'Jb& 32535 Urbanization Dynamics and Policy Frameworks in Developing East Asia b---, ,,,-.D ,.a S. -8- t:XF'""' ':':: .......................................... ., I,f t.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ..... .... * f- a . { ' d X~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~,,;I 2K-~ - 7>'~A UrbanDeelopmen Wsu Cover photos by Tran Thi Hoa and Curt Carnemark Contents Acknowledgements ............................................................ V Foreword ............................................................ Vii Acronyms ............................................................ ix Executive Summary ............................................................ Xl Introduction ............................................................ 1 I. Issues and Dynamics: Urban Systems in Developing East Asia Cambodia ......... .............. 2 Level and Rates of Urbanization .............................. .............................. 2 Urban Poverty Dynamics ............................................................ 4 Physical Dynamics, Infrastructure, and Service Delivery ................ ....................... 4 Competitiveness and Urban Economic Change ..................................................... 4 China ............................................................ 5 Level and Rates of Urbanization ............................. ............................... 5 Urban Poverty Dynamics ............................................................ 6 Physical Dynamics, Infrastructure, and Service Delivery ................ ....................... 7 Competitiveness and Urban Economic Change ..................................................... 8 Indonesia ............................................................ 8 Level and Rates of Urbanization .............................. .............................. 8 Urban Poverty Dynamics ............................................................ 9 Physical Dynamics, Infrastructure, and Service Delivery ................ ....................... 9 Competitiveness and Urban Economic Change ................................................... 10 Mongolia ............................................................ 10 Level and Rates of Urbanization ................................. ........................... 10 Urban Poverty Dynamics ................. ........................................... 11 Physical Dynamics, Infrastructure, and Service Delivery .............. ....................... 11 Competitiveness and Urban Economic Change ................................................... 11 Philippines ............................................................ 12 Level and Rates of Urbanization ................................. ........................... 12 Urban Poverty Dynamics ................. ........................................... 12 Physical Dynamics, Infrastructure, and Service Delivery .............. ....................... 13 Competitiveness and Urban Economic Change ................................................... 13 Vietnam ............................................................ 14 Level and Rates of Urbanization ................................. ........................... 14 Urban Poverty Dynamics ................. ........................................... 14 Physical Dynamics, Infrastructure, and Service Delivery .............. ....................... 14 Competitiveness and Urban Economic Change ................................................... 15 II. East Asian Urbanization: Objectives, Policies, and Programs ................ ....................... 16 Cambodia ............................................................ 16 Objectives ............................................................ 16 Urban Institutional Structure and Processes ...................................................... 16 Policy Initiatives ............................................................ 16 Programs and Projects ............................................................ 18 China ............................................................ 18 Objectives ............................................................ 18 Policy Initiatives ............................................................ 19 Programs and Projects ............................................................ 20 Constraints ............................................................ 20 Indonesia ............................................................ 20 Background ............................................................ 20 Objectives ............................................................ 21 Policy Initiatives ............................................................ 21 Constraints ............................................................ 22 Mongolia ............................................................ 22 Objectives ............................................................ 22 Governance and Institutional Dynamics ............................................................ 22 Policy Initiatives ............................................................ 23 Mongolia continued Programs and Projects ..................................................................... 23 Constraints ..................................................................... 23 Philippines ..................................................................... 23 Objectives ..................................................................... 23 Governance and Institutional Dynamics ............................................................ 24 Policy Initiatives ..................................................................... 24 Constraints ..................................................................... 24 Vietnam ..................................................................... 25 Background ..................................................................... 25 Objectives ..................................................................... 25 Governance and Institutional Dynamics ............................................................ 25 Policy Initiatives ..................................................................... 26 Programs and Projects ..................................................................... 26 Constraints ..................................................................... 26 III. East Asian Urbanization: Commonalities and Differences .......................................... 28 IV. Emerging Challenges: Policy Implications ................................................................. 31 Context ..................................................................... 31 Policy Context ..................................................................... 31 Rural-Urban Transitional Dynamics ................................................................... 31 Policy Challenges ..................................................................... 31 The Increasing Role of East Asian Urban Regions in Poverty Reduction ............... 31 Livelihood: The Bottom Line ..................................................................... 34 City-Building: A Performance Orientation ........................................................... 34 Urban Accessibility in the Context of Motorization ............................................. 35 Shaping Peri-Urban East Asia: The Global Manufacturing Heartland .................... 35 Export of Urban Services: The Next East Asian Investment Wave ....................... 37 Catering to Rising Expectations: The Amenity Factor .......................................... 37 Incentive Based Local Governance: Are there Payoffs from Decentralization? ...... 38 Redefining the Role of National Governments in Urbanization ............................. 39 Dealing with the Future: New Roles, New Methods ............................................ 39 V. Implications for EASUR Programming ..................................................................... 41 Development of New Urban Paradigms for Poverty Prevention and Alleviation ...... 41 Increased Emphasis on Catalytic Developmental Infrastructure .......................... 41 Technical Assistance in Local Economic Development (LED) .............................. 41 Shaping Extended Urban Areas ..................................................................... 42 Revisit Land Markets: Integrate with Transportation .......................................... 43 Build on Decentralization Processes at the Local Level ...................................... 43 Urban Regions as Systems: Inter-Jurisdictional Cooperation ............................... 44 Leadership in Methods and Planning & Management Approaches ...................... 45 Rural-Urban Linkages ..................................................................... 46 VI. Conclusion ..................................................................... 47 Bibliography ..................................................................... 48 Annex A. Urban Population at Mid-year for Selected Countries ........................................ 52 Annex B. Percentage of Population Residing in Urban Areas ........................................... 53 Annex C. Urbanization Rates ..................................................................... 54 Figures 1: Incremental Urban Population in East Asia: 2000-2030 Tables 1: Rates and Levels of Urbanization 2: Urban Policy Priorities (in selected developing East Asian countries) 3: Rural Population at Midyear IV 4: Urban Development Objectives 5: Urban Policy Priorities in Selected Developing East Asian Countries Foreword Urbanization in the developing nations of East Asia is one of the leading issues facing the world today. Urban areas will, by 2030, account for 100 percent of demographic growth in virtually all countries in developing Asia. The pace and magnitude of this urbanization mean that the policies and strategies put in place to support it will significantly influence the future of not only the region, but the world as a whole. This paper explores the critical challenges and issues of urbanization by examining urban systems in Cambodia, China, Indonesia, Mongolia, Philippines and Vietnam. It then identifies the policy and program- ming implications for several key issues including peri-urban development, poverty re- duction and the national and sub-national investment climate. With this publication, the East Asia and Pacific Region's urban development sector seeks to identify the priority themes and principles underlying urbanization in order to define appropriate and effective policy frameworks for successful growth and development in the region. This document is a key input to the World Bank's East Asia and Pacific urban sector report on business directions' being published separately. Christian Delvoie Director Infrastructure Department East Asia and Pacific Region Maryvonne Plessis-Fraissar Director Transport and Urban Development Department V 1. World Bank, East Asia and Pacific Urban Business Directions. Washington D.C. 2004. Acknowledgements The East Asia and Pacific Urban Development Sector Unit (EASUR) would like to express its appreciation to Doug Webster who is Consulting Professor at the Asian Pacific Research Center of Stanford University He has prepared this paper in close cooperation with EASUR's director and staff, and we are grateful for his hard work and collaboration in developing the ideas in this publication. Research assistance by Dhivya Visveswaran and Larissa Muller is gratefully acknowl- edged. Also, many thanks are due Christine Kessides, peer reviewer, whose insightful com- ments were instrumental in improving the paper. Last, but not least, thanks to the many urban policymakers and stakeholders in East Asia, who are the real authors of the policies discussed. Finally, I would like to thank Alex McLellan of International Communications, Incorpo- rated, for his overall design and management of this paper and the East Asia and Pacific Region's Urban Development Working Paper Series. Keshav Varma Sector Director East Asia and Pacific Urban Development Sector Unit Vil - Acronyms ADB Asian Development Bank CALA The Central Luzon region consisting of Cavite and Laguna Provinces (Philippines) CALABARZON The Central Luzon region consisting of Cavite, Laguna, Batangas, and Rizal Provinces (Philippines) CDS City Development Strategy EASUR East Asia and Pacific Urban Development Sector Unit ESPD Economic & Strategic Policy Department (Mongolia) ETDZ Economic and Technology Development Zones EUR Extended Urban Region FDI Foreign Direct Investment GRDP Gross Regional Domestic Product HCMC Ho Chi Minh City (Vietnam) HUDCC Housing and Urban Development Coordinating Council (Philippines) ICT Information and Communications Technologies ILO International Labor Organization IUIDP Integrated urban Infrastructure Development Program (Indonesia) IZ Industrial Zone KIMPRASWIL Indonesia's Ministry for Human Settlement and Regional Infrastructure KIP Kampung Improvement Project (Indonesia) LED Local Economic Development LGU Local Government Unit MDF Municipal Development Fund MNC Multinational Corporation MOC Ministry of Construction (Vietnam) NIMBY Not In My Backyard NCR National Capital Region (Philippines) NCRUDC National Committee for Regional and Urban Development and Con- struction (Cambodia) NEDA National Economic Development Authority (Philippines) NESDB National Economic and Social Development Board (Thailand) NGO Non-Governmental Organization O&M Operations and Management PROPEDA National government guidelines for local governments to undertake local development planning (Indonesia) PROPENAS Indonesia's National Development Program SEDP Socioeconomic Development Plan (Cambodia) SME Small and Medium Size Enterprises SOE State Owned Enterprise TVE Township and Village Enterprise (China) UN United Nations UNCTAD United Nations Conference on Trade and Development USA United States of America WTO World Trade Organization lx Executive Summary Objective The objective of this review is to identify priority themes and principles underlying "best practice" urbanization policy in East Asia to serve as a reference point in formulating ur- banization policy frameworks in developing East Asia over the next 10-15 years. Method The study is based on comparative analysis. Six countries were chosen for study - countries with which EASUR is actively involved as a partner in urban policy formulation: Cambo- dia, China, Indonesia, Mongolia, Philippines, and Vietnam. The six countries are compared both in terms of their urbanization dynamics and issues, and policies and programs that they have formulated to address emerging challenges. Context In the past, there was considerable urbanization policy diversity in developing East Asia, reflecting wide ideological differences. However, currently there is increasing convergence in policy priorities. As indicated by Table 5, common policy priorities include (i) lead roles for urban regions in national poverty alleviation, (ii) attention to diffusion of benefits of urban growth to surrounding rural areas, (iii) urbanization as a key agent of environmental improvement (from infrastructure services to amenity), (iv) in conjunction with decentrali- zation, increased emphasis on local economic development, (v) more cost effective local governance (including skill upgrading of urban technical personnel), (vi) more efficient land markets (a topic being revisited, like growth centers), and (viii) more environmentally and agriculturally sensitive land conversion on the periphery of East Asian urban regions. Dynamics Findings, in terms of dynamics of urban development in developing East Asia include the following: * Urban areas account for at least 70 percent of economic growth in all the countries analyzed. Urban areas will be the drivers of the Region's economic future; and East Asian extended urban regions will be the focus of the World's manufacturing economy. * Urban areas will, by 2030, account for 100 percent of demographic growth in virtu- ally all countries in developing East Asia. In fact, this is already the case in Indonesia, the Philippines, Thailand and China, and will be the case in Mongolia and Vietnam by 2020. There are strong implications for service delivery, investment in social facili- ties, etc., because public capital expenditure needs are more closely correlated with rates of urban demographic growth than absolute population levels. * Envelopment processes (cities spreading to envelop previously rural settlements) are a much more important factor in East Asia urbanization than was previously thought. For example, in Indonesia, envelopment is more important (accounting for 35 percent of incremental urban population growth) than natural population increases or rural-urban migration in incremental urban population growth. Similar dynamics are at play in China, Vietnam, and Thailand. This has important equity implications. Xi For example, how are farmers compensated for loss of land? Will those enveloped be added to the urban poor? * The rural-urban transition process is still in its early to mid stages in developing East Asia. As indicated by Figure 1, large increments of urban population will occur in all countries analyzed. Myanmar, Vietnam, and Cambodia, for example, have large pent- up demand for urbanization that will soon be realized. Economic opportunities in Chinese urban regions, combined with new national policies supportive of acceler- ated, productive urbanization, will result in 425 million people being added to Chi- nese urban regions by 2030. * Decentralization processes, although well underway in much of the Region, have yet to yield significantly more effective local urban governance. This is because in- centive structures, national mandated standards, and monitoring systems are not yet in place, and/or enforced, to drive more cost effective local governance in most urban areas in developing East Asia. The lack of strong, informed urban civil society groups is another factor. * Only in Indonesia do the urban poor constitute a sizeable percentage of the nation's poor. In Indonesia 32 percent of the poor live in urban areas, not significantly less than the 42 percent of the population that is urban. However, throughout develop- ing East Asia, urban areas are not absorbing in-migrants as productively as they should, i.e., integrating in-migrants quickly into information, employment, housing, and public service networks. Often negative incentive frameworks, e.g., fiscal trans- fer systems that do not take increases in non-registered migrants into account, dis- courage urban governments from catering to in-migrants. Unless corrected, this will have major implications in terms of national poverty alleviation performance in de- veloping East Asia, as urban regions increasingly become the main engines of pov- erty reduction. * Decentralization has resulted in urban jurisdictions being mandated more responsi- bility for local economic development (LED). However, there are few examples of good LED practice in developing East Asia in terms of frameworks, approaches, and practices. For example, in China, a "cookie cutter" approach to LED has prevailed, in Indonesia, despite devolution of the LED function to local governments, appropriate frameworks do not exist, and in the Philippines lack of effective extended region gov- ernance coordination (metropolitanization) impedes the effectiveness of LED processes. Implications for National, Local and EASUR Programming Recognizing the diversity of urbanization in East Asia, best practice urbanization prin- ciples can nevertheless be identified that are applicable to most countries in the Region. Accordingly, the following recommendations are identified in regard to urban program- ming in developing East Asia: * East Asian Urban Regions as Enginies of Poverty Alleviation. There is a need for new approaches to urban poverty alleviation in East Asia that recognize the key role of urban regions as engines of poverty reduction. This means that the emphasis needs to change from addressing symptoms, often manifest in housing conditions in inner city slums, to a more dynamic approach. Such an approach would recognize that (a) the causes, not symptoms of poverty should be given priority in terms of interven- tions, (b) that most of the potential urban poor (future migrants) do not yet live in East Asian cities, but that much potential poverty is preventable, (c) that most recent in-migrants and all of those enveloped live on the peripheries of East Asian regions, and (d) that well-functioning transportation systems and land and employment XII markets (including the informal sector) are critical to the well-being of the poor. In summary, a new paradigm is needed, that is dynamic, recognizes the new geogra- phy of urban poverty in East Asia, addresses the root causes of poverty, and responds to opportunities and challenges emerging on East Asian urban peripheries. * Urban Periphleries are Imlportanit. Where urbanization is very rapid, the action is on the periphery. Accordingly, there is a need to improve city building processes on the periphery of East Asian cities. Hundreds of millions of people (over 250 million in China alone) will be added to these areas over the next three decades. Yet currently peri-urban areas are characterized by weak and fragmented government, wasteful rural-urban land conversion that discourages effective public transportation and un- necessarily displaces farm communities, severe under funding of public infrastruc- ture and services, overcrowding of social facilities such as schools, etc. * Realize the Payofffronm Decentralizationi. There is a need for a Stage II decentralization policy emphasis. The theoretical case for decentralization has been made, and most countries in the Region have accepted it. However, in many cases, seemingly posi- tive indicators, e.g., percentage of national public expenditure at the local level, hide massive inefficiencies in the behavior of local urban governments. There is a need for more effective incentive and monitoring structures at the local level to realize the potential gains from decentralization. * Blild Local Economnic Devzelopmnent Capacity. Decentralization and globalization pro- cesses have put the onus on local stakeholders to take responsibility for local eco- nomic development. This means that new frameworks for LED need to be devel- oped and implemented. Such frameworks should recognize the importance of (a) emerging economic clusters (so important to regional economic development in coun- tries such as China, Vietnam, and the Philippines), (b) identifying and acting on com- parative and competitive advantage at the local level, and (c) the need for collabora- tive, rather than merely participatory, local governance structures in support of LED. * Higl Q,,i19: Urban Environnments are Critical to Developnment. In virtually all urban regions of East Asia, urban economies are becoming increasingly based on consumer, rather than export, oriented economic activity, as important as the latter is in the Region. This means retailing, entertainment, and cultural / heritage activities and areas are becoming more important. Furthermore, as urban regions attempt to move up the value ladder, urban amenity (environmental quality, public spaces, heritage preservation, leisure and entertainment opportunities) becomes more important in attracting and retaining investment. The bottom line is that developing East Asian cities need to pay attention to the quality of urban environments, including heritage resources, not just bottom line utility, both to realize higher levels of economic devel- opment, and equally important, provide more livable environment environments for their residents. * Motorization will be the Key S4i,ip of Developing East Asian Urban Regions The impacts of motorization on East Asian cities cannot be overemphasized, especially in areas that are about to experience large urban growth spurts and motorization at the same time, e.g., China and Vietnam. (In China the number of vehicles is doubling every five years.) Motorization will occur; the challenge is to channel the process, through inte- grated transportation - land use development, and pursuit of balanced transporta- tion systems, to ensure high quality urban environments, accessible cities, and mini- mal waste of energy, human time, and agricultural / environmentally sensitive land. * Mandate Urban Developnmenzt Performance, Not Laund Use Details Performance oriented city building processes need to be put in place. In most of developing East Asia, regulation-based statutory land use planning has had virtually no impact. Even in China, the effectiveness of such approaches are limited. City building forces are so strong, often rooted in positive traditions, such as mixed land use, that they need to be moulded rather than combated. Where urbanization occurs it should be required XIII to meet minimum requirements in terms of density, transportation impacts, pollu- tion, avoidance of inappropriate "nuisance" land uses, etc. Attempts to create uto- pian urban settlement systems based on top-down planning will almost certainly prove unrealistic. The emphasis should be on ensuring performance standards are met, by monitoring at the urban district scale, as urbanization unfolds in an incre- mental, adaptive, organic manner. * Develop New Urban Plannin7g / Management Approaches and Technliqles East Asian ur- ban areas are changing so rapidly that old planning approaches based on five year time horizons, guided / indicative planning, etc. are clearly obsolete. New approaches and techniques need to be deployed on a "rolling" basis that are based on foresight and anticipation. In such systems monitoring has a key role to play. Urban informa- tion bases are very weak, e.g., data on urban economies are virtually non-existent. EASUR, given its pivotal position in a network of academic and professional institu- tions, has an important role to play in disseminating such knowledge and support- ing improvements of developing East Asian urban databases. Conclusion Urbanization in developing East Asia is one of the leading issues facing the world today. How this wave of urbanization is handled will significantly influence the future not only of the Region, but the whole world. The rural-urban transition currently underway in East Asia will be essentially complete by 2030. Actions taken over the next few years will have significant leverage and long-lasting effects. Urban structures, both physical and soft, put in place over the next three decades are likely to display significant staying power. It is important therefore that appropriate policy frameworks are put in place now, and subse- quently adapted as contexts change, to guide key actors shaping East Asian urban regions. XIV Urbanization Dynamics and Policy Frameworks in Developing East Asia Introduction It is difficult to generalize concerning urban dynamics in East Asia. Urban areas in the Region vary widely in economic, physical, and social characteristics and dynamics, partly a reflection of policy diversity. In terms of economic roles, cities in the Region are currently becoming more differentiated, seeking new niches and areas of competitive advantage as they become more directly exposed to rapidly changing, intense global driving forces. In East Asia the rapid rise of China as the "factory of the world", has been a key recent driver of urban change, as was the 1997 financial crisis, centered in Southeast Asian cities. Other key economic drivers include a new wave of foreign investment in export of services mim- icking earlier investment waves in natural resource commodities and manufacturing, and the development of information technology clusters in key developing Asian centers such as Bangalore, Hyderabad, Beijing, and Manila. On the other hand, public policy frameworks related to urbanization and urban man- agement approaches are becoming more alike, in part due to the transition to market econo- mies in several of the Region's developing countries. For example, internal migration is increasingly unhindered in the Region, and virtually all countries are developing urban land markets, albeit with different characteristics. Furthermore, decentralization processes are gaining momentum in all but a few East Asian countries. There is a growing realiza- tion that urbanization needs to be well managed and monitored, on a performance / re- sults basis, where it occurs-that creating idealized settlement patterns and cities by fiat is impossible. Past debates, for example, whether urban primacy is beneficial, seem increas- ingly dated. Rapid Region-wide dissemination of best practice is a key factor underlying this trend.' But this does not mean that significant public policy differences in regard to urbanization do not exist, especially at the macro level. Perhaps most striking is the differ- ence between China that is advocating and supporting accelerated urbanization,2 and Thai- land where the national government is cautious concerning urbanization, advocating a two track strategy of local self-sufficiency and selective global engagement.3 Current divergence in the characteristics, particularly economic, of East Asian urban regions may reflect short run trends and cycles, for example, adaptation in Southeast Asian urban regions to the rapid economic rise of China, particularly in attracting FDI and manu- facturing activity,4 hiding a longer run pattern of convergence. However, this paper fo- cuses on a 5-15 year perspective, essentially the perspective of the World Bank in working with partner cities and their national governments. The approach taken is one of conzpara- tive analysis. Policy implications are based on both comnioonalities and differences among the urban systems analyzed, but it is understood that there are limits to generalizing about East Asian urban systems. Nevertheless, an attempt is made to identify key urbanization dynamics in the Region that can provide a set of organizing principles and points of refer- ence to facilitate dialogue with urban jurisdictions and national governments. 1. For discussion of the evolving consensus on urban management, see Webster (1994). 2. New Star Publishers (2001), Section 11-7. 3. National Economic and Social Development Board (NESDB) (2002), Chapters 1 and 3. 4. According to UNCTAD data, Chinese inward FDI in 2001 was $47billion (U.S.), up from $41 bil- lion in 2000. This is despite the fact that worldwide FDI more than halved over the same period. China's inbound FDI increased to $53 billion in 2002, and an estimated $57 billion in 2003. See UNCTAD (2002 and 2003). Urbanization Dynamics and Policy Frameworks in Developing East Asia Six urban systems have been chosen for analysis, namely Cambodia, China, Indone- sia, Mongolia, the Philippines, and Vietnam. These six countries were identified because the East Asia and Pacific Urban Development Sector Unit (EASUR) of the World Bank is significantly involved in dialogue and partnership urban development activities with these countries. 1. Issues and Dynamics: Urban Systems in Developing East Asia The discussion of urban dynamics and issues below by country (alphabetically ordered) is purposely brief, focusing only on key areas of interest. Table 1 systematically compares urban- ization dynamics across the six countries analyzed. Figure 1 describes expected incremental urbanization in developing East Asia to 2030. Table 2, based on best available data, presents an overview of urbanization characteristics in the six sampled countries. Table 2 indicates that high urbanization stress exists in Cambodia, and to a slightly lesser degree in the Philippines and Mongolia. China and Vietnam, as transitional countries, group separately on Table 2. The discussion is organized around four aspects of urban dynamics: (i) level and rates of urbaniza- tion, (ii) urban poverty characteristics, (iii) physical dynamics, including infrastructure and service delivery, and (iv) competitiveness and urban economic change. Cambodia Level and Rates of Urbanization The rate of urbanization in Cambodia is extremely rapid, 8.4 percent annually according to the ADB, arguably the highest in the world.' This high rate of growth is primarily the result Figure 1: Incremental Urban Population in East Asia: 2000-2030 Mongolia Laos Cambodia North Korea South Korea Malaysia Thailand Myanmar Vietnam Philippines Indonesia China 0 50 100 150 200 250 300 350 400 450 Population (millions) Source: United Nations (2002b). 5. Much of the information in this section was derived from Asian Development Bank (1999). Urbanization Dynamics and Policy Frameworks in Developing East Asia Table 1: Rates and Levels of Urbanization Indicators Cambodia China Indonesia Mongolia Philippines Vietnam Average Annual Rate of Urbanization 1995-2000 g 6.35 (8.4a) 3.54 4.23 0.89 3.64 3.06 Urban Population, 2001f 2.35 (1.8a) 471.93 90.36 1.45 45.81 19.40 Level of Urbanization, 20019 17.50 36.70 42.10 56.60 59.40 (52b) 24.50 Forecast Urban Population 2030 8.61 883.42 180.07 2.42 84.55 45.49 Forecast Level of Urbanization 2030 g 36.10 59.50 63.70 66.50 75.10 41.30 Population of Largest City, 2000 f 1.07 (0.99a) 12.89 11.02 (17c) 0.76 (0.74d) 9.95 (12c) 4.62 (7e) Primacy Indicator g 45.50 (55a) 2.73 12.20 (19c) 52.70 21.70 (26c) 23.80 Notes: a. Based on 1998 Census figures. b. Source: ADB (1999). c. Extended Urban Area. d. Source: Ulaanbaatar: City Development Strategy (2001). e. Estimate of actual, Douglass (2002). f. Millions. g. Percent. Source: United Nations Population Division, The World Urbanization Prospects: The 2001 Revision (unless otherwise indicated). Table 2: Urban Policy Priorities (in selected developing East Asian countries) Cambodia China Indonesia Mongolia Philippines Vietnam Rate of Urbanization Level of Urbanization Primacy Urban Poverty LEGEND MEDIUMl L(OW Rate of Urbanization > 4%.; 2 4`: 2..; Level of Urbanizaionr > 50`,% 30 50;". - 30%:. Primac .- 5x 25 2a 3 Urban Povertv > 15: 5-155. Source: Douglas Webster, Stanford University, 2003. Urbanization Dynamics and Policy Frameworks in Developing East Asia of pent-up large-scale migration from rural areas after the Paris Peace Agreement of 1991, following three decades of civil unrest and war. According to the 1998 census, the urban population is about 1.8 million of which 55 percent live in the capital, and dominant city, Phnom Penh. Despite the high rate of urbanization, the current level of urbanization is very low, about 17 percent (see Annex A). Cambodia's level of urbanization is expected to increase to 24 percent of its population in 2015, when the urban population is forecast to total four million people. Of the six coun- tries analyzed, based on UN data, only Cambodia is expected to have a growing rural population in 2030 (see Table 3). (Significantly, all five of the other countries analyzed will have absolutely declining rural populations by 2020.) Although Phnom Penh dominates the urban system, intermediate sized cities, such as Sihanoukville (port; manufacturing and tourism potential), Battambang (agri-business), and Siem Reap (tourism at Angkor Wat) are economically viable and have potential to become stronger. Nevertheless, it is expected that over the next 15 years Phnom Penh will increase its share of the urban popu- lation, growing at a rate of approximately 5 percent annually, compared with a rate of 3- 4.5 percent in the secondary urban centers. Urban Poverty Dynamics Data on urban poverty in Cambodia is limited. In part this is due to the fact that only 10 percent of Cambodia's population is in wage employment, and of that wage (formal) em- ployment, 75 percent is in government service. The poorest 20 percent of urban households earn 7.2 percent of total urban household income.6 Women outnumber men significantly in Cambodia (the consequences of war and civil unrest), reflected in the fact that 29 percent of households in Phnom Penh, and 23 percent in the other urban areas are headed by women. Social indicators give cause for concern. Although separate urban data is not available, the literacy rate is only 30-35 percent and adult Cambodian males and females attended school for only 2.3 and 1.7 years respectively. Squatters in Phnom Penh number 120,000 to 150,000, or about one-quarter of the city's population. Similar to other developing East Asian urban areas, the squatters work as food sellers, small traders, construction workers, cyclo drivers, and so on. Physical Dynamics, Infrastructure, and Service Delivery The most important physical issue facing urban Cambodia, particularly pressing in Phnom Penh, is the lack of basic urban infrastructure and services, such as water supply and drain- age, particularly in squatter areas. Much of the urban infrastructure is 70-80 years old and in dire need of upgrading, for example, water supply systems, experiencing 60 percent leakage rates, cannot withstand normal pressure from elevated storage reservoirs. Formal public transportation systems do not exist in urban areas. A unique Cambodian problem is that all land possession records were destroyed dur- ing the reign of the Khmer Rouge in the 1970s. Although a new law governing land rights was enacted in 1992, the legal / tenure status of much urban land is dubious, making efficient development of urban land difficult, as well as implementation of land-based revenue systems. Competitiveness and Urban Economic Change The economic base of Cambodia's urban areas is fragile, but shows considerable potential. 4 The biggest export industry (80 percent of goods exports), and employer of 180,000 people (mainly women and teenage girls) is the garment industry. This industry is the subject of 6. Monthly income data for the urban poor is av,ailable, see Asian Development Bank (1999), but appears unreliable. Urbanization Dynamics and Policy Frameworks in Developing East Asia Table 3: Rural Population at Midyear (in thousands) Countr) 1950 1960 1970 1980 1990 2000 2010 2020 2030 Cambodia 3,903 4,875 6,126 5,795 8,417 10,889 12,833 14,477 15.212 China 485,232 552,243 686,138 802,655 838.737 818,793 748,866 674,231 601,199 Indonesia 69,675 81,959 99,585 116,964 126.655 125,149 116,725 108,891 102,782 Mongolia 617 617 690 797 952 1,100 1,206 1.264 1,222 Philippines 14,570 18,858 24,498 30,030 31,266 31.358 30,490 28,972 28,024 Vietnam 24,181 28,702 35,048 42,803 52,685 59,321 63,137, 65.436 64,595 Note: Peak years are shaded darker. Source: United Nations (2002b). controversy because of child labor violations; its fragility is accentuated by the fact that WTO textile quotas will end in 2005.7 Nevertheless, the industry appears to be on an up- swing, for example, Nike is returning now that the ILO has agreed to play a prominent role in monitoring for child labor violations. Tourism potential is substantial, especially when viewed from a Greater Mekong Subregion perspective, some assembly-based export in- dustry may be possible in the Sihanoukville region given the existence of a deep water port there, and activities generating increased value-added in agri-business have potential to propel intermediate-sized urban areas. China China, is, of course in a league of its own in East Asia in terms of the scale of existing and forecast urbanization.8 The scale of urbanization represents both a challenge, and an oppor- tunity in that there is much scope to try different models of urban development simulta- neously in different cities and regions, and replicate the successes, something that is not possible in smaller scale urban systems. Level and Rates of Urbanization China was 36 percent urbanized according to the 2000 Census, but is currently (2003) ap- proximately 38 percent urbanized. This level of urbanization is close to the expected given China's stage of economic development. However, levels and rates of urbanization vary widely by province and region. For example, urbanization levels are in the neighborhood of 50 per- cent in Guangdong and Liaoning but are under 20 percent in remote provinces such as Yunnan and Tibet. Similarly, urbanization rates vary widely from 7-8 percent in provinces such as Shandong and Jiangsu to 1-3 percent in isolated provinces such as Guizhou and Qinghai. UN forecasts indicate that Chinese urban areas will gain about 425 million people over the next 30 years, close to four times the total of incremental urbanization in the remainder of East Asia. (See Figure 1.) The Chinese Government forecasts that 1.12 billion people will live in Chinese urban areas by 2050, accounting for 70 percent of the population."' About 90 percent of this incremental growth of the urban population totaling 664 million people will be through shifting of people from rural to urban communities-primarily by migration, but also by envelopmiieit of rural areas as cities spread outward, often into highly populated rural areas. 7. For details, see Kazmin (2002), p. 7. 8. The material in this section draws significantly from Choi (2002). 9. For details on the demographics of China's recent urbanization, see Chan Hu (2003). 10. "Urban Growth", Chliina Doily (July 22, 2002), p. 2. Urbanization Dynamics and Policy Frameworks in Developing East Asia China's rate of urbanization has averaged about 3.3 percent annually over the last two decades, but grew much faster during the early 1990s (3.5-6 percent depending on the year) before settling back to the 3-4 percent range during the late 1990s. However, over the last 3 years, urbanization rates appear to have accelerated again, with current rates between 4 and 5 percent annually."' Urbanization rates during the late 1990s were typical of developing coun- tries in East Asia but considerably lower than the urbanization rates of the "tiger" economies of Taiwan and South Korea when their economies were growing in excess of 7 percent annu- ally, as China's is now. (South Korea and Taiwan experienced urbanization rates of approxi- mately 5 percent annually during their peak rural-urban transition periods.) However, recent apparent more rapid urbanization in China implies that higher rates of urbanization are pos- sible, and from a developmental viewpoint may be desirable. The one child policy needs to be taken into account in making comparisons with other East Asian developing countries. 12 The underlying natural growth rate of Chinese cities is typically well under 1 percent, meaning that most urban growth will be the product of rural to urban shifts by the population. Typical of continental nations, China's urban system is balanced (that is, not dominated by one, or even a few cities) and diverse. (In fact, even within provinces, a balanced urban system often exists, that is, no one city is primate.) For example, according to the most recent UN and World Bank data,'3 China has 119 cities over 750,000 in population of which 90 are over one million in population; of these million plus cities, 23 are over two million. In total, China has more than 660 cities and 20,000 towns. The towns alone account for 170 million people or about one-third of the total urban population. According to official sources, by 2050, 80 per- cent of the towns will have grown into small or medium-sized cities. In fact, already many urban places designated as towns are not small, over 400 of these "towns" have populations in excess of 100,000 (the usual threshold for upgrading to Municipal status). '4 Urban Poverty Dynamics Accurate data on urban poverty in China is difficult to compile, because of issues related to household registration, definition of functional extended urban regions (which would in- clude peri-urban areas), and so on. However, urban poverty levels are low compared with most other developing countries at a similar stage of development. Slums are rare, although they are arising in Guangdong province, the number one des- tination for rural-urban migrants. Within cities, substandard housing exists in older mul- tiple-unit buildings (tenements) although accurate data on the extent of this substandard housing is not available. The low incidence of slums is a product of high municipal stan- dards, the hIikoui system (which has limited migration to cities), and, until recently, provi- sion of housing by workplaces. The large floating population (approximately 90-125 million in number), surplus to agricultural labor needs, moves both between rural and urban areas, and among urban areas themselves. However, only a portion of this floating population can be described as poor-many members of this population are better educated, and almost invariably younger (on average) than in situ urban populations. The poor are more likely to be those who have been laid off from redundant industries, pensioners from bankrupt workplaces, and some farmers who have been displaced from their land through urbanization pro- cesses. (Although many in the latter group, especially those living near the largest and most dynamic cities, have made windfall profits through exercise of collective land rights claims and are rich). 6 In terms of the role of cities in poverty reduction, the more interesting questions relate not to existing urban poverty, but to the capacity of Chinese urban regions to absorb 425 11. Based on NSB, Government of China data, see Chan and Hu (2003), p 51. 12. The mean number of children born to Chinese urban couples is under one. 13. Date Source: United Nations (2002c). 14. IBID. Urbanization Dynamics and Policy Frameworks in Developing East Asia million more people over the next 30 years without the rise of extensive urban poverty and slums. In assessing the poverty reduction performance of Chinese urban areas, the most important indicator will be the extent to which they reduce national poverty be pro- ductively absorbing rural-urban migrants and those enveloped by the physical spread of urbanization (including displaced farmers), rather than their performance in alleviating existing urban poverty. However, existing urban poverty is of concern in the North East and some cities in the Central and Western regions which are characterized by "sunset" industries and are overly reliant on non-competitive state owned enterprises (SOEs). Physical Dynamics, Infrastructure, and Service Delivery Chinese urban regions are physically changing faster than urban regions elsewhere in the world. Key drivers of this change include: * China's emergence as one of the leading manufacturing nations in the world. Manu- facturers are locating on the periphery of cities in suburban and peri-urban areas, because they need extensive land to build single-story factories suitable for just-in- time (JIT) production processes, driving very rapid physical growth in these areas. The fact that new manufacturing firms are overwhelmingly located in large indus- trial parks (Economic and Technology Development Zones [ETDZs]) further drives manufacturing to the periphery because of the large amounts of land needed for these industrial parks. * Effectively implemented industrial relocation policies in many Chinese urban re- gions that have resulted in the relocation of industry, and key land extensive institu- tions (for example, universities) to the urban periphery, to create room for tertiary (particularly business and producer services) activities in the core areas of Chinese urban regions. * Ring road infrastructure that is increasingly shaping physical development that was initially shaped by radial roads. * Motorization-the number of motor vehicles in Chinese urban regions is doubling approximately every five years, albeit from a low base. By 2020, it is estimated that there will be 72 million vehicles on China's roads, most in cities."5 Motorization, in concert with rapid development of expressways, will exert tremendous influence on physical form, creating spread cities. However, local policies vis-a-vis motorization vary widely. Shanghai is discouraging motorization through a variety of measures similar to those used in Singapore, such as auctioning of vehicle registrations and limiting parking in the core, while other urban regions such as Beijing are de facto encouraging motorization. Automobile production is becoming such an important component of China's economy that it is becoming more difficult to curb motoriza- tion without being in conflict with those promoting the economic growth potential of the industry. For example, the Chinese Academy of Science estimates that motor- ization (vehicles) accounted for 50 percent of Beijing Municipality's growth in 2002. * Privatization of housing, which is breaking down the link between workplace and residence, dramatically increasing commute distances. Combined with motorization, this driver will exert tremendous influence on physical form. Increasingly, afford- able housing is found in peripheral areas, for example, between the third and fourth ring roads in Chengdu. * Rapidly rising standards of living, which are creating demand for higher quality environments, retail and entertainment zones, heritage and cultural areas, public 7 facilities, parks, public spaces, and so on. In particular, Hangzhou, typified by its recent West Lake historical restoration, is attracting tourists (28 million in 2002), tal- 15. C1hina Today (2003), p. 4. Urbanization Dynamics and Policy Frameworks in Developing East Asia ented people to work in its high tech cluster, and well-to-do retirees, leading the way in amenity-based urban development in China. In terms of urban infrastructure, China's is a positive outlier compared with other de- veloping countries at its level of economic development. Wastewater coverage (sewers) is high (often over 50 percent) in many cities, comprehensive expressway systems are in place in most of the larger urban regions (second in total kilometers to the USA), and utility systems increasingly display best practices, for example, levying appropriate user fees, in- cluding waste water charges in water supply bills. But given the scale of urbanization in China, many challenges remain, both to meet backlog needs and future demand. Urban environmental quality is now a priority with large amounts of capital being allo- cated to improve the environmental quality and livability of cities. For example, in Shang- hai, over 3 percent of GRDP is being utilized annually (at least until 2006) for environmen- tal improvements, while in Beijing the upcoming 2008 Olympic games are driving large-scale, and very noticeable, urban environmental improvements. At the same time, rapid economic development is putting heritage resources at risk, although there is increased awareness of the issue.", Air pollution, which is monitored carefully, and publicly, in all major cities, remains the most serious environmental issue in terms of public health, despite recent im- provements in air quality in many Chinese cities. Infrastructure and environmental im- provements are not limited to the larger cities, but are evident in secondary cities such as Kunming, with its dedicated busways and extensive urban landscaping. Competitiveness and Urban Economic Change The economic health of China's urban regions varies widely. The coastal areas are thriving based on their longer history of economic openness, cosmopolitanism, access to ports, skilled human resources, designated gateway status (Shanghai), and so on. Other areas, such as in the West, and poorer provinces in the Central Region, exhibit less robust economic devel- opment performance. Areas associated with heavy industry, and as such, with a high con- centration of state enterprises, such as in northeast China, and Guizhou and Gansu Prov- inces, can be described as over-urbanized relative to their current economic prospects. In terms of local economic development, inland (land locked) urban regions, and cities in the Northeast with old industrial bases represent the greatest challenges. A particular challenge facing Chinese urban regions is the need for them to more accu- rately identify and pursue economic roles based on competitive advantage. To a significant extent, Economic and Technology Development Zones (ETDZ) in China pursue "cookie cutter" visions and policies. The mix of industries is replicated in many ETDZs, similarly, development Visions and Missions of most Chinese cities differ little. In part this is due to high internal barriers to movement of goods (for example, Provincial and Municipal pro- tectionism expressed in inter-provincial tariffs and local favoritism in purchasing) that curbs specialization among urban regions. Although changing, there is a dearth of national scale domestic corporations that would drive increased specialization in the city system. Indonesia Level and Rates of Urbanization Indonesia is urbanizing rapidly, urban areas grew at a rate of 4.4 percent per annum be- 8 tween 1990 and 1999, approximately triple the national population growth rate of 1.5 per- 16. Destruction of traditional homes in the inner city area of Beijing has averaged 15,000 per year over the last few years, but both resident and conservationist protests are beginning to be heard. For ex- ample, destruction of 1,700 traditional homes in the Jingsanyuan protected district, just north of the Forbidden city, has temporarily been put on hold. Urbanization Dynamics and Policy Frameworks in Developing East Asia cent.17 Already, Java, overwhelmingly the most populated island, is 65 percent urbanized with an urban population of 78 million. In 2025, the country is expected to be 61 percent urbanized with an urban population of 167 million people. Jakarta is the dominant city, and capital, anchoring an extended urban region of ap- proximately 17 million people. Eight major cities, five of them on Java, have populations in excess of one million people. Interestingly, because of the extremely high rural densities surrounding most Javanese cities, and many outer Indonesian urban centers, 30-35 percent of urbanization is occurring through transformation of rural settlements into urban places as urban areas spread out- ward and envelop rural communities. (This is also a significant phenomenon in rice grow- ing areas of Vietnam, China, and Thailand.) Net rural-urban migration accounts for 25-30 percent of urban demographic growth, while natural increase accounts for the residual. Urban Poverty Dynamics In 1999, the urban poor numbered 15.7 million, the rural poor 32.7 million. In other words, over 32 percent of the poor in Indonesia are in urban areas, the highest ratio in developing East Asia, and a major cause for concern. A large percentage of urban residents in Indonesia live very close to the poverty line (both above and below it) so that relatively minor changes in the circumstances of households or urban economies can move large numbers of people into or out of poverty. It is for this reason that the performance of urban economies is so important in affecting the well being of Indonesian families. The sensitivity of urban people to economic swings was illustrated by the financial crisis of 1997 (krisnzoni), which affected urban people much more severely than rural. For example, urban poverty increased at a rate twice that in rural areas; urban spending on food decreased by 28 percent, driving peri- urban agriculture, particularly in the Jakarta extended urban region. Physical Dynamics, Infrastructure, and Service Delivery Indonesian cities face many of the physical and environmental problems typical of other large Southeast Asian cities, particularly Manila, and Bangkok. However, the scale of the challenge is larger, financial resources are limited at present, and population:land pres- sures, in the case of the Javanese cities, are greater than in Thailand, and to a lesser extent, the Philippines. The most obvious, and pressing, physical problem is the growth of slum communities throughout the settlement system. Much progress has been made over the last three de- cades in addressing the problems of slum communities, particularly through large-scale community upgrading programs such as KIP (Kampong Improvement Program) and IUIDP (Integrated Urban Infrastructure Development Program), however backlogs in terms of basic services continue to increase. Related to the foregoing is the issue of land, particularly on Java, a relatively small island, home to 120 million people. Administration of land is inefficient, and still, de- spite the ongoing decentralization process, in the hands of a national government agency (BPN). Only about 20 percent of an estimated 70 million land parcels in Indonesia are currently registered. The physical and financial dimensions of urban service needs are dramatic. To double the coverage of urban water supply and sewerage to 65 percent of the urban population over a ten year period would cost between $10 and 20 billion (US). Urban watershed man- agement is a major problem, Indonesian watersheds, because of the island topography, tend to be short, and thus difficult to manage well. Most cities are in estuary areas at the mouths of these short, intense, and highly variable, watersheds. Impacts of inadequate water management include flooding, water pollution, and so on. 17. The material in this section draws heav,ily from The World Bank (2002a). Urbanization Dynamics and Policy Frameworks in Developing East Asia Other pressing physical problems include urban transportation, surprisingly the eco- nomic crisis did not slow purchase of automobiles because they were viewed as a hedge against inflation and devaluation; maintenance of infrastructure (which has decreased since 1997); and the need for investment in capacity in a variety of infrastructure areas to meet demand, such as power generation. Competitiveness and Urban Economic Change Given the high level of urbanization (relative to economic development), high poverty and under / unemployment levels, employment creation is a pressing problem. At present, Indo- nesia has adopted a somewhat inner looking economic policy which focuses on export of commodities to earn foreign exchange (based on a favorable currency exchange rate), while manufacturing and service outputs increasingly focus on the domestic market. This policy is appropriate to the transition period, but it is likely that Indonesian cities will again be more exposed to global competitiveness pressures in the not too distant future. A major challenge facing Indonesia is that its exports overlap China's more than any other East Asian nation."8 Given the wide variety of settlements and highly variable comparative and competitive advantages associated with different urban regions in such a vast nation, economic develop- ment strategies will need to vary substantially from place to place. Appropriate measures to support local economic development need to be developed locally based on strategies that reflect local advantages and realistic preferences. In principle, this should be easier to do given the rapid fiscal and administrative decentralization process underway in Indonesia. In some urban areas (large coastal cities on Java plus Batam and Riau that are part of the Singapore anchored development triangle), export driven manufacturing may be able to re- gain some of the momentum lost in the mid to late 1990s. Tourism was significantly damaged by the October 2001 Bali terrorist attacks, with severe impacts on cities such as Denpasar and Yogyakarta, but should recover if no more attacks occur. Agro-processing holds considerable potential in many Indonesian cities such as Kendari, Jayapura, Ambon, and Kupang. Petro- leum-oriented servicing and processing is in important in several urban areas in Sumatra, but development potential is tempered by security concerns. Urban areas such as Surabaya and Ujung Pandang are key ports, while others, such as Bandung, are centers of education and technology. However, in almost all cases, there are unaddressed constraints to realizing local development potential, as well as the need for more locally-based coordination and action in support of local economic development, for example, aligning training and education with developing economic clusters, and marketing and promoting sub-national economies. Mongolia Level and Rates of Urbanization Mongolia is dominated by one city, Ulaan Baatar, thus to a very significant extent, discus- sion of urbanization in Mongolia centers on this city."9 Ulaan Baatar's population is 736,000 (2000), about 33 percent of the country's 2.4 million population. The population growth rate of Ulaan Baatar is 2.5 percent (per annum), near the East Asian norm, but has previously been much higher. Approximately 70 percent of recent population growth in Ulaan Baatar was the result of in-migration. The overall level of urbanization is surprisingly high consid- ering the country's level of economic development; Mongolia is already 57 percent urban- 10 ized. Essentially, urban population growth exceeds that of employment. Darkhan, the sec- ond largest city, contains less than 80,000 people. Of concern, the annual population growth 18. Based on 2000 data, there was an 82.8 percent overlap between the exports of Indonesia and China in the US market. See Yusuf (2003), Table 1.6. 19. This section draws heavily from City of Ulaanbaatar and Pacific Consultants International (2001). Urbanization Dynamics and Policy Frameworks in Developing East Asia rate of the provincial towns, known as aniiiag centers, is negative (-1.6 percent). In sum, Mongolia has a very unbalanced urban system with virtually all dynamism focusing on Ulaan Baatar. Urban Poverty Dynamics Average incomes in Ulaan Baatar are not higher than for the country as a whole, an unusual situation, probably a product of the imbalance between population growth and employ- ment creation, as noted above. The city can essentially be divided into two areas, a built up area of walk up apartments (legacy of the Socialist era) and official enterprises, and a large temporary city (Ghier), including areas where people live in tents, surrounding the formal built up area. Forty-seven per-cent of the population lives in the Gher area. Incomes, and especially living conditions, of those living in the Gher area tend to be significantly lower than those living in the core city. For example, there is no piped water supply or central heat distribution in the Gher area. Of special concern is the high number of street children throughout the city. Currently, 25 percent of Ulaan Baatar's population is characterized as poor, a very high rate by East Asian developing city standards. Poverty is highly concentrated in two groups: 39 percent of poor families are headed by single mothers, while an additional 20 percent of the poor are pensioners. The aimag centers are experiencing increasing poverty levels, due to lack of economic opportunities in these provincial cities. Of late, the people of Mongolia have been migrating to urban centers, in part to survive the harsh climatic events20 that have killed their livestock in recent years. Most migration has been to Ulaan Baatar. Erdenet, Darkhan, Khovd, Choibalsan, and other smaller urban centers have also attracted some migrants from the rural areas. However, employment opportunities and services are underdeveloped in these areas, and governance is often weak in secondary cities due to lack of capacity in the local government. On the positive side, literacy is very high (96 percent), offering potential for people to move out of poverty quickly if appropriate training and economic development frame- works are in place. Physical Dynamics, Infrastructure, and Service Delivery In addition to the large disparity in living conditions between the Gher and formal urban areas, the major issues facing Ulaan Batar are environmental. Air pollution is serious, a product of dust (including from disruption of habitat in surrounding suburban areas), smoke from 70,000 stoves in the Ger area, and proliferation of motor vehicles. There are 40,000 registered vehicles in the Ulaan Batar area-a high number considering the level of eco- nomic development. In addition, associated with its desert location, the city is subject to flash flooding. Competitiveness and Urban Economic Change The urban economy of Mongolia is currently under considerable stress, typical of the tran- sition from a command and control to market economy. Urban industry is dominated by agri-business, for example, food processing, livestock products export, and the cashmere industry (the latter is under considerable competitive pressure from Chinese producers). Given the land-locked nature of the country, many strategies typically pursued by develop- ing East Asian cities such as export-oriented manufacturing are probably not viable. There- fore, the challenge is to increase value added in agri-business. In addition, tourism, which uses Ulaan Bataar as a base, has considerable growth potential. 20. Natural disasters called "Dzud" hit Mongolia during the winters of 1999 and 2000. Urbanization Dynamics and Policy Frameworks in Developing East Asia Philippines Level and Rates of Urbanization The Philippines is 52 percent urbanized (ADB figure, the UN estimate is 59 percent), this percentage is expected to increase to 60 percent in 2010.21 The urban population grew very rapidly at an annual rate of close to 5 percent from 1960 to 1995, but has since slowed to approximately 3 percent annually. Given relatively slow economic development over the last three decades (relative to East Asian norms), the level of urbanization in the Philip- pines is quite high-demographic and urbanization dynamics are more similar to the Latin American situation than East Asia. (In both the Philippines, and many Latin American ur- ban systems, urbanization has preceded rapidly based on both high rates of natural in- crease in urban populations and rural-urban migration driven by rural push forces (for example, rural land distribution), faster than employment creation, resulting in slums, sig- nificant levels of urban poverty, and so on.) In particular, natural population growth is rapid (and rising-a rare situation in today's world), a source of demographic pressure not experienced to anywhere near the same degree in other East Asian urban regions. Since the late 1960s, urban regions have had difficulty absorbing migrants, in terms of productive employment, and provision of adequate housing and services. This does not mean that the policy response should be to slow the rate of urbanization; rather the performance of city systems needs to be improved to more productively handle the rapid demographic growth. The Extended Metro Manila area is home to over 12 million people and accounts for 36 percent of the total urban population. An additional 10 percent of the urban population live in the next four largest metropolitan regions. These are Davao City and Metro Cebu, both with over one million residents, plus Metro Angeles and Zamboanga City, with over half a million inhabitants each. Urban Poverty Dynamics As in virtually all of developing East Asia, rural poverty rates are much higher than in urban areas. Urban poverty rates fell swiftly during the 1990s, falling from 24 percent in 1994 to 18 percent in 1997; however, they have since risen to 20 percent (2000).22 The poverty rate in the National Capital Region (NCR) is considerably lower (9 percent) reflecting the fact that many intermediate-sized and smaller cities are struggling to develop viable economic bases, al- though problems associated with congestion are usually less in the smaller cities. The poverty gap (the degree to which poor households fall below the poverty line) is much lower in urban areas than rural, again typical of developing East Asia. This is associated with higher levels of education, and younger age, of the urban poor (compared with the rural poor), a positive indicator in terms of likely responsiveness to enabling opportunities and frameworks. The number of people living in substandard (slum or squatter) housing in urban areas is about double the poverty rate, that is, around 40 percent. This means that housing is a serious issue facing the lower-middle class as well as poor groups. (This is a condition partially associated with ineffective land and housing markets. In Jakarta and to a lesser extent in the large Vietnamese cities, housing is also a middle class issue.) Surprisingly, substandard housing incidence in second-tier metropolitan areas such as Davao and Cebu is similar to the NCR. Although there is a wide range in estimates, depending on how existing slums are classified, the urban housing backlog could be as high as 4.5 million units by 2004. :L2 21.The material in this section is drawn from Webster, Corpuz, and Pablo (2002). 22.Note: World Bank figures, based on a different formula, show slightly lower rates of poverty (ur- ban and rural) in the Philippines. Government of Philippines data is used in this report. Urbanization Dynamics and Policy Frameworks in Developing East Asia Impeding efforts to fight poverty are shortfalls in social facilities / services. For example, teacher: student ratios exceeded 1:40 in 10 out of the 52 largest cities and exceed 1:50 in metropolitan Cebu. On the other hand, there are positive indicators. HIV/AIDS infections in urban Philippines are very low compared with developing urban East Asia.23 Physical Dynamics, Infrastructure, and Service Delivery Urban form, infrastructure, environmental quality, and delivery of basic services are major issues in the Philippines. A major problem is poorly functioning land markets, which drive up the price of housing (by effectively reducing the supply of housing available), and create inefficiencies in terms of urban accessibility. Air pollution is a serious issue in the Manila region, largely related to lack of political will to implement an air pollution abatement strat- egy based on legislation that is largely in place. (Experience in urban East Asia indicates that it is relatively technically easy to reduce urban air pollution where political will exists, for example, Beijing, Chengdu, Bangkok.) Solid waste disposal is a problem in virtually all sizeable Philippines urban regions, largely the result of lack of effective inter-jurisdictional cooperation (metropolitanization) which allows "Not in my Backyard" (NIMBY) dynam- ics to flourish. Attempts to privatize urban infrastructure development, for example, water supply systems, airport facilities, have a poor track record, marred by contract disputes. Both inter-city and intra-urban region transportation and communications systems are often inadequate, for example, transportation systems in Metro Manila and along the ur- ban-industrial spine of the Philippines in Luzon. Transportation inefficiencies effectively add a transaction tax to goods and services produced in the Philippines urban system. Other production inputs, for example, electricity, are expensive (relative to much of urban East Asia) further contributing to lack of competitiveness in the urban system. Competitiveness and Urban Economic Change As is the case in much of urban Southeast Asia, a rapidly changing external environment is forcing urban jurisdictions (and national actors) to search for alternative routes to competi- tiveness. Particularly strong drivers include the dramatic shift in share of FDI to China within East Asia, the slow down in demand for electronics products worldwide, and eco- nomic stagnation in Japan and the USA. Fortunately, the Philippines has certain compara- tive and competitive advantages24, including particularly high numbers of technically trained graduates, particularly in information and communications technologies (ICT), and wide- spread English language competence. Thus new areas of opportunity are opening up for urban economies in the Philippines, such as communications technology enabled activities, for example, "back office" medical transcription and accounting functions for US firms. The extent to which these opportunities will be realized, improving living standards, and allevi- ating poverty, is yet to be determined. There is certainly rapid growth in demand for these services, however, strong competitors, particularly Bangalore and Hyderabad in India exist. What is clear is that the future economic health of the Philippines will largely be deter- mined in urban areas. Urban areas already account for 75-80 percent of output and over 80 percent of economic growth. The largely urban-industrial Luzon heartland (the National Capital Region, plus adjoining regions III and IV) accounted for 61 percent of economic growth alone in 2000. 13 23. Balgos (2003), p. A8. 24. Comparative advantage refers to factor endowments possessed by a given city, e.g., low cost labor, beaches, deep sea (port) access, etc. Competitive advantage refers to how productively factor endow- ments are deployed by a city's inhabitants and institutions in real economic sectors, in the face of global competition. Urbanization Dynamics and Policy Frameworks in Developing East Asia Vietnam Level and Rates of Urbanization The population of the three largest urban areas, Hanoi, Ho Chi Minh City, and Haiphong, is expected to triple by 2020.25 The rate of urbanization is expected to remain above 3 percent per annum (the current rate is 3.06 percent) until 2020, after which it will decline slightly (to 2.5 percent in the 2025-30 period). Based on UN data, 25 percent of people live in urban areas, which is forecast to rise to 35 percent by 2020.26 The Government of Vietnam (Ministry of Construction) forecasts that the country will be 45 percent urbanized by 2020, a much higher forecast than the UN one. Even if the higher forecast proves correct, Vietnam will still be one of the least urbanized East Asian countries in 2020. Only after 2020 will the rural population start to decline in absolute terms, very late by East Asian standards, meaning that rural-urban migration pressures will remain strong over the next two decades. Urban Poverty Dynamics Typical of East Asian countries, poverty is concentrated in rural areas in Vietnam, particu- larly mountainous regions; 19.7 percent (2000) of rural people are classified as poor. By contrast 7.8 percent of urban people, totaling 265,000 households, are classified as poor.27 As Vietnam moves through a double transition ([i] from rural to urban, and [ii] from a planned to market economy), impacts on urban societal groups have varied. Generally those in the foreign-invested sectors have fared better, as well as those who have retained jobs in the state sector. However, living conditions have deteriorated for many redundant public sector employees who have been forced to shift to the non-state, and often informal, sector. Another vulnerable group is unregistered migrants. They usually have unstable jobs and have very limited access to social services and/or must pay more for these services, similar to the Chinese situation, although China is liberalizing its hukou system faster than Vietnam. Although estimates of substandard housing vary widely, it is clear that slums are exten- sive and growing. For example, the Land and Housing Department estimates that at least 300,000 people live in slums in Ho Chi Minh City (HCMC) while 30 percent of Hanoi's population are living in very crowded conditions with living space per capita under three square metres. Soaring land prices (land prices increased by over 500 percent in both Hanoi and HCMC in the 1990s) will make addressing the housing problem an even steeper chal- lenge, especially given the fact that approximately one million people will be added to Vietnam's urban areas each year for the next 20 years. Physical Dynamics, Infrastructure, and Service Delivery Environmental quality and urban sanitation are major problems facing Vietnam's cities, especially the larger ones, exacerbated by the high densities in core cities noted above. Water pollution is a major problem, the chief source being human waste; the situation is exacerbated by agricultural waste from upstream rural areas. Factories using outdated, heavily polluting production process technologies, often still located in core urban areas, discharge untreated wastes into water bodies. For example, in Hanoi 300 factories dis- charge untreated waste including chemicals, and some heavy metals, directly into water bodies but the city has no wastewater treatment facilities, and an aging waste water net- work serves only the oldest part of the city. Also, land subsidence is a problem in many 14 urban areas caused by extensive non-sustainable tapping of groundwater. 25. Information in this section was largely drawn from Douglass (2002). For a detailed history of ur- ban planning in Hanoi, see Logan (2000). 26. United Nations (2002c). 27. For details see: The Socialist Republic of Vietnam (2002), Section 2.4. Urbanization Dynamics and Policy Frameworks in Developing East Asia Air pollution is also a major problem, from burning of fossil fuels and vehicles, espe- cially motorbikes (including large numbers powered by polluting and noisy two-cycle en- gines) which number over two million in HCMC and one million in Hanoi. (Vietnamese cities have the highest number of motorbikes per capita in the world.) Land titling is limited (only 10 percent of private housing in Hanoi has legal title) yet private houses account for 70 percent and 60 percent of all housing in Hanoi and HCMC respectively. As urbanization proceeds, poorly functioning land markets could constitute major problems constraining efficient urban development. Competitiveness and Urban Economic Change Typical of East Asian nations, the urban areas of Vietnam account for a disproportionate share of economic growth. It is estimated that urban areas account for 70 percent of eco- nomic growth, while containing only 25 percent of the population. Vietnam's cities are currently undergoing transition from economies dominated by state owned enterprises (SOEs) to market driven economies; however, this process is proceeding slower than in urban China. SOEs are particularly important in Hanoi and HCMC, which together account for over half the national SOEs in the country. Vietnamese urban economies are under triple stress. They are undergoing (i) strong demographic pressures resulting from rural to urban migration, (ii) economic / employ- ment pressures associated with the transition from a planned to market economy, and (iii) similar to other Southeast Asia's cities, are being buffeted by strong external economic forces, described briefly in the Philippines section (above). The Government is establishing Industrial Zones (IZs) in every province of the country to attract FDI, but if East Asian experience is a guide, only a few will succeed, probably those in the HCMC peri-urban area, the Hanoi- Haiphong-Hailong Triangle, and perhaps in the Cam Thoi area of the Mekong Delta. To date, HCMC has received 85 percent of FDI flowing to Vietnam. Developing East Asian experience indicates that industrial dispersal is often most successful when investment is concentrated in a few critical areas in outer re- gions to create "breakthrough clusters". In Vietnam, development of such economic clus- ters is still in its early stages, often firms, such as shoe making, are "stand alone", which makes it much harder for them to compete in terms of innovation supported by cluster learning dynamics, production costs that can be lowered through specialization within a cluster, and so on. In other words, as equitable as the policy to locate an IZ in every prov- ince may be, it may actually have the counter-intended effect, ultimately leading to the more industrial concentration in the HCMC extended urban region. It is not clear whether Vietnamese peri-urban areas will be able to capture significant amounts of export oriented manufacturing, as Thailand and Malaysia were able to do ear- lier in their development trajectories. Although recent data indicates positive trends, it will be more difficult to develop a strong export oriented manufacturing economy over the next decade than it was in the 1985-1997 "Golden Age of Manufacturing" period in Southeast Asia. This means that there will be an even greater premium on human resource develop- ment and urban competitiveness than was previously the case in Southeast Asia. Tourism continues to offer considerable potential for growth not just in the two largest cities, but also in several intermediate sized cities such as Hue, Danang, Hailong, and Dalat. 15 Urbanization Dynamics and Policy Frameworks in Developing East Asia 11. East Asian Urbanization: Objectives, Policies, and Programs The following section focuses on public policy affecting urbanization in the six case study countries. The focus is on explicit urban policies, for example, rural to urban migration, urban housing, industrial location policies, although it is recognized that implicit policies, for example, trade or communications policies, not directly targeted to urban systems may have even greater impacts on urban systems performance than explicit urban policies. In each case, the discussion is organized around objectives, policies, unique programs and projects, and constraints. Table 4 summarizes the information presented, across countries, on urban policy objectives. Cambodia Objectives Urban development objectives were outlined in the First Five-Year Socioeconomic Devel- opment Plan (SEDP) of Cambodia (1996-2000). The major objectives put forward are: * Assist the urban poor * Develop the major urban growth poles in support of regional development * Rehabilitate urban areas, suffering from two decades of civil strife * Develop human resources in government.28 Urban Institutional Structure and Processes The primary problem facing urban governance in Cambodia is human resource develop- ment; there is a shortage of virtually all technical skills; a product of the country's history Institutional development, exacerbated by lack of human resources, remains embry- onic. For example, there is no urban housing policy or formal housing finance programs, urban land use planning is virtually defunct given the demise of international assistance in this area in the late 1990s. Governance in Cambodia remains highly centralized, in contrast to virtually all other East Asian countries (the other exceptions being Laos, Mongolia, and North Korea), al- though small steps, for example, allowing urban jurisdictions to collect fees to finance service delivery, are being taken. Not only has devolution of functions and expenditure not occurred, but even deconcentration is very limited, sub-national offices of line minis- tries have little decision-making power. In 1994, the national government established a National Committee for Regional and Urban Development and Construction (NCRUDC), with power to establish bureaus of urban affairs in each urban center. However, these urban bureaus have had virtually no success, given the existence of entrenched line agencies operating in urban areas that imple- ment programming set out in Phnom Penh, and appear to offer little potential to be coor- dinators of future urban development. Policy Initiatives Unlike other East Asian countries, in 1991 a virtual blank slate existed upon which to create administrative structures and formulate urban policies. Although progress has been rela- tively slow, with false starts, such as the attempt to establish the NCRUDC, scope exists to 16 shape institutional frameworks governing urbanization. 28. Urban sector human resource development priorities are financial management, infrastructure engineering and maintenance, municipal management, urban planning, land mapping, and environ- mental protection. Urbanization Dynamics and Policy Frameworks in Developing East Asia Table 4: Urban Development Objectives 1. Assist the urban poor. 2. Develop the major urban growth poles. 3. Rehabilitate urban areas, suffering from two decades of civil strife. 4. Development of human resources in government. Urban sector human resource priorities are in financial management, infrastructure engineering and maintenance, municipal management, urban planning, land mapping, and environmental protection. 1. Raising the urbanization level. 2. Promoting balanced urbanization. 3. Guided development of highly urbanized regions. 4. Bring into full play the role of regional cities in developing their hinterlands. 5. Emphasize urban employment creation. 6. Improve infrastructure in cities to enhance living standards, service delivery, and communities. 7. Reduce pollution and improve urban environments. 8. Identify special features for individual cities. 9. Improve urban management 10. Emphasize development of those county level cities with most potential. 11. Concentration of rural enterprises. 12. Reduce separation of rural and urban areas through reform of the urban domicile system. 13. Improvements to land use systems in urban areas, including protection of agricultural land. 14. Mobilize investment for urban development. 15. National urban policy frameworks and coordination of urbanization improved. PROPENAS 2000 1. Develop institutional structures that meet the needs and potentials of cities. 2. Develop standards for public services. 3. Increase the investment share of public expenditure in urban governance. 4. To conduct urban forums to involve citizens in city planning and development projects. 5. To strengthen urban community organizations. 6. To reduce urban poverty and crime. 7. To strengthen small and medium sized enterprises. 8. To develop urban areas based on strategic, historical, and traditional endowments. 9. To improve the functioning of networked infrastructure systems. KIMPRASWIL 1. More emphasis on local economic development. 2. More self-reliance, rather than international borrowing, in urban development. 3. At the local level, programming should be integrated. 4. Effective land management in urban areas should be a priority. 5. Human resource development is critical to achieving urban development 1. To develop alternative centers to Ulaan Batar to serve as growth centers for regional development, with a focus on: - upgrading the effectiveness of aimag development strategies- improving rural-urban linkages- building local government capacity in planning and programming priority investments- identifying local economic development opportunities. 2. To strengthen Ulaan Batar as the center of the nation's economy and as a pace setter for urban develop- ment throughout the country. 3. To reduce urban poverty and improve living conditions and urban services, e.g., water supply in informal areas, particularly Gher areas. T.: d,11etop ;W-, Jror!. 1ru-:wr,7 Th,at: 1. Facilitates economic production 2. Develops and strengthens local comparative advantages 3. Provides all urban residents with an improving quality of life. I DecreJse 1.re,A,ts ,r, ,rrr.r,3 :nor," of iarge cIe n o,r ,n,:re1,;e per-,rr.,an ,Jenst,es, p.: sIo, tnr;!g!7 development of satellite cities. 2. Relocate poiluting factories from inner cities to outer areas through tax incentives and regulation. 3. Stem informal settlements through development of construction standards and enforcement of codes. 4. Improve provision of urban services. 5. Implement measures to increase supply of urban housing. 6. Reduce loss of prime agricultural land resulting from poorly managed peri-urban development. Urbanization Dynamics and Policy Frameworks in Developing East Asia Key initiatives to date include the following: * The 1996 Public Enterprises Law allows enterprises (including in urban areas) to have operational and financial autonomy under public ownership. * Although the fiscal system remains highly centralized, the Provincial/ Municipal Finance and Property law allows provincial and municipal governments to retain and expand local revenues for operation and maintenance (O&M) of urban systems. * Property rights are recognized under the 1992 Land Act. In addition to the foregoing many urban-related laws and sub-decrees are under dis- cussion dealing with matters such as expropriation of land for public use, economic devel- opment zones, environmental impact assessment, and provincial / municipal administra- tion and finance. Programs and Projects There has been limited time to initiate urban programs and projects since the end of civil unrest. Most activity has focused on urban infrastructure construction and rehabilitation (for example, water supply, roads), often involving international agencies such as the World Bank, ADB, and bilateral donors. To a significant extent, the lack of a decentralized urban development institutional framework, when combined with communications and trans- portation constraints, inhibits the development and timely implementation of programs and projects. Other constraints include shortages of technical personnel. The fact that the Government owns virtually no land in Phnom Penh, and very little in most other towns is a constraint in terms of locating some public facilities, however, it is also an opportunity in that land in Cambodian urban areas is not tied up by inefficient state owned enterprise as in some cities in transitional economies, for example, Haiphong in Vietnam. China Objectives Based on its Tenth Five-Year Plan, China is one of the few developing countries that has an explicit policy supporting accelerated, balanced, and productive urbanization. China's cur- rent urbanization policy represents a strong break with the past, in Maoist China urbaniza- tion was discouraged, later policies encouraged the growth of small and medium sized cities, while suppressing the growth of larger cities. The rationale for China's priority objective of accelerated urbanization is to absorb sur- plus labor from rural areas into more economically productive urban systems. Secondary benefits are expected to include environmental improvement (removing pressure on mar- ginal lands and other natural resources, including removing agriculturally marginal and environmentally sensitive land from production), and better social programming (social service delivery is normally more cost-effective in relatively compact urban areas). More specifically the Tenth Five-Year Plan advocates:29 * Raising the urbanization level by encouraging a shift of a significant percentage of the rural population to urban areas to drive economic development. This will in- crease the productivity of labor, increase domestic demand, and improve economic efficiency in rural areas. 18 * Balanced urbanization, that is, the growth of large, medium, and small cities. * Recognizing, and improving coordinated management of, regional scale urbaniza- tion (extended urban areas). 29. Summarized and paraphrased from New Star Publishers (2001), Section 11-7. Urbanization Dynamics and Policy Frameworks in Developing East Asia * Enhancing the role of regional cities in catalyzing development in their hinterlands. * Emphasizing employment creation in cities. * Improving infrastructure in cities to enhance living standards, service delivery, and quality of communities. * Reducing pollution and improving urban environments. * Identifying special features (competitive advantage roles) for individual cities. * Improving urban management. * Emphasizing development of those county level cities with most potential, to enable these key medium sized and smaller cities to play a leading role in developing sur- rounding rural areas. * Spatially concentrating rural enterprises. * Improving factor mobility between rural and urban areas through reform of the ur- ban registration system (hlikol) to facilitate an orderly shift of the urban and rural population. * Improving land use guidance systems in urban regions, importantly to include pro- tection of agricultural land. * Mobilizing investment for urban development. * Improving national urban policy frameworks and national coordination of urban- ization. Policy Initiatives As the country engaged in the largest rural-urban transition process in the history of the world, it is impossible to review all recent significant policy changes affecting urbanization underway in China. However, policies of particular importance are as follows: * The urban registration system (liikont) continues to be liberalized and is becoming less of a factor inhibiting rural-urban migration, especially to peri-urban areas out- side cities proper and to smaller cities, for example, county level cities, especially in the West. In addition, migrants, and firms employing them, have become increas- ingly adept at adaptation to the hukou system so that it is becoming less of a factor at any rate. In fact, the hukou system is being differentially used to attract labor and talent. In the West, smaller cities and towns are offering easy access to hukou to attract labor while in technologically sophisticated cities such as Hangzhou, easy access to hukou status is being offered to technically trained people with skills in high demand by local firms. * Urban social security policies and programs are being consolidated and strength- ened, driven by national legislation and guidelines. * Privatization of the housing market, underway for close to a decade, continues to radically transform the housing supply system. * Land markets continue to deepen, with many urban governments adopting more market based (competitive bidding) systems to allocate land leases. Restrictions on conversion of large land plots, for example, for industrial parks, is also strengthen- ing land markets by increasing demand for smaller plots. In 2003, strong measures were taken to avoid oversupply of industrial parks, particularly in coastal areas. * SOE reform is significantly impacting urban labor markets, creating significant so- cial stresses related to layoffs, inadequate pensions, and so on., particularly in the Northeast and interior urban regions. Related, firms are becoming less tied to local governments with the demise of Township and Village Enterprises (a dynamic that 19 has accelerated since the late 1990s under conditions of a surplus economy). * Current policies stress improving the productivity of urban regions through devel- opment of the service sector, particularly business and producer services, realization of agglomeration economies, improved accessibility (within urban regions and be- tween them), and improved factor mobility including labor. Urbanization Dynamics and Policy Frameworks in Developing East Asia * Motorization is generally being promoted, although certain local governments, par- ticularly Shanghai, are adopting more restrictive policies. Analysis is underway (2004) for China's Eleventh Five-Year Plan. It would appear that the accelerated urbanization policy will remain in force, but with increased emphasis be- ing given to larger towns and small cities (urban areas with 50,000-250,000 population). Urban settlements of this size have been the "workhorses" of Chinese urbanization over the last 20 years-to a significant extent because they are more flexible (less bureaucratic) than the large cities. Programs and Projects Urban programs and projects are large in number and diverse, and hence beyond the scope of this paper. Major initiatives, often innovative, are gaining momentum in areas such as the following. The World Bank is active in all the following areas, across China: * Urban (and inter-urban) expressways, including radials and ring roads, to fully inte- grate extended urban region scale road systems. * Large scale environmental improvement programs, particularly air and water pollu- tion abatement. These programs have resulted in major improvements in air and water quality over the last five years in a number of urban regions including Chongqing, Beijing, and Shanghai. * Development of amenity areas, heritage sites, and public spaces, for example, river front developments, historical sites. Major world events such as the Olympics (Beijing, 2008) and the World Expo (Shanghai, 2010) are a significant driver of amenity and environmental improvements. * Peri-urban structuring through more integrated delivery of utility networks, road systems, and industrial estates, for example, the Chongqing Municipality-World Bank CUEP IT Project that focuses on the "Western Corridor" peri-urban region. The peri- urban area in the north-west Beijing extended urban region is being shaped as a major educational, research, high-technology area. Constraints National policy frameworks have not been developed in certain critical areas, for example, heritage protection, low income housing. Implementation of mechanisms to compensate those displaced by urban development, particularly in peri-urban areas vary, despite clear national guidelines. Public transportation, particularly bus systems, remains under-devel- oped, a constraint that is becoming more serious as residence and workplaces become in- creasingly geographically separated as a result of privatization of housing, economic re- structuring, and more flexible labor markets. One of the most important constraints is the lack of vision-based strategic planning at the urban scale that would more accurately iden- tify local comparative and competitive advantages; at present most urban regions in China advocate and support roughly similar ("cookie cutter") economic development strategies. Indonesia Background 20 Indonesia has been through a period of rapid change since 1997. To a significant extent urban areas have been both the center of this change, and very significantly impacted by it. In 1999 the Government of Indonesia announced a big banig decentralization policy,30 that 30. Based on Law 22/1999 on Regional Governance, and Law 25/1999 on Fiscal Balance. Urbanization Dynamics and Policy Frameworks in Developing East Asia started January 1, 2001, targeted at the city (kota) and district (kabiupateni) level-probably the right geographic scale for decentralization, there are about 350 such governments. Vir- tually all government functions are being devolved to the local level, with the exception of obvious national functions such as national defense, transportation and communications, the judiciary, and finance. Decentralization means substantially increased inter-governmental transfers to local governments. However, such transfers will not be sufficient to fund all the functions cur- rently being mandated to local governments. Thus their local revenue generation capaci- ties will need to increase substantially. On a sustainable basis, higher local revenue gen- eration, acceptable to local populations, as well as poverty alleviation (discussed previously) can only be realized through enhanced local economic development. To enhance local economic development, the national government has established guide- lines for local governments to undertake local developmental planning, termed PROPEDA. A major challenge facing local governments in Indonesia is handling conflict, particu- larly over land. To the extent that stakeholders can be involved in working out solutions to problems before property development and public projects commence, substantial net societal gains could be realized. Objectives The National Development Program (PROPENAS) put forward in 2000 contains the fol- lowing guidelines in regard to urban development: * Develop institutional structures that meet the needs and potentials of cities * Develop national standards for key public services * Increase the investment share of public expenditure in urban budgets * Conduct urban forums to involve citizens in city planning and development projects * Strengthen urban community organizations * Reduce urban poverty and crime * Strengthen small and medium sized enterprises * Develop urban areas based on strategic, historical, and traditional endowments * Improve the functioning of networked infrastructure systems The Ministry for Human Settlement and Regional Infrastructure (KIMPRASWIL) put forward the following guidelines for urban development in Indonesia: * More emphasis on local economic development * More self-reliance in urban development * At the local level, programming should be integrated (Integrated Urban Development Programs). In particular, this would involve local economic development, poverty alleviation, urban infrastructure and services, environmental management, urban governance, and urban finance. * Effective land management in urban areas should be a priority * Human resource development is critical to achieving urban development Policy Initiatives * A national Ministry for Human Settlements and Regional Infrastructure (KIMPRASWIL) was recently established to co-ordinate national urban programming.31 * The "big bang" decentralization policy was based on the 1999 Regional Governance 21 law and the 1999 Fiscal Balance law. It is expected that 40 percent of public expenditure and 60 percent of the development budget will be managed at the sub-national level. 31. KIMPRASWIL is divided into three functional areas: (i) Spatial Planning and Regional Develop- ment, (ii) Urban and Rural Development, and (iii) Infrastructure and Settlements Planning. Urbanization Dynamics and Policy Frameworks in Developing East Asia * Economic development is to be increasingly a locally driven and supported, rather than national, function. Constraints * Urban land use planning is benign. The nested set of physical plans (national, re- gional, city or district) to be prepared under law PP47 (1997) on National Spatial Planning are not integrated with local economic development or local government budgeting processes. They are prepared without public consultations and are per- ceived as being inflexible and sometimes corrupt, resulting in low commitment to their implementation by the public. * Local economic development processes are undeveloped and limited technical sup- port is forthcoming from the national government. Given the rapid decentralization underway, this is a critical shortcoming. * Access to housing is constrained by lack of mortgage finance. (Mortgage finance in Indo- nesia equals only 3.1 percent of GDP, compared to 23 percent in Malaysia and 13 percent in Thailand.) As is the case with local economic development, given decentralization, local governments will need to play a greater role in guiding local housing sectors. Mongolia Objectives The prime objectives of urban development in Mongolia are: * To develop alternative (aimag) centers to Ulaan Baatar to serve as growth centers for regional development. 32 Related objectives are (a) to upgrade the effectiveness of aimag development strategies, particularly by enhanced incorporation of poverty concerns, regional development principles, and stakeholder consultation; (b) to en- hance rural-urban linkages; (c) to build local government capacity in identifying and implementing priority investments within a strategic planning context; and (d) to identify local economic development opportunities. * To strengthen Ulaan Baatar as the center of the nation's economy and as a pace setter for urban development throughout the country (and a model to be replicated). * To reduce urban poverty and improve living conditions and urban services, for ex- ample, water supply in informal areas, particularly Gher areas. Governance and Institutional Dynamics As in the case of Cambodia, Mongolia is a highly centralized state. As such, decisions by the local government of Ulaan Baatar require the approval of the national government (cabi- net). Inter-governmental fiscal transfers vary widely from year to year. Ulaan Baatar is di- vided into Districts that have responsibility for issuing building permits, an important de- terminant of built urban form. The priority objectives in terms of improving governance is training of officials, and developing more participatory and transparent urban governance. Horizontal coordination also needs to be improved, for example, Districts within cities frequently take action that are 22 incompatible with developments in nearby Districts, given the absence of a functioning land use management system. On a positive note, one of the most important units of gov- ernment in Ulaan Baatar is the Economic & Strategic Policy Department (ESPD)-many cities in East Asia have yet to create such units which will become increasingly important. 32.In particular, Erdenet, Darkhan, Khovd, Choibalsan, and Tsetserleg. Urbanization Dynamics and Policy Frameworks in Developing East Asia Policy Initiatives Current urban policy priorities of Mongolia are: * To reduce urban poverty and improve urban service delivery. * To improve infrastructure, particularly basic service delivery, in secondary cities, so that they can function more effectively as regional growth centers. * To address social problems, for example, street children, urban unemployment, as- sociated with the transition from a planned to market economy. * To improve site conditions and service delivery in Gher areas, particularly in Ulaan Baatar. * To support measures to improve the economic performance of Ulaan Baatar to en- able it to contribute more strongly to national economic development. * To encourage and support Ulaan Batar's municipal government to become more financially self-sufficient. * To develop cadastral information systems to improve land management and act as a base for revenue generation. * To better network Mongolian urban regions to improve learning, for example, by establishing an Association of Mayors. Programs and Projects Given rapid change underway in Mongolia, and its level of economic development, urban development initiatives frequently involve international agencies (multilateral, bilateral, and NGOs)-this is expected to continue for the foreseeable future. Some important projects underway include: * Development of urban infrastructure / services in five secondary cities (with ADB). * Implementation of a City Development Strategy in Ulaan Baatar (supported by EASUR). * Site development in Gher areas. * Municipal finance systems upgrading in Ulaan Baatar. * Cadastral surveying in urban areas (with ADB) * Assistance to street children (supported by EASUR) * Development strategies for secondary cities (Cities Alliance). Constraints Urban development is constrained by insufficient human and financial resources to ad- dress very serious challenges, for example, landlocked cities with limited economic op- tions, poor living conditions in Gher areas, underdeveloped secondary cities, and social impacts of economic re-structuring. Philippines Objectives According to the National Urban Development and HoLusing Framleztwork (1999-2004): "The overall objective of urbanization should be to develop an urban structure that (i) facilitates eco- nomic production, (ii) develops and strengthens local comparative advantages, and (iii) 23 provides all urban residents with an improving quality of life."33 33. Housing and Urban Development Coordinating Council (HUDCC) (2000). Urbanization Dynamics and Policy Frameworks in Developing East Asia Governance and Institutional Dynamics The most notable characteristic of urban governance in the Philippines is the considerable extent to which decentralized governance has been realized. The Philippines has one of the longest histories of decentralization in East Asia, a process that has been underway since introduction of the Local Government Code in 1991. At present about 23 percent of public expenditure is by local governments. The decentralization process is generally deemed a success; however, a major problem is the lack of governance mechanisms for coordination of planning, implementation, and operation of regional scale infrastructure and services that are best delivered at geographic scales above the local government (city, municipal) scale. Provinces are weak and have fewer resources than cities. Progress in inter-jurisdic- tional cooperation to create extended urban region cooperation (metropolitanization) has been slow. The result has been poorly performing extended urban region systems that in many cases results in severe negative impacts particularly in terms of environmental qual- ity, transportation, and economic competitiveness. For example, the CALA (Cavite-Laguna) peri-urban area to the south of Metropolitan Manila is increasingly not competitive with competitor regions such as Thailand's Eastern Seaboard and Ayutthaya manufacturing com- plexes, Malaysia's Penang electronics cluster, or China's Pearl River Delta and Yangtze River Delta, due to lack of regional scale co-ordinated governance. Policy Initiatives The Medium Term Philippine Development Plan 2001-2004 puts forward the following policy framework, summarized below:34 * Reduction in income disparity between Manila and other regions. * Regional centers should be encouraged to grow so that they will become attractive to investment and catalyze development in their regions. * Population and activities in the National Capital Region (NCR) which are over-con- centrated, but because of their characteristics not amenable to dispersal to remote areas, should be encouraged to relocate to the CALABARZON and the Olongapo (Subic)-Angeles (Clark) peri-urban areas. * Local Government Units (LGUs) should assume vital roles in stimulating regional and local economies; local executives should become dynamic economic managers. * The capacity of LGUs should be enhanced so that they can better tackle problems and capitalize on opportunities. * The national government should support local development through initiating and maintaining better local databases in support of effective local decision making. Constraints Achievement of the foregoing objectives and policies is constrained by a number of factors including: * Lack of incentive structures for local governments to allocate public resources effec- tively and utilize resources (within given functional areas) efficiently. In fact, fiscal systems in place do not encourage LGUs to raise own source revenues or pursue results-based initiatives. * Minimal spending on capital investment, particularly for developmentally catalytic projects in urban areas. 24 * Poorly functioning urban land markets. * Inadequate and poorly functioning housing finance mechanisms for poor and lower- middle income groups. 34. National Economic and Development Authority (NEDA) (2001). Urbanization Dynamics and Policy Frameworks in Developing East Asia * Security issues in urban areas which constrain investment (particularly FDI) and tourism. * Large scale backlog needs for urban infrastructure and services, combined with strong demographic pressures, make it difficult to deal with causes of problems and engage in pro-active developmental activities. The result is often an emphasis on addressing symptoms of problems, rather than causes. * High transportation and communication costs (in time, money, and pollution) within, and between urban areas, reducing competitiveness. Vietnam Background In the case of Vietnam, there appears to be less clarity in regard to urban policy than in the other nations reviewed. However, review and reconsideration of appropriate urbanization policies by the Government of Vietnam is underway. The Ministry of Construction's 1999 decree on urbanization predicts an urbanization level of 45 percent by 2020, a full 10 percent higher than the UN rate. It is unclear whether this reflects an advocacy of accelerated urbanization, as in the Chinese case, or whether it reflects expected high rates of migration to Vietnamese cities over the next twenty years driven by market forces. If an advocacy of accelerated urbanization, it represents a break with past national development policy that focused on rural development and viewed rapid growth of cities cautiously. Objectives In January 2001, the Ministry of Construction (MOC) put forward the following objectives for urban development in Vietnam: * Decreasing densities in urban cores of large cities and increasing peri-urban densi- ties, possibly through development of satellite cities. * Relocating polluting factories from inner cities to outer areas through tax incentives and regulation. * Stemming informal settlements through formulation and enactment of construction standards and enforcement of codes. * Improving provision of urban services * Implementing measures to increase supply of urban housing * Reducing loss of prime agricultural land resulting from poorly managed peri-urban development.3" Governance and Institutional Dynamics Vietnam is a unitary state, thus central agencies have significant powers in coordinating urbanization. The Ministry of Construction has been formally designated as the lead Min- istry on issues of urban development. The MOC continues to master plan the urban system, planning for an urban system composed of two national "megacities", three smaller na- tional cities, eleven regional cities, 50 provincial cities, 1,867 district towns, and 20 new towns by 2020 with a total population of 46 million. This official plan encourages urbaniza- tion in smaller settlements, rather than the dominant national cities. Although the system appears very centralized, there is considerable flexibility at lower levels. Provincial and district authorities are evaluated on their capacity to promote devel- 25 opment, measured in terms of GRDP growth, similar to the Chinese case. However, at the local level, financial capacities are low and personnel often inadequately trained. 35.Vietnam currently loses approximately 10,000 hectares of agricultural land annually through peri- urban land conversion processes. Urbanization Dynamics and Policy Frameworks in Developing East Asia Policy Initiatives * The national Ministry of Construction has been formally designated as the lead min- istry on issues of urban development (1999). * The Government recently began promoting an existing, but unimplemented, decree that obliges local assemblies to consult residents about administrative decisions.36 For example, the Prime Minister has called for the setting up of telephone hotlines to take complaints about inefficient or corrupt civil servants at the local level. * The Government intends to attract additional FDI by encouraging transnational corpo- rations to locate in industrial estates being established by national and provincial gov- ernments under the auspices of national and provincial Industrial Zones authorities. * The Government has indicated that it intends to remove the distinction between local people and in-migrants in urban areas. * Improving urban environments on a sustainable basis is a priority both at national and local levels, with an emphasis on reducing air, water, and land pollution. Other priorities include drainage, public lighting, solid waste, and community upgrading. * Reducing urban poverty through vocational training, support to small and medium sized enterprises (SMEs), and micro credit. * In urban development, avoid relocation of poor people to the extent possible, in- stead focus on on-site upgrading. * Strengthen rural-urban linkages. Programs and Projects * In HCMC, movement of the worst polluters out of the city, under the auspices of the HCMC Department of Science, Technology, and the Environment is underway. * Slum upgrading (EASUR is involved in four such projects, two in the large cities, and two in smaller cities.) * Water supply. (EASUR is in involved in four cities. A new project is underway that will support water supply projects in approximately 50 cities through a demand driven, on-lending program.) * Enhancing urban strategy formulation capacity, including in local economic devel- opment. (EASUR has been involved in Haiphong and HCMC and intends to broaden its involvement in this area through its Cities Development Strategies program.) * Wastewater treatment / river clean up. (EASUR is significantly involved in HCMC through two projects.) Constraints Key constraints affecting urbanization in Vietnam include: * Lack of horizontal coordination among agencies. * High levels of centralization, and reliance on planning the settlement system by fiat (command and control), rather than a performance based approach that would focus urban initiatives and performance monitoring on emerging and fast-growing settlements. * High population densities in the largest cities (80,000 per square kilometer in core HCMC) in conjunction with large numbers of industrial firms (often high polluters) and inadequate environmental infrastructure. 26 * Inconsistencies between national plans and local plans. For example, the HCMC ur- ban plan is based on a population of seven million in 2020 (a level which may have already been reached) while the MOC urbanization forecasts would imply a popula- 36. For more details, see The Economiist (May 25, 2002), p. 30. Urbanization Dynamics and Policy Frameworks in Developing East Asia tion of 13-19 million by 2020. * Lack of a clear national urbanization strategy / urban policy framework, exacer- bated by uncoordinated divergent technical assistance on urbanization from the in- ternational community * The continued presence of manufacturing firms (often heavy and/or polluting in- dustries) in core urban areas. Related, this limits land available for higher value ur- ban uses, SOEs frequently control large expanses of centrally located land. 27 Urbanization Dynamics and Policy Frameworks in Developing East Asia Ill. East Asian Urbanization: Commonalities and Differences Can we generalize concerning the six cases above? To a limited extent, yes, although differ- ences among East Asian urban systems are considerable. Most developing East Asian cities share the following attributes in common: * They are fast growing in both demographic and economic terms, especially the latter. * They are open to global opportunities, but also vulnerable to the risks that this im- plies. Most are cosmopolitan. * Exports play an important role in the economies of most of the larger East Asian developing cities, although the relative importance of exports is falling as East Asian urban economies become more consumer driven, often the result of post-1997 finan- cial crisis macro economic policies.37 * Local governments are gaining administrative and political power, and fiscal re- sources, while being assigned an increasing array of functions. * Old models of planning and management increasingly do not work in East Asian developing cities. In fact, statutory or zoning based land use planning has always had a poor record in most cities in the Region. Change brought about by drivers such as transition to market economies, decentralization, and globalization is mak- ing the case strong for introduction of new realistic planning and management in- struments, (for example, "rolling", performance based), based on foresight and an- ticipation principles. Most nations and cities in the Region realize this, and are trying to change their modes of urban governance accordingly. For example, Thailand has recently dismantled its five year planning process and the national government no longer produces sub-national regional development plans. * Urban regions are increasingly becoming the focus and engine of economic growth, creating greater demands for technical, entrepreneurship, innovation, and manage- ment skills in their populations. A significant creative class is now developing in most large East Asian urban regions working in education, technology, culture-en- tertainment, and human health. Commonalities and differences are more apparent when the urban systems are grouped around key developmental issues, as indicated below. To a considerable extent, not surpris- ingly, there are differences between the Chinese and Southeast Asian cities. But based on other criteria, groupings appear more related to transitional versus market economic sys- tem status than the Southeast Asia-China- Northeast Asia (minus China) categorization traditionally used to analyze East Asian urban systems. Sluais / Informial Settlemiienlts: Slum and informal settlements tend to be less prevalent in countries where rural-urban migration was previously constrained, particularly China. The challenge will be to prevent the development of extensive slums in urban regions in transi- tional economies as labor flows more freely. In China, the housing challenge will be to meet rapidly increasing demand for affordable housing, given rapid urbanization, rather than meeting backlog needs. Decentralizationl: Three of the systems have highly decentralized governance (in fiscal terms), that is, China,38 the Philippines, and Indonesia (underway). On the other hand, unusual for East Asia, Cambodia, Mongolia, and Vietnam remain highly centralized, al- 28 37.Many East Asian countries have recently adopted policies to encourage consumer led growth (which accentuates the role of urban regions, including South Korea, Thailand, and Malaysia. For example, Malaysian Prime Minister Abdullah Badawi recently (January 2004) declared, "Two of the key initiatives are to fine-tune our economic course from export-led growth to domestic consump- tion-led growth and increase the role of domestic direct investments". See Burton (2004). 38. China is highly fiscally decentralized, close to 80 percent of public expenditure is at the local level. However, administratively, the national government has much greater powers at the local level than its Urbanization Dynamics and Policy Frameworks in Developing East Asia though there are indications that Mongolia and Vietnam will develop more decentralized systems of urban governance in the forseeable future. Emnploymtzeit Creationi: The mismatch between employment and population growth in urban areas is not as serious a problem in East Asia as in Latin America, South Asia, or sub- Saharan Africa. However, lack of urban jobs is identifiable in the Philippines (with its rapid urbanization and under-performing economy) and Mongolia (associated with the transi- tion to a market economy). Insufficient urban employment creation is present to a lesser extent in Cambodia (again associated with a transitional system), and Indonesia (resulting from the aftermath of the 1997-98 financial and political shocks). Certain Chinese cities, with "old industrial" economies, particularly in the Northeast can also be described as hyper-urbanized, the term sometimes used to describe such a mismatch between the growth in urban jobs and population. However, employment data tends to poorly measure the informal sector (by definition), and the poorer the city, generally the larger the informal sector. Thus diagnosis of the employment situation in developing East Asian urban regions is difficult. Emergence of hyperurbanization, a condition not closely associated with East Asia over the last several decades, bears monitoring, although demographic trends will take pressure off most developing East Asian cities in the longer run (10-20 years). Penit Up Urbaniization Forces: China's urbanization level (38 percent) is approximately at a level one would expect given its level of economic development. Indonesia, and the Philippines are significantly urbanized relative to their levels of economic development. (See Annex A.) Mongolia is surprisingly highly urbanized (57 percent) relative to its level of economic development-an apparent case of hyperurbanization. However, Vietnam (25 percent) and Cambodia (23 percent) are characterized by very low levels of urbaniza- tion, as is Thailand (40 percent), given its overall level of economic development. Thus Vietnam and Cambodia, along with Myanmar (not part of the sample) are expected to experience significant surges of urbanization in the forseeable future-a situation which will stress urban systems in these three countries significantly. These upcoming urbaniza- tion surges should be anticipated and be the object of foresight processes. But even grouping of the case study countries does not eliminate significant differ- ences among countries that one would expect to have similar urban characteristics, or account for outliers. For example: * Urban educational attainment and literacy rates vary enormously between Cambo- dia (low) and Mongolia (relatively high) despite both being transitional, poor, and relatively small (in population terms). * China expanded its intra and inter-urban primary road networks dramatically dur- ing the 1990s, the other countries in the sample did not do so at nearly the same pace. * Cambodia is experiencing urbanization at a rate (6-8 percent annually) far in excess of any other developing East Asian country. On the other hand, populations in Chi- nese and Philippine cities are growing in the range of 3 percent. * Both China and Vietnam control internal migration, the other countries do not. How- ever, even within this group slums have arisen in Vietnam, but much less so in China. In these two countries other forms of factor mobility have also been constrained by formal and informal barriers, meaning that the national urban systems (for example, in terms of domestic firms operating on a national scale, inter-urban flows of goods and capital, local economic specialization) are less integrated than would be expected. 29 20 percent share of local expenditure would indicate. This is both through strong national govern- ment developmental guidance at the local level (even though national Ministries are very lean in staffing) and because the Communist party and civil service structures parallel each other from the national to local level. Urbanization Dynamics and Policy Frameworks in Developing East Asia * China has dramatically gained share of FDI to its urban areas over the last decade (relative to other national urban systems),39 the other countries have lost share, with significant implications for urban economic development. China's export mix most closely overlaps that of Indonesia and Thailand, significantly stressing manufactur- ing in peri-urban areas in these two Southeast Asian countries.40 * China and Vietnam have higher levels of rural industrialization than the other coun- tries analyzed; however, in China market forces are resulting in the closure of many of these former TVEs (Township and Village Enterprises), and as noted, the current Chinese policy is to concentrate SMEs. In effect, in China, rural industrialization is being reversed with industry concentrating in peri-urban areas near large cities, the product of both inward movement of former TVE functions and movement of heavy industry out from urban cores.4' In Vietnam, the future of similar rural-based enter- prises is less clear; policies in regard to rural and small town industrialization are under review. * Indonesia's urban poverty rate is high, and the percentage of the nation's poverty found in urban areas is higher than that of other countries in the sample. Existing urban poverty in Indonesia is more important as a national issue, than in other coun- tries in the region (with the possible exception of the Philippines). Indonesia faces a dual challenge of absorption of new urban populations (through migration and en- velopment) as well as poverty alleviation among the in situ urban population. * Vietnam's national urbanization planning is more oriented to master planning and command and control mechanisms than in the other sampled countries. However, this approach appears to be under review. * China stands out clearly in policy terms, given its strong advocacy of accelerated urbanization. Vietnam may join this group. 30 39. In turn, FDI is highly linked with China's export performance. In China, the share of foreign affili- ates in exports rose dramatically from 17 percent in 1991 to 50% in 2001. See: Williams (2002), p. 6. 40.Yusuf (2003), Table 1.6. 41.For details on these dynamics, see Webster (2002). Urbanization Dynamics and Policy Frameworks in Developing East Asia IV. Emerging Challenges: Policy Implications This Section identifies challenges, and associated policy implications, facing East Asian urban regions based on the foregoing analysis. Context Policy Context Based on the analysis in Section 3, Table 5 summarizes existing stated policy priorities of the six urban systems analyzed. With two exceptions, these priorities are shared by at least half of the countries. And five of the nine priorities are shared by the majority of the coun- tries sampled. This indicates considerable overlap in the policy priorities of the sampled countries-of course instruments being advocated to advance these policies vary consider- ably among the sampled countries. Rural-Urban Transitional Dynamics Throughout developing East Asia, urban regions are already the engines of growth ac- counting for at least 70 percent of economic growth in virtually every nation in the Region, and in every case reviewed in this paper. The propulsive economic role of urban regions is the forerunner of a rural-urban demographic transition that is well underway in the Re- gion, but tends to lag the shift of economic power to urban regions. The shift in formal political power to urban areas comes last as rural regions retain inordinate formal political power relative to their declining populations for many years.42 Already, urban regions ac- count for more than, or close to, 100 percent of demographic growth in Indonesia, China, Thailand, and the Philippines. By 2030, that will be the case throughout the Region, with the possible exception of Cambodia. As cities become more important, they also tend to become more linked to each other and to rural areas through the growth and development of national scale corporations, telecommunications and transportation networks, and social and business networks. This is leading to a breakdown in the dichotomy between rural and urban in East Asian coun- tries as urban influences spread. In fact, the rural-urban distinction is becoming increas- ingly less useful. For example, in Thailand's poor Northeast Region, over 80 percent of farm household income is from non-agricultural sources, essentially urban activities. This is not atypical. Much of what is perceived as rural in East Asia is actually within commut- ing range (less than one hour), often by para-transport such as modified pickup trucks, of sizeable urban places and/or the employment structure is essentially urban in character. Furthermore, the outer edges of urban regions are very indefinite, particularly around large urban agglomerations, with rapid envelopment of rural settlements occurring, which further blurs the distinction between urban and rural. Policy Challenges The Increasing Role of East Asian Urban Regions in Poverty Reduction East Asian urban areas differ dramatically in terms of poverty alleviation context and dy- namics from other developing world regions. In developing East Asia, the rural-urban tran- sition is still in its early to middle stages (unlike in most of Latin America and Eastern and 31 42. For example, rural areas retain disproportionate numbers of parliamentary seats, etc. This phe- nomenon is seen to the present in jurisdictions such as Canada, the United States, and many countries of the European Union. Urbanization Dynamics and Policy Frameworks in Developing East Asia Table 5: Urban Policy Priorities in Selected Developing East Asian Countries Policy Cambodia China Indonesia Mongalia Philippines Vietnam Urban poverty alleviation V v V v Growth center dynamics: V v v v hinterland development Urban environmental v v V / improvement Local economic v v v V v development More effective local v V v v v V management: institutional development Human resource V V development (governance) Integration of urban v systems: factor mobility More effective land V v V conversion More efficient land v V v markets Note: The absence of a check mark does not mean policy initiatives are not being put forth in the area indicated. The table identifies policy priorities of the countries in question based on national level urban strategies. Source: Douglas Webster, Stanford University, 2003. Central Europe where the transition is essentially complete), which means rural-urban mi- gration will be significant for the next 20-30 years. At the same time, urban areas in East Asia are characterized by relatively strong economies enabling them to act as agents of poverty prevention and alleviation by providing migrants with productive employment. In most of developing East Asia, significant rural-urban disparities, often on the order of 4:1 in terms of household income, as currently in China and Thailand, act as signals to the population that encourage migration. Given that rural areas in countries such as Vietnam, China, and the Philippines have reached limits to returns on additional labor in agriculture, extended ur- ban regions in East Asia should, and increasingly are, in China for example, at the forefront in terms of national poverty reduction efforts. This means that urban areas will need to play an increasing role in reducing the future incidence of poverty nationally. Alleviating existing poverty will remain important, but in countries such as China the much more important role of urban areas will be to reduce future national poverty through opportunity enhancing absorption of migrants, and those enveloped by the spatial spread of urban regions. 32 A key issue is that in many urban jurisdictions in developing East Asia, migrants are still regarded as a problem. Often this perception is essentially correct from the point of view of urban politicians and administrators in that fiscal and other administrative sys- tems do not adequately compensate local governments, or provide incentives, to treat ur- ban migrants as assets. If systems to productively absorb migrants are not improved, fu- ture migrants are at risk of poverty, unnecessarily in most cases given the strength of urban Urbanization Dynamics and Policy Frameworks in Developing East Asia economies in developing East Asia. This situation is true not only of local governments but also at the community level in many East Asian cities, where those who have come earlier, do not effectively integrate newcomers into highly complex and adaptive informa- tion, employment, housing systems, and so on. The new geography of poverty in the Region, driven by changing economic dynamics, characterized by a relative shift in the location of the poor from urban cores to peripheral areas (often along highways, rivers, canals, and around factories-areas that do not look like traditional communities) should frame new approaches to poverty reduction in the Region. New sources of poverty, for example, layoffs from SOEs and unemployment from rapid shifts in economic structures associated with globalization, should be incorporated into new urban poverty alleviation frameworks. Open cities are especially vulnerable to shocks. No economic structure can guard against this vulnerability, therefore safety nets, appropriate to the stage of development of a country, will increasingly be needed.43 A new poverty reduction role for developing East Asia cities would recognize that: (i) existing urban poverty is more rapidly reduced through focus on the causes of in situ poverty, not the symptoms, (ii) many migrants to urban regions fall into poverty because they are poorly supported in accessing information, employment, and so on. and (iii) en- velopment processes (incorporation of existing rural settlements through physical spread of cities) sometimes lower standards of living of those enveloped by displacing them from agriculture and their land, but at the same time open up urban business and employment opportunities.44 Envelopment is an issue that has not been given enough attention despite the fact that it is more important in Asia than in other world regions because of the popu- lation density of "rural" hinterlands of Asian cities. Rural rice growing areas that form the hinterlands of many of the Region's cities have population densities higher than North America suburbia. As noted, envelopment accounts for about one-third of urban demo- graphic growth in Indonesia. This is not atypical of most other developing East Asian countries, particularly Vietnam, Thailand, and China. The foregoing means that existing static approaches to urban poverty alleviation in East Asia need re-thinking. If East Asian urban regions are to act as agents of national poverty alleviation, as they should, then the existing urban poor represent only a sub-set (and often a better off sub-set) of the target population for urban poverty reduction efforts. More attention needs to be given to anticipating flows of those trying to escape rural pov- erty and potentially new urban poor, for example, those laid-off from SOEs, and address their needs. This means paying attention to providing support to migrants in terms of access to information networks, employment, skills training, and physical resources such as land/housing and water supply. It means making the periphery of urban regions more migrant friendly particularly in terms of access to employment and housing. It also means ensuring that those who are enveloped do not lose their assets, particularly land, without adequate compensation. In essence, the new poverty reduction paradigm in urban East Asia should focus on preventing poverty rather than addressing it after it has developed. Furthermore, it should reflect the fact that outcomes will be determined as much on the periphery of urban regions as in urban cores, and recognize the fact that slums are more a symptom of poverty than a cause of it. In summary a dynamic approach to poverty reduction in East Asia, which would maxi- mize the potential of urban systems, would be based on the following priority principles: 33 43. For elaboration of this argument, see: Yusuf (2003), Chapter 2. 44. For example, envelopment accounts for about one-third of urban demographic growth in Indone- sia, with migration accounting for approximately an additional third of urban population growth. These numbers are not atypical of most other developing East Asian countries, particularly Vietnam and China. Urbanization Dynamics and Policy Frameworks in Developing East Asia * The urban periphery is increasingly important in terms of national poverty reduction. * Dynamic approaches to poverty reduction are needed that focus as much on envel- opment and migration processes as existing in situ urban poverty. * Most of the potential urban poor in East Asia are not yet in the Region's cities-this group, at risk of future urban poverty, should be a major focus of poverty reduction efforts. * A focus on physical symptoms of poverty, as opposed to real causes, can divert scarce resources. * Open urban economies in a globalizing world will suffer shocks. Basic social safety nets appropriate to the local level of development need to be in place. Operational approaches to poverty alleviation in East Asia based on such a paradigm need to be formulated, including by the World Bank. The World Bank has always been a leader in the area of urban poverty reduction in East Asia; for example, the Kampung Improvement Program in Indonesia which is unique in terms of scale of impact. It has the potential to rethink existing, outdated approaches to poverty alleviation in developing regions such as East Asia. Livelihood: The Bottom Line The bottom line facing most developing East Asian cities is ensuring opportunities for rap- idly growing populations to earn adequate incomes to support their households at higher standards of living over time. This is the basis of poverty alleviation, development of a large middle class, access to affordable housing, and increasing quality of life for ever- increasing numbers of urban residents. Employment fluctuates more rapidly and widely than population, in fact de-urbanization is rare, whereas rapid swings (up and down) in employment are not. Given the importance of household income, the increasing lack of employment secu- rity (worldwide), and significant fluctuations in labor markets, it will become more im- portant than ever to recognize the importance of creating one's own job(s) through entre- preneurial business start-ups, informal labor markets, and so on. In particular, many developing East Asian urban regions have large informal labor markets, not just activities associated with ease of entry and low capital requirements that attract the poor, but also activities constrained formally by law. For example, relatively rich Bangkok has at least 30 percent of its economy underground. Human resource development is the key to livelihood improvement whether in terms of formal, informal, or business start-up labor markets. There will be an increased pres- sure on East Asian cities to (i) align their formal and informal educational and training systems to emerging local economic structures and clusters, and (ii) stress delivery of prac- tical skills in an expedient manner. Although such functions were traditionally mainly the responsibility of senior governments, increasingly local governments are being devolved this function. City-Building: A Performance Orientation Conventional, zoning based statutory urban land use planning is of little importance or value in most developing East Asian urban regions. Simply put, it does not work. Yet the experience of all the countries assessed indicates that patterns of land use and the form of urban structure significantly influence the lives of those who live in major urban areas. 34 Land use and associated transportation systems determine accessibility to affordable hous- ing, employment opportunities, social facilities, and so on. In effect, land is the common currency of urban regions. And because the poor have fewer transportation options, par- ticularly private modes, than those better off, the poor are least able to overcome some of the costs of poorly managed urban form and transportation systems. Urbanization Dynamics and Policy Frameworks in Developing East Asia Urban form in East Asian cities is shaped by trunk infrastructure, for example, trans- portation, water supply, and so on. To the extent possible, new development should be encouraged in certain areas (through provision of infrastructure and other incentives) to improve accessibility, reduce servicing and energy costs, and so on."5 Related, develop- ment should be channeled to where the infrastructure is. However, implementing detailed land use plans effectively is usually impossible. A more appropriate approach is one that requires performance standards be met wherever urban development occurs. For example, density limits could be imposed (relative to transportation capacity), environmental emis- sion or discharge limits could be set, and certain minimum infrastructure requirements, for example, wastewater systems and solid waste capacity, could be mandated. Perfor- mance standards should be set by urban districts in larger urban systems. (East Asian experience indicates that a city of 5-8 million should have about 50 districts.) Secondly, very simple zoning systems that (i) differentiate between built-up (urban) and non-built-up (rural, green) areas (termed "growth boundaries" in many countries) and (ii) prevent undesirable activities such as heavy industry and landfills (termed "nui- sance" activities in the lexicon of planners) in residential, mixed use, and commercial ar- eas, is often the best way to introduce statutory land use planning in developing East Asian cities. The importance of efficient land markets is clear in the case study countries. In coun- tries where urban land markets function ineffectively, such as the Philippines, addressing housing needs becomes even more difficult. Well functioning land markets, especially when combined with effective affordable transportation increase the supply of housing avail- able to all groups, including the poor. Related, evidence is clear that well-functioning and sustainable housing finance systems are needed to enable housing needs to be met. Urban Accessibility in the Context of Motorization In every one of the systems assessed, motorization is growing rapidly-even in relatively poor cities such as Ulaan Baatar. In China, motorization is one of the leading drivers of urban change. To deny that motorization will occur is naive. However, by shaping city form, through incentives that significantly effect city building processes, to create relatively high densi- ties and concentrations of population, balanced transportation systems are much more likely to be feasible. Most urban planners agree that necklace form (dense subcenters along radials) is the most efficient spatial form for efficient transportation systems. Such bal- anced transportation systems should incorporate a variety of modes, depending on the size and characteristics of the urban region, for example, heavy rail, light rail, busways, buses, para transit (particularly vans serving individual neighborhoods). Since most vehicles that will operate in developing East Asian cities have yet to appear, in some cases, such as China, it may be possible for new technologies, for example, fuel cell vehicles, to be pioneered. Given that much of the eventual infrastructure that will cater to vehicles is not yet in place, developing East Asian urban regions may be able to leapfrog and introduce such technologies ahead of more established urban areas that have large fixed investments in present vehicle technologies. Shaping Peri-Urban East Asia: The Global Manufacturing Heartland In every case assessed, the importance of peripheral development is clear. It is virtually axiomatic that in fast-growing urban areas, peri-urban areas will grow fast as that is the 35 45. For a discussion, in the East Asian context, of how city building processes might be altered through changes in incentive systems to generate more favorable urban form outcomes, see Webster (2000). Urbanization Dynamics and Policy Frameworks in Developing East Asia easiest environment in which to build new communities and structures, absorb large num- bers of people, and so on.4, (In situations such as Europe or Japan, slow demographic growth can be significantly absorbed within the existing urban fabric.) Peri-urban areas are strategically important. Loss of competitiveness in these areas, for example, as has occurred recently in the Cavite - Laguna (CALA) area south of the Na- tional Capital Region (NCR), can significantly damage employment creation and poverty reduction efforts.47 The importance of peri-urban areas to China's economy is enormous. For example, in China about half of exports (by value) are from foreign-invested manufac- turers, most located in peri-urban areas.48 In China alone, peri-urban areas will absorb more than 200 million people over the next 30 years. In the case of China and Vietnam, relocation of polluting industries and public institu- tions, for example, universities, from the core city is further propelling peri-urban devel- opment. In the Philippines, relocation of informal settlements to peripheral areas is fuel- ing demographic growth in peri-urban areas, adding to demographic pressures resulting from longer distance rural-urban migration. The fact that most urbanization in East Asia is the product of migration and envelop- ment means that urban peripheries should receive increased attention in national pov- erty alleviation efforts. Migrants are increasingly settling on the peripheries of East Asian urban regions where manufacturing employment is located (accessible to those with moderate levels of education). In addition, some of the existing poor living in urban cores are being pushed to the periphery by land market forces or drawn there by em- ployment opportunities. And, by definition, envelopment processes occur on the pe- riphery of urban regions. Unfortunately, peri-urban areas are poorly planned and managed throughout devel- oping East Asia, usually as a result of fragmented and low capacity local governance that is characteristic of these areas. Physical infrastructure and service delivery often falls far short of need driven by rapid demographic growth. Fiscal transfers in most East Asian countries do not recognize demographic growth as an important criterion in determining the level of transfers, exacerbating the problem. (Actual levels of population are used in formulae determining transfers, yet the rate of population growth is more important than the absolute level in terms of capital expenditures.) In other words, peri-urban areas are at the forefront of urbanization in East Asia, often dealing with sophisticated private sector actors, such as multi-national corporations, but they almost always have lower levels of capacity in planning and management, smaller fiscal transfers relative to need, and so on., than the slower-growing core cities that they surround. Peri-urban areas in developing East Asia are in need of greater attention in terms of integrated infrastructure development to shape them, capacity building in local govern- ments, and changes to fiscal allocation systems to enable them to deliver social services to the emerging communities (often populated by young migrants) found in these areas. As has been noted, enveloped communities should be a matter of key concern in peri-urban areas. Often, enveloped communities make ideal urban sub-centers in peri-urban areas; the creation and/or reinforcement of sub-centers is important in creating nodes of activity in density in such areas, yielding benefits in terms of service delivery, transportation and energy efficiency, and so on. Because peri-urban areas are less physically built-up, significant improvements in out- comes, physical, economic, and social, can often be realized with less expenditure than in 36 built up areas. However, for a variety of reasons ranging from the relatively low profile of 46. For an overview of the importance of peri-urbanization in East Asia, see Webster (2002). 47.IBID, p. 19-24. 48. In July, 2002, Chinese exports were $29.2 billion (U.S.). Foreign investment in China, most of which will flow to peri-urban areas is expected to total over $50 billion (U.S.) in 2002. For more information see Kynge (2002), p. 6. Urbanization Dynamics and Policy Frameworks in Developing East Asia these areas to their fragmented governance structures, such opportunities have largely been left unrealized. However, there are indications of change. For example, EASUR (dis- cussed below) is increasingly involved in working with local governments in shaping these areas, for example, potentially on a significant scale in Chongqing, China, a municipality containing over 33 million people. Export of Urban Services: The Next East Asian Investment Wave The next big wave in foreign investment, currently underway is in services. Increasingly, firms, from Fortune 500 MNCs such as IBM to small medical practices, based in rich coun- tries are re-locating, sub-contracting, or purchasing a wide variety of services in develop- ing country cities. These services range from call centers (for purchase of products and services) to legal and academic research, to medical diagnosis of imagery and tests, to ar- chitectural and engineering design, to software. In addition, services are being delivered to visitors to developing cities, in the form of health services, tourism, conventions, alterna- tive medicine, and so on. India is at the forefront in terms of much of this activity, just as East Asia became the center of world manufacturing, its cities will play a leading, if not dominant role in international provision of services. In the Manila Region, hundreds of thousands of jobs have been created in the ITC industry, enabled by electronic communica- tion systems, almost all for export. For example, Procter and Gamble just shifted 600 ITC jobs to Manila (Glater, 2004). Bangkok attracts 10 million tourists per year and one hospital alone, Bumrungrad, attracts close to 200,000 foreigners per year for treatment. Penang's electronics cluster is a global leader moving into design and R&D, Hong Kong is a world financial center; Bangkok is a world leader in design, advertising, and so on. Many of the above activities will occur in urban cores (such as design, finance, and medicine) while others will occur in suburban and peri-urban areas (back office functions). However, the net effect is likely to be a revitalization of core cities that succeed in developing their service sectors to globally competitive levels. The impacts of this potentially quantum change in the economies of leading East Asian cities has not yet been thought through-but should be. Increased land values and gentrification may put pressure on slum settlements and the urban poor. On the other hand, new opportunities will open up for those who pursue specialized post-secondary educa- tion. And time short workers in the service sectors will create demand for products and personal services that the poor produce, for example, fast meals, laundry services, restau- rants, and so on. East Asian developing cities have been driven from their peripheries for the past 25 years as manufacturing has been the dominant driver of change, but this may change soon toward more core driven sources of growth. Already this shift can be seen in extended urban regions such as Chengdu, China and Bangkok, Thailand. The impacts of the change will have significant implications for urban form and transportation systems, housing pro- vision, human resource development, and so on. Catering to Rising Expectations: The Amenity Factor Recent macro economic data from most of the larger developing economies in East Asia has shown that consumption is playing a significantly greater role (relative to exports) in their economies.4 Most of this increased consumption is occurring in urban areas. East Asian cities are becoming more important as centers of consumption, not just as production centers. And consumption generally favors larger places with their greater range of goods and services. 37 Related, as urban populations in East Asia's developing cities become more affluent, characterized by rapid growth of the middle class, demand for higher quality urban envi- ronments, is rising. East Asian urban residents increasingly value places for leisure, relax- 49. For example, see Arnold (2002), p. 1. Urbanization Dynamics and Policy Frameworks in Developing East Asia ation, and entertainment. Increased amenity, in turn, makes cities more attractive for higher value activities, particularly business and producer services, as well as domestic and in- ternational tourism, increasing employment creation and standards of living. A high qual- ity urban environment is becoming a prerequisite to attract and/or grow many types of high value urban activity in the tertiary sector, but also in high value manufacturing, in addition to obvious cases, such as tourism. Tourism / hospitality is a leading pillar of the economic base of large East Asian cities such as Bangkok and Hangzhou, as in the case of many cities worldwide (Las Vegas, Paris, London, Orlando). Tourism generates large num- ber of jobs, many of them accessible to those with relatively limited education, the indus- try can be the basis of local ladders of opportunity. It is clear that the most successful urban regions in East Asia are also likely to be the most attractive ones - those most comfortable to live in. This is a phenomenon playing out not only in the primate cities but also in secondary urban regions. For example, Chengdu in western China is engaged in large-scale development of parks and pathways along rivers, particularly in the northeast part of the city, a former "rust belt" area. In summary, demand for improved amenity environments that incorporate local culture (heritage, festivals, cuisine, and so on.) will continue to grow rapidly in East Asia. Such de- velopment is not a luxury, but directly contributes to the well being of the local population. Incentive Based Local Governance: Are there Payoffs from Decentralization? With the exception of China, local governments in the Region spend a very small percent- age of revenues on capital expenditures, particularly catalytic projects that could substan- tially underpin economic development. It is not unusual for 80-90 percent, or more, of local government expenditures to be on salaries and routine expenditures, for example, service delivery, operations and maintenance. Given the pressures on urban areas to create em- ployment, to take more responsibility for local economic development, and to reduce pov- erty, lack of pro-activity in urban governance, indicated in low levels of capital expendi- ture, is obviously a problem. Related to the foregoing, local governments often spend moneys inefficiently because there is no incentive, other than re-election of politicians, for cost effective spending. Or, money may be allocated to activities that are not developmental priorities. (This is not true everywhere. For example, local officials in China, and to as lesser extent Vietnam, are rewarded based on local economic performance and other key indicators.) The challenge is to develop systems where there are clearly understood real incentives for effective local governance performance. As noted, urban management, and local economic development processes in particu- lar, increasingly make more of a difference in the Region as sub-national systems are more exposed to global forces and decentralization process accelerate. To some extent, potential impacts of decentralization on local economic development were overlooked prior to the 1997 financial crisis in that urban economic performance was less of an issue during the boom period-it was assumed. However, this is no longer the case. Generally, urban juris- dictions, even large ones, could benefit from technical assistance and exposure to best practice in this area. In particular, many developing East Asian urban regions could ben- efit from being exposed to examples of urban regions worldwide that "thought outside the box", successfully pursuing new city development strategies with strategic intent, fo- cused on newly recognized themes, based on their competitive advantage. For example, 38 one of the major economic weaknesses of the Chinese urban system is that economic de- velopment efforts tend to utilize a "cookie cutter" approach with little emphasis on iden- tifying and pursuing visions and strategies based on local comparative and competitive advantage, and stakeholder preferences. In Indonesia, the "big bang" decentralization process has devolved much more responsibility to local urban governments in terms of economic development but technical capabilities in this area remain limited. In summary, Urbanization Dynamics and Policy Frameworks in Developing East Asia technical assistance is needed in local economic competitiveness assessment, vision and strategy formulation, cluster identification and support, and marketing of local places to potential investors, talented in-migrants, and so on.50 Although the documentation reviewed did not deal directly with corruption, there is an obvious need to address corruption in local governance. Measures that can be taken include better remuneration of public officials, more transparency, strengthening of local watchdog groups, media education re the costs of corruption, monitoring of local govern- ments, and long term awareness programming, for example, through school curricula, television "soap opera" plots, and so on. Redefining the Role of National Governments in Urbanization Only four or five years ago, many analysts were predicting the end of national urbanization strategies. With decentralization gaining momentum, it was argued that there was little point in identifying idealized urban systems outcomes. National governments in countries such as Thailand ceased producing sub-national regional development plans altogether. However, surprisingly, there is a re-emergence of national urban strategizing throughout the Region, in China, Thailand, Cambodia, the Philippines, Vietnam, and so on. However, the strategies being produced are completely different than the old genre. They focus on policy frameworks, national standards for service delivery (including outcomes / results), monitoring / evaluation (based on bench marking), capacity building, and so on. Urban policy frameworks put forward incentive structures to facilitate and motivate high perfor- mance in areas such as LED, poverty reduction, amenity / urban environment, good gover- nance, and so on. The development of national urbanization strategy processes reflects the fact that it is becoming clearer that national governments have a key role to play in guiding urbaniza- tion processes in developing East Asia. For example, inter-jurisdictional cooperation at the extended urban region scale needs to be supported, facilitated, and fiscally rewarded, by senior governments. National governments need to put forward incentive structures that encourage effective local governance and monitor performance against appropriate bench- marks. And new functions, for example, e governance and local economic development processes may require technical assistance and capacity building delivered, or mediated, by the national government. Dealing with the Future: New Roles, New Methods Last, but not least, evidence from developing East Asia, including the six urban systems analyzed, indicates that new approaches and methods are needed in planning for the fu- ture of the Region's urban areas. This is more critical than at any other time over the last fifty years because: * Many East Asian countries are going through transition processes from command and control planning to market based systems, for example, China, Vietnam, Cam- bodia, and Mongolia. In these situations, new tools and approaches need to be de- ployed that may be unfamiliar to local professionals and institutions. Models devel- oped in Eastern and Central Europe for transitional urban systems are not readily transferable to East Asia because urban dynamics in developing East Asia are totally different (many of the Eastern and Central European cities are stagnant or losing population, there the rural-urban transition process was completed long ago). * Decentralization is dramatically changing the role of local governments. Merely 39 downsizing planning and management methods formerly utilized at the national level does not makes sense. For example, techniques used in national economic plan- 50. Kotler et al. (2002). Urbanization Dynamics and Policy Frameworks in Developing East Asia ning, such as input-output analysis, are not appropriate at the extended urban re- gion level. A new set of tools relevant to the meso and micro level is needed, for example, economic cluster analysis, EUR accessibility models, indicators oriented planning based on monitoring (facilitated by the declining cost of monitoring de- vices), performance oriented budgeting and management processes, collaborative planning processes involving key stakeholders. At the same time, merely making national governments leaner is not enough. In the urban arena, their role needs to completely change to one of facilitating, supporting, diffusing knowledge, incentivizing, monitoring, evaluating, and away from doing, building, and command and control. * Globalization is resulting in sub-national regions being more exposed to interna- tional forces, making them more vulnerable, but also exposing them to greater op- portunities. Change is faster. Old style planning tools based on five year time hori- zons, master planning, and so on., make little sense in today's world. New anticipa- tion-foresight based tools need to be deployed at the sub-national level. 40 Urbanization Dynamics and Policy Frameworks in Developing East Asia V. Implications for EASUR Programming What are the implications for EASUR programming of the foregoing? Below, thematic ar- eas that could serve as areas for innovation and programming development by EASUR are listed, based on foregoing assessment. Development of New Urban Paradigms for Poverty Prevention and Alleviation This should be number one on EASUR's agenda. The context for poverty reduction in East Asia is unique and calls for customized approaches that anticipate urban poverty and deal with this situation as an opportunity for action, based on foresight oriented approaches. Future migrants are potentially at risk. Long standing activities of EASUR, such as water supply, need to be integrated into these new paradigms for urban poverty prevention and alleviation. Effective delivery of such basic needs have an important role to play in poverty prevention and alleviation. As has been argued, the new geography of urban poverty in East Asia, characterized by a shift in the location of the poor from urban cores to peripheral areas (often along high- ways, rivers, canals, and around factories-areas that do not look like traditional commu- nities) should guide new approaches to poverty reduction. And new sources of poverty, for example, layoffs from SOEs, unemployment from rapid economic structural shifts as- sociated with globalization, should be incorporated into such paradigms. New migrants should be an important focus of urban poverty prevention and alleviation efforts. Increased Emphasis on Catalytic Developmental Infrastructure As decentralization in East Asia gains momentum, urban jurisdictions will become respon- sible for local economic development and for more functions associated with the shaping of urban form. Accordingly, there is increased need for East Asian urban governments to identify and delivery catalytic infrastructure, such roads to ports, sites for innovation incu- bators, and land readjustment to create thematic areas, for example, tourism/hospitality zones. Much of this will involve public-private initiatives. EASUR has successfully introduced on-lending credit programs for municipal borrow- ing in East Asia, for example, the Philippines and Thailand. However, limits to lending (for individual projects; to individual local governments) through these programs often preclude catalytic projects. Thus there is a need for mechanisms to complement the Mu- nicipal Development Fund (MDF) type programs that would enable larger scale lending. Activity areas in which EASUR has a long and exemplary record, for example, water sup- ply, drainage, waste water systems, in addition to directly improving human welfare, can play an important role in physically shaping urban areas, and supporting local economic initiatives. It is important that such urban form and incidence impacts be considered in the delivery of trunk and feeder infrastructure. Community scale delivery of services, feeding off trunk sys- tems, often results in more appropriate levels of services and user charges, than city-wide pro- gramming. New spatial patterns, for example, the rapid development of peri-urban areas, the new geography of urban poverty, and so on., may require different mixes of civil and environ- mental infrastructure technologies, as well as innovation. For example, many low density ur- ban areas may not be best served by conventional sewer-based wastewater systems. Japan has been a leader in using a variety of urban technologies, depending on immediate conditions. Technical Assistance in Local Economic Development (LED) In almost every urban region in East Asia, local economic development (LED) is becoming 41 a major function of government. Unfortunately, most local governments lack frameworks and understanding of approaches and techniques to carry out this function (which includes analysis, strategizing, implementation, marketing) effectively. Fortunately, the ongoing City Development Strategy (CDS) program of the World Bank (which is most active in East Asia) incorporates LED concepts. Urbanization Dynamics and Policy Frameworks in Developing East Asia The LED component of CDS should be strengthened, for example, through develop- ment of LED frameworks that can be customized for use in local situations. This would include techniques for analysis of, and support to, economic clusters that are so important to the developmental futures of extended urban regions in the Region. As noted, many of the Region's cities would benefit by being exposed to examples of urban regions through- out the world that have pursued innovative development strategies based on creative de- velopment of new strategies that anticipate change rather than building on past functions (the "rear view mirror" approach). As noted, most local economic development in East Asian cities will be sourced in small business start-ups, many linked to large corporate supply chains and some not. From the informal sector, larger firms will arise. Thus local economic development processes will need to stress local sources of growth, entrepreneurship, and business start-ups. In fact, many of the most successful clusters in China, in places such as Wenzhou, started through such dynamics, making products such as lighters, light fixtures, down clothing, and electrical equipment. Many of these clusters now account for much, sometimes the majority, of world production in their product area. Shaping Extended Urban Areas In fast-growing urban contexts, the case in most of developing East Asia, peri-urban areas, other things being constant, take on greater importance. Their importance, in terms of in- vestment, employment creation, demographic growth, demand for services, is further ac- centuated by the fact that East Asia is becoming the manufacturing center of the world, and generally manufacturing locates on the periphery of large cities, searching for large sites to accommodate long perimeter just-in-time factories, and so on. Thirdly, the fact that China has adopted a policy of accelerated urbanization, and other countries, such as Vietnam, may do so, puts further pressure on peripheries to absorb urban economic activities, resi- dences, and services on a significant scale. EASUR can play a very important role in shaping these areas-areas where the stakes are high. Serious challenges exist in terms of delivery of social services, efficient land con- version (rural to urban), transportation effectiveness, environmental management and service delivery, and so on. In developing programming to shape peri-urban areas, it is suggested that EASUR build on existing strengths in water supply, wastewater, drainage, and other infrastructure sub-systems. Delivery of these services should take into account their potential to shape peri-urban areas. The approach should be demand led and adaptive. City building ideally occurs in tiers.1 Key trunk systems (the urban development skeleton) can be master planned, but even phas- ing of trunk systems may require flexibility. But the next infrastructure tier down, for ex- ample, infrastructure support to industrial estates, suburban residential developments, needs to be responsive to demand. As noted, urban development should be channeled to areas where infrastructure will be in place-in this manner infrastructure provision both shapes cities and ensures adequately serviced communities. In this regard the newly introduced adaptive lending mechanism in the World Bank should be useful. Cities develop adaptively, thus there is a logical fit between this new mechanism and the manner in which cities evolve. On-lending institutions, perhaps operating at the sub-national level (for example, prov- inces in China) could possibly play a role in adaptive development of peri-urban areas- allowing individual cities or towns (within the extended urban area) to develop smaller 42 scale infrastructure to complement trunk systems. On-lending mechanisms enable local governments, which are closer to the action, to make decisions in response to local shifts in the timing and location of demand. 51. For a discussion of best practice in city-building, in the developing East Asian urban context, see Webster (2000). Urbanization Dynamics and Policy Frameworks in Developing East Asia The EASUR peri-urban project in Chongqing Municipality represents an ideal case to implement a project based on the above concepts. Based on learning and feedback, the approach could be refined and replicated elsewhere in developing East Asia. On the other hand, the rapid growth of manufacturing and peri-urban areas should not blind East Asian cities to other forces. As argued, urban services, including for export, are rapidly becoming more important, and many of these services will need to locate in high amenity core areas. Neglect of the service sector can severely penalize the economic per- formance of East Asian cities, for example, it is estimated that the service sector in Japa- nese cities is only 60 percent as efficient as in the United States, a situation developing cities, particularly in China are trying to avoid. Revisit Land Markets: Integrate with Transportation Urban physical form in East Asia is about to undergo significant change because of motor- ization. Although urban expressway systems have significantly shaped urban areas, creat- ing extended urban regions, the next phase in East Asia's urbanization trajectory will be even more dramatic, based on mass motorization. EASUR is in the enviable position of having observed the impacts of first-phase motorization in countries such as the Philip- pines, Thailand, and Indonesia. But even in these countries that have passed through the first phase of motorization, car ownership is at relatively low levels and will increase fast in the future. China and Vietnam are where significant jumps in levels of motorization are about to occur, which will dramatically affect urban form. It is timely for EASUR to revisit land use and land market issues in the context of the likely impacts of motorization. In particular, what measures can be taken to create urban form conducive to a balanced transportation system? Can concentrations of population within urban regions, and overall moderate to high development densities, be achieved in support of balanced transportation systems? Within East Asia, much diversity exists in terms of management of motorization that should be incorporated into EASUR's learning dissemination of portfolio. For example, even within China distinct models are emerging from Shanghai's Singapore-type motorization restraint model to Beijing's pro-motoriza- tion policies. Simplistic indicators such as private vehicles per capita need to be tran- scended, and more thorough understanding of motorization pursued. For example, will East Asian urbanites use automobiles like many Japanese and Europeans, mainly for week- end and leisure trips, or more like North Americans, for daily commuting. Such differ- ences in the day-to-day use of vehicles have stronger implications for urban form and transportation planning than vehicle counts. From a normative perspective, such under- standing can be used in development of policies to channel motorization in developing East Asian cities. Land markets, land management, and transportation have considerable relevance to the question of poverty reduction. Greater accessibility can have significant benefits for the poor, effectively expanding the supply of affordable housing and employment. Since more affordable housing and employment with lower credential barriers to entry are often on the periphery (where access can be difficult), the positive distributional impacts of bet- ter integrating transportation and land use can be significant. In particular, in the larger urban regions of the Philippines, lack of transportation access seriously constrains em- ployment and housing access. Build on Decentralization Processes at the Local Level 43 In several countries in developing East Asia, for example, the Philippines, fiscal decentraliza- tion is well advanced. However, expected benefits have often been disappointing. EASUR should focus less on the macro dimensions of decentralization, for example, what functions have been decentralized and what percentage of public expenditure is local, and more on the issue of improving the effectiveness of local governments, especially in terms of new mandates. Urbanization Dynamics and Policy Frameworks in Developing East Asia Most local urban governments in developing East Asia spend too much money on per- sonnel (associated with bloated local bureaucracies) and routine operations (often the product of extremely low levels of cost recovery), and not enough on pro-active, catalytic measures which would improve the quality of life and economic performance in the urban area. To a significant extent, this outcome is the product of inappropriate incentive struc- tures (or more accurately, disincentive structures). For example, in many, probably most, urban jurisdictions there is no incentive in terms of national transfers to raise more local revenues and in many cases, systems actually reward poor local (own source) revenue generation performance, through compensating transfers to poor local performers, creat- ing a moral hazard situation. Often performance standards are not in place, or not en- forced for delivery of key services; nor are unit costs monitored carefully against bench- marks. In virtually all developing East Asian countries, there is a need to establish frameworks that would encourage more effective allocation of available funds at the local level, more effective use of funds within given functional areas, and encourage own source revenue generation. Secondly, in all countries analyzed, there is a perceived and actual need for capacity building in a wide variety of technical areas ranging from environmental engineering to local economic development and e-governance. Technical assistance and capacity build- ing needs a more practical orientation, for example, day-to-day management of landfills, waste water and water supply networks, and so on. EASUR should focus on this second generation of challenges that have emerged from decentralization initiatives in many developing East Asian nations. Urban Regions as Systems: Inter-Jurisdictional Cooperation In all East Asian countries, large extended urban regions are emerging. Yet, only recently have authorities in nations such as China began to think of these extended urban regions as more than sets of individual cities and towns. In some countries, such as the Philippines, failure to coordinate governance in extended urban regions has resulted in very significant costs in terms of traffic congestion, severe shortcomings in solid waste treatment, water basin management, and so on. As a result, there is now demand throughout the Region for models of metropolitan coordination that work. Many highly varied approaches to extended region governance have proven effective in developed countries-so it is not a question of only one model being appropriate. However, urban jurisdictions in East Asia require fur- ther information on the merits and demerits of different approaches to metropolitanization, their track records when they have been applied elsewhere, and how they could be custom- ized to fit local conditions. Urban regions need to be understood as large-scale systems. Increasingly, in East Asia, different sub-areas of extended urban regions (often under the jurisdiction of different local governments) play highly specialized roles. For example, core areas (central business districts) are becoming increasingly dominated by service activities (particularly business, producer, tourism, cultural, international governance, and entertainment services), while suburban areas play an increasing residential and retailing role, and peri-urban areas play host to manufacturing, and often airport districts.12 These different economic functions create different demands for infrastructure and social services, and are associated with different tax generation potentials. On the other hand, flows of people, goods, informa- tion, and so on., between the areas are increasing as economic processes and lifestyles 44 demand more of an urban area, and as individual areas of urban regions become more specialized necessitating increased geographic interaction within extended regions. The 52. Interestingly, urban form in East Asia is developing significantly differently than in Western, par- ticularly North American cities. For example, "edge" cities are the site for most business and pro- ducer services in North America, but these services remain in the urban core in East Asian cities. K Urbanization Dynamics and Policy Frameworks in Developing East Asia most successful urban regions in East Asia will be those that are most functionally inte- grated. This will require new forms of extended urban region governance-a key chal- lenge for EASUR. Leadership in Methods and Planning & Management Approaches Although there are some excellent urban research units in East Asia (particularly in China, South Korea, and Hong Kong), overall there is a shortage of academic and applied research resources (human and financial) in the field of East Asian urbanization, despite the human, economic, and environmental importance of urbanization.53 Although it is understood that EASUR is not a research institution, it should strengthen its leadership role in developing new frameworks for understanding East Asian urban systems, and developing and dis- seminating new approaches to urban management. (Frameworks not only guide action but enable urban decision-makers, both at national and local levels, to more quickly absorb new information-new information needs to be "hung" on a framework.) East Asian developing nations are among the most sophisticated in the world, as such they have high expectations regarding technical assistance, expecting to work with state- of-the-art technologies and international expertise. Most urban jurisdictions in East Asia can quickly absorb and implement new approaches that work, to address urban problems. It is not surprising that demand for technical assistance is increasing quickly in the Region and is likely to become a more important component of EASUR's activities. EASUR should particularly focus on development of new frameworks and approaches in priority operational areas and key issue areas, such as those outlined in this paper. Important areas for innovation in terms of understanding (analysis), development of con- ceptual frameworks, and application to programming include: * Urban Fututres / Planninig: This refers to new anticipation and foresight methodolo- gies, scenario formulation, strategic planning, monitoring and evaluation, and so on. Urban futures / planning is particularly important in transition countries which are looking for new models to replace command and control mechanisms, but also in Southeast Asia where indicative planning models are now viewed as not flexible and responsive enough to cope with today's fast changing world, despite having served well in the past. * Urban Poverty Reduction: As argued above, there is a pressing need for new frame- works and approaches in this area to meet rapidly changing conditions, often unique to the East Asian situation. * E/7.. ti;. Urban Governance: What incentives are likely to make a difference in im- proving local urban governance? What factors are associated with effective inter- jurisdictional cooperation? Not enough research has been conducted on the behav- ior of urban governments in East Asia, in terms of how they work, what incentives induce change, and so on. * Local Economlic Developmtient: There is a need for more understanding of local eco- nomic development processes, commensurate with the increased responsibility for local economic development that is being assigned to local urban governments in the Region. Related, there is a need for better understanding of economic structural change that is affecting East Asian urban areas. * Land ancd Houising Markets: This topic needs to be revisited, building on excellent work done by the World Bank in the past. In particular, there is a need to relate land mar- kets to urban transportation systems, especially given the expected dramatic im- 45 pacts of large-scale motorization. 53. The demise of the Human Settlements Division at the Asian Institute of Technology in Bangkok is indicative of an overall decline in urban research capabilities within the Region despite the increasing developmental importance of the subject matter. Urbanization Dynamics and Policy Frameworks in Developing East Asia * Urban Infornmation Systemns: Aside from demographic and fiscal information, data on urban systems in East Asia is very weak, particularly in the area of urban economies. Very little is known concerning the functioning of urban economies in the region, even less on a comparative basis. For example, in most countries basic economic data on urban areas is not available (for example, breakdown of GRDP at the urban scale). In some countries, for example, the Philippines, basic economic data is not even avail- able at the provincial scale. In conjunction with academia, national statistical agen- cies, and appropriate units of the UN responsible for standardizing statistical sys- tems, EASUR could contribute to development of better urban data systems in devel- oping East Asia. Rural-Urban Linkages Rural-urban linkages, or rural-urban interdependence, is an old topic that seems to have hit a brick wall in terms of new thinking.54 However, the importance of the theme is increasing. The economic success of cities in East Asia has obviously benefited many, but also high- lighted, by contrast, the high levels of poverty and other problems of rural areas. Although rural populations will be in absolute demographic decline in all East Asian countries by 2030, and much sooner in most, rural populations will remain substantial in East Asia. Over the next 30 years, rural depopulation will occur at a rate of -0.63 percent in Indonesia, -0.51 percent in China, -0.22 percent in Thailand, -0.17 percent in the Philip- pines, and -0.10 percent in Myanmar.55 Rural depopulation will not occur until 2020 in Vietnam and Mongolia, and until at least 2030 in Cambodia (see Table 3). With fewer people in rural areas, market forces, for example, larger farms that will result in increased output per unit of labor, should improve incomes, but may result in loss of critical population thresholds in some areas to justify certain services. Given this situation, linkages with urban areas will become even more important. As rural populations decrease, rural resi- dents are likely to move to higher capability land, and away from marginal areas,56 further blurring the distinction between urban and rural areas, and making effective land conver- sion policies more important. This is a thematic area that needs to be explored by EASUR and its rural counterparts in the World Bank, and other institutions. What types of initiatives might improve rural- urban linkages, improving the lives of both rural and urban people? Current thinking points to the importance of business and social networks as well as new communication technologies, complementing traditional approaches to enhance rural-urban linkages such as roads to markets, wholesale farmers' markets, and so on. But more needs to be done on the ground in case study areas to gain greater understanding of these processes as a basis for innovation. In the case of countries such as Mongolia and Cambodia that are less developed, their national spatial strategies focus on developing secondary cities to act as "growth poles". In fact, as noted, "growth center" strategies continue to be part of virtually all urbaniza- tion strategies in the Region. Although the concept of growth centers is not new, can new approaches be identified to increase the range and influence of these secondary cities on their surrounding areas? 46 54.For recent thinking on this theme in the East Asian context, see: Kammeier (2002); and United Nations (2001a). 55. United Nations (2001c), Table V.3. 56. See Chapter 4, "Improving Livelihoods on Fragile Lands" in The World Bank (2002b). Urbanization Dynamics and Policy Frameworks in Developing East Asia VI. Conclusion Although urban dynamics in developing East Asia are far from homogenous, what is sur- prising is the high degree of coalescence in terms of leading issues, objectives, and policy priorities, as identified in Section 3. Urbanization policy statements of virtually all nations in the Region indicate concern in regard to: * Urban poverty and service delivery to low income communities * The role of urban areas in stimulating regional development in nearby rural areas * Urban environmental quality * Local economic development and employment creation * Development of human resources needed for effective urban management * More effective results oriented urban management and performance, often under conditions of decentralization * Integration of national urban systems through improved factor mobility * Improvements in land management and more effective land markets to increase ac- cess to housing and employment, lower transportation costs, and minimize conver- sion of high quality agricultural land to urban uses. 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Washington DC and New York: The World Bank and Oxford University Press, 2002. 49 Urbanization Dynamics and Policy Frameworks in Developing East Asia Annexes 51 Urbanization Dynamics and Policy Frameworks in Developing East Asia Annex A: Urban Population at Mid-year for Selected Countries (in thousands) Country 1950 1960 1970 1980 1990 2000 2010 2020 2030 Cambodia 443 559 812 818 1,213 2,216 3,796 6.052 8.610 China 69,528 105,249 144,537 196,222 316,569 456,340 617,348 771.861 883,421 Indonesia 9,863 13,996 20,501 33,377 55,819 86,943 120,986 153,006 180.069 Mongolia 144 342 566 866 1,264 1,434 1,663 2.027 2.423 Philippines 5,426 8,197 12,055 18,005 29,774 44,295 59,398 72,452 84.552 Vietnam 3,186 4,947 7,850 10,202 13,389 18,816 25,54 7 34,770 45.485 Source: United Nations Population Division, The World Urbanization Prospects: The 2001 Revision. 52 Urbanization Dynamics and Policy Frameworks in Developing East Asia Annex B: Percentage of Population Residing in Urban Areas Percentage 80 70 60 -V_ 20 . 10 0 1950 1960 1970 1980 1990 2000 2010 2020 2030 Years Can,Dociia - Indonesia Philippines China M - longolia - vietnamr l Source: United Nations (2002c). 53 Urbanization Dynamics and Policy Frameworks in Developing East Asia Annex C: Urbanization Rates Average Annual Population Growth Rate (percent) 6 5 - 4 3 2 0 Cambodia China Indonesia Mongolia Philippines Vietnam U 1990-95 * 2000-05 3 2010-15 0 2020-25 Source: United Nations (2002c). 54 l l l | | | | | R East Asia and Pacific Region Infrastructure Department Urban Development Sector Unit The World Bank 1818 H Street, N.W. Washington, D.C. 20433 USA Telephone: 202-473-1000 World Bank East Asia and Pacific Website: http:/worldbank.org/eap