21 BEST PRACTICES COMPENDIUM: HOUSING

Best Practice: Housing Design Types Case Study Washington, DC

Background

Washington, DC, the capitol city of the United States, is widely recognized as one of the world’s most beautiful cities. Many tourists, however, never go beyond DC’s monumental core to visit Washington’s lively, lovely neighborhoods. Washington provides its 600,000 residents with a wide range of housing options. The best of Washington’s neighborhoods are characterized by the following: • Diverse mix of residential and commercial (including shops and office space) land uses • Diverse range of architectural designs, housing typologies, and building ages.

This diversity adds aesthetic value to Washington’s various neighborhoods, differentiates sections of the city, and caters to a wide range of preferences and ability-to-pay among Washington residents.

Description

In general, housing in Washington falls into several broad categories. Within each category, a wide range of building qualities, amenities, and price points can be found. The categories are described, with illustrative pictures of each, below:

Single-family detached This style accounts for a small fraction of overall land, and is generally located on the periphery. It is generally from 2-3 stories, with 3-4 bedrooms and 2-3 bathrooms. It is also generally surrounded by a small grass yard.

Single-family attached This style is very popular in Washington, and forms the bulk of housing stock in many of Washington’s older neighborhoods (approximately 100 years old). It is attached to other houses on both sides. These houses generally have 2-3 stories, with 2-3 bedrooms (often on the second level), and 1-2 bathrooms. Houses have a small yard in front and back. In many cases, these apartments have rentable apartments in the basement, providing the homeowners with extra income. CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 22 BEST PRACTICES COMPENDIUM: HOUSING

Garden-style apartments This style is also very popular in Washington, and is often mixed with other types of housing, particular the attached houses. This style is characterized by buildings of 3-5 stories and 10- 20 apartment units. The apartment sizes vary, but generally range from 1-3 bedrooms, with 1-3 bathrooms. Buildings generally have limited common areas, with a shared front yard. Apartment buildings come with a range of amenities, depending on their age and price, and may include balconies, air conditioning, etc. These buildings generally have both owner- occupied units and rental units in them.

Low-rise apartment buildings Low-rise apartment buildings are generally 5-8 stories, and hold anywhere from 30 to 100 apartment units in varying sizes. These buildings have a mix of apartment sizes, with limited common areas. They may have a front yard, although many do not. Like the garden-style apartment buildings, they have a range of amenities.

CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 23 BEST PRACTICES COMPENDIUM: HOUSING

Mid-rise apartment buildings Washington has a limited number of mid-rise apartment buildings, which range from 8-13 stories in height, and may have 100 to 400 units. These buildings are generally concentrated in the city center. They host a mix of apartment sizes, ranging from 1-3 bedrooms, and 1-3 bathrooms. Like the low-rise apartments, they have limited common areas and a range of amenities.

Relevance to PRC

Towns in the PRC have two predominant residential building types: single story ping fang and 5-6 story apartment blocks. However, there are many alternative residential housing models that are appropriate for small towns. The residential housing available in Washington, DC provides a range of building typologies that could be explored in PRC towns.

CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 25 BEST PRACTICES COMPENDIUM: INFRASTRUCTURE PLANNING

Section 3: Infrastructure Planning

CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 26 BEST PRACTICES COMPENDIUM: INFRASTRUCTURE PLANNING

Best Practice: Capital Investment Planning Model Case Study Ukraine

Background and Rationale

Ukraine’s energy-intensive urban services systems were built in the 1960s and 1970s, when the Soviet Union heavily subsidized electrical power and natural gas. With the rise of energy prices to international market levels in the 1990s, the country’s district heating, water supply, and wastewater collection and treatment systems became very expensive to operate. The high costs were exacerbated by deteriorating fixed assets. The challenge facing municipally owned utilities in Ukraine is therefore to rehabilitate existing works in order to make them more energy efficient and reduce operations costs.

But with funding for capital investment in short supply, which capital investment projects should utilities undertake? Should the water company build a new water treatment plant, or rehabilitate networks? Should the district heating and hot water enterprise replace water pumps, or first install new boilers in central heating stations?

Under the USAID-financed Tariff Reform and Communal Services Enterprise Restructuring Project, PADCO developed a Capital Investment Planning (CIP) Model to assist utilities in effectively allocating scarce financial resources among competing capital improvement projects. By 2005, the CIP model had been applied by 27 enterprises and resulted in substantial improvements to the performance of Ukrainian urban services systems.

Description of Activities Undertaken

The CIP Model is a PC-based spreadsheet that receives information about identified capital improvement projects and ranks them according to their cost effectiveness. The model is broken down into three parts: inputs, calculations, and outputs.

Inputs

The PADCO team worked with the enterprises to enter into the spreadsheet model basic information on a series of pre-identified capital investment projects, including project cost, annual energy savings results from the project, and reduction of water or heat losses resulting from the project.

Calculations

The next spreadsheet automatically assessed the cost effectiveness of the proposed projects using two indicators: Financial Internal Rate of Return (FIRR) and Payback Period. These are two international standards for financial assessment of urban infrastructure improvements.

FIRR calculates the annual average return on the investment over the time period in question by comparing the initial investment cost to the future benefits (in Ukrainian utilities, operational cost savings). To interpret the results, it is necessary to compare the FIRR to the “discount rate,” or the normal rate of return of alternative investments in a given economy. FIRR is calculated according to the formula:

CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 27 BEST PRACTICES COMPENDIUM: INFRASTRUCTURE PLANNING

NCF FIRR = n −1 I where FIRR = Financial internal rate of return of the investment project NCF = net cash flow І = investment cost n = number of years

The table also calculated for each proposed investment the payback period, or the number of years required to recover the initial investment. Payback period is calculated by dividing the investment cost by the average annual net cash flow. Unlike the FIRR, this measure does not take into account the time value of money.

Outputs

In the first of two output tables, the participating utilities entered sources of financing for each of the proposed investment projects. The second table then automatically ranked the projects by two criteria: cost effectiveness (FIRR or payback period) and availability of financing. This process yielded a ranking of all investment projects in which the top priority projects were those with the highest rate of return and for which financing could be secured.

Then other factors were taken into account, such as: • Technical expediency (some investments were critical to the overall functioning of the system) • Stakeholder service delivery priorities (for example, community groups had expressed their desire for 24-hour water service in some towns, requiring investments in water production capacity) • Relationship to the development plan of the town

Based on these factors, the ranking was adjusted. But where the final ranking was different from the initial one, enterprise managers had to justify the changes to city officials and other stakeholders, identifying the specific reasons that public funding was not going to be spent on the highest-performing projects.

The final table sorted the top-ranked projects into short-term, medium-term and long-term investments for each enterprise.

Results

All 27 enterprises that participated in the Tariff Reform Project to date have completed CIPs using the model. Those CIPs were approved by city and stakeholders as part of the Strategic Action Plan of the enterprise. The enterprises are therefore on track to implement the highest-performing capital investment projects for which financing is available.

Moreover, 18 enterprises began implementation of their CIPs. Across Ukraine, 11 water companies and 7 district heating enterprises have implemented energy saving projects such as installation of modern, efficient pumps at wellfields, rehabilitation of water and wastewater pumping stations, rehabilitation of central heating stations, and installation of new aeration system at wastewater treatment plants. Other enterprises began to replace sections of their piped distribution networks.

CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 28 BEST PRACTICES COMPENDIUM: INFRASTRUCTURE PLANNING

The CIPs were also used by two enterprises as the basis for loan applications to commercial banks, to finance five energy-savings projects with high financial rates of return.

These changes mean that most municipal utilities are selecting the most cost effective projects: those with the highest internal rate of return. Where the utilities have ranked other projects higher than those with the highest FIRR, they now have to justify their selection. The transparency required by the CIP model means that public monies are now better spent by local government in Ukraine.

Relevance to PRC

Local governments in the PRC also faced with the challenge of allocating scarce resources among diverse infrastructure improvement needs. Currently the process of project identification does not include rigorous analysis of cost-effectiveness such as internal rate of return. As towns continue to plan infrastructure development to support future growth, they should introduce the CIP Model at the level of the enterprise or the local government as a whole, in order to better target their investment resources and ensure greater accountability with respect to public expenditures. CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 29 BEST PRACTICES COMPENDIUM: INFRASTRUCTURE PLANNING

Best Practice: Reducing Water Demand Case Study Canada

Background and Rationale

The traditional approach to municipal water management has been supply management which responds to rising demands by developing new sources of water and expanding infrastructure capacity. With growing populations, this approach becomes increasingly expensive and environmentally unsustainable. As a result, the emphasis is shifting from exploitation of water resources and development of large-scale infrastructure to the maintenance of safe, reliable water systems by reducing water demand and managing human activities to protect or enhance aquatic ecosystem.

Demand management is a series of actions to use water more efficiently and to reduce water losses and wastage. Pricing (tariff), education, water-efficient technologies, and regulatory requirements that promote reuse and recycling are examples of demand-side approaches. The basic idea is that it is often more cost-effective to influence consumer demand to use less water than to develop new water sources. This is particularly true when environmental and economic costs of urban water services are taken into account. Benefits of demand management include: • Reduction or postponement of capital costs for infrastructure to deliver water and also to collect and treat wastewater (as flows are reduced). • Less electricity usage for pumping potable water and wastewater. • New economic activities for water-related manufacturing and service sectors to provide water efficient appliances and processes, thus encouraging new business opportunities and job creation.

Description of Activities Undertaken

Canada is rich in sources of fresh water and Canadians use more water per capita than any other national population except the United States. Approximately $600 million is spent annually by municipalities in Canada on expanding their water delivery and sewage treatment infrastructure. In 1994 the Canadian Council of Ministers of the Environment drafted an action plan to apply water efficient technology that was already available, with the goal of reducing capital expansion costs and operating costs for new or expanded water systems. Key elements of Canada’s Water Efficiency Action plan were as follows:

1. Government demonstrates leadership by reducing water use in its own facilities and in new publicly funded facilities by: • Initiating retrofits to government facilities where cost-effective • Organizing demonstration projects with high public visibility to show economic benefits of water use efficiency measures and benefits • Developing public education and awareness campaigns on water use efficiency • Sharing information to avoid duplicating research

CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 30 BEST PRACTICES COMPENDIUM: INFRASTRUCTURE PLANNING

2. Government puts requirements for water efficiency into regulations by: • Writing water efficient specifications for new government-owned and funded facilities and public housing • Amending plumbing codes to be consistent with water efficiency provisions and require water fixture efficiency labeling regulation,

3. Government encourages water supply companies to take the following actions: • Identify and reduce physical water losses through system audits and leakage control programs. • Introduce mandatory metering on all new construction, and move towards universal metering (“one family, one meter”) in order to invoice users on the basis of the water they use and the wastewater they generate • Undertake audit and retrofit programs for commercial, industrial, institutional and residential facilities.

Results

In 1996 the City of Winnipeg achieved a 5% decrease in per capita water use, thus deferring construction for over 10 years of supplementary municipal supply facilities (estimated to cost up to $350 million).

The town of Elmira, Ontario subsidized replacement of existing flush-toilets with ultra-low flow devices to achieve a 30% flow reduction. This helped the town defer construction of a $33.5 million sewage treatment plant until 1999, thereby saving up to $9.3 million over the 5- year period.

The town of Port Elgin, Ontario (pop. 6,500), avoided a $5.5 million expansion of its water treatment plant by installing 2,400 residential water meters in 1991 and implementing an intensive water conservation program, for a cost of $550,000. This reduced the summer water use by 50%, and use for all of 1993 by 25%, and dropped the waste water flow by 30%. The town also saved $12,000 in water and sewage treatment operating costs for chemicals and energy.

In a 1992 pilot program, the Regional Municipality of Waterloo and the City of Kitchener, Ontario, showed that households with ultra-low flow (ULF) toilets saw water use fall between 20% and 30%. The annual saving for home with ULF toilets was between $65 and $135. During the retro-fits, leakage was discovered in approximately 10% of homes, comprising over 10% of household water consumption. Repairing these leaks achieved a further reduction in water use and in wastewater discharges.

Relevance to PRC

With so much new construction in progress, the PRC can quickly achieve savings by requiring builders to install water efficient bathrooms and kitchen fixtures. In addition to reducing water use and loads on wastewater treatment facilities, this requirement, combined with certified testing to verify efficiency, creates new business opportunities to develop products for domestic and international markets.

CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 31 BEST PRACTICES COMPENDIUM: INFRASTRUCTURE PLANNING

Best Transport-Oriented Metropolitan Practice: Development Case Study Curitiba, Brazil

Background and Rationale

The city of Curitiba in Brazil’s industrial belt south of Sao Paulo is an internationally recognized urban planning success story. The mayor of Curitiba in the 1980s, Jaime Lerner, was an architect and planner by training. He was a visionary who, along with a devoted following of professionals, was able to introduce a number of low-cost improvements in a city which had previously been a showcase of squalor and pollution.

Description of Activities Undertaken

The key to Curitiba’s success involved some important transportation practices and innovations.

Transportation and land use

Curitiba has channeled its land-use and associated activities along two parallel major north- south arteries, with minor east-west roads feeding into such arteries. These arteries are the defining center of activity and growth, and contribute to a cohesive urban form.

These arteries have helped to strengthen the center as a social and commercial nexus, while encouraging well-paced development across the whole city. Thanks to its coherent layout, new development arises along the arterial roads in a gradual, predictable pace. This has allowed the city to anticipate future growth. The city government provides infrastructure, health care, recreation and park space inexpensively, efficiently, and on a timely basis.

A well-defined center

The north-south middle of the parallel transportation axes constitutes the business, retail and cultural center of the town. There are over 50 blocks of pedestrian roads adjacent to the central transit stations. Although a small city by Brazilian standards, Curitiba has superior parks and pedestrian walkways offering all residents and workers the pleasures of flowers, trees, low-cost food and drink. Curitiba’s center has become the envy of many larger Brazilian cities.

A low-cost mass rapid transit system

Curitiba originated the concept of bus-rapid-transit system. Confronted with the need to make the city accessible to its citizens, but being too small a city to afford or justify subway system, Curitiba Mayor Jaime Lerner introduced to the world a low-cost mass-rapid transit system: bus-rapid-transit (BRT).

Curitiba’s BRT system resembles a subway in many respects: passengers pay a fee before entering small “stations” where they wait for their buses and then board the bus with minimal delay. This, combined with dedicated roads and exclusive (bus only) lanes, has allowed Curitiba to operate buses quickly, conveniently, safely, and inexpensively. Allowing private operators to integrate service inside this system greatly reduced the costs to the public. The CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 32 BEST PRACTICES COMPENDIUM: INFRASTRUCTURE PLANNING parallel north-south axes and accompanying land use make it possible to provide the public greater mobility between homes and work. Low cost transit combined with exclusive pedestrian roads has strengthened the city’s center.

Results

The north-south transportation axes help provide coherent land use, support mobility, strengthen an attractive sustainable city center, and have ensured the public’s equitable access to services.

Curitiba is the model upon which other cities in North America, France and China (Kunming and Beijing already; Shanghai and Chongqing soon) have replicated their bus-rapid-transit systems.

Relevance to PRC

There are a number of lessons to be learned from Curitiba’s success: • A simple, clear and coherent transportation layout can assist the city in defining land use, development, and ensure an efficient and timely delivery of services. • Focus on small, inexpensive projects incorporating local skills and appropriate technology. This allows for quick implementation and easy replication throughout the city. • Turning to private sector for capital investment in public service (e.g., buses) can help mobilize resources in a timely manner.

CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 33 BEST PRACTICES COMPENDIUM: INFRASTRUCTURE PLANNING

Best Practice: Multimodal Transportation Center Case Study Alliance Airport (Ft. Worth, USA) and Kelly (San Antonia, USA)

Background and Rationale

The term multimodalism” (also known as “intermodalism”) refers to a combination of several modes of transportation in one place. It allows businesses located near inter-modal links great flexibility in handling freight. Manufacturers can source inputs from, and sell outputs to, a larger number of markets. Warehouses, wholesalers, logistics and transportation companies usually locate in an intermodal zone simply to handle – unpack and re-pack – goods. Despite its potential as an economic development tool, the concept is not well understood. This is partly because multimodalism occurs on many different scales.

Two state-of-the-art multimodal airports in the southern state of Texas provide examples of the application of multimodalism in the US. These examples illustrate the way these centers have used the growing trade between the US and Mexico to their benefit. Just north of the US border, and the most direct route between Mexico and most US markets, Texas has enjoyed considerable benefits in terms of transporting, distributing and manufacturing supplies from its southern neighbor. This is the basis of much of the success of these centers, as described below.

Description of Activities Undertaken

Alliance Airport (Fort Worth Texas)

Alliance Airport is an industrial airport about 25 kilometers north of the center of the city of Fort Worth. It was created from an abandoned air force base and has the following characteristics:

Superior Infrastructure • A pair of 3.3-kilometer runways (with plans to extend to 4.5 kilometers) and a 2.8- kilometer runways capable of accommodating even the world’s largest planes • A “funnel” of 1 national expressways and 3 state (i.e., provincial) roads linking the airport to Dallas Ft. Worth Airport (another large cargo and passenger handling airport) and other communities • A rail junction

Important facilities: • 2,500-hectare flat surface • Combined 8,000-hectare of industrial park surrounding the airport • Full Customs Service office • Flight training school

Alliance Airport was created in 1989 by a public-private partnership. The airport area and surrounding industrial parks were built and managed by private entrepreneurs, while state and local governments provided the necessary infrastructure. CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 34 BEST PRACTICES COMPENDIUM: INFRASTRUCTURE PLANNING

Alliance Airport has attracted the express courier service FedEx, microchip manufacturer Intel, telephone makers, and railroad car manufacturers. Together, these and other companies employ 60,000 persons. Alliance is the 14th largest cargo airport in the world.

Kelly USA (San Antonio, USA)

Another successful example of multimodalism is Kelly USA, the commercial name for an air force base in the southern US, which was converted to civilian uses in the 1990s. It has two principal assets:

Superior air, highway and rail transportation links • A 1,000 m2, 5-kilometer-long runway capable of accommodating very large planes • 3 expressways running north-south, east-west, and northwest-to-southeast • 2 sets of railway lines • Location just seven minutes from center of San Antonio, a city with more than 1.8 million inhabitants.

A large variety of buildings • Very large buildings able to accommodate airplanes, including warehouses • Large buildings suitable for manufacturing • Conference facilities capable of hosting thousands of people • Housing • Recreational facilities • Smaller buildings in an historic district

Kelly USA has become very successful in two markets: warehousing, distribution, and logistics businesses taking of the surrounding infrastructure; and manufacturers who use the hangars and large buildings for airplane maintenance and overhaul. And there are synergies between these two activities, as sometimes it is easiest to move parts for airports by land, rather than by sea. Kelly USA now serves as a workplace for 12,500 employees, with many more related jobs located nearby.

Results

In the US, well-developed multimodal transportation centers have proven to create thousands of jobs. The provision of a combination of trunk infrastructure, along with land and suitable buildings, has made possible economic activity that would not be possible in other settings.

Relevance to PRC

Towns in the PRC are unlikely to build their own multimodal airport. On the other hand, the extension of trunk infrastructure beyond airports to neighboring towns has the potential to create numerous employment opportunities. These examples are very relevant to PRC towns.

Some basic notions PRC planners should keep in mind include: CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 35 BEST PRACTICES COMPENDIUM: INFRASTRUCTURE PLANNING

• The greater the variety of modes, the greater the flexibility in freight handling and manufacturing • The variety and size of many different buildings in one location are important in creating maximum options for locating industrial uses • It is not sufficient to simply provide a certain portion of trunk infrastructure. Each trunk infrastructure mode must be connected to a larger network of roads and railways extending over an entire region • Central place is often an added ingredient in multimodal transportation centers • It is easier to expand infrastructure in a successful transportation hub that already has some trunk infrastructure, rather than try to build a completely new combination. Expansion of an existing multimodal center lowers the investment required, and lowers the risk.

CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 36 BEST PRACTICES COMPENDIUM: INFRASTRUCTURE PLANNING

Best Practice: Pedestrian-Oriented Mixed-Use Streets Case Study 8th Street SE, Washington, DC, USA

Background

8th Street SE, from Pennsylvania Avenue to M Street, is one of Washington’s oldest commercial streets. Eight blocks from the U.S. Capitol, it is surrounded by historic row housing. However, the prosperity of 8th Street began declining in the 1960s and 1970s.

By 2001, it was characterized by the following: • Vacant and empty storefronts, with dilapidated buildings • Dead/dying street trees in excessively small tree boxes • Roadway with high vehicle usage and speeds, leading to a harsh and dangerous pedestrian experience • Dim, roadway-focused lighting, leading to perceptions that the street was unsafe and driving away evening visitors • Cracked and uneven concrete sidewalks

Important positive design aspects included: • Small to medium sized lots, with an ample number of front doors • Diversity of businesses and land uses, including several restaurants, a paint store, a church, and a framing store • “Human scale” (2-3 story) building stock, with modest (10-15 feet) setbacks from street • Few sidewalk interruptions, such as driveways, parking lots or parking lot entranceways • Many intact historic buildings, with a diversity of ages, quality, and characteristics • Generous sidewalk widths (10-20 feet) • 40’ roadway width, an appropriate scale for the neighborhood. Roadway had 2 parking lanes and 2 travel lanes.

CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 37 BEST PRACTICES COMPENDIUM: INFRASTRUCTURE PLANNING

8th Street before improvements were made (new light posts are visible)

In the late 1990s and early 2000s, the community around 8th Street organized an effort to get the District of Columbia government to redo the street. After nine months of planning and design, with extensive public involvement, a new design for 8th Street’s public realm was approved. Construction began in 2001, and lasted one year.

Description of Activities Undertaken

The following are elements of the new streetscape: • Brick sidewalks, in herringbone pattern • Granite curbstones and other granite accents, to increase the street’s aesthetics • Stamped-concrete crosswalks, in light gray color, to signal to drivers that pedestrians are crossing • Planting of new, urban-condition tolerant street trees, in large 5’x5’ tree boxes and 3’ wide planting strips (where sidewalk width allows) • Replacement of old road-way focused lights with historic-looking lights that illuminate the sidewalk • Conversion of a one-way section of roadway to two-way, to ease access to commercial buildings • Conversion of parallel parking spaces to angled parking spaces, to narrow the roadway and slow traffic town

Results

The photos below show the ultimate results of the pedestrian environment improvements. In the first row of photos, the sidewalk is shown in red brick, with gray granite accents. The planting strip and new trees is visible to the left in both photos.

As shown in the second row of photos, in summer, many restaurants now place dining tables on the sidewalks outside. The street is now busy on most clear spring and summer evenings.

The improvements have led to the resurgence of 8th Street. Pedestrians, shoppers, and visitors have returned to the street, leading to an increase in business and profits. Since the conclusion of construction, over a dozen new businesses have opened on the corridor. CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 38 BEST PRACTICES COMPENDIUM: INFRASTRUCTURE PLANNING

Private property owners have voluntarily painted and improved many of 8th Street’s buildings.

8th Street after improvements were made

Relevance to PRC

Many streets in China are being modified to accommodate more and faster cars. While this may add to mobility (at least in the short term), it may also have a detrimental impact on pedestrian traffic and the commercial business that pedestrians bring. This example illustrates the impact that an improved pedestrian environment can have on commercial activities. CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 39 BEST PRACTICES COMPENDIUM: INFRASTRUCTURE FINANCE

Section 4: Infrastructure Finance CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 40 BEST PRACTICES COMPENDIUM: INFRASTRUCTURE FINANCE

Best Practice: Construction Grants and Loans for Environmental Infrastructure Case Study USA

Background and Rationale

In 1965 the United States Congress approved the Clean Water Act to improve water quality in the nation’s surface and ground waters. To support this legislation, in the 1970s the U.S. government established a grant program that provided federal funds directly to cities and towns to assist in the construction of wastewater treatment facilities. The Construction Grants program was administered by the US Environmental Protection Agency (USEPA) and provided funding based on the size of the community to cover up to 75 percent of construction costs.

During the 1970s and 1980s, the Construction Grants program provided more than $60 billion for the construction of sewage treatment plants, pumping stations, and collection and interceptor sewers; rehabilitation of sewer systems; and the control of combined sewer overflows. The Construction Grants program led to the improvement of water quality in thousands of municipalities across the country.

The 1987 Amendments to the Clean Water Act replaced the federal Construction Grants program with the Clean Water State Revolving Fund (CWSRF) program. This program continues to fund traditional municipal wastewater treatment projects, as well as water quality projects including watershed protection and restoration, estuary management, and control of non-point source pollution.

Description of Activities Undertaken

Through the CWSRF program, each of the 50 states maintain revolving loan funds to provide independent and permanent sources of low-cost financing for a wide range of water quality infrastructure projects. Funds to establish or capitalize the CWSRF programs are provided through federal government grants and state matching funds (equal to 20 percent of federal government grants). Total funds available to the program since its inception approach $47 billion.

CWSRF programs operate in a manner similar to environmental infrastructure banks in that money is loaned to communities and the loan repayments are recycled back into the program to fund additional water quality protection projects. The revolving nature of these programs provides for an ongoing funding source.

States are responsible for CWSRF program operation. They manage it through an environmental agency, or a financing authority, or (in 60 percent of states) a combination of two state agencies. States set loan terms, including interest rates (from zero percent to market rate), repayment periods (up to 20 years), and other loan features.

The CWSRF allows states a wide range of assistance options, including loans, refinancing, purchasing, or guaranteeing local debt and purchasing bond insurance. States may also customize loan terms to meet the needs of small and disadvantaged communities. In addition, some states provide specialized assistance by offering lower or no-interest loans to provide greater subsidies for disadvantaged communities. CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 41 BEST PRACTICES COMPENDIUM: INFRASTRUCTURE FINANCE

Results • 60% of all loans (amounting to 24% of funding) were made to communities with populations less than 10,000. • A city received two CWSRF loans. The first loan funded replacement of sanitary sewer mains within the city. The second loan funded the replacement of an outdated wastewater treatment facility. • A CWSRF loan for over $2 million funded the closure of a municipal landfill. • Two loans for over $22 million supported construction of a new wastewater treatment facility and interceptor sewer. • A 20-year loan funded a stormwater treatment project that diverts canal flow into a detention pond and stormwater runoff into an overland flow treatment facility • An intra-state loan improved water quality by removing mine wastes from drainage areas and neutralizing acid mine water using limestone backfill of the mine entrance; later the mine waste area was reclaimed and revegetated.

Relevance to PRC

The PRC’s urban areas have a pressing need to treat the wastewater they generate but insufficient funds to do so. A program such as the Construction Grants Program or the Clean Water State Revolving Fund can provide needed funds. Criteria for repayment terms can be based on the capability of the local government to repay the loan, taking into consideration total population, economic activity, and regional wealth.

One of the challenges in implementing this type of program is balancing the goal of providing low cost funding to those that need it most with the goal of protecting the Loan Fund from potential loan defaults. To deal with this problem, many CWSRF programs use a “linked- deposit” program, where the loan funds are deposited at a lower interest rate in a bank located in the area of the project, then the bank on-lends the money at a reduced interest rate. Another approach is to limit loans to other government agencies to provide higher assurances of repayment. CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 42 BEST PRACTICES COMPENDIUM: INFRASTRUCTURE FINANCE

Best Practice: Utility Service Provision for the Poor Case Study General

Background and Rational

Water, electricity, and heat are essential services for survival. People with low income or fixed income (e.g., retired) sometimes do not have enough money to pay utility invoices, particularly during winter when more electricity and heat is used.

A common approach to this problem is to first determine financial need through a “means- based test” (e.g., income below a certain level qualifies for the benefit) and then to provide either service at either no-cost (exempt from payment) or direct financial support through cash payments to the individual.

These approaches are satisfactory because: • It is time-consuming and difficult to determine individual income • there can be no assurance money given is actually used to pay utility bills • Other people living in the same house who may not qualify still benefit from the subsidy • It encourages over-consumption of utility services

Another approach, popular in South Africa, is use of pre-payment meters, which are activated by a card a customer purchases from the utility. Pre-payment metering allows the customer to control and ration usage and enables the utility to provide service at lower costs by eliminating expenses of invoicing and collecting, and of shutting off services for non- payment. Pre-payment meters can be used for electricity, water, and heating and are particularly effective in providing access to the poor. Cards are recharged with credits for service at various locations. The welfare agency can give card, or recharge a card, to people below poverty-line.

However, this method too has its limitations, in that it controls consumption but still requires determining income to establish financial need, and hence can be misused.

Description of Activities and Results

Alternative approaches have been pioneered in other countries in order to deal with these issues and ensure that all people receive the services they need to survive. These approaches are called “lifeline” utility services.

The approaches include the following: • Lifeline Rates Provide every service connection (i.e., every customer) a minimum quantity of water, electricity, and heat at a low rate, to ensure that everyone gets a basic level of service. Minimum quantities depend on local conditions, including temperature, climate, and water levels. For example, the World Bank suggests a lifeline rate for water of 60 liters per capita per day. • Increasing block tariff In this approach, used as a complement to the lifeline rates, the utility organizes its rates as an increasing-block tariff, meaning that a higher rate is paid for more service used. As an example, 1 Yuan would be charged for the first m3 of CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 43 BEST PRACTICES COMPENDIUM: INFRASTRUCTURE FINANCE

natural gas used, with 2 Yuan per m3 for the second and third m3, then 4 Yuan per m3 for larger quantities.

The rate set would need to take into consideration the fact that shared facilities, such as community water standpipes, need to have a slightly different method of metering to ensure that poor families who share do not have to pay higher rates.

Relevance to PRC

In the face of increasing income disparities, these would be good methods of linking socioeconomic development with physical improvements that maximizes benefits and basic services to all citizens. An advantage of these approaches is that they are easy to understand and to implement. CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 44 BEST PRACTICES COMPENDIUM: INFRASTRUCTURE FINANCE

Best Practice: Market-Based Financing Case Study Municipal Infrastructure Investment Unit, South Africa

Background and Rationale

The Republic of South Africa (RSA) was confronted with a huge backlog of unmet demands for improved urban services, especially in low-income, disadvantaged communities, typically inhabited by the black African majority. Local governments were overwhelmed by demands for improved services after Apartheid ended in 1992. However, local municipalities received very limited revenues from local residents, who were both poor and unwilling to pay for inadequate services.

Most municipalities had neither the funds nor the expertise needed to develop projects appropriate for private sector participation. To correct this, the RSA government initiated a nationwide effort to involve the private sector’s participation in the expansion of infrastructure and services.

The national Municipal Infrastructure Investment Unit (MIIU) has created a sustainable framework for private infrastructure investment. Much of MIIU’s effort concentrates upon building knowledge of public-private participation in municipalities, and amongst the private sector.

Description of Activities Undertaken

A Preparation Fund within the MIIU provides grants for restructuring local infrastructure facilities (e.g., utility, airport), as well as technical assistance, designed to make the facilities more financially viable, and thus attractive to outside investors. The MIIU does not do the feasibility study itself, but rather funds studies carried out by the private sector. Specifically, the grants and technical assistance cover development of feasibility studies. Once prepared, the MIIU takes the lead in promoting projects to the private sector, the tender process, negotiations, and the contract award.

A set of formal operating procedures covers all aspects of municipalities’ pursuit of MIIU grants. These procedures specify roles and responsibilities of MIIU and the municipality receiving the grant, the scope of work for feasibility studies, and internal control and professional cash management for the use of the grants.

The process begins in earnest with a feasibility study for capital improvements to municipal service infrastructure. The feasibility studies include not only a comparison of costs and benefits and tests of cost recovery, but also analyses of affordability, value for money, and quantification of risk. These feasibility studies serve as the basis of capital improvement programs, budgets, and public-public or public-private partnerships.

Competitive procurement of services and other implementation activities follow once the feasibility studies and capital improvement plan are complete. The MIIU takes an active role in coordinating deals and avoiding misunderstandings amongst partners.

CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 45 BEST PRACTICES COMPENDIUM: INFRASTRUCTURE FINANCE

Results

The US$2.3 million grants the MIIU distributed have generated contracts representing approximately US$1 billion in private sector investments. More than 1,200,000 formerly disadvantaged households will benefit directly from improved or expanded water, sanitation and solid waste services

The following examples typify the scale and range of projects, from large to small: • The Mogalakwena Pipeline and the Nelspruit Concession is a capital intensive complex water system. A mining company agreed to finance improvements to city water facilities in exchange for extending the water supply to their mine. The partners in this instance include the municipal council, the district council, the regional water board, as well as the private mining company. The partnership includes eight separate sub-agreements, and is worth over R190 million (approx US$ 30 million) in total contract value. 2000 new jobs will be created. • One private company manages nine water treatment plants in Richards Bay, seven of which serve disadvantaged areas. • A small-scale example is the SMME/CBO solid waste collection contracts covering disadvantaged areas. Procurement was designed to engage local and emerging contractors from the areas being served. These contracts are often managed by a larger “parent” company who oversees the CBOs and provides training and access to finance. At the end of the contract, these CBOs often can bid for projects on their own.

Relevance to PRC

Chinese towns are limited in their ability to invest in new projects by the national distribution of revenues, which are skewed largely towards the province. The province has many competing priorities, and it is not realistic to rely upon higher levels of government to devote the funds necessary for urban service provision at the town level sufficient to support growth in industry, tourism, or agribusiness. Private-sector provision of public services provides a natural alternative source of funds for public service infrastructure.

The MIIU example from South Africa demonstrates a methodology which could be used to attract this private investment: a relatively modest fund of a few million dollars funds feasibility studies leading to a few billion dollars in private sector investment. These studies have proven sufficient to convince private investors to provide services the government can not.

CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 46 BEST PRACTICES COMPENDIUM: INFRASTRUCTURE FINANCE

Best Practice: Independent Power Production Case Study Pakistan

Background and Rationale

Decentralization and privatization of electrical power once appeared to be a technical impossibility. This was an outcome of network effects associated with the transmission and distribution of electrical power. As a result, electricity supply was once called a “natural monopoly.”

Now, technical innovations have permitted the “un-bundling” of power generation from transmission and distribution, destroying these monopolistic views of power supply. It is now possible to assign any phase of electrical power supply – generation, transmission, or distribution – to independent power producers (IPPs). However, for various technical, managerial and political reasons, power generation remains the easiest phase of the electrical cycle to privatize.

Inadequate electrical supply, the large investment costs of power plants and transmission systems, and the inability of state-owned power companies to keep pace with technological change, have combined with public sector capital shortages to lead many governments to turn to the private sector for electricity generation investment.

According to a 1999 ILO study3, 100 countries in every continent had embarked upon some sort of restructuring and privatization of power. Seven Asia-Pacific countries had privatized generation, transmission, and/or distribution. Twenty years ago, Pakistan became one of the first nations in the world to initiate IPPs, and provides a good example of how private power provision may occur.

Description of Activities Undertaken

In the 1980s, Pakistan was experiencing high (12 percent per annum) growth in demand for electricity, a shortage of public resources, and delays in the implementation of major infrastructure projects. In 1985, with assistance from the World Bank, Pakistan invited foreign private-sector power providers to supplement the nation’s generating capacity.

The first project was a $1.5 billion, 1,292 megawatt thermal facility initiated with strong central government support. Detailed summary technical proposals were prepared, after which the project received financial support from international financial institutions, private energy companies in other countries, and dozens of private banks around the world. The Pakistan government did not provide any capital or financing guarantees. Once funds were committed, the developers worked with the state electrical transmission and distribution companies, and dozens of local governments, to select a site. Operating arrangements and environmental review followed. A Japanese contractor executed the construction; the project was completed under budget and ahead of time.

3 Report for discussion at the Tripartite Meeting on Managing the Privatization and Restructuring of Private Utilities: Geneva: ILO, 1999. CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 47 BEST PRACTICES COMPENDIUM: INFRASTRUCTURE FINANCE

Results

Over the ensuing 15-20 years, Pakistan attracted additional 17 IPP projects and numerous applications. The completed projects have produced more than 5,500 megawatts of electricity, amounting to almost one-third of the nation’s generating capacity.

This experience shows the need for transparency, open dialogue, and clarification of the needs and obligations of all sides, in order to fulfill a large complex obligation. The World Bank cites various essential elements of a successful private power provision regime: • Transparency of process • Competitiveness of bids • Appropriate allocation of risk • Developer returns commensurate with risks • Stable policy regime • Government guarantees and credit enhancements

The inclusion of strict rate and payment arrangements with the state’s electrical supply corporation responsible for electrical transmission (the buyer) are crucial.

In comparison to these policy and regulatory requirements, the technical adjustments the national electrical infrastructure needed to permit IPPs to generate electricity, connect to the grid, and meter production are relatively small.

Relevance to PRC

About one-half of the PRC’s power is already provided by the private sector. Someday, provincial electrical corporations may restructure and/or privatize all operations, just as state- owned telecommunications firms and other SOEs did. Additional power generation is needed in PRC towns to supply power to large manufacturing units whose consumption may be far beyond the capacity of local substations to supply.

Private electrical production in remote locations can help extend the grid and overcome capacity limits posed by limited access to the power grid. Local power production creates greater efficiencies, introduces alternative technologies, and may lower regional emissions levels. As privately owned facilities, IPP generation can generate savings to the public sector.

CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 48 BEST PRACTICES COMPENDIUM: INFRASTRUCTURE FINANCE

Best Practice: Private Financing of Transportation Infrastructure Case Study United States Inner-City Toll Roads

Background and Rationale

Transportation infrastructure is normally thought of as a public service which is financed and operated by the government. Nonetheless, the private sector is often involved in the provision of transportation services: the private sector builds, owns and operates toll roads; runs bus systems and rail service; and manages sea cargo ports under service contracts. This cas study focuses on toll roads within large US cities.

Description of Activities Undertaken

Private toll roads are old concepts, and many of the world’s earliest long-distance roads were private concessions. In the US, toll roads began to disappear as a national interstate system of free expressways developed. However, the development of this system was expensive, and has to congestion at points where highways pass through large cities.

The US has recently begun to re-introduce toll ways, especially within large cities. Private construction companies and operators gain concessions from local and regional authorities to operate toll roads, within the existing freeway lanes, in exchange for widening other roads or payment of an annual fee to the government. Private operators typically rent a highway – or more likely rent two or four lanes that are part of a larger highway – from the local government on a 50- to 60-year lease. These toll roads provide drivers the choice to drive congestion-free next to heavy traffic, in exchange for a fee.

Various technological innovations have allowed these changes. They include: • Automated tolling devices, including radio-transponders, “smart cards” and other devices. These are mounted inside cars, and allow vehicles to pass through toll gates without stopping. • Sensors to measure congestion and increase charges as traffic mounts. This ensures that those who pay can travel quickly, while raising operators’ incomes. Such congestion management innovations make toll roads faster and more reliable.

Results

Privately operated toll roads based upon emerging technologies have been successful in several respects, including: • Increasing popularity with the general public. Although many are not willing to pay for the service (as high of $10 for one trip in heavy congestion) on a regular basis, they are glad to be able to use toll roads when the need to travel quickly is great • Large amounts of revenue and returns for investors • Local governments either receive revenues for investments made many years earlier, or have a private developer increase the capacity of their freeways

CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 49 BEST PRACTICES COMPENDIUM: INFRASTRUCTURE FINANCE

Relevance to PRC

China has a large amount of experience with private expressway ownership, which was pioneered in southern China by Hong Kong investors. Semi-private corporations own the highly successful 16,000 km expressway system across China, and often contract maintenance and toll collection out to private operators. A few have already introduced automatic sensors. This example highlights applications of private toll operations within large cities.

CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 51 BEST PRACTICES COMPENDIUM: STAKEHOLDER PARTICIPATION

Section 5: Stakeholder Participation

CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 52 BEST PRACTICES COMPENDIUM: STAKEHOLDER PARTICIPATION

Best Practice: Stakeholder Participation Case Study Urban Management Program: Venezuela

Background and Rationale

The Urban Management Program is an effort on the part of the United Nations to promote participatory decision-making in cities and towns. Initiated in 1986, the program helps local governments work with community stakeholders and institutions to define problems, identify action plans, and ensure the availability of resources, in order to promote sustainable urban development. UMP aims to institutionalize participatory governance in municipalities and to promote norms of good governance and decentralization.

The UMP carried out 120 city consultations in 57 countries between 1997-2001. In China, the cities of Leshan and Shenyang participated. This Best Practice example details the activities in Maracaibo, Venezuela, to illustrate the major elements of consultation and programming.

Description of Activities Undertaken

In Maracaibo, major issues include inadequate provision of basic infrastructure for residents (including water and sewage services), sub-standard housing, high unemployment, and a considerable number of indigenous and foreign immigrants. In Maracaibo, the goal of the UMP was to address the issue of urban poverty, via the important mechanism of access to credit. As shown below, the program was divided into three phases: city consultation, identification of an action plan, and development of top priority action program.

City Action Plan Action Consultation Identification Program

Consultation began in 1997, and a pilot area neighborhood, Maria Angelica Lusinchi, was identified. This consultation program involved the use of the following tools: focus groups, consultations and interviews among community members, and surveys.

During the action plan identification phase, a loan program was developed. This program included loans for housing improvement, employment or production, and emergencies. A steering committee was also established.

The priority action program began in July 1999 with loans given to the community. Thirty-two loans were granted in the first phase, which lasted until August 2000. After this, the program was extended to four new neighborhoods. Training of borrowers was an important component of the program activities, and was aimed at increasing the capacity of all actors to improve their quality of life via self-management, and social and legal empowerment.

CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 53 BEST PRACTICES COMPENDIUM: STAKEHOLDER PARTICIPATION

Results

The UMP program in Maracaibo had several long-lasting results, including the following: • A formal commitment to the sustainable development of the city on the part of city leadership and community groups • Institutionalization of participation channels via the loan program and steering committee • Modernization of local management with innovative practices • Development of a methodology based on the pilot area, with possibilities of expansion to other areas • Loans to 32 recipients (29 for housing and 3 for production), totaling $14,000, with a majority going to women

Over the longer term, the program has inspired new local and regional policies and practices. For example, the Mayor’s Office has agreed to provide follow-on money for additional loans. The program has also fostered new social relations within the neighborhood, and the possibility of increased collaboration to improve the quality of life and reduce the vulnerability of households.

Relevance to PRC

This program provides a template for the identification of development challenges in consultation with community stakeholders. In this example, inadequate access to capital for housing and productivity improvements was identified by the community as a major bottleneck to development, and a program was identified and implemented to respond to this constraint. Through the process, new networks were created which will help the neighborhood respond to other challenges in the future.

In the PRC, most community consultations are done via official channels, including the People’s Congress. The program in Maracaibo, Venezuela provides an example of additional ways of involving and empowering the community to solve problems.

CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 54 BEST PRACTICES COMPENDIUM: STAKEHOLDER PARTICIPATION

Best Practice: Stakeholder Participation in Urban Upgrades Case Study Westfield, Texas, USA

Background and Rationale

Westfield is a subdivision that developed outside of the incorporated area of San Antonio in the 1940s and 1950s. During its development, the area was not subject to the regulations of the incorporated city. As a result, its housing and public infrastructure did not meet the standards normal for urban development. The streets were unpaved, the water system didn’t provide the volume and pressure needed for standard fire protection, there was no wastewater system, and waste collected on vacant properties because there was no standard trash collection. However, the most pressing problem was the poor drainage, which had resulted in flooding and caused children to miss several days of school. The area was annexed to the city in the 1970, but services were not improved. Property values remained very low due to the area’s substandard facilities and structures.

In 1991, a group of about 30 residents requested a meeting with the San Antonio city manager. Residents felt that because they had paid taxes to the city for nearly 20 years, they deserved some investment to bring the neighborhood up to standard. The city manager explained that, over the years, residents had received police and fire protection from the city, as well as general improvement of the neighborhood as new houses were built to standard. In addition, they now had the protection of the zoning and subdivision regulations.

The residents replied that they wanted to participate in up grading the area and were willing to participate in the cost. A plan was proposed, which minimized the costs and coordinated the efforts of all service providers in order to be as low-cost and efficient as possible.

Description of Activities Undertaken

A meeting was held between representatives of Westfield and other stakeholders, as well as the city’s water and waste water department, the solid waste department, the electrical provider, the public works engineer, and financial advisors. It was agreed that the first undertaking would be to establish drainage in the area, so that the service providers could reliably access it to provide service.

After this was done, the electrical provider agreed to give the area priority in placing all lines underground, as part of their ongoing efforts to remove overhead and exposed electricity lines. The natural gas supplier and the water and waste water utilities coordinated to construct their lines as the roads were designed and grades set. The state environmental protection agency agreed to pay a portion of the cost of the drainage work and paving of side streets and access roads. The city agreed to pay for the paving of a portion of the street upgrades, with the residents paying for the rest. In addition, the contractor building the streets agreed to accept a 10-year pay-out plan from each of the residents in the subdivision.

In total, the project cost in excess of $25 million, but no resident was required to pay more than $500 each year for the improvements.

CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 55 BEST PRACTICES COMPENDIUM: STAKEHOLDER PARTICIPATION

Results

The Westfield subdivision was brought up to standard in less than a year, with all utilities underground and all street and roads paved. No residential dwelling has flooded since the redevelopment efforts. In addition, the residents realized a 40 percent increase in property values, and city raised an additional commensurate amount in taxes, due in large pert to the improved infrastructure of the area.

Relevance to PRC

This case study demonstrates the importance of working with stakeholders to plan improvement projects. The city worked with residents to coordinate construction and financing to maximize efficiency and avoid wasteful delays. As towns in the PRC develop, they can realize cost savings by carefully phasing infrastructure improvements and gaining the support of citizens.

CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 57 BEST PRACTICES COMPENDIUM: MIXED AND WORST PRACTICES

Section 6: Mixed and Worst Practices CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 58 BEST PRACTICES COMPENDIUM: MIXED AND WORST PRACTICES

Mixed Practice: Regional Development Policy Case Study Malaysia

Background and Rationale

Malaysia’s economic growth in the 1960s led to a widening of the gap between rich and poor regions and between different ethnic groups. The industrializing states in the vicinity of Kuala Lumpur had considerably higher per capita income than other areas, and the ethnic Malay majority had significantly lower per capita income than the Chinese and Indian minorities. The failure of the state to address concerns related to increasing inequality led to race riots in 1969. The government responded with a New Economic Policy designed to favor Malays. Regional development policy followed in the Third Malaysia Plan for 1975-1980. Its goal was to reduce income inequalities by channeling economic growth into lagging regions.

Description of Activities Undertaken

Under the Third Malaysia Plan, four explicit strategies sought to counter the trend toward increasing inter-regional inequality.4

• The Resource and New Land Development Strategy aimed to offer rural opportunities by opening up new land designated for agricultural exploitation, forestry, or mining.

• The In Situ Rural Development Strategy was designed to bring development to established rural communities by modernizing their agricultural sector. This strategy was aimed at designated areas and corresponding crops.

• The Industrial Dispersal Strategy promoted the deconcentration of industries away from Kuala Lumpur and the Kelang Valley. The aim was to use idle labor and raw materials in poorer states, and to bring jobs to Malay areas.

• A Growth Center Strategy encouraged the dispersion of industry through concentrated investment in designated intermediate-size cities. The goal was to create a network of secondary cities whose economies would be linked in development corridors that would divert migrants away from the main cities of Kuala Lumpur and George Town.

Ultimate responsibility for implementation of the policy lay with the Ministry of Land and Regional Development and the Ministry of Agriculture. However, previous experience had demonstrated the weakness of existing administrative structures. Therefore, the ministries set up two types of agencies.

• Regional Authorities were set up with special powers in order to design and implement projects to meet policy goals. Authorities were funded by the Federal Government and run by representatives of the Federal and State Governments.

4 The data and some of the conclusions in this section were drawn from: Bin Mat, J. (1984). Regional Development Policy Response on Intercommunal and Interregional Inequality: The Case of Malaysia. In Regional Development Problems and Policy Responses in Five Asian and Pacific Countries, Prantilla, E.B. (ed.), UNCRD, pp. 81-148.

CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 59 BEST PRACTICES COMPENDIUM: MIXED AND WORST PRACTICES

• Coordinative Organizations brought together managers from ministries, farmers’ associations and cooperatives in order to review overall strategy and propose projects. A specially appointed project team would then attempt to plan and coordinate project activities.

Results

The Malaysian economy grew robustly during the 1970s, including poorer regions. While the average annual increase in gross domestic product nationally was 8.1 percent from 1972 to 1980, the economies of three poorest provinces increased on average by between 6.5 and 12.3 percent per year. In Trengganu Province, per capital GDP increased by 8.8% annually, despite an annual population growth rate of 3.2 percent over the period. These data indicate that poorer regions were able to partake in the improving economic conditions in the country.

However, per capita GDP in middle-income provinces grew faster than in low-income ones. It can be concluded that regional development policies contributed to a deceleration in the growth of inter-regional inequalities in per capita income, but did not create a substantial shift of investment of economic growth away from the capital city and surrounding hinterland and toward the lagging regions.

The in situ rural development strategy was reasonably effective in raising living standards in many rural areas. Substantial investments were made in clinics, schools and other social facilities. Infant mortality rates dropped by 25-35 percent in the poorest provinces, largely as a result of these investments.

Manufacturing industries grew rapidly in all parts of the country, but the proportion manufactured in each state remained similar. This suggests that the industrial dispersal strategy was not effective.

Many new towns were developed during the 1970s. No data were made available on population settlement patterns; therefore, it is not possible to evaluate the impact of regional policy on the growth of small cities and towns relative to the capital city.

Relevance to PRC

The limited success of the Malaysian regional development strategy demonstrates the difficulty of favoring the development of some regions over others in a context of unrestricted movement of capital and labor. The capital city and other developed regions continued to exert a strong pull on industrial investors and workers alike throughout the 1970s. While the Government of Malaysia was able to raise living standards and promote higher levels of economic growth (sometimes through direct investment), it was not able to narrow the gap between richer and poorer regions.

The findings suggest that if PRC intends to narrow the rural-urban income gap through promotion of town development, then massive amounts of public-sector resources would have to be devoted to the initiative, and even then, success is not guaranteed. It may be more effective to link the development of towns with nearby cities, thereby using the market trends to spread opportunities and services more evenly among different population segments.

CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 60 BEST PRACTICES COMPENDIUM: MIXED AND WORST PRACTICES

Worst Practice: Regional Industrial Deconcentration Case Study Venezuela

Background and Rationale

Economic activity in Venezuela is highly concentrated in the capital “primate city,” Caracas. This has resulted in high levels of congestion and pollution. Meanwhile, the rest of the country was lagging economically by the mid-1970s. In 1974, the government of Venezuela undertook a deliberate policy of intervention in the spatial layout of industry in order to change this situation. A 1987 World Bank study examined the effect of this industrial deconcentration policy between 1974 and 1978.

Description of Activities Undertaken

The outlined program had three stated goals:

• To encourage the movement of hazardous industries to safer locations. • To encourage the movement of non-hazardous industries to designated development areas. • To encourage the establishment of new manufacturing in designated development areas only.

These goals were to be reached through the following incentives and restrictions:

• Financial incentives: greater access to loans and grants for the construction of new factories outside the metropolitan region. • Fiscal incentives: tax holidays for industries that located in or relocated to designated development areas. • Physical incentives: the creation of industrial parks and the construction of transportation and communication infrastructure. • Physical restrictions: a ban on locating new manufacturing firms in the metropolitan region, subject to exceptions for firms meeting special qualifying conditions.

Results

The impact of the policy and implementation mechanisms on industrial location patterns over the period 1974-1978 was modest. While some sectors (such as non-electrical machinery and transport) exhibited a 5-10 percent shift toward targeted development areas away from the capital city, most sectors either did not change or re-concentrated in Caracas. The ban on locating new industry in Caracas was not strictly enforced: over 40 percent of new firms that located in the metropolitan region between 1974 and 1978 did not meet special qualifying conditions. Many firms relocated into the area just outside the limits of metropolitan Caracas. This may reflect the desire of industries protected by tariffs and trade quotas to remain close to the center of political power.

The percentage of government loans granted to businesses outside the capital area increased from 48 percent in 1973-74 to 62 percent in 1977-78. However, this regionalization trend most likely began before the advent of the decentralization policy. (No data is available for the period before 1974.) Moreover, surveys showed that access to credit was one of the least important factors influencing industrial location in Venezuela at that CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 61 BEST PRACTICES COMPENDIUM: MIXED AND WORST PRACTICES time. The main factor was the presence of supporting infrastructure; however, government did not invest substantially in new infrastructure in the targeted development zones. Other important factors identified were easy access to manufacturing inputs, the skill level of the local workforce, and wage levels.

In conclusion, the Government of Venezuela’s regional policy was not successful in achieving a significant deconcentration of industry during the period 1974-78.

Relevance to PRC

The Venezuelan experience shows that in order to influence industrial location, the PRC should focus on the following:

• Building and maintaining reliable transportation, communication and utility networks in the targeted growth areas, including towns. • Ensuring that the education and professional qualifications of the workforce correspond to the needs of the industries that authorities wish to attract. • Ensuring that targeted industries do not require regular face-to-face contact with provincial or national authorities. CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 62 BEST PRACTICES COMPENDIUM: MIXED AND WORST PRACTICES

Worst Practice: National Urbanization Policy Case Study Cuba

Background and Rationale

Prior to the 1959 revolution, Cuba’s economy was based on sugar cane monoculture. The vast majority of external trade went through Havana, and three-quarters of all non- agricultural economic activity took place there as well. The inequality between Havana and the rest of the country was mirrored by the inequality between a small elite and large seasonally unemployed masses. The goal of the 1959 revolution was to correct the injustices of Cuban society. The strategy to achieve this included downgrading the importance of Havana in the national economy and increasing the population and economic production levels of secondary cities and rural areas.

Description of Activities Undertaken

Post-revolutionary spatial planning policy in Cuba included four main components:5

• Urbanization of Rural Areas: About 335 new towns were built between 1959 and 1976, housing 4.5 percent of the rural population. Basic facilities and services such as schools, clinics and stores were built in many towns.

• Ruralization of Urban Areas: Green belts were built surrounding urban centers. These included both recreational facilities and state livestock farms. In addition, millions of coffee bushes and fruit trees were planted in the Garden of Havana project.

• Integration of Rural and Urban Populations Through the Educational System: Schoolchildren were mobilized to assist in the sugarcane harvest starting in the 1960s. More than 500 secondary schools were built in rural areas between 1971 and 1979 with full room and board for students from the city.

• Migration Controls and Regional Deconcentration: In 1963, the government of Cuba stopped migration into Havana. Policies were adopted against any new investment or employment in the capital. Some government posts were relocated to provincial centers in 1967-68. Throughout the 1960s and 1970s, investment was steered toward medium-sized cities.

Results

The spatial planning policies of post-revolutionary Cuba explain part of the dramatic rise in rural living standards after 1959. This was accompanied by a shift in the pattern of urban economic investment toward secondary cities. Santiago de Cuba was re-developed as a major industrial, cultural and tourist center. In Cienfuegos, an oil refinery, nuclear power station and fertilizer plant were built as part of efforts to develop a south coast maritime center. Appliance manufacturing facilities were built in Santa Clara, as well as agricultural

5 The data and some of the conclusions in this section were drawn from: Hall, D.R. (1989). Cuba. In Urban Planning and Development in the Carribean, Potter, R.B. (ed.), Mansell Publishing, chap. 4, pp. 77-110.

CHINA: TOWN-BASED URBANIZATION STRATEGY STUDY 63 BEST PRACTICES COMPENDIUM: MIXED AND WORST PRACTICES processing plants. Such investment policies effectively shifted three-quarters of the growth in urban population away from Havana. Migration into urban areas as a whole declined.

The proportion of Cuba’s population residing in Havana remained stable near 20 percent between 1959 and 1980. However, total urbanization increased, and provincial capitals grew nearly three times as fast as the capital during the study period. This indicates that the effort to redirect population growth from the capital city to smaller cities in towns met with some success.

However, this success came at great cost: the deterioration of living conditions within Havana and a perennial lack of housing in the capital city. The ban on new investment in the capital led to long-term neglect of the city’s infrastructure and housing stock. Attempts to build new housing proved too costly to sustain under conditions of recurring labor shortages. A housing crisis was evident by the mid-1970s, but housing materials were only made available to residents toward the end of the decade. Cuba had to stop the new town program in 1977, and the government was never able to supply as much housing as was needed in urban areas. The housing problem reached such proportions that in 1984 the state was forced to acknowledge that it could not solve the problem alone. It introduced legislation allowing for the sale of land and housing, as well as private renting.

Relevance to PRC

The Cuba case study demonstrates that it is possible to divert urban growth away from large cities and to smaller cities and towns by undertaking direct investment in secondary urban centers. However, this approach requires either direct public-sector role in economic investment or controls on migration, neither of which is consistent with current economic and social policy in China today.

Moreover, the case study shows that privileging the growth of secondary urban centers over the growth of large cities can be economically costly. The ban on investment in Havana led to deterioration of the housing stock. A ban on investment in real estate or production facilities (such as factories) in Chinese cities would most likely results in economic costs that are higher than the corresponding benefits associated with investment in smaller cities. Chinese policy makers would therefore be well advised to promote growth in towns and cities at the same time, emphasizing the comparative advantages of different types of settlements and the positive synergies that can be created between them.

People’s Republic of China Town-Based Urbanization Strategy Study ADB TA 4335-PRC

Final Report Volume 4: Development Proposals for Demonstration Towns

Prepared for Asian Development Bank National Development and Reform Commission

Prepared by PADCO, Washington, DC CCTRD, Beijing

August 2005

PLANNING AND DEVELOPMENT COLLABORATIVE INTERNATIONAL

Setting the Standard for Our Industry®

Table of Contents Volume 4

1 Development Planning Overview ...... 1 1.1 Introduction...... 1 1.2 General Critique of Town Planning ...... 1 1.3 General Social Service Recommendations...... 5 1.4 Principles for Transportation Proposals ...... 5 1.5 Discussion of Cost Estimates for Proposals...... 6

2 Outline Strategic Plan for Xiliu ...... 7 2.1 Introduction...... 7 2.2 Population and Employment Projections...... 7 2.3 Projected Land and Housing Requirements...... 9 2.4 Employment Generation Component ...... 15 2.5 Land Use and Housing Component ...... 15 2.6 Economic Infrastructure Component...... 19 2.7 Environmental Infrastructure Component...... 24 2.8 Social Services Component ...... 27 2.9 Urban Management Component ...... 27 2.10 Plan Cost and Recovery Component ...... 28

3 Development Proposals for Teng’ao...... 31 3.1 Introduction...... 31 3.2 Population and Employment Projections...... 31 3.3 Projected Land and Housing Requirements...... 32 3.4 Employment Generation Component ...... 36 3.5 Land Use and Housing Component ...... 37 3.6 Economic Infrastructure Component...... 39 3.7 Environmental Infrastructure Component...... 43 3.8 Social Services Component ...... 47 3.9 Plan Cost and Recovery Component ...... 47

4 Development Proposals for Goubangzi...... 51 4.1 Introduction...... 51 4.2 Population and Employment Projections...... 51 4.3 Projected Land and Housing Requirements...... 53 4.4 Employment Generation Component ...... 59 4.5 Land Use and Housing Component ...... 60 4.6 Economic Infrastructure Component...... 61 4.7 Environmental Infrastructure Component...... 66 4.8 Social Services Component ...... 69 4.9 Plan Cost and Recovery Component ...... 70

5 Outline Strategic Plan for Wutong...... 73 5.1 Introduction...... 73 5.2 Population and Employment Projections...... 73 5.3 Projected Land and Housing Requirements...... 74 5.4 Investment Promotion Component...... 78 5.5 Land Use and Housing Component ...... 78 5.6 Economic Infrastructure Component...... 83 5.7 Environmental Infrastructure Component...... 85

5.8 Social Services Component ...... 87 5.9 Plan Cost and Recovery Component ...... 87

6 Outline Strategic Plan for Yangqu...... 89 6.1 Introduction...... 89 6.2 Population and Employment Projections...... 89 6.3 Projected Land and Housing Requirements...... 91 6.4 Employment Generation Component ...... 95 6.5 Land Use and Housing Component ...... 96 6.6 Economic Infrastructure Component...... 99 6.7 Environmental Infrastructure Component...... 104 6.8 Social Services Component ...... 105 6.9 Urban Management Component ...... 105 6.10 Plan Cost and Recovery Component ...... 106

7 Development Proposals for Gutao ...... 109 7.1 Introduction...... 109 7.2 Population and Employment Projections...... 109 7.3 Projected Land and Housing Requirements...... 110 7.4 Employment Generation Component ...... 115 7.5 Land Use and Housing Component ...... 116 7.6 Economic Infrastructure Component...... 116 7.7 Environmental Infrastructure Component...... 123 7.8 Social Services Component ...... 124 7.9 Plan Cost and Recovery Component ...... 125

Appendix Subproject Brief: Below-Ground Environmental Infrastructure Subproject Brief: Wastewater Treatment Plant Subproject Brief: Solid Waste Landfill

Acronyms

C&D Construction & Demolition CCTRD China Center for Town Reform Development CMS Cooperative Medical System ICB International Competitive Bidding LCB Local Competitive Bidding LG Local Government MLSP Minimum Living Standard Program MSW Municipal Solid Waste O&M Operations and Maintenance PDRC Provincial Development and Reform Commission PRC People’s Republic of China WWTP Wastewater Treatment Plant

iii

iv PRC: TOWN-BASED URBANIZATION STRATEGY STUDY DEVELOPMENT PROPOSALS: DEVELOPMENT PLANNING OVERVIEW

1 Development Planning Overview

1.1 Introduction

This volume contains three Strategic Development Plans (for Xiliu in Liaoning Province and for Wutong and Yangqu in Shanxi Province) and three Development Proposal Plans (for Teng’ao and Goubangzi in Liaoning Province and for Gutao in Shanxi Province). The Strategic Development Plans for the chosen towns contain more detailed and in-depth analysis and land use proposal maps than the Development Proposal Plan towns. In both cases, however, specific project recommendations are made, and cost estimates prepared.

From among the demonstration towns, the Strategic Development Plan towns were chosen because their Land Use and Master Plans were relatively old and in need of updating. The Development Proposal Plan towns had more recent land use and master plans, and were therefore in need of specific project proposals. It is hoped that the techniques demonstrated to develop these plans and proposals can serve as models for improving the process and outcomes of planning in Chinese towns.

This section begins with a general critique and recommendations for improving town planning, some general social service recommendations, and an overview of the financial analysis conducted.

1.2 General Critique of Town Planning

Overview

All towns in Liaoning and Shanxi have existing Master Plans, of various ages. Some date from the 1990s, while others are more recent. Many towns are in the process of updating their Master Plans, especially if they are old or do not reflect the current development direction of the town. Projection periods tend to be 15–20 years from the date of the plan.

Master or Construction Plans are approved by the Construction Office of the towns, while Land Use Plans are approved by the Land Utilization Offices. These plans are generally prepared by the Planning or Land Use Institute for the province or city to which the towns belong, and take from 3–6 months to prepare. Both Master/Construction Plans and Land Use Plans are prepared according to guidelines set down by the national and provincial governments.

Master Plans

Master/Construction Plans are comprehensive in many ways, and generally include: current and projected population growth for the town; current and projected land uses by type; current and planned transportation infrastructure; current and planned water systems; current and planned electrical infrastructure; central heating; environmental protection and sanitation systems; and urban design considerations (green space, view lines, etc.). Projections are generally separated into near (5 years) and far (10-15 years) terms.

Master Plans include a “Text 文本” document and a “Descriptive 说明书” document, in addition to a set of maps. The text document includes information about land use that, when approved, has the force of law, akin to zoning in many Western countries.

1 PRC: TOWN-BASED URBANIZATION STRATEGY STUDY DEVELOPMENT PROPOSALS: DEVELOPMENT PLANNING OVERVIEW

The process of preparing Master Plans generally includes hiring an institute to prepare the plans. Then, a meeting to which all town departments are invited is convened. At the meeting, materials and data are requested. The institute collects the data and prepares a draft plan in consultation with the departments. A second meeting is convened in which the draft plan is presented and comments are taken. Once any needed adjustments are made, the plan is reviewed by an “expert committee” from the administrating city and province. If it is passed, it is submitted to the town People’s Congress for approval, after which it has the force of law. The plan is then placed on file with the town’s administering city.

The main purpose of Master Plans in towns is to lay out an officially sanctioned framework for the physical development of towns. As a result, they identify both land uses and major infrastructure projects. Many towns have implemented the projects identified in their Master Plans in a very impressive and admirable way. But Master Plans have several shortcomings by their very nature, the most important of which is that they do not identify the town’s strategic direction or help leaders chart a strategic development path.

Land Use Plans

Land Use Plans are prepared by the town Land Utilization Bureau, and approved by the People’s Congress and the town’s managing upper level government. They are used primarily to identify and protect agricultural land. As such, they specify which land can be built on and which cannot.

Land Use Plans generally consist of an explanatory document, along with one map, which divides the town according to three main land use categories: agricultural land, non- agricultural land, and un-utilized land. Subcategories for each main category are listed in Table 1.1 below.

Collective and state-owned land is not identified in the Land Use plan, and there is no publicly available map demarcating China’s land ownership structures in towns.

Table 1.1: Land Use Categories Agricultural Land Non-Agricultural Land Un-Utilized Land 农业用地非农用地未利用地 Protected farm land Construction land Barren land Un-protected farm land - Residential Wetlands Forest - Industrial Orchard - Commercial Nursery - Government - Animal husbandry Roads Special land

In theory, Land Use Plans should form the basis for the preparation of town Master Plans. However, Land Use and Master Plans are usually prepared by different agencies, at different periods of time. In addition, the amount of land identified as developable (construction land) often lags behind what town governments feel they need for new development. As a result of these issues, the two plans often conflict, and there is no mechanism for resolving these conflicts.

Socioeconomic Development Plans

Few demonstration towns had prepared Socioeconomic Development Plans, and few intended to do so in the near term. These plans generally include an analysis of housing,

2 PRC: TOWN-BASED URBANIZATION STRATEGY STUDY DEVELOPMENT PROPOSALS: DEVELOPMENT PLANNING OVERVIEW

population, government transparency, finance, economic development (by industry), historic assets, basic services, education, health care, and many other important factors. There are no national or provincial regulations governing the preparation of socioeconomic development plans, and they are not enforceable by legal means once prepared. Whether or not they had a socioeconomic development plan, towns generally did not consider socioeconomic factors in the preparation of their Master and Land Use Plans.

Socioeconomic Development Plans have been prepared by some towns in Liaoning Province, but none yet in Shanxi. In towns where they are prepared, they form the basis for the town’s Master and Land Use Plans.

Recommendations for improving the planning process are made below.

1.2.1 Adopt a Strategic and Socioeconomic Planning Approach

1.2.2 Resolve Conflicts between Master and Land Use Plans

The Master and Land Use Plans often conflict, especially between agriculture and planned construction land. For example, in Goubangzi town, the area north of the river bend, which is identified as green space in the Land Use Plan, is a planned construction area in the Master Plan.

These conflicts may reflect the fact that the Master Plans and the Land Use Plans are prepared by different agencies (unless the town is very small, in which case they may be prepared by only one agency), with disparate development objectives, and at different periods of time. However, conflicts between the Master and Land Use Plans present obvious difficulties for officials tasked with implementing the plans.

The Master and Land Use Plans should be better coordinated at the town level. The plans should be combined into one document, a coordinating mechanism or organization should be established, or one agency should be made responsible for final approval and resolution of both plans.

1.2.3 Conduct a More Sophisticated Population Analysis

Population projections in Master Plans are generally exponential extrapolations from past population growth. Population projections in plans are not disaggregated based on gender, age, income, or other variables. Migrant populations are not explicitly considered. There are generally no estimates of employment growth, and population projections are not linked to employment. The limited analysis of population growth makes it difficult for towns to plan adequately for the needs of different sectors of the population, and to develop the appropriate education, housing, and medical facilities accordingly.

A disaggregated analysis of population, with projections by age range and by gender, is needed to plan appropriately.

3 PRC: TOWN-BASED URBANIZATION STRATEGY STUDY DEVELOPMENT PROPOSALS: DEVELOPMENT PLANNING OVERVIEW

1.2.4 Conduct a Housing/Density Analysis

Master Plans generally designate total land area for housing, but do not take the analysis any further. Plans also do not include information about current or projected population densities in different parts of town. Instead, this information is expected to be included in the design plans for specific parts of the town. However, the lack of information about population density makes a comprehensive approach to service provision (including education and medical facilities) difficult to achieve, and limits the usefulness of the Master Plan as a service delivery planning tool.

Towns should analyze and map current and projected population density by location. This information can be included as a reference to the main plan if necessary, and should be used by town agencies to plan for the expansion of services, as required by population growth.

1.2.5 Conduct a Migrant Needs Analysis

No plans include a specific analysis of the needs of migrants, even though the migrant population in some towns rivals that of the permanent population. Many town leaders indicated that they view migrants as positive additions to the town, and that migrants are making a real contribution to the economic development of the town. To accommodate more migrants, towns may need to provide different housing, education, health care, and other urban services options than they would for the permanent population. The lack of consideration of the specific needs of migrants may undermine the ability of towns to absorb and accommodate migrants in the long term.

Migrants generally are not allowed to participate in local representative councils, or to vote in council elections, which makes it even more critical that towns learn about their needs in other ways.

Towns with large numbers of migrants should conduct an explicit analysis of migrant needs, conducting surveys, holding focus groups, or engaging in other methods as appropriate. Topics should include housing and housing pricing, education, health care, etc. This analysis will help the town address these needs more effectively.

1.2.5 Conduct a Financial Analysis

In most town Master Plans, estimates of proposed road, water, and infrastructure project costs are not included. There is also limited or no analysis of potential or planned funding sources for the proposed projects. Without this information, it will be difficult for the town to incorporate the findings of the Master Plan into its budgetary planning and appropriate the needed resources accordingly.

Cost estimates for each infrastructure project should be included in the plan explanation documents, as well as a discussion of where this funding is likely to come from.

1.2.6 Prepare a More Complete Implementation Plan

The implementation measures at the end of most plans are not sufficient to determine the timing of interventions and projects, roles and responsibility, or needed funding sources.

Implementation plans should include a schedule, identify implementing agencies, and include other information to help monitor progress in achieving the objectives of the plan.

4 PRC: TOWN-BASED URBANIZATION STRATEGY STUDY DEVELOPMENT PROPOSALS: DEVELOPMENT PLANNING OVERVIEW

1.2.7 Involve the Public More in Preparation of Plan

Towns rarely involve the general public in the preparation or approval of their plans, although the town People’s Congress is called on to review and approve the final draft of most Master Plans. More public input will provide additional support for the plans and will help ensure that the town is developing in a way that most residents agree with.

Towns should provide residents with an opportunity to review and comment on the plan as it is being prepared. Forums could include public posting of maps and other documents, presentations by planning officials, and meetings and hearings. As discussed elsewhere in this report, additional ways of gaining information from the public include surveys, focus groups, and voting.

1.3 General Social Service Recommendations

Town-specific proposals for improving the provision of social services are made below. Proposals for all demonstration towns include the following. • Expedite the reintroduction of the Cooperative Medical System (CMS) in villages. • Reform the health insurance system to increase coverage and decrease costs to residents and employees. • Reform the system for allocating education funds. • Encourage private schools as middle ground between existing private and public schools. • Establish higher-level schools at the town level. • Reform the social security system. • Reform the Minimum Living Standard Program (MLSP) to make disbursements more realistic and at par with the real cost of living. • Reform the hukou system.

1.4 Principles for Transportation Proposals

Some general principles that have guided the development of the transportation proposals for the market and industrial towns in this report include the following. • Transportation improvements should ensure the ability of residents to get to and from jobs/work. • Capacity should be adequate to transport goods to markets. • Existing trunk road infrastructure should be upgraded and expanded, so that these goals can be ensured. • New trunk infrastructure should be created where it is not possible to upgrade existing trunk infrastructure. • The private sector should be relied on to provide infrastructure where this infrastructure immediately serves the private sector’s needs.

The transportation proposals for the tourism town (Gutao) followed a different set of principles, as discussed in the text.

5 PRC: TOWN-BASED URBANIZATION STRATEGY STUDY DEVELOPMENT PROPOSALS: DEVELOPMENT PLANNING OVERVIEW

1.5 Discussion of Cost Estimates for Proposals

Financing a plan and proposals almost always includes a variety of debt instruments, as well as cost assignments, to beneficiaries. It is important to spread these costs as equitably as possible, consistent with the specifics of the project and the goals of the plan. Also, one must remember that operations and maintenance (O&M) must be part of financial planning, even though these costs are not part of the capital financing package.

The assumptions used to estimate the project costs are described in the paragraph below. However, many of these assumptions have not been rigorously tested. Other factors that should enter consideration are economic growth and inflation. However, they have been deliberately excluded from the calculations to allow for revised and expanded planning, which may require additional infrastructural construction. Capital costs have been smoothed through the entire 20-year financing term for the same reason, even though growth and inflation will normally reduce the per capita impact over the life of the project and the payoff period.

Assumptions

Assumptions for the calculations include the following: • Average household size for the next 20 years is approximately 3.6 persons. • The average dwelling for each household will have an initial appraised value of 40,000 RMB. • Both the central government and the provinces have an interest in the development of towns of the People’s Republic of China (PRC), and cost distributions reflect a significant financial contribution to the costs of services in rapidly growing towns. • An assumed interest rate of 8% was used, although different terms may apply in practice (most of the payments can be reduced or increased by about 6% for each one percentage point change in interest rates obtained).

6 PRC: TOWN-BASED URBANIZATION STRATEGY STUDY DEVELOPMENT PROPOSALS: OUTLINE STRATEGIC PLAN FOR XILIU

2 Outline Strategic Plan for Xiliu

2.1 Introduction

This outline Strategic Plan establishes the overall direction, pace, and character of future urban growth in the town of Xiliu over the period 2006–2015. The plan is for the built-up area (zhenqu) and its immediate surroundings, not the entire town area (zhenyu).

The objective of the Strategic Plan is to identify the socioeconomic and physical planning measures needed to facilitate the transformation of Xiliu from a regional clothing market to a major center for textiles and apparel production and trade.

Following projections of population, employment, and land requirements, the plan sets out proposals for investment promotion, land use and housing, infrastructure, social development, and urban management. Investment costs are calculated and sources of financing are identified.

The summary proposals in this outline Strategic Plan can be expanded into a full-blown Strategic Plan through consultation with local stakeholders.

2.2 Population and Employment Projections

Xiliu reported a total population of 70,000 in 2003, of which about 12,000 reside in the built- up area. At the same time, employment in industry and services—almost all of which are physically located in the built-up area—was reported as 19,450. This suggests either under- reporting of the population of the built-up area and/or a settlement pattern in which many migrants are working in the built-up area but living in outlying villages. The migrant population in the town as a whole doubled in three years. Migrants now represent about 40% of the total population.

The average household size in the built-up area rose sharply, from 4.9 in 2000 to 6.0 in 2003, a likely reflection of overcrowding, as migrants rent rooms in existing ping fang housing, for lack of other alternatives.

Table 2.1: Population Trends in Xiliu, 2000–2003 Avg. Annual % Change 2000 2003 2000–2003 Town Population with Hukou 39,548 40,750 1.0 Migrants 15,452 29,250 23.7 Total 55,000 70,000 8.4 Number of Households 11,221 11,668 Built-Up Area Population with Urban Hukou 1,417 1,745 7.2 Migrants 10,536 10,306 -0.7 Total 11,953 12,051 0.3 Household Size 4.9 6.0 7.0 Number of Households 2,439 2,009 -6.3 Source: 30-Town Survey, PADCO/CCTRD, 2004

7 PRC: TOWN-BASED URBANIZATION STRATEGY STUDY DEVELOPMENT PROPOSALS: OUTLINE STRATEGIC PLAN FOR XILIU

The future population of Xiliu will depend largely on the growth of employment in trade and industry. All secondary and tertiary subsectors have been growing rapidly since 2000, as shown on the employment tables below. Industrial employment growth, at over 11% per year, exceeded even growth in trade (almost 9%), a sector dominated by Xiliu’s large, well- known clothing market. Some sectors, such as transportation and hotel/restaurant, kept pace with the industrial and trade activities that they serve.

Table 2.2: Employment Trends by Sector (employees) % Avg. Annual % Avg. Annual % Total Change, Change, Sector 1995 2000 2003 2003 1995–2000 2000–2003 Industry 4,000 8,000 11,000 55.0 14.87 11.20 Construction 150 400 550 2.8 21.67 11.20 Trade 3,500 4,500 5,800 29.0 5.15 8.83 Transportation/Post 200 250 350 1.8 4.56 11.87 Hotel/Restaurant 1,150 1,850 2,300 11.5 9.98 7.53 Total 9,000 15,000 20,000 100.0 10.76 10.06

Primary 18,850 13,150 11,616 37.4 -6.95 -4.05 Secondary 4,000 8,000 11,000 35.4 14.87 11.20 Tertiary 4,850 6,600 8,450 27.2 6.36 8.59 Total Employment 27,700 27,750 31,066 100.0 0.04 3.83 Workforce 28,000 30,548 31,750 – 1.76 1.29 Unemployment 300 2,798 684 2.2 56.30 -37.47 Source: PADCO/CCTRD, 2005

Xiliu’s economy will be transformed in the coming years by one project: the new 4-square- km textile park. Most of the plants in Phase 1 (150 ha., or 38% of the site) will produce textiles. The proportion of apparel to textiles is expected to increase in Phase 2 (250 ha.). Almost 9,000 jobs are expected to be created over the next five years, and another 23,000 over the period 2011-2015 (see table below).

Table 2.3: Employment in Haicheng Textile Industrial Park 2005 2010 2015 Total Area (ha.) 3 150 400 % Circulation 0 10 10 Net Area (ha.) 3 135 360 % Land for Textiles 0 93 80 % Land for Apparel 100 7 15 Land Area Textiles 0.0 139 320 Land Area Apparel 3 11 60 Employees/Ha. Textiles 30 30 30 Employees/Ha. Apparel 400 535 400 Employees Textile 0 4170 9600 Employees Apparel 1,200 5,885 24,000 Total Employees 1,200 10,055 33,600 Source: PADCO/CCTRD, 2005

As shown below, total industrial employment in Xiliu is therefore projected to rise from about 12,000 today to around 22,000 in 2010 and 45,000 in 2010. Growth in employment in trade, taking advantage of the clear linkages with local production of fabrics and clothing, is also expected to be robust, reaching 10,000 in 5 years and 14,300 10 years from now.

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Table 2.4: Employment Projections (employees) Annual Growth Rate Sector 2004–2010 2005 2006 2007 2008 2009 2010 Industry 13.00% 12,128 13,704 15,486 17,499 19,774 22,344 Construction varies 578 664 731 767 805 846 Trade 8.00% 6,765 7,306 7,891 8,522 9,204 9,940 Transport/Post 9.00% 416 453 494 539 587 640 Hotel/Restaurant 7.50% 2,658 2,857 3,072 3,302 3,550 3,816 Subtotal 22,544 24,985 27,673 30,628 33,919 37,586

Annual Growth Rate Sector 2011-2015 2011 2012 2013 2014 2015 Industry 15.00% 25,696 29,550 33,983 39,080 44,942 Construction 6.00% 896 950 1007 1,068 1,132 Trade 7.00% 10,636 11,381 12,291 13,274 14,336 Transport/Post 6.50% 681 726 791 862 940 Hotel/Restaurant 7.50% 4,102 4,410 4,740 5,096 5,478 Subtotal 42,012 47,016 52,812 59,380 66,828 Source: PADCO/CCTRD, 2005

2.3 Projected Land and Housing Requirements

The existing land use pattern in Xiliu is dominated by low-density residential housing on the southern side of the built-up area; newer industrial and commercial areas are located north of the town center on both sides of the Shenda Expressway (see Map 2.1: 2005 Land Use in Xiliu).

Table 2.5: Land Use in Xiliu, 2005 Area Land Use 2005 (ha.) Medium-Density Residential 18 Low-Density Residential 458 Village 133 Institutional 22 Transport 27 Light Industrial 149 Heavy Industrial 41 Commercial 39 Mixed Use 20 Agriculture 2,355 Open Space 185 Dump Site – Source: PADCO/CCTRD, 2005

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Map 2.1: 2005 Land Use in Xiliu

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The major consumer of industrial land will almost certainly be the textile park; modest expansion of other light industrial activities is also forecast. It is projected that 170 hectares of new industrial land will be required over the period 2005–2010, with another 270 needed in the following 5-year period.

Table 2.6: Industrial Land Requirements, 2005–2015 Sector 2005 2010 2015 Industry Industrial Employees 12,128 22,344 44,942 Gross Employees/ha. 64 100 130 Gross Land Requirements (ha.) 190 360 630 Reutilized Industrial Land (ha.) 0 0 0 Net Land Requirements (ha.) 190 360 630 Total Industrial Land Reqts (ha.) 190 360 630 Additional Land Reqts (ha.) 170 440 Source: PADCO/CCTRD, 2005

The following table demonstrates a similar calculation for commercial land needed to support the growth of the main service subsectors. Additional land requirements are calculated at 22 hectares during the next five years and another 31 hectares in the following five years.

Table 2.7: Commercial Land Requirements, 2005–2015 Sector 2005 2010 2015 Trade Employees 6,765 9,940 14,336 Gross Employees/ha. 275 261 248 Net Land Requirements (ha.) 25 38 58 Transport/Post Employees 416 640 940 Gross Employees/ha. 95 90 86 Net Land Requirements (ha.) 4 7 11 Hotel/Restaurant Employees 2,658 3,816 5,478 Gross Employees/ha. 300 285 271 Net Land Requirements (ha.) 9 13 20 Other Employees 2,460 2,534 2,610 Gross Employees/ha. 200 190 181 Net Land Requirements (ha.) 12 13 14 Total Commercial Land Reqts (ha.) 50 72 103 Additional Land Reqts (ha.) 22 53 Source: PADCO/CCTRD, 2005

Finally, employment growth is used to project population growth and residential land requirements, as shown in the following table. About 20,000 new households are projected to settle in the built-up area over the period; about two-thirds of these will take up residence in medium-density housing and mixed-use areas. Total additional housing land under these assumptions is estimated at 551 hectares over the next 10 years. The calculation assumes that all new households will be accommodated in new housing built on new land; if existing areas were densified through incremental processes (construction of second and third units on existing plots) or redevelopment of existing of low-rise housing, then the area of future residential land requirements would decrease accordingly.

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Table 2.8: Population and Residential Land Requirements Variable 2005 2010 2015 Industrial Employment 12,128 22,344 44,942 Commercial Employment 12,299 16,929 23,364 Other Employment 578 846 1132 Total Employment 25,004 40,119 69,437 Ratio Employment/Population 60% 60% 55% Total Population* 41,673 66,865 126,250 Household Size 6.0 5.5 5.0 Total Households, of which: 6,946 12,157 25,250 Medium-Density Residential % Total 7 25 35 Number 456 3,039 8,837 Low-Density Residential % Total 72 65 43 Number 5,028 7,902 10,857 Mixed Use % Total 6 10 22 Number 400 1,216 5,555 Land Requirements Medium-Density Residential Avg. Gross Density 25 38 36 Number of Hectares 18 80 245 Low-Density Residential Avg. Gross Density 11 15 17 Number of Hectares 458 527 639 Mixed Use Avg. Gross Density 20 32 34 Number of Hectares 20 38 163 Total Residential Land Reqts 496 645 1048 Additional Land Reqts (ha.) 148 551 * Includes households in which primary income earner works in built-up area, but lives elsewhere in town (zhenyu). Source: PADCO/CCTRD, 2005

These levels of urban land conversion, in relation to the existing size of the built-up area, mean that Xiliu’s urban fabric will be completely transformed over the plan period. The developed area at the center of Xiliu will go from about 1,000 hectares today to about 2,000 hectares in 10 years. The size of the built-up area will double. In order to avoid bottlenecks that would put upward pressure on real estate prices and undermine the efficiency of the town economy and its effectiveness as an engine of employment growth, the town government will need to: • carefully monitor demand for urban land for different uses; and • expand real estate development models and actors in order to ensure timely production of housing and commercial space.

In fact, some of the projected growth is likely to take place on the north side of the stream that separates Xiliu from Haicheng, which technically lowers the land requirement projections for the town. But in fact, Xiliu and Haicheng are rapidly and unavoidably merging, and the future development of Xiliu should be planned as part of the metropolitan area of Haicheng.

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2.4 Employment Generation Component

The creation of jobs in Xiliu in the coming years will be ensured by the Haicheng Textile Industrial Park. This 400-hectare facility is expected to create more than 33,000 jobs over the period 2005–2015 (see table in Section 2.1.2 above). The impact of the park on job creation will depend on the mix of textile and apparel production. During Phase 1, seven out of eight new plants will produce textiles (knitting, spinning, weaving, and dyeing of cloth). Given the capital-intensive nature of these activities, the number of new employees in those seven plants will be relatively low—4,000, with an average density of only 30 employees per hectare of new development. On the other hand, the one new apparel plant (Dragon Garment (Haicheng) Co. Ltd.) will employ 6,000 people when it reaches full capacity on its 11.2-hectare site, at a density of 375 employees per hectare. Dragon Garment currently employees about 1,200 people, having put into operation the first phase of its investment.

Investors for Phase 2 have not yet been identified. The mix of apparel and textile plants at build-out depends on the national and international enterprises that decide to invest in the park. On the assumption that 15% of the land area will be used for apparel plants, total employment in the park is projected to reach 33,600 in 2015. Employment will be higher if the percentage of land in apparel turns out to be greater.

Rather then implement measures to create additional jobs, Xiliu town government should focus its efforts on supporting the development that will take place in the park. Recom- mended actions include the following. • The town should build on its already strong record in attracting migrants by ensuring the provision of town services and, where possible, social benefits on terms that are the same as those of residents with urban hukou (for details, see Social Services Component below). • The town should facilitate the provision of housing and associated urban services for the park employees that reside in Xiliu. For details, see Section 2.1.5 below. • The town should take steps to ensure the protection and enhancement of the urban environment before most of the new plants come on line. While the park will provide its own industrial wastewater pre-treatment facility, the effluent will likely not be of acceptable standard to be discharged directly into the river. The town should consider building its own wastewater treatment plant (WWTP) that will receive the pre- treated industrial wastewater and will also serve the residential and other mixed-use areas of the town. For urban environmental proposals, see Section 2.1.7 below.

2.5 Land Use and Housing Component

Master Plan Overview

Xiliu last prepared its Construction/Master Plan in 1995/1996. Its Land Use Plan was completed in October 2000. Xiliu’s Construction Plan is recognized by the town as dated and non-reflective of current plans for the town’s expansion. Xiliu is in the process of updating both its Construction Plan and its Land Use Plan, and has asked the Liaoning Rural Urban Planning Institute to prepare both revisions. It is attempting to avoid coordination problems between the Construction/Master Plan and the Land Use Plan by having one institute complete both plans.

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Figure 2.1: Xiliu’s Most Recent Master Plan

In preparing the current plan, Xiliu has adopted a relatively sophisticated approach to analyzing the needs of investors, migrants, and residents in the town. One major new project is the 4-square-km textile park discussed above. Xiliu is also investing more than 40 million Yuan in its clothing market to upgrade heating and life safety facilities. (For example, the town has installed a sprinkler system to help prevent fires.) It is doing this to help meet competition from other world-class markets in Keqiao and Yiwu.

Some general recommendations for improvements to town Master Plans are listed above. Below, some specific land use and housing recommendations for Xiliu are made.

Land Use and Housing Proposals

On the assumption that 60%–70% of new employees will take up part-time or full-time residence in town, the need for new housing in Xiliu will be tremendous—about 20,000 new dwelling units in total over 10 years. The town government should develop and implement a phased program for conversion of collective land to state land. The land should be “whole- saled” to a number of different developers that would in turn produce housing for sale and for rent. Competition between developers is essential for keeping housing prices affordable, and some developers should be required to produce housing in a certain price ranges that are affordable to plant workers. Finally, more than 100 hectares of existing housing in ping fang areas should be incrementally densified by current owners.

Area-specific development proposals shown on Map 2.2 include the following. • Xiliu should continue to develop in an eastward direction toward Haicheng City. With the construction of the industrial park, Xiliu is already expanding in that direction. The two settlements will eventually merge into one built-up area, which will make the provision of many municipal services, including sanitation, water, and solid waste, more affordable. Xiliu officials also expressed a desire to merge administratively with Haicheng.

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Map 2.2: Xiliu Proposed Transportation and Land Use, 2006–2015

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• Xiliu should promote the incremental densification of some existing housing areas. These areas are convenient for workers in the new industrial park, as well as those employed in the Clothing Market. The town should create incentives for the development of rental housing in these ping fang areas by existing residents, rather than demolition of existing housing and replacement by apartment buildings. Three- to four-story apartment buildings would be appropriate. See the Guidelines and Best Practices volumes for more details. This area will provide for 4,000 additional housing unit, without requiring the expansion of the built area. • Low-rent apartment housing for industrial park workers should be developed south of Jigao Road. Housing in this location will be convenient for workers and would further the goal of moving town development eastward. This housing should be targeted at the ability to pay of the workers. This area should be home to 6,000 new households. • Medium-density housing should be developed in the area north of the industrial park. In these areas, three- to four-story buildings, with row housing and other medium-density housing types, should be built. This housing should be targeted at all income brackets, but include some housing appropriate for middle- income residents of the town. A park should be developed along the north and south sides of the river, to provide leisure opportunities for the residents. This medium- density area would house 2,600 new households. • High-density housing should be clustered around the new Haicheng government center to the east of the town. Seven- and eight-story housing would be appropriate in this location, and should be targeted to a mix of income levels. This area would house 7,000 new households.

2.6 Economic Infrastructure Component

Overview of Current Conditions and Projections

Map 2.3 shows existing transportation networks in Xiliu. As shown on the map, Xiliu has two principal transportation arteries: • the Shen Da expressway with its exits very near to Xiliu’s Clothes market; and • Ji Gao Road, which runs in an east-west direction, south of the market.

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Map 2.3: Existing Transportation Networks in Xiliu

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Traffic volumes for Ji Gao Road at two points are shown below.

Table 2.9: Current Year (2005) Capacity: Estimated (Passenger Car Volume/ Road Volume Equivalent) Capacity Ji Gao Road, Southwest 9,900-11,000 28,000 0.37 Direction Ying Kou, south of railway Ji Gao Road to Haicheng 14,000-19,000 35,000 0.49 Point immediately east of expressway Source: PADCO/CCTRD, 2005

The roads are busy, but capacity is robust, and there is no concern about congestion today. However, Xiliu expects tremendous growth to arise from its textile park. Incorporating the growth forecasts and adding some assumptions about income growth and mode choice, it is easy to see that traffic volumes will grow quickly over the next five years, and largely exhaust capacity on Ji Gao Road.

Table 2.10: Projections 2010 2015 Estimated Volume/ Estimated Volume/ Road Volume Capacity Volume Capacity Ji Gao Road 21,700 0.78 59,000 2.11 Direction Ying Kou, south of railway Ji Gao Road to Haicheng 35,300 1.01 95,900 2.74 Point immediately east of expressway Source: PADCO/CCTRD, 2005

As shown above, Xiliu will have to improve its road system by 2010 to address capacity constraints. There are other roads the town has under consideration for upgrading, but these are only collector roads today. Road conditions are weak and capacity is quite constrained. Of interest is the Ba Sha line, which also runs east-west near the center of town, south of and parallel to the Ji Gao line. It crosses underneath the expressway and turns to the southeast.

Transportation Proposals

Road capacity should be increased to allow more east-west movement. It might be possible to expand Ji Gao Road, but widening a long elevated section would be technically difficult and very expensive. The project therefore recommends two sets of improvements. • Southern east-west road widening: convert 2- and 3-lane collector road running 150-200 meters south of Ji Gao Road into a Class 1 highway. Supplement this investment with links to Ji Gao road.

! In the east, the road will run parallel to Ji Gao road: between the major north- south highway providing access to Haicheng’s new municipal center to the east, until near where this segment nears the expressway entrance to the west.

! West of the expressway entrance, the road will turn south across the river, west under the expressway, and west-northwest until it branches into two extensions. Both extensions meet the Ji Gao Road.

! One road-widening extension to Ji Gao Road will be in a west-northwest section, and provide more access to new housing areas; while the other half of the branch

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will be a road-widening segment to the Ji Gao Road to the south, intersecting near the railway line.

! Road widening to provide access between this new highway and Ji Gao highway, including another four or five segments east of the expressway which will each be 150- to 200-meter access roads. • Add a northern east-west highway across the northern side of the industrial park. Specifically:

! This road would connect major north-south highway (providing access to Haicheng’s new municipal center) to the new market to be constructed soon north of the existing market in the west.

! This road will include a bridge crossing the expressway.

The southern east-west artery and its connections to Ji Gao Road will provide mobility for workers in the new textile park. It will also increase access to the Haicheng and larger market.

The northern east-west highway will be a second industrial and market road providing greater access to the Haicheng market. It will also provide mobility to those who choose housing in the northern areas to be developed. All other industrial roads inside the Haicheng Textile Industrial Park should be the responsibility of its developers.

Table 2.11: Summary of Road Improvement Proposals Improvement Units Quantity Completion Road Widening: Parallel east-west km 8.66 by 2010 road, with access to Ji Gao road Highway: Northern industrial km 4.32 by 2012 highway Bridge as part of Northern Industrial km 0.35 by 2012 Highway Source: PADCO/CCTRD, 2005

2.7 Environmental Infrastructure Component

Current environmental infrastructure in Xiliu for wastewater treatment and landfill disposal is unsatisfactory. There is no treatment at the discharge/disposal site, resulting in pollution of surrounding land and water sources. Before initiating new land development, action will need to be taken to develop satisfactory waste treatment facilities.

Planned development of Haicheng Industrial Park and associated housing and commercial areas will greatly increase the future demand for environmental services. The following principles should govern the future development of environmental infrastructure in Xiliu. • Where possible, the environmental infrastructure treatment and disposal facilities supporting the residential, commercial, and institutional land areas should be integrated with the Haicheng Textile (Industrial) Park, or connected to or developed as a regional facility serving the surrounding area. • Wastewater collection system should be installed before or at the same time as the water distribution system to ensure that when water service begins, the resulting wastewater can be collected and not create a public health problem.

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• Every building on a road or path where environmental services are provided should be connected and should pay for that connection whether or not it is used. • In the Xiliu built-up area, there should be only one provider of water, wastewater, and solid waste services. • The Haicheng Industrial Park is scheduled to have wastewater treatment facilities of a size sufficient to handle Xiliu’s domestic wastewater. Xiliu should do a feasibility study to determine capital and operational costs of a conveyance structure (pump or gravity, depending on differences of elevation) from Xiliu to Haicheng.

Specific proposals for environmental infrastructure are made below. For more details about investment projects described here, see the Project Briefs in the appendix at the end of this volume.

Water and Wastewater Infrastructure Proposals

The water supply network in Xiliu should be expanded to serve the new commercial and residential developments, with a total additional length of pipes of 110 km. (This mirrors the length of new roads required and reflects the extent of new development projected.) The extent of wastewater sewer pipes should also be expanded, with sewer pipes installed for current residents without service currently (estimated at 20% of households). In other areas, both water and wastewater pipelines can be extended on an as-needed basis, when empty land is ready for housing and/or commercial development (before structures and asphalt paving).

Table 2.12: Proposed Water Network Pipe Extensions Parameter Units 2005 2015 Length of water distribution pipeline linear meters – 110,000 Pipe purchase and installation cost* RMB per meter 560 560 Cost to purchase and install water pipeline million RMB – 62 Annual O&M costs, water pipeline million RMB/year – 1.2 * Cast iron pipe, 300 mm diameter on average. Source: PADCO/CCTRD, 2005

Table 2.13: Proposed Wastewater Network Pipe Extensions Parameter Units 2005 2015 Length of wastewater collection pipe linear meters 18,000 110,000 Pipe & installation, RC 300 mm RMB per meter 250 250 Cost to purchase/install wastewater pipe million RMB 5 28 Annual O&M costs, wastewater pipeline million RMB/year 0.1 0.4 Source: PADCO/CCTRD, 2005

In terms of its water supply, Xiliu is projected to have adequate water supply during this planning period, but needs to be vigilant about protecting and maintaining its allocation as demand grows in nearby Haicheng City and as the Haicheng Industrial Park develops.

In terms of wastewater infrastructure, Xiliu has two main options: • construct a treatment plant exclusively for domestic wastes from residential, commercial, and institutional users; or • determine feasibility of conveying wastewater (full strength or partially treated) to the Haicheng Industrial Park for treatment.

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Whichever option is chosen, Xiliu should investigate the possibility of collecting wastewater from townships of Ganwang (4 km east) and Chongxiao (3 km south) and treating it in Xiliu. Construction of a wastewater treatment facility should be a priority for the town.

Table 2.14: Wastewater Treatment Plant Project in Xiliu Parameter Unit 2015 Population Capita 126,250 Service Population Capita 139,000 Water consumption liters/capita/day 120 % water to sewer (80% to 95%) % 90% Water to sewer liters/capita/day 108 Wastewater volume to be treated cubic meters/day 15,012 Suggested size for WWTP cubic meters/day 15,000 Cost to build WWTP & pipelines RMB/m3-day 2000 Capital cost million RMB 30 O&M costs - unit RMB/m3 0.8 O&M costs - total RMB/day 12,000 Annual O&M Costs million RMB/year 4 O&M Costs per person per month RMB/capita/month 2.9 PRIMARY TREATMENT ONLY Capital Cost (40% of total) million RMB 12.0 O&M costs (40% of total) million RMB/year 1.8 Source: PADCO/CCTRD, 2005

Solid Waste Infrastructure Proposals

Xiliu is developing northeast toward Haicheng and Xiliu’s southern villages are developing west and north toward Xiliu. As a result, it may be better to construct two different landfills (one in the northeast of Xiliu and the other in the southwest), each serving a different part of Xiliu and its surroundings.

The Xiliu Textile Market has its own solid waste collection and landfill. Waste from this market should be integrated into the new solid waste management system.

Table 2.15: Identification of Sanitary Landfill Project Parameter Units Projection Population [year 2015] capita 126,250 Service Population [year 2015] capita 133,000 Solid waste generation kgrams/capita/day 0.8 % Municipal Solid Waste (MSW) % 60% % Construction & Demolition (C&D) Debris % 40% Density of MSW collected kg/m3 425 Density of C&D collected kg/m3 650 Density of In-Place (compacted) waste kg/m3 750 Solid waste collected each day kg/day 123,400 Volume collected each day m3/day 240 Volume in the landfill after compaction m3/day 165 Volume compacted waste for one year m3/year 60,000 Assume operating life for landfill years 10 Volume compacted waste over operating life m3 600,000

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Parameter Units Projection Cost to construct landfill (civil works) RMB/m3 30 Estimated cost to construct landfill M RMB 18 O&M Costs M RMB 0.54 Assume depth of landfill meters 3 Area Required (10,000 m2 = 1 hectare) hectare 20 Source: PADCO/CCTRD, 2005

Priority, Timing, and Implementation

The table below summarizes the infrastructure costs and indicates the recommended priority levels that should be given to the recommended investments. As shown, the WWTP and solid waste landfill should be priorities. The water supply and wastewater pipelines can be installed on an as-needed basis. When empty land is ready for housing or commercial development, below-ground infrastructure (primarily water and wastewater pipelines) should be installed before structures or asphalt paving. However, work should proceed as soon as possible on installation of sewer pipelines in those residential areas currently without pipes (estimated to be 20% of the 2005 built-up residential area).

Table 2.16: Summary of Infrastructure Capital and O&M Costs (millions RMB) M RMB For Year = 2015 units Quantity Capital O&M Priority Water Supply Pipeline km 110 76 1.2 as needed Wastewater Pipeline km 128 40 0.5 as needed WWTP m3/day 15,000 37 4.4 1 Sanitary Solid Waste Landfill ha 20 22 0.5 1 Source: PADCO/CCTRD, 2005

2.8 Social Services Component

Proposals for improving social services in Xiliu include the following. • Equalize school fees for migrants and hukou residents. The current system requires migrant students to pay double what the hukou residents pay for school fees (200 RMB per semester versus 100 RMB). To make it consistent with the hukou reform principles of providing equal access to all and remove the disincentive to migrate to Xiliu, school fees should be harmonized for all users. • Expedite the reintroduction of the CMS. A formal sector health insurance program has been introduced in Xiliu, but it has had limited coverage so far. It is unpopular to urban residents, and unaffordable to farmers. The reintroduction of the CMS is in the pipeline in Liaoning province, but it has not started in most of the small towns to date. The town government should apply for early coverage under the CMS program.

2.9 Urban Management Component

Urban management recommendations are made for all towns in Volume 1. In terms of Xiliu specifically, the main recommendation is to address pressures placed on the town by its upper-level government.

Xiliu is required by Haicheng City to meet several very specific investment and financial remittance targets every year, which puts substantial pressure on government officials. For example, Xiliu was required to attract US$3 million in foreign investment in 2004. Haicheng

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City should consider easing some of these targets in favor of objectives in the areas of education, health, and employment.

2.10 Plan Cost and Recovery Component

The strategy for financing the infrastructure investments identified in the plan is as follows. • For roads investments, mobilize central and provincial government contributions and use property tax revenues to cover local government contributions. The owner-users of the most valuable real property will bear most of the local cost share of building and maintaining roads, and will be the primary beneficiaries of these investments. • For environmental infrastructure investments, users will pay for O&M costs through service charges. Service charges will also cover the cost of investments, where customers can afford the higher tariffs. In case of low affordability, town government will use cross-subsidies among users in the tariff and/or finance part of the investment costs from general revenues, including property taxes.

Sector-specific financing schemes are described below.

Transportation: Road and Bridge Improvements Capital Costs (RMB) O&M/Yr (RMB) Total Costs 32.6 million 0.3 million Cost Distribution State: 50% Province: 25% State: 30%, Province: 30% Assumptions LG: 25% (from property LG: 40% (property taxes) tax revenues) Cost of Capital (20 years) 65,443,064 for 20 years Cost of Capital (year) 3,272,153 per year Local Government Share (per year) 818,038 120,000 Local Government Share (per 23.5 per household per 3.5 household per year) Increased Taxes year (2 per month) Source: PADCO/CCTRD, 2005

Wastewater Transport and Treatment: Network Extension and Plant Capital Costs (RMB) O&M/Yr (RMB) Total Costs 77 mil 4.9 mil Cost Distribution End user, through service Assumptions charges Cost of Capital (20 years) 154,574,110 Cost of Capital (year) 7,728,705 Cost per Household per Year 220 (18.3 per month) 140 Source: PADCO/CCTRD, 2005

Note: It is possible to build the WWTP in two stages: • Stage #1: Influent line, grit chamber, primary treatment, effluent line (about 40% of total capital costs) • Stage #2: Secondary treatment, final clarifiers, sludge handling facilities

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Water Supply: Network Extension Capital Costs (RMB) O&M/Yr (RMB) Total Costs 76 Mil. 1.2 mil Cost Distribution End user, through service Assumptions charges. Cost of Capital (20 years) 52,566,650 Costs of Capital (year) 7,628,333 Costs per Household per Year 218 RMB (18 per month) 34 (2.86 per month) Source: PADCO/CCTRD, 2005

Solid Waste: Landfill Capital Costs (RMB) O&M/Yr (RMB) Total Costs 22 million 0.5 million Cost Distribution Business & Industry – Assumptions 40%, Households – 40%, Government (hospitals, schools, & other) – 20%. Cost of Capital (20 years) 44,164,032 Costs of Capital (year) 2,208,202 Costs per Household per Year 31 (2.6 per month) Source: PADCO/CCTRD, 2005

Business & Industry: 1,083,281 RMB per year debt service and O&M Households: 1,083,281 RMB per year debt service and O&M Government: 541,640 RMB pet year debt service and O&M

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY DEVELOPMENT PROPOSALS: DEVELOPMENT PROPOSALS FOR TENG’AO

3 Development Proposals for Teng’ao

3.1 Introduction

This description of development proposals for Teng’ao should help establish the overall direction, pace, and character of future urban growth in the town over the period 2006–2015. The land use recommendations and infrastructure projects described below could be developed into a plan, if discussions with stakeholders are conducted.

3.2 Population and Employment Projections

While the population of the built-up area has been stable since 1995, the population of the whole town (zhenyu) has grown substantially—about 7% yearly on average—as a result of the arrival of about 18,000 migrant workers. Many of these have apparently not settled in the town center, but in surrounding villages.

Table 3.1: Population Trends, 2000–2003 Avg. Annual Avg. Annual % Change % Change 1995 2000 2003 1995–2000 2000–2003 Town Population with Hukou 70,204 74,265 74,366 1.1 0.0 Migrants 24,796 21,735 42,634 -2.6 25.2 Total 95,000 96,000 117,000 0.2 6.8 Number of Households 19,763 19,673 24,728 -0.1 7.9 Built-Up Area Population with Urban Hukou 7,872 18,037 18,445 18.0 0.7 Migrants 22,279 12,319 12,320 -11.2 0.0 Total 30,151 30,356 30,765 0.1 0.4 Household Size 3.6 3.8 3.0 1.2 -7.3 Number of Households 8,488 8,041 10,230 -1.1 8.4 Source: 30-Town Survey, PADCO/CCTRD, 2005

The future population of Teng’ao will depend largely on growth of employment in industry and services. It is expected that industrial employment will continue to rise, and that the town government will successfully leverage industrial employment into further growth in the service sector. Driven by increasing investment in food processing and machine tool production, industrial employment is expected to rise from about 6,400 today to 7,400 in 2010. Total employment is anticipated to reach 33,500 at the end of the planning period.

Table 3.2: Employment Projections (employees) Annual Growth Rate Sector 2004–2010 2005 2006 2007 2008 2009 2010 Industry 3.00% 6,365 6,556 6,753 6,956 7,164 7,379 Construction 3.00% 5,835 6,010 6,190 6,376 6,567 6,764 Trade 4.00% 6,490 6,749 7,019 7,300 7,592 7,896 Transport/Post 6.00% 1,348 1,429 1,515 1,606 1,702 1,804 Hotel/Restaurant 4.00% 3,245 3,375 3,510 3,650 3,796 3,948 Subtotal 23,283 24,119 24,987 25,887 26,822 27,791

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Annual Growth Rate Sector 2011-2015 2011 2012 2013 2014 2015 Industry 3.00% 7,601 7,829 8,063 8,305 8,555 Construction 3.50% 7,001 7,246 7,500 7,762 8,034 Trade 5.00% 8,290 8,705 9,053 9,415 9,792 Transport/Post 6.50% 1,922 2,047 2,169 2,299 2,437 Hotel/Restaurant 3.50% 4,086 4,229 4,398 4,574 4,757 Subtotal 28,900 30,055 31,184 32,356 33,575 Source: PADCO/CCTRD, 2005

3.3 Projected Land and Housing Requirements

As shown in Map 3.1, the current land use pattern in Teng’ao clusters medium-density apartment blocks and mixed-use areas near the city center east of the expressway, while most industrial land is in the new industrial park and along the main east-west road west of Shenda.

Table 3.3: Land Use, 2005 Area Land Use 2005 (ha.) Medium-Density Residential 10.00 Low-Density Residential 131.12 Village 69.48 Institutional 7.01 Transport 15.75 Light Industrial 80.36 Heavy Industrial 17.99 Commercial 0.76 Mixed Use 2.32 Agriculture 385.77 Open Space 1.22 Dump Site 0.00 Vacant 52.39 Animal Husbandry 9.73 Source: PADCO/CCTRD, 2005

Given future industrial employment levels, total additional land requirements for industry are expected to be 40 hectares (above and beyond the existing industrial park) by 2010, and 66 hectares by 2015.

32 PRC: TOWN-BASED URBANIZATION STRATEGY STUDY DEVELOPMENT PROPOSALS: DEVELOPMENT PROPOSALS FOR TENG’AO

Map 3.1: 2005 Land Use in Teng’ao

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Table 3.4: Industrial Land Requirements, 2005–2015 Sector 2005 2010 2015 Heavy Industry Industrial Employees 1,273 1,476 1,711 Gross Employees/ha. 71 67 64 Gross Land Requirements (ha.) 18 22 27 Reutilized Industrial Land (ha.) 0 0 0 Net Land Requirements (ha.) 22 27 Light Industry Industrial Employees 5,092 5,903 6,844 Gross Employees/ha. 63 60 57 Gross Land Requirements (ha.) 80 98 120 Reutilized Industrial Land (ha.) 0 0 0 Net Land Requirements (ha.) 80 98 120 Total Industrial Land Reqts (ha.) 80 120 146 Additional Land Reqts (ha.) 40 66 Source: PADCO/CCTRD, 2005

The following table presents a similar calculation for commercial land needed to support the growth of the main tertiary subsectors. Additional requirements are 22 hectares during the next five years and another 30 hectares in the following five years.

Table 3.5: Commercial Land Requirements, 2005–2015 Sector 2005 2010 2015 Trade Employees 6,490 7,896 9,792 Gross Employees/ha. 150 143 135 Net Land Requirements (ha.) 43 55 72 Transport/Post Employees 1,348 1,804 2,437 Gross Employees/ha. 100 95 90 Net Land Requirements (ha.) 13 19 27 Hotel/Restaurant Employees 3,245 3,948 4,757 Gross Employees/ha. 310 295 280 Net Land Requirements (ha.) 10 13 17 Other Employees 2,771 2,854 2,939 Gross Employees/ha. 190 181 171 Net Land Requirements (ha.) 15 16 17 Total Commercial Land Reqts (ha.) 82 104 133 Additional Land Reqts (ha.) 22 52 Source: PADCO/CCTRD, 2005

Finally, employment growth is used to project population growth and residential land requirements, as shown in the following table. About 3,500 new households are projected to settle in the built-up area over the period; more than three-quarters of these are assumed to take up residence in medium-density housing and mixed-use areas. Total additional housing land under these assumptions is estimated at 97 hectares over the next 10 years. The calculation assumes that all new households will be accommodated in new housing built on new land; if existing areas were densified through incremental processes (construction of second and

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third units on existing plots) or redevelopment of existing low-rise housing occurs, then the area of future residential land requirements would decrease accordingly.

Table 3.6: Population Projections and Residential Land Requirements Variable 2005 2010 2015 Industrial Employment 6,365 7,379 8,555 Commercial Employment 3,643 4,339 5,239 Other Employment 5,835 6,764 8,034 Total Employment* 15,843 18,483 21,828 Ratio Employment/Population 50% 50% 50% Total Population 31,686 36,965 43,656 Household Size 3.5 3.3 3.5 Total Households, of which: 9,053 11,202 12,473 Medium-Density Residential % Total 25 28 35 Number 2,263 3,136 4,366 Low-Density Residential % Total 56 52 45 Number 5,070 5,825 5,613 Mixed Use % Total 9 13 16 Number 815 145,6 1,996 Village % Total 10 7 4 Number 905 784 499 Land Requirements Medium-Density Residential Avg. Gross Density 70 65 60 Number of Hectares 10 48 73 Low-Density Residential Avg. Gross Density 44 44 44 Number of Hectares 131 132 132 Mixed Use Avg. Gross Density 55 55 55 Number of Hectares 2 26 36 Village Avg. Gross Density 35 35 35 Number of Hectares 69 69 69 Total Residential Land Reqts 213 276 310 Additional Land Reqts (ha.) 63 97 Source: PADCO/CCTRD, 2005

3.4 Employment Generation Component

It is important for Teng’ao town to build on its enormous success of the last 15 years by continuing to create the conditions for outside investment in industrial facilities. Perhaps the greater challenge, however, is to support the ongoing and planned development by ensuring adequate supply of labor and associated housing and urban services. This is important for avoiding supply shortages that would put upward pressure on real estate prices and increase the cost of labor to local enterprises, thereby undermining the efficiency of the town economy and its effectiveness as an engine of employment growth.

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Specific proposals for enabling investment and facilitating employment generation include the following. • Further exploit upstream linkages to the steel industry in Anshan. Use input-output analysis to identify additional industrial subsectors that can add value to outputs of the Anshan economy, such as steel. Analyze national and Pacific Rim markets for stainless steel, machine tools and spare parts, etc., to identify potential growth areas. • Join forces with other cities in the Liaoyang-Yingkou development corridor to prepare and implement a regional economic development strategy. The Provincial Develop- ment and Reform Commission (PDRC) should participate in this activity, as should the cities of Liaoyang, Anshan, Haicheng, and Yingkou. In addition, governments of current and potential satellite towns of these cities should participate in the planning and should be considered as candidate sites for the expansion of industrial activities and/or the creation of multi-modal centers involving road, rail, and warehousing investments. See Volume 1, Section 4 for more detailed proposals on the Liaoyang- Yingkou development corridor. • Carry out cost-benefit analysis of the various incentives, subsidies, and tax rebates that the town government currently offers investors and phase out the non-performing instruments. The Enterprise Survey carried out by the Consultant suggested that such incentives are not instrumental in the decisions of firms to locate in towns in Liaoning Province. The land rights fee rebates are particularly disadvantageous to the extent that they limit the town government’s ability to recover the cost of infrastructure investments. • Continue to produce serviced industrial land in a timely fashion, in keeping with investor demand. This has been one of the cornerstones of successful economic development promotion in Teng’ao. Although the new park is only 20% full today, it is not too early to consider the development of additional serviced industrial land in the medium term.

3.5 Land Use and Housing Component

Master Plan Overview

Teng’ao last updated its Master Plan in 1998. Teng’ao has asked the Liaoning Rural Urban Planning Institute to update its plan, which will include Xintaizi, Teng’ao’s western neighbor. Xintaizi and Teng’ao merged in 2002.

Teng’ao’s existing Master Plan lays out the framework for the development of the town’s large new industrial park, which is located west of the Expressway and is currently about 20% built out. The new plan will not vary significantly in land use or planned infrastructure from the old one. However, the plan will now cover Xintaizi, and may include an expanded area in the western direction for the industrial park. Residents in this area may be relocated to the city center.

Some general recommendations for improvements to town Master Plans are listed above. Below are some specific land use and housing recommendations for Teng’ao.

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Map 3.2: Teng’ao 1998–2005 Near-Term Construction Master Plan

Land Use and Housing Proposals

The land use and housing proposals described below lay out a development pattern that builds on Teng’ao’s existing assets to create a more economically viable town center and to improve the quality of life for residents (by separating the town’s scattered industrial sites and residential areas and establishing additional parks). • Continue to produce serviced industrial land in keeping with demand. The town is already doing a good job of providing land for industrial development. Expansion of the existing industrial park in the western direction is appropriate. Teng’ao should fill in the area south of the east-west road through town with industrial areas. • Selectively redevelop low-density housing in the city center and south of the city center, gradually upgrading it to medium density. The development should be incremental, market-driven, three- to four-story housing buildings. At this stage in its development, Teng’ao should not require six-story housing for all new development (as is current practice). • Teng’ao should seek to separate housing and industrial uses over time. The development of new heavy industry should be concentrated in the western section of the town, with housing, commercial, office, and other uses being located in the central and southern parts of the town. • Teng’ao should set aside more land along the river or in other areas for parks. Teng’ao should develop its central river as more of an amenity, with paths and other accommodations for those seeking recreation. In addition, the new housing and mixed-use areas to the south should include a large new city park.

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Figure 3.1: River in Teng’ao

3.6 Economic Infrastructure Component

Current Conditions and Projected Growth in Traffic

Current transportation networks in Teng’ao are shown in Map 3.3. Traffic volumes for the trunk roads serving Teng’ao are shown in Table 3.7 below, based on observations that were derived from traffic count surveys conducted at points where the roads began to enter dense sections of Teng’ao’s built-up area.

Table 3.7: Current Year (2005) Capacity: Passenger Car Volume/ Road Estimated Volume Equivalent Capacity Tai’an Road 19,100 - 27,600 45,000 0.52 Road to Anshan (Anshan Center) 18,200 - 25,700 35,000 0.63 Alternate Road to Southern Anshan 16,200 - 20,400 25,000 0.73 Tangang Rd (to Haicheng) 12,000 - 12,800 12,000 1.03 Shen-Yin Road (in southwest) to 10,500 - 11,600 25,000 0.44 Yingkou Source: PADCO/CCTRD, 2005

Teng’ao has considerable unused road capacity. Tai’an Road is a very generous 30-meter highway that exceeds national standards; it is very flat and straight. The road leading from the town center north across a bridge over Teng’ao’s river boundary, and then northeast into Anshan, also has robust capacity. Other roads listed have less capacity. Tangang Road to Haicheng is a two-lane (one lane in each direction) road with narrow shoulders, and generally poor conditions. In general, road capacity is quite adequate in Teng’ao today.

Teng’ao’s projected growth will pose some demands on the road system. More traffic is likely to arise on the first two roads listed in the table below: Tai’an Road passing on the north side of the industrial park, and the road over the bridge to central Anshan. Less traffic is expected on the three other highways. The demands on those two roads are expected to

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continue to grow through 2015. Traffic on the northern road over the bridge to central Anshan may be diverted to the alternate road leading to south Anshan; but that will soon become overly congested, too. By 2015, the roads linking the industrial park to Anshan— Taian Road and the two connections to Anshan—will require some relief.

Table 3.8: Projections 2010 2015 Estimated Volume/ Estimated Volume/ Road Volume Capacity Volume Capacity Taian Road 36,200 0.80 45,900 1.02 Road to Anshan 31,600 0.90 39,700 1.13 (Anshan Center) Alternate Road to 21,000 0.84 29,300 1.17 Southern Anshan Tangang Rd (to 12,900 1.08 16,500 1.37 Haicheng) Shen-Yin Road (in 12,500 0.50 16,200 0.65 southwest) to Yingkou Source: PADCO/CCTRD, 2005

Transportation Proposals

Recommended road improvements are shown on Map 3.4. The principal recommendation is to create an alternate link between the industrial park and the toll road to Anshan. There is no reason for traffic to continue traveling through the center of town, especially when capacity is expected to become constrained within four or five years. Also, access to the expressway is near the center of town, and that should be preserved. Therefore, an industrial bypass is recommended. The industrial bypass road should have the following characteristics: • Four lanes, with wide shoulders • Length of 1.4 km, running north-south from the industrial park, and then northeast along the riverbank, and through a small eastern section • Elevated section of 1.4 km crossing/following the river • An interchange delivering traffic from the bypass on to the road to central Shanxi

The interchange may be closer to the toll road entrance—more to the northeast—but that will require a detailed survey and consideration of alternatives. For the moment, it is assumed the interchange will be north of the riverbank, near the existing bridge, and reasonably complicated. The interchange should be complicated so that it does not interfere with north- south traffic.

The project also recommends some road widening and improvements, including the following: • an Alternate Road to South Anshan, improving the shoulder, rebuilding/narrowing sidewalks, for a length of approximately 1.5 km; and • some other intersections and segments near the center of town.

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Map 3.3: 2005 Transportation in Teng’ao

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Table 3.9: Summary of Road Transport Proposals Recommended units Quantity Completion Bypass Highway, at Grade km 1.4 2009 Bypass Highway, Elevated km 1.4 2009 Interchange (unit) 1 2009 Road Widening: Road to km 2.2 TBD south Anshan, plus other possible segments Source: PADCO/CCTRD, 2005

3.7 Environmental Infrastructure Component

The environmental infrastructure projects are intended to service the residential, commercial, and institutional sectors that are expected to develop during the period 2006–2015. It is not possible to forecast environmental infrastructure requirements for industries because the needs vary significantly depending on type and size. Principles for the development of environmental infrastructure in Teng’ao are as follows. • Where possible, the environmental infrastructure treatment and disposal facilities supporting the residential, commercial, and institutional land areas should be integrated with a nearby industrial park or connected to a regional facility. • The wastewater collection system should be installed before or at the same time as the water distribution system to ensure that when water service begins the resulting wastewater can be collected and not create a public health problem. • Every building on a road or path where environmental services are provided should be connected and should pay for that connection, whether or not it is used.

Water and Wastewater Infrastructure Proposals

The water supply network should be expanded to serve the new commercial and residential developments. The length required, 26 km, is recommended for water supply pipes, with 26 km for wastewater sewer pipes. Wastewater pipes should also be installed to provide services to the estimated 50% of houses not now connected to the sewer (another 26 km, for a total length of 52 km).

In terms of water supply, Teng’ao receives its water from the Anshan Water Company. This is projected to be sufficient during the planning period.

In terms of wastewater infrastructure, Teng’ao has two options: • construct a treatment plant exclusively for domestic wastes from residential, commercial, and institutional users; or • design, construct, and operate the industrial park wastewater facilities to treat both industrial and domestic waste.

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Map 3.4: Teng’ao Proposed Transportation, 2006–2015

Express to Central way Anshan to Taian

to Southern Anshan

Shen-Ying Road to Tangang ) (near Haicheng)) Byway

Road Widening

to Yingkou

Express way

to Ganguangzhe

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Solid Waste Infrastructure Proposals

Teng’ao is located 14 km from Anshan, so Teng’ao should investigate using Anshan’s solid waste disposal site. If that is not possible, then Teng’ao could develop a facility that handles non-toxic wastes from the industrial park and domestic solid waste from the town built-up area. This should be a high priority for Teng’ao, because the current situation of uncontrolled dumping and random open pits is ruining the area.

Priority, Timing, and Implementation

Table 3.10 summarizes the environmental infrastructure proposals in Teng’ao. There is a pressing need in Teng’ao to develop a proper landfill and to treat wastewater, so both projects should proceed as soon as possible (with the landfill prioritized first). To promote development of the industrial park, the wastewater treatment and landfill facility should be designed and located to serve both the proposed industrial park and the surrounding community.

The pipe for water and wastewater can be laid on an as-needed basis. When empty land is ready for housing or commercial development, below-ground infrastructure (primarily water and wastewater pipelines) should be installed before structures or asphalt paving. However, work should proceed now to install sewer pipelines in those residential areas currently without them. Cost recovery proposals for the infrastructure investments are below.

Table 3.10: Summary of Environmental Infrastructure Proposals M RMB For Year = 2015 units Quantity Capital O&M Priority Length of Pipe Water Supply km 26 15 0.3 as needed Length of Pipe Wastewater km 52 13 0.2 as needed WWTP m3/day 9,000 18 3 2 Solid Waste Landfill ha 6 5 0.15 1 Source: PADCO/CCTRD, 2005

3.8 Social Services Component

The following recommendations are designed to address social service needs in Teng’ao. • Extend social insurance to rural areas. The people living in small towns and villages do not get the social security coverage that their city counterparts do. The farmers in the villages are by far the worst off in this respect. As the town grows and expands, more farmers will lose their farm land, which hitherto substituted quite effectively for social security. Hence, there is a need to devise a plan that widens the coverage of government-funded social insurance to both urban and rural areas, and is targeted to both informal and formal sector workers.

3.9 Plan Cost and Recovery Component

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• For environmental infrastructure investments: users will pay for O&M costs through service charges. Service charges will also cover the cost of investments, where customers can afford the higher tariffs. In case of low affordability, town government will use cross-subsidies among users in the tariff and/or finance part of the investment costs from general revenues, including property taxes.

Sector-specific financing schemes are described below.

Transportation: Road and Bridge Improvements Capital Costs (RMB) O&M/Yr (RMB) Total Costs 294 mil 0.8 million Cost Distribution State: 50% Province: 25% State: 30%, Province: 30% Assumptions LG: 25% (from property LG: 40% (property taxes) tax revenues) Cost of Capital (20 years) 590,192,060 Cost of Capital (year) 29,509,603 Local Government Share (per year) 7,377,400 320,000 Local Government Share (per 402 17.5 household per year) Increased Taxes Source: PADCO/CCTRD, 2005

Water Supply: Network Extension Capital Costs (RMB) O&M/Yr (RMB) Total Costs 15 mil 0.3 mil Cost Distribution Service charge to Assumptions households Cost of capital (20 years) 30,111,839 Cost of capital (year) 1,505,591 Costs per Household per Year 121 24 Source: PADCO/CCTRD, 2005

Wastewater Pipes and Treatment Facility (Combined) Capital Costs (RMB) O&M/Yr (RMB) Total Costs 31 mil 3.2 mil Cost Distribution household service charge Assumptions Cost of Capital (20 years) 62,231,134 Cost of Capital (year) 3,111,556.72 Costs per Household per Year 249 256 Source: PADCO/CCTRD, 2005

It is possible to build the WWTP in two stages: • Stage #1: Influent Line, Grit Chamber, Primary Treatment, Effluent Line. Capital costs of Stage #1 would be about 40% of the total capital costs, O&M costs would cost about 30% of O&M costs for the total facility • Stage #2: Secondary Treatment, Final Clarifiers, Sludge Handling Facilities

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Solid Waste: Landfill Capital Costs (RMB) O&M/Yr (RMB) Total Costs 5 mil .15 mil Cost Distribution Assumptions Business & Industry: 40%, Households: 40%, Government: Hospitals, schools, & other) – 20%. Cost of Capital (20 years) 10,037,279 Cost of Capital (year) 501,863 Costs per Household per Year 21 Source: PADCO/CCTRD, 2005

Business & Industry 260,745 RMB per year debt service and O&M Households 260,745 RMB per year debt service and O&M Government 130,373 RMB per year debt service and O&M Total 651,863

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4 Development Proposals for Goubangzi

4.1 Introduction

This description of development proposals for Goubangzi should help establish the overall direction, pace, and character of future urban growth in the town over the period 2006–2015. The land use recommendations and infrastructure projects described below could be developed into a plan, if discussions with stakeholders are conducted.

4.2 Population and Employment Projections

Analysis of Population and Employment Growth

Population growth in Goubangzi has been modest since the construction of the Beijing- Shenyang Expressway, which undercut the local transport- and trade-based economy. The population of the built-up area increased by only 1.6% annually from 2000 (52,380) to 2003 (55,008).

Table 4.1: Population Trends in Goubangzi, 2000–2003 Avg. Annual % Change 2000 2003 2000–2003 Town Population with Hukou 78,165 79,989 0.8 Migrants 1,615 131 Total 79,780 80,120 0.1 Built-Up Area Population with Urban Hukou 47,370 49,966 1.8 Migrants 5,010 5,042 0.2 Subtotal 52,380 55,008 1.6 Number of Households 10,802 10,847 0.1 Household Size 4.39 4.61 1.7 Source: 30-Town Survey, PADCO/CCTRD, 2004

The future population of Goubangzi will depend largely on growth of employment in industry and trade. The results of the 30-Town Survey show that average annual employment growth rates for trade in Goubangzi have been fairly robust at 3.7%, while those for industry and construction have been sluggish. Hotel and restaurant employment has contracted substantially, from 7,090 to 5,100 over the period 2000–2003, as a result of lost truck traffic following expressway construction.

Table 4.2: Employment Trend by Sector, 2000–2003 Avg. Annual % Total % Change, Sector 2000 2003 2003 2000–2003 Industry 4,000 3,800 15.2 -1.70 Construction 5,200 5,000 20.0 -1.30 Trade 2,800 3,120 12.5 3.67 Transport/Post 780 800 3.2 0.85 Hotel/Restaurant 7,090 5,100 20.4 -10.40 Subtotal 19,870 17,820 71.3 -3.56

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Primary 5,000 4,800 19.2 -1.35 Secondary 7,100 7,200 28.8 0.47 Tertiary 11,150 13,000 52.0 5.25 Total Employment 23,250 25,000 100.0 2.45 Workforce 25,800 26,000 – 0.26 Unemployment 2,550 1,000 4.0 -26.80 Source: 30-Town Survey, PADCO/CCTRD, 2004

Going forward, it is expected that industrial growth rates, driven by investment in food processing and reutilization of industrial land for light industry south of the railway station, will re-enter positive territory in 2006–2010 and increase to 5% annually over the period 2011- 2015 (see Table 4.3). Light industrial development will also stimulate growth of service sectors, such as transportation and hotel/restaurant, which are expected to climb from 1% annual average growth over the next five years to 2% by 2011. These growth rates are considered conservative in light of the findings of the Enterprise Survey (see Table 4.4), which shows that the number of employees at three of the five largest firms in Goubangzi had grown annually by between 25% and 100% since 2001; the largest firm in the town intends to take on an additional 800 employees in 2005. Overall projected employment in industry and the main tertiary subsectors will increase from about 19,000 today to 25,000 in 2015.

Table 4.3: Employment Projections (employees) Annual Growth Rate Sector 2004–2010 2005 2006 2007 2008 2009 2010 Industry 3.00% 4,031 4,152 4,277 4,405 4,537 4,674 Construction 3.00% 5,305 5,464 5,628 5,796 5,970 6,149 Trade 5.00% 3,440 3,612 3,792 3,982 4,181 4,390 Transport/Post 1.00% 816 824 832 841 849 858 Hotel/Restaurant 1.00% 5,203 5,255 5,307 5,360 5,414 5,468 Subtotal 18,794 19,307 19,836 20,385 20,952 21,539

Annual Growth Rate Sector 2011-2015 2011 2012 2013 2014 2015 Industry 5.00% 4,907 5,153 5,307 5,466 5,630 Construction 4.00% 6,395 6,651 6,851 7,056 7,268 Trade 5.00% 4,610 4,840 5,082 5,336 5,603 Transport/Post 2.00% 875 892 901 910 919 Hotel/Restaurant 2.00% 5,577 5,689 5,746 5,803 5,861 Subtotal 22,364 23,225 23,887 24,572 25,282 Source: PADCO/CCTRD, 2005

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Table 4.4: Employment at Five Largest Firms, 2001–2005 Avg Annual % Change 2001 2002 2003 2001–2003 2005 Firm 1 Employees 150 400 600 100.0 800 Additional Land Area (m2) 2,000 Additional Built Area (m2) 3,000 Additional Employees 200 200 Firm 2 Employees 130 130 87 -18.2 Additional Land Area (m2) Additional Built Area (m2) Additional Employees Firm 3 Employees 65 120 N/A Additional Land Area (m2) Additional Built Area (m2) Additional Employees Firm 4 Employees 70 105 110 25.4 Additional Land Area (m2) Additional Built Area (m2) Additional Employees Firm 5 Employees 65 68 70 3.8 Additional Land Area (m2) Additional Built Area (m2) Additional Employees 50 Total Employees 415 768 987 54.2 Additional Land Area (m2) 0 0 0 Additional Built Area (m2) 0 0 0 Additional Employees 50 0 200 Source: Enterprise Survey, PADCO/CCTRD, 2004

4.3 Projected Land and Housing Requirements

To convert the employment projections to future industrial and commercial land requirements, it is necessary to first look at trends in land use changes in the built-up area. The data on area of different land uses in the following table are derived from analysis of two satellite images taken in 1986 and 2005. The 2005 data were verified with field checks. The land use map for 2005 is shown in Map 4.1.

Land use maps were entered into a geographic information system, which calculated and summed the areas of the different land use polygons. The table shows that medium-density residential land is the fastest growing category, reflecting the development of apartment blocks in recent years in the city center. Mixed-use land is also growing rapidly, as new four- to six-story buildings with commercial, office, and residential space have been developed since 1986 along the two main north-south and east-west arteries. The amount of industrial land has been relatively constant, although vacancy rates have dropped in the area south of the train station in recent years with the closing of state-owned enterprises there.

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Map 4.1: 2005 Land Use in Goubangzi

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Table 4.5: Land Use Change in Goubangzi, 1986–2005 Avg. Annual Area Area % Change % Change Land Use 1986 (ha.) 2005 (ha.) 1986–2005 1986–2005 Medium-Density Residential 1.42 38.84 2635.2 19.0 Low-Density Residential 275.37 304.31 10.5 0.5 Village 27.66 30.97 12.0 0.6 Institutional 22.40 25.85 15.4 0.8 Transport 49.67 52.27 5.2 0.3 Light Industrial 144.96 179.59 23.9 1.1 Heavy Industrial 15.59 15.59 0.0 0.0 Commercial 3.61 19.66 444.6 9.3 Mixed Use 4.22 22.32 428.9 9.2 Agriculture 831.91 685.67 -17.6 -1.0 Open Space 2.00 2.27 13.5 0.7 Dump Site 0.00 5.99 – – Source: PADCO/CCTRD, 2005

The industrial employment figures in 2005 are divided by the land area to calculate average employees per hectare. These figures, shown in the table below, are the starting point for calculations, in which future employment figures are divided by different sets of growth density figures for less labor-intensive heavy industries and more labor-intensive light industry. While gross land requirements for new industrial land over the 10-year period reach 114 hectares, it is expected that 95 underutilized hectares of existing industrial land can be re-used, lowering the future new land requirements to only about 20 hectares.

Table 4.6: Industrial Land Requirements, 2005–2015 Sector 2005 2010 2015 Heavy Industry Industrial Employees 314 467 563 Gross Employees/ha. 20 18 17 Gross Land Requirements (ha.) 16 26 33 Reutilized Industrial Land (ha.) 10 0 Net Land Requirements (ha.) 16 33 Light Industry Industrial Employees 3,717 4,206 5,067 Gross Employees/ha. 25 23 21 Gross Land Requirements (ha.) 149 183 241 Reutilized Industrial Land (ha.) 65 20 Net Land Requirements (ha.) 118 221 Source: PADCO/CCTRD, 2005

The following table presents a similar calculation for commercial land needed to support the growth of the main tertiary subsectors. Additional requirements are 15 hectares during the next five years and another 11 hectares in the following five years.

57 PRC: TOWN-BASED URBANIZATION STRATEGY STUDY DEVELOPMENT PROPOSALS: DEVELOPMENT PROPOSALS FOR GOUBANGZI

Table 4.7: Commercial Land Requirements, 2005–2015 Sector 2005 2010 2015 Trade Employees 3,440 4,390 5,603 Gross Employees/ha. 275 261 248 Net Land Requirements (ha.) 13 17 23 Transport/Post Employees 816 858 919 Gross Employees/ha. 95 90 86 Net Land Requirements (ha.) 9 10 11 Hotel/Restaurant Employees 5,203 5,468 5,861 Gross Employees/ha. 300 285 271 Net Land Requirements (ha.) 17 19 22 Other Employees 2,365 2,436 2,509 Gross Employees/ha. 200 190 181 Net Land Requirements (ha.) 12 13 14 Total Commercial Land Reqts (ha.) 50 58 69 Additional Land Reqts (ha.) 8 19 Source: PADCO/CCTRD, 2005

Finally, employment growth is used to project population growth and residential land requirements, as shown in the following table. About 4,300 new households are projected to settle in the built-up area over the period; about two-thirds of these will take up residence in medium-density housing and mixed-use areas. Total additional housing land under these assumptions is estimated at 102 hectares over the next 10 years. The calculation assumes that all new households will be accommodated in new housing built on new land; if existing areas were densified through incremental processes (construction of second and third units on existing plots) or redevelopment of existing of low-rise housing, then the area of future residential land requirements would decrease accordingly.

Table 4.8: Population Projections and Residential Land Requirements Variable 2005 2010 2015 Industrial Employment 4,031 4,674 5,630 Commercial Employment 11,823 13,151 14,892 Other Employment 4,346 4,563 4,791 Total Employment 20,200 22,388 25,314 Ratio Employment/Population 37% 36% 35% Total Population 56,782 62,851 73,263 Household Size 4.6 4.5 4.4 Total Households, of which: 12,327 13,967 16,651 Medium-Density Residential % Total 14 19 25 Number 1,787 2,654 4,163 Low-Density Residential % Total 76 66 58 Number 9,326 9,218 9,657

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Mixed Use % Total 6 10 14 Number 719 1,397 2,331 Land Requirements Medium-Density Residential Avg. Gross Density 46 46 46 Number of Hectares 39 58 90 Low-Density Residential Avg. Gross Density 31 33 35 Number of Hectares 304 304 304 Mixed Use Avg. Gross Density 32 32 32 Number of Hectares 22 43 72 Total Residential Land Reqts 365 405 467 Additional Land Reqts (ha.) 40 102 Source: PADCO/CCTRD, 2005

4.4 Employment Generation Component

Goubangzi Town is targeting three areas for future economic growth: chicken processing along the road north of the built-up area, rice milling along Beijing Road, and metals and chemicals in the industrial area south of the railroad. Production and employment figures for those sectors in recent years are presented in the table below. Rice milling is experiencing robust growth (production has increased by 230% since 2002), as the region’s high-quality japonica rice is in great demand. Although production is increasing by about 10% per year, chicken processing is limited by a lack of development capital and inadequate management skills, especially as concerns marketing and sales. Since oil is extracted in the region and refined locally, Goubangzi has a comparative advantage in petrochemicals production.

Trade has been growing in recent years, as Goubangzi’s market area has expanded to about a 30-km radius, partially as a result of improvements to regional roads. The retail clothing sector in town is particularly vibrant.

The following proposals have been formulated with a view to maximizing employment in Goubangzi. • Formulate and implement a strategy for expanding the production and sale of Goubangzi roast chicken. The assumption is that the best way to capitalize on the strong reputation of this product is to attract outside investors to expand production facilities and the distribution network. The town government should hire a consultant to prepare a strategy; develop the “Goubangzi chicken” brand; develop marketing materials; and identify potential investors in expanded chicken processing facilities by meeting with trade associations, attending industry events, and courting individual investors in China and overseas. • Set up a business services center to provide technical assistance and training in management, sales, accounting, and other skills needed by local enterprises in different sectors. The objective of the center would be to improve management skills of existing firms and to provide startup assistance to new firms. Establish linkages between the incubator and the town’s vocational training schools to better address local demand for labor and skills, and encourage graduates to establish small businesses in the town.

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• Upgrade infrastructure in the industrial park south of the railway in order to facilitate development of industries with upstream linkages to petroleum, thereby taking advantage of the oil fields in the region and the oil refinery in Goubangzi. Targeted industry should include petrochemicals and synthetic fabrics. Infrastructure upgrades will focus on roads (see Economic Infrastructure Proposals below) and the construction of a pre-treatment facility for industrial wastewater. • Expand the existing general goods market just south of the town government offices by constructing a new floor in the four double-height spaces at the center of the market building. This additional 1,000 m2 of floor area will accommodate an additional 100 vendors. This will capitalize on the current rapid growth in clothing retail. • Expand regional bus routes in order to deepen and broaden the market for Goubangzi’s agricultural products. Greater frequency to existing served areas will help tap into any existing pent-up demand; new routes to currently underserved areas will provide access to new markets. • Establish linkage between private vocational schools and local business needs. Businessmen involved in the chicken industry expressed the need for more skills in accounting and management, which are not currently covered in the training programs of the vocational schools. This is because the student population of these schools extends beyond the town, as a result of which the training programs are not necessarily customized to meet the demands at the local level. The local government should work with or create incentives for private vocational schools to make their training more responsive to the local job demand. This could be done through local market surveys, advertisements, and so on.

4.5 Land Use and Housing Component

Master Plan Overview

Goubangzi’s Master Plan was last updated in 2001, and projects land use and infrastructure for 2005 (near term) and far term (2020). The plan was produced by the Liaoning Rural Urban Planning Institute, on behalf of the Goubangzi Planning Bureau.

Goubangzi’s plan is in the process of being updated, in part because Goubangzi has been identified as a focus development town by the provincial government and in part to reflect the land use plans already being implemented by town government. The provincial government will be involved in the new plan, and has provided financial assistance for it.

The new plan will identify three development areas for the town: the area south of the railroad tracks, which is identified as a chemicals processing area; the area to the north of town, which is agribusiness; and the area to the west, which is primarily rice processing. The current plan does not have these components.

The current plan was prepared in accordance with the guidelines laid out by the provincial government for master plans, and generally lays out a reasonable plan for the town’s infrastructure investments. Some general recommendations for improvements to the town Master Plans are listed above. Below, some specific land use and housing recommendations for Goubangzi are made.

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Figure 4.1: Goubangzi’s Current Construction Plan—Near Term

Land Use and Housing Proposals • Goubangzi should expand across the river to the west. Goubangzi’s current Master Plan establishes this direction, which should be retained in the updated plan. The development of housing in this location is appropriate, as is the construction of recreational facilities, government offices, commercial space and the like. Land- scaping and improvements in the quality and amount of water in the town’s river will be necessary for this area to be attractive to private real estate developers. • Concentrate heavy industry and chemical processing in the area south of the railroad. This area currently has limited housing in the immediate vicinity, and it has excellent transportation connections. For these reasons, it is an appropriate location for the development of polluting industries. • Encourage development of housing and commercial typologies that are in keeping with the character of a small town. Town leaders told the Consultant that they preferred “high standard” housing in all housing developments in the town, which is six stories or more. However, new housing that is three to four stories will be more appropriate for Goubangzi, and more affordable. A mix of rental and for-sale housing should be encouraged (see Volume 2, Guidelines).

4.6 Economic Infrastructure Component

Current Transportation Conditions and Projected Growth

Goubangzi’s trunk infrastructure comprises two highways meeting and turning at a junction in the town center, north of the railroad station. As a result, it is easiest to think of the roads as three highways:

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• National Highway 102, leading west to Beijing • National Highway 102, leading north to Xinmin City and to Shenyang • Provincial Highway 305, leading east across the railroad lines and southwest towards Panjing.

These are all four-lane roads (with two lanes in each direction). Highway 102 to Shenyang and Highway 305 are very wide, Grade 1 roads, with wide separate bicycle lanes. Highway 102 leading to Beijing is a little narrower, and has wide shoulders, but no separate bicycle lanes. Highway 305 provides the closest connection to the expressway near the town of Wuqi, about 20 km to the south.

The railroad lines also form a junction similar to the highways. The railway to the south begins in Beijing, passes Qinhuangdao, Huludao, and Suizhong, and branches in Goubangzi. One line leads north towards Xinmin City and Shenyang, and the other southeast toward Panjing and Haicheng. A new passenger railway to the southeast of town is nearly complete.

These roadway and rail junctions were the source of much of Goubangzi’s earlier success, before an expressway was built further to the south.

Current year and projected traffic volumes for the three highways serving Goubangzi are estimated below.

Table 4.9: Current Year Traffic Volume (2005) Capacity (Passenger Highway Estimated Volume Car Equivalent) Volume/Capacity Hwy 102, to Beijing 16,400 - 20,200 21,000 0.83 Hwy 102, to Shenyang 13,300 - 20,500 30,000 0.56 Hwy 305, to Panjing 5,400 - 16,800 25,000 0.37

Source: PADCO/CCTRD, 2005

Highway 102 has about the same volume in both directions. However, the capacity is much lower in the direction of Beijing, and capacity is becoming constrained. The Consultant anti- cipates economic and population growth in Goubangzi; as a result, the traffic will rise steadily.

Table 4.10: Transportation Projections 2010 2015 Estimated Volume/ Estimated Volume/ Highway Volume Capacity Volume Capacity Hwy 102, to Beijing 20,300 0.97 26,100 1.24 Hwy 102, to Shenyang 19,700 0.66 25,200 0.84 Hwy 305, to Panjing 10,000 0.40 12,900 0.51 Source: PADCO/CCTRD, 2005

As shown above, it will be necessary to upgrade Highway 102 to Beijing by 2010.

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Map 4.2: 2005 Transportation in Goubangzi

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY DEVELOPMENT PROPOSALS: DEVELOPMENT PROPOSALS FOR GOUBANGZI

Transportation Proposals

The most important economic development anticipated for Goubangzi is the industrial park south of the railway station. While Goubangzi roads appear to have adequate capacity to accommodate growth in Goubangzi over the next 10 years (with the exception of Highway 102 to Beijing), the highway access to this industrial site is inadequate. All highways pass north of the railway station and railway lines. Highway 305 is partly submerged near the rail line, and access from 305 to the area south of the railway station involves a 180-degree turn. The access roads south of the railway station are in extremely poor condition.

These transportation improvement recommendations address the conditions described above. • Build an industrial bypass road with the following characteristics: ! 4 wide lanes, raised median and bicycle lanes ! Beginning at Highway 102, about 1.5 km west of the highway junction and a slightly west of the major river running north-south through Goubangzi ! Initial southern direction ! An 0.6–0.8-km bridge across the river and railway ! An essentially eastern route to connect the bypass to Highway 305, about 1.5 km southeast of the railway station ! Intersections and signals at points where bypass meets Highway 102 and Highway 305 ! 2–4 more intersections with left-turn lanes leading to access roads into the industrial park • Widen 4-6 km on western Highway 102 towards Beijing: ! Widen 4 lanes from 13 meters to 15 meters. ! Build separated bicycle lanes.

All of these improvements are designed to provide mobility for workers and access to markets.

The access roads in the proposed industrial park south of the railway station are in extremely poor condition, and most should be completely resurfaced and widened. However, this should be the responsibility of the private sector developers of this industrial area.

Table 4.11: Summary of Transportation Proposals Recommended Proposal Units Quantity Completion Road Widening, Highway 102 Km 4-6 2008 (direction Beijing) Industrial Bypass Road: At-Grade Km 2.8 t.b.d. Road Industrial Bypass Road: Bridge km 0.6-0.8 t.b.d. Industrial Bypass Road: 6 t.b.d. Intersections Source: PADCO/CCTRD, 2005

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Proposals for Other Economic Infrastructure

Goubangzi has no park to speak of today. There is a market square about 1 km north of the city’s main junction, but that is about all Goubangzi offers in terms of open space.

However, Goubangzi has plans to develop a long riverside park on the west side of town, north and south of Highway 102 in the direction of Beijing. The Consultant endorses this plan, as it will provide a form of recreation and city pride. There may be some scope to use wastewater from the treatment plant proposed on the south side of town to irrigate this park.

Some beautification of the industrial bypass, complemented by a park area, would provide further outlets for workers, a place for businessmen to meet, and a place where officials can bring potential investors. It would also help build a pleasant, modern image for the town.

4.7 Environmental Infrastructure Component

The following are details for the residential, commercial, and institutional sectors that are expected to develop during the period 2006–2015. It is not possible to forecast environmental infrastructure requirements for industries, because the needs vary significantly depending on type and size. Principles for the provision of environmental infrastructure in Goubangzi the following. • Where possible, the environmental infrastructure treatment and disposal facilities supporting the residential, commercial, and institutional land areas should be integrated with a nearby industrial park or connected to a regional facility. • A wastewater collection system should be installed before or at the same time as water distribution system to ensure that when water service begins the resulting wastewater can be collected and not create a public health problem. • Every building on a road or path where environmental services are provided should be connected and should pay for that connection, whether or not it is used.

Water and Wastewater Infrastructure Proposals

Below-ground infrastructure of water distribution pipelines and wastewater sewer pipes should be installed in the new commercial and residential developments. The length required (22 km) is estimated to be similar to the linear length of new roads.

Water supply should be expanded to provide longer hours of service to current residents and to serve the new commercial and residential developments. This can be done by constructing two new pump stations and replacing older pumps.

Two options for the upgrading of environmental infrastructure in Goubangzi are: • constructing a treatment plant exclusively for domestic wastes from residential, commercial, and institutional users; or • designing, constructing, and operating the industrial park wastewater facilities to treat both industrial and domestic wastes.

A suitable location for a WWTP (treating either domestic only or combined waste) is in the southern part of Goubangzi, with effluent discharging west into the Shazi River. Domestic wastewater from three discharge points into the river can be conveyed to this site by a box culvert interceptor pipeline. The land needed for this facility is on the order of 4–5 hectares.

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Map 4.3: Goubangzi Proposed Transportation, 2006–2015

Hwy 102

Industrial BypassR oad Bypass

Hwy 305

Industrial Bypass Road

Bridge

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY DEVELOPMENT PROPOSALS: DEVELOPMENT PROPOSALS FOR GOUBANGZI

The Goubangzi Sanitation Bureau estimates it needs about 34 additional public toilets to serve the single story ping fang housing that has no toilets, as well as for workers and customers in the commercial areas.

Solid Waste Infrastructure Proposals

Similar to the wastewater treatment approach, Goubangzi could develop a facility that handles non-toxic wastes from the industrial park and domestic solid waste from the town built-up area. This should be a high priority for Goubangzi, because the current situation of uncontrolled dumping and random open pits is ruining the area.

Priority, Timing, and Implementation

As shown in the table below, there is a pressing need in Goubangzi to develop a proper landfill, so that should be the first priority. The second priority should be wastewater and water supply facilities. To promote development of the industrial park, wastewater treatment and landfill facilities should be designed and located to serve both the proposed industrial park and the surrounding community.

The water supply and wastewater pipes can be installed on an as-needed basis. As empty land becomes ready for housing and commercial development, below-ground infrastructure (primarily water and wastewater pipelines) should be installed before structures or asphalt paving. However, work should proceed immediately to install sewer pipelines in those residential areas currently without pipelines (estimated to be 50% of the 2005 built-up residential area). Public toilets can be built as needed using local resources.

Table 4.12: Infrastructure Capital and O&M Costs (millions RMB) M RMB For Year = 2015 units Quantity Capital O&M Priority Water Supply Pump Station stations 2 5 0.5 2 Length of Pipe Water Supply km 22 15 0.2 as needed Length of Pipe Wastewater km 22 7 0.1 as needed WWTP m3/day 9,000 22 2.6 2 Public Toilets unit 34 2 0.05 as needed Solid Waste Landfill ha 9 11 0.3 1 Source: PADCO/CCTRD, 2005

4.8 Social Services Component

In light of the town’s industrial development plans, the following two proposals are presented to maximize social and economic benefits to the local population. • Establish a link between planned industrial sectors and economic opportunities for local residents. This would entail training and skills development for youth in the sectors planned for industrial development, to give them the benefit of local employment opportunities in the future. • Establish a policy framework for compensating farmers displaced by new developments. Compensation should extend beyond just cash to alternative livelihood training and employment. Private companies setting up shop in the town should take social responsibility by employing the farmers they displace, or financing their training for alternative livelihoods in the local vocational schools. The compensation could

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also be extended to include purchase of social insurance coverage for displace families.

4.9 Plan Cost and Recovery Component

Sector-specific financing schemes are described below.

Transportation Capital Costs (RMB) O&M/Yr (RMB) Highway Widening 6.0 Mil 0.3 mil Industrial Bypass 71.0 Mil 0.7 mil Industrial Access Road 7.7 Mil 0.2 mil Total Costs 84.7 mil 1.2 mil Cost Distribution State: 50% Province: 25% State: 30%, Province: Assumptions LG: 25% (from property tax 30% revenues) LG: 40% (property taxes) Cost of Capital (20 years) 8,501,576 Cost of Capital (year) 170,031,520 Local Government Share (per year) 2,125,394 360,000 Cost per Household per Year 105 (increased property taxes)

Annual cost per distribution: Capital O&M State 4,250,788 360,000 Province 2,125,394 360,000 Local Gov. 2,125,394 480,000 Total 8,501,576 1,200,000

Wastewater Facilities Capital Costs (RMB) O&M/Yr (RMB) Total Costs 31 mil 2.75 mil Cost Distribution Assumptions Cost of Capital (20 years) 62,850,640 Cost of Capital (year) 3,142,532 Local Government Share (per year) Cost per Household per Year 24.3 per month (increased fees)

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It is possible to build the WWTP in two stages: • Stage #1: Influent Line, Grit Chamber, Primary Treatment, Effluent Line (Capital costs of Stage #1 would be about 40% of the total capital cost, with O&M costs at about 30% of the total facility) • Stage #2: Secondary Treatment, Final Clarifiers, Sludge Handling Facilities

Water Supply Facilities: Pipeline Network plus Pumping Plant Capital Costs (RMB) O&M/Yr (RMB) Total Costs 20 mil. 0.7 mil Cost Distribution Service Charge 50% plus Assumptions 50% Block Grant from Province Cost of Capital (20 years) 40,149,120 Cost of capital (year) 2,007,456 Local Government Share (per year) 1,003,727 700 000 Cost per Household per Year 50 35 (increased fees)

Solid Waste Facilities Capital Costs (RMB) O&M/Yr (RMB) Total Costs 11 mil .3 mil Cost Distribution Business and Industry – 40%, Households – 40%, Assumptions Government (Hospitals, Schools, others) - 20%. Cost of Capital (20 years) 22,082,016 Cost of Capital (year) 1,104,101 300,000 Local Government Share (per year) Cost per Household per Year 1.5 per (month) (increased fees)

Business and Industry 561,641 RMB per year debt service and O&M Household 561,641 RMB per year debt service and O&M Government 280,820 RMB per year debt service and O&M 1,404,101 RMB per year debt service and O&M Source: PADCO/CCTRD, 2005

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY DEVELOPMENT PROPOSALS: OUTLINE STRATEGIC PLAN FOR WUTONG

5 Outline Strategic Plan for Wutong

5.1 Introduction

This outline Strategic Plan establishes the overall direction, pace, and character of future urban growth in the Town of Wutong over the period 2006–2015. The plan is for the entire town area (zhenyu), not just the built-up area (zhenqu).

The objective of the Strategic Plan is to identify the socioeconomic and physical planning measures needed to facilitate the development of Wutong into a major provincial-level energy production center while minimizing negative social and environmental impacts.

The summary proposals in this outline can be expanded into a complete Strategic Plan through following consultation with local stakeholders through a public meeting.

5.2 Population and Employment Projections

The population of Wutong Town in 2003 was 26,800, of which migrants represent only 3%. Most of the workers in the towns coking plants and coal washing yards live in adjacent villages.

Table 5.1: Population Trends, 2000–2003 Avg. Annual % Change 2000 2003 2000–2003 Town Population with Hukou N/A 25,942 – Migrants N/A 858 – Total 25,470 26,800 1.7% Number of Households 6,365 6,551 Built-Up Area Population with Urban Hukou N/A 10,228 – Migrants N/A 772 – Total N/A 11,000 – Household Size N/A 4.0 – Number of Households N/A 2,778 – Source: Town of Wutong, 2004

Future population growth in Wutong will be driven by investment in coke and related energy sectors. Industrial employment has grown from 4,000 in 2000 to about 7,000 in 2005, and is expected to increase to more than 13,000 in the next five years. Because of provincial coke production quotas, investment and employment are expected to level off over the period 2011-2015. Nevertheless, with strong service sector growth expected to be leveraged by booming industrial production, overall employment is projected to increase from 10,000 today to more than 23,000 at the end of the planning period, a 230% increase.

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Table 5.2: Employment Trends by Sector (employees) Avg. Annual Avg. Annual % Total % Change, % Change, Sector 2000 2003 2003 1995–2000 2000–2003 Primary 6,000 7,670 45.5 8.53 8.53 Secondary 4,000 6,000 35.6 14.47 14.47 Tertiary 3,000 3,200 19.0 2.17 2.17 Total Employment 13,000 16,870 100.0 9.07 9.07 Source: Town of Wutong, 2004

Table 5.3: Employment Projections (employees) Annual Growth Rate Sector 2004–2010 2005 2006 2007 2008 2009 2010 Industry varies 7,000 8,000 10,000 12,500 12,813 13,133 Construction 15.00% 1,000 1,150 1,323 1,521 1,749 2,011 Trade 10.00% 1,500 1,650 1,815 1,997 2,196 2,416 Transport/Post 15.00% 500 575 661 760 875 1,006 Hotel/Restaurant 10.00% 500 550 605 666 732 805 Subtotal 10,500 11,925 14,404 17,443 18,364 19,371

Annual Growth Rate Sector 2011-2015 2011 2012 2013 2014 2015 Industry 2.00% 13,395 13,663 13,937 14,215 14,500 Construction 6.00% 2,132 2,260 2,396 2,539 2,692 Trade 7.00% 2,585 2,766 2,959 3,167 3,388 Transport/Post 7.00% 1,076 1,151 1,232 1,318 1,411 Hotel/Restaurant 8.00% 870 939 1,014 1,096 1,183 Subtotal 20,058 20,780 21,538 22,335 23,173 Source: PADCO/CCTRD, 2005

5.3 Projected Land and Housing Requirements

Land use in 2005 is shown in Map 5.1.

The table below translates employment projections into industrial land requirements. Some 480 hectares of industrial land today accommodate 7,000 workers, for an average density of 15 workers per hectare. Assuming that future density will be similar, new industrial land requirements are 421 hectares by 2010 and 514 by 2015.

Table 5.4: Industrial Land Requirements, 2005-2015 Sector 2005 2010 2015 Heavy Industry Industrial Employees 7,000 13,133 14,500 Gross Employees/ha. 15 15 15 Gross Land Requirements (ha.) 480 901 995 Reutilized Industrial Land (ha.) 0 0 0 Net Land Requirements (ha.) 480 901 995 Total Industrial Land Reqts (ha.) 480 901 995 Additional Land Reqts (ha.) 421 514 Source: PADCO/CCTRD, 2005

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Map 5.1: Existing Land Use in Wutong

PRC: TOWN-BASED URBANIZATION STRATEGY STUDY DEVELOPMENT PROPOSALS: OUTLINE STRATEGIC PLAN FOR WUTONG

The table below presents a similar calculation for various service subsectors. Total additional commercial land requirements are estimated to reach 37 hectares over the next 10 years.

Table 5.5: Commercial Land Requirements, 2005-2015 Sector 2005 2010 2015 Trade Employees 1,500 2,416 3,388 Gross Employees/ha. 160 152 144 Net Land Requirements (ha.) 9 16 23 Transport/Post Employees 500 1006 1411 Gross Employees/ha. 60 57 54 Net Land Requirements (ha.) 8 18 26 Hotel/Restaurant Employees 500 805 1183 Gross Employees/ha. 175 166 158 Net Land Requirements (ha.) 3 5 7 Other Employees 625 644 663 Gross Employees/ha. 140 133 126 Net Land Requirements (ha.) 4 5 5 Total Commercial Land Reqts (ha.) 25 43 62 Additional Land Reqts (ha.) 18 37 Source: PADCO/CCTRD, 2005

Finally, employment growth is used to project population growth and residential land requirements in the following table. Of 5,000 new households over the period, about 3,500 are expected to take up residence in new medium-density and terrace housing areas. Total additional housing land under these assumptions is estimated at 145 hectares over the next 10 years. Redevelopment of existing villages into higher-density housing can help relieve development pressures and reduce the need for new residential land for development.

Table 5.6: Population and Residential Land Requirements, 2005-2015 Variable 2005 2010 2015 Industrial Employment 7,000 13,133 14,500 Commercial Employment 3,125 4,870 6,645 Other Employment 1,000 2,011 2,692 Total Employment 11,125 20,015 23,836 Ratio Employment/Population 42% 50% 60% Total Population of Zhenyu 26,488 40,029 39,727 Household Size 4.0 3.7 3.4 Total Households, of which: 6,689 10,819 11,684 Medium-Density Residential % Total 0 15 15 Number 0 1,623 1,753 Terrace Housing Avg. Gross Density 0 15 15 Number of Hectares 0 1,623 1,753 Low-Density Residential % Total 30 20 20 Number 2,013 2,164 2,337

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Village % Total 71 50 50 Number 4,761 5,409 5,842 Land Requirements Medium-Density Residential Avg. Gross Density 33 33 33 Number of Hectares 0 49 53 Terrace Housing Avg. Gross Density 16 20 20 Number of Hectares 0 81 88 Low-Density Residential Avg. Gross Density 16 18 18 Number of Hectares 126 126 130 Village Avg. Gross Density 12 15 18 Number of Hectares 397 397 397 Total Residential Land Reqts 523 653 667 Additional Land Reqts (ha.) 130 145 Source: PADCO/CCTRD, 2005

5.4 Investment Promotion Component

Wutong Town’s economic growth strategy is to continue to attract facilitate large-scale investment in coking plants and aluminum factories. Employment has increased by 75% in the last five years and will continue to rise quickly, given the fact that the town government has planned five large new investments—each with a minimum of 1,500 employees—in the coke, aluminum, and electrical power sectors. Provincial and national planners have planned the period 2005-2010 as a major investment period for Wutong. It is anticipated by government that the area will reach its environmental carrying capacity during that period. Minimal investment is therefore planned for the period 2011-2015. Additional measures to promote economic growth or create new jobs are not required over the planning period.

5.5 Land Use and Housing Component

The real challenge facing Wutong Town is not the promotion of economic growth—at which local and provincial planners have had great success in recent years—but rather how to make that growth environmentally sustainable. Air quality in Wutong is low as a result of coke production in the town and coal mining and processing in the region. Residents that live in the villages and built-up area of Wutong in close proximity to the coking plants are constantly exposed to polluted air, which causes respiratory disease.

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Figure 5.1: Industrial Plant and Pollution in Wutong

Greater separation of land uses can result in more healthy conditions for local residents. There are two options for achieving this separation.

Option 1

Create an industrial zone on the east side of the town, and promote housing and mixed-use development on the west side. Most new industrial investments would take place on the east side of the railway. Existing coking and other industrial facilities to the west of the railway would also be incorporated into the industrial zone (see Map 5.2: Proposed Land Use and Infrastructure in Wutong, 2006–2015). A new housing and mixed-use area would be developed west of the existing built-up area. A terrace housing area would be developed adjacent to medium-density housing along the main north-south road leading to Xiaoyi. A new park would be located along the same north-south road. Existing villages adjacent to the road would be densified either through incremental construction or whole sale redevelopment. This option would create enough housing to accommodate future projected population growth.

Option 2

Dedicate Wutong Town to industrial production. Create new residential areas for Wutong workers in other parts of Xiaoyi County where air pollution levels are lower. Issue a moratorium on new residential construction in Wutong Town and relocate existing residents to new housing areas over time.

This option has the advantage of improving the environmental conditions in which Wutong workers live. If suitable sites upwind of the Wutong industrial zone are developed, then workers and their families will be spared continuous exposure to the low-quality air in the town.

New housing areas could be located within 10 km of Wutong and public transit services could be developed to quickly and efficiently transport workers to the industrial zone. If com- mute times were less than 30 minutes, the cost of the more spread out settlement pattern would not be excessive; moreover, there would be substantial public health benefits accruing from lower incidence of respiratory and other diseases.

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Map 5.2: Proposed Land Use and Infrastructure in Wutong, 2006–2105

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5.6 Economic Infrastructure Component

Current Transportation Conditions and Projected Growth

The transportation networks in Wutong are shown in Map 5.3. Trucks represent the over- whelming share of traffic in Wutong. Some 50%–75% of the car-equivalent daily volumes on the roads are large trucks.

As shown in Figure 5.2, there is a distinct bi-modal character to the Wutong’s freight movement, because it is a major industrial processing center. • Wutong’s inputs (principally coal) arrive from the west, by truck traveling an average of 15 km from coal mines in the nearby mountains • Wutong’s outputs (principally coke and coal gas) depart for eastern cities and foreign ports, by train.

Figure 5.2: Transportation Movements in Wutong

The Consultant undertook a detailed survey at several points in Wutong town. As shown in the table below, Wutong suffers from considerable traffic congestion. In fact, it is the one development planning town in the study with this problem. In particular, the roads from Xiaoyi and the mines in the west are in poor condition, and congestion is the rule.

Table 5.7: Current Year Traffic Volumes (2005) Capacity (Passenger Road Estimated Volume Car Equivalent) Volume/Capacity Eastern Jiexu road 5,700 - 12,800 25,000 0.4 Western Jiexu road 9,500 - 19,200 12,000 1.2 Eastern Connector 10,300 - 14,700 8,000 1.5 Northern Artery 19,100 - 24,700 25,000 0.8 Provincial Coal Road 15,400 - 29,700 15,000 1.6 Xiaoyi Connector 12,000 - 25,500 14,000 1.5 Xiaoyi RR Underpass 22,100 - 29,500 10,000 2.6 Source: PADCO/CCTRD, 2005

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Table 5.8: Traffic Projections, 2010 and 2015 2010 2015 Estimated Volume/ Estimated Volume/Capacity Road Volume Capacity Volume Eastern Jiexu road 17,200 0.69 21,100 0.84 Western Jiexu road 33,400 2.78 39,800 3.32 Eastern Connector 30,500 3.82 38,000 4.75 Northern Artery 41,300 1.65 48,900 1.96 Provincial Coal Road 48,100 3.21 56,600 3.77 Xiaoyi Connector 47,400 3.39 57,800 4.13 Xiaoyi RR Underpass 61,800 6.18 75,700 7.57 Source: PADCO/CCTRD, 2005

Given Wutong’s projected growth, traffic and congestion will increase, assuming no improvements to the road system. Road traffic is bursting far beyond existing capacity, or even what existing roads can be upgraded to.

Transportation Proposals

The top priority is to improve railway links among coking plants in Wutong and the coal mines to the west of town. As this investment would have to be undertaken by railway authorities in coordination with higher-level governments, this plan focuses on road upgrading and highway expansion.

The centerpiece of these improvements intended to overcome the congestion caused by the existing Xiaoyi Railroad Underpass. The intention of the Bypass Road is to provide maximum access between coal mines and the industrial area. The principal features of this Bypass Road are as follows. • A series of two flyover bridges extending over first the railroad in the southern portion of the town, where it connects to Xiaoyi’s southern east-west trunk roads, and second over the river running south of Xiaoyi in a vaguely east-west direction. The combined length of bridges would be 0.6–0.8 km. • A 12.5-km-long, 30-meter-wide, 4-lane-wide, plus wide shoulders, limited-access highway extending south to the Provincial Coal Road, then paralleling the Western and Southern Roads, and extending to the Eastern Jiexu toll road. • Intersections at (1) the Provincial Coal Road, (2) the Eastern Road/Western Jiexu Road, and (3) the Eastern Jiexu Road.

In addition to increasing access, it is important to limit capacity to selected roads. There will only be three intersections at two points feeding directly into Wutong’s industrial heart, and another on the Provincial Coal Road that can serve to provide access for trucks traveling on that road from the mines and can serve as release valve for congestion that might arise on either system. The main thing is that this will provide most of the coal-carrying capacity, leaving improvements in the existing road system to accommodate excess coal traffic and access within Wutong.

In addition, some immediate improvements need to be made to existing road system. They include the following.

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• Widen and increase shoulders on Provincial Coal Road, Northern Road, and Eastern Connector to make what will function as another pair of lanes and effectively become a six-lane (three lanes in each direction) road (15.8 km). • Construct a fly-over bridge rising over the Northern Artery with the Eastern Connector, crossing over the Eastern Road and railroad lines (0.3 km). • Widen Eastern Road, and northern section of Western Jiexu highway, from two to four lanes where it is not already four lanes, and increase shoulders to make what will effectively be another pair of lanes and effectively become a six-lane (three lanes in each direction) road. These improvements will extend from the Northern Highway to the New Bypass Road (2.6 km). • Widen the east-west road linking Eastern Jiexu Road to Eastern Road (running parallel to Eastern Connector and Southern Road, and in between those) (2.5 km). • Widen full lengths of Southern Road and Western Road from two to four lanes, and increase shoulder (6.9 km).

Table 5.9: Summary of Transportation Proposals Road/Bridge Length (km) Year Byway 12.4 2008 Elevated Section over Hwy & RR in Xiaoyi 0.7 2008 Interchanges (Units) 3 2008 Road Widening 25.7 2008-2011 Bridge 0.2 2010 New Roads (Res/Comm area) 4.9 as needed Source: PADCO/CCTRD, 2005

5.7 Environmental Infrastructure Component

The strategy for improving environmental infrastructure delivery in Wutong depends on which of the two land use options above is selected.

Under Option 1 (in-town separate of land uses), Wutong Town should do the following. • Work with industry to develop wastewater treatment facilities that serve both the factories and the domestic and other users in the towns. This means building a WWTP in or adjacent to the industrial zone that will serve all industrial facilities in the zone. Moreover, existing and new residential and mixed-use areas of the town would also be sewered and their wastewater would be pumped to the new plant for treatment. • Coordinate with Xiaoyi City to dispose of solid waste generated by Wutong Town in a Xiaoyi City sanitary landfill.

Under Option 2, Wutong Town should do the following. • Focus on improving environmental services for industry by developing a WWTP to serve all industrial users in Wutong. • With respect to solid waste, coordinate with Xiaoyi City to use its sanitary landfill in the future for waste disposal.

Regardless of which option is chosen, a number of principles should be adhered to in developing environmental services.

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• The wastewater collection system should be installed before or at the same time as the water distribution system to ensure that when water service begins, the resulting wastewater can be collected and not create a public health problem. • Every building on a road or path where environmental services are provided should be connected and should pay for that connection, whether or not it is used. • In the built-up area, there should be only one provider of water, wastewater, and solid waste services. • Wutong should concentrate industrial activity in a well-defined industrial zone or park. This will make environmental service delivery more efficient and make it easier to enforce environmental regulations. Air quality standards should be set for the entire zone; when standards are not met, all industrial establishments in the zone would be held collectively responsible for taking action in order to meet the standards. Such action could include installation of clean technology and/or reduction in level of industrial production.

Interventions in specific environmental service sectors are defined below.

Water and Wastewater Infrastructure Proposals

Water supply should be expanded to serve new commercial and residential developments. The length required (35 km) is estimated to be the same as the linear length of new roads. A similar length is also required for wastewater sewer pipes.

For the projection period, Wutong is projected to have an adequate supply of piped water, because piped water for domestic use comes from a lake west of Xiaoyi.

In terms of wastewater, domestic wastewater should be conveyed to a new industrial WWTP serving the coke processing plants. The industrial WWTP needed will be on the order of 20,000 m3/day, while Wutong’s domestic wastewater will be about 4,500 m3/day.

Solid Waste Infrastructure Proposals

Since Xiaoyi is developing a solid waste landfill 8-10 km from Wutong, it is advisable to size and build the facility for both settlements.

Priority, Timing, and Implementation

During the next year, Wutong and Xiaoyi should work together to develop cooperative agreements with the coke plants and other industries in Wutong concerning wastewater and solid waste disposal. These facilities should be prioritized. As shown below, the water and wastewater pipeline should be installed on an as-needed basis. As empty land becomes ready for housing or commercial development, below-ground infrastructure (primarily water and wastewater pipelines) should be installed before structures or asphalt paving. Indicative costs are provided below, with cost recovery estimates included below.

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Table 5.10: Infrastructure Capital and O&M Costs (millions RMB) M RMB For Year = 2015 units Quantity Capital O&M Priority Length of Pipe Water Supply km 35 24 0.4 as needed Length of Pipe Wastewater km 35 11 0.1 as needed WWTP m3/day 5,000 12 1.5 1 Solid Waste Landfill ha 5 6 0.02 1 Source: PADCO/CCTRD, 2005

5.8 Social Services Component

To address social service needs, Wutong should do the following. • Establish linkages between vocational schools and local business needs. The local government should work with or create incentives for the public vocational school at the county level to establish branches in the town and/or to provide training that is more responsive to the local job demand. • Equalize school fees for migrants and hukou residents. The current system requires migrant students to pay double what the hukou residents pay for school fees, to make it consistent with the hukou reform principles of providing equal access to all.

5.9 Plan Cost and Recovery Component

The strategy for financing the infrastructure investments identified in the plan is as follows. • For roads investments, mobilize central and provincial government contributions and use property tax revenues to cover local government contributions. The owner-users of the most valuable real property will bear most of the local cost share of building and maintaining roads, and will be the primary beneficiaries of these investments. • For environmental infrastructure investments, users will pay for O&M costs through service charges. Service charges will also cover the cost of investments, where customers can afford the higher tariffs. In case of low affordability, town government will use cross-subsidies among users in the tariff and/or finance part of the investment costs from general revenues, including property taxes.

Sector-specific financing schemes are described below.

Transportation: Highway, Interchange, Road, and Bridge Improvements Capital Costs (RMB) O&M/Yr (RMB) Total Costs 393 mil 4.21 mil Cost Distribution Assumptions State: 50% Province: State: 30%, Province: 25% 30% LG: 25% (from property LG: 40% (property taxes) tax revenues) Cost of Capital (20 years) 789,432,060 Cost of Capital (year) 39,471,603 Local Government Share (per year) 9,867,900 RMB 1,684,000 Local Government Share (per 911 155 household per year) Increased Taxes

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Wastewater Transport and Treatment Capital Costs (RMB) O&M/Yr (RMB) Total Costs 23 Mil 1.6 Mil Cost Distribution Household service Assumptions charge Cost of Capital (20 years) 46,171,488 Cost of Capital (year) 2,308,574 Costs per Household per Year 213 148

Water Supply Capital Costs (RMB) O&M/Yr (RMB) Total Costs 24 Mil 0.4 mil Cost Distribution Household service Assumptions charge Cost of Capital (20 years) 48,178,944 Cost of Capital (year) 2,408,947 Costs per Household per Year 222 37

Solid Waste Landfill Capital Costs (RMB) O&M/Yr (RMB) Total Costs 6 mil 0.02 mil Cost Distribution Business & Industry – 40%, Households – 40%, Assumptions Government (Hospitals, schools, & other) – 20% Cost of Capital (20 years) 12,044,736 Cost of Capital (year) 602,237 Costs per Household per Year 23 (2/month)

Business & Industry 248,894 RMB per year debt service and O&M Households 248,894 RMB per Year debt service and O&M Government 124,447 RMB pet year debt service and O&M Source: PADCO/CCTRD, 2005

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6 Outline Strategic Plan for Yangqu

6.1 Introduction

This outline Strategic Plan establishes the overall direction, pace, and character of future urban growth in the Town of Yangqu over the period 2006–2015. The plan is for the entire town area (zhenyu), although it focuses primarily on the built-up area (zhenqu).

The objective of the Strategic Plan is to identify the socioeconomic and physical planning measures needed to facilitate the emergence of Yangqu as a manufacturing satellite city of Taiyuan specializing in stainless steel production and warehousing and distribution of industrial products.

The summary proposals in this outline plan can be expanded into a complete Strategic Plan through following consultation with local stakeholders through a public meeting.

6.2 Population and Employment Projections

While population with hukou has reportedly been stable since 2000, the number of migrants rose sharply over the last few years, as the new Taiyuan Ecological Stainless Steel Industry Park has attracted skilled workers from outside Yangqu. Migrants are estimated to number about 5,000 today; about three-fifths of these live in the built-up area. Annual average growth rate for the first half of the decade is 6%.

Table 6.1: Population Trends, 2000–2005 Avg. Annual % Change 2000 2005 2000–2005 Town Population with Hukou 14,636 14,636 0.0 Migrants 31 5,000 176.4 Total 14,667 19,636 6.0 Number of Households 4,706 6,314 6.1 Built-Up Area Population with Urban Hukou 1,152 1,152 0.0 Migrants 0 3,000 – Total 1,152 4,152 29.2 Household Size 3.1 3.1 0.0 Number of Households 370 1335 29.2 Source: Yangqu Town, 2004

Recent employment trends also reflect the opening of the stainless steel park. While industrial employment growth rates were negative over the period 1995–2000, they shot up to over 7% on average for the following three years. Service sectors, such as construction and trade, have also increased with demand generated by industrial investors and their employees.

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Table 6.2: Employment Trends by Sector (employees) Avg. Annual Avg. Annual % Total % Change, % Change, Sector 1995 2000 2003 2003 1995–2000 2000–2003 Industry 1,851 1,391 1,719 52.8 -5.56 7.33 Construction 206 155 191 5.9 -5.56 7.33 Trade 482 498 541 16.6 0.63 2.83 Transportation/Post 345 356 387 11.9 0.63 2.83 Hotel/Restaurant 372 384 417 12.8 0.63 2.83 Total 3,256 2,782 3,255 100.0 -3.10 5.37

Primary 340 5 5 0.1 – 0.00 Secondary 2,057 1,545 1,910 55.2 -5.56 7.33 Tertiary 1,378 1,422 1,546 44.7 0.63 2.83 Total Employment 3,775 2,972 3,461 100.0 – 5.21 Workforce N/A N/A 7,284– – – Unemployment – – 3,823 52.5 0.00 0.00 Source: 30-Town Survey, PADCO/CCTRD, 2004

Future employment levels in Yangqu will depend largely on investment in the targeted sectors: stainless steel production and sales, and warehousing and distribution. The management of the industrial park reports that five new investment projects with total employment of 1,150 people are scheduled to go into operation in 2005. The projections below are somewhat more conservative, estimating an additional 2,500 jobs created by investment in the expansion of the industrial park over the next three years. Total employment is projected to reach 10,700 by 2010 and 13,200 by 2015.

Table 6.3: Employment Projections (employees) Annual Growth Rate Sector 2004–2010 2005 2006 2007 2008 2009 2010 Industry 6.00% 2,500 3,000 4,000 5,000 5,300 5,618 Construction 7.33% 220 236 253 272 292 313 Trade 3.00% 574 1,500 2,500 2,575 2,652 2,732 Transport/Post 4.00% 418 435 452 1,000 1,500 1,560 Hotel/Restaurant 3.00% 443 456 470 484 498 513 Subtotal 4,155 5,627 7,675 9,331 10,243 10,736

Annual Growth Rate Sector 2011-2015 2011 2012 2013 2014 2015 Industry 5.00% 5,899 6,194 6,504 6,829 7,170 Construction 6.59% 334 356 379 404 431 Trade 2.70% 2,806 2,881 2,968 3,057 3,149 Transport/Post 3.60% 1,616 1,674 1,741 1,811 1,883 Hotel/Restaurant 2.70% 527 541 558 574 592 Subtotal 11,182 11,647 12,150 12,675 13,225 Source: PADCO/CCTRD, 2005

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6.3 Projected Land and Housing Requirements

Map 6.1 shows existing land uses in Yangqu. The table below translates employment projections into industrial land requirements. At an average density of 15 workers per hectare, new industrial land requirements are 164 hectares by 2010 and 245 by 2015.

Table 6.4: Industrial Land Requirements, 2005–2015 Sector 2005 2010 2015 Heavy Industry Industrial Employees 0 0 0 Gross Employees/ha. 18 16 15 Gross Land Requirements (ha.) 0 0 0 Reutilized Industrial Land (ha.) 0 0 0 Net Land Requirements (ha.) 0 0 Light Industry Industrial Employees 2,500 5,618 7,170 Gross Employees/ha. 19 19 19 Gross Land Requirements (ha.) 131 295 376 Reutilized Industrial Land (ha.) 0 0 0 Net Land Requirements (ha.) 131 295 376 Total Industrial Land Reqts (ha.) 131 295 376 Additional Land Reqts (ha.) 164 245 Source: PADCO/CCTRD, 2005

The table below presents a similar calculation for various service subsectors. Total additional commercial land requirements are estimated to reach 29 hectares over the next 10 years.

Table 6.5: Commercial Land Requirements, 2005–2015 Sector 2005 2010 2015 Trade Employees 574 2,732 3,149 Gross Employees/ha. 250 238 226 Net Land Requirements (ha.) 2 12 14 Transport/Post Employees 418 1,560 1,883 Gross Employees/ha. 100 95 90 Net Land Requirements (ha.) 4 16 21 Hotel/Restaurant Employees 443 513 592 Gross Employees/ha. 310 295 280 Net Land Requirements (ha.) 1 2 2 Other Employees 359 369 381 Gross Employees/ha. 190 181 171 Net Land Requirements (ha.) 2 2 2 Total Commercial Land Reqts (ha.) 10 32 39 Additional Land Reqts (ha.) 22 29 Source: PADCO/CCTRD, 2005

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Map 6.1: 2005 Land Use in Yangqu

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Finally, employment growth is used to project population growth and residential land requirements in the following table. Of 3,500 new households over the period, about three- quarters are expected to take up residence in new medium-density and mixed-use housing areas. Total additional housing land under these assumptions is estimated at 184 hectares over the next 10 years. Redevelopment of existing villages into higher-density housing can help relieve development pressure and reduce the need for new residential land for development.

Table 6.6: Population and Residential Land Requirements, 2005–2015 Variable 2005 2010 2015 Industrial Employment 2,500 5,618 7,170 Commercial Employment 1,794 5,175 6,004 Other Employment 220 313 431 Total Employment 4,514 11,106 13,605 Ratio Employment/Population 31% 50% 50% Total Population* 14,727 22,212 27,211 Household Size 3.1 3.2 3.3 Total Households, of which: 4,735 6,941 8,246 Medium-Density Residential % Total 1 10 20 Number 33 694 1,649 Low-Density Residential % Total 42 38 30 Number 2,006 2,638 2,474 Mixed Use % Total 12 17 20 Number 554 1,180 1,649 Village % Total 45 35 30 Number 2,141 2,429 2,474 Land Requirements Medium-Density Residential Avg. Gross Density 30 30 30 Number of Hectares 1 23 55 Low-Density Residential Avg. Gross Density 14 14 14 Number of Hectares 139 183 183 Mixed Use Avg. Gross Density 28 28 28 Number of Hectares 20 42 59 Village Avg. Gross Density 7 7 7 Number of Hectares 306 347 353 Total Residential Land Reqts 466 595 650 Additional Land Reqts (ha.) 129 184 * Includes surrounding villages with industrial and service sector workers Source: PADCO/CCTRD, 2005

6.4 Employment Generation Component

Yangqu Town should leverage programmed investment in the industrial park into large-scale growth of service sector jobs. Employment generation will be significant in the secondary sector, as 4,000–5,000 new jobs will be created in the industrial park and elsewhere in the town over the next 10 years. This level of employment growth represents a massive challenge to the town in terms of providing housing solutions for many migrant workers. At

95 PRC: TOWN-BASED URBANIZATION STRATEGY STUDY DEVELOPMENT PROPOSALS: OUTLINE STRATEGIC PLAN FOR YANGQU the same time, to the extent that the town government can enable migrant workers to settle in Yangqu, industrial expansion creates a great opportunity to grow the service sector, thereby creating thousands more jobs in retail and wholesale trade, transportation, social services, restaurants, vehicle repair, and other sectors. Yangqu should take the following steps to enable the parallel development of the service sector. • Adopt a policy to encourage migrant workers to settle in the town by facilitating production of housing with a mix of attributes and price that is attractive to that segment of the population. • Provide migrant workers with access to social services, such as education and health, under the same terms enjoyed by local residents with hukou. • Set up a business services center to provide technical assistance and training in management, sales, accounting, and other skills needed by small and medium enterprises in different service sectors. The objective of the center is to improve management skills of existing firms and to provide startup assistance to new firms. • Offer fiscal and financial incentives to new service sector firms. This could include a business tax exemption of 50% for the first three years of operation, for example. The town should also work with local banks to make credit available to new service sector businesses on reasonable terms; town government assets could be used to collateralize packages of multiple medium-term loans that benefit a cross- section of service businesses.

6.5 Land Use and Housing Component

Consistent with the plans for the expansion of the stainless steel park, the Land Use Plan calls for new industrial development along the Route 108 between Taiyuan and the built-up area of Yangqu (see Map 6.2). The second phase of development is currently under way; in the third phase, industrial land will extend northward to the stream. At the same time, a warehousing and distribution center will be developed on the east side of Route 108, where there is excellent access to roads and rail. Existing rail spurs will be incorporated into a new network of warehouses and loading areas that stretches from Route 108 on the west to the expressway on the east.

New residential and mixed-use areas to accommodate growth of the working population in Yangqu are planned for the areas west of the existing built-up area. A new linear park will be developed along the stream. Between the park and the built-up area will be a new medium- density residential area, with commercial and other uses along main thoroughfares. West of the stream will be a lower-density residential area with garden apartments and/or terrace housing.

On the east side of the expressway, selected villages will be allowed to expand to accommodate more workers. These village will be connected to Route 108 by a new road running parallel to the expressway.

Yangqu town should prepare a housing policy that includes the following elements. • The town government will develop land for residential, commercial and institutional use and sell use rights to different parcels to multiple private sector developers in order to promote competition and put downward pressure on prices of dwelling units. Town government as “wholesaler” of land; private developers as “retailers” of dwelling units.

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Map 6.2: Proposed Land Use and Infrastructure in Yangqu

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• Town government will negotiate with selected private developers and secure contractual agreement for production of a minimum percentage of dwelling units to be sold or rented to targeted population segments with special needs. This can include price caps on smaller dwelling units for low-income households (e.g., 20% of units in a given development to be under a specified size [area] and sold/rented at under specified price[s]—remaining units in development to be rented/sold at market prices) and/or short-term rentals for migrant workers (again based on percentage of total units produced). • The sizes of parcels “retailed” to developers should be in most cases limited (for example, in the range of 1-5 hectares). This will create neighborhoods composed of more, smaller projects rather than fewer, larger ones, resulting in diversity of building form and type, making the built environment more attractive. Land can also be leased by the city directly to households (e.g., plots 150-250 m2 in area) to achieve even greater built form diversity and to allow households to develop their own housing units, to be built by private builders in compliance with town zoning regulations.

6.6 Economic Infrastructure Component

Current Transportation Conditions and Projected Growth

The principal feature of Yangqu, aside from its close proximity to Taiyuan, is its wealth of trunk transportation infrastructure. As shown in Map 6.3, transportation in Yangqu is composed of three major elements, whose confluence holds promise for the town’s future as an industrial and logistics center: • High-capacity rail corridor • National Highway 108 running north-south • Entrance to expressway extending on the eastern side of Taiyuan’s Ring Road.

Current Conditions and Projected Growth

Highway 108 is the main artery in the town. Table 6.7, below, shows current traffic conditions in Yangqu. It demonstrates the preponderance of traffic in the southern part of Yangqu, near its industrial center.

Table 6.7: Current Year Traffic Volumes (2005) Capacity: (Passenger Car Road Estimated Volume Equivalent) Volume/Capacity Highway 102 (south) 26,000 - 30,000 38,000 0.70 Highway 102 (north) 16,000 - 18,000 38,000 0.42 Source: PADCO/CCTRD, 2005

Table 6.8: Transportation Projections, 2010 and 2015 2010 2015 Estimated Volume/ Estimated Volume/ Road Volume Capacity Volume Capacity Highway 102 (south) 42,600 1.12 56,100 1.48 Highway 102 (north) 24,600 0.65 32,000 0.84 Source: PADCO/CCTRD, 2005

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Map 6.3: 2005 Transportation in Yangqu

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Yangqu’s industry is expected to grow 5%–6% per year over the next 10 years, and its population growth will be commensurate or often higher. This affects traffic, and unless something can be done to improve capacity congestion will increase. The southern section will grow far beyond capacity, and the northern part will reach show strains by 2015.

The challenge is to provide mobility for workers to their jobs, while providing adequate capacity to ship goods to and from markets. Much of the growth in traffic over the next several years will be to Taiyuan, via Highway 108, as well as on the railways and expressways. Improved access to the expressway will provide greater access to more distant markets.

Transportation Proposals

The Land Use Plan recommends expanding production facilities westward and eastward from the railway station, and warehouses in the south (between the railway and the expressway). The strategy for developing economic infrastructure should be to upgrade and expand existing trunk road infrastructure to meet development goals and to create new trunk infrastructure where it is not possible to upgrade the existing infrastructure.

Only one major road provides access to the proposed industrial and warehouse areas: Highway 108. There is an expressway entrance, but it is not immediately located near the center of economic activity. Instead, it lies to the north. Therefore, the Consultant recommends the following traffic improvements, as shown on Map 6.3: Yangqu Proposed Land Use and Transportation 2006–2015. • Build a high-capacity limited-access 4-lane, class-2 bypass road beginning east of the industrial center, and slightly east of the southern portion of the expressway, linking the light-industrial areas to the expressway entrance further north. • Build high-capacity, 4-lane, class-2 industrial arteries in the light industry and warehouse area east of Highway 108 and the railroad line. • Build high capacity, class-2, 4-lane industrial arteries in the center of heavy industry areas west of highway 108, with two links to highway 108 and thus to Taiyuan and the expressway. • Build more 2- and 4-lane, class-2/class-3, lower-capacity feeder roads in these industrial and warehouse areas, funneling traffic to high-capacity roads just described.

The above recommendations will aid traffic crossing the railroad and ensure that Highway 108 continues to have the requisite the capacity to serve as a national conduit. Additional proposed investments will support the development of an adequate road system in the new residential areas. Public transit service should be provided, preferably by private sector firms, to connect existing and planned residential areas to employment areas.

Table 6.9: Summary of Transportation Proposals Road/Bridge Length (km) Year Byway 4.4 2009 Industrial Artery 8.1 2007 Bridge 0.2 2008 Industrial Feeder 4.7 2006–2015 Residential Feeder 14.4 2006–2010 Road Widening (Hwy 108) 9.0 Pedestrian Bridge (3) -- Bus Shelter 6-10 Source: PADCO/CCTRD, 2005

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6.7 Environmental Infrastructure Component

The following factors will affect the delivery of environmental infrastructure (water supply, wastewater collection and disposal, solid waste collection and disposal) in Yangqu Town over the planning period. • Expansion of the stainless steel industrial park will increase demand for wastewater and solid waste collection of treatment. However, demand increases will be limited by the relatively small amount of water used and wastewater generated by these firms. • Development of warehousing and distribution facilities, which have a water and solid waste profile similar to that of the firms in the stainless steel park. • New land for commercial (29 ha) and for residential (184 ha) use. • Installation of wastewater collection system (sewer pipes and associated structures) serving the entire commercial and residential areas (about 700 ha).

The strategy for meeting needs for environmental infrastructure is through the following. • Develop facilities supporting both the industrial park and the surrounding community. Since the industries (stainless steel, warehousing, distribution) do not use large quantities of water, Yangqu Town should construct a water supply and wastewater system that has the industrial park and other industries as customers. • Jiancaoping District solid waste landfill can continue to support Yangqu, but not the industrial park. So Yangqu should ensure that the industrial park has adequate solid waste disposal.

Interventions for specific sectors are detailed below.

Water and Wastewater Proposals

Water supply should be expanded to serve the new commercial and residential developments. The length required (68 km) is estimated to be same as linear length of new roads. There is a need for a similar length of wastewater sewer pipes, plus installing in the current built-up commercial and residential areas, which are without any sewer system.

Yangqu will need to expand its water supply before 2015. Drilling more wells is a short-term solution and, considering the scarcity of suitable water resources, the better course of action is to develop a regional system. Thus, Yangqu should discuss this need with Jiancaoping and Taiyuan officials.

In terms of wastewater treatments, at the moment there is no piped wastewater collection system in the town. (Dry-pit toilets are used.) Yangqu town should develop a piped wastewater collection and treatment system serving the built-up area and the nearby industrial park.

Solid Waste Infrastructure Proposals

Yangqu is presently served by the district city (Jiancaoping) landfill. This is a large site that can be expanded to provide sufficient capacity for the planning period.

Indicative costs for facilities to support projected population growth and land development are shown in Table 6.10.

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Priority, Timing, and Implementation The table below shows the recommended priorities of these environmental infrastructure proposals. As shown, the WWTP should be a priority, while the pipes for water and wastewater supply can be installed on an as-needed basis.

Table 6.10: Infrastructure Capital and O&M Costs (million RMB) M RMB For Year = 2015 units Quantity Capital O&M Priority Length of Pipe Water Supply km 68 47 0.8 as needed Length of Pipe Wastewater km 121 37 0.5 as needed WWTP m3/day 5,000 12 1.5 1 Solid Waste Landfill ha – – – – Source: PADCO/CCTRD, 2005

6.8 Social Services Component

The following recommendations aim to improve provision of social services in Yangqu. • Evaluate progress of CMS, and roll over the program to other towns. Yangqu is among the 20 or so towns in Shanxi being pilot tested for the CMS. Since it has only recently been started, it would be worthwhile closely monitoring the progress over a period of a year, to transfer the experience effectively to other towns. • Improve compensation for land. Redesign the compensation package for farmers whose land is expropriated. In addition to providing cash compensation, town government should look into the possibility of offering heads of household one or more of the following: ! right of first purchase of a new dwelling unit developed on the land; ! access to training that prepares farmers to enter the town labor market; and ! preferential consideration for employment in a new industrial site developed on the land. • Equalize school fees for migrants and hukou residents. The current system requires migrant students to pay school fees twice as high as those for hukou residents. Fees should be harmonized to be consistent with the hukou reform principle of providing equal access to all residents of the town.

6.9 Urban Management Component

Yangqu town should strengthen its legal foundation for delivering services and promoting economic growth, on the one hand, and work closely with its metropolitan partners on coordinating development efforts, on the other.

Town Government Strengthening

Yangqu Town should apply for incorporation as an independent legal entity under the proposed new framework for local government development. Shanxi Provincial Government should approve a charter for Yangqu Town that specifies the responsibilities and authorities of the town, including the financial instruments that the town can use to mobilize additional revenue for infrastructure and other investments.

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Metropolitan Coordination

Since Yangqu’s economy is closely linked to the development of Taiyuan Metropolitan Area, the town government should join a new Association of Taiyuan Area Governments that is responsible for ensuring coordination among all of the local governments in the area. This regional association can help ensure that Yangqu’s investments in industrial infrastructure are consistent with metropolitan policies and programs. The development of the warehousing and distribution center in Yangqu also requires coordination with other local governments and with infrastructure providers.

6.10 Plan Cost and Recovery Component

Sector-specific financing schemes are described below.

Transportation: Road Improvements and Parking Capital Costs (RMB) O&M/Yr (RMB) Total Costs 27.5 mil 0.4 mil Cost Distribution State – 50%, Province - State – 30%, Province Assumptions 25%, Local Government 30%, Local Government – 25% (property tax) – 40% Cost of Capital (20 years) 55,205,040 Cost of Capital (year) 2,760252 Local Government Share (per year) 690,063 160,000 Local Government Share (per 65.37 15 household per year) Increased Taxes

Wastewater Transport and Treatment Capital Costs (RMB) O&M/Yr (RMB) Total Costs 49 mil 2.0 mil Cost Distribution Household service Assumptions charge Cost of Capital (20 years) 98,365,344 Cost of Capital (year) 4,918,267 Costs per Household per Year 466 189

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Water Supply Capital Costs (RMB) O&M/Yr (RMB) Total Costs 47 mil 0.8 mil Cost Distribution Household service Assumptions charge Cost of Capital (20 years) 94,350,432 Cost of Capital (year) 4,717,522 Costs per Household per Year 447 (37.25 per month) 76 (6.3 per month) Source: PADCO/CCTRD, 2005

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7 Development Proposals for Gutao

7.1 Introduction

This description of development proposals for Gutao should help establish the overall direction, pace, and character of future urban growth in the town over the period 2006–2015. The land use recommendations and infrastructure projects described below could be developed into a plan, if discussions with stakeholders are conducted.

7.2 Population and Employment Projections

While the population of the zhenyu had grown rapidly with the influx of migrants over the past five years (8.6% per year on average), the population of the built-up area of Gutao has been fairly stable since the turn of the century. Relocation of residents of the Old Town has offset some of the in-migration to the center of Gutao spurred by growth of tourism.

Table 7.1: Population Trends 1995–2005 Avg. Annual Avg. Annual % Change % Change 1995 2000 2005 1995–2000 2000–2005 Town Population with Hukou 70,195 82,885 107,970 3.4 5.4 Migrants N/A N/A 17,000 – – Total 70,225 82,915 124,970 3.4 8.6 Number of Households 13,840 19,331 N/A 6.9 – Built-Up Area Population with Urban Hukou 44,607 53,298 54,648 3.6 0.5 Migrants 13 313 350 88.9 2.3 Total 44,620 53,611 54,998 3.7 0.5 Household Size 5.1 4.3 4.4 -3.3 0.5 Number of Households 8,798 12,504 12,500 7.3 0.0 Source: Gutao Town, 2004

Employment in the service industries related to tourism has boomed in recent years, as shown in the table below. Growth of jobs in the hotel and restaurant sector has been particularly robust. Industrial employment has grown more slowly, but still represents 40% of all jobs.

Table 7.2: Employment Trends by Sector (employees) Avg. Avg. Annual Annual % Total % Change, % Change, Sector 1995 2000 2003 2003 1995–2000 2000–2003 Industry 7,991 N/A 10,416 42.1 – – Construction 2,405 2,4042,330 9.4 -0.01 -1.04 Trade 1,113 1,302 5,428 21.9 3.19 60.94 Transportation/Post 601 620 1,306 5.3 0.62 28.19 Hotel/Restaurant 410 428 5,280 21.3 0.86 131.06 Total 12,520 4,754 24,760 100.0 -17.61 73.34

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Primary N/A 3,0783,393 12.1 – 3.30 Secondary 10,396 12,47912,746 45.3 3.72 0.71 Tertiary 2,124 2,350 12,014 42.7 2.04 72.27 Total Employment 12,520 17,907 28,153 100.0 – 16.28 Workforce 12,520 17,90728,153 – 7.42 16.28 Unemployment 0 0 0 0.0 0.00 0.00 Source: 30-Town Survey, PADCO/CCTRD, 2004

Future population growth will depend largely on the job opportunities generated by the town’s growing tourism industry, described in detail in the Interim Report. Under the assumption of 7%–10% annual average growth in service-related industries, total employment is anticipated to rise to 36,500 in 2010. Growth rates are expected to drop slightly in the following five years, but total jobs will continue to rise steadily, reaching about 47,500 by 2015.

Table 7.3: Employment Projections by Sector (employees) Annual Growth Rate Sector 2004–2010 2005 2006 2007 2008 2009 2010 Industry 2.00% 10,837 11,054 11,275 11,500 11,730 11,965 Construction 3.00% 2,472 2,546 2,622 2,701 2,782 2,866 Trade 8.00% 6,331 6,838 7,385 7,976 8,614 9,303 Transport/Post 7.50% 1,509 1,622 1,744 1,875 2,016 2,167 Hotel/Restaurant 10.00% 6,389 7,028 7,730 8,503 9,354 10,289 Subtotal 27,538 29,087 30,756 32,555 34,495 36,589

Annual Growth Rate Sector 2011-2015 2011 2012 2013 2014 2015 Industry 1.00% 12,084 12,205 12,327 12,451 12,575 Construction 2.50% 2,937 3,011 3,086 3,163 3,242 Trade 6.00% 9,861 10,452 11,289 12,192 13,167 Transport/Post 5.50% 2,286 2,412 2,592 2,787 2,996 Hotel/Restaurant 6.50% 10,958 11,670 12,837 14,121 15,533 Subtotal 38,126 39,750 42,132 44,713 47,513 Source: PADCO/CCTRD, 2005

7.3 Projected Land and Housing Requirements

The current land use pattern in Gutao is very mixed, even by the standards of PRC towns (see Map 7.1). Industrial uses are fairly evenly distributed through the Old Town and the newer areas west and south of the city center. Lower-density residential areas predominate, but some of these—especially in the Old Town—are quite dense, given the high plot coverage ratios that predominate in the traditional neighborhoods.

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Map 7.1: 2005 Land Use in Gutao

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Table 7.4: Land Use in Gutao, 2005 Area Land Use 2005 (ha.) Medium-Density Residential 38.89 Low-Density Residential 622.75 Village 1142.42 Mixed Use 19.54 Commercial 55.22 Institutional 69.66 Heavy Industrial 16.03 Light Industrial 85.66 Transport 28.97 Open Space 4.70 Vacant 2.00 Source: PADCO/CCTRD, 2005

The table below translates employment projections into industrial land requirements. At an average density of 133 workers per hectare, new industrial land requirements are only 13 hectares over the next 10 years.

Table 7.5: Industrial Land Requirements, 2005–2015 Sector 2005 2010 2015 Heavy Industry Industrial Employees 0 0 0 Gross Employees/ha. 80 80 80 Gross Land Requirements (ha.) 0 0 0 Reutilized Industrial Land (ha.) 0 0 0 Net Land Requirements (ha.) 0 0 Light Industry Industrial Employees 10,837 11,965 12,575 Gross Employees/ha. 133 133 133 Gross Land Requirements (ha.) 81 90 94 Reutilized Industrial Land (ha.) 0 0 0 Net Land Requirements (ha.) 81 90 94 Total Industrial Land Reqts (ha.) 81 90 94 Additional Land Reqts (ha.) 8 13 Source: PADCO/CCTRD, 2005

The table below presents a similar calculation for various commercial subsectors. Total additional commercial land requirements are estimated to reach 94 hectares by 2015.

Table 7.6: Commercial Land Requirements, 2005–2015 Sector 2005 2010 2015 Trade Employees 6,331 9,303 13,167 Gross Employees/ha. 210 200 190 Net Land Requirements (ha.) 30 47 69 Transport/Post Employees 1,509 2,167 2,996 Gross Employees/ha. 130 124 117 Net Land Requirements (ha.) 12 18 26

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Hotel/Restaurant Employees 6,389 10,289 15,533 Gross Employees/ha. 285 271 257 Net Land Requirements (ha.) 22 38 60 Other Employees 3,557 3,664 3,774 Gross Employees/ha. 230 219 208 Net Land Requirements (ha.) 15 17 18 Total Commercial Land Reqts (ha.) 80 119 174 Additional Land Reqts (ha.) 39 94 Source: PADCO/CCTRD, 2005

Finally, employment growth is used to project population growth and residential land requirements in the following table. The majority of the 4,000 new households over the period are expected to take up residence in new medium-density and mixed-use housing areas. Total additional housing land under these assumptions is estimated at 199 hectares over the next 10 years. Redevelopment of existing villages into higher density housing can help relieve development pressure and reduce the need for new residential land for development.

Table 7.7: Population Projections and Residential Land Requirements, 2005–2015 Variable 2005 2010 2015 Industrial Employment 10,837 11,965 12,575 Commercial Employment 17,787 25,423 35,470 Other Employment 2,472 2,866 3,242 Total Employment 31,095 40,253 51,287 Ratio Employment/Population 57% 65% 70% Total Population 54,998 61,928 73,268 Household Size 4.4 4.4 4.4 Total Households, of which: 12,500 14,074 16,652 Medium-Density Residential % Total 15 20 22 Number 1,875 2,815 3,663 Low-Density Residential % Total 48 40 36 Number 6,000 5,630 5,995 Mixed Use % Total 2 7 12 Number 250 985 1,998 Village % Total 35 33 30 Number 4,375 4,645 4,996 Land Requirements Medium-Density Residential Avg. Gross Density 25 25 25 Number of Hectares 75 113 147 Low-Density Residential Avg. Gross Density 15 26 28 Number of Hectares 400 400 400 Mixed Use Avg. Gross Density 30 30 30 Number of Hectares 8 33 67

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Village Avg. Gross Density 9 9 9 Number of Hectares 486 516 555 Total Residential Land Reqts 969 1,061 1,168 Additional Land Reqts (ha.) 92 199 Source: PADCO/CCTRD, 2005

7.4 Employment Generation Proposals

To maximize employment generation, Gutao Town should facilitate growth of service sectors associated with tourism. This involves both growth of the tourism sector as a whole, and particular measures to support the creation and development of small businesses.

Tourism Growth

The government should work with the Tourist Bureau to develop subregional tourist routes linking Gutao Town to other sites and towns. These would include merchant/courtyard houses, Pingyao beef tours, and visits to regional natural attractions. The tourist routes should be marketed with tourism agents in Shanxi Province and other provinces to get them to include it in the standard set of products that they offer their customers.

In addition, the town should take action to make the urban environment of Gutao Town more attractive to tourists. This includes both the Old Town and the rest of the built-up area. Measures include the following. • Improvement of environmental infrastructure and services. Specific proposals are set out in Section 7.7 below. • Closer regulation of the built environment to improve the aesthetic quality of streets and public spaces. See Section 7.5 and Appendix A (Gutao Design Guidelines). • Maintain an appropriate land use mix in the Old Town to avoid it becoming a “museum town.” See Section 7.5.

Small and Medium Enterprise Development

Identify a set of employment-intensive service sectors and facilitate their development by doing the following. • Set up a business services center to provide technical assistance and training in management, sales, accounting, and other skills needed by small and medium enterprises. The objective of the center is to improve management skills of existing firms and to provide startup assistance to new firms. • Offer fiscal and financial incentives to new service sector firms. This could include a business tax exemption of 50% for the first three years of operation, for example. The town should also work with local banks to make credit available to new service sector businesses on reasonable terms; town government assets could be used to collateralize packages of multiple medium-term loans that benefit a cross- section of service businesses.

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7.5 Land and Housing Component

The most important factor influencing the success of tourism in the future is the quality of the environment in the Old Town. While its architectural interest is undisputable, the condition of the buildings is not particularly good. More investment will be required. The town government should not seek to undertake the entire investment program itself. Rather, it should seek to create a set of implementation arrangements that will get other actors involved, mobilizing other sources of finance. This could include three main actors. 1. Gutao Town Preservation Association. The town government should facilitate the creation of a nongovernmental organization that is dedicated to preserving the architectural and urban heritage of Gutao Town. This type of nonprofit organization, widely used in Western countries, would solicit donations from a variety of sources and use funding to purchase buildings and/or other assets in the Old Town and invest in their rehabilitation. Some assets could then charge admission to tourists, thereby generating additional revenues. 2. Building Owners in the Old Town. These represent a large, if so far relatively untapped, source of financing for physical rehabilitation. The town government should propose that the provincial government designate it as a pilot site for libera- tion of real estate markets. If owners of houses in the Old Town were allowed to sell their houses (with the use rights to the land attached thereto) on the open market, then they would have an incentive to invest in the rehabilitation of those buildings. The more tourists come to Gutao, the more the building in the Old Town will be worth. As real estate prices rise, so to will the incentive to invest in the rehabilitation of a building to be able to sell it at a future date. 3. Gutao Town Government. The town should invest in the reconstruction/repaving of roads and the rehabilitation of key monuments and architectural features, such as gates and the wall.

In addition to the physical condition of the buildings, it is important that the Old Town retain its vibrancy. Today, the Old Town has a wide mix of land uses; people live, work, study, and relax in the Old Town. In an effort to reduce pressure on the built environment, the town government has resettled many Old Town residents in other parts of Gutao. If too many people are relocated, the level of commercial and other types of local activity is likely to drop. There is a risk that the Old Town will resemble a museum, rather than a vibrant neighborhood, built in the distant past but still functioning and evolving today. Conserving the land use mix and not relocating too many people that live and work in the Old Town are important steps for limiting that risk.

Finally, the town should take steps to enhance the attractiveness of the built environment outside the Old Town. This can be achieved through the use of urban design guidelines (see recommendations in Appendix A).

7.6 Economic Infrastructure Component

Current Conditions and Projected Growth in Traffic

The Consultant did not carry out an in-depth traffic count survey in Gutao. Instead, the Con- sultant conducted observations and discussed issues with local officials. Major findings are shown in Map 7.2 and are as follows. • Access through the expressway, National Highway 108, and the parallel provincial highway are all quite good.

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• Other roads within the city have large capacities of 18 meters and 4 lanes. The access road to the expressway has 4 lanes, 6-meter sidewalks on either side, and in addition to right-of-way, there is a 9-meter esplanade. This should provide excess capacity so that holidays are well managed. • There are several large parking lots for tourist buses around the walls of the city. The largest parking lots are on the south side of the city. • Capacity and traffic conditions on the collector roads within the city is generally quite good, although there exists a few “choke points” that cause traffic to move slowly. • Local public buses operate between Gutao and surrounding villages. However, there is no bus station in Gutao, and buses make several stops on the town streets. This allows local passengers to ride within the town, but it slows all traffic on those roads and causes congestion. • The use of electric buses is very good in terms of providing mobility in and out of the walled old town, quietly, and allowing a largely pedestrian road inside the old town. As a result, this system is very positive. These electric buses typically seat 10 people and charge 1–5 Yuan per person. • There is a railroad station in the town providing both passenger and cargo services, and double tracks between Taiyuan to the north and Xi’an to the south.

Principles

Gutao is dependent on peak tourism to operate year round. If traffic is congested, tourists are likely to be dissatisfied and to share their negative impressions with friends and acquaintances. It is essential to facilitate easy and rapid access to and from tourist sites by: • ensuring an ample degree of circulation within Gutao necessary to meet the needs of the high volumes of tourists during holiday seasons; • providing adequate parking for tour buses; and • ensuring mobility between bus parking areas and the Old Town, and between the train station and the Old Town.

Transportation Proposals

Concerning choke points within the town, there are several recommendations. • Widen roads west of the walled city to increase capacity and circulation • Build new roads on east and south of the city to increase circulation • Build parking lots for tourists in vacant areas on the south side of the town. • Build one or two local bus terminals (i.e., village-to-town, town-to-city) near the railway terminal. These should be designed to minimize street congestion. • Build a modern pedestrian walkway linking the railway station to the entrances of the walled city. This might be a pedestrian underpass beneath the Provincial highway, or perhaps one or more elevated pedestrian overpasses. • Build a pedestrian walkway from the pedestrian underpass/overpass, allowing visitors to walk into the walled city. This could provide an added attraction and increase commerce.

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Map 7.2: 2005 Transportation in Gutao

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Map 7.3: Gutao Proposed Infrastructure and Land Use, 2006–2015

New Roads

Bridge

Road Widening / Upgrading

Tourist Bus Parking

Pedestrian Bridge / Underpass

B Pedestrian Walkway

B Village-Town Bus terminals B

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The pedestrian amenities are intended to ease congestion. In addition, tourists arriving by train will find this a pleasant way to enter the city. Because rail service will be a convenient way to visit Gutao, it may attract more independent tourists and increase overnight visitors.

A few small improvements to trunk roads on the side of town deserve further comment. • Widening Highway 108 in the northeast part of town could be done, to increase the width of the road commensurate with other sections of the same highway. • Access improvements should be made to allow traffic from 108 to enter the city without impediment.

Roads inside the Old City should not be widened. Although they are narrow and few are suitable for vehicular traffic, they are integral to preserving the atmosphere of an old, well- preserved city. Many streets are being repaved with cobblestones over buried utility lines. In any case, there are prohibitions on most motorized vehicles within the walls. Electric buses and rickshaws provide mobility for tourists without harming the environment.

Summary of Road Improvement Proposals Proposal Unit Quantity Completion Pedestrian Underpass/Overpass unit 1–2 2007 Pedestrian Walkway km 0.6 2007 Widen Roads km 5.6 2007 New Roads km 3.0 2010 Tourist Bus Parking Spaces m2 32,000 2010 Local Bus Terminal unit 1–2 2008

7.7 Environmental Infrastructure Component

As part of the effort to make the Town of Gutao more attractive to tourists, it is important to improve urban environmental services so that the town is clean and subjects visitors to minimal unpleasant odors. The factors affecting the delivery of environmental services in Gutao over the planning period include: • continuation as UNESCO World Heritage Site, which requires maintenance of designated sites, restrictions on development, and standards for upgrading; • ongoing construction by a private developer of a 30,000 m3/day activated sludge WWTP as a Build-Operate-Transfer project; • new land for commercial (94 ha) and for residential (251 ha) uses; and • upgrading the area around the wall surrounding the Old City and providing protection from deterioration.

Sector-specific interventions are described below and included in the project briefs at the end of Volume 4.

Water and Wastewater Proposals

Below-ground infrastructure of water distribution pipelines and wastewater sewer pipes should be installed in the new commercial and residential developments. The length required, 43 km, is estimated to be same as linear length of new roads.

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Water supply is projected to be adequate in the short term. Future needs can be satisfied by expanding existing groundwater facilities.

A WWTP, designed to enable expansion when needed, is already under construction. As a result, no additional action is needed.

However, the Huiji River needs to be rehabilitated. To do so, the river should be dredged, with the river banks shaped along a 3-km length of the Huiji River near the Old Town and plant protective trees along the river banks.

Solid Waste Infrastructure Proposals

Developing a sanitary landfill should be a high priority for Gutao because the current situation of uncontrolled dumping and random open pits is taking a heavy toll on the quality of the urban environment.

Table 7.8: Infrastructure Capital and O&M Costs (millions RMB) M RMB For Year = 2015 Units Quantity Capital O&M Priority Length of Pipe Water Supply km 43 30 0.5 as needed Length of Pipe Wastewater km 43 13 0.2 as needed WWTP m3/day – – – – Solid Waste Landfill ha 13 14 0.1 1 Rehabilitate Huiji River (bottom and sides) km 3 200 4 2 Source: 30-Town Survey, PADCO/CCTRD, 2004

7.8 Social Services Component

Redevelopment of the town and its subsequent expansion into the peripheries has led to large-scale acquisition of farm land. According to focus group participants, 70% of households living in Gutao’s adjoining villages have no farmland. There are also current plans to relocate some 20,000 households from the historic area to the periphery. This will not only displace households from their existing social and economic fabric, but will also lead to more acquisition of land from the farmers. • Compensation for land. Redesign the compensation package for farmers whose land is expropriated. In addition to providing cash compensation, town government should look into the possibility of offering heads of household one or more of the following: ! right of first purchase of a new dwelling unit developed on the land; ! access to training that prepares farmers to enter the town labor market; and ! preferential consideration for employment in a new industrial site developed on the land. • Revisit plans for resettlement. The intention of the proposed resettlement plan is to “conserve” the historic area. However, it is the current economic and social fabric of this area that serves as an attraction to tourists. By emptying out the historic area, much of the flavor will be lost. Not only that, it will also further marginalize poor households who make a living through small vending businesses in the town center. • Equalize school fees for migrants and hukou residents. The current system requires migrant students to pay double what the hukou residents pay for school fees

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(200 RMB per semester versus 100 RMB). This should be equalized to make it consistent with the hukou reform principles of providing equal access to all.

7.9 Plan Cost and Recovery Component

Sector-specific financing schemes are described below.

Transportation: Road Improvements and Parking Capital Costs (RMB) O&M/Yr (RMB) Total Costs 115.8 mil 3.6 mil Cost Distribution State – 50%, Province - State – 30%, Province Assumptions 25%, Local Government 30%, Local Government – 25% (property tax) – 40% Cost of Capital (20 years) 232,463,400 Cost of Capital (year) 11,623,170 Local Government Share (per year) 2,905,792 1,440,000 Local Government Share (per 111 55 household per year) Increased Taxes

Wastewater Transport and Treatment Capital Costs (RMB) O&M/Yr (RMB) Total Costs 13 mil 0.2 mil Cost Distribution Household service Assumptions charge Cost of Capital (20 years) 26,096,928 Cost of Capital (year) 1,304,846 Costs per Household per Year 50 (4.2 per month) 7.6

Water Supply Capital Costs (RMB) O&M/Yr (RMB) Total Costs 30 mil 0.5 mil Cost Distribution Household service Assumptions charge Cost of Capital (20 years) 60,223,680 Cost of Capital (year) 3,011,184 Costs per Household per Year 115.32 (9.6 per month) 19.15 (1.6 per month)

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Solid Waste Landfill Capital Costs (RMB) O&M/Yr (RMB) Total Costs 14 mil 0.1 mil Cost Distribution Business & Industry – 40%, Households – 40%, Assumptions Government (Hospitals, schools, & other) – 20%. Cost of Capital (20 years) 28,104,384 Cost of Capital (year) 1,405,219 Costs per Household per Year 23 (2 per month)

Business & Industry 602,088 RMB per year debt service and O&M Households 602,088 RMB per Year debt service and O&M Government 301,044 RMB pet year debt service and O&M Source: PADCO/CCTRD, 2005

126 PRC: TOWN-BASED URBANIZATION STRATEGY STUDY DEVELOPMENT PROPOSALS: APPENDIX

APPENDIX

SUBPROJECT BRIEF

BELOW-GROUND ENVIRONMENTAL INFRASTRUCTURE

Introduction The purpose of this Subproject Brief is to describe typical below-ground installations recommended for the Project Towns and to provide indicative costs. It is not possible at this time to be specific about location, type of pipe, size, slope, etc. These details are determined during the Feasibility Study and the Detailed Engineering Design. Below-ground pipelines are broadly classified according to the following typologies: • Primary—large diameter pipes that have few branches; primary wastewater pipes are referred to as “interceptors” • Secondary—pipes of 100 millimeters (mm) to 1000 mm that provide water or collect wastewater • Tertiary—service connection between secondary pipeline and location receiving service (e.g., customer’s premises)

This Subproject Brief covers only Secondary Pipelines.

1. Subproject Background and Justification Below-ground environmental infrastructure refers to Water Distribution Network Pipelines and Wastewater Collection System Sewer Pipes that are installed in the ground in order to protect them from freezing and to avoid creating an obstacle to pedestrian and wheeled traffic. This infrastructure is necessary to supply water and to collect wastewater.

2. Subproject Location Pipelines are typically installed inside the road bed (i.e., below the surface). For reasons of public health it is preferred to have the water pipe on one side of the roadway and wastewater on the other. If that is not possible and both pipes are in proximity then there should be separation of about 0.5 meter horizontally and 0.5 meter vertically, with wastewater positioned below the water supply pipe.

3. Subproject Description Water Pipelines are Cast Iron, 300 mm (12 inch) pipes, which should be placed in a trench about 1 to 1.5 meters deep. The trench bottom has placed and compacted granular bedding material. Bends, fittings, valves, washouts, chambers, anchor blocks, hydrants, are installed according to the engineering specifications. The reason for depth is to protect the pipes from freezing and to provide protection from the weight of vehicles. The reason for trench bedding and anchor blocks is to protect the pipe as it moves due to changes in pressure.

Wastewater Pipelines are Reinforced Concrete, 300 mm (12 inch) spigot and socket rubber ring jointed pipes placed in a trench about 1 to 1.5 meters that slopes downward to enable gravity flow when possible. When that is not possible the wastewater is pumped. Bends, fittings, manholes, simple overflow chambers, and clean-outs are installed according to the engineering specifications.

After installation of the pipes the trench is filled with suitable material that is compacted. The surface is restored to enable traffic to move as before installation.

Appendix 1 PRC: TOWN-BASED URBANIZATION STRATEGY STUDY DEVELOPMENT PROPOSALS: APPENDIX

4. Expected Benefits Buildings located along the road where pipelines are installed will receive delivery of piped water and will have their wastewater collected and conveyed away. These improvements increase public health and increase property values.

5. Financial/Economic Analysis Not possible at this time.

6. Initial Environmental Examination The positive impacts of this sub-project are improvements to public health by providing a supply of water protected from contamination, and by collecting and conveying wastewater away from where it is generated.

The negative impacts are those typical of any construction project---noise, dust, disruption of traffic (foot and vehicle); risk of damaging other below-ground utilities (e.g., communication or electricity cables). Proper practice of good workmanship minimizes these negative impacts.

7. Responsibility for Implementation, Operation and Maintenance Typically this type of project is implemented by the Town Construction Bureau. O&M of water supply pipelines is by the agency providing water (typically either the Town or a separate State-Owned Enterprise). O&M of wastewater pipelines is by the Town’s Sanitation Bureau.

8. Subproject Packaging Not possible at this time. Typically there are separate contracts for water and for wastewater pipelines in an amount to restrict to Local Competitive Bidding (LCB).

9. Cost Estimate (Million RMB) Pipeline construction costs are dependent on a variety of site-specific circumstances such as type of soil; pipe bedding and support details; temporary works requirements including dewatering, trench support (shoring) and cover while work in progress; river and stream crossings, and final reinstatement of surface (e.g., replacing asphalt paving). For this subproject, year 2005 unit costs for procurement and installation are estimated to be: • RMB 560 per meter of cast iron pipe (300 mm) in excavated trench with bottom of placed and compacted granular bedding material, including bends, fittings, valves, washouts, chambers, anchor blocks, and temporary works in a location that is unpaved (no cost for removing or replacing asphalt paving) • RMB 250 per meter of gravity sewer spigot and socket rubber ring jointed reinforced concrete pipe (300 mm) laid on prepared bedding material, including bends, fittings, manholes, simple overflow chambers and ancillaries and temporary works in an unpaved location.

A hectare of land developed for commercial use is assumed to have 15% of that area for circulation (i.e., roads and sidewalks) and roads are assumed to have a width of 10 meters, including sidewalk. Thus linear length of road per hectare of land with commercial development is 150 meters. For residential development assume 13% for roads and sidewalks, average width 7 meters, thus linear length of road is 185 meters. Assume the pipe is installed in roadway so linear length of roadway equals the linear length of pipeline. [Note: this approach does not need number of buildings per hectare].

Appendix 2 PRC: TOWN-BASED URBANIZATION STRATEGY STUDY DEVELOPMENT PROPOSALS: APPENDIX

Assume annual O&M costs for Water Distribution System equals 2% and annual Collection System Maintenance costs equals 1.5% of civil works capital cost. This includes periodic inspection, repairs (e.g., removal of blockages by rodding or jetting); and does NOT include depreciation.

Estimated Costs (Capital and O&M) for Water Distribution & Wastewater Collection Network

Estimated Costs (Capital and O&M) for Water Distribution & Wastewater Collection Network PROVINCE = LIAONING TENG'AO GOUBANGZI XILIU Parameter Units 2005 2015 2015 2005 2015 Additional Commercial Land Required hectare --- 52 19 --- 53 % Commercial Land for Circulation (15%) % 15% area for roads in Commercial area square meters --- 78,000 28,500 --- 79,500 length of roads in Commercial area (width = 10m) linear meters --- 7,800 2,850 --- 7,950 Additional Residential Land Required hectare 142 97 101 99 551 % of residential land for circulation (13%) % 13% area for roads in Residential area square meters 184,600 126,100 131,300 128,960 716,300 length of roads in Residential area (width = 7m) linear meters 26,371 18,014 18,757 18,423 102,329 Total Length of Roads (Com + Res) linear meters --- 25,814 21,607 --- 110,279 length of water distribution pipe linear meters --- 26,000 22,000 --- 110,000 pipe & installation, Cast Iron, 300 mm RMB per meter 560 Cost to purchase and install water pipe million RMB --- 15 12 --- 62 annual O&M Costs Water Pipeline Network million RMB/year --- 0.3 0.2 --- 1.2 length of wastewater collection pipe linear meters 26,000 26,000 22,000 18,000 110,000 pipe & installation, RC 300 mm RMB per meter 250 Cost to purchase and install wastewater pipe million RMB 7 7 6 5 28 annual O&M Costs Wastewater Sewer Pipes million RMB/year 0.1 0.1 0.1 0.1 0.4

PROVINCE = SHANXI GUTAO WUTONG YANGQU Parameter Units 2015 2015 2005 2015 Additional Commercial Land Required hectare 115 23 10 33 % Commercial Land for Circulation (15%) % 15% area for roads in Commercial area square meters 172,500 34,500 15,000 49,500 length of roads in Commercial area (width = 10m) linear meters 17,250 3,450 1,500 4,950 Additional Residential Land Required hectare 141 171 279 339 % of residential land for circulation (13%) % 13% area for roads in Residential area square meters 183,300 222,300 362,700 440,700 length of roads in Residential area (width = 7m) linear meters 26,186 31,757 51,814 62,957 Total Length of Roads (Com + Res) linear meters 43,436 35,207 53,314 67,907 length of water distribution pipe linear meters 43,000 35,000 53,000 68,000 pipe & installation, Cast Iron, 300 mm RMB per meter 560 Cost to purchase and install water pipes million RMB 24 20 30 38 annual O&M Costs Water Pipeline Network million RMB/year 0.5 0.4 0.6 0.8 length of wastewater collection pipe linear meters 43,000 35,000 53,000 68,000 pipe & installation, RC 300 mm RMB per meter 250 Cost to purchase and install wastewater pipe million RMB 11 9 13 17 annual O&M Costs Wastewater Sewer Pipes million RMB/year 0.2 0.1 0.2 0.3

Appendix 3 PRC: TOWN-BASED URBANIZATION STRATEGY STUDY DEVELOPMENT PROPOSALS: APPENDIX

SUBPROJECT BRIEF

WASTEWATER TREATMENT PLANT

Introduction The purpose of this Subproject Brief is to describe a typical WWTP recommended for the Project Towns and to provide indicative costs. It is not possible at this time to be specific about location or exact size, nor about a combined facility treating both domestic and industrial wastes. These details are site specific and determined during the Feasibility Study and the Detailed Engineering Design.

1. Subproject Background and Justification In Project Towns each residential block and office building has a septic tank into which all the wastewater from the building passes before entering the main sewerage system. Septic tanks are provided because no comprehensive wastewater treatment facilities are available. The effect of these septic tanks is to reduce the strength of the wastewater by allowing some of the organic solids to settle out. Thus the wastewater discharged is relatively weak and contains fewer suspended solids. However, the wastewater still contains micro-organisms and chemicals harmful to human health and to the environment.

Centralized wastewater treatment is more effective in treating wastewater and less expensive than individual septic tanks which must be periodically cleaned of accumulated solids.

2. Subproject Location WWTPs are located away from residential and commercial areas and, where possible, at a low elevation to minimize pumping costs. The treated effluent is discharged to a body of water (“receiving water”). To minimize costs the first consideration will be to locate the treatment plant at an existing discharge point. Where possible, the treatment plant of a near-by industrial park will be used to treat domestic wastewater. This requires an agreement between the town and the industrial park.

3. Subproject Description Domestic wastewater from residences, commercial establishments and institutions (e.g., government offices, schools) will be transported via pipeline to treatment works consisting of: • Inlet works: screens, pumping facilities, and grit removal; • Primary treatment: settling tanks to remove settle-able solids and scum • Biological treatment: Using a suspended growth full diffused air activated sludge system, designed to remove organic pollution (COD/BOD) only; • Final clarifier to separate the activated sludge from the treated effluent; • Effluent works: discharge line to receiving water and, if required, disinfection.

For a large urban center it is best practice to provide facilities to thicken and dewater the sludge produced by the wastewater treatment process. However for small treatment works this can be expensive so it is typical to dispose the sludge directly onto the land as a soil amendment to reclaim barren lands (e.g., near a coal field), or as a fertilizer for landscaping or orchard-type agricultural crops.

4. Expected Benefits Expected benefits include protection of public health, improvement of the environment, and reclamation of water for reuse by agriculture or industry.

Appendix 4 PRC: TOWN-BASED URBANIZATION STRATEGY STUDY DEVELOPMENT PROPOSALS: APPENDIX

5. Financial/Economic Analysis Not possible at this time.

6. Initial Environmental Examination The positive impacts of this sub-project are described above under Expected Benefits.

The negative impacts include those typical of any construction project (noise and dust); build-up of solids that if improperly handled create an odor nuisance and a public health problem; and concentration of harmful substances such as heavy metals. These negative impacts can be mitigated by following proper construction practices, by properly operating and maintaining the treatment works, and by requiring certain dischargers to pre-treat their wastes before discharge to the public sewer system.

7. Responsibility for Implementation, Operation and Maintenance It is best to give responsibility for wastewater to the water supply company. If that is not possible, then this project would be implemented by the Town Construction Bureau and O&M of the facility by the Town’s Sanitation Bureau.

8. Subproject Packaging Typically there are separate packages for Civil Works and for Mechanical & Electrical Equipment. This allows packaging to avoid having to use International Competitive Bidding (ICB). With separate contracts it is important to coordinate equipment installation to assure proper function and to avoid claims.

9. Cost Estimate (Million RMB) Construction costs are dependent on a variety of site-specific circumstances such as soil conditions; treatment sequence and size of treatment units; length, diameter, and type of material of influent and effluent pipelines.

For this subproject, year 2005 unit costs for constructing a WWTP with secondary (biological) treatment are taken as RMB 2,000 per cubic meter-day (m3/day) which is the average of the estimated cost of 14 wastewater treatment projects constructed in China 1999–2005 and includes land (when needed), site preparation, civil works, mechanical & electrical equipment, electrical power, and influent and effluent pipelines.

It is typical practice to size a WWTP for the expected flow 5 to 10 years in the future because it takes about 2 years to finance, site, design, construct, and commission, and it is not practical to expand immediately. To reduce costs the treatment works can be constructed in stages. There are two options: (1) construct capacity to serve year 2010 population and then later expand to year 2015 population; or (2) construct sufficient components to provide primary treatment and then later add secondary treatment.

Option #1 may not result in significant savings. For example for one Project Town the year 2010 capacity is 6,000 m3/day and the year 2015 is 8,000 m3/day. In a two-stage construction 75% of the entire facility is built now. For Option #2, first stage construction would provide primary treatment (i.e., Inlet works, primary sedimentation, and effluent works) at about 40% of the total cost.

Annual O&M costs for WWTP are estimated to be RMB 0.8 per cubic meter (labor, electricity, chemicals, repair parts, facility maintenance). [Reference in World Bank report on Liao River Project, 2001]. Electricity costs in China are increasing and secondary treatment is electricity intensive, so the estimate for full treatment may be on the low

Appendix 5 PRC: TOWN-BASED URBANIZATION STRATEGY STUDY DEVELOPMENT PROPOSALS: APPENDIX

side. Annual O&M for a facility with only primary treatment would be about 40% or RMB 0.35/m3.

METHOD OF CALCULATION Wastewater Treatment Plant Size, Capital Cost, O&M Cost

ITEM SOURCE ASSUMPTIONS 1 Population Project data 2 Water Consumption China Standard for Towns 120 l/c/d 3 % Water to Sewer typically 80% to 95% 90% in year 2015 4 Water to WWTP pop x water use x% to sewer 5 Round to nearest 2,000 m3/day engineering judgment 6 Cost to Design and Construct average of 14 recent projects 2,000 RMB/m3 7 Capital Cost for WWTP Size x Cost to Construct 8 Cost to Operate & Maintain World Bank report 0.8 RMB/m3 9 O&M Costs for WWTP Size x Unit O&M Costs 10 Primary Treatment Only engineering judgment 40% of total cost

Estimated Costs (Capital and O&M) for Wastewater Treatment

Estimated Costs (Capital and O&M) for Wastewater Treatment Plants Liaoning Province Shanxi Province Parameter Units Goubangzi Xiliu Teng'ao Wutong Yangqu year 2015 2015 2015 2015 2015 population capita 73,263 126,250 43,656 39,477 38,478 Service Population capita 81,000 139,000 48,000 43,000 42,000 water consumption liters/capita/day 120 % water to sewer (80% to 95%) % 90% water to sewer liters/capita/day 108 wastewater volume to be treated cubic meters/day 8,748 15,012 5,184 4,644 4,536 suggested size for WWTP cubic meters/day 9,000 15,000 5,000 5,000 5,000 cost to build WWTP & pipelines RMB/m3-day 2000 capital cost for this town million RMB 18 30 10 10 10 O&M costs RMB/ m3 0.8 O&M Costs for this town RMB/day 7,200 12,000 4,000 4,000 4,000 annual O&M Costs for this town million RMB/year 34111 O&M Costs per person per month RMB/capita/month 3.0 2.9 2.8 3.1 3.2 PRIMARY TREATMENT ONLY Capital Cost (40% of total) million RMB 7.2 12.0 4.0 4.0 4.0 O&M costs (40% of total) million RMB/year 1.1 1.8 0.6 0.6 0.6

Appendix 6 PRC: TOWN-BASED URBANIZATION STRATEGY STUDY DEVELOPMENT PROPOSALS: APPENDIX

SUBPROJECT BRIEF

SOLID WASTE LANDFILL

Introduction The purpose of this Subproject Brief is to describe a typical solid waste landfill recommended for the Project Towns and to provide indicative costs. It is not possible at this time to be specific about location or exact size. These details are site specific and determined during Feasibility Study and Detailed Engineering Design.

1. Subproject Background and Justification In Project Towns solid waste is collected and transported to a disposal site which is a large, deep, excavated pit. Solid waste is dumped at the top of one end of the pit. No fencing, no liner, no daily soil cover, no control, plastic bags blown by the wind litter the approach and area surrounding.

This is harmful to the environment. Water in contact with decaying, decomposing solid waste absorbs chemicals and becomes acidic. This liquid, referred to as leachate, contaminates ground water making it unfit for consumption by humans, animals, or plants.

A solid waste landfill is an engineered excavation with liner to contain liquid waste and protect groundwater from contamination and a system to control and vent landfill gas. Solid waste disposed at the sanitary landfill is spread, compacted, and covered with soil or plastic or some other material (e.g., construction and demolition debris) to reduce odors and wind-blown debris and to prevent rainwater from coming in direct contact with the waste material. When the landfill’s useful life ends (it is filled to capacity) the site can be rehabilitated into park or open space.

A landfill is constructed, operated and closed in a manner that minimizes adverse impacts to the environment and public health. In the short term, the landfill is more expensive to construct and to operate than the open pit. In the long term, however, it costs less because it protects the surrounding environment from contamination and results in a site that can be more easily rehabilitated for use as a park or open space.

2. Subproject Location The most suitable site for a landfill is low productivity land which is marginally used by local farmers. A competent design institute performs a geological and hydro-geological study to verify suitable soil and identify protections needed to prevent contamination of ground and surface waters.

3. Subproject Description The basic design utilizes a clay liner 0.5 to 1.0 m thick [larger sites , e.g., Shanghai and Chongqing, use a synthetic liner rather than clay], leachate collection using plastic pipes with holes, gas venting, a series of dams placed around the periphery to contain leachate and to structurally support the fill, leachate collection pond and leachate recirculation. Recirculation of leachate is accomplished via the use of tanker trucks that spread the leachate throughout the landfill. Evaporation, absorption into soil and waste, and micro-biological action reduce the strength of the leachate. When a WWTP is close by, the leachate can be pre-treated (pH adjustment, settling to remove solids) and then discharged to the WWTP. Earth excavation and road-building equipment (bucket loader, dozer) is used to unload, move, compact, and cover the waste.

Appendix 7 PRC: TOWN-BASED URBANIZATION STRATEGY STUDY DEVELOPMENT PROPOSALS: APPENDIX

On-site scavenging for recyclable materials (e.g., paper, metal, plastic) can be organized or “informal”. Municipal solid waste with a high organic content can be composted to form a material suitable as a soil amendment for landscaping and soil reclamation. The process requires sufficient land to allow the shredded material to sit for about 30 days with periodic turning and addition of moisture. The resulting product has economic value.

4. Expected Benefits Protection of public health and the environment; potential to reclaim wasted material and to create a material (compost) that can be used by agriculture.

5. Financial/Economic Analysis Not possible at this time.

6. Initial Environmental Examination The positive impacts of this sub-project are described above under Expected Benefits.

The negative impacts include those typical of any construction project (noise and dust); and after startup, an odor nuisance; a visual nuisance; and contamination of the surrounding soil and ground water if not properly constructed and maintained. These negative impacts can be mitigated by following proper construction practices, by properly operating and maintaining the site; and by applying cover over the waste on a regular basis

7. Responsibility for Implementation, Operation and Maintenance This project would be implemented by the Town Construction Bureau and O&M of the facility by the Town’s Sanitation Bureau.

8. Subproject Packaging For the small size landfills proposed, there would be only a Civil Works package awarded through LCB.

9. Cost Estimate (Million of RMB) Construction costs are dependent on soil conditions; cost of fill materials (e.g., clay) to make an impermeable liner; detail of leachate treatment and landfill gas recovery. At a large site, arriving vehicles are weighed as they enter and leave the site to allow tracking of daily waste tonnage and calculation of in-place waste density. That adds to the overall cost but facilitates cost recovery.

For this subproject, year 2005 unit costs for constructing a solid waste landfill are estimated to be RMB 30 per cubic meter capacity. This estimate is derived from using local costs to excavate soil, to transport and place compacted material (liner), and to construct unpaved access roads.

It is best practice to size a solid waste landfill for an operational life of 10 to 20 years in the future because of the effort required to secure an adequate site then engineer the pollution control systems (leachate, landfill gas).

The site is developed as a series of cells. Soil for daily cover of the solid waste is excavated from a cell that will eventually be used to dispose the solid waste.

Annual O&M costs are estimated to be 3% of capital costs. O&M costs include labor and equipment costs (fuel, lubricants, regular maintenance and repair parts).

Appendix 8 PRC: TOWN-BASED URBANIZATION STRATEGY STUDY DEVELOPMENT PROPOSALS: APPENDIX

Estimated Costs (Capital and O&M) for Solid Waste Landfills

Estimated Costs to Construct Sanitary Landfill

Liaoning Province Shanxi Province

Parameter Units Goubangzi Xiliu Teng'ao Pingyao Wutong

population [year 2015] capita 73,263 126,250 43,656 94,161 39,477

Service Population [year 2015] capita 77,000 133,000 46,000 99,000 41,000

solid waste generation kilograms/capita/day 0.8

% Municipal Solid Waste (MSW) % 60%

% Construction & Demolition (C&D) Debris % 40%

Density of MSW collected kg/m3 425

Density of C&D collected kg/m3 650

Density of In-Place (compacted) waste kg/m3 750

Solid Waste Collected Each Day kg/day 61,600 106,400 36,800 79,200 32,800

Volume Collected Each Day m3/day 120 207 72 154 64

Volume in the landfill after compaction m3/day 82 142 49 106 44

Volume compacted waste for one year m3/year 30,000 52,000 17,000 39,000 16,000

Assume operating life for landfill years 10

Volume compacted waste over operating life m3 300,000 520,000 170,000 390,000 160,000

Cost to construct landfill (civil works) RMB/m3 30

Estimated cost to construct landfill M RMB 9 16 5 12 5

O&M Costs M RMB 0.27 0.47 0.15 0.35 0.14

Assume depth of landfill meters 3

Area Required (10,000 m2 = 1 hectare) hectare 10 17 6 13 5 Xiliu includes 40 m3/day from textile market Yangqu has access to landfill adequate to target year

Appendix 9