Redevelopment Project thru Private-Public Partnership

Executive Summary of China City Redevelopment Project thru Private-Public

Partnership Initiative (CRPPPI) with Initial funding from a China State-owned Bank

Overview of CRPPPI – (Initial project profile on page 6)

The China central government has prioritized in its 12^th Five-year Economic Development Plan (2011-2015) and beyond the importance of increasing domestic consumption thru urbanization as the engine of future economic growth. To this end, the government targets the expansion of urban areas to bring people into the main stream of urban living where economic and social activities are centered around consumption and daily living needs. Increasing urbanization has been at the center of China’s economic reforms for over three (3) decades. But that urbanization brought by the economic reforms have been concentrated on the eastern seaboard of the country leaving the central and western regions lagging in their share of China’s economic growth. It is in this context that the government now emphasized a more balanced “urbanization drive” by encouraging the redevelopment and revitalization of inner cities and growth of suburban areas around major cities as the main driver to urban growth that will impact overall domestic consumption. To this end, one of the major priorities of the China government is the revitalization of Northeast China (the country’s former industrial belt), a region that has lagged in urbanization process.  With the heavy industries in the region having  dispersed in the south and eastern seaboard of the country during the start of the economic reforms, the Northeast region old urban areas are now ripe for redevelopment and growth by channeling the old industrial and manpower prowess of the region towards the establishment of more knowledge-based service industries.

To bring in the necessary and strategic manpower, local governments are encouraged to satisfy the demand for modern but affordable local housing along with social amenities (shopping, entertainment, educational and recreational facilities, etc.) as an incentive for the growing middle class families (looking for better housing facilities or move-up market) to stay in the region with their educated children (buying their first homes or first-home market) providing the talent needed for the local economy to grow.

It is in the above context that many local governments of second-tier capital cities in the China Northeast region  have adopted a “new concept” for local economic development known as “City Redevelopment thru Private-Public Partnership Initiatives” (CRPPPI) which simply means redeveloping the city and its local economy by encouraging the private sector to partner with the local government (which provides land and basic infrastructures) to promote the redevelopment of the city by building new housing facilities along with the relevant commercial and social infrastructures. The idea is to revitalize and reinvigorate inner neighborhood social and economic conditions to encourage local people to buy new homes and attract established companies as well as new enterprises to open businesses in the area. Old factory sites (currently located in the inner cities) are relocated to outlaying areas to pave the way for new housing and commercial developments.  The revitalization will be focused on a business model of  building mixed-use developments where people can live surrouned by the services and amenities of modern living (shopping, dining, schools, medical facilities, recreation, etc.) all in one general and easily accessible location. This process will be replicated in various strategic locations but mostly centered in Chinese capital cities to encourage country-wide urbanization.  Today, this business model is ripe for rapid development  due to the growing middle class population where extended families (young families with parents living together) want to enjoy the environment of living, working and entertaining in same general location and without the burden of long commuting.

To speed the above process, the China central government encouraged major state-owned banks and financial institutions such as the China State-owned Bank to step in to provide initial funding for CRPPPI projects. The active involvement of such prestigious international institution like a China State-owned Bank  clearly indicates the China central government resolve to back up financially and economically feasible CRPPPI projects while at the same time attracting  private sector to participate in the financing and development process and bring in much-needed management, design and operational expertise. The involvement of the private sector is geared towards insuring market-oriented management and profitable operation of the projects to allow attractive and reasonable returns for the private investors.

Introduction of the CRPPPI comes at a very opportune time with the  growing China middle class which is now projected to grow to more than 500 million before the end of the decade.  The China’s  middle class sector,  which generally is more educated than previous generations, will be the main driver of the long-term success of the CRPPPI.  It is in recognition of this fact that the current Chinese leadership embarks on supporting the Initiative with financial backing directly from such international institution as the China State-owned Bank which is currently spearheading the initial funding of a large redevelopment projects in the China Northeast region. Second-tier capital cities of the Northeast region are currently the focus of the CRPPPI as the region is ripe for redevelopment after the region’s  energy-oriented heavy industries went on decline in recent years. As a result, local government new and well educated young leaders are looking to renovate the cities’ landscape with new development plans to attract talents, growing families and capital to reinvigorate the local economy. In fact, the well-publicized city redevelopment plans have encouraged the current trend of returning overseas Chinese to settle in their old communities bringing with them their savings and access to capital for new housing and business investments.

Similarity of the CRPPPI with the “Urban Housing Development” in the United States

The China CRPPPI potential market would be similar  to the “Urban Housing Development” (UHD) in the US in the 1970s when thousands of investors (motivated mainly by the tax deduction incentives)  invested in “Housing Limited Partnerships” created to invest in construction of multi-unit housing complexes to revitalize decaying urban housing in most part of Eastern United States. The UHD was instrumental in reviving American cities urban growth and paved the way for middle class families to afford decent housing. However, the CRPPPI, in contrast, would not only revitalize the housing sector but encourage rapid urbanization which will  underpin the growth of the local economy and increase local government tax revenue.

Brief Profile and Potentials of the Proposed Initial CRPPPI project

This city’s (with current population of over 9 million) proposed “Redevelopment Plan” project covers an entire block (of old housing units, small factories, car dealerships, etc.) with an area of about 25 square kilometers (2.5 million square meters) with approved city planning map for mixed-use development comprising of major hotel/tower complex, shopping centers （potential for  LOTTE MART, GOME or SUNING）,  tourist attractions sites (such as duty-free shopping corridors, the world’s biggest McDonald, KFC and Starbuck outlets,  world’s biggest ice skating rink, elevated walkways in the style of the Great Wall, etc.) and residential housing complexes  along a major thoroughfare known for its century-old relics of European-design buildings just 20-minute drive from the city center. The project’s overall theme-park design and ambience of the proposed world’s biggest indoor skating rink along with the world’s 2 biggest outlets of fast food chains and coffee shop are projected to become  major tourist destinations  attracting both domestic and international tourism. A China State-owned Bank has financed the initial land acquisition and resettlement cost and construction of basic infrastructures for about 4.23 Billion RMB (approximately 529 million EURO). This Redevelopment Plan project’s construction cost is estimated between 35 to 45 Billion RMB or 5.6 Billion EURO (at current exchange rate). The developer is a city government 100% owned construction and investment holding company which also owns and operates majority of the city’s car parking complex and has an excellent track records of developing some of the city’s  landmark infrastructures. The developer estimated completion of the whole project within a 4-year time frame. The project construction will be divided in 4 major stages: a) Anchor Tenants (consisting of big Supermarket, Hotel, Restaurant row), b) Residential apartments, c) Retail Shopping Center and d) Entertainment Sector. Consequently, funding of the project could be divided in several stages to allow any potential investor to fund specific stage of the whole project without committing to the whole funding of the entire project.

The above project is launched with an eye to become the initial  magnet of the growing Sino-Russian bilateral trade in the region.

The China City Redevelopment on Private-Public Partnership Initiative (CRPPPI), (a registered trademark of Asia Pacific Infrastructures Investors Limited-APIIL), is a concept APIIL conceived in 2010 following China’s major policy shift of renovating and reviving old industrial bases to promote and accelerate economic development. To further this concept, APIIL had initially entered into a Memorandum of Intent (MOI) with a capital city major infrastructure developer, a state-owned development arm of the city government. Under the terms of the MOI, a joint venture or cooperative structure will be formed with APIIL and its potential private investor partner/s and APIIL  is granted the mandate to seek and negotiate private investments into this city’s CRPPPI initial project as discussed above. APIIL is currently focus on attracting qualified and preferably cornerstone international lenders/investors to help fund the construction cost of this city’s redevelopment programs under the CRPPPI scenario. Under this scenario, a potential cornerstone international lenders/investors could take a controlling interest (subject to negotiation) in the whole project with operation and management (O&M) responsibilities and working hand in hand with the local government functionaries for an effective Private-Public Partnership program.

As stated above, the current involvement of a China State-owned Bank as initial lender in the above initial project signals to potential private investors that the project is financially and economically viable and is also an implied guaranty to the international investor that it will NOT lost money on such investment.  In addition, the initial China State-owned Bank involvement is also an  implied guaranty that the China government will see the project through fruition and private investors should feel secure on their investments. Additionally, the potential private investors’ involvement will give them “front-burner” opportunity to participate in the major China State-owned Bank’s other future lucrative investment projects.

Long-term Economic Benefits to Potential Private Investors

The above initial project presents a strategic and huge  “niche market” opportunity for a major  international bank by providing the engines   for the  long-term growth of both consumer and corporate banking services in China. Additionally, this “niche market” will solidify the International Bank’s brand and image as a reliable long-term partner in improving Chinese people livelihood in an all around way.  To an international investor, the CRPPPI provides long-term cash flow from the commercial rental and management revenues which will underpin potential option for attractive exit strategy with capital gains from the commercial property appreciation.

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