In Shenzhen, a metropolis born of China’s economic prosperity, Paibang Village is a reminder of the city’s modest past and the challenges ahead to revive the country’s real estate sector.
Paibang is what China calls an urban village, a warren of low-slung apartment buildings and mom-and-pop shops connected by a maze of alleys and narrow roads. There are hundreds of them in Shenzhen, a municipality of 18 million people next to Hong Kong, and thousands of similar towns throughout China.
Now that China is mired in a unbreakable real estate crisisPolicymakers want to renew aging urban neighborhoods like Paibang to boost construction and stimulate local economies.
But as Paibang’s faltering rehabilitation demonstrates, it won’t be a quick or easy solution.
Seven years ago, city officials chose Paibang for “urban renewal,” and in 2019 China Evergrande, one of the country’s largest real estate firms, took control of the project. The company paid building owners for the right to demolish apartments and begin clearing land for modern skyscrapers. Before the work could begin, Evergrande collapsed.
Evergrande then handed the project over to Shenzhen Metro, a state-owned company and major shareholder of China Vanke, another homebuilding giant. Now Vanke faces his own liquidity problems. Last week, Shenzhen Metro (and, by extension, the Shenzhen government) attempted to calm investors by promising to back Vanke.
Meanwhile, construction in Paibang has been on hold. On a recent weekday, a modern glass building that serves as the project’s headquarters and still displays Evergrande signs, was virtually empty.
China’s largest homebuilders are in financial turbulence, suffering from a slowdown in sales and debt restrictions after years of excess. Last month, the median price of new homes fell the most in more than eight years. The real estate crisis is weighing on the economy. Local governments, which rely on land rental income, are feeling the strain.
The government has tried to cut interest rates and relax requirements for home purchases, but has made no progress. More drastic measures can affect local budgets when debt is already a problem. Financial regulators are discussing ways to support developers but are cautious about inducing real estate companies to revert to the risky behavior that sparked the crisis.
And that’s why Chinese leaders are considering urban villages, community-owned enclaves within larger cities. All urban land in China is owned by the state. As part of the country’s urbanization drive, the government expanded cities by absorbing bordering agricultural land into the hands of villagers.
But villages were allowed to maintain collective ownership of the areas where their residents lived, creating pockets of land where the state’s reach had limits. As Chinese cities modernized into expanses of skyscrapers and gridded streets, urban villages became chaotic, densely populated neighborhoods little affected by the gentrification around them.
Beginning in 2009, as urban sprawl began to run out of land, many local governments recognized the untapped potential of urban villages and redeveloped neighborhoods. But until this year it was primarily a local initiative.
The Politburo, the executive policy-making body of the Chinese Communist Party, said in April that it would “actively and steadily advance the transformation of urban villages” in the country’s 21 largest cities. In July, China’s cabinet, the State Council, called the policy an “important measure” to “expand domestic demand,” according to Xinhua, the state news agency.
“This really shows that Chinese leaders are feeling this anxiety about finding new channels of urban growth,” said Zhang Yue, an associate professor of political science at the University of Illinois at Chicago.
In the last major housing crisis, around 2015, Beijing spent hundreds of billions of dollars paying cash to residents to trade in dilapidated shacks in smaller cities and towns.
Redeveloping urban villages is more complicated and could be just as expensive.
In an October report, Nomura Securities said the process was “difficult and expensive” and the pace would be slow. Chinese brokerage CITIC Securities estimated that China could invest nearly $140 billion a year for an entire decade, according to an August report.
Paibang, in the northwest region of Shenzhen, is like many other urban towns. The rows of concrete apartment blocks are so close together that they are colloquially known as “handshake buildings” to describe the proximity of neighbors. The apartments are dilapidated: there are no elevators, no bars on the windows or low bathrooms.
At street level there is a lively shopping district: fruit and vegetable stalls, second-hand stores and simple restaurants. In the nearby industrial estates there are printing presses, warehouses and factories. In Paibang and three neighboring towns, the vast majority of the 59,000 residents are immigrants from other parts of China who have moved to Shenzhen in search of work.
These neighborhoods are often called “the starting point of a dream.” Chinese singer Chen Chusheng lived in an urban village in Shenzhen and performed in bars at night before becoming famous. In a ballad he wrote about the experience, he sings: “The people there were very close and the distance between the buildings was just a crack.”
Shenzhen was named China’s first special economic zone in 1979, turning a fishing town of 300,000 people into the center of Chinese capitalist experimentation. Shenzhen became the birthplace of many of its most successful companies, including Huawei, BYD and Tencent.
But as Shenzhen grew, migrant workers, still essential to the local workforce, were excluded from the city’s newly developed neighborhoods.
In many villages, the land is held by a collective and the buildings are owned by former villagers, many of whom moved out of the neighborhood long ago.
Gao Jia has run a second-hand furniture and electronics store in Paibang for eight years. Last year, his owners asked him to leave after they agreed to hand over the building that houses his store to Evergrande. He was delighted to get a reprieve after Evergrande’s problems stalled the redevelopment project and prevented its owners from completing the sale of the building.
“Renovating old cities is of no use to us,” Gao said. “We won’t be able to pay rent and we won’t be able to do business anymore.”
Duan Biqiong, a stationery store owner, said: “If there are no migrant workers, this place is nothing more than an empty city.”
In addition to excluding some residents, urban village renovations are time-consuming. Local governments must negotiate agreements with land-owning cooperatives and individual building owners before tearing down structures.
Officials in Guangzhou, China’s third-largest city, with 127 urban village renovations underway this year, said the average completion time for a project had stretched from 5.5 years to more than seven years, according to local media. The longer rehabilitation lasts, the more it costs.
Jackle Zhuang, 44, owns a five-story apartment building in Paibang. When he first moved in with his family as a teenager, the neighborhood was barely developed. The nearest bus stop was a 30 minute walk away. Today, Paibang has its own subway stop.
But Mr. Zhuang no longer lives in the neighborhood. This year he moved with his wife and his son to Chengdu, a city in western China more than 1,000 miles away. In Paibang, he said, there were no parks nearby and it was not safe for children because the buildings were too close to the road.
“There’s probably nothing better than cheap rent,” Zhuang said. “It’s not an ideal living environment.”
While he is ready to move forward, he is not sure if the agreement he signed with Evergrande in 2020 to sell his building is still valid or if he will have to negotiate again with the new developer. He hopes to trade his current apartments for units in a new building.
For now, all you can do is wait and see.
Li you contributed to the research.