SPECIAL REPORT-China bets future on inland cities

For years, Gushi had been running full tilt in the opposite direction, trying to find ways to catalyse investment and escape restrictions on local debt. Some of the spending that Gushi routed through its financing units may yet prove worthwhile.

In a list of development projects for 2009, the County Construction Investment Co was named as the developer of a water supply plant. It was also listed as the main investor in a hotel and entertainment complex, a questionable need in a town that already had a new hotel and few visitors.

Other examples of wasted land and money litter Gushi's landscape. The abandoned "Heyuan University" campus sits on the edge of town, sinking back into the fields that were taken to build it. A couple of guards mind the crumbling buildings after the investors fled a couple of years ago.

"They've run away and left us with these rotten buildings," said Fu Jinzhi, a wrinkled woman in her 70s living in a village near the campus. "We've been hurt, but what can we do?"

The sheer numbers involved in China's urbanisation are staggering.

To accommodate the onrush of new city dwellers, the country will have to pave 5 billion square metres of road, construct 5 million buildings, including 50,000 skyscrapers, and add up to 170 mass transit systems, the McKinsey report said. All by 2025, it added.

In such haste, mistakes are made.

"This has happened so quickly that the cities have not had an opportunity to grow organically. And there is a real risk that what you are going to be left with is these cities that are very sprawling," said Arthur Kroeber of Dragonomics, an economic consultancy in Beijing.

Little thought is given to energy efficiency or quality of life by officials whose main objective is to build and build some more, he said.

Some Chinese officials have started to muse about the need for slower economic growth, down from the double-digit pace which has been the norm for much of the past decade.

"A slower pace of growth might well be beneficial, because when everything is booming, no one has any incentive to do anything at all carefully," Kroeber said.

BUSINESS ELITE

If Party Secretary Guo was the force behind Gushi's feverish excess, Chen Feng was the man who did the heavy lifting. But while Guo now sits in jail, Chen has catapulted himself into the ranks of Henan's business elite.

Chairman of Xinhe Real Estate, Chen is Gushi's biggest property developer, the man who has built the homes for migrants who have returned with money and middle-class aspirations.

At the centre of Gushi stand three Xinhe developments, modern, sleek, and carefully landscaped. Chen's latest project, Golden Sun, is a 60-building housing estate.

Like most successful real estate barons in China, Chen's government connections run deep. He has been a member of the county parliament and has made Xinhe a virtual handmaiden to official development plans, building 6 sq kms of government offices and public facilities, including schools. Xinhe knows the schools are a big selling point. Each family buying an apartment in Xiangzhang Garden is promised a 20 percent discount on school fees.

Education is one of the yawning gaps between rural and urban China that have made the interior so unappealing -- a place that people aspire to leave.

"It's the pattern across all of the country," said Li Changping, the rural affairs expert. "Officials are concentrating school spending in counties and large towns, so then parents are forced to move to them for the sake of their children."

Like most successful businessmen in China, Chen has been nimble, too. Over the past year, as Gushi tried to change its development strategy after Guo was detained, Chen tried to change Xinhe's focus.

"The company has answered the government's call to build a strong industrialised county, and we have made a strategic shift in the company from a real estate developer into an industrial firm," Xinhe said in a statement in June, marking its investment in a factory for medical infusion bags.

In a sign of its growing stature in official eyes, the company was rechristened this May as Henan Xinhe Construction and Investment Group. The insertion of the province's name came with explicit government approval and will make it easier for the firm to win contracts beyond Gushi.

This potent cocktail of state power, big money and heady urban ambitions can be seen across China, especially in the rural hinterlands.

Henan is one of the poorest major provinces, with just 36 percent of its population living in cities. The province has made rapid expansion of cities a cornerstone of development.

Xinyang, the largest city in southern Henan, has built an 18-storey headquarters for its Communist Party officials overlooking a vast square. City leaders believe the imposing government buildings will attract more investors, the mayor of Xinyang, Guo Ruimin, told Reuters.

The grey expanse of concrete with low shrubs around its edge was not a public square, he said. "It's a botanical garden planted with many flowers."

In Nanyang, a city of over a million residents about two hours drive from Xinyang, multi-storey apartment and office buildings have mushroomed in the new "high-tech" development district.

"These are pretty buildings, but when you're as old as I am, you get dizzy just looking at them," said Xiao Chunqi, gazing at a cluster of four 30-story apartment buildings rising next to her village in Nanyang.

FESTERING DISCONTENT

Chinese law says farmland is collectively owned by villages. In reality, the land is controlled by local governments. They, not the farmers, have the power to decide who can turn fields into real estate. Farmers say land reclamation rules are fixed against them, giving officials and well-connected developers the power to push them off the land without fair compensation.

"The main trouble facing urbanisation is the waste of land, because in China it's just too easy to take farmers' land for a pittance," said Dang Guoying, a rural development expert at the Chinese Academy of Social Sciences who is studying the challenge of urban growth. "So our new cities have these broad roads and big parks, townhouses -- such a waste of land".

These festering discontents could stoke sharper social unrest as urbanisation accelerates, some Chinese researchers have said.

"The path of urbanisation that China has pursued over the past 30 years is no better than the slum development of Latin America and India," wrote Zhou Tianyong, an economic and social researcher at the Central Party School, a leading institute in Beijing. "Moreover, if this path of urbanisation is not adjusted and continues, the outcomes will undoubtedly create much social turmoil," Zhou wrote in a recent overview of urbanisation.

In Gushi, signs of that are not hard to find. Some protesters are demanding political and economic reforms that could challenge the top-down control of the ruling Communist Party. (Click on xxx for related story)

"The land defence movement in Gushi is like a rising wind," said one petition from disgruntled farmers. "Wherever there is oppression, there is also resistance."

Zhou Decai, a veteran protester in Gushi, disclosed plans for a nationwide campaign to link up disgruntled farmers demanding a better deal from the loss of their land. He held out pictures that he said showed battles over land involving dozens, sometimes, hundreds of villagers.

"The reckless development in my area has been slowed, but it's because of farmers' resistance, not because of government orders," Zhou said. The land system needs to be reformed so farmers can decide whether to sell their land -- and reap the benefits themselves, he said.

Yet even the discontented farmers could see no way of stopping a tide of urbanisation from engulfing the countryside. Many of their sons and daughters are moving to factories and apartments, while they stick to the barricades.

"Urbanisation is an inevitable trend. It's not whether you want it or not. There's no choice," said Zhou. "But this urbanisation path is a deformed bubble."

($1=6.776 Yuan) (Editing by Bill Tarrant)