In 2019, the urbanization rate of China's permanent population exceeded 60%, which means that the mode of urban development has changed in the middle and late stages of the rapid development of urbanization. In 2021, the 14th Five-Year Plan for National Economic and Social Development of the People's Republic of China and the Outline of the 2035 Long-Term Goals proposed the implementation of urban renewal actions, and the urban development in China shifted from large-scale incremental construction to both stock upgrading and incremental structural adjustment. In the process of urban development, urban villages provide low-cost residential products for migrants, which is of positive significance in the initial stage of urbanization, but due to the lack of planning, poor living conditions and insufficient supporting resources, urban renewal and development at this stage are restricted. Therefore, the reconstruction of urban villages has become an important part of urban renewal action. In April
2023, the meeting of the Political Bureau of the Central Committee proposed to actively and steadily promote the transformation of urban villages and the construction of "dual-use" public infrastructure in mega-cities. In July 2023, the executive meeting of the State Council deliberated and adopted the Guiding Opinions on Actively and Steadily Promoting the Transformation of Urban Villages in Megacities. At the meeting of the Political Bureau of the Central Committee, the transformation of urban villages and the construction of public infrastructure for both emergency and emergency use were mentioned again, and the expression of "actively and steadily advancing" was changed to "actively advancing". The attitude towards promoting the transformation of urban villages is more clear and positive.
Table 1: Relevant policies
of "urban village reconstruction" since the 14th Five-Year Plan Data source: cement big data (https://data.ccement.com/)
The scale of demolition and construction is limited. It is difficult to change the downward trend
of cement demand. As can be seen from the policy documents, the importance and urgency of implementing the transformation of urban villages in mega-cities has been significantly enhanced since 2023. Under the background of shrinking overall demand for cement, how much demand can be brought by the transformation of urban villages has become the focus of attention in the industry. According to the author's calculation, assuming that the reconstruction of urban villages is completed in ten years, the average annual demand for cement is about 10-30 million tons, and the overall demand pulling effect is relatively limited.
From the perspective of policy impact, this round of urban village reconstruction mainly involves 21 mega-cities (the seventh census data). Among them, there are 7 megacities, namely Shanghai, Beijing, Shenzhen, Chongqing, Guangzhou, Chengdu and Tianjin; and 14 megacities, namely Wuhan, Dongguan, Xi'an, Hangzhou, Foshan, Nanjing, Shenyang, Qingdao, Jinan, Changsha, Harbin, Zhengzhou, Kunming and Dalian.
Figure 1: Number of permanent residents in urban areas of 21 megacities in China (Unit: 10,000 people)
Data source: Cement Big Data (https://data.ccement.com/)
According to the policy spirit, The transformation of urban villages in mega-cities should adhere to the mode of "retaining, reforming and demolishing" simultaneously, and can not carry out large-scale demolition and construction. From the practical point of view, the transformation of villages in cities around the country has both the form of demolition and reconstruction, and the form of upgrading the existing building structure. With regard to the proportion of demolition and reconstruction of urban villages, if strictly in accordance with the Notice on Preventing Large-scale Demolition and Construction in the Implementation of Urban Renewal Action issued by the Ministry of Housing and Construction in August 2021, the proportion of demolition and reconstruction should not be higher than 20%, and the ratio of demolition and construction should not be higher than 2. According to the experience of renovation in various places, the proportion of old demolition can reach about 60%.
Therefore, the author believes that, according to the different implementation of the policy, the demand for urban village reconstruction can be divided into three situations: pessimistic, neutral and optimistic, with the proportion of old demolition being 20%, 40% and 60% respectively, and assuming that the ratio of demolition to construction is 2.
According to the estimates of major securities firms, the total construction area of urban villages in the 21 mega-cities mentioned above is about 9-1.2 billion square meters. Based on this data, under optimistic, neutral and pessimistic circumstances, the total demand for cement brought about by the transformation of urban villages is about 300 million tons, 200 million tons and 100 million tons, respectively.
From the perspective of the rhythm of demand release, the overall pace of transformation is expected to be relatively slow due to the complex nature of the land involved in this round of urban village transformation, the high proportion of floating population, the difficulty of land requisition and resettlement, and the weakening of government financial support compared with the period of shanty reform. Combined with the planning and actual project experience of urban village reconstruction published by various places, this round of urban village reconstruction may take more than ten years.
Therefore, the average annual cement consumption for urban village reconstruction is estimated to be about 10-30 million tons, which is equivalent to 0.5% -1.5% of the national cement output in 2022. During the period from 2012 to 2022, more than 43 million units of shantytown reconstruction have been started in China. Assuming that the area of a single unit is 85 square meters, the cement consumption of shantytown reconstruction in ten years is about 800 million tons, that is, 80 million tons of cement are consumed annually. The pulling effect on cement demand is significantly higher than that of the current round of urban village reconstruction.
Figure 2: Under the assumption of average release, the cement demand for shanty reform and urban village reconstruction in ten years (unit: 10,000 tons)
Data source: cement big data (https://data.ccement.com/)
To sum up, Although the transformation of urban villages has become an important task of urban development in China in the next decade, due to the limited scope of policy coverage and the proportion of demolition and renovation, the pulling effect of individual policies on cement demand is weak, which is obviously less than that of the past period of shantytown renovation, and it is difficult to change the downward trend of national cement demand. In the long run, the core of the improvement of the contradiction between supply and demand in the cement industry still lies in substantial capacity reduction.
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