Relaxed and flexible foreign investment policies at the early stages of reform and opening up first-tier cities such as Beijing, Shanghai, Guangzhou and Shenzhen have attracted a substantial number of Hong Kong and Taiwan-funded enterprises. Their investments concentrate particularly on electronics, auto parts and garment processing industries. As many of them complete upgrades or relocate to lower-tier cities due to the rising production costs, industrial innovations and other reasons in the first-tier cities, they have an urgent need to dispose of or liquidate their factory buildings and land in these top metropolises.
Governments in the first-tier cities have also introduced upgrading and renovation policies for inner cities and old factory buildings, including city upgrades in Shanghai and Shenzhen, shantytown reconstructions in Beijing, and old town, factory building and village residence renovations in Guangzhou. This article explores the process and model through which Hong Kong and Taiwan-funded enterprises may achieve asset liquidation or appreciation by taking part in city upgrade projects with land and factory buildings under their control.
In sharp contrast to traditional real estate development, city upgrades do not involve the use of new land. As a process of redevelopment using existing land, it helps alleviate land resource scarcity in first-tier cities and provides Hong Kong and Taiwan-funded enterprises holding old factory building assets (original title holders) with access to a new approach, other than sales, to liquidating their assets or equities. For an original title holder that needs to acquire additional land to enable its industrial upgrade plans, acquiring land under a city upgrade agreement reduces land acquisition costs and helps avoid the uncertainty accompanying the procedure of “bid invitation, auction or listing for sale”. This section provides an overview of the basic processes of city upgrade with Shenzhen as an example.
Yan Juntao is a partner and Liu Bowen is an associate at Zhong Lun Law Firm in Shenzhen
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