'4 Manhattans a year'

Fueled by an economic boom and accelerating migration from rural areas, China's cities are exploding upward and outward.
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By Suzanne McGee, MSN Money

SHENZHEN -- This city of high-concept glass office towers and fancy apartment blocks didn't exist 25 years ago. Turn back time and the city of Shenzhen was a quiet village of a few thousand inhabitants, mostly fishermen and their families, nestled at the neck of the peninsula that extends southward to Hong Kong. Video: See China's boomtown

Then Deng Xiaoping designated this city as China's capitalist laboratory. Highways unfurled all around it and new buildings started to sprout. Today Shenzhen is China's fastest-growing city. So rapid has been its growth that virtually none of its 9 million official residents (or its estimated 8 million illegal and unregistered ones) were born here. Video: What Deng did

"Now you build a highway, and within minutes there are new buildings and office buildings going up alongside it," says Shawn Gray, head of operations for Wal-Mart China. Gray is scrambling to find new sites for stores to serve the region's burgeoning population.

This wild growth is typical of southern China, a vast landscape now mushrooming with new airports, sports stadiums, office towers, apartment buildings, factories and entertainment facilities of all kinds. The amazing details depend on which analyst you ask. But here are a few that offer just a hint of this building boom's historic scale.

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China is now consuming about a third of the world's annual steel production and about half the world's concrete.

At any given moment, anywhere from half to two-thirds of the world's construction cranes are in China.

In the process, scores of new millionaires and dozens of new investment opportunities are being created. Graphic: China's wealthiest

The process produces odd contrasts: In Shanghai, the hub of much of this activity, travelers can marvel at the gleaming, spotless train station -- only to board Soviet-era trains with tattered seat covers.

"The country has been building the equivalent of four Manhattans every year for the last few years," says Jing Ulrich, the Hong Kong-based managing director of China equities for JPMorgan Securities.

Ulrich frequently finds herself disoriented upon returning to the city. In the time it takes to complete a business trip, old landmarks vanish and new roads appear where small clusters of older homes once stood.

Once, Beijing's boundaries stood at the Third Ring Road; the Fourth Ring Road (as the name suggests,

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the roads encircle the city) was seen as too far from the city center to be a reasonable location for a business or a home. Now Beijing authorities are planning developments around the Sixth Ring Road.

Throughout Beijing's central business district, the clang of steel beams being moved into place and the buzz of construction machinery can be heard well into the night near myriad floodlit building sites. Pu Jinshan, investment management director at Landgent Group, insists that work stops by 10 each night on the second phase of Landgent Chateau, a 14-building luxury residential complex. As at most of these new developments, there has been a scramble to buy the apartments, and the first half of the project -- only just completed -- has long been sold, even with lofty prices of $140,000 to $360,000 per apartment. Video: Luxury apartments

By the standards of cities like New York or Los Angeles, those prices may sound modest, but Beijing's citizens earned only $6,000 on average last year. The fact is Landgent Chateau is aimed not at the average Beijing resident, but rather at the ever-growing ranks of China's millionaire class. Chart: Disposable income

"We have three kinds of customers: those who have studied or worked abroad, those who are foreign investors in Beijing and those who hold top positions

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in companies," says Pu.

To make its wealthy customers feel welcome, Landgent Chateau's vast reception hall is decorated like an elegant living room, with a wall of giant bookshelves, comfortable sofas and a cappuccino bar. The windows of the sample apartments look directly out onto the street, where passers-by peer in at the luxurious furnishings -- thick carpets, beds piled high with pillows, stylish chandeliers.

"Everything is about the details," says Pu. To appeal to increasingly finicky buyers, he says, each project must offer "a unique and special personality." For Landgent, that means incorporating an international school (opened last year) into this new project, its second in Beijing and fourth nationwide. And it means devoting an entire building to full-service pied-à-terre -- with Pullman kitchens and housekeeping service -- for bachelors or businessmen who live only part time in Beijing.

Outside the central business areas, luxury-apartment towers give way to villa developments that often include not only landscaped parks, but man-made lakes (sometimes with docks for homeowners' boats), schools, shopping facilities, movie theaters and other amenities. Entire towns are springing up out of nowhere, seemingly overnight. In Songjiang, on the

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outskirts of Shanghai, a replica of a Tudor village is being created; in Pujiang, some 100,000 well-heeled citizens can live in a model Italian community, complete with Venetian-style canals.

In downtown Shanghai, a visitor can stand on the famous Bund riverfront and see the explosive pace of development across the Huangpu River in Pudong. Photo: The Bund

Until 1990, Pudong was a sleepy afterthought to Shanghai proper. Now it is home to most of the area's 4,000 or so skyscrapers -- twice as many as now exist in New York City -- as well as the Shanghai Stock Exchange and key corporate headquarters. By 2008, Pudong also will boast the world's tallest building -- the 101-story Shanghai World Financial Center. Graphic: Skyscrapers going up

The catalyst for all this development is China's pressing need to boost living standards for its enormous population, particularly the 900 million or so who still eke out a living in the agricultural regions.

"Rural folks lag behind urban areas in almost every respect, and there is not enough land for people in the Chinese countryside," says Fang Xiaoguang, vice chairman at Gallup China. Without urbanization

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there's little opportunity for these individuals to participate in the prosperity that cash salaries bring to many in the urban areas.

"Our urbanization rate in China is much too low; for a country with this kind of economy, we should have a 50% urbanization rate," Fang says.

Jing Ulrich, the JPMorgan executive, has kept an eye on the rate at which rural residents are moving into the cities. She is astounded. "There is an overwhelming migration of 20 million to 30 million rural dwellers to urban areas each year," she says.

To house the new arrivals, the government is increasingly slapping eviction notices on low-rise apartment buildings and small houses in the central areas, with the goal of freeing up land that can be used for high-rise apartment blocks. The government has also made it easier for newcomers to buy homes. By the mid-1990s, much of the housing stock once allocated by work units to their employees had been privatized at a discount, leaving an astonishing 70% of Chinese citizens owning their own homes (or, at least, with a 70-year right to the property; private land ownership is still viewed as non-communist).

To help those who want to upgrade as their wealth increases, the country introduced a mortgage market

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in 1997.

But prices for property have now climbed so rapidly that the central government, alarmed, has taken steps to try to cool things down. Late last year, the government boosted the amount required as a down payment on homes larger than 900 square feet. In hopes of discouraging speculation, the government has also announced that anyone selling property within five years of purchase will be hit with a special 5% sales tax, as well as a 20% capital-gains tax if the property was an investment. Video: High housing ownership

The soaring property prices are already generating a backlash. In Shenzhen, only about half of the population owns a home; a tiny apartment can cost the equivalent of 10 years' salary for a college-educated professional.

Today the rate of increase in housing costs in China's supercities is starting to slow, but the boom is spreading to second-tier cities such as Wuhan, Chongqing and Chengdu. Map: China's population density

Meanwhile, the ancient neighborhoods of Beijing, including the old courtyard houses in the hutongs, or narrow cobbled alleys, radiating outward from the

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Forbidden City, are rapidly vanishing. Residents mention rumors that those who refuse to sell old homes are evicted or beaten by the agents of property developers. The official newspaper, called People's Daily, has reported that courts have begun to refuse to hear cases brought by evicted residents. According to the newspaper, court officials feel their calendars are too crowded. Video: Hutong vs. high-rise

"The soul of this city is diminished when little features like the Spirit Screen Wall … are torn down to make room for some generic apartment complex," mourned a columnist in That's Beijing, a monthly English-language magazine. The erasure of old Beijing, he argues, "represents … a sort of myopic megalomania." Chart: Chinese stocks to watch

Produced by Anh Ly
Graphics by Joe Farro and Hakan Isik

Published June 29, 2007

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