OREANDA-NEWS. August 23, 2013. There are indications that shantytown revamping is becoming an entry point for new urbanization.

Premier Li Keqiang chaired a State Council executive meeting on 26 June and put forward the goal of shantytown revamping for 10 million households living in urban, state-owned mining, forest and reclamation area shantytowns within the next five years.

Against the backdrop of the continuing academic debate over the choice of future urbanization routes, the new leadership has chosen shantytown revamping, a breakthrough point with strong people's livelihood emphasis, as a "new" opening for new urbanization.

The State Council meeting particularly emphasized the need to guide financial institutions in ratcheting up credit support for shantytown revamping. However, shantytown revamping is often a difficult task with nearly zero value for commercial development. For commercial banks, which are used to "making bets on success", lending for shantytown revamping is apparently not a wise choice. In that kind of situation, there needs to be a financial "house" in charge of planning for the "losing game" of shantytown revamping so as to turn "losing" to "winning" and thereby attract more "players" to the game.

It was just then Hu Huaibang, the newly appointed CDB chairman, explicitly put forward a plan to continue to step up financing support for shantytown revamping projects in the future.

In March 2005 CDB issued an initial loan of 3 billion yuan for shantytown revamping in Liaoning, thus beginning Chinese banks' support for welfare housing construction. Later on, this distinctive financing model for shantytown revamping rapidly expanded nationwide. Up to now, CDB's shantytown revamping project has been expanded to all provinces except Tibet.

As a financial institution for development financing that implements the "national strategy", CDB is evidently the most appropriate "house" bank for shantytown revamping. In the words of former CDB Chairman Chen Yuan, an important difference between development financing and commercial financing is that the former "builds the market" whereas the latter "utilizes the market", and CDB "achieves government goals with market building measures rather than fiscal and administrative measures".

In fact, CDB has become a leading bank in offering financial support for shantytown revamping. Since 2011, CDB has increased its lending for welfare housing projects by 100 billion yuan every year. As of the end of May 2013, CDB has made total loans of 511.6 billion yuan for welfare housing projects, accounting for over half of such loans in the banking industry. Of that amount, loans for shantytown revamping alone have reached 332.4 billion yuan.

Under CDB's leading role in financing, Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, and other commercial banks have also increased their welfare housing lending, with some of them even registering YoY growth of over 120%.

After he took office, CDB Chairman Hu Huaibang established a principle for development financing: the strategic necessity of the projects, the financial balanceability of the overall business, and the sustainability of institutional development. He emphasized that policy lending must strictly adhere to risk control while serving the national strategy.

But a key question is how, for a bank of development financing, to develop business opportunities out of the "money-losing business" of shantytown revamping. The main key to that question is to achieve the further enhancement to urban, land, and industrial values through shantytown revamping projects. In Chen Yuan's words, "we gamble on the future of the Chinese economy."

During the tour of investigation and study on shantytown revamping projects in Jilin last week, the reporter discovered that shantytown revamping had become a financing "fast track" for local governments to push forward urbanization building projects. Not only is welfare housing riding the "express train" of development financing loans through shantytown revamping projects, but also the relocation of factories, enterprises' energy saving, comprehensive urban environmental improvement, urban function zoning adjustment, and even tourist resort development and construction, among others.

Hadawan area in Jilin City is the last old industrial area on the 1st Five-Year Plan that has not yet been revamped. With urban expansion, this downwind urban area with concentrated industry has become a core area, but within the area, there are enterprises in the pillar industries of cement, papermaking, carbon, and ferro-alloys, together with a number of SMEs with high energy consumption and high pollution.  Every day, the discharge from their pollution seriously disturbs the environment and makes daily life unbearable.

Once CDB has set up the shantytown revamping project to conduct comprehensive improvement in the Hadawan area, this waste industrial area will become a riverside new town integrating logistics, commerce, leisure, and residential services.

Some shantytown revamping projects do not have much commercial value, but through urban planning and adjustment, infrastructure building, and population assembly, the surrounding land will see value appreciation, and there will be increasing demand for new services. Even at the foot of Changbai Mountains, a small town is also planning to obtain development financing through forest shantytown revamping in order to turn the area into a "world-class" tourist area.

Shantytown revamping projects generate little or even no profit, but they are becoming increasingly popular and have become a "new financing guide" that should be thoroughly studied by local financing platforms.