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research-article2017
PLT0010.1177/1473095217734413Planning TheoryDeng

Original Article

Planning Theory
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DOI: 10.1177/1473095217734413
https://doi.org/10.1177/1473095217734413
of urban planning in journals.sagepub.com/home/plt

contemporary China

Feng Deng
Chongqing Technology and Business University, China

Abstract
Built on theories about the hold-up problem in New Institutional Economics, this article analyzes
the evolution of urban planning in contemporary China from an institutional perspective. In
particular, it focuses on two phenomena: work unit in the planned economy and the large-scale
growth of private communities in the market economy. I argue that the hold-up problem in urban
land use still exists in a planned economy and asks for the integration of de facto property owner
and local public goods provider. Land use control was thus mostly conducted by the work unit.
Urban planning in contemporary China has always been planning for government rather than for
the public. This leads to great uncertainty in land use and, consequently, the hold-up problem.
Widespread emergence of private communities in the Chinese city is the response of the market
to the hold-up problem that arises from the nature of Chinese governmental planning.

Keywords
China, hold-up problem, land use control, private community, urban planning, work unit

Introduction
As part of the social and economic transition from planned economy to market economy,
the evolution of urban planning in contemporary China is a fascinating topic for many
researchers (e.g. Tang, 2000; Yeh and Wu, 1998; Zhao, 2015). Throughout the history of
Chinese urban planning from 1949 up to now, two phenomena are largely left under-
explored or under-studied. First, most researchers (e.g. Dong, 2004; Qian, 2016) agree
that 1958–1978 is a turbulent period for urban planning that was full of political

Corresponding author:
Feng Deng, National Research Center for Upper Yangtze Economy and School of Tourism and Land
Resource, Chongqing Technology and Business University, Xuefu Road #19, Nan’an District, Chongqing
400067, China.
Email: dengfengf@outlook.com
2 Planning Theory 00(0)

campaigns and consequent devastations. For example, in 1960, the National Planning
Conference announced the suspension of urban planning for 3 years. During the Cultural
Revolution from 1966 to 1976, urban planning was almost abandoned.1 Urban planning
bureaus were dismissed, planning organizations were disbanded, and planning docu-
ments were even discarded. However, one issue is ignored by many researchers: what
supported or guided urban construction during those tumultuous years?
The second phenomenon is related to the growth of private communities. In the
United States, private community usually includes three types: Common Interest
Development (CID), condominium, and cooperative. They are all governed by home-
owners association (HOA) or residents association. In China, private communities refer
to condominiums governed by HOAs or property management companies. Many
researchers (e.g. Beito et al., 2002; Deng, 2002; Foldvary, 1994; McKenzie, 1994) have
studied the growth of private communities, which now constitutes a small portion of
urban housing in the West. Given the omnipresent government in China, a simple reason-
ing based on Western experience might point to a stronger role for governmental plan-
ning and much smaller proportion of private communities in the Chinese city than in the
West. But, what has happened in China since the 1990s is the widespread growth of
private communities, especially gated communities. Now almost all new residential
developments in Chinese cities are in the form of private community. This is a paradox
ignored by many researchers on urban planning in China.
The above two phenomena are the main motivations for this article. I focus on two research
questions. First, with the abolition of private property rights in the planned economy, what
was the institutional arrangement that could address the efficiency needs with regard to land
use control? Second, after the establishment of private property rights in the 1990s, what is
the market response to a planning system inherited from the planned economy?
It is necessary to define the scope of the concept of urban planning before we proceed
to the analysis. First, urban planning, as studied in this article, refers to arrangements or
activities for land use control at local level, such as plans or regulations prescribing land
uses, built form, and development density, and/or prohibiting nonconforming uses as
well as institutional instruments for enforcement.2 Although this is often taken for
granted in the West, it is not necessarily true in China at least before the enactment of
City Planning Act in 1989. As Friedman (quote in Fan, 2015) observed in his 2005 study
on Chinese planning, “planning was less a way to control land use as in the West, rather,
it is more about imagining the future then building the city towards that vision” (p.
2894). Yeh and Wu (1998) also pointed out that land use control in Chinese planning
system was “minimal.” A natural question then arises: how was land use control achieved
and who was in charge of it before 1989, when the Detailed Regulatory Plan was intro-
duced?3 Second, urban planning, as often used in the Chinese literature, only refers to
planning activities conducted or sponsored by the government at different levels. In this
article, it is called governmental planning. My definition of urban planning also includes
planning or land use controls by nongovernmental actors including work units, home-
owners associations, and private firms.4 As will be discussed later, nongovernmental
planning activities constitute a major proportion of urban planning in China.
This article’s approach is largely in the tradition of New Institutional Economics,
especially theories about the hold-up problem (Grossman and Hart, 1986; Hart and
Deng 3

Moore, 1988; Williamson, 1985). Two papers are close to mine, albeit methodologically
very different. One is Zhao (2015), who adopted the lens of the theory on institutional
change (North, 1991) to examine the evolution of Chinese urban planning. The other
paper is Tang (2000), who analyzed Chinese urban planning by employing Foucault’s
concept of governmentality. Although his argument that Chinese urban planning is “a
technology of government” provides important insight, his view of urban planning is
limited to governmental planning and his methodology is largely in the vein of social
theory. In contrast, my approach in this article is clearly an institutional analysis that
focuses on the hold-up problem in urban land use.
The hold-up problem is at the core of New Institutional Economics and it is applicable
to urban land use. For example, when a person buys a new home she or he simultane-
ously “buys” local public goods or services such as police and schools that are provided
in the local area. More importantly, housing price is partially determined by those local
public goods. If there is any uncertainty in this relationship, such as a decline in school
quality or a rise in crime rate, the homeowner cannot simply sell the property and move
away without any loss, given (1) the simultaneous drop of housing price and (2) high
transaction costs related to homeownership. The same applies to land use control. For
example, if floor area ratio (FAR) limit is lowered by the planning agency after the land-
owner purchased the land, she or he is basically held up by the government because she
or he cannot sell it without loss. This is called the political hold-up problem in urban land
use, which becomes an important issue for land use control and has profound implica-
tions for the institutions of urban planning (Deng, 2003a, 2003b). For example, one solu-
tion to the hold-up problem is integration of homeowners and public goods provider,
which guarantees that the provider would not harm her or his own interests. Both HOA
in private community (Beito et al., 2002) and American suburban local government
(Fischel, 2001) are examples of different forms of integration. In the latter case, voters
for local government are mostly homeowners; that is why Fischel coined the term “hom-
evoter” to describe them and emphasize that American suburban local government is
effectively controlled by the homeowners. In this sense, it is a form of integration of
public goods provider and homeowners.
An important question is, does the political hold-up problem exist in a planned econ-
omy where there are no private property rights? One of my major arguments is that the
hold-up problem still exists in a planned economy where de facto property rights are very
important for resource allocation. Thus, integration of de facto property owner and local
public goods provider is an efficient solution. That is the reason for the dominance of
work unit compounds in Chinese cities in the era of planned economy. In other words,
work unit was in charge of land use control; it was the main actor in Chinese urban plan-
ning at least in the era of planned economy.
Since the urban land reform and housing reform in the 1990s that established private
property rights in the Chinese city, the style of governmental urban planning has signifi-
cantly changed but its nature has not changed. It is still planning for government rather
than the public because it is the duty of a government agency (the planning bureau),
plans need to be approved by the government, and effective mechanisms for public par-
ticipation are absent. This causes great uncertainty in urban planning in a market econ-
omy, leading to widespread emergence of private communities. They help to align the
4 Planning Theory 00(0)

interests of property owners and the provider of local public goods. Their dominant posi-
tion and large scale reflect the severity of the hold-up problem in the Chinese city.
The remainder of the article is organized as follows. The next section is the literature
review on the history of Chinese planning. The third section introduces institutional the-
ories on land use control or urban planning in general and explores its applicability to a
planned economy without private property rights. The fourth section studies work unit
compound and, especially, its role in land use control in the planned economy. The domi-
nant position of private community in the Chinese city today is the focus in the fifth
section. Discussions of relevant issues and future trends are included in the sixth section.
The last section is the conclusion.

Literature on Chinese planning history

There have been many studies on the evolution of urban planning against the background
of China’s transition from a planned economy to a market economy. Sit (1996) is an early
study that analyzes the Soviet influence on urban planning in Beijing. He found that the
concepts, standards, and methods used in the USSR had greatly influenced urban planning
in Beijing from 1949 up to at least 1991, even after the economic reform started in 1978.
The latter point was confirmed by Xu and Ng (1998) and Ng and Tang (2004), both of
whom found that very little change had been made to government-dominated planning.
Qian (2016) discussed the relationship between radical political campaigns and urban
development and planning in China from 1949 to 1976. He found that socialist urban
transformation was devised by the state through political campaigns to instill political
ideology, conduct social engineering and facilitate social service provision. Abramson
(2006) traced the historic roots of Chinese urban planning and pointed out that it will
diversify away from current emphasis on enabling economic growth to include more
goals such as stronger regulatory function and advocacy role. He cautioned that politics
will be more influential to planning practice than institutional or bureaucratic changes.
Some researchers have discussed different aspects of contemporary urban planning in
China. Based on a case study of Hangzhou, Wei (2005) analyzed a problem common across
Chinese cities: urban master plan lags behind reforms and economic growth and has to be
constantly revised to follow new reforms and reflect new realities. Another problem is that
plans made by different government agencies tend to contradict each other and the coordi-
nation between them becomes very difficult (Wang and Shen, 2017). This reflects the fact
that planning is largely driven by government agencies such as the Ministry of Housing and
Urban and Rural Construction and the Ministry of Land and Resources. Wu and Zhang
(2007) analyzed the background, nature, and effects of strategic development plan that had
been emerging in China. They showed that strategic plan is strongly influenced by local
official’s personal vision of the city and often contradictory to master plan. Although it
undermines master plan, local officials often regard it as a necessary flexibility for local
economic development. Fan (2015) studied the urban planning exhibition halls, which
have started to appear in many Chinese cities since 2000s, and found that they

are specifically designed to prepare the mass audience and to cater to high-level officials for its
future vision, to legitimate government plans for (re)development, to promote/glorify mega
Deng 5

events, to present an edited local history, to spread a particular propaganda, and to manipulate/
placate citizen participation. (Fan, 2015: 2893)

An important problem in current Chinese urban planning is the influence of develop-

ers. Zhu regarded local government in the Chinese city as local developmental state that
“fail[s] to fulfill the role of a regulatory third-party” (Zhu, 2004: 425). He pointed out
that development controls are highly discretionary without sufficient transparency and
the result is “[a] capricious planning system with little accountability to the public” (Zhu,
2004: 432). Ng and Tang (2004) drew the same conclusion from their study on Shenzhen
in the 1990s. The strong influence of developers is compatible with the nature of plan-
ning for government, which is largely guided by local officials who become the targets
of developers. The reason is that real estate development is highly regulated by local
planning and, thus, developers almost always try to influence urban planning in their
favor by bribing local officials in order to maximize their profits.
A comprehensive review of the evolution of urban planning up to the end of the 20th
century is Yeh and Wu (1998). They also analyzed the 1989 City Planning Act and
offered suggestions for further reform such as setting up of an independent urban plan-
ning commission and increasing public participation. Those recommendations could be
regarded as technical efforts to marginally change the nature of Chinese urban planning.
(Wu, 2015) is the latest study on the evolution of urban and regional planning in China,
starting from ancient China to the current times. His main argument is that Chinese plan-
ning practice is the main tool for growth that provides space for China’s urbanization and
economic development. In this sense, he argued, contrary to the conventional neo-liberal
vision, Chinese planning is not an enemy of growth but rather its main tool. From the
perspective of institutional change (North, 1991), Zhao (2015) argued that Chinese urban
planning is path-dependent.
Most studies on Chinese planning focus on its transition as well as the implications in
planning methods and planning administration (or implementation). A notable exception
is Tang (2000) who offered an important critique based on Foucault’s theory of govern-
mentality. He argued that “it is more fruitful to understand urban planning as part of the
socialist state’s strategies and tactics to control the economy and the society” (Tang,
2000: 355). His critique is very important in that it offers valuable insight into the nature
of Chinese urban planning.
In summary, the existing studies on the evolution of urban planning in China share the
following features: (1) a narrow focus on governmental planning, especially its planning
methods and styles, largely ignoring nongovernmental planning activities; (2) most agree
that the nature of planning does not change fundamentally despite the current transition
to market economy.

Urban planning from the institutional perspective

There are at least two strands of institutional theories on urban planning. The first strand
identifies various transaction costs involved in urban planning and compares relative
efficiencies of different modes of planning. For instance, Lai (2016) distinguished plan-
ning by edict and planning by contract. State planning can also be justified in many
6 Planning Theory 00(0)

circumstances, for example, in constructing lighthouses and providing public buses

(Alexander, 2014; Lai and Lorne, 2015). This strand analyzes urban planning from the
perspectives of transaction cost (e.g. Williamson, 1999) and property rights (e.g. Coase,
1960). Another strand analyzes urban planning from the perspective of the hold-up prob-
lem (Hart, 1995; Williamson, 1985), which is a central issue in New Institutional
Economics. It allows for identification of a central problem in urban land use and pursu-
ing a systematic analysis of institutions and property rights arrangements related to the
evolution of urban planning. Most analyses in this article follow the second strand.
It has long been argued that public policy can be regarded as a public good (Tullock,
1971). Consequently, urban planning, usually a form of public intervention into land
market and certainly a kind of public policy, can also be regarded as a local public good.
If the service of police, who control conflicts between people, can be regarded as a local
public good, it follows naturally that the service of planners, who control conflicts
between land uses, can also be regarded as a local public good. Hence, institutional the-
ory on urban planning can also start from theories on local public good.
Foldvary (1994) first coined the term “territorial collective good” to emphasize the
fact that most collective goods or public goods are provided within some territories. In
other words, the transaction and consumption of land and local public goods are bundled
together, but their provision can be separate (Deng, 2002). This possibility opens up a
wide range of institutional forms for providing local public goods. The fact that land-
owner automatically or simultaneously consumes local public goods means that a quasi-
contractual relationship exists between landowner and the provider of local public goods.
The value of her or his property investment is dependent on those local public goods. Put
another way, local public goods are capitalized into land rent or land price (George,
1879). In the jargon of New Institutional Economics, this is relationship-specific invest-
ment with high asset specificity (Klein et al., 1978). Besides, comprehensive contract is
impossible due to the bounded rationality of human beings (Williamson, 1985) and,
hence, the problem of incomplete contract exists (Grossman and Hart, 1986; Hart, 1995;
Hart and Moore, 1988). In the presence of uncertainty in the relationship between land-
owner and the provider of local public goods, opportunistic behavior may appear and one
party may be held up by the other. This is called the political hold-up problem in urban
land use by Deng (2003a). Not In My Backyard (NIMBY) and regulatory taking are
manifestations of this problem (Deng, 2003b). A common solution to the hold-up prob-
lem is vertical integration. The same applies in urban land use, and rent capitalization
further strengthens the case for integration (Deng, 2003a).
A simple example can best explain the story behind the above theories. When a person
buys a new home in the city, local public services such as police and schools provided in
the local area are simultaneously consumed by her or him. This is a distinctive feature of
urban land use. What is more important is that home price is partially determined by
school quality and crime rate. On the one hand, if school quality drops after she or he
purchases home, she or he cannot simply sell the property and walk away without any loss
because home price also drops and changing residence involves many transaction costs.
That is exactly the case in regulatory taking when local government imposes regulation on
land use that decreases property value. In this sense, the homeowner is held up by local
government. Expecting this possibility, she or he would reduce her or his home
Deng 7

investment in order to avoid the loss from local government’s opportunistic behavior. This
result apparently lowers the efficiency of urban land use. On the other hand, local govern-
ment can also be held up by the homeowners because public facility that is used to provide
public goods has to be located on a parcel of land within the local area. Homeowners can
refuse to allow some public facilities be sited in the local area through demonstrations and
other political campaigns. Then, local government has to stop investment in public facil-
ity, resulting in loss of efficiency. That is the case of NIMBY. Both regulatory taking and
NIMBY are manifestations of the hold-up problem in urban land use.
How can the political hold-up problem be resolved or mitigated? There are at least
three possible solutions in this example, and they are all different forms of integration of
property owner and the provider of local public goods. First, if local officials are elected
by the homeowners, then homeowners can vote for those who represent their interests in
the provision of local public goods. That may be true for some local governments, such
as in American suburbs, according to Fischel (2001). Second, all the homeowners can
form an association that is in charge of the provision of local public goods in a residential
community. This has been argued as the reason for the rapid growth of HOA all over the
world (Beito et al., 2002; Foldvary, 1994). Third, one person can own all the properties
in the local area while the rest of people become tenants. This owner is then responsible
for providing various local public goods. It is easy to see that this is the most common
model for shopping center and mall (Deng, 2002).
Since urban planning can be regarded as a local public good, its history also demon-
strates the power of institutional theories (Deng, 2003b). Let us trace the evolution of
land use control to the era before modern urban planning was introduced in the early 20th
century. At that time, land use control in both United States and United Kingdom relied
heavily on private covenants (Davies, 2002; Siegan, 1972). Property owners signed con-
tracts to implement land use controls and those contracts (private covenants) ran with the
land. The problems with private covenants include the following: (1) contractual costs
rise sharply with the number of property owners involved, (2) the impossibility of com-
prehensive contract (Williamson, 1985), and (3) land use under private covenants is “fro-
zen,” but a dynamic and changing city is needed in the long term.
Those problems were also the reasons why modern public planning was introduced in
the early 20th Century. Planning is then mostly made in the public domain (Friedman,
1987). The political voting process, which is the foundation for democracy, guarantees
that the government is largely aligned with the interests of voters. However, voters are
not necessarily property owners, let alone the influence of special interest groups. This
fact introduces an important problem related to public planning: it may negatively affect
the interests of property owners. This is very obvious in the case of regulatory takings
(Fischel, 1995), albeit less so for American suburban governments (Fischel, 2001). Put
another way, public planning brings uncertainty to land use control that may not be desir-
able to property owners.
The market’s response to the problems in public planning is the widespread growth of
private communities in the past decades (Beito et al., 2002; Deng, 2003b). Most private
communities feature an institutional structure of either leasehold system (such as in
shopping center and mall) or HOA, both of which are integration of property owner(s)
and the provider of local public goods. Hence, property owner(s) would not need to
8 Planning Theory 00(0)

worry about undesirable changes in local public goods including land use control. In this
sense, we have witnessed a rebound of private zoning or private planning (Deng, 2003b).
This way of interpreting the history of planning leaves two questions open: first, what
if private property rights are abolished, as in former socialist planned economy? Is there
still political hold-up problem in urban land use? Put another way, what is the central
problem for the institutions of land use control in a planned economy? Second, given the
omnipresent government in China, will the market response to the hold-up problem in
urban land use be more constrained than in the West?
In Soviet-style socialist planned economy, the individual is reduced to a passive and
minimal state (Hayek, 1944), and private property rights are abolished. Although resources
are allocated by plans, or more accurately by bureaucrats, they nonetheless need to be
controlled by some organizations that then put them into consumption or production. That
is, there are still de facto property rights, which inevitably give rise to property interests.
These property interests may be held by a factory, a school, or even a government agency.
More importantly, the spatial fact still applies that the transaction and consumption of land
and local collective goods are bundled together. Property interests from de facto property
rights, albeit in non-monetary form, are partially determined by the local public goods
provided in the area. For example, if housing dormitories within a factory compound are
very close to a primary school, then all workers who have children and live in the dormi-
tories benefit from proximity to the school. Of course, this benefit is not reflected in
property price since there is no property price in a planned economy, but it is really
enjoyed by the workers and manifests in shorter commuting time and lower transportation
cost. Apparently, there is still a quasi-contractual relationship between the de facto land-
owner and the provider of local public goods that involves relationship-specific invest-
ment. Furthermore, those investments (such as those on housing dormitories) cannot even
be liquidated or sold because there is no real estate market in a planned economy. In this
sense, housing and land investment in a planned economy is more relationship-specific
than in a market economy; it is relationship-fixed (Jie, 2000).
There is also uncertainty in the relationship between de facto property owner and
local public goods provider. Within the top-down hierarchy in a planned economy, a
common problem is conflict of interests between organizations that belong to different
sub-hierarchies. For example, a school is under the administration of Education Bureau,
while a factory is under the Bureau of Mechanical Industry. They follow the orders from
different government agencies, let alone governments at different levels. It is very diffi-
cult for them to cooperate or reach a deal on something. This becomes an important
source of uncertainty. Another source of uncertainty comes from newly appointed cadres
in an organization, who may have new ideas about the provision of local public goods.
All cadres in a planned economy are subject to appointment and replacement. A new
schoolmaster in the primary school will certainly affect the education of those kids who
live in the nearby housing dormitories.
Given the above discussion, it is clear that the hold-up problem in urban land use still
exists in a planned economy. What is worse is that de facto property owners have fewer
exit options than their counterparts in a market economy. They could not sell land or
housing because there is no real estate market in a planned economy. What could they do
about it? An efficient response is then to integrate de facto property owner and the
Deng 9

provider of local public goods. Put another way, an organization in a planned economy
that controls land will tend to provide various types of local public goods by itself.5 In
this way, the interests of de facto property owner and those of the public goods provider
are aligned. Factory, housing, school, police, cleaning, landscaping, planning, and
design, and so on are likely to be placed or provided within the same organization com-
pound. Hold-up problem is not the reason for the institutions of work unit, but it is the
reason for why land use control (as well as many other local public goods) was placed
within work unit. Although this type of institutional arrangement may not solve all prob-
lems related to urban land use, it can at least mitigate the hold-up problem with regard to
some local public goods. It is also the prototype for land use control in a planned
economy.

Work unit in planned economy

Urban planning in its modern form started in the era of the Republic of China, but little
was achieved due to the civil war and World War II. Contemporary Chinese urban plan-
ning was mostly learned from former Soviet Union soon after the People’s Republic of
China was established in 1949. It is largely a technology of the government (Tang, 2000)
and “a tool to realize the socialist ideology of planned development and to ‘translate’ the
goal of economic planning into urban space” (Yeh and Wu, 1998: 171). It is almost a
consensus that governmental planning is more about the grand image of the city in the
future, which is reflected in the master plan, and less about land use control at micro
(property or neighborhood) level (Friedman, 2005; Yeh and Wu, 1998).
Governmental urban planning had accomplished much less than expected before the
economic reform started in 1978. For example, Sit observed that the two decades between
the 1950s “and the 1982 plan was a period of dramatic political turmoil and planning
anarchy in which the ministerial, hierarchical, autocratic, central planning system was
allowed to work to its utmost in creating a mess for Beijing” (Sit, 1996: 481). One natural
question arises: who planned and carried out urban construction and development during
those tumultuous years?
Work unit refers to various types of production unit or social organization that is the
basic social unit in a planned economy. Examples include factory, school, research insti-
tute, and even government agency. Not surprisingly, work unit compound was a distin-
guishing feature of urban landscape in the socialist city (French and Hamilton, 1979). It
typically included production space, office space, housing, hospital, dining hall, conveni-
ence stores, and even elementary or high school. All were integrally designed and con-
structed within the same compound that was usually encircled by a wall. There are many
arguments for the walls and gates in Chinese cities. For example, Huang (2006) argued
that they are due to the influence of Chinese culture that emphasizes collectivism. Wu
(2005) compared the theory of club goods and the discourse of fear in explaining the
growth of gated communities in China. He thought that club theory is the better explana-
tion. Qian (2014a) argued that post-1949 neighborhood enclosure should not be seen as
the continuation of gating and walling in the past, and there is no universal meaning asso-
ciated with neighborhood closure. Nevertheless, he also noted that, in many cases, neigh-
borhood enclosure is an effective means to sustain the political manageability of Chinese
10 Planning Theory 00(0)

urban society. Recognizing the relevance of those arguments, I herein offer a property
rights or institutional interpretation that the walls were tools for physical delineation of de
facto property rights in the planned economy. Without legal titles, de facto property rights
could only be defined and protected by physical barriers such as walls. It is then not sur-
prising that almost all work units in Chinese cities were surrounded by walls, which
became the strongest symbol for de facto property rights in a planned economy.
Most important of all, many local public goods were provided within work unit com-
pound by the work unit. Examples include security (guards and security officers in the
security department that was often called Bao Wei Bu), street cleaning, landscaping,
clinic, school, and so on. Sometimes the work unit is described as taking care of people
“from cradle to grave” (Walder, 1986). One important local public good is land use con-
trol such as the development density, building height, planning, and design of the work
unit compound. A special department called Ji Jian Ke (Basic Construction Department)
was usually in charge of planning and construction within the work unit compound.
Many work unit compounds were designed with two layers of walls, with the inner circle
enclosing office buildings and factories and the outer circle including residential build-
ings and community facilities such as dining halls, grocery stores, daycares, clinics, and
schools (Zhang and Chai, 2014). The planning and design of work unit compound was
usually carried out by its own engineers in Ji Jian Ke. Zhang and Chai (2014) vividly
describe how the compound of Tongrentang, a pharmaceutical factory in Beijing, evolved
in terms of land use, planning, construction, and even governance in more than 30 years.
Although the initial design might be commissioned to a planning institute outside the
work unit, it is difficult to imagine how subsequent land use control, planning, design,
and construction could be left to outsiders without impacting the production and life
inside the compound. Even if some planning institutes could be hired to do some tempo-
rary planning work for the work unit compound, they had to follow the instructions from
Ji Jian Ke or, indirectly, opinions from the work unit officials. If we assume that a local
government agency was in charge of land use control and planning in the work unit com-
pound, then because of their different interests from the work unit, unfamiliarity with the
production process and life inside the compound, and slow response that is typical of
bureaucrats, it would be very easy for them to create a spatial mess that severely affects
the work unit’s production and life. That is an example of the hold-up problem in urban
land use. Yeh and Wu (1998) noted that “[t]he actual occupant—mostly the state produc-
tion unit—decided the use of the land” (Yeh and Wu, 1998: 172). So, land use control in
the era of planned economy was integrated with the de facto owner of urban land—work
unit. In this way, the interests of the “planner” were aligned with those of the de facto
landowner. Neither side needed to worry about uncertainty in urban land use that may
arise due to their conflict of interests.
Given the institutional structure of work unit as described above, it is then not surprising
that governmental urban planning in China before the 1990s was mostly about grand vision
for the city in the future, involving little land use control or development control, and could
even be suspended or dismantled. The reason is simply that work unit, a nongovernmental
actor, shouldered the work of urban planning and construction at the micro level.
The best example for the role of work unit in Chinese urban planning is the Third Front
Construction (San Xian Jian She) in the 1960s and 1970s. Based on his judgment about
Deng 11

international relations, Chairman Mao made the policy of Third Front Construction in
1964 to prepare the country for possible wars (Dong, 2004). It moved many important
industrial enterprises from coastal regions to inland areas, especially into the mountains.
For both defense purpose and socialist ideology that de-emphasizes city, many Third
Front enterprises were moved to mountainous rural areas far away from big cities. The
planning, design, and construction of those enterprise compounds were mostly under-
taken by their own engineers. One consequence of Third Front Construction is that invest-
ment in urban construction and development was greatly reduced in coastal cities, and the
Third Front became the main field for urban construction in that era (Naughton, 1988).
Having said about the importance of work unit in land use control, I would like to
point out that upper-level government also played some role because some local public
goods can only be provided at larger scales and would not fall into the spatial boundary
of a work unit. For example, the urban planning agency at upper-level government might
specify some general planning requirements such as overall density and architectural
style. It was also responsible for planning infrastructure (such as roads, water, and power)
that was directly connected to the work unit compound. In that case, the hold-up problem
sometimes existed between the planning agency and the work unit, and negotiation and
compromise were often needed. Furthermore, different work units’ interests might con-
flict on some issues. For instance, a factory’s pollution emission might negatively affect
a neighboring work unit’s production and life. Then, upper-level government became
very important in mediating the tension among work units and finding solutions to any
externality problem.
After state-owned-enterprise (SOE) reform, housing reform, and some other reforms,
work unit is now no longer responsible for providing many local public goods.
Nevertheless, their legacy remains in the Chinese city, where work unit compound might
still be a visible element of urban landscape. Although there are some renewed interests
in work unit compound in recent years (Chai et al., 2013; Sun, 2012; Zhang and Chai,
2014), it appears inevitable that its importance will continue to decline given the trans-
formed social and economic environment.

Private community in market economy

Because work unit gradually exited from the provision of many local public goods after
the economic reform started in 1978, would governmental planning fill the vacuum and
become the dominant force in planning and land use control at micro level?
The nature of governmental planning in China, or “the urban planning” that is widely
studied, is planning for government. For example, a political slogan regarding urban
construction in 1949 was “to serve the masses, to serve production and to serve the
Central Government” (Sit, 1996: 465). Consequently, planning “is largely an administra-
tive activity” (Yeh and Wu, 1998: 189), and planners are seen as “assistants” of local
politicians (Zhao, 2015). Different from other studies (e.g. Dong, 2004; Yeh and Wu,
1998) that often divide the evolution of governmental planning into at least two stages
separated by 1978, I divide it into two periods: the first period is from 1949 to early
1990s and the second period is after urban land reform and housing reform were launched
in the 1990s.6 The nature of governmental planning, called “an arm of the Party-state” by
12 Planning Theory 00(0)

Abramson (2006: 197), does not change in the second period, but the environment for
planning has been transformed: private property rights have been established in the
Chinese city. Only in the second period could planning be said to be functioning in a
market economy.
Planning for government seems to suggest that governmental planning can easily
replace work unit for land use control in a market economy. However, government inter-
ests are different from those of property owners, let alone a predatory state (Che and
Qian, 1998). Given China’s political system, the political hold-up problem in urban land
use is especially severe.
It is apparent that the current institutional form of governmental planning, even at the
level of Detailed Regulatory Plan, does not represent the integration of property owner
and planner. Although full integration of property owner and planner is probably not pos-
sible in most countries, this problem is especially acute in urban China because local
officials are not elected but appointed by the upper-level government. Even this might not
be a problem if there is little uncertainty in land use control. What is the situation on the
ground with regard to this issue in China? Yeh and Wu (1998) attributed many problems
in urban planning in China, especially its uncertainty, to the “discretion of planning” that
is nonstatutory. The result is that “urban planners are circumscribed by their position in
the administrative structure and by state policies” (Tang, 2000: 358) and have to follow
sometimes haphazard ideas of top officials. Some argue that statutory planning might be
a solution to this problem. But, its effect is doubtful given the weak role of law in China.
Uncertainty in governmental planning is well documented in the literature. For example,
Zhu (2004) provided compelling evidence for uncertainty in planning in Shenzhen.
What are the sources of uncertainty in governmental planning in Chinese cities? First,
given the decisive role of local officials in urban planning, any change of local leadership
may result in major revision of the master plan and thus bring uncertainty to land use
control (Wei, 2005). Second, conflict of interests between government agencies or
between city government agencies and their local branches often leads to uncertainty in
planning (Xu and Ng, 1998). For example, Development & Reform Commission is in
charge of economic planning and industrial policy, Planning Bureau makes urban plans
and Land Resources Bureau is responsible for leasing urban land. They may have very
different interests and objectives in the turf battle over land use in a particular area and,
consequently, their interaction inevitably brings uncertainty to land use control. Third,
the influence of developers has become an important source of uncertainty (Tongji
University et al., 2011; Xu and Ng, 1998; Zhu, 2004). Fourth, economic growth and
urban expansion is another factor for uncertainty in urban planning. Chinese cities have
been experiencing high-speed growth in recent decades, and few planners could cor-
rectly foresee this trend, resulting in plans often lagging behind growth. This kind of
uncertainty could be regarded as a positive signal of land use change. Last, Chinese local
governments play multiple roles; they are simultaneously urban land owners, owners of
local SOEs and town and village enterprises (TVEs), and local public goods providers
(Deng, 2005). The change in the allocation of resources among those three roles may
also bring uncertainty to urban planning.
How will the market respond to the above problems? Some might be pessimistic
about the market’s response in the short term (Zhu, 2004). But, in the long run, market
Deng 13

institutions will respond to problems in urban land use and fill the vacuum left by the
work unit. That is why we have observed the widespread growth of private communities
in Chinese cities. Qian (2014a) attempted to explain the rising gated communities by
resorting to the motivations of local state, the developer, and the wealthy urban resident.
However, this phenomenon has not happened in the West at the same scale despite the
presence of the same three types of actors. Abramson (2006) attributed the growth of
gated communities to the influence of socialist planning and design standards. That is
also unconvincing because the developers are not obliged to follow old standards from
the era of planned economy.
In general, there are at least two types of private community in the Chinese city. The
first type is private residential community, also called xiaoqu (micro-district (MD)), that
is often run by a HOA.7 Many local public goods including land use control are provided
by HOA. Although the physical design of an MD is largely the responsibility of the
developer, ex post land use control (such as how to use parking space and public space
as well as any future land use issues) is determined by the HOA. Nowadays almost all
new residential developments in Chinese cities fall into this type. What is interesting is
that some Chinese textbooks (e.g. Tongji University et al., 2011) on Detailed Regulatory
Plan regard planned unit development (PUD), a type of private community in the United
States, as the latest trend for land use control. That is clear evidence for the role of private
community in land use control. The second type of private community is shopping center
and mall. This type of retail real estate has been developing very fast in Chinese cities.
Its owner is responsible for providing many local public goods including security, clean-
ing, and landscaping.
It is clear that the above two types of private community both feature the integration
of property owner and local public goods provider. In this sense, they are all efficient
institutional response to the hold-up problem in urban land use. Although they are influ-
enced by global trend (e.g. Beito et al., 2002), their scales and dominant positions in
Chinese cities, especially the almost monopolistic role of private residential community,
suggest that they are responses to problems in the transition of Chinese urban planning.
On the one hand, the exit of work unit from land use control had left a vacuum; on the
other hand, the nature of governmental planning determines it cannot represent the inter-
ests of property owners. New institutions in the form of private community have emerged
to take over land use control at the neighborhood level at a much larger scale than in the
West. For example, in a private residential community, HOA is responsible for providing
many local public goods, ranging from a bench along the walkway to a swimming pool.
HOA determines how land inside the community is used, such as the expansion of park-
ing ground, adding new amenities, or whether to allow a convenience store to be opened.
The collective decision-making process inside HOA half resembles political voting, in
the sense that all homeowners can vote, and half resembles corporate voting, in the sense
that each household’s votes depend on property ownership and, in some cases, are pro-
portional to the value or size of the property. In this way, HOA can probably better rep-
resent the interests of homeowners than any government. It resolves the hold-up problem
in land use. The example of shopping mall is even simpler. The property owner or the
manager makes the decisions regarding local public goods by herself or himself without
the pains of collective decision-making. He determines which stores will be allowed into
14 Planning Theory 00(0)

the mall and how parking spaces, landscaping, and so on are used. In a word, the root
cause of the large-scale development of private communities in Chinese cities is the
incompatibility between governmental planning and private property rights in a market
economy. It can be regarded as the latest development of urban planning in China.
Nevertheless, qualification is needed because governmental planning still plays an
important role, albeit at larger spatial scales. Governmental planning, especially Detailed
Regulatory Plan, sets out the overall parameters for land use control such as FAR for the
whole area of a private community. It is also responsible for planning various infrastruc-
tures including road, water, and power. In the case of externalities among private com-
munities, upper-level government is important in solving any potential conflicts between
them. An interesting interaction between private community and governmental planning
(both in China and in the West) is that HOAs are more active in participating in planning
(such as public hearings) than individual resident. In this sense, they also help to mitigate
the hold-up problem at larger scales through stronger presentation of homeowners’ con-
cerns in governmental planning.

Discussion
The institutional analysis so far clearly rests on theories in New Institutional Economics.
However, some of its assumptions might be undergoing changes that have important
implications for future evolution of Chinese urban planning. In this section, I discuss
those assumptions as well as some future trends.
I regard the nature of Chinese (governmental) urban planning as planning for govern-
ment. That is the essence behind many characteristics on the surface such as a technology
for social control (Tang, 2000), a tool for growth (Wu, 2015), and even “modern plan-
ning” (Zhao, 2015). Of course, a pluralist perspective may combine all those characteris-
tics together. That perspective allows us to obtain a more realistic view of Chinese urban
planning, which is certainly a complex institution that has profound social, economic, and
political ramifications. For example, in politics, planning might become a technology of
the state for the purpose of social control; in economic development, it could be used as a
spatial tool to promote local economic growth; in the science of the built environment, it
can become modernized by adopting planning technologies from developed countries.
However, a pluralist perspective raises analytical difficulty due to its interdisciplinary
nature and multi-dimensionality. It is also more difficult to shed light on the nature of
Chinese urban planning. More importantly, the nature of Chinese urban planning is closely
related to the evolving nature of local government in the Chinese city (Abramson, 2006).
Local government was a pure local branch of the state in the planned economy, but in
the market economy, it enjoys a much higher degree of local autonomy and has many
more functions. If local government somehow becomes more and more aligned with the
interests of homeowners, as in American suburbs (Brueckner, 1983; Fischel, 2001), then
we might see a stronger role for governmental urban planning and less need for private
community in land use control. Of course, that depends on political reform in China,
which is now difficult to predict. Nevertheless, even in the absence of radical political
reform, it is foreseeable that homeowners are going to have greater say in urban planning
although the magnitude of that effect is very difficult to gauge.
Deng 15

Public participation is another way for homeowners to influence governmental urban

planning. However, as Fan (2015) vividly described in her study on planning exhibition halls
in China, public participation lags far behind people’s expectation and is severely constrained
by the political system. Ng and Tang (2004: 178) acknowledged that “[a]rticulations for bet-
ter and more participatory planning processes can also be found, though this concept is
always checked by cautious administrative considerations and the socio-economic realities of
China as a basically state-centred polity.” In a word, as long as political reform lags behind, it
is difficult for Chinese urban planning to transform its nature through technical means.
In institutional analysis, uncertainty in planning is often treated as a negative effect.
However, sometimes it may turn out to be a positive thing that is desirable for urban eco-
nomic growth and social change. That is the source of innovation and endogenous growth.
In this sense, institutions in urban planning should tolerate uncertainty to some extent.

Conclusion
By regarding urban planning or land use control as a local public good, this article applies
institutional analysis to its evolution in contemporary China. My definition of urban
planning includes both governmental and nongovernmental planning, and land use con-
trol is its main component. In particular, I submit the following major arguments: (1) the
hold-up problem in urban land use still exists in a planned economy. Integration of the de
facto landowner and local public goods provider, as in a work unit, can help resolve the
problem. (2) In the era of market economy, the market responded to the efficiency needs
of private property rights in the form of widespread emergence of private communities
in Chinese cities. Although their institutional structure is the same as their Western coun-
terparts, the scale is much larger, and they are in a dominant position in the Chinese city.
This reflects the nature of governmental urban planning in China as well as the severity
of the political hold-up problem in urban land use.
Some questions remain open for future research. First, what is the future for private com-
munities in China? With more public participation and more alignment of homeowners and
local government, are we going to see a decline of private communities in the Chinese city?
Alternatively, will path dependency push China toward a state in which governmental plan-
ning and private land use controls coexist? Second, given some renewed interests in work
unit (Chai et al., 2013; Zhang and Chai, 2014), are we going to see a revival of work unit
compound in the Chinese city? Third, it is an important research question how urban plan-
ning is going to evolve within the space permitted by the political system. It also depends on
the interaction between market economy and political institutions.

Funding
The author(s) received no financial support for the research, authorship, and/or publication of this
article.

Notes
1. More accurately, urban planning was abandoned from 1966 to 1971. The administrative struc-
ture of planning was gradually re-established after 1971, and staff returned to their positions.
16 Planning Theory 00(0)

However, it is acknowledged that urban planning was severely constrained till the end of
Cultural Revolution (Qian, 2014b).
2. One reason for me to focus on urban planning at local level is that it is the common com-
ponent across China and Western countries, which facilitates both comparative study and a
systematic exploration of planning theory. The other components of Chinese urban planning,
such as master plan or regional planning, include more elements inherited from Soviet-style
urban planning for a planned economy.
3. Detailed Regulatory Plan is also translated to Detailed Development Control Plan (Yeh and
Wu, 1998). It was first introduced in City Planning Act, albeit in its explanatory note. It speci-
fies various land use control measures such as development density and land use type.
4. It is acknowledged that a small portion of work units are government agencies. Although
most work units were owned by or affiliated with the government in the era of planned econ-
omy, they were not government agencies per se.
5. It is necessary to note that some small work units still relied on local governments for some
public goods. Given their small scales, the magnitudes of the hold-up problem were less
significant.
6. This roughly corresponds to the so-called “Third Spring” of Chinese urban planning (Leaf
and Hou, 2006). Although the legal framework of urban land reform was set up in late 1980s,
the students’ democratic movement and the following crackdown by the government in 1989
made large-scale implementation impossible except a few sporadic experiments. Urban land
market really began to emerge in Chinese cities after 1992, when Deng Xiaoping made his
famous tour of South China and reaffirmed the reform policy.
7. Many micro-districts (MDs) are run by property management companies (PMC) without an
HOA. Deng (2012) explored the reasons behind this phenomenon.

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Author biography
Feng Deng is the Professor of Planning and Economics, Chongqing Technology & Business
University. He taught at SUNY Albany, National University of Singapore, UMass Amherst,
Chongqing University and Cardiff University. His current research interests include institutions
and property rights, urban planning, urban economics, urban land use, housing and real estate.