Paradises Lost

While investment in island projects boomed in 2003 and 2005, a lack of regulations, capital and environmental protections hindered their development. Often the government would shut them down. 　

On July 22, land authorities in Liaoning Province set development standards of islands for “tourism and entertainment” with land-use prices ranging between 3,700 and over 9 million yuan (US$535-1.3m) for one hectare per year.　

While the State retains ownership of the land, the islands are leased to private entities, generally on 50-year contracts.　

Applying for land-use rights for islands is complicated. According to regulations set by the Liaoning Provincial Department of Natural Resources (DNS), island type and usage are factored into the sale price. This includes an assessment of rare or endangered species and appraisal of fresh water, sand and other resources.　

In Liaoning, island usage falls into six categories. The greater the ecological impact on the island, the higher the price to transfer the land use rights. For example, a tourism project with minimal impact costs from 3,700 to 9,500 yuan (US$535-1,375) per hectare, while projects involving land reclamation or removal could cost between 7.27 million and 24.55 million yuan (US$1.05m-3.55m) per hectare. 　

Authorities have increased the prices for uninhabited islands in recent years. According to Liaoning DNS, this raises the threshold for investors as an environmental protection measure. 　

“The reason they’ve adjusted the cost is very clear; it focuses more on protection,” Cui Wanglai, a professor at Zhejiang Ocean University, told NewsChina. Cui said that pricing for uninhabited islands is similar among Chinese mainland coastal provinces, in step with the official policy for island purchases from the Ministry of Finance (MoF) and the State Oceanic Administration (SOA, now part of the Ministry of Natural Resources) in 2018. 　

According to the policy, provincial governments were required to fix purchasing price standards by the end of April 2019 and report them to the MoF and the SOA. However, many missed the deadline, including Liaoning. 　

While Liaoning’s new island transfer policy garnered media attention, it did not create the interest many in the industry expected. Lin Dong, founder of the China Island Owners Alliance, told NewsChina that after introducing provincial policies, hundreds of people consulted with him on island investments. But when Liaoning issued the policy, Lin said less than 10 people had expressed interest as of August.　

“Many people want to own an island, but as local governments set an invisible threshold, buying one becomes very difficult,” Lin said.　

In 2017, the city of Zhuhai, Guangdong Province listed Triangle Island for sale. Next to Hong Kong and Macao, the island quickly attracted potential private buyers. But Zhuhai Jiuzhou Holding Group, a local State-owned company, won the bid with a proposed investment of around 2.2 billion yuan (US$329m) and a development cycle of five years. 　

Lin told NewsChina that Zhuhai has sold off many of its most attractive islands. For example, local company Gree Real Estate acquired the sub-tropical and picturesque Miaowan Island in 2014.　

Lin said that most governments prefer to handle sales “internally.” For example, in Liaoning Province, issues like price appraisal, development requirements and land-use transfers to companies in other provinces are not specified.　

Due to the scarcity of island resources, local governments are often conservative about their use. According to Xu Wei, a researcher specializing in islands at the National Ocean Technology Center, China has 6,693 small, uninhabited islands, mainly along the coast of Zhejiang, Fujian and Guangdong provinces. “Although China has a significant number of islands, few are really suited for development,” Xu said. “China only has 69 uninhabited islands larger than one square kilometer, and the rest are too small to have any development value unless they are close to the mainland.” 　

“Some governments have raised the threshold in recent years as they know that islands with the best resources will sell first, while the rest become less and less attractive,” Lin Dong said. 

To address these issues, China allowed market-oriented land transfers, which Cui said reflect the real value of an island. “Just like a city’s land prices can vary, the price for uninhabited islands with similar natural assets vary between Liaoning and Zhejiang provinces.”　

Liaoning in the north has a harsh winter climate, while prosperous Zhejiang, south of the Yangtze River and near Shanghai, is much hotter for longer. 　

However, these transfer policies have had little effect. Last year, Guangdong announced it would pilot market-oriented transfers for uninhabited islands and streamline the approval process. But an employee from Guangdong DNS told NewsChina that they have not used it. “The announcement is just a reference for future island purchases and operations,” said the employee, who requested anonymity. 　

In 2002, the State implemented its marine development strategy. The following year, the Regulations on the Protection and Utilization of Non-resident Islands went into effect, which for the first time allowed individuals and private companies to develop uninhabited islands on 50-year leases. The regulation triggered an upsurge in development.　

According to statistics, China has around 6,500 islands with an area of over 500 square meters. Only 433 are inhabited. However, uninhabited islands of less than 500 square meters number in the tens of thousands.　

The policy brought domestic and foreign investment into uninhabited islands along the coast. However, the boom came with serious problems. Some developers leveled mountains or removed islands altogether. Between 2000 and 2010, over 200 islands disappeared from the coast of Zhejiang.　

Unregulated development came to an abrupt halt in 2005 when Zhejiang required potential island developers to submit their plans to the provincial government for approval. Two years later, Zhejiang stopped approving projects.　

In 2010, the State issued the Island 　

Protection Act, which defines the ownership and management rights of uninhabited islands. In June of that year, the State also issued the Administrative Measures on the Purchasing Price for the Use of Non-resident Islands, which set up the system for uninhabited island leases. 　

In 2011, the former State Oceanic Administration published a list of the first 176 uninhabited islands eligible for development. The islands, in Guangdong, Zhejiang and Liaoning, have 50-year leases. Applications from foreigners and foreign-funded enterprises must be submitted to the State Council for approval. 　

The policy ushered in a new round of investments. In November 2011, the city of Ningbo in Zhejiang held an open auction for Dayangyu Island, the first for any Chinese city. The winning bid of 20 million yuan (US$2.17m) came from Yang Weihua, general manager of Ningbo Gaobao Investment. Yang said she wanted to develop the island into a luxury resort and yacht club. 　

Yang underestimated the difficulty of developing an island. The environmental assessment of the Dayangyu Island project was lengthy and involved every level of government from county to central. During an interview with the Shandong-based Bandao News, Yang said: “There have been repeated expert reviews, and oceanic data collection and monitoring is very time-consuming.”　

Costs can quickly spiral out of control, as building materials must be transported from the mainland. Bao Xiwei, then deputy director of the Marine and Fisheries Bureau of Xiangshan County, which administers the island, told Bandao News in 2015 that construction costs are at least three times higher on islands compared to the mainland. Setting up utilities, sewage systems and access roads could take tens of millions of yuan in investment before building a single structure.　

Soon, the Dayangyu Island project hit dire straits. “Local governments wanted the company to invest 500 million yuan (US$72.35m), but the shareholders’ total investment only amounted to 100 million yuan (US$14.47m). How could they make those investments?” Lin Dong said. 　

Many investors rushed into buying an island not only to get caught in a financial quagmire but also burden local governments.　

Industry insiders warn that developers unprepared for the high up-front investment, environmental impact mitigation, construction setbacks and long-term recouping of investments are doomed to failure.　

“It is a common phenomenon for local governments and the central government to bargain back and forth for the island,” Cui said. 　

Six years after the 2011 Island Protection Law went into effect, 26 uninhabited islands were licensed for sale. However, according to Xu Wei’s research, around 3,000 uninhabited islands have been developed. “So far, many of these islands haven’t been incorporated into the management structures of the Island Protection Law.”　

There are also tensions between developers and local governments. Cui said that a major issue is paying for infrastructure. Investors push governments for basic infrastructure such as utilities and roads, but often they cannot afford it.　

In his paper on uninhabited island development, Professor Wang Qi from the School of Law and Politics at the Ocean University of China in Qingdao, Shandong Province, outlines two development models: the “Maldives model,” which allows private companies to lease islands and build hotels and resorts, and the “cooperation model” between enterprises and governments, such as in 2004 when a Taiwanese investor and a local government invested over 300 million yuan (US$43.9m) to develop Fangji Island in Guangdong. 　

Enterprises often encounter difficulties, Cui said, as the management of non-residential islands in China involves multiple government departments.　

Wang said that different bureaus handle the development rights, investment, planning and construction. The Maldives model requires unified coordination to provide a green channel for private investment and a long-term incentive mechanism, Wang said. 　

During their interviews with NewsChina, most industry insiders said that without guarantees for land-use rights and established systems for transfers and mortgages, developing uninhabited islands remains an impractical dream.