OREANDA-NEWS. April 03, 2013. Urbanization is a historic task of China's modernization building and is also where the greatest potential is for expanding domestic demand. At present, China's urbanization rate has reached 52.57%, which is still far from the 80% average level in developed countries, but that gap represents a driving force and a potential for China's economic development. It can be said that urbanization has been a strong engine for China's rapid economic growth in recent years.

As a major bank for longer-term investment and financing in China, the China Development Bank (CDB) has, over the years, adhered to serving the national development strategy with market approaches. It has conducted a series of fruitful practices in supporting urbanization and has explored a new road for developmental finance to support new urbanization development. This article aims at showing our readers CDB's practices and experiences in supporting new urbanization.

At present, urbanization has become a buzzword in the Chinese economy. The report to the 18th Party Congress specifically pointed out the need to follow the road of urbanization with Chinese characteristics and to regard urbanization as one of the carriers of building a well-off society in an all-round way and one of the key focuses of the transformation of the economic development mode. New urbanization is becoming increasingly important for achieving the completion of building a well-off society in an all-round way.

Toward the end of 2012, news from the annual work conference of the China Development Bank (CDB) had it that CDB would issue over 50% of its new loans in 2013 in the field of urbanization and associated construction so as to provide effective financing support for the development of the real economy. This makes people very hopeful about the role financial institutions can play in China's urbanization drive.

The main battlefield of future urbanization will move to small and medium-sized cities and key towns and townships. These places lack funds to carry out urbanization, and they also lack the systems and mechanisms that attract sustainable incoming funds. CDB Chairman Chen Yuan said that, as a witness, participant, and promoter of China's urbanization process, CDB can play developmental finance's pioneering role of "building roads and bridges" in new urbanization by taking the initiative to build markets and set up systems, so there is great potential for CDB's role.

Innovation mode: Start the engine for economic growth

"Clouds part, revealing the trees; in tranquil river I listen to the waves." This classical poem describes the beautiful scenery of Wuhu City in Anhui. Wuhu, just south of the Yangtze River, has since ancient times been known as a fertile land with outstanding people. There is also a close link between this city and CDB's practice of supporting urbanization development.

In the late 1990s, like the rest of China, Wuhu was also in the takeoff stage of a new round of economic and social development, and there was a pressing need for infrastructure building. However, due to the less than obvious economic effect of urban construction and the lack of government finances, funding shortages became a bottleneck that constrained infrastructure building in Wuhu. In 1998, CDB and Anhui Province signed an agreement of cooperation, thus creating a new type of bank-government cooperation. The core of the cooperation was to integrate CDB's financing advantage with the local government's organizing and coordinating advantages to push forward the acceleration of urbanization. This line of thinking was first implemented in Wuhu.

In the winter of 1998, CDB and Wuhu Construction Investment Company signed a 10-year loan agreement for 1.08 billion yuan. The funds would be mainly used for Wuhu's six infrastructure projects such as road construction, urban water supply system upgrade, and waste landfill site construction. This cooperation model has since then become widespread all over the country and become CDB's "Wuhu Model" for supporting the acceleration in urbanization development.

The cooperation between CDB and Wuhu was a great success. Within a short period of time the city invested a large amount of funds and directly pushed forward urban infrastructure building and related development in construction, construction material, real estate and tourism, thereby driving regional economic growth. Wuhu Construction Investment Company has also grown from an agency in charge of government-designated projects with initial assets of 319 million yuan to a diversified enterprise with total assets of over 65 billion yuan and shareholdings in Chery Automobile and Anhui Merchants Bank.

With CDB's support, Wuhu's 2012 fiscal revenue was 33.7 billion yuan, an increase of nearly 18 times from the 1.8 billion yuan in 1998. Disposable fiscal revenue and construction finances per capita greatly increased, and the city's investment environment was significantly improved. Zhan Xialai, then acting mayor of Wuhu and current executive vice governor of Anhui, reminisced, "The amount of the CDB loan was an astronomical figure for Wuhu at that time. Once the infrastructure building funded by the loan was completed, there was a qualitative change in Wuhu's urbanization, industrialization, and even the overall economy."

The success of the "Wuhu Model" lies in that all parties concerned creatively used their respective advantages to fully tap the huge potential in local economic and social development, thus raising the government's credit as well as ensuring high asset quality for CDB's loan. The model has built an investment and financing mechanism for urban infrastructure with a virtuous circle, cultivated a market-oriented investment and financing platform, unblocked urban infrastructure investment and financing channels, led the proactive entry of commercial banks and other public money, and laid a rich foundation for pushing forward urban infrastructure building in a sustained, rapid, and highly effective manner.

One swallow does not make a spring. After 1998, the "Wuhu Model" became widespread across the country and became a "template" for bank financing in support of urban construction, thus giving rise to a good situation in which there is benign interaction between banking and government finance that jointly drive urban construction. Chen Yuan commented on this by saying that CDB has transformed city investment companies into standardized financing platforms and established a brand new local government financing model, which has solved the problem of China's urban construction related financing, made a breakthrough in easing the urbanization development funding bottleneck, and achieved a win-win outcome for banks and local governments.

Tianjin's case is also worth mentioning. In 2003, CDB and Tianjin signed an agreement of cooperation involving 50 billion yuan for key urban infrastructure projects such as an urban expressway network, comprehensive harnessing of Haihe River, environmental greening, metro construction, and acquisition and consolidation of land resources. It was the single largest loan in China's banking industry at the time. In 2006, three years after receiving CDB's funding support, Tianjin's per capita public green area increased by 70.5%, hazard-free waste treatment rate rose from 55% to 81%, and the city's GDP increased by 161.3 billion yuan or up 78.6%.

CDB's cooperation with Tianjin achieved two "organic integrations": the integration between the ungainful repayment of infrastructure loans and value-added returns from land, and the integration between the mechanism for financing infrastructure and the concept of "running the city". Dai Xianglong, then mayor of Tianjin, commented that CDB did not support just a project or a sector but a region and a city.

Tianjin's case is an extension of the "Wuhu Model", and its key is to integrate advanced international financial theories with China's national conditions. It has built a new model of urban construction related financing that is in line with China's national conditions with market approaches, and prominently highlighted the pioneering, leading, and advanced role of developmental finance amid the waves of accelerating urbanization building in China. Jia Kang, head of the Scientific Research Institute at the Ministry of Finance, believes that developmental finance has achieved integration between governments' organizing advantage and banks' financing advantage, actively built and nurtured the market, and explored a series of financial innovation with Chinese characteristics.

As the model of developmental finance supporting urbanization development matures, CDB's contribution to the level of urbanization development has greatly increased and played an irreplaceable role. As of the end of 2012, CDB's urbanization related loan balance was top in the industry at 3.2 trillion yuan, accounting for 66% of all CDB lending, with a non-performing loan ratio of below 0.3%. Under the strong support of developmental finance, China has greatly accelerated the pace of urbanization, and cities nationwide have taken on a new look. Urbanization building has become an important engine driving sustainable and healthy economic development.

Planning ahead: Financing boosts urban-rural integration
"Our development is based on scientific planning, so we are now more confident in making decisions and our goals are also clearer. The layout of these residential quarters and farmland is the result of careful planning." Zhou Minxing, party committee secretary of Xingyi Township in Xinjin County, Sichuan, enthusiastically gave the reporter a briefing on the township. Rows of building blocks lined up in the residential quarters, and there was an air of vibrancy in the modern agriculture demonstration area nearby. Xingyi is one of the five pilot townships in the township planning cooperation promoted by CDB and Chengdu. With the support of the promised CDB loan of 340 million yuan, the Xingyi Organic Ecological Agriculture Township has begun to take shape.

The report to the 18th Party Congress clearly pointed out that the integration of urban and rural development is the fundamental way to solve the "three rural" issues, so we must speed up enhancing the system and mechanism for integrated urban and rural development and make efforts to push forward urban-rural integration in urban and rural planning, infrastructure and public services. At the beginning of 2013, the Central Document No.1 once again focused on urban-rural integration and emphasized the need to solve the "three rural" issues with urban-rural integration. Urbanization is an important way to crack the urban-rural dual structure and achieve the integration of urban and rural development. Likewise, only by cracking the urban-rural dual structure can we ensure the healthy development of new urbanization.

"Planning ahead" is one of the principles of developmental finance, and CDB has applied this principle widely to the practice of supporting urban-rural integration. In 2007 Chengdu was approved to be a pilot city for nationally coordinated urban and rural comprehensive reform. CDB has since grasped planning as a source to get itself thoroughly involved the pilot work in Chengdu to help Chengdu crack the urban and rural dual structure with the concept of "urban-rural coordination in greater Chengdu". In close cooperation with Chengdu, CDB selected a few rural townships including Xingyi Township in Xinjin County for a pilot scheme to extend support to them in planning based on the principle of "industrial support, distinct characteristics, enhanced support package, safety and applicability, economy with land". After two years of efforts, the two sides summed up and formulated the "Chengdu Rural Township Planning Guide" to pave the way for cracking the urban-rural dual structure in Chengdu with scientific planning.

Under the guidance of "planning ahead", CDB and Chengdu signed a "Memorandum of Cooperation on Developmental Finance Supporting the Construction of a Pilot Zone for Coordinated Urban and Rural Comprehensive Reform". Both sides focused on small townships (particularly small suburban townships) and used the newly established Chengdu Small Township Investment Company as a platform to push forward the unified financing and construction of 34 sub-projects based on the model of "unified evaluation, individual commitment, and separate contracts". CDB issued a cumulative total of 3.15 billion yuan of loans for those projects. At present, construction of the CDB-financed new rural communities has all been completed. Covering most districts and counties in Chengdu with a gross area of over 2.5 million square meters, they have helped over 70,000 farmers move into new homes and added over 60,000 mu of land in circulation. CDB's cooperation with Chengdu has therefore achieved excellent social benefit and exemplary effect and has effectively promoted the process of urban-rural integration in Sichuan.

In the eastern coastal province of Jiangsu, CDB's practice of supporting urban-rural integration has made equally steady progress. In order to support urban-rural integration in Danyang in the hinterland of the Yangtze River Delta, CDB began to foster Danyang Investment Group, the financing platform for the Danyang city government, by constructing balanced cash flow with credit building and continually strengthening its vitality and financing capability. With CDB's support, Danyang Investment Group grew its total assets from just 10,000 yuan when it was founded to nearly 20 billion yuan, and the group, which used to be "shunned" by commercial banks, has now become a sought-after guest of financial institutions. The development of Danyang Investment Group has further diversified the financing channels for the city's urban-rural integration with improved financing capabilities. Over the past few years, through Danyang's investment platform, large long-term funds in developmental finance have continually come into urban construction in Danyang and have guided funds from multiple parties to jointly offer support in the various areas of urban-rural integration. As a result, construction in Danyang's new urban areas, new townships and new residential communities have been booming. The cooperation between Danyang and CDB has become a successful example in developmental finance supporting county-wide economic and social development and promoting urban-rural integration.

Guli Township in Changshu City is a national historical renowned township with deep-seated southern culture, and it is also part of the pilot scheme for CDB to support urban-rural integration and small township building. Focusing on farmers' community building, agricultural modernization, and projects for protecting ancient villages, CDB further deepened its cooperation with the township government to jointly push forward the cracking of local urban-rural dual structure. It requires careful planning to find out how to mobilize the participation of various urban and rural economic forces and how to identify convergence with bank financing in order to offer support for small township building with market approaches and achieve the goal of urban-rural integration. CDB conducted active exploration and built a new model for township financing that integrates "guidance by planning, promotion by financing, and comprehensive development". By bringing in private enterprises and the collective sector, the model has built up market players with diversified ownership structures, effectively located sources for repayment, and reached the target of pushing forward new township development with market approaches. In order to reduce the urban-rural gap, CDB has, in conjunction with protecting and building the southern cultural renowned township, given extra support to projects such as Guli agricultural industrialization, local cultural protection, and farmers' residential community construction. At present, CDB has offered credit facilities of 460 million yuan and issued loans of 220 million yuan to support urban-rural integration in Guli, which has become a typical example of the practice of cracking urban-rural dual structure in southern Jiangsu.

Improving people's livelihood: To achieve "human urbanization"
At the mention of urbanization, many people may imagine scenes such as rows of high buildings, nice-looking asphalt roads, excellent infrastructure, booming industries and so on. Admittedly, those are indispensable for urbanization, but the new urbanization China is currently working on will have far more than those. Urbanization will inevitably lead to human gathering, which in turn will give rise to various people's livelihood issues. To do a good job in people's livelihood related social building is precisely what is meant by "human urbanization". As a senior leader pointed out, "Urbanization must not result in high buildings here and slums there. The key to urbanization is human urbanization, with the aim of benefiting the ordinary people and enriching farmers."

Driving from downtown Fushun to the southeast for about a quarter of an hour, you will see a lot of building blocks painted yellow and white. This residential community named Modigou looks no different from other ordinary communities, but its residents are in a different mood. The staff workers at the community residents committee said, "Modigou used to be a shantytown. Before shantytown transformation, in order to keep themselves warm, people used to have to always stir the ashes in the heated brick bed or make coal bricks, resulting in black fingers and fingernails that can't be cleaned by washing."

Housing is known as people's prime livelihood. For the old industrial base of Liaoning, shantytowns at the edge of cities and those in mining areas and industrial areas such as Modigou had always been a thorn in the flesh for the local governments. Despite years of transformation, until the end of 2004 there were still total 8.48 million square meters of urban shantytowns of a size of over 50,000 square meters each in Liaoning, and nearly 1.6 million people lived in shantytowns left over from decades earlier. It was estimated that reconstruction would require 18.7 billion yuan. Failure to deal with the shantytown problem would definitely hinder the industrialization and urbanization process.

Since shantytowns were mostly located at the edge of cities, and shantytowns in Liaoning's Fushun, Benxi and Fuxin were even in areas of mining subsidence, it was difficult to attract commercial bank funding, so the lack of money became the greatest obstacle for the local government in handling the shantytown problem. "To offer timely support on key government issues" is an important content of developmental finance. Taking the shantytown transformation in Liaoning as an entry point, CDB brought into full play its advantage in longer-term investment and financing and gradually embarked on a new road for supporting urban shantytown transformation.

In the early spring of 2005, a "Project No.1" that would fundamentally transform shantytowns was launched across Liaoning, and the dream of shantytown transformation, which had been delayed for years, was coming true. In March 2005, CDB issued an initial loan of 3 billion yuan as start-up capital for the shantytown transformation in Liaoning, thus inaugurating Chinese banking support for welfare housing construction. With the vigorous support from all sides, the shantytowns in Liaoning vanished at the speed of 10,000 square meters per day, and in their place rose rows of new buildings. In Modigou alone, 1,487 shantytown dwellers were relocated and 106 new building blocks were built, resettling returning residents including over 6,000 households and over 16,000 people. By the end of 2006, the transformation of urban shantytowns of sizes of 50,000 square meters and above in Liaoning had concluded one year ahead of schedule, and about 1.2 million shantytown dwellers in 11 cities in Liaoning had moved from dilapidated shacks into spacious new residential buildings. The ordinary people warmly praised this popular project. Shantytown transformation has also regenerated urban land resources and improved urban functions and city image.

"Liaoning shantytown transformation demonstrated the great capability of developmental finance. The key was to turn projects ineligible for loans into eligible ones. We broke open the financing bottleneck, built a sustainable business model, and eventually brought in commercial funds and public funds together." Officers at CDB's Liaoning Branch said, "Through several years of our work, not only did the shantytown transformation progress well, loan recovery also went smoothly as the government had enough funds to make repayment ahead of schedule. A project of public welfare nature has brought value-added gains and land has been regenerated, clearly showing commercial values."

The success in the shantytown transformation in Liaoning has shown people what unique role developmental finance can play in supporting "human urbanization". This model of financing shantytown transformation with distinct characteristics has been widely followed nationwide. At present, CDB's shantytown transformation project has been expanded to all provinces except Tibet. Rows and rows of well appointed high building blocks have replaced dilapidated shantytowns, and a large number of low-income people have bid farewell to shantytowns and started their new life. CDB's social responsibility and financing model have played a key role in this great project with a bearing on the vital interests of millions of residents.

It was from shantytown transformation that CDB began its journey of supporting welfare housing projects. "We have innovated financing model with creative approaches and have continually expanded the support coverage to five types of welfare housing projects including low-rental housing, affordable housing, low-cost housing, public rental housing, as well as shantytown transformation," said a CDB officer in charge of loan evaluation. As of the end of 2012, CDB has cumulatively issued loans of 674.4 billion yuan to support various welfare housing including shantytown transformation, benefiting 23.16 million lower-income people. CDB has become China's major bank for supporting welfare housing construction with a market share of more than half in the banking industry.

People need to have a secure job as well as enjoy their housing, as jobs have a bearing on social stability and people's livelihood and well-being. Without stable jobs, there can be no urbanization, let alone urban-rural integration. In recent years, CDB has also engaged in some useful explorations in supporting entrepreneurship and employment for urban residents.

"CDB is a financial supporter for laid-off workers." This is what Yang Minxia, founder of the Cangjie Cultural Development Company in Baishui County, Shaanxi, has always been saying. A few years ago Yang, who had been laid off, founded his own cultural business with a CDB microloan for promoting employment with entrepreneurship. After a few years' development, Yang's company has become quite famous locally.

As early as in 2004, CDB launched community finance in Sichuan to support entrepreneurship and employment for the underprivileged community. Its coverage is increasingly expanding with beneficiaries all over the eight cities (districts and counties) in Sichuan. Many laid-off workers, migrant workers and veterans are highly enthusiastic about entrepreneurship and have opened many florist shops, teahouses, and beverage shops. They have improved their own standard of living and changed their own destiny through their own diligence. As of the end of 2012, the balance of CDB's SME business loans stood at 1.9 trillion yuan. These loans have supported 1.87 million small and micro enterprises and individual business owners and created nearly 5 million jobs.

In addition to housing and employment, CDB has also extended strong support to health care, environmental protection, student assistance, "three rural", emergency lending, and other areas of people's livelihood. CDB takes as its mission to "strengthen national strength and improve people's livelihood". By offering a helping hand to the millions of the ordinary people to solve their livelihood issues, CDB has also indirectly promoted the transformation of the economic development mode, laid a solid "soft foundation" for the healthy development of urbanization in China, and brought the concept that "the key to urbanization is human urbanization" step by step into reality.