Vietnam Urbanization Review - Full Report

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November 2011

VietnamUrbanizationReviewechnical Assistance Report


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iiiVIENAM URBANIZAION REVIEWAcknowledgements

AcknowledgementsTe World Banks Vietnam Urbanization Review was led by Dean Cira, and prepared by acore team consisting o Arish Dastur, Henry Jewell, Austin Kilroy, Nancy Lozano, HuyenTi Phuong Phan, and Hyoung Gun Wang. Te team benefted rom the strategic guidance

provided by Stephen Karam and Somik Lall.

Songsu Choi, Shomik Raj Mehndiratta and aimur Samad were the peer reviewers o thereport, and the team also received inputs and suggestions rom James Anderson, Andre Bald,Luis Blancas, Christian Bodewig, Alexander V. Danilenko, Moustaa Baher El-Henawy,Tomas Farole, Demilour Reyes Ignacio, Steven Jaee, Markus Kostner, Valerie Kozel, TanhTi Mai, Marilyn olosa Martinez, Daniel Mont, Dzung Te Nguyen, Nga Nguyet Nguyen,Hoa Ti Mong Pham, Duc Minh Pham, Martin Rama, Van Anh Ti ran, Paul Vallely, VictorVergara and Choong Yeol Ye. Te report was edited by Chris Rodrigo.

Giang Ti Huong Nguyen and Hien Minh Vu provided excellent logistical support to theteam.

World Bank management provided valuable guidance throughout the process, and the teamis particularly thankul or the support provided by, Victoria Kwakwa, John Roome, JennierSara, Vijay Jagannathan and Victor Vergara in the East Asia and Pacifc Region and to ZoubidaAllaoua and Abha Joshi-Ghani rom the Banks Finance, Economics and Urban DevelopmentUnit.

Te consultants and frms that helped prepare background reports or this work are AlainBertaud, Etude Economique Conseil, Quang Minh Consulting, Mekong Economics, andUrban Solutions.

Te World Bank is grateul to the ollowing development partners or so generously sharingtheir inormation with the team: ADB, AFD, DFID, GIZ, JICA, KW, UNDP and UN

Habitat.Te Vietnam Urban Review has been inormed and enriched through extensive and valuablediscussions with the Government o Vietnam. Te World Bank team would like to thankMinistry o Planning and Investment, Ministry o Finance, Ministry o Construction,Ministry o Natural Resources and Environment, Ministry o ransport, Vietnam Institute oArchitecture, Urban and Rural Planning, Vietnam Academy o Social Sciences, as well as the


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iv VIENAM URBANIZAION REVIEWAcknowledgements

Provincial Governments (and the Departments, Universities and Institutes) o Ho Chi MinchCity, Hanoi and Da Nang or their support in making this report possible.

Te Vietnam Urban Review was supported by generous co-unding rom the Cities Alliance.

WORLD BANK

Disclaimer

Te views expressed in this publication are those o the

authors and not necessarily those o the Cities Alliance

Disclaimer

Tis volume is a product o the sta o the World

Bank. Te fndings, interpretations and conclusionsexpressed herein do not necessarily reect the views othe Board o Executive Directors o the World Bank orthe governments they represent.


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vVIENAM URBANIZAION REVIEWable o Contents

Executive Summary XV

Chapter 1: Vietnams Evolving Urban System 1

Chapter 2: Connecting Vietnams Urban Portolio 69

Chapter 3: Urban Expansion and Spatial Development in 113Vietnams Cities

Chapter 4: Access to Basic Services 189

Chapter 5: Policy Considerations and Options or Further 223Analysis

able o Contents


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vi VIENAM URBANIZAION REVIEWables, Boxes and Figures

ables, Boxes and FiguresABLESable 1.1: Government Policies to Control and Guide Urban Development in Vietnam 4

able 1.2: Changing Economic Structure in Vietnam 7

able 1.3: Proportion o Urban Population and Economic Power by City Class (2009) 11able 1.4: Change in Urban Classifcation 1999-2009 12

able 1.5: Distribution o Cities across Classes and Regions 2009 14

able 1.6: Average City Size in 2009 and Between 1999-2009, by Region 16

able 1.7: Average City Size in 2009 and City Growth (1999-2009), By City Class 16

able 1.8: Average City Size in 2009 and City Growth (1999-2009) by Region 17and City Class

able 1.9: City Population Statistics in 2009 and Changes (1999-2009) rom Regions 22

able1.10: City Population Statistics in 2009 and Changes (1999-2009) by City Class 23able 1.11: Employment Structure, by Region and Activity 26

able 1.12: Employment Structure, by City Class 27

able 1.13: Employment Structure, by Distance Quintiles rom Hanoi 28

able 1.14: Employment Structure, by Distance Quintiles rom HCMC 29

able 1.15: Rising Manuacturing Sophistication in Vietnam (1999-2009) 35

able 1.16: Manuacturing Specialization by Region 38

able 1.17: Manuacturing Specialization by City Class 39able 1.18: Manuacturing Specialization by Distance rom Hanoi 40

able 1.19: Manuacturing Specialization by Distance rom HCMC 41

able 1.20: Regional Character o Manuacturing (2009) 44

able 1.21: Number o Industrial Zones by Province 49


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viiVIENAM URBANIZAION REVIEWables, Boxes and Figures

able 1.22: Average Income (GDP per capita in millions o VND) by Region 50

able 1.23: Average Income (GDP per capita in million o NVD) by City Class 52

able 1.24: Educational Attainment by Region and City Class 53

able 1.25: Poverty Incidence by Region 53

able 1.26: Poverty Incidence by City Class 54

able 1.27: Poverty Distribution (national share) by Region 56

able 1.28: Poverty Distribution (national share) by City Class 56

able 1.29: Housing Conditions and Basic Service Provision by Region 57

able 1.30: Housing Conditions and Basic Service Provision by City Class 58

able 2.1: Modal Share by Commodity, 2008 (ton/day) 73

able 2.2: Freight ransportation Volume (ton/day) by rip Distance, 2008 75

able 2.3: A Projection o Modal Shares o Freight ransportation, 2008-2030 78

able 2.4: ransport Inrastructure Investments, 1999-2007 79

able 2.5: Road Improvements in Vietnam, 1999-2007 80

able 2.6: Specifcs o World Bank-EEC Survey Data Points 81

able 2.7: Te rucking Survey Sample Structure 83

able 2.8: Freight Movements by City Class and by Region 84

able 2.9: Main Obstacles to Inter-City rucking Operations by City Class, Region 87and Freight Movements

able 2.10: Haulage Characteristics by City Class, Region and Freight Movements 88

able 2.11: ransport Price and Cost Structure by City Class, Region and Freight 92

Movements

able 2.12: Correlation Coecient Matrix o Key Indicators o Inter-City ransportation 93

able 2.13: Unit Freight ransport Price (per ton-km) by ransportation Mode in 95Comparator Countries

able 2.14: Haulage Characteristics, by City Class and rip Distance 100

able 2.15: ransport Price and Cost Structure, by City Class and rip Distance 101

able 2.16: Factors Determining rucking Prices o Inter-City Freight Movements 103

able 2.17: South Koreas ransportation Policies at Dierent Stages o Urbanization 107


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viii VIENAM URBANIZAION REVIEWables, Boxes and Figures

able 3.1: Expansion o Housing acilities in Vietnam 125

able 3.2: Hanoi ransportation Modal Split (2008) 134

able 3.3: Forecast GDP, Car Ownership, rac Composition, Road Capacity and 145Vehicles Speeds in Da Nang

able 3.4: Land Use Parameters and ransit Features in HCMC, Seoul and Singapore 150

able 3.5: Actual Land Use Patterns in Hanoi 152

able 3.6: Payment Structure in Vietnams Residential Housing Markets 159

able 3.7: World Ranking o Regulations on Construction Permits and Property 160Registrations

able 3.8: Recent Improvements in Land Use Right Certifcate System in Vietnam 165able 3.9: Possession o Red Book Land Use Right Certifcate 165

able 3.10: ime Needed or Land Use Right Approval in Five Selected Cities 167

able 3.11: Land Use Changes in Residential Land 168

able 3.12: Land Use Changes o Residential Land in Urban Fringe 169

able 3.13: Industrial Zones in Six Selected Provinces 173

able 3.14: Spatially Fragmented Planning 178

able 4.1: ax Revenues and ransers 2010 201able 4.2: Revenue rom Land or Major City-Centered Provinces 205

able 4.3: Electricity Expenditures as Percentage o otal Household Cash Expenditures 209

able 4.4: Electricity Rates in Vietnam Comparison with Other Countries 210

BOXESBox 1.1: Socioeconomic Development Strategy or the Period 2011-2020 7

Box 1.2: Criteria to be Considered Urban 12

Box 1.3: Urbanization Patterns in South Korea 19

Box 1.4: Decentralization in Vietnam 20

Box 1.5: Te Evolving Role o HCMC and Vietnams Economic Gateway 32

Box 1.6: South Koreas Experience with Spatial Evolution o Manuacturing Activities 33


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ixVIENAM URBANIZAION REVIEWables, Boxes and Figures

Box 1.7: Industrial Specialization across City Size (India, China, Brazil and US) 36

Box 1.8: Indias Industrial Specialization, by Manuacturing technology and Distance 47

rom Seven Largest CitiesBox 1.9: Special Economic Zones in Vietnam 47

Box 1.10: South Koreas Experience in Urbanization Process 61

Box 2.1: ransport Inrastructure by Sector 71

Box 2.2: Freight ransport Cost Structure by Mode and by Distance (India) 76

Box 2.3: Indias ransport Costs or Inter-City rucking Movements in 2010 94

Box 2.4: Regulatory Reorms in Road Freight (OECD Countries, Mexico and South 105Korea)

Box 3.1: Neighborhood Upgrading in HCMC 124

Box 3.2: ransmilenio in Bogot, Colombia 142

Box 3.3: Vietnams wo-iered Land Price System 153

Box 3.4: Sources or Market Prices in Real Estate in Vietnam 156

Box 3.5: Te Challenges o New owns 174

Box 3.6: Experiences o Land Pooling and Land Readjustment 175

Box 3.7: Te Philippines Attempts and Regionalization 179

Box 4.1: How Vietnam Achieved High Rates o Electrifcation 193

Box 4.2: Water Utilities Data 195

Box 4.3: Decentralization o Public Investment 201

Box 4.4: Governance Challenges in the Electricity Sector 217

Box 4.5: Lessons rom Water Utility Reorm in Cambodia 216

Box 4.6: A Brie Note on Education in Vietnam 216

Box 4.7: Municipal Development Funds as an Alternative Source o Financing or 218

Basic Services

FIGURESFigure 1.1: Vietnams Urbanization and Economic Growth 6

Figure 1.2: Analytical Framework: Five ransitions (or shis) 8


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x VIENAM URBANIZAION REVIEWables, Boxes and Figures

Figure 1.3: Vietnams Regional and Urban Administrative Hierarchy 10

Figure 1.4: Te Rank-size Distribution o Vietnamese Cites 15

Figure 1.5: Spatial Profles o Urban Population Changes between 1999-2009 18

Figure 1.6: Expansion o City Boundaries between 1999-2009 24

Figure 1.7: Population Density in 2009 and Urban Land Changes (1999-2009) 25

Figure 1.8: Location Quotient per Sector 30

Figure 1.9: Location Quotient o Manuacturing Subsectors 42

Figure 1.10: Manuacturing Specialization (location quotient) Distance rom Hanoi vs. 45HCMC

Figure 1.11: Average Income Profle in 2009 51Figure 1.12: Changes in Poverty Incidence between 1999-2009 55

Figure 1.13: Profle o Public Service Provision in 2009 59

Figure 2.1: Modal Share o Other Countries (%, ton) 74

Figure 2.2: Distribution o Inter-Provincial Freight Movements, Projected 2008 77

Figure 2.3: Location o Origin o Cities in the rucking Survey 82

Figure 2.4: Inter-City Freight Networks in a Broader Context 85

Figure 2.5: Main Obstacles to Inter-City rucking Operations 86Figure 2.6: ransport Price and Yearly Mileage by City Class, Region and Freight 91

Movement

Figure 2.7: International Comparison o Unit Freight ransport Price per ton-km, by 95Roads

Figure 2.8: Factors Causing Idle ime during rips, by City Class, Region and Freight 96Movement ype

Figure 2.9: ransport Price and Yearly Mileage, by City Class and rip Distance 99

Figure 2.10: Unit rucking Price per ton-km by a rucks Mileage, One rip Distance 102and ruck Size

Figure 3.1: Household Incomes Distribution in Hanoi and HCMC 115

Figure 3.2: Housing ypology and Household Income in HCMC 116

Figure 3.3: Process o Subdivision in Da Nang 117

Figure 3.4: Urbanization Process along Hoang Van Tai Road 2002-2010 118


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xiVIENAM URBANIZAION REVIEWables, Boxes and Figures

Figure 3.5: Estimated Distribution o Housing Processes per Sq. Meter in Da Nang 119

Figure 3.6: Example o ube House Pattern in Hanoi 120

Figure 3.7: Comparative Population Densities in Built-up Areas o Hanoi 121

Figure 3.8: Number o Housing Units Launched per Year in Hanoi 122

Figure 3.9: Number o Registered Vehicles in Vietnam, 1997-2009 128

Figure 3.10: Higher Incomes Lead to Increased Vehicle Ownership 128

Figure 3.11: Number and Severity o rac Accidents in Vietnam 1992-2009 129

Figure 3.12: Road Space required by 50 People (cars, Motorcycles, bus) 130

Figure 3.13: Map o Hanoi Built-up Densities, 2009 131

Figure 3.14: Population Density Gradients in Hanoi and Selected Cities 132

Figure 3.15: Comparison o Road Density in Hanoi, Bangkok, New York and Seoul 133

Figure 3.16: Street Area per Person at Various Residential Densities across the World 134

Figure 3.17: Relationship between Density and Road Areas in Neighborhoods 135o Selected Cities

Figure 3.18: Catchment Areas o 25 Stations o Hanois Projected Mass ransit System 136

Figure 3.19: Comparison o Radial (Singapore) and Grid (Seoul) Mass ransit Systems 137

Figure 3.20: Actual Land Use Patterns in Da Nang 139Figure 3.21: Real Population Densities in Da Nangs built up Areas 140

Figure 3.22: Population Density Gradient in Da Nang 141

Figure 3.23: Estimated Distribution o Housing Prices in Da Nang 141

Figure 3.24: Projected BR Routes in Da Nang 144

Figure 3.25: Population Densities in HCMC 146

Figure 3.26: Profle o Built Up Densities in HCMC 147

Figure 3.27: Te Planned ransit System o HCMC 148Figure 3.28: Te ransit System o HCMC Compared with Seoul and Singapore 149

Figure 3.29: Actual Land Use Patterns in Hanoi 152

Figure 3.30: Monthly Apartment Rents in Vietnam (2008-09) 155

Figure 3.31: Advertised Monthly Residential Rents in Hanoi (Feb. 2011) 157


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xii VIENAM URBANIZAION REVIEWables, Boxes and Figures

Figure 3.32: Advertised Monthly Residential Rents in HCMC (Feb. 2011) 157

Figure 3.33: Vacant Land Prices in Hanoi (2011) 158

Figure 3.34: Vacant Land Prices in HCMC (2011) 158

Figure 3.35: Vietnam Slips Down the Rankings i De Factor Measure are used 162

Figure 3.36: Access to Land and Security o enure between Provinces 163

Figure 3.37: Responses to Access to Land Viewed as Problem or Business Operations 164

Figure 3.38: Access to Land Relative to Inormal Practices and Workorce Education 170

Figure 3.39: Hanoi Capital Construction Master Plan to 2030 172

Figure 4.1: Reducing Disparity o Access to Basic Services South Koreas Case 191

Figure 4.2: Access to Electricity in Vietnam over the Past Fieen Years 192

Figure 4.3: Urban and Rural and Regional Electricity Access Rates 193

Figure 4.4: Urbanization and Water Supply Coverage 195

Figure 4.5: Convergence o Living Standards Colombia and Vietnam 196

Figure 4.6: Water Supply Reliability by City Size 197

Figure 4.7: Access to Sanitation in Urban and Rural Areas (1999 and 2009) 198

Figure 4.8: Access to Sanitation by City Class 199

Figure 4.9: Four Levels o Government in Vietnam 200

Figure 4.10: Water aris Compared to O&M and Debt Service by City Class 210

Figure 4.11: Average Water ari Aordability 213

Figure 4.12: Unaccounted or Water by City Class 214

Figure 4.13: Sta per Connection or Water Utilities by City Class 215

Figure 4.14: Pipe Breaks per Year by City Class 215

Figure 4.15 Net enrollment rates by general education level across regions (2008) 217

Figure 4.16 Ratio o state budgets contributed to education: 2000-2008 218


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xiiiVIENAM URBANIZAION REVIEWSelected Abbreviations and Acronyms

Selected Abbreviations andAcronyms

ADB Asian Development Bank

AFD Agence Francaise de Developpement

CBD Central Business DistrictDFID Department or International Development (United Kingdom)

DSI Development Strategy Institute

EZ Economic Zones

FAR Floor Area Ratio

GDP Gross Domestic Product

GIS Geographic Inormation Systems

GIZ Gesellescha ur Internationale ZusammenarbeitGSO Government Statistics Oce

HCMC Ho Chi Minh City

HCCMP Hanoi Capital Construction Master Plan

HZ High echnology Zones

IBNE International Benchmarking Network o Water and Sanitation Utilities

IC Industrial Clusters

IZ Industrial and Processing ZonesJICA Japan International Cooperation Agency

KW Kredistalt ur Wiederaubrau

L Location Quotient

LURC Land Use Registration Certifcate


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xiv VIENAM URBANIZAION REVIEWSelected Abbreviations and Acronyms

MOC Ministry o Construction

MONRE Ministry o Natural Resources and Environment

MO Ministry o ransport

MPI Ministry o Planning and Investment

MRD Mekong River Delta

NH-1 National Highway No. 1

O-D Origin and Destination

O&M Operations and Maintenance

SDS ransport Sector Development Strategy

UNDP United Nations Development Program

UFW Unaccounted or Water

VDR Vietnam Development Report

VIRANSS-2 Comprehensive Study on Sustainable Development o the ransport Systemin Vietnam

VND Vietnam Dong (Currency)


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xvVIENAM URBANIZAION REVIEWExecutive Summary

Executive SummaryVietnam will have only one chance to get urbanization right. I we ail at urbanization, wewill ail at industrialization and modernization. -- Deputy Prime Minister Nguyen SinhHung, speaking at the Vietnam National Urban Conerence, November 6th-7th, 2009.

IntroductionAs Vietnam enters a crucial period o urbanization corresponding to its present stage o economicdevelopment, the Government o Vietnam has placed strong emphasis on developing its systemo cities. Tis commitment is explicitly stated in the above statement by Deputy Prime MinisterNguyen Sinh Hung. In accordance with this objective this Urbanization Review is dedicatedto understanding the key dimensions and aspects o Vietnams urbanization process and toidentiying trends, opportunities, challenges and core policy priorities that the government

will need to address in order to realize its objective.

Te Vietnam Urbanization Review was prepared ollowing extensive consultations with various

stakeholders, including ocials rom national and local government, private sector groups andinternational and bilateral organizations active in development assistance in the urban sectorin Vietnam. It builds on a strong portolio o World Bank engagements in investment and

policy lending to the Government o Vietnam. It also builds on a number o more in-depthstudies that were commissioned specifcally or the Vietnam Urbanization Review. Te WorldBank is carrying out Urbanization Reviews or a number o countries, but Vietnam is one othe frst or which this comprehensive analysis is being developed.

Chapter 1 o this review analyzes how Vietnams urban system is evolving along fve transitions:administrative; demographic; economic; physical; and welare. Te shis taking place alongthese dimensions are o-course interrelated, and provide a good point o departure to the

overall analysis. Te Urbanization Review then ocuses on understanding in more detail somecore areas o priority or Vietnam, building on prior analysis and the extensive consultationsthe team undertook in the preparation o this report. Tese chapters are: connecting Vietnamsurban portolio (Chapter 2); urban expansion and spatial development in Vietnams cities(Chapter 3); and basic urban services (Chapter 4). Tese are reerred to as the core diagnostics.It is hoped, that this work will provide a uller understanding o the basic elements o Vietnamsurbanization process, shed some light on the challenges it is acing and identiy areas or urther


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xvi VIENAM URBANIZAION REVIEWExecutive Summary

analysis that will aid policy makers in addressing these challenges. Some areas or urtherconsideration and inquiry are presented in the fnal chapter o the Review (Chapter 5).

Principal Messages o the Vietnam Urbanization Review

Vietnams Evolving Urban SystemChapter 1 considers how Vietnams urban system is evolving. Tis analysis is done byconsidering fve transitions across the entire urban system. Te fve transitions or shisconsist o administrative, physical, economic, demographic, and welare changes across theentire Vietnam urban system. Te frst one, the administrative transition, reers to how theoverarching policies, institutional and management practices central to urbanization (as well

as issues like the decentralization agenda), critically inuence the other our transitions. One oits components, the classifcation o cities, constitutes a major area o ocus in this chapter. Tephysical transition, examines urbanization in a spatial dimension, and ocuses on changesto land use as urbanization takes place. Te economic transition examines the nature andtransormations o economic activity driving urbanization and is oen a driver o the othertransitions. Te demographic transition describes the socioeconomic changes brought aboutby Vietnams economic and spatial transormation (and vice versa). Te welare transitioncorrelated with the economic changes as well as the physical, administrative and demographicchangeswould indicate whether Vietnams urbanization trajectory has improved the well-being o its population, particularly the most vulnerable populations.

Understanding these transitions is important or developing the right policies that will allowVietnam to maximize the benefts rom its ongoing urban transormation.

Since the 1986 Doi Moi reorms, Vietnams urban population has begun to grow. Te reviewindicates that Vietnam is in an incipient stage o urbanization transitioning to an intermediatestage with rapid urbanization (currently 30% urban with 3.4% urban population growth per

year) with an increasing economic transition toward industrial manuacturing as a share oboth employment and economic output. Population growth in the past ten years has beenastest in Vietnams largest cities o Hanoi and HCMC, their surrounding regions and in somemedium sized cities. With ew exceptions, small cities grew the least or lost population.

Vietnam has developed two independent and dominant core-periphery urban systems:Ho Chi Minh City and Hanoi. Vietnams rapid economic growth is driven by these twourban systems with high growth and industrial concentration within these cities and theirsurrounding areas. Te fnding that economic growth is led by a single or a ew core economicnodes is consistent with the experience o other rapidly developing countries in incipient orintermediate stages o urbanization.While growth is concentrated in these two core urbansystems, Hanoi and Ho Chi Minh City maniest dierent economic growth trajectories


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driven by dierent conditions o economic geography.

Ho Chi Minh City and the Southeast region host nearly hal (45%) o overall manuacturingproduction. Heavy and ast growing (higher tech) manuacturing activity is more intense in theHanoi and the Red River Delta Region than in HCMC and the Southeast Region (55% and39%, respectively). Industrialization is rapidly progressing in Hanoi and the Red River Deltaregion due to its proximity to the massive industrial bases in South China. But it appears thatHCMC and the Southeast Region show some signs o saturation in production o low value-added products. Despite that, the rapidly expanding container handling capacity in the deep-

water port near HCMC is creating an installed capacity that will be larger than Singaporesentire current throughput by 2015. Already, or the frst time in the countrys history, this portis connecting Vietnam with Western Europe and North America via direct ocean services.Tese dierences in economic and strategic profles have important implications or policy

makers.While economic development is concentrated in the two core metropolitan regions o HCMCand Hanoi, as is to be expected, welare improvements have been more widespread. Overall,there appears to be strong convergence o welare across provinces; this steady distributiono welare improvement is mainly driven by sustained and strong government commitmentto inclusive social development. It is underpinned economically by the strong growtho core metropolitan cities and ensuing positive spillover to the hinterlands. But theseimprovements must be interpreted with caution. Tere remain disparities in access to andquality o services provided; urther there are areas o persistent poverty in Vietnam. Vietnam,like many countries is moving rom incipient to intermediate stages o urbanization and romlower to middle income levels: it needs thereore to consider not only access, but quality andreliability o basic services.

Connecting Vietnams Urban PortolioChapter 2 considers the connectivity o the urban portolio. Rooted in a broader understandingo agglomeration economies and economic geography theory, this chapter primarily ocuses onconnective inrastructure as it relates to reight movement in Vietnams urban system.

Te chapter begins by looking at the modal split o reight transportation across the country. Itreveals that the two dominant modes o reight transport are inland waterways with 48%, and

roads with 45%. Te bulk o manuactured goods (88%) are transported by roads, while mostheavy raw materials, such as construction materials (73%) and coal (79%), are shipped usinginland waterways.

Rail reight is relatively weak at 1.9% and coastal reight which is the dominant mode orlonger trips (over 1000 km, particularly 1400km-1600km) is responsible or 4.4% o reightmovement. Te dominance o short distance reight transportation trips o less than 200km


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distance is quite signifcant: 87% o all reight movement takes place within 200km, with 98%o all inland waterway movement taking place within 200km and 73% o road movement

within 100km. Tis can be partly explained by the act that 60% o the reight movement othe economic centers is intra-regional.

Inter-city reight movements confrm the dominance o the two urban systems o HoChi Minh City and Hanoi. However, these two regions are limiting their competitiveadvantage on account o logistics bottlenecks and disproportionately high transport costs.Improving urban road and inrastructure conditions would be priorities in HCMC, Hanoiand their economic regions. Clearly investments in spatially connective logistic inrastructureare needed to sustain these engines o economic growth. But improving inrastructure is notsucient. As is detailed in Chapter 2, reorms to reduce inormal payments and corruptionin the sector are needed to reduce costs, especially in the southeast, and urther reorms in the

trucking industry must also be made to improve eciency. Freight transport costs in HCMCand Hanoi regions can be reduced by 57% and 67%, respectively, i their unit costs are reducedto levels o Class 1 cities.

Urban Expansion and Spatial Development in Vietnams CitiesChapter 3 examines the processes o urban expansion and spatial development in Vietnamesecities. It starts out by looking at housing, ollowed by an examination o urban orm andmobility in the cities o Hanoi, Ho Chi Minh and Da Nang. While Vietnam has done wellon some o the issues, there are some important elements that need to be addressed to ensurethat achievements can be sustained by Vietnamese cities as they move on to the next stage o

challenges with higher levels o urbanization. Te chapter then looks into land and real estatemarkets and the urban planning process. Land markets and urban planning are critical actorsin helping urban economies to unction eciently and equitably, and the chapter providessome initial suggestions or strengthening the approaches currently prevalent in Vietnam.

By and large Vietnamese cities have managed to enable a pluralistic supply o housingto meet the needs o dierent segments. It seems that much o the demand or housing inVietnam, especially or low income groups, is and will be met in the ollowing ways.

1) Small contractors constructing traditional townhouses where land is available within the

city or in its immediate periphery,2) Government acilitated densifcation through the extension o the road network to

integrate ormer villages close to the city.

3) Te incremental upgrading and maintenance o the existing housing stock by individuals(including the increase in FAR by vertical extension), and the upgrading o inrastructureand services by the Government.


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xixVIENAM URBANIZAION REVIEWExecutive Summary

As a lower-income and rapidly urbanizing country, Vietnam has very ew urban slums. Someo the reasons or this are discussed in Chapter 3. Tis outcome is particularly striking when

compared with cities in countries which have even higher incomes such as India, the Philippines,Indonesia, and Brazil to mention a ew.

Vietnams cities still enjoy relatively good urban mobility, due in large part to the ollowingeatures.

1) Te nearly universal use o the motorcycles as the primary means o transportation;

2) Te characteristic mixed land use neighborhoods o Vietnamese cities (which result in theclose proximity o many o the day-to-day trips individuals typically make).

3) Te prevalence o shop-houses, where many people live in the space above or behind theirstores.

Te above picture is changing rapidly with the increase in the usage o cars in cities. Telogistical inrastructure o the largest cities o Hanoi and HCMC are not capable o sustainingextended use o motor-cars as the major means o transportation; indeed, increased car use

would eventually lead to gridlock. With car ownership on the rise, and the benefts o plannedtransit systems 10-15 years away, a major challenge will be to slow down the transition toautomobiles.

While there are plans or public transport systems in most major cities, a nearly universalpreerence or personal transport will run counter to plans or such urban transit systems.Tis is why public transport options should be designed as a part o a system that together withmotorcycle trips will compete in overall cost and convenience to the car. In addition, plannedtransit systems will have to take into account market driven and evolving land use patterns incities. Te increasingly polycentric layout o the countrys large cities o Hanoi and HCMCmight require the public transit options to be designed as a grid-like mass transit network oa longer total length than radial routes alone, and/or that they should include investments ineeder routes.

Land markets in Vietnam reect some o the deeper issues with land management and

governance. For instance the huge discrepancies between the Governments set price or landand the market price (which is oen 10 times higher than the set price) - is a cause or largedistortions and bottlenecks in the land market. Tis two-price system can transer huge valuesand benefts to developers (oen SOEs), investors and speculators. Also, since land allocations,

joint venture deals, taxes, concessions and permissions or developers and investors are basedon artifcially deated land values the Government is signifcantly oreiting the creation o

public beneft by undervaluing one o its most valuable assets. Also, as the amount o land tiedup in conict rises, a supply bottleneck is created which urther increases the market price or


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land and housing a urther distortion in the market. Further, the artifcially lower priced landstimulates a prolieration o land sales that contributes to rapid urban sprawl and the high

inrastructure ineciencies and capital costs associated with it.An initial review o real estate prices in Hanoi and Ho Chi Minh City suggest that pricesare rather high when compared with comparator cities in Asia. At the urban ringe, vacantland prices are roughly $500/m2 and above in both cities, but closer to the center, vacant land

prices are ar higher in Hanoi than in HCMC: as much as $7,000/m2 or $8,000/m2 in Hanoi,but more like $4,000/m2 in HCMC. An interesting fnding is that vacant land exhibits pricesthat approach almost 1,000 times the monthly rent or housing at the same location. In other

words, vacant land is priced at around 80 years worth o monthly rent. Tis is an unusually largedierence, and suggests that vacant land prices reect a strong expectation o increased rents orresale values in the uture, in order to pay o such high initial investmentsand perhaps also a

lack o other options or storing wealth. At the same time strong government rental subsidiesto a segment o the rental market probably brings down the average o the rental price. Tesenumbers suggest that perhaps only 5% o the population in Hanoi can aord to buy propertiesat these inated prices.

Land and real estate market regulations appear to be improving but there are still moreessential improvements to be made. Enterprise Survey data rom two large surveys oVietnamese frms conducted in 2005 and in 2009 indicates a substantial improvement infrms rating o their ability to access land. Access to land remains rather more problematicin the Red River Delta than elsewhere, but overall has improved dramatically in all regions oVietnam. It is a Severe Obstacle to doing business or ar ewer frms in 2009 than it was in

2005, and though it remains a Major Obstacle or a substantial proportion o frms, the trendis defnitely one o improvement.

Te urban planning system in Vietnam has two undamental areas where it can bestrengthened. Te frst is that the prevalent master planning approach in Vietnam is notevidence based and can be signifcantly strengthened to more accurately respond to thedimensions and locations o demand and o market orces. Te second is that like in many othercountries, the planning system is ragmented and silo based, without adequate integration andcoordination across either unctional or spatial jurisdictions. Tese are both very importantareas to address especially as the eciency o the urban orm and the benefts o long-termeconomic agglomeration will strongly depend on the extent to which these defciencies in theurban planning system can be addressed.

Tere are signs that provinces are now moving toward the riskier and more expensiveapproach o new towns, and to high-end and iconic real estate projects that are not basedon an integrated urban strategy that actors in market demand and long-term costs andbenefts. Since land sales oen comprises one o the largest sources o revenue or provinces,and since increase in administrative boundaries and urban land push a city higher up in the


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xxiVIENAM URBANIZAION REVIEWExecutive Summary

Governments urban hierarchy there is an incentive to sell land and expand outward (evenwhen there is no clear demand). Tis phenomenon is likely to be an important reason in

explaining Vietnams ast expansion o cities outwards.Basic Urban ServicesChapter 4 provides a general view o the state o access to basic services in Vietnam, and looksinto issues o service quality as well. It also looks into aspects o how basic service provision isfnanced in Vietnam.

Vietnam has achieved about 96% access to electrical power supply, an achievement that ishighly commendable or a developing country; however access to other basics services suchas water and sanitation still remain at lower levels. While Vietnam has also done a remarkable

job increasing access to water in urban areas in the last ten years, access is still not universal;Data rom 65 utility companies show that only 12 percent o households in the area coveredby the companies had access to the water network in 2002. By 2007 more than 70 percent othe population in the area was connected. However, there is still much to be done in extendingaccess to water throughout the nation. Tere have been strong improvements in sanitationaccess as well over the years. From low levels around 17 percent in 1999, more than 67 percento households in urban areas had access to a toilet in 2009. While rising rom a very low 13

percent, rural areas still lag typical urban access levels, with only 48 percent o householdshaving a toilet.As Vietnam moves to higher income levels and universal access is achieved inother services as has been done with electricity, the next goal should be to ocus on qualityo services.

Vietnam has achieved high primary education enrolments in both its urban and ruralregions (almost 90%) which can be attributed to the governments policy o mandatoryuniversal primary education. Enrolment rates or lower secondary education are almost 80%;this tapers down to about 56% or upper secondary education, where the divergence betweenrural and urban educational attainment becomes more pronounced. However, it must be keptin mind that national averages do not reveal dierences between the rich and the poor, acrossregions, and relating to ethnic minorities groups. In general and as might be expected, the moreurban a province is (the higher the share o its population that is urban), the higher studentattainment. Completion rates in rural areas are about two-thirds o those in urban areas. Teocus going orward will need to be on reducing the education attainment gap between dierentgroups, on strengthening higher education, as well as on improving the quality o education.

Provinces and their subsidiary units are fnancing themselves through a range o sources:equalization transers rom the central government, taxes, land sales, short-term debt, localdevelopment investment unds, and sometimes through cross-subsidy rom proftable subsidiaryentities o provincial public utility companies. Te merits and risks o these approaches need tobe urther examined, as alternatives are considered. For the poorer provinces, the equalization


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xxii VIENAM URBANIZAION REVIEWExecutive Summary

ormula has been a cornerstone in enabling access to basic services, and should be maintained.At the same time, there is room or improvement in strengthening and deepening the ability o

provinces to leverage other sustainable sources o fnancing. Some options or achieving moreuniversal access to urban services might be to: (i) ramp up cost recovery which will lead tobetter services; (ii) increase the eciency and the quality o service provision to meet growingdemand and reduce costs; and (iii) reduce the dependence on public investment and to fndother, sustainable sources o fnancing, including private sources (where benefcial), to improveaccess and quality o service.

Policy Considerations and Options or Further AnalysisTe intent o the Urbanization Review is not to articulate a set o policy priorities per se, butto highlight relevant policy areas and choices that emerge rom the detailed analysis. Tese

are summarized in Chapter 5. In addition, Chapter 5 suggests some specifc areas where theWorld Bank can potentially provide continued analytical and advisory services and collaboratewith the Government together with other development partners in helping to advanceunderstanding o policy options and challenges in these key areas.

Te fnal Chapter o the Urbanization Review thereore outlines a possible program o analyticaland advisory services that the Bank can provide. Some o this would include new analytical

work, while other aspects are already planned or can be incorporated into World Bank lendingoperations. Moving this policy dialogue orward will require developing opportunities or

policy dialogue channels with government, such as the Urban Forum which is in a process obeing revitalized by the Government. It would also be important to strengthen collaboration

with other development partners who are working with the Government o Vietnam on theseissues.


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VIENAM URBANIZAION REVIEWMC LC 1

1VietnamsEvolving

Urban System


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3VIENAM URBANIZAION REVIEWChapter 1: Vietnams Evolving Urban System

1.1 Vietnams urbanization in a system o citiesVietnam will have only one chance to get urbanization right. I we ail at urbanization, we will ail

at industrialization and modernization. -- Deputy Prime Minister Nguyen Sinh Hung, speakingat the Vietnam National Urban Conerence, November 6th-7th, 2009.

1.1.1 Te socio-economic background to urbanizationBeore independence industrial development in Vietnam took place in three independentcolonial regions centered on Hanoi, Ho Chi Minh City (Saigon) and Hue, the old imperialcapital. While the centrally located Hue still continues to be an important historic and culturaldestination, as well as a provincial capital it is Hanoi in the north and Ho Chi Minh Cityin the south that now anchor much o Vietnams urban economy. Te economic geography

that has been developing in Vietnam over the last hal-century or more thereore has a longerhistory, deriving also rom the act that the elongated shape o the country naturally neededmore than one principal economic pole.

Interestingly, these two poles have more recently also developed along slightly dierenttrajectories, partially because o the inheritance o contradictory governing and socioeconomicsystems or more than twenty years. Te South employed liberal market policies (as SouthVietnam) while the North ollowed a socialist model (North Vietnam). In the eleven yearsollowing re-unifcation, the unifed country ollowed the socialist development model

placing greater emphasis on rural areas and on building a planned economy that entailed thedistribution and concentration o industry in select centers. It was only since the adoption o

the sweeping Doi Moi policies in 1986 that the government began to introduce liberal marketmechanisms, encouraging private-sector initiatives, while retaining its role as the nationsstrategic planner and enorcer.

Although Vietnam has embarked on a trajectory o rapid economic liberalization with theinception o Doi Moi, its government has also implemented a variety o policies in an attemptto oster a more even distribution o economic growth and urban development. For example,Government Decision No. 10 (1998) on the Urban System and Development Strategy to 2020called or the development o medium and small sized cities while containing the growth o thelargest cities. Subsequently the Government accepted the possibility o the rise o mega-cities

with populations over 10 million (Government Decision No. 445 in 2009). Te 2011-2020

Socio Economic Development Strategy de acto accepts that urbanization will be necessaryto promote the countrys goals o industrialization and modernization as is reected inthe powerul and unequivocal opening quote o this chapter. able 1.1 details a series oGovernment policies to control and guide urban development in Vietnam.

China has also made the same policy reversals, shiing urban policy emphasis rom smallcities to large cities while promoting balanced development so that national urban policies do


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4 VIENAM URBANIZAION REVIEWChapter 1: Vietnams Evolving Urban System

not penalize large cities but acknowledge the major contribution o large cities to economicdevelopment. Te eleventh FYP or 2006-2010 placed much stronger emphasis on the

development o metropolitan regions across the country, and the promotion o urbanizationprocess through the balanced development o cities and towns. Te change in part reectsthe governments desire to balance growth more towards domestic consumption away romexports, and the view that large cities can make a disproportionately larger contribution to thecountrys economic development.

able 1.1 Government policies to control and guide urban development in Vietnam

Urban Development Policies

Central Control oAdministrative Boundary Shis

Controlling PopulationMovements and the Demographicransition

Urban Service Provision and theWelare ransition

Urban Finance and the Economicransition

Consequences

From 1954 to the present, administrative boundary changes requiredapproval rom the central government. Tis has historically beenviewed as an eective tool or controlling city size and encroachment ourban areas onto agricultural lands. With the increase in urbanizationsince Doi Moi policies in the late 1980s, the loss o agricultural landto urban use is increasing conicts at the urban ringe o many cities.

Te demographic transition has been largely controlled by the urbanresidency permission system, which is essentially a Vietnamese versiono the Chinese hukou system. Tis was considered largely eective orits intended purpose rom 1954 to 1990. Since 1990 this policy hasbeen relaxed - the eects o which can be seen in the demographictransition since 1990; the urban population rose rom 19.5% in 1990to roughly 30% in 2009. However, remnants o this system mayactually still result in an undercount o the actual urban population

with many migrants potentially not accounted or in this number.

From 1954 to early 1990s uniorm utility rates or the provision ourban services largely discouraged the provision o these services andimpacted their quality. In most cases since the 1990s and the 2000s,reorms in service provision have been made to allow or cost recoveryin taris and an orientation to commercial practices. Tis has had ageneral positive impact on increasing access to basic services across allurban classifcations. Quality o services remains a problem.

Urban Construction fnance rom 1954 to the present has beenlargely controlled through the state and the redistribution o revenueson a per capita basis. Tis has had a positive impact on equity betweenregions and urban areas. But many cities still struggle to makeinrastructure investments necessary to keep them competitive andin pace with demand. Tere is a growing trend or cities and the

private sector to take over urban construction, though large SOEsstill dominate in many areas. Land sales are a big component o own


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Urban Development Policies

Land Markets and the Physicalransition

ransition towards Pro-UrbanPolicies?

Consequences

source revenues that cities have or inrastructure investments. Tereis growing debate nationally to create new rules or larger cities (e.g.Te Law on the Capital City).

Urban land markets were largely ignored rom 1954 to the 1990s.Te 1993 Land Law was a step orward to release land into the landand housing market. Conversion o armland to urban use acceleratedrapidly, though it was considered to have been chaotic due to low levelso legally recognized land use rights and many inormal transactions.

Te 2003 Land Law urther grants the use o land as a resource inputin business and as eligible or compensation when land is acquiredby the government or development. Te Land Price Framework(generally lower than market rates by 30 - 70%) is intended tostimulate economic development. It is viewed as being successul inattracting real estate investment; but it is also viewed as source o landspeculation, land conicts, and as raising land prices to the end user tobeneft the state and property developers at the expense o the originalland owners and by the creation o a de acto two tiered land pricesystem.

Te Government Decree No. 72 (2001) and Decree No. 42 (2009)established city and town classifcation requirements in an attemptto distinguish between the roles o dierent cities. Te classifcationsystem has implications or administrative unctions, tax collection

and state unding allocations. A possibly unintended consequence hasbeen a trend or cities to exploit loopholes in the classifcation systemto move up in the ranking. Tese moves are largely administrative andnot necessarily based on the actual economic unction o the cities.

Government Decision No. 10 (1998) on the Urban System andDevelopment Strategy to 2020 called or the development omedium and small sized cities and containing the growth o thelargest cities. By 2009, Government Decision No. 445 updating the1998 Decision with a vision to 2050 accepts the possibility o mega-cities with populations over 10 million. Te current thinking is todevelop a system o cities that each play a role in the countrys urban

economy. However, these Decrees are non-binding, and are seen asonly statements o intent.

Te 2011-2020 Socio Economic Development Strategy de actoaccepts that urbanization will be necessary to promote the countrysgoals o industrialization and modernization.


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Figure 1.1 shows the strong co-movement o Vietnams urbanization and economic growth.Vietnams overall urbanization had been in a similar stage to China, India, and Indonesia until

late 1970s, but then it slowed down as China and Indonesia were -increasing urbanizationand economic growth. Recently, on account o Doi Moi reorms and export-orientedindustrialization policies, Vietnams urbanization also started accelerating. In parallel, economicgrowth, measured by GDP per capita, was strong over the same period. Tis coincides with rapidstructural transormation rom an agriculture-based economy to greater emphasis on industryand export oriented activity (able 1.2). All this suggests that urbanization, as an indicator oeconomic transormation, is linked to economic growth in Vietnam, as everywhere else.

Figure 1.1 Vietnams urbanization and economic growth

Source: World Development Indicators, World Bank

Since urbanization in Vietnam has been accelerating recently, a UN projection suggests thatthe urban population will exceed the rural population by 2040 (United Nations, 2008). Fullyunderstanding the signifcance o upcoming large-scale urban and economic transormationin Vietnam, the Government responded with the new Socioeconomic Development Strategyor the period o 2011-2020. Te strategy aims to continue promoting industrialization andmodernization, along with ast and sustainable development. It also promotes equity acrossthe whole population, towards a predominantly industrial uture with a socialist orientation.In short, the ocus is on bolstering industrialization and urbanization in parallel, while

consolidating social inclusiveness.

Urbanization rate, %

year

%

80

60

40

20

1960 1970 1980 1990 2000 2010

VietnamChinaIndia

South KoreaIndonesia

In(GDP per capita)

year

constant2000US$

VietnamChinaIndia

South KoreaIndonesia

201019801960 1970 1990 2000In(50)

In(400)

In(3,000)In(22,000)


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able 1.2 Changing economic structure o Vietnam

Source: World Development Indicators, World Bank

Box 1.1 Socioeconomic development strategy or the period o 2011-2020

Te new Socioeconomic Development Strategy continues to promote industrialization and modernization,ast and sustainable development; equitable social progress; while targeting an industrial uture with socialistorientation. Te Strategy is orientated towards development, innovation, growth and restructuring o theeconomy. Te key priorities are as ollows.

Improve regulation o the socialist-oriented market economy; ensure macroeconomic stability; eective

mobilization o resourcesStrongly develop and modernize industry while improving quality and competitiveness to create oundationsor an industrial country

Comprehensively develop and modernize agriculture while building eciency and sustainability

Strongly develop service industries, especially high value services, with great potential or raisingcompetitiveness

Rapidly develop inrastructure, especially transportation inrastructure

Harmoniously and sustainably develop regions, build up new urban and rural areas

Comprehensively develop cultural and social felds in harmony with economic development

Strongly develop health services and improve the quality o healthcare delivery

Improve the quality o human resources comprehensively; rapidly upgrade education and technical training

Rapidly develop science and technology capabilities which is crucial or ast and sustainable development inindustry and agriculture

Protect and improve environmental quality, proactively and eectively deal with climate change

Strongly maintain independence, sovereignty, territorial unifcation, political security, and social order;extend external relations, actively integrate and improve the position o Vietnam in the international arena.

Sector value-added aspercent o GDP (constant2000 US$)

Agriculture

Industry

(Manuacturing alone)

Services

otal

1985 (A)

37.2

26.2

15.9

37.0

100.0

1990

33.6

26.1

13.9

40.3

100.0

2000

24.5

36.7

18.6

38.7

100.0

2008 (B)

18.5

43.2

25.2

38.3

100.0

Change (B-A)1985-2008

-18.7

16.9

9.3

1.3

0.0


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1.1.2 Vietnams urbanization as fve transitionsTis chapter examines the Vietnam urban system in a system o cities perspective rather thanocusing on a ew selected cities or anecdotal evidence. Tis data intensive quantitative analysisis complemented by comparison with comparator countries, like China, India, and SouthKorea in dierent stages o urbanization and socioeconomic development, and draws lessonsrom their experiences.

Urbanization involves various unctional and spatial transormations needed or long termgrowth and development. Te pace and orm o urbanization are inherently linked to the uidityo actor markets and the provision o basic services. Just as urbanization varies with economicdevelopment across countries, urban transormations, or transitions o socioeconomicstructures, also vary within countries. As countries create the institutional oundations o uidactor markets and progressive social services, some places reap benefts sooner and urbanizerapidly because they oer acilities valued by businesses and workers. Tereore it is importantto understand the patterns o these unctional and structural transitions during the country-specifc urbanization process. Tis chapter considers urbanization as it is characterized by fvetransitions. Assessing these fve dierent dimensions o change provides insights on the extentand orm o urbanization, the unction o cities, and the socioeconomic landscape within theurban portolio.

Figure 1.2 Analytical ramework: fve transitions (or shis)

EconomicShi

PhysicalShi

DemographicShi

AdministrativeShi

WelareShi


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Te fve transitions or shis (Figure 1.2) consist o administrative, physical, economic,demographic, and welare changes across the entire Vietnam urban system. Te frst one,

the administrative transition, reers to how the overarching policies, institutional andmanagement practices central to urbanization (as well as issues like the decentralizationagenda), critically inuence the other our transitions. One o its components, the classifcationo cities, constitutes a major area o ocus in this chapter. Te physical transition, examinesurbanization in a spatial dimension, and ocuses on changes to land use as urbanization takes

place. Te economic transition examines the nature and transormations o economic activitydriving urbanization and is oen a driver o the other transitions. Te essence o this chapter is to

provide solid quantitative evidence on how economic transition triggers other transitions (andvice versa). Te demographic transition describes the socioeconomic changes brought aboutby Vietnams economic and spatial transormation (and vice versa). Te welare transitioncorrelated with the economic changes as well as the physical, administrative and demographicchangeswould indicate whether Vietnams urbanization trajectory has improved the well-being o its population, particularly the less privileged.

1.1.3 Statistical defnitions used in the analysis and their limitationsMuch o the analyses ocuses on comparison between the 1999 and 2009 census data. Given thereclassifcation o some provinces in 2003 and 2007, the 1999 regions need to be modifed toconorm to provincial grouping in the 2009 census. Tis chapter sets up consistent geographicdefnitions and boundaries between 1999 and 2009, to maintain comparability in the paneldata. Te details are included in the Appendix 1A, to this chapter.

Te rural-urban demarcation is systematic and clear in the population census, but such is notthe case or specifc sector inormation at local district/commune levels. Appropriate proxymeasures were derived in this case as well as or other un-synchronized data sets collected bydierent government agencies at varied time intervals.

Outside o population and land area, district level data were not available. Tereore most datain the city class and distance quintile typologies, especially in economic, demographic, and

welare transition analyses, are derived rom provincial data using local population size as aconversion actor weight.1 Tereore, the empirical results presented in the chapter need to beinterpreted with this caveat in mind. Despite the caveat, the empirical fndings are consistent

with each other and well aligned with comparator pilot country studies o the World BanksUrbanization Review initiative.

1 For example, the total employment o Hue city is calculated as the total number employed in Tua Tien Hue Province (where Huecity belongs) multiplied by the ratio o Hue city population over Tua Tien Hue province population. Tese city-level fgures are thenaggregated or each typology group.


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1.2 Urbanization as administrative and physical transitions:

rapid expansion o urban areas1.2.1 Urban classifcation systemTe Vietnam urban classifcation system, established in 2001 and updated in 2009 with theinception o Decree No. 42/2009/ND-CP, serves as an important part o urban policy andmanagement in Vietnam. It is a hierarchical system constituted by six classes o urban centersthat are defned by dierent levels o economic activities, physical development, population,

population density, and inrastructure provision. Te main eatures o the regional and urbanclassifcation system are depicted in Figure 1.3 and able 1.3.

Hanoi and Ho Chi Minh City (HCMC) are the nations two special cities. Tey precede class

1 cities in the urban hierarchy according to the classifcation system and have achieved specialstatus due to their signifcant and unique economic and political contributions to the country.In 2009 there were 2 special cities, 5 class I cities, 12 class II cities, 40 class III towns, 47 class IV

provincial towns, and 625 class V small townships .2

Figure 1.3 Vietnams regional and urban administration hierarchy

Source: Urban Solutions (2011)

2 Tis is the list according to the ocial classifcation system in 2009. More recent changes have been made as recent as 2010 but to matchthe other datasets in this report, the 2009 list is used.

Vietnam

Provinces(58)

Cities directunder centralgovernment

(2+3)

Rural DistrictsProvincial cities owns Urban district owns GeneralDistricts

Communes(rural)

ownships(urban)

Communes(rural)

ownships(urban)

Wards(urban)

Communes(rural) Wards

PROVINCIAL LEVEL

DISRIC LEVEL

COMMUNAL/WARD LEVEL

ownships(urban)


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able 1.3 Proportion o urban population & economic power represented by specialcities, class 1, 2, 3, and 4 urban areas, 2009

Notes:1. Numbers were estimated or sub-province level urban areas as only provincial data was available2. Excluded Hoa Binh ownship in uong Duong District o Nghe An, a sub-district class 3 urban area or which population data is

unavailable.3. Excluded class 4 urban areas at the sub-district level, including: Cam Duong, now a part o Lao Cai Province; Binh Dinh ownship

in An Nhom District o Binh Dinh; Bong Song township is in the Hoai Nhon District o Bin Dinh; Phu Phong ownship in ay SonDistrict o Binh Dinh; Phu Phong ownship in ay Son District o Binh Dinh; Lien Nghia in Duc ruong District o Lam Dong; HatLot ownship in Mai Son District o Lam Dong.

4. Constituent cities and urban areas in each class are based on the 2009 urban classifcation system

Source: General Statistics Oce (GSO) provincial statistics yearbook.

Te administrative system o urban areas and the urban classifcation system provide incentivesor cities and towns to move up the urban class ladder. Striving or higher classifcationstandards has in recent years become a major preoccupation o local government authoritiesas urban areas o higher classes receive greater recognition and shares o fnancial resources.

Coulhart, Quang, & Sharpe (2006) describe how the urban classifcation spurs developmentand creates perverse incentives:

Class V is the smallest urban class and marks the demarcation between urban and rural.Striving or higher classifcation standards is a major preoccupation o local government

authorities as the higher classifcations receive a larger share o state resources. Te classifcationsystem provides incentives or cities to try to move to a higher class. Cities oen make investments

Category

Country

Special class cities

Class 1 cities

Class 2 districts

Class 3 districts (B)

Class 4 districts (C)

Special, class 1, 2, 3 and 4 urban areas as a % o otal Population in Country 36.5%

Special, class 1, 2, 3 and 4 urban areas as a % o otal Urban Population in Country 79.6%

Special, class 1, 2, 3 and 4 urban areas as a % o otal GDP in Country 51.3%

% o

Population Country

85,846,897 100.0%

13,614,773 15.9%

5,286,453 6.2%

3,538,283 4.1%

5,354,288 6.2%

3,522,553 4.1%

Urban % o

Population Country

25,436,896 100.0%

8,612,920 33.9%

3,106,983 12.2%

2,812,254 11.1%

3,986,014 15.7%

1,739,495 6.8%

GDP in millions % o0 VND Country

1,860,296,198 100.0%

567,505,959 30.5%

128,554,679 6.9%

96,993,428 5.2%

105,498,464 5.7%

55,980,660 3.0%


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in inastructure to enable them to meet the requirements o the next classifcation level, ratherthan in direct response to the immediate needs o the population. For example a city or town

may invest in road expansion when there is only limited trac demand, instead o expandingpiped water supply, where clear need exists.

able 1.4 indicates that the urban classifcation system is dynamic as the central governmentreclassifes cities; it can thereore change rom time to time. For example Can To became aClass 1 city in 2004 and with the 2010 changes Bac Lieu moved up rom class 4 to class 3 city.

Combinations o both urban and non-urban areas in each administrative unit exist. It isthereore possible to have rural communes in districts (or towns) and even in urban provincesand/or cities and vice versa. Tis results in rural communes like Can Gio rural district in the

city (and province) o HCMC and Can Tach township (ward) within that same rural district.

able 1.4 Change in Urban Classifcation 1999-2009

Notes:1. Based on 2009 urban classifcation system defnitions.2. Te 2010 amended list specifes 2 special cities, 10 class I (4 direct under gment, 6 district status), 12 class II (districts), 47 class III

(districts), 50 class IV (31 district, 19 ward) and 634 class V.

Source: General Statistics Oce (GSO)

Box 1.2 Criteria to be considered urban

Decree No. 42/2009/ND-CP presents 6 groups o indicators to make a distinction between urban and rural.Circular No. 34/2009/-BXD amplifes the criteria urther. Te most important indicators are as ollwos.

Functions o an urban center: An urban center is a general or specialized center o national, inter-provincial,provincial or district level, or a center o an intra-provincial region, which has the role o promotingsocioeconomic development o the whole country or a certain region.

Special

Class 1

Class 2

Class 3

Class 4

Class 5

otal

1999

--

2

8

1264

518

604

2009

2

5

12

4047

625

731

Change

2

3

4

28-17

107

127


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Population o an urban center is at least 4,000.

Te population densitysuits the size, nature and characteristics o each urban center grade and is calculatedor the inner area or township's consolidated street quarter. Tis means each urban class requires dierentpopulation densities and the density is calculated with the inner areas o the total urban area (including boththe rural and urban areas).

Non-agricultural labor within the inner area or consolidated street quarter accounts or 65% or more o total.

Urban inrastructure acilities, including social inrastructure acilities and technical inrastructure acilities:

For inner areas, these acilities are built in a synchronous manner and completed to an extent prescribed oreach urban class.

For suburbs and outskirts, inrastructure networks are built in a synchronous manner, satisying environmentalprotection and sustainable urban development requirements.

Urban architecture and landscape: Urban construction and development comply with ApprovedRegulations on Urban Architecture Management (ARUAM). An urban center has model urban quarters,civilized urban streets and public areas or its inhabitants' spiritual lie; and has typical architectural complexesor works suitable to its environment and natural landscape.

Box table 1.2.1 Criteria or classes 1 to 5

Indicators Urban Class

Class 1 Class 2 Class 3 Class 4 Class 51999 2009 1999 2009 1999 2009 1999 2009 1999 2009

Population > 1 million

350,000to 1million

100,000-350,000

>150,000 30,000-100,000

>50,000 4,000-30,000

>4,000>300,000

I the class 2is centralgovernmentrun city,

populationshould bemore than800,000

Ratio onon-agricultur-

al labor

Popula-tiondensity

>90%

15,000/km2

>85% orurbancenters

CG:12,000/km2

Provincialcity:10.000/km2

>90%

12,000/km2

>80% or theurbancenters

8,000/km2or10,000/km2i directlyunder thecentralgovernment

>80%

10,000/km2

>70% orurbancenters

6,000/km2

>70%

8,000/km2

>70% orurbancenters

4,000/km2

>60%

6,000/km2

>65%

2,000/km2

Centralgovern-ment runcity (CG):>1 million

Provincialcity:>500thousand


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14 VIETNAM URBANIZATION REVIEWChapter 1: Vietnams Evolving Urban System

Socio-economicinfrastruc-turesystem1

Withintegratedsystem

Integratedsystem in

place

Newfactoriesequipped

with cleantechnologyand oldfactoriesretrotted

with

mitigationdevices

Systemcoverage

Withintegratedsystem

UrbanCenters withinfrastruc-ture partiallybuilt for fullintegration


with cleantechnologyand old

factoriesretroted

withmitigationdevices

Partiallybuiltsystem

Individualinfrastruc-ture systemin place andgraduallyintegrated



Partiallybuiltsystem

Individualinfrastruc-ture systemin place andgraduallyintegrated



Limitedinfrastruc-ture in place

Same asclass 4 in2009

1.2.2 Distribution of cities

Te distribution o cities across city classes and regions is presented in able 1.5, with moredetailed data given in ables 1.6 1.8. wo parallel urban systems can be identied or

Vietnam: (i) Hanoi and its surrounding areas (Northern Midlands, Red River Delta and parto North Central/Central Coast regions) and (ii) HCMC with its surrounding areas (CentralHighlands, Southeast, Mekong River Delta and part o North Central/Central Coast regions).Figure 1.4 visualizes this partition.

Table 1.5 Distribution of cities across city classes and regions in 2009

Indicators Urban Class

Class 1 Class 2 Class 3 Class 4 Class 51999 2009 1999 2009 1999 2009 1999 2009 1999 2009

Region City class

Northern Midlands

Red River DeltaNorth Central/Central Coast

Central Highlands

Southeast

Mekong River Delta

otal

Specialcities

.

1.

.

1

.

2

Class 2cities

2

23

2

2

1

12

Class 1cities

.

13

.

.

1

5

Class 3cities

7

119

2

3

9

41

Class 4cities

10

36

4

3

8

34

Total

19

1821

8

9

19

94

Source: General Statistics Ofce (GSO)

1 Included both social inrastructure, such as schools, hospital, police and re stations etc, and technical inrastructure, such as electricityand other utilities.Source: Decree 42.42/ND-CP


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15

Te average city size in 2009 and its growth between 1999 and 2009 show a distinct core-periphery structural pattern. Te average city size is much larger in the Southeast and Red RiverDelta regions because o the large metropolitan cities o Hanoi and HCMC. Each o these two

regions accommodates one third (about 10 million) o the total national urban population.City population growth is also relatively higher in these special cities and their neighboringareas. Interestingly, the Northern Midlands region shows strong city population growth whileits average city size is the smallest. On the contrary, cities in other regions o the North Central/Central Coast, Central Highlands, and Mekong Delta experienced lower growth o populationover the same period. Tis pattern is more clearly observed in the cross tabulation o region andcity class (able 1.8). Smaller class 4 cities in the hinterlands o the Central/Central Coast andCentral Highlands regions experienced a net loss o city population in the last ten years.

Figure 1.4 Te rank-size distribution o Vietnamese cities and its North-Southpartition

Note: Te North (South) is above (below) the 17th parallel north.

Source: World Bank sta calculation using data rom GSO

VIENAM URBANIZAION REVIEWChapter 1: Vietnams Evolving Urban System

Rank-Size Distribution, All Vietnam

ln(rank)

0

2

4

6

ln(pop, 2009)

ln(rank) Fitted values

12 14 16108

VinhBuon Ma TuotHueNha rangBien HoaDa NangHai Phong

Can ToHanoi

HCMC

Rank-Size Distribution, North

ln(rank)

ln(pop, 2009)ln(rank)

80

2

4

6

10 12 14 16

Fitted values

Vinh

Hai Phong

Hanoi

Rank-Size Distribution, South

ln(rank)

ln(pop, 2009)ln(rank)

0

10 12 14 16

2

4

6

Fitted values

Nha rangHueBuon Ma Tuot

Bien HoaDa NangCan To

HCMC


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Da Nang is strategically chosen as a key economic growth pole and supposed to unction assuch or the Central region. In act, Da Nangs city growth (2.6% per annum) is higher than

its comparators (1.2% o class 1 cities or 1.1% o North Central/Central Coast region), butit is not strong enough to lead regional growth. Te observed decrease in small city (class 4)population in the same region and also the all o the rural population in Da Nang (-1.9%)suggest that Da Nangs city growth is mainly driven by in-situ urbanization (short distancemigration within the same administrative boundaries or rural-urban land conversion). It isunlikely that Da Nang will grow to play as pivotal a role in the national urban system, as Hanoior Ho Chi Minh City does. In act cities like Can To and Hai Phong might be better placedas the next level o dynamic growth drivers aer Hanoi and Ho Chi Minh City.

able 1.6 Average city size in 2009 and growth between 1999 and 2009, by region

able 1.7 Average city size in 2009 and city growth between 1999 and 2009, by city class

Region

Average citypopulation, 2009

Number o cities

otal citypopulation

Annual city popgrowth, 1999-2009, %

NorthernMidlands

85,497

19

1,624,450

3.7%

Red RiverDelta

583,865

18

10,509,567

2.6%

North Central/Central Coast

186,125

21

3,908,632

1.1%

CentralHighlands

160,576

8

1,284,609

1.4%

Southeast

1,002,202

9

9,019,816

3.3%

MekongRiver Delta

241,999

19

4,597,981

1.2%

otal

329,203

94

30,945,055

2.4%

City class

Average citypopulation, 2009

Number o cities

otal citypopulation

Annual city popgrowth, 1999-2009, %

Special cities

6,807,387

2

13,614,773

3.0%

Class 1 cities

1,057,291

5

5,286,453

1.2%

Class 2 cities

294,857

12

3,538,283

2.8%

Class 3 cities

134,743

41

5,524,460

2.6%

Class 4 cities

87,679

34

2,981,086

1.1%

otal

329,203

94

30,945,055

2.4%


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able 1.8 Average city size in 2009 and city growth over 1999 2009 by region andcity class

Specialcities

Class 1cities

Class 2cities

Class 3cities

Class 4cities

Northern Midlandsavg city size 231,178 76,639 62,562

city growth 3.1% 3.7% 4.1%

Red River Deltaavg city size 6,451,909 1,837,173 231,008 141,198 68,430

city growth 2.4% 0.9% 1.7% 5.3% 1.9%

North Central/CentralCoast

avg city size 501,182 301,230 121,197 68,438

city growth 2.0% 2.3% 0.2% -2.7%

Central Highlands avg city size 265,711 175,867 100,364city growth 2.7% 2.2% -0.9%

Southeastavg city size 7,162,864 498,716 149,425 137,082

city growth 3.5% 3.9% 1.3% 0.8%

Mekong River Deltaavg city size 1,945,735 181,367 171,559 115,856

city growth 0.7% 1.4% 1.5% 1.6%


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18 VIETNAM URBANIZATION REVIEWChapter 1: Vietnams Evolving Urban System

Regions and location o cities

in diferent classes

Figure 1.5 Spatial profles o urban population changes between 1999 and 2009

Source: Urban Solutions (2011)

Te concentration o urban populations in large cities is to be expected. As shown in able 1.3.1o Box 1.3, while urbanization in South Korea progressed rom 37% in 1960 to 96% in 2005, the

percentage o population living in cities o more than 1 million increased rom 39% to 51%. Teshare o population living in the capital region (the Seoul metropolitan region and its suburbanareas) rose rom 21% to 48%. At the same time, urban agglomerations have steadily clusteredaround two core centers: Seoul and the Busan metropolitan area (see Figure 1.3.1 o Box 1.3).Te concentration o population and economic activities in core urban clusters is an equilibrium

CAM PU CHIA

CAMBODIA CAM PU CHIACAMBODIA

HI LANHAILAND

HI LANHAILAND

LOLAOS

LOLAOS

RUNG QUCCHINA

RUNG QUCCHINA

BIN NGEAS SEA

BIN NGEAS SEA

LEGENDCities

Class 1 CitiesClass 2 CitiesClass 3 CitiesClass 4 Cities

Urban Population change in %(compare with thenational mean value)

87% to 50% lower49% to 0% lower1% to 50% upper51% to 100% upper101% to 335% upper

he national mean value = 40.7

LEGENDRegions

Red River DeltaNorthern Midlandsand Mountain AreasNorth Central Areaand Central Coastal AreaPortInternational AirportHighwayRailwayNational boundaryProvincial boundary

Central Highlands

Southeast

Mekong River Delta

Class 1 CitiesClass 2 CitiesClass 3 CitiesClass 4 Cities

Urban population change

between 1999 and 2009

HO CHI MINH CIY

0 50 100 200 km 0 50 100 200 km

HOCHIMINHCITY

HA NOIHA NOI

Cities


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outcome o all market participants locating in the best places to maximize economic gains whileminimizing economic costs. In this regard, public policies should be directed towards providing

a level playing feld with uid actor markets so that agglomeration benefts are shared by allmarket participants rather than disproportionately diverted to rent-seekers.

Box 1.3 Urbanization patterns in South Korea

able 1.3.1 South Koreas urbanization progress and city size distribution

Note: Te total population living in cities and towns in terms o administrative districtsSource: Park et al (2011)

Figure 1.3.1: South Koreas spatial concentration o urban population in cities

Categories 1960 1970 1980 1990 2000 2005

Percentage Urban Population 36.8% 50.2% 69.7% 82.6% 93.9% 95.7%

% o Population in the Capital Region 20.8% 28.2% 35.5% 42.8% 46.2% 48.1%

1 Million above 39.2% 5.8% 54.4% 57.6% 51.4% 51.5%

500,000-1 Million 7.2% 4.1% 5.3% 8.5% 15.6% 15.3%

200,000-500,000 10.3% 7.5% 12.8% 12.4% 17.0% 18.9%

50,000-200,000 20.0% 20.4% 14.0% 11.3% 11.0% 9.9%

20,000-50,000 19.6% 13.5% 9.3% 6.4% 2.5% 2.2%

Less than 20,000 3.5% 80.0% 4.2% 3.8% 2.5% 2.3%

Cities byPopulationSize

Source: Park et al (2011)

Less than 20,00020,000 to 50,00050,000 to 200,000200,000 to 500,000500,000 to 1,000,000More than 1,000,000

Legend

1960

1990 2000 2005

1970 1980


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Box 1.4 Decentralization in VietnamFrom the 1990s onward urban areas have become an increasingly important element in the organizationo Vietnamese society. Provinces play a key role in this development and their autonomy vis--viscentral government is constantly expanding, as are their powers and resources. In Vietnam, the ocus odecentralization has been on gradual transer o powers and authority to the provincial level o Government,

which in most cases represent the higher tier o Government within which cities are ound in the Vietnamurban system.

From a legal perspective, local public administration is a local embodiment o the State. Teir budgets aresimply parts o the state budget and, in principle, only serves to implement at the local level the plans defnedat the national level.

Te ollowing three areas o decentralization are considered important or urbanization in Vietnam.

Mandates o planning preparation, appraisal and approval (including Socio-Economic Development Planand General Construction Master Plan). Te Law on Urban Planning in 2009 regulates that provincialunits have authority to prepare the general construction master plan or "big cities" except Hanoi and HoChi Minh City, technical inrastructure system o central government run cities, and unctioning and detailconstruction plans o areas covering more than two districts.

Mandates o fnancial activities (including provincial budget collection, spending and investment decisions).Financial mandates are confned to the ability o provinces to decide budget spending and collection. Budgetspending is mainly on investment and regular activities. Budget collection mainly comes rom taxes, ees,charges, loans and transer rom the central government. As regards tax rates, none o the administrative unitshave authority to defne tax rates which are regulated by ax Laws. Tus, budget collection mandate is limitedto the reedom o provinces to decide on ees, charge rates, transers rom government, and loans.

Mandates o land management: Te land management authority o provinces and districts is confned to (i)land use planning allowance and approval; (ii) land provision and leasing; land use conversion and (iii) land

price. In 2003, the new Land Law was enacted, replacing the Land Law o 1993 and brining several changesto the authority o Provincial and District People Committees in relation to land management:

Te frst revision was to include regulations on land price, whereby the government has the authority toset land prices or regions in which provincial government should base its prices which are to be publicizedon the frst o January every year.In terms o land use planning, the revision included the provision that the Land Use Plan prepared by theProvincial Committee now had to be sent to the People Council frst and then to the Prime Minister orapproval.

In terms o land provision, the revision gave the Provincial Committee the authority to provide and leaseland to organizations, the District Provincial Committee to provide and lease land or individuals; andCommunal, Ward Peoples Committee to lease land or public use.In terms o land conversion, the Provincial Committee was given the authority to decide on landconversion o organizations and individual households in downtown urban areas, while District PeoplesCommittee can decide to land conversions or individual households in the other urban areas.


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1.2.3 Physical transitionCity population density profles ollow that o city size distributions (see the urban-ruraldecompositions shown in ables 1.9 and 1.10). Large urban clusters in the Southeast and RedRiver Delta regions and large cities tend to have higher population densities while the densitiesor other regions are quite low. When looked at closely, rural densities are quite low whenorganized by region or by city class, but urban density is very high or the special cities alone.For example, in the densely populated Southeast region and the two largest special cities, theurban city population density is about 10 times higher than in their rural counterparts.

Tere are signifcant variations in density profles in urban and rural areas within city boundaries.In general, or regions, overall city population density is rising during the last ten years, along

with population density in city suburban areas; but the urban population density in regions isdeclining, except or North Central/Central Coast and Southeast regions.

When decomposing city density changes o urban and rural areas within city boundaries intochanges in population versus changes in land size, declining urban population density in citiesis mainly attributable to excessive rural-urban land conversion (beyond accommodating city

population growth per se). Interestingly, only the Southwest region saw a noticeable increase inurban population density, which is mainly driven by the lowest urban land expansion.

Cross-regional variation in city population density changes between 1999 and 2009 is higherthan cross-city class variations (able 1.9 versus able 1.10). It suggests a citys physicaltransition is determined by its location-specifc endowments rather than its urban hierarchical

position (or its location in the city size distribution in a non-spatial context). For example, RedRiver Delta (Hanoi) and Southeast (HCMC) show opposite urban population density trends(1.9% versus 2.6% annual growth rates), while their urban population growth rates are similar(4.4% versus 3.7%). Te main dierence comes rom rural-urban land conversion intensity(8.4% versus 0.9%). Tis dierence can be explained by multiple actors. Recent expansion othe Hanoi city boundary could well be a reason. More importantly, as detailed later, the rapideconomic transitions in Hanoi and the Red River Delta areas toward heavy manuacturing

would have contributed to increasing demand or urban land.


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able 1.9 City population statistics in 2009 and changes between 1999 and 2009 orregions

Source: General Statistics Oce (GSO)

RegionNorthernMidlands

Red RiverDelta

NorthCentral/Central Coast

CentralHighlands

SoutheastMekongRiverDelta

otal

City population density,total, 2009, persons/ha

10.3 19.2 18.5 5.7 33.6 12.1 21.3

Urban density (a) 28.5 70.4 33.0 16.7 96.6 27.2 62.5

Rural density (b)

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