LWK+Partners' Kerem Cengiz explores what insights Saudi Arabia might gain from China
Kerem Cengiz, managing director for the MENA region at Hong Kong-based LWK+Partners, explores what Saudi Arabia can learn from China's modern history of development.
Once a depleted backwater, China, with its formerly rural towns swelling into metropolises that 10 million inhabitants now call home, has grown into the most significant rival to the United States.
In the years following Mao Zedong’s death, before China became the industrial giant it is today, a group of economics students gathered to address the question: how could China catch up with the West?
China was recovering from decades of political and economic turbulence, with more than three quarters of its population still living in poverty. Despite this, there had been progress in rural areas.
China’s government first began significantly focusing on real estate development in 1981 and commenced a series of sweeping policy changes to facilitate simplified regulatory systems. The country witnessed a renaissance in development, marked by rapid and unparalleled urbanisation and population movements.
With the onset of the global financial crisis in 2008, new regulations were introduced by the state, which resulted in a boom across the residential real estate sector in particular.
Between 2008 and 2012, residential real estate prices steadily grew; however, from 2013 to 2015 this growth slowed due to austerity measures introduced by the Chinese government.
The real estate market bounced back in 2016. Sales in the first six months hit RMB 4,868.2 billion – a 42.1 percent increase compared to the preceding two years.
The Chinese economy has grown so fast and for so long now that it is easy to forget how unlikely its transformation into a global powerhouse was, and how much of its emergence was born out of desperation.
In the past two decades, China’s economy expanded so dramatically that it is now the second largest economy in the world, and the real estate industry played an unprecedented role in stimulating the country’s economic growth and increasing government revenue in comparison to other industries.
China is now a world leader in terms of its percentage of homeowners, internet users, college graduates and billionaires, and poverty has fallen to less than one percent.
There is no simple explanation for how China’s leaders managed this. There was foresight and luck, skill and tough resolve, but perhaps most important was the fear of failure.
China’s leaders drew lessons from the past – the state needed to embrace ‘controlled reform’ to survive and modernise by tapping into a wave of globalisation, emerging as the world’s factory.
Similar initiatives are underway in Saudi Arabia, and in reframing the kingdom as a regional powerhouse of education, tourism, arts and culture, nature and commerce, real estate development is a key factor.
Massive urbanisation and the road to consumer demand
China has the largest population in the world, with consumer demand not easily satisfied. This demand was for both residential property in urban areas and community regeneration, and both have parallels in the development plans for the Kingdom of Saudi Arabia.
Today around 60 percent of the Chinese population lives in urban areas, which draws similarities with Saudi Arabia, whose numbers sit at around 50 to 55 percent. Around 60 percent of China’s economic output is through the private sector, and it employs over 80 percent of the work force in cities, generating 90 percent of all new jobs.
In China’s case, there is little doubt that the level of property acquisition will continue to increase and provide more incentive for real estate market growth.
Saudi Arabia has a significant and growing population. The kingdom has started an exciting new era in its national narrative, and its desire to grow and develop is greatly supported by government-led initiatives, which spur development across multiple sectors of the economy. This was the case in China, and it led to improved incomes and quality of life.
Generally speaking, as people earn higher incomes, the desire for personal improvement increases, leading to community and residential growth and regeneration. For China, this needed to be fulfilled in a relatively short time.
It is quoted that over the next five to 10 years, China plans to move 250 million people (the equivalent of Indonesia's population) into the country's rapidly growing megacities.
To accommodate this huge migration, China is investing billions of dollars into massive infrastructure projects, with some already completed. China’s high-speed rail network (the largest in the world) has changed the way its people move.
From having highways that span the continent to the largest wind power plant in the world to building new cities in the desert, China has shown what it really means to do mega and giga-projects, with long-term planning at its centre.
Some of these success stories include the Macau New Urban Zone, a 4.5km2 land reclamation project in Macau, China. One of the largest reclamations in Macau’s history, it will add 12 percent to the city's land area. Starting in 2018, the site will be reserved mostly for public housing projects and green spaces, which will be divided into five zones.
Zone A will house 57,000 people; Zone B will be an office district with retail, 2,000 homes and a promenade; and Zones C, D and E will have 22,000 new homes, as well as retail and green/public space.
A more recent mega-project is Xiongan New Area, a redevelopment project planned for Hebei, China. Initially, the city would cover nearly 64km2, but now, it will reach about 128km2 – three times the size of Manhattan Island.
The masterplan and construction programme have not yet been defined; however, officials state that it will be an integrated mixed-use city with smart solutions and a transit system.
Xiongan is being billed as a ‘special economic zone’ and tech hub with hopes that populations from nearby Beijing will move there. It is slated to take 15 years for the city to absorb 4.5 million people, many of whom are already trying to move there.
China plans to spend around $322 billion by 2030 on its own giga-project and encourage 42 million people from nine city regions to move into a megacity in the Pearl River Delta. The population is expected to be around 80 million by the time construction ends.
Urbanisation, the importance of context and relevance
China is one of three nations to have put its own astronauts into space, it has the world’s largest high-speed rail network with over 19,000km of track and many other development successes
There have, however, been well-documented projects that remind us that China’s rapid development has often been accompanied by the challenges of contextual relevance. What other countries have done in centuries, China has and is doing in decades, which has posed serious questions.
The Three Gorges Dam, for instance, is the world’s largest hydroelectric dam, and it has left problematic and unforeseen environmental outcomes. The towns of Yujiapu, near Tianjin, and Tianducheng, which is close to Shanghai, are replicas of Manhattan and Paris respectively. Both were hastily planned, designed and constructed, and both are now abandoned.
It is important to remember two things: firstly, these aren’t all failures. These projects serve to act as vital case studies in a rapidly moving environment and provide valuable lessons. Secondly, challenges aren’t all uniquely Chinese problems and are worth pondering for any rapid development and urbanisation context.
It is now prevalent across China’s real estate industry that best practice and pragmatic project economics are carefully integrated in the development of large scale or city scale masterplans.
LWK+Partners ‘Chengdu Renmin North Road CBD’, for example, is planned with horizontally and vertically integrated infrastructure solutions.
It encompasses expandability, smart city solutions, contextual urban planning and place making overlays, all of which sit comfortable beside societal, cultural and governmental requirements and commercially successful outcomes.
Often these mega-projects are triggered by the phased mixed-use developments around integrated Transit Oriented Developments (TOD’S), such as the ‘Grand Canal City Comprehensive Transportation Hub’ in Shenzhen.
This offers both transport infrastructures to draw private investment across industries and sectors and population density to allow sustainable economic and societal growth and integration.
Transition and the future
China is not the only country that has successfully absorbed the demands of state rule with the needs of free markets, but it has done so for longer, at scale and with more proven results than any other.
Many commentators doubted that innovation could take place under the Chinese system. They were proven wrong.
China is now less worried about catching up to the West – it is comfortable in its own skin. Instead, it wonders how to pull ahead on its own terms.
In the future, Saudi Arabia might be unrecognisable to its founders, but its past, heritage, natural beauty and people will hold a powerful allure. Tourism is a big industry, it forms a powerful corner stone in its future development along with the impressive cultural, educational and societal initiatives.
The world thought it would change China, but Saudi Arabia’s ambition, drive and success could be so spectacular that it might change the region much in the way China has changed the world.