Is the World's Most Successful Private City in China?

Jiaolong, China may be the world's must successful privately operated city.

Blog Posts

Listen:

Private cities are controversial. To some they represent a largely untapped wellspring of freedom and economic opportunity. To others, private cities embody their worst fears about corporate governance entering public life. Despite the controversy, most examples of private (in most cases "quasi-private" is a more appropriate label) are either relatively unremarkable (Reston, Virginia, Irvine, California, and homeowner's associations), underperforming expectations (Songdo, South Korea), or are massive bungles in the making (Forest City, Malaysia). The largely unknown case of Jiaolong, China offers an example of a privately developed and operated city that has seen substantial growth and economic development within a very short period of time.

When the Jiaolong development commenced in 2004, the city's 4.3 sq km area was entirely farmland. Within just ten years, Jiaolong was home to 100,000 people, its annual production was valued at $3 billion, and the city was collecting $70 million in annual tax revenues. Originally founded as an industrial park by a private entity (Jiaolong Co., led by Huang Yujiao), Jiaolong rapidly grew into a proper city. But unlike the rest of China, it was Jiaolong Co. and not local municipal government that was responsible for renting land from farmers, redeveloping the land, urban planning, infrastructure development, building schools, attracting investment, and providing public services.

Jiaolong Co. derives its governing authority from a series of contracts signed with the Shuangliu government (the local government unit in Chengdu in which Jiaolong is located) that specify the company's governing rights and their obligations to the county government. While taxes in the city are paid to the Shuangliu government, Jiaolong receives 25 percent of those revenues under a tax sharing agreement. This revenue sharing agreement is somewhat similar to what CCI has proposed for charter cities, although in our model the revenues primarily go to the charter city and it is the higher level government that receives the dispensation.

Under the contractual agreements, Jiaolong Co. must meet a minimum investment threshold and is responsible for developing water and sewage plants, a power plant and electricity network, pipe networks, and road networks. Jiaolong Co. must also design and build plants, office buildings, and apartments to certain standards to entice greater investment. Jiaolong Co. can undertake its own urban planning so long as that plan conforms to the Shuangliu master plan. Shuangliu is required to provide technical and administrative assistance on tax, security, environmental protection, and industrial and commercial service issues, as well as in relations with neighboring villages.

As Jiaolong began to grow, the city developer recognized the need for additional amenities. Those amenities include a new movie theater, shopping mall, aquarium, and ice rink. What was once an industrial park has evolved into a proper city with housing and amenities, and Jiaolong Co. has demonstrated an ability to remain flexible and forward-thinking in response to changes in demand. Without the incentives generated by the city's contracts with Shuangliu and the developer's response to price signals generated by the market, it is uncertain if Jiaolong would have ever developed beyond a simple industrial park.

Jiaolong is also notable for its use of contracts to acquire land, rather than through expropriation with insufficient or nonexistent compensation by municipal government. Farmers in the development area assigned their land rights to village collectives, which then rented the land to Jiaolong in 55 year terms. Additional payment terms (both monetary and in-kind payments, like new apartments) were established for the acquisition of housing and other buildings. To keep costs manageable over time, Jiaolong Co. sequentially contracted with additional farming communities as the development grew, rather than buying out the entire area at the commencement of the project.

Jiaolong proves that "private cities" can be a successful model for new urban development, that such projects can succeed at large scale, and can do so without relying shiny objects and buzzword-driven marketing. However, Jiaolong also shows the importance of a cooperative relationship with existing government units, a responsiveness to emergent market forces, and the maintenance of positive relationships with and respect for existing communities.

Thank you to Central University of Finance and Economics professor Qian Lu for bringing his article on Jiaolong to our attention. See his article here for additional details about Jiaolong.