Urban China Initiative

2011 Urban Sustainability Index

Urban China Initiative

2011 Urban Sustainability Index

Preface
The 2011 Urban Sustainability Index is one of the inaugural studies of the Urban China Initiative (UCI), a think-tank founded in 2010 by Columbia University, McKinsey & Company, and Tsinghua University. UCI was created to help solve some of Chinas most difficult urbanization challenges. In particular, UCI aspires to three goals: Solutions: Provide the best and most innovative solutions to urban development issues in China. Talent: Convene Chinas leading domestic and international urban thinkers and professionals, and serve as a magnet for the best global thinkers. Dialogue: Host Chinas leading national, provincial, and local dialogues on urban issues. With these complementary goals, UCI aims not only to play a role in advancing the academic discussion of Chinas rapid urbanization, but also to provide insights and tools that may be directly useful to national and local policy makers, who will have a profound impact on the nature of Chinas urban development. The 2011 Urban Sustainability Index builds on the work published in 2010, The Urban Sustainability Index: A New Tool for Measuring Chinas Cities, and is designed to be the first of yearly updates to the Index and analyses.1 The improvements in the Index methodology reflected in this report are in large part the result of thoughtful feedback provided by a number of experts in the field, both in China and abroad. Their insights into the utility of the Index strongly shaped the revisions to the tool itself and the focus of this years analysis, as well as the selection of the case study cities. In particular, we would like to thank Robert Beauregard, Professor of Urban Planning, Columbia University; Lv Bin, Director, Department of Urban and Regional Planning at the College of Urban and Environment Science, Peking University; Cui Dapeng, Secretary General, Low Carbon Department of the Chinese Society for Sustainable Development; Steve Hammer, Lecturer in Energy Planning, MIT, and co-Director of the Urban Climate Change Research Network; Huang Yaozhi, Professor of Urban Planning and Design, Suzhou University of Science and Technology; Li Tie, Director, China Center for Urban Development; Li Xun, Deputy Dean, China Academy of Urban Planning and Design; Mo Dongsheng, Vice Director, Planning and Construction Bureau, Suzhou Industrial Park; Yin Chengzhi, Associate Professor, Tsinghua University School of Public Management; Zhao Zhao, Guest Researcher, China City Development Academy; and Zhu Bide, Vice President, China City Development Academy.

For the full 2010 report, see www.urbanchinainitiative.org.

2011 Urban Sustainability Index

In addition, the report benefited tremendously from interviews with public- and private-sector leaders in Chengdu, Liuzhou, and Suzhou, the three cities we studied in detail. We look forward to engaging with a broadening circle of scholars and public servants as UCI continues to develop. The 2011 Urban Sustainability Index research was led by a joint UCI-McKinsey team, including Adriana Akers, Anthony Gao, Xiujun Li, and Molly Lindsay, with support from numerous others. Special thanks are also offered to Eadie Chen, Director of Strategic Engagement at UCI, and Gengtian Zhang, Research Director at UCI, for ongoing insight and guidance on the effort.

Prof. Geng Xiao Special Advisor for Strategic Development, Columbia Global Center | East Asia

Prof. Lan Xue Dean, Tsinghua University School of Public Management

Dr. Jonathan Woetzel Director, McKinsey & Company, Shanghai

December 2011

Introduction
Urbanization in China is proceeding at a rate and scale unparalleled by any other migration in recent history. Chinas urban population is projected to grow by about 250 million peoplemore than the total population of Brazil todayby 2025. Also by 2025, 202 Chinese cities will have more than one million residents, compared with 35 such cities in all of Europe today, and 50,000 skyscrapers could be built, the equivalent of constructing New York City from scratch ten times over. If current trends continue, the proportion of Chinas GDP generated by cities will rise from 80 percent to 90 percent over the same period. Indeed, Chinas continued urbanization is central to meeting the countrys aggressive growth targets, with the country currently on track to triple GDP between 2010 and 2025.2 Chinas rapid march toward urbanization makes urban planning a priority at all levels of government. The cities we examined in detail not only had plans for every square kilometer of urban space, but also are each planning to develop entirely new city centerseach as big or bigger than the existing urban coresto rise above acreage that was farmland just a few years ago. Whether measured by its relationship to the countrys explosive economic growth, the number of people affected, or the quantity of resources that must be marshaled, Chinas urbanization represents perhaps the most significant migration of the new century. Why sustainable urbanization matters Chinas leaders face a choice. As rapid economic growth and urbanization continues, the country could move increasingly toward protecting the environment, conserving resources, and promoting equal access to high quality social services. Alternatively, aggressive GDP growth could lead to unchecked environmental degradation, resource depletion, and growing populations without access to basic public services. The sheer scale of Chinas urbanization makes the stakes between these choices exceptionally high. In terms of energy, for example, urban China will likely account for up to a quarter of global growth in oil demand over the next 20 years, as well as 20 percent of overall energy demand.3 Deciding if, and how, aggressive GDP growth can be coupled with sustainable development is of paramount importance to Chinas future. In terms of social welfare, the massive migration from countryside to city is fueling urban growth and putting pressure on cities abilities to provide services to all residents. Chinas hukou system of residency permits, designed in the 1950s to control migration between rural and urban areas, means that millions of migrants to Chinas cities lack formal access to education or health care. Although data limitations

2 3

Preparing for Chinas Urban Billion, McKinsey Global Institute, March 2009; China Urbanization Model, December 2011. Ibid.

2011 Urban Sustainability Index

make studying Chinas migrant populations difficult, the phenomenon deserves special attention in any effort to understand the challenges and opportunities linked to Chinas rapid growth. The demand for housing created by the massive influx of population into urban areas has fueled a residential construction boom. Developers looking to profit from this boom have built large numbers of rapidly-constructed, near-identical housing projects across China. Unfortunately, the rush to profit from the construction surge has at times left low-quality buildings and ill-conceived area layouts. As an alternative, city planning departments can take advantage of the rise in housing demand to experiment and develop innovative designs for intelligent, environmentally friendly, and mass transitoriented development. Chinas rapid economic growth has had a predictable impact on the environment, including increased air and water pollution, which are posing greater and greater threats to human health. For example, today an estimated 59 percent of Chinas river water is below international potable standards.4 In addition, the resources required for rapid economic growth may become increasingly scarce. Coal, for example, is needed in ever increasing quantities to fuel the countrys power plants, and arable land is being taken over by rapidly expanding cities. But while rapid urbanization has unleashed these substantial pressures on society and environment, it has also given China a great opportunity to develop innovative policy solutions that support sustainable development. At a time when easily accessible technology can substantially reduce environmental damage, cities have the opportunity to prevent future harm and reverse the worst of the damage already inflicted. Impending scarcities provide strong incentives to implement and enforce policies geared toward conservation. Many of the most critical decisions on the shape of urban development will be made by local city leaders. While GDP growth targets are set by the national government, city officials exercise significant discretion in deciding how to reach those targets, as well as in shaping many policies that directly impact the sustainability of a citys development. In large part, it is local policy choices that will shape Chinas path towardor away fromsustainable development. It is in this context, with Chinas urbanization presenting both tremendous opportunity and great risks, that analyzing and understanding how China can achieve sustainable urbanization acquires great importance.

Ibid.

The Urban Sustainability Index The Urban Sustainability Index provides a data-driven evaluation of Chinese cities based on selected measures of sustainability. Developed in 2010 as a pilot research project of the Urban China Initiative, the Index strives to develop insights into the relative sustainability of Chinas rapidly growing cities, as well as to highlight case studies of successful policies and outcomes. Ideally, the Index will become a tool useful not only for academics, but also for policy makers. The Urban Sustainability Index is the first urban development tool of its kind created specifically for Chinese cities. While we believe the methodology can be applicable to cities anywhere in the developing world, the metrics have been tailored to the level of development of Chinas cities and take into account the unique data constraints found in China. The Index ranks 112 Chinese cities in terms of overall sustainability based on a set of social, economic, and environmental indicators. The cities studied are those designated in 2006 as target cities for sustainable development by Chinas 11th five-year plan (Exhibit 1). These cities span all regions of the country, range in urban population from 200,000 to almost 18 million, and represent income levels from the relatively poor, with average annual per capita income of just over than 10,000 renminbi, to the far more affluent, with average per capita income of 30,000 renminbi. This sample set has the advantage of providing a group of cities large enough to be relatively representative of China as a whole, yet small enough to make data collection feasible.5 Furthermore, with the national government primed to seek ways to pursue sustainable growth in these cities, insights derived from these cities may prove of immediate interest to policy makers.

The sample set excludes urban areas that have not been designated of cially as cities. McKinsey Global Institute estimates that between 1996 and 2005, 176 urban centers emerged that behaved like cities according to the relevant government criteria, but were not designated as such.

2011 Urban Sustainability Index

Exhibit 1

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Analysis of the 2011 Urban Sustainability Index revealed a positive correlation between a citys income level and its sustainability scores, indicating that in some cases Chinas continued economic development may have a positive impact on sustainable urbanization. In addition to discussing this quantitative analysis, the report includes a more qualitative exploration of three case study cities that showed particularly strong improvement in one or more areas of sustainability. The report examines the sustainability of urban China through the stories of these cities from three perspectives: the expansion of the physical city through the planning and construction of new urban centers; the social and legal position of migrants to Chinas urban centers; and the impact of government capital investment on environmental sustainability.

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Constructing the index

The Urban Sustainability Index defines sustainability as economic growth that improves the lives of the people without exhausting the environment or other resources. To measure this concept of sustainability, we created a framework including four broad categories:6 Social sustainability: Providing for the basic social welfare of the population. Economic sustainability: Balanced economic growth that supports income growth for the entire population. Environmental sustainability: Environmental cleanliness and protection, and a built environment that encourages sustainable practices. Resource sustainability: Efficient use of available resources. We broke down environmental sustainability further into four categoriesair quality, water quality, waste treatment, and built environmentto reflect more specifically the broad range of environmental impact included under this heading. Within each category we further delineated a number of component parts and identified indicators that would best reflect a citys performance in each. Significant data constraints limited our access to reliable information for some indicators, despite recent improvements in quality and availability of public data. In some of these cases, we found ways to measure the indicators directly; in others we had to settle for reasonable proxies; and, in some instances, the measure had to be omitted entirely because no reasonable metrics could be found or created. For example, we were unable to measure water quality because uniform national data was not available, so this category is not reflected in the final Index (Exhibit 2).

This framework represents a slight revision of the framework used in the 2010 report. Most notably, we have excluded the government commitment category because of challenges in measuring government spending on initiatives directly related to sustainability. Instead, we explore government investments in sustainability through case studies. We also replaced a number of individual indicators included in the 2010 index due to inconsistent data quality, most notably in the society category.

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Exhibit 2

When calculating each citys overall Index score, we used the following methodology: Collected raw indicator data and converted raw data to reflect a consistent relationship to achievement (so higher values reflect higher degrees of sustainability for all indicators). Normalized data for each indicator on scale of 1 to 10 based on the minimum and maximum values for that indicator, with outliers removed in some cases. Calculated each citys Index score based on weighted average of normalized scores with each category within the framework receiving equal weight. Ranked cities within each category based on category score and across the overall Index based on Index score. This methodology represents a slight change from the 2010 report, which computed overall rankings based on rankings in each indicator, rather than normalized scores. The impact of our decision to define our sustainability framework beyond environmental indicators is immediately apparent from the rankingsBeijing, for example, a city which many may associate more with traffic congestion than

2011 Urban Sustainability Index

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sustainability, is propelled to the top of the overall rankings by its strong performance on social welfare spending and economic diversification indicators (Exhibit 3).
Exhibit 3

Approach to analysis Once the appropriate indicators or their proxies were compiled, we conducted a detailed analysis of the results to examine the characteristics that define high-performing cities. Based on discussions with academics, government representatives, architects, and urban planners in China and abroad, we decided to examine the data from the following perspectives: City groupings: We grouped cities into three categories by population (less than 2 million, 2 million to 10 million, and more than 10 million) to support more appropriate comparisons and analysis. Because comparing the efforts and achievements of a city of 200,000 people to one of 10 million may not be fair in terms of rankings or relevant in terms of identifying ongoing trends, we were careful to add the lens of city size to both our rankings and analysis.

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Category results: In addition to examining overall Index scores, we also analyzed cities scores in each Index category separately, allowing us to probe for trends that might be obscured by the overall results. Improvements: Important lessons to be learned may come as much from cities that have shown significant improvement as from cities that sit at the top of Index rankings. To capture those stories, we focused on cities that have shown the greatest improvements in scores from 2005-2009 (the period for which we collected data), as well as those who ranked highest in 2009. Between the 2010 and 2011 reports, we also shifted our emphasis toward case studies and away from a quantitative evaluation of the Index. While the Index is valuable in synthesizing available data, by itself it may not provide insights into the choices cities are making to become more sustainable. A large part of its utility comes from allowing us to identify and study cities that have improved their sustainability rankings considerably, highlighting achievements that might otherwise have gone unnoticed.

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Key relationships to sustainability

We focused the analysis of the 2011 Index on examining the traits that characterize high-performing cities.7 Overall, we found that urban income per capita was the only trait that consistently predicted final Index score.8 Higher average incomes per capita were particularly closely correlated to higher scores in the environment category. The relationship between income and environment was especially strong in lower-income cities, with a diminishing impact in higher-income cities. In conducting this analysis, we tested a number of traits for correlation with Index scores: population, GDP, GDP growth, real income per capita, government expenditures, estimated migrant population, and share of GDP attributed to the service, light industrial, and heavy industrial sectors. In addition, we considered whether the city was a provincial capital and examined other geographic attributes, particularly comparing coastal cities to inland and southern areas to the rest of the country. With traits of potential significance identified, we examined each traits correlation to overall Index scores as well as scores within each category, analyzing data for cities in each population group separately as well as in aggregate. We also used multivariate regression to look for collections of traits that might predict Index scores.9

The 2010 report focused on analyzing overall trends in Index scores over time, in particular examining how performance in indicators changed from 2005 to 2008. In 2011, we chose not to revisit the time series analysis in detail, because one additional year of data (data from 2009 was added for the 2011 report) is not enough to alter a ve-year trend signi cantly. The 2010 report analyzed individual indicators and found no relationship between wealth and the indicators examined. The 2011 report challenges this earlier nding for several reasons. First, as previously noted, we replaced a number of indicators due inconsistent data quality; these were all indicators that showed no correlation to wealth in last years analysis. Second, the 2010 report compared indicators with GDP per capita; a number of resource-rich cities measure extremely high on GDP per capita, but low in terms of residents real income, and including these cities as wealthy cities reduces the observed correlation between sustainability and wealth. Finally, in the 2011 report, changes to the methodology used to compile Index data allowed us to compare traits such as income not only to individual indicators, but to category scores and the overall Index score. Using this more comprehensive correlation and updated indicators, analysis indicated that per capita income is correlated to sustainability as measured by the Urban Sustainability Index. None of the numerous regressions examined revealed that any combination of traits tested was a stronger predictor of Index score than per capita income alone. Therefore, we used simple correlation coef cients to measure this relationship rather than multivariate regression.

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Income and sustainability Among the variables tested, a citys per capita income was the only significant predictor of Index scores, with higher incomes correlated with higher scores (Exhibit 4).10 This overall relationship is driven by significant correlations between per capita income and scores in the social sustainability, economic sustainability, and environmental sustainability categories.
Exhibit 4
~ } y q r | v { k g v z k j k d x j e j j y h j x i e j w h i c d m l h v l o g u f h q f g f v t j n e a f s r h q g v p a D b R $ )  U ( c A T c b C S ) f R  d Q d 7 e  P 8 y I 4 c H h C g G % 4 w $ F a B u E ' a v 7 ! 2 v $ A h a 0 g f ) e d 4 c b b @ $ a u b e d g $ w $ g v X 4 a  8 v ' $ e f v 7 e y 6 a b % 5 p # p 4 h s v 3 a g u f g v 2 f e c 1 d v g g f ! f g e u ' # f ( a c 9 v 4 4 c y a 8 h c g B g ' e # v ' ` c 7 x b 7 y s 6 g Y 2 d w A Y 5 d $ y b e 4 ) h a # h ( 3 e a A g v x f d 2 C c d e 1 b e ) a 0  w u 7 ) v v e # ( f 8 g h g '           c 4 e v y & " "     ! ! u C c h g b f W g c u f ' g t d g s c C r e q A w h p a g V u i e f 6 h g h v d 2 a g e f ' c e A d b h ( c e b ) b p 0 a b p 4 ` s Y s @          

Notably, this finding is consistent with the pattern known as the environmental Kuznets curve. The environmental Kuznets curve predicts that environmental conditions will initially deteriorate as an economy develops, but at a certain threshold of development the pattern reverses and environmental impact improves. This could be, for example, because vehicle usage initially rises unchecked as incomes

10 The correlation was equally strong for small- and mid-sized cities, so we combined all population groups rather than conducting separate analyses. The correlation coef cient between per capita income and overall Index score for the entire sample set is 0.62. It is also worth noting that population size and per capita income are highly correlated and therefore both predictors of high Index scores; the top 10 cities in overall score, for example, are all mid-sized or large cities. However, per capita income is a stronger predictor of score than population size.

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increase, until a certain point when priorities and resources shift toward environmental protection and the government enacts curbs on emissions. The findings from our analysis suggest that the cities studiedwith per capita incomes ranging from 10,000 to 30,000 renminbi (approximately 1,600 to 5,000 US dollars)have already passed the stage where income growth leads to increased environmental degradation and have reached the point where further development predicts improvement in sustainability. Even among the poorest cities in our sample set (the approximately 20 percent of cities sampled with incomes below 15,000 renminbi), the correlation between income and Index score was positive; we were therefore unable to identify at what point higher income might first begin to predict improvements in sustainability. Overall, the demonstrated relationship between cities income and score in the Urban Sustainability Index is encouraging, as it indicates that at least some of Chinas cities have been able to couple economic growth with gains in sustainability. The correlation between income and score is strongest in the environmental sustainability category, which comprises the subcategories air quality, waste management, and built environment. While all cities showed a similar correlation between income and overall Index score, the relationship of income to environmental sustainability score varied significantly for cities of different income levels. Indeed, for lower-income cities the correlation is significant, while cities with incomes above 20,000 renminbi per year show no correlation at all (Exhibit 5).11 This indicates that at some point the Kuznets relationship weakensthat is, past a second threshold, increases in wealth may no longer predict further gains in sustainability.

11 For cities with per capita income below 20,000 renminbi per year the correlation coef cient was 0.53; for cities with per capita above 20,000 renminbi, minus 0.08. To reach this result, we analyzed cities rst by population group, nding that small cities show correlation while mid-sized cities show none. However, population size is strongly correlated with income (small cities tend to be poorer), and upon further examination, cutting cities by income resulted in stronger correlations than dividing by population.

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Exhibit 5


This pattern indicates that developing Chinas wealthiest cities alone will not necessarily reduce the countrys overall environmental impact significantly. Instead, raising the income of smaller and poorer cities will likely trigger a much greater improvement. This suggests that while the national governments explicit aim to support the development of less-advantaged inland cities could support appreciable gains in environmental sustainability, it should also be combined with a broader effort to raise standards in poor cities nationwide. Factors with little impact on Index scores In our investigation, we examined a number of factors that seemed to have little impact on our sustainability scores, a few of which merit further discussion. Location: We looked for differences based on location through three lenses: region, coastal location compared with inland, and southern cities compared with the rest of the country. In each analysis, we controlled for income to ensure that any correlation between geography and income did not explain the results. In general, we found no significant differences that could be linked to location, although coastal cities enjoyed a marginal advantage among mid-sized cities. These results indicate that geography does not play a determining role in sustainability or

2011 Urban Sustainability Index

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improvements in sustainability. Rather, level of development and policy choices at the local level are more important than any immutable characteristic of a city. Migrant populations: Because migration is a very important factor in Chinas continuing urbanization, we also looked for relationships between a citys migrant population and its Index score or change in score. Would cities that have larger migrant populations suffer or benefit from the influx? The size of migrant populations in China is notoriously difficult to estimate and almost no public data is available on migrants. Official city population figures in China are based on hukou population only, and do not account for migrants without hukou. To estimate the size of migrant populations in each city, we first estimated the citys overall population based on census data, and then subtracted the official hukou population.12 We found no correlation between this estimate of migrant population and Index score or change in Index score in any category. Migrant populations may be absorbed into cities in such a way that their presence bears no relationship to the sustainability indicators we measured, or the absence of a correlation could be because of limitations in our ability to measure migrant populations accurately. Policy clusters: We also examined the interrelationship between indicators in the Index, looking for correlations linked to certain types of policies or initiatives that may be commonly implemented together. For example, would simultaneous improvement in the areas of waste management and pollution control indicate that cities tend to implement policies in both areas together? However, the only notable correlations we found were among indicators that are inherently related, such as sulphur-dioxide emissions and energy use, which are both higher in areas of high heavy industrial concentration.

12 Census gures count migrants who reside in a city for over six months.

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Success stories
Moving beyond the raw data of the Urban Sustainability Index, we selected three cities for an in-depth consideration of how local officials are promoting sustainable development and addressing the challenges of rapid urbanization. Extensive interviews with city leaders in these cities highlighted three trends with broader relevance for sustainable urbanization in China: New urban centers: Urban growth is often being channeled into new city centers developed outside the existing urban core, reflecting an attempt to ease the pressures on existing infrastructure by creating new, self-sufficient, residentialindustrial clusters. Urban-rural policy reform: The growth of cities has been fueled by the large-scale inflow of migrants from the countryside. Pilot reforms to the policies governing these urban migrants may be a precursor of more widespread change ahead. Investment in sustainability: Major investments in waste management, water treatment, and public transit have yielded appreciable gains in sustainability in the cities studied. However, developing models to ensure the longer term financial sustainability of such investments may present a challenge. Cities selected Our case analysis focused on three cities that illustrate the diversity among Chinas urban centers as well as accomplishments that can be achieved through policy initiatives: Chengdu, one of the largest and most advanced cities in the western region; Suzhou, a manufacturing hub near Shanghai and an early recipient of foreign direct investment; and Liuzhou, a heavily industrial, lower-income city set among mountains in southern Guangxi province (Exhibit 6).

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Exhibit 6

We selected these cities from our overall sample based on their high rankings in the Index and improvements they have made across various categories between 2005 and 2009. Chengdu demonstrated both high scores and significant improvement in the environment category, as well as substantial gains in economic diversification indicators; Liuzhou was among the top ten most improved cities in the environment category; Suzhou is among the top ten cities in terms of overall score, driven by its top-ten scores in the economic development and built environment categories. Other criteria included evidence of notable policies and initiatives related to sustainable development as well as a conscious intent to showcase a diverse sample of cities based on size, location, and economic base. While we chose these cities based on strength in certain categories of Index scores, we broadened our examination of each to include all facets of sustainability. By highlighting common trends across all three case studies, we hope to illuminate patterns that may be more broadly relevant to Chinas urbanization, rather than focusing purely on these cities more outstanding successes. Chengdu: The economic heart of massive Sichuan province, Chengdu is one of the most developed and fastest growing cities in Chinas western region. The capital of Sichuan, Chengdu rests on a vast plain bordered by mountains on the north and west. With an urban population of 7.4 million, Chengdu is the eighth largest city in China.

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Chengdus economic output accounts for a third of Sichuans total. The citys economy has already transitioned substantially toward the service sector, which accounts for about half of urban GDP. Chengdu expects to maintain an aggressive 15 percent economic growth rate even if national growth slows, in part reflecting the development gap between the western region and wealthier cities to the east. The citys position as a major growth hub in the less-developed western region makes it a particularly interesting case study to examine. Alongside its substantial achievements in economic growth and the improvements in sustainability reflected by the Index, Chengdu faces a number of challenges, many of which are typical issues in large, rapidly developing cities. It has one of the highest ratios of cars per capita in China, and the resulting congestion and air pollution are unchecked by any serious regulation of private vehicles. The citys large investment in public transportation and its attempts to cluster housing and employment centers together have not yet been enough to offset this problem. Suzhou: One hundred kilometers west of Shanghai in Jiangsu province, Suzhou is a well-known manufacturing center with a relatively long history of foreign direct investment. Suzhous urban population is 3.9 million, with several million more in satellite cities. With a per capita income of over 27,000 renminbi, the city is relatively wealthy among Chinese cities. Leading industries include machinery manufacturing, electronics manufacturing, textiles, and information technology. The municipal government predicts that economic growth will remain steady at about 8.5 percent per year through 2025, substantially below the average 20 percent per year maintained during the first decade of rapid industrialization. In some ways, Suzhous early industrialization has proved a handicap, as it left the city with a legacy of environmental degradation and impending resource scarcities. As Suzhou focuses on shifting its economic mix more toward high value-added manufacturing and services, the local government has made substantial efforts to develop waste management and wastewater treatment systems to restore the areas natural environment. As an early industrial hub, Suzhous progress toward sustainability provides potential lessons for other cities in earlier stages of development. Liuzhou: Liuzhou is smaller, poorer, and more dependent on heavy industry than the other cities we studied in detail. Nestled in a bend of the Liu River in Guangxi province, Liuzhou is surrounded by the striking karst mountain peaks that have earned the region UNESCO World Heritage status. The citys urban population is 1.4 million. Large steel, chemical, and heavy equipment manufacturing companies remain within Liuzhous urban district, and the largest of the newly planned industrial parks is focused on the auto industry. Manufacturing has seen rapid growth in recent years, with the citys GDP growing by over 60 percent between 2005 and 2009.

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Liuzhou has shown notable improvement in waste management, primarily by extending waste collection systems to the rural outskirts of the urban area. The city has also made great strides in improving water quality (although this metric is not reflected in the Index itself); in less than a decade, the percentage of wastewater treated in Liuzhou has risen from close to zero to 90 percent. Because it remains in the early stages of development, Liuzhou has yet to face many of the challenges common in the more developed cities we examined. Significant traffic congestion, for example, is not yet a problem and the volume of construction is not high enough to contribute substantially to air pollution. New urban centers Each of the cities we studied has crafted a detailed urban plan that lays out the usage of each square kilometer of urban space and meticulously details each new development. One notable facet of this planning is the construction of new urban centers outside cities current urban boundaries. Plans call for building new cities from the ground up on what wasand in some cases, still isopen farmland. Nowhere else in the world are so many cities rising from virtually nothing, and these new districts give planners tremendous leeway for creative and sustainable design. At the same time, these new cities risk contributing to the rapid expansion of urban sprawl. In Suzhou, the Suzhou-Singapore Industrial Park provided an early model for city-outside-the-city development. Established in 1994 with investment from the government of Singapore, the industrial park was one of the first to be called yuanqu, a term for an independent administrative division that avoided the politically sensitive connotations of foreign concession. Although potential opposition to foreign direct investment is no longer an issue, the name has stuck for similar industrial parks throughout the country. Like the more recent developments we studied, the Suzhou-Singapore Industrial Park combines industrial and residential areas. Housing prices in the Park are higher than those in the Suzhou city center. Low-tech, high-energy, and high-pollution industries were purposefully excluded from the development plans. The Park has experimented with ecological zones focused on transit and environmentally friendly buildings, although high costs have limited plans for expansion of such zones. After almost a decade of successful growth, the Singapore-Suzhou Industrial Park now finds itself at a crossroads, in need of a model for sustainable growth. Rapid revenue growth in the Parks first years, which averaged about 15 percent annually, was driven largely by land acquisition and sales, high labor availability, and high fixedasset investment. Now, a new model is needed to sustain target growth levels. The choices made at Suzhou-Singapore Industrial Park could provide guidance for the future of the many new developments still in the rapid-growth phase of expansion.

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Liuzhou is also developing industrial centers outside the current city limits. Although the government is offering subsidies to the service sector and pushing manufacturers away from the urban core, a number of traditional heavy industries, including steel and chemicals, are still allowed in the city center because of the high costs of relocation. Continued reliance on heavy industry and manufacturing has helped the city increase GDP by over 60 percent between 2005 and 2009, underscoring the reluctance to dramatically change this economic formula. In keeping with the continued focus on manufacturing, Liuzhous planned new district focuses on the automobile industry. Liuzhous plans for an ambitious new city center locate the development to the east of the current urban areathe only side of the city not surrounded closely by mountain peaks. As in many Chinese cities, plans for the new development are showcased publically. A two story exhibition center built near the city governments offices includes a gigantic scale model of the city and its outlying areas, interactive history displays, detailed zoning maps of every district, and narratives on plans for development of transportation infrastructure, green space, and tourist attractions. The new industrial center will focus primarily on the automotive industry, but the design also calls for government offices, schools, residential development, and other supporting infrastructure to be built in the area. Construction is still in the very early stages, and basic infrastructure is expected to be in place within two to three years. Once completed, the center is expected to be home to about 700,000 residents, making it almost the size of Liuzhous urban area today. Of the cities we studied in detail, Chengdu has the most ambitious plan for its new city center. The district, Tianfu Xinqu (or Tianfu New District), is to be built on 1,700 square kilometers, of which 500 square kilometers (an area almost the size of the city of Chicago) will be built-up and the remainder open space. The planned development is just one aspect of Chengdus land use master plan, which focuses on moving polluting industries from the urban core and replacing them with service-oriented clusters. Real estate prices have helped Chengdu execute this plan. Land zoned for industry within the urban core costs about 50 percent more than in surrounding areas, giving industry a strong economic incentive to relocate. Under a policy dubbed the One District One Industry plan, city leaders hope to cluster a single industrial sector, such as information technology or financial services, in each city district. Approaching Chengdu from the south, the shifting focus toward service industries is immediately apparenta new high-tech park presents a striking cityscape with new, sharply designed buildings towering along the road from the airport to the city center. Services already account for a greater share of city employment than either manufacturing or construction, although a few traditional manufacturing sectors,

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such as shoe-making and furniture-making, are still encouraged because of the high number of jobs they provide. Tianfu Xinqu is designed around service sector industry clusters, and plans are shaped by several progressive design principles, including the reverse-planning approach, in which overall design flows from the open spaces rather than from the built-up area. The government advertises a design following ideas from American urban planner Kevin Lynch, a student of Frank Lloyd Wright, including establishing visual landmarks, preserving historic districts, and focusing on open public areas. The design calls for 32 integrated industrial-residential clusters, where residents may live near their jobs, avoiding long commutes. The citys public transit expansion plan includes extending the future metro system through the new development, as well as expanding bus lines to meet the needs of future residents. Altogether, 46 public parks are planned for the center, and green space per capita should reach 15 square meters, more than a third higher than the average for cities in our index. While plans for Tianfu Xinqu are detailed and thoughtfully conceived, their ultimate execution remains highly uncertain. Maintaining the planned open space, transitoriented development, and promised Sichuan feel in the face of developers constant pressure to build as quickly and cheaply as possible may be a challenge. Like new urban centers planned in other cities, Tianfu Xinqu may serve as a test of local governments commitment to following through on commitments to sustainability. Urban-rural integration Chinas rapid urbanization has focused attention on the legal and social position of the hundreds of millions of migrants flocking from the countryside to cities. The tension stems from Chinas history of managing urban and rural areas separately, which began in the 1950s with the hukou system of residency permits, designed expressly to control migration. As Chinas economy has opened, restrictions on migration have relaxed, but the rural migrants who have poured into cities are still ineligible for social benefits available to official residents. In 2007, the national government designated Chongqing and Chengdu pilot cities for hukou reform. Their policy experiments may serve as a bellwether for national reform to come. Like other rapidly developing cities in China, Chengdu has seen a massive influx of migrants. According to the city government, more than 4 million migrants live in the six urban districts of Chengdu, mostly within the urban core, and the number of migrant residents has grown 15 percent a year for the past five years. Most come from elsewhere in Sichuan province or from neighboring Chongqing and work in low-wage, low-skill sectors such as construction. Recently, however, higher-end industries such as finance and high-tech have been attracting better-educated migrants to the city.

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Chengdu extends greater benefits to migrants than most cities in China, and employed migrants now enjoy similar benefits as non-migrant residents. Chengdus Migrant Management Office, a division of city government historically focused more on controlling than supporting migrant populations, has an explicit mandate to expand services for migrants. Among other actions, the Migrant Management Office has issued specific guidelines to each social service department regarding the services that must be provided to migrants. Some benefits, however, still remain one-sided: social welfare benefits for low-income residents, for example, are withheld from migrants on the rationale that overly generous programs could serve as a disincentive to finding employment. Chengdu is also a pioneer in rural-urban policy integration. To help change policies across city government, the city created the Commission for Balanced Urban and Rural Development, a unique government body designed to coordinate policies across various relevant government departments. The Commissions mission is to narrow the development gap between rural and urban areas, with an ultimate goal of abolishing the hukou system entirely. The Commission oversees initiatives in the areas of property rights reform, land management, and village-level public service management for rural areas. Today, rural residents can migrate freely throughout Chengdu, and, unlike in Chongqing, migrants retain their property rights in the countryside when they resettle in the city. This is critical for many migrants because rural property serves as a safety net: if they fail to make ends meet in the city, they can always return to the village. Without this option, many might choose not to migrate, even if offered city residency. Chengdus property rights reform program also eases property transfers by issuing ownership certificates, protects family rights (including those of women), and educates rural residents regarding their property rights. The impact of Chengdus policies on migration patterns and social welfare of migrants is not yet apparent, but the pilot policies under development may serve as the first steps in a reform program to be implemented in a broader set of cities. The other cities we examined have not yet undertaken similar policy reform. Given its early reliance on manufacturing for economic growth, Suzhou has long been mindful of the status of migrants within the city, for example granting hukou residency permits in industrial parks to migrants with desired skills. However, Suzhou has not undertaken a coordinated reform program like that of Chengdu. In Liuzhou, migrant workers present a less pressing issue. Liuzhou is a smaller, lower-income urban center and remains a net exporter of migrants to larger urban areas. Investment in environmental sustainability In our case study cities, significant capital investments have improved environmental sustainability in three notable areas: public transportation, waste management, and

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wastewater treatment. These improvements indicate that government commitment, particularly capital investments, can result in significant and rapid environmental gains. They also provide an indication of the practices that may lie behind the observed correlation between per capita income and gains in environmental sustainability. As cities develop, they begin to make the types of investment that directly impact environmental sustainability. Public transportation The need for effective public transportation increases rapidly as Chinese cities experience income and population growth. Greater wealth brings more private cars to the road, causing traffic congestion and increased air pollution. As cities expand across larger areas, commute times increase and public transit capacity is tested. As the most developed urban center among our focus cities, Chengdu faces the most acute transportation problems and has, in turn, invested heavily in public transit infrastructure. In recent years, car ownership in Chengdu has increased by about 20 percent annually. With one in five families owning a car, the number of vehicles per capita in Chengdu is among the highest in China. The explosive growth of vehicles on the road has led to worsening traffic problems and has contributed substantially to air pollution. Part of the citys solution has been to expand the road system and enact measures designed to ease congestion. For example, the Chengdu government has increased parking fees in the downtown area and employed road restrictions during rush hour, including turning certain roads into one-way streets. The city even experimented with altering working hours for government employees, but the impact on rush hour congestion was marginal in the face of rapid growth in car ownership. Notably, Chengdu has not deployed substantial limitations on the use of private cars as have cities such as Beijing, where license plate numbers determine whether a car can enter the city on certain days. Chengdus primary response to the pressures on transportation systems has been to make significant investments in public transit, including building an extensive metro rail system. A north-south line covering 18.5 kilometers opened in 2011, and a second line is scheduled to be finished in 2012. The entire system will cover 292 kilometers and is scheduled for completion by 2020. In the meantime, the city has expanded its bus network, increasing the number of buses on the road from 4,000 to 7,000 since 2006. During this period Chengdu also added 38 dedicated bus lanes (previously, it only had two). As a result, average bus speeds have risen from 12 to 17 kilometers per hour and ridership has grown from 2 million to 3.8 million. The mayor has set an explicit target for reducing crowding on rush hour buses, and the city will aim to decrease bus crowding from the current average of eight people per square meter to five. To help alleviate crowding, the city

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is deploying more buses on heavily used routes during peak times. Ninety percent of Chengdus buses run on low-emission compressed natural gas. Chengdu is also piloting a bicycle sharing program designed to help public transit riders with the last kilometer of their commutes. While cycling from residences to workplaces is not seen as a viable transportation option for the many city residents who face substantial commutes, bicycles can ease access to public transit stops for those who live or work in areas that arent served well by subway or buses. Public bicycles are locked at stations around the city and can be borrowed at no cost if returned to any station within one hour. The program has already installed 3,000 bicycles in limited areas of the city, with plans to eventually increase the public bicycle fleet to 80,000. Even with these significant investments, anecdotal evidence suggests that Chengdu residents are facing longer commutes and worsening traffic. One government official noted that his department recently moved to a new office complex in the rapidlyexpanding southern side of the city, near several new high-tech parks and close to the edge of Tianfu Xinqu. As a resident of the city center, he now has to commute ten times farther to work. He said even with housing available near his new office, he wouldnt choose to relocate his whole family because his wife would face a commute back into the city every day. As this anecdote illustrates, the focus on co-locating employment and housing in new developments alone is likely not enough to avoid continued pressure on transportation systems. Transportation challenges in the other two focus cities have not become as urgent as those of Chengdu, but both have included public transit improvements as part of their development plans. Congestion is already evident in Suzhou, and the city has taken measures to improve public transit, including increasing efficiency by consolidating the number of companies running bus lines. Liuzhou does not yet face immediate traffic problems, but has begun plans for a bus rapid transit (BRT) system to link the new developments in the east to the city center. Waste management All three cities examined have seen significant achievements over the past five years in waste management. A common first step in improving waste management systems seems to be expanding waste collection, followed by adopting increasingly modern and environmentally friendly disposal methods. Liuzhou has only recently launched comprehensive waste management efforts, but the city stood out in the Index for achieving almost universal domestic waste disposal in recent years. Prompted by a province-wide initiative in 2006, Liuzhou extended waste collection coverage to include outlying areas of the urban district, and is currently building several new transfer stations to increase efficiency. In addition,

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the city treats a higher-than-average percentage of industrial waste, even though a number of heavily polluting industries remain in the city. Liuzhous sole waste disposal method is landfilling. One site was closed in 2003, and the currently operating facility falls short of the national environmental standards that were enacted in 2008. The facility is expected to be sufficient to handle the citys needs for up to 18 years, even accounting for an expected 5 percent annual increase in the amount of waste generated. The city is piloting a methane-to-energy initiative at the new landfill that is expected to generate enough electricity to serve 30,000 to 50,000 families. As part of its waste management efforts, Liuzhou has a governmental office that oversees industrial solid waste management and recycling. Most of the larger companies in Liuzhou already recycle their own industrial byproducts. The city hopes to concentrate smaller industries lacking capacity to recycle their own waste into clusters to make third party treatment and collection easier. Regulation and enforcement is needed, however, to ensure that these collection companies dispose of waste properly. Chengdu is considered a national leader in waste management policy, and in 2011 the city was host to a national waste management conference that included visits to the citys new waste-to-energy incineration facilities. These plants use high-tech methods to produce energy as a byproduct of waste incineration. Two have been built in the districts of Luodai and Shuangliu, and two more are slated for construction. The citys goal is to have none of its waste buried in landfills by 2015. (The United States buries more than half its waste in landfills.) Chengdus facilities have been carboncredit certified by the UN, although critics of waste-to-energy technology point to the potential release of harmful air pollutants as a significant downside of the technology. Suzhou operates a similar waste-to-energy facility. In contrast to waste disposal, waste reduction is not a priority in any of our focus cities. Chengdu, for example, generates 500 to 800 grams of waste per capita daily, which is well below the US average of 2.1 kilograms and European average of 1.4 kilograms. However, as the city develops, leaders expect the amount of waste generated to increase and its composition to shift toward packaging and away from organic material. Although the city government has made preliminary efforts to limit the volume of waste generated, such as implementing a tax on plastic bags used in supermarkets, an overall increase seems inevitable as development continues. Wastewater treatment All three cities examined have made significant efforts to clean up local water supplies. Water quality is not included in our Index calculations because of a lack of national data, but the experience of the focus cities suggests that wastewater treatment, like

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waste management, may improve as cities develop. Liuzhou, Suzhou, and Chengdu have each already mitigated the worst of local water pollution. Chengdu now offers near universal wastewater treatment. The city treats more than 90 percent of urban wastewater and about 80 percent of wastewater in the outlying areas. Complete coverage is not considered cost-effective, so further infrastructure expansion is unlikely, at least in the short term. Suzhou has taken steps to clean up the serious domestic, industrial, and agricultural pollution of its numerous lakes. Suzhous wastewater treatment rate jumped from about 70 percent in 2005 to more than 85 percent in 2009. Under city policies, villages must undertake basic wastewater treatment measures if water cannot be transported to a treatment center. Urban water treatment regulations have also been strengthened. For example, the city has enacted regulations for runoff water from balconies in residential buildings, which is often contaminated with detergent. To improve the water quality of Yangcheng Lake, the government has reduced crab cultivation, which muddies the lakeshore severely; it has also invested 600 million renminbi to restore a scenic lakefront at Shi Lake. Liuzhou has seen perhaps the most dramatic improvements in wastewater treatment over the past few years. Construction of the citys first wastewater treatment facilities have resulted in an increase of treatment rates from near zero in 2003 to almost 90 percent in 2009. The Liu River, which surrounds the city center on three sides, now flows a clear green color, a dramatic change for a river that once regularly emitted a chemical stench. Liuzhous wastewater treatment program was enabled by $100 million in funding from the World Bank, which covered 30 percent of cost of the first phase of construction of treatment facilities. Five wastewater treatment plants with a combined capacity of 680,000 tons of water per day, enough to treat more than 80 percent of domestic wastewater, were opened during the first phase of the project, which ran from 2004 to 2009. A second phase, with an additional $150 million in World Bank funding, will focus on building treatment plants in the northern counties upriver from the city center. Areas still without wastewater treatment are primarily villages within Liuzhous urban zone, where the cost of extending treatment is high because of poor existing infrastructure. Further improvements are awaiting overall redevelopment plans for these areas. Although the plants are operating effectively under monitoring from the World Bank, finances have proved a challenge. The fees charged for water usage are insufficient to cover the operating costs, and collection rates are well below target; furthermore, large industries often divert water directly from the Liu River, making it hard to gauge usage and assess the appropriate fees. With water prices set by the National Development and Reform Commission, the company lacks the authority to

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generate additional revenue by raising fees. Because of these challenges, the water management company is not yet self-sufficient and relies on government subsidies to make up budget shortfalls. This dilemma exemplifies one challenge inherent in improving environmental sustainability through major capital expenditures: if ongoing investment is required, maintaining gains in sustainability may prove difficult. In addition, cities heavily reliant on land sales for revenue may find it increasingly challenging to finance major environmental investments as land available for sale becomes increasingly scarce.

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Conclusion
The 2011 Urban Sustainability Index demonstrates the significant progress that a number of cities in China are making toward achieving higher levels of sustainability. The positive correlation observed between per capita income and sustainability suggests that, in spite of environmental damage already inflicted and the rapid consumption of resources, further economic growth may in some cases encourage more sustainable practices. At the same time, analysis of Index results highlights the need to further study policies and practices that effectively support sustainable development. Even in cities where tremendous improvements have been realized, significant questions remain. How can cities sustain gains made? How can local governments ensure that plans to prioritize sustainability in new urban developments are carried out? How can cities still struggling to meet the most basic benchmarks of sustainability learn from their more successful peers? The Urban China Initiative aims to play a catalyzing role in identifying and sharing best practices, offering significant contributions toward answering these and other questions. As the importance of sustainable development gains traction with local policy makers, we look forward to deepening our research and expanding our collaboration in cities across China.

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Urban China Initiative March 2012 Designed by GCO NewMedia Copyright McKinsey & Company
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