Cities

Historical-view record: the judgments about cities, population, and real estate below have a strong period-specific and subjective context. They are retained to present the learning perspective at the time, not as current city-investment conclusions.

1. Which Cities Are Worth Investing In?

1. A city’s ability to attract population: economy-to-population ratio.
2. For the urban area, look at population quality: for example, whether the population is associated with high-tech industries or heavy industry.
3. Whether it is a transportation center: the transportation center here is not geographic, but refers to buses and metros.
4. Single-center or multi-center: in a single-center city, investment should be concentrated in the main urban area as much as possible. In a multi-center city, investment does not necessarily have to be in the main urban area; the subordinate administrative districts and economic functional zones can also have value.

2. How Chinese Cities Developed

Beijing was compared with Washington (stripping away economic functions), Shanghai with Tokyo (finance + technology, with intercity lines extending to multiple cities), and Guangzhou/Shenzhen with San Francisco (strong complementarity within the Greater Bay Area).

There are two paths for urbanization: developing large cities, and in-situ urbanization. China initially chose the second path, so it strictly controlled the population of large cities. Later, as the strong became stronger and the weak became weaker, a policy was introduced allowing large cities to use land from smaller cities, so the path shifted toward the first approach.

Because small and medium-sized cities face population contraction, fiscal crises need to be watched for.

GDP inflation and declining local fiscal self-sufficiency: general public-budget revenue, land-transfer revenue, and local debt.

Originally it was “the east is rich and the west is poor”; now it is “the south is strong and the north is weak.”

Large cities are now becoming more like Hong Kong, while small cities are becoming more like Japan.

Every city is competing for people.

Beijing is shedding economic functions, with Xiong’an taking them over. The property market near Xiong’an was also speculated up. Fiscally, the whole country supports Beijing.

Shenzhen real estate became too extreme; even Huawei was pushed away by the pressure. Shenzhen’s Nanshan is very strong, with many listed companies.

Shantou had policy advantages, trade advantages, and an overseas-Chinese hometown advantage, but local human factors were considered poor: people would do anything for money, were exclusionary toward outsiders, and relied on connections.

Chinese housing prices surged while the population contracted.

Housing prices in third- and fourth-tier cities were able to rise because of shantytown redevelopment.

From the demand side, the development of the real-estate market goes through four stages: first-time purchase, upgrading, investment, and speculation. The corresponding second-hand-home / new-home ratios were recorded as: below 0.5, between 0.5-1, between 1.1-1.5, and above 1.5:1.

Stages of the urbanization process: third-tier cities: industrialization; second-tier cities: residential development; first-tier cities: CBD.

3. Chinese Urban Agglomerations

3.1. Pearl River Delta

The Yangtze River Delta is becoming a “province,” while the Pearl River Delta is becoming a “city.”

Guangzhou’s development focus originally moved eastward (Huangpu) toward Dongguan; it later returned westward (Liwan) toward Foshan.

Shenzhen is abandoning the Hong Kong model and moving toward the Singapore model.

Shenzhen is running out of land and may develop an enclave economy with Huizhou and Dongguan, jointly building industrial parks to absorb Shenzhen’s industrial relocation. This arrangement could be acceptable to both the central government and Guangdong Province.

Shanwei has already cooperated with Shenzhen through the “Shenzhen-Shanwei Cooperation Zone.”

The view here is that Shenzhen reflects central-government priorities and has a subtle relationship with Guangdong Province, effectively functioning like a central-government “enclave.” Guangdong Province also deployed an enclave in Shunde and Nanhai, Foshan. Foshan was described as a weak city with strong districts.

Dongguan has an urban-rural-fringe appearance everywhere. Dongguan does not have districts and counties, but directly administers towns and subdistricts. The relationship between Shenzhen and Dongguan was compared with the earlier relationship between Hong Kong and Shenzhen.

The view here is that Macau’s future lies less in gambling and more in becoming a financial center, with the hope of building it into a “Nasdaq” for the offshore renminbi market. Although Macau is wealthy, its industrial base is weak, it cannot integrate deeply into the mainland industrial chain, and its small population cannot absorb mainland production capacity, so its spillover effect was considered too weak to drive Zhuhai.

Around Shenzhen: Dongguan is close to Shenzhen and its population was growing quickly, so the note was bullish on it; Huizhou is farther from Shenzhen and has a smaller population, so the note considered it harder to resell property there; Zhongshan’s economic growth was viewed as slow, so the note did not recommend holding property there.

Within Huizhou, Huiyang District is close to Shenzhen but was judged to receive weak spillover from Shenzhen, so the note did not consider it worth investing in. For owner-occupation, it suggested considering the central Huicheng area instead, specifically northern Huicheng and Jinshan Lake, with a historical price range of RMB 15,000-20,000.

Historical Shenzhen price snapshots: Futian/Nanshan RMB 100,000, Luohu RMB 73,000, Bao’an RMB 56,000, Longhua RMB 55,000, Longgang RMB 42,000.

Foshan: RMB 10,000-20,000.

Dongguan: RMB 20,000.