Charter Cities Basics

Because we often tell the story of Hong Kong’s success, the model of a charter city that comes to mind for many people is one in which the government from a developed country administers the rules in a zone hosted and populated by people in a less-developed country. Partnerships between developed and less-developed countries are certainly feasible, but there are many other possibilities. For example, Shenzhen is the dual to Hong Kong and another illustration of the potential for charter cities.

To get a better sense for the flexibility of the concept, it helps to keep the essential ingredients of a charter city in mind.

The creation of a charter city requires three basic elements that preserve the key dynamic of choice:

1. An uninhabited piece of city-sized land, provided voluntarily by a host government

• Only countries that want charter cities will voluntarily set aside land to establish them.

2. A charter that specifies the rules that will govern the new city

• The rules, such as those that foster long term investment and ensure the safety and security of residents, provide the framework on which the city can grow and prosper.
• The charter is a foundational legal document, not an exhaustive city plan. The world can support a range of urban development strategies. Some cities might follow a planned strategy similar to that of Haussmann’s rebuilding of Paris in the 19th century. Others might adopt minimal zoning and rely on the decentralized process of individual decisions celebrated by Jane Jacobs.

3. The freedom for would-be charter city residents to move in or out

• Only the people who want to live and work under these rules will move to the newly chartered city.

There are three basic roles that countries can assume when establishing a charter city:

1. Land comes from a host country
2. People come from a source country
3. The guarantee that the charter will be respected comes from a guarantor country

Once you recognize that a single nation can play more than one role and that the source nations need not necessarily be party to the agreement setting up the charter city, you can imagine many potential charter city arrangements. Here are a few of the many possibilities.

• One country could assume all three roles, much as China did in establishing special economic zones like the one where the new city of Shenzhen emerged.
• One country could serve as both the host and the guarantor and attract residents from a specific source country.
• One country could serve as both the host and primary source, but the role of guarantor could be filled by a consortium of countries.

Some nation or group of nations must ultimately act as the guarantor of any charter and any laws and regulations adopted under the terms of the charter. It’s worth considering a few points about this critical role:

• Many governments, including those at various levels of economic development are capable of providing credible guarantees, so the role of guarantor is not restricted to governments from advanced economies.
• The guarantor needn’t be the sole architect for the city’s charter either. In many cases, a city charter will benefit when all parties provide their unique perspective on the content of the charter. Because of this, no two charters will look exactly alike. What matters is that a credible party can guarantee that the new city’s charter will be enforced once an agreement is signed.
• In many cases, the role of guarantor will be temporary. For example, in cases where the host and guarantor are different, a charter could specify that, after a certain period, the city hold a referendum to determine whether to return to the control of the host.

With the three essential elements and the three national roles in mind we can frame and address a series of specific questions in subsequent blog posts:

• Why would the creation of charter cities like Hong Kong or Shenzhen speed up progress toward better rules?
• Which nation or group of nations might benefit from the creation of a charter city?
• What are the advantages and disadvantages of letting people migrate to charter cities as opposed to existing nations?