HARVARD UNIVERSITY

Graduate School of Design

THESIS ACCEPTANCE CERTIFICATE

The undersigned, appointed by the Doctor of Design Program, have examined

a dissertation entitled

The Civic Value and Economic Promise of Medical Cities in the United States and China
___________________________________________________

Presented by
Xuanyi Nie
________________________________________________

candidate for the Doctor of Design degree and hereby certify

that it is worthy of acceptance.

Signature__________________________________________
Professor Alex Krieger

Signature __________________________________________
Professor Winnie Yip

Signature __________________________________________
Professor Tony Saich

Signature __________________________________________
Professor Richard Peiser

Date: May 6, 2021

The Civic Value and Economic Promise of Medical Cities in
the United States and China

A dissertation presented

by

Xuanyi Nie

BAs, Victoria University of Wellington MArch, Harvard University

to

Harvard University Graduate School of Design

in partial fulfillment of the requirements

for the degree of

Doctor of Design

Harvard University

Cambridge, Massachusetts

May 2021
© 2021 by Xuanyi Nie

All rights reserved.

Dissertation Advisors: Xuanyi Nie
Professor Alex Krieger, Winnie Yip, Anthony Saich, and Richard Peiser

The Civic Value and Economic Promise of Medical Cities in the United
States and China

ABSTRACT

The capacity of health care has transcended the provision of medical care in the past

decades. Consumption associated with public and private spending on health care, as well

as innovation produced by advancement in biotechnology, have together constantly

reshaped the socio-economic order and urban landscape of cities. In the United States,

health care is an urban asset that transforms the urban economy from the industrial past to

the knowledge economy around life sciences. This economic transformation has produced

medical cities that aggregate medical, university, and research institutions in cities. As an

international counterpart, medical cities in China originated from a vastly different socio-

political background. The changing demography and central leadership’s policy directives

promoting various aspects of health have created opportunities for the government and real

estate developers to build various forms of medical cities to mobilize resources from the

market, universities, and medical institutions. As the semantic definitions of “medical city”

have departed in the distinct institutional contexts in the United States and China, their

practical experiences should also be contradistinguished.

iii
This dissertation aims at offering insights into medical cities in the United States and China,

and contextualizes them in the different institutional, political, and economic environments.

The research concerns the differences between medical cities in the two countries and

explores the underlying factors that have shaped these differences. It proposes the

“Knowledge-Material Circuit” to examine the significance of American medical cities, and

the “Institutionalized Spatial Practice” to unfold the complexities of medical cities in China.

Supported by comparative studies of four case studies in Boston, Houston, Beijing, and

Shanghai, medical cities are situated in their wider narratives of the transforming economy,

the shifting realm of urban governance, the varying degree of civic engagement, and the

changing perception of the civic-health relationship. Drawing upon the findings,

recommendations are made to address the future path of medical cities.

The research finds that medical city in the U.S. is a reaction to the public and private, for-

profit and non-profit interests of the health care system, a result of the state, market, and

civic leadership, a culmination of place-based policies by the entrepreneurial states, and a

representation of the spatial concentration of knowledge production and innovation.

Medical city in China is a result of the changing state-market interests, a contestation

between central and local governments, a trophy to inter-local competitions, an

instrumentalized mega project to mobilize state resources, a negotiation between the public

and private hospitals, and an experiment for the health care system under reforms. The

significance of medical city extends beyond its physical planning and urban form – its

interpretation has to be embedded in the dialogues among various participants from the

state and the market, from the public and the private.

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 Table of Contents

CHAPTER 1: INTRODUCTION

1.1 MEDICAL CITIES IN CONTEXTS

1.1.1 Urban Hidden Assets in the United States 13
Eds and Meds and Anchor Institutions 13
The MUR Triangle 16
1.1.2 Urban Experiments in China 22
Emerging Market in Health Care 22
The IUR Triangle 26

1.2 RESEARCH METHODOLOGIES

1.2.1 Research Questions 29
1.2.2 Analytical Framework 31

CHAPTER 2: “KNOWLEDGE-MATERIAL CIRCUIT” IN THE UNITED STATES

2.1 CONSUMPTION-BASED INDUSTRY

2.1.1 Transforming the Urban Economy 39
The Impacts of Health Care Industry 39
Towards a Knowledge Economy 44
2.1.2 Mixed Health Care System 52
Public and Private Interests 52
Non-profit and For-profit Organizations 60

2.2 RESEARCH-DRIVEN ECONOMY

2.2.1 Institutional Leaderships 67
The Federal Government 67
Private Equity and Venture Capital 68
Philanthropic Organizations 70
2.2.2 Research Commercialization 73
Pharmaceutical and Medical Device Industries 73
Knowledge Translation 78

CHAPTER 3: THE “INSTITUTIONALIZED SPATIAL PRACTICE” IN CHINA

3.1 GROWTH-DRIVEN SPATIAL STRATEGIES

3.1.1 The Institution-oriented Perspectives 85
Shifting Central-local Relationship 85
Urbanizing for Growth 89
Planning as a State Apparatus 93

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3.1.2 Land-based Strategies 96
Commodification and Financialization of Land 96
Development through Mega Projects 103

3.2 RESOURCE-DEPENDENT STATE PROJECTS

3.2.1 Health Care System in Transition 107
The Undulating Role of the State 107
The Increasing Burden on Individuals 113
3.2.2 Hospital-centered System 117
The “Reverse Pyramid” 117
Hospital-University Affiliation 123
Private Sector Experiments 128

CHAPTER 4: CASE STUDIES WITH MEDICAL CITIES

4.1 THE LONGWOOD MEDICAL AREA (LMA)

4.1.1 Dense Network of Institutions 137
“Ground Zero for Health Care” 137
Economic Spillovers 145
4.1.2 Making the Life Science Industry 148
Government’s Support 148
The Urban Nexus of Health Care 152

4.2 THE TEXAS MEDICAL CENTER (TMC)

4.2.1 Building a Mini Downtown 155
Philanthropic Legacy 155
The Growing Medical Cluster 158
4.2.2 Upscaling to a New Economy 166
From Oil to Biotech and Health Care 166
Specialty Care and the International Market 171

4.3 THE PEKING UNIVERSITY HEALTH CITY (PHC)

4.3.1 The Aggregated Urban Complex 174
PKU-led Mega Projects 174
The Mega-Hospital-Driven Urban Complex 187
4.3.2 The Spatialized Corporate Strategy 190
University-Run Enterprises 190
PKU Founder’s Ambition 191

4.4 NEW HONGQIAO INTERNATIONAL MEDICAL CENTER (HMC)

4.4.1 The Mega Consumption Center 196
Expanding the Provision of Health Care 196
The Interconnected Medical Cluster 202

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4.4.2 Innovation in Partnerships 208
Partnerships Inside the Campus 208
Partnerships Outside the Campus 211

CHAPTER 5: THE CONTESTED URBAN PROJECTS

5.1 CONTEXTUALIZING THE CASE STUDIES

5.1.1 Spatial Characteristics 214
Locality 215
Density 218
Diversity 222
5.1.2 Policy Instruments and Institutional Actors 226
Administrative, Fiscal, and Capital 226
Initiator, Financing, and Operation 229

5.2 INNOVATING THE MEDICAL CENTERS

5.2.1 The Shifting Civic-Health Dynamics 233
The Changing Roles of Hospitals 233
The Crossroads Ahead 236
5.2.2 Evolving Apparatus for Urbanization 238
The Place-based Policies 238
The Anchor Organization 240
5.2.3 The Prospect of Knowledge Economy 244
Completing the MUR Triangle 244
Dual Circulation 250

5.3 CONCLUSION 253

BIBLIOGRAPHY 275

NOTES 259

vii
Acknowledgements

Completing this dissertation has been an odyssey, which would never be possible without
the support from generous and intelligent people. I have benefited tremendously from my
committee. Prof. Alex Krieger, Prof. Winnie Yip, Prof. Tony Saich, and Prof. Richard
Peiser each offered invaluable guidance and mentorship. I would like to thank Alex for
inspiring me on the topic of medical city and guiding me through the courses of my
master’s thesis, my time at NBBJ, and the doctoral work. Our shared interest in this
otherwise untested topic and his encouragement helped assuage my feeling of uncertainty
and doubt. His knowledge and intellectual curiosity helped shape the foundation of this
work. I also thank Winnie for inputting knowledge on the health care side. Her insightful
knowledge of the Chinese health care system and curiosity about cities have continuously
inspired me to draw links creatively yet without losing academic rigor in conducting what
she calls “a truly interdisciplinary work.” I am also grateful to Tony for his critical
reflections on the political economy, public policy, and administration in China and his
patience over the past couple of months reading and responding to lengthy drafts. I would
also like to thank Rick for his knowledge of Houston, the capital market, and property
development. His vision of the medical city helped push this research further. Researching
an interdisciplinary work is challenging, but it has been truly an honor to be advised by a
committee of advisors from different disciplines, who found shared interests and
encouraged the development of this work.

I am also much obliged to the intellectual inputs from various Harvard faculties. I would
like to thank Prof. Peter Rowe, Prof. Neil Brenner, and Assoc. Prof. Bing Wang from the
GSD for their advice on the theory and practice of urbanism; Prof. Edward Glaeser from
the FAS for his academic guidance on urban economics; and Prof. William Hsiao for his
insights on health economics and health care in China. I would also like to extend my
thanks to Prof. Siqi Zheng from the MIT DUSP for our conversations on hospitals, land
systems, and Chinese cities in her class; and Prof. Harvey Lodish from MIT and the
Whitehead Institute for his advice on knowledge translation and university spin-offs and
sharing his experiences in China.

viii
My work in China relied on a network of scholars who helped me gain access to resources,
data, and research contacts. I owe a debt of thanks to Prof. Ke Yang from Peking University,
Prof. Liu Yuanli from Peking Union Medical College Hospital, Prof. Zheng Jialin, and Asst.
Prof. Shao Yuhan from Tongji University, Prof. Huang Cheng and Prof. Tang Jie from
Harbin Institute of Technology (Shenzhen), and Prof. Lu Andong from Nanjing University.
A number of friends and colleagues have also helped me along with my work. This includes
Hao Yi from HSBC for appreciating my work and generously sharing her network to
connect me with interviewees in Shanghai, Dr. Deng Lingquan from the Johns Hopkins
University School of Medicine, Chen Jing from the National Health Commission in Beijing,
Shan Bingqing, Jiang Yumeng, and the anonymized contacts in Beijing.

Part of the dissertation was made possible by the Real Estate Grant, DDes Research Grant,
and Summer Advanced Research Grant from the Harvard University Graduate School of
Design, the Summer Research Fund and Emergency Fund from the Fairbank Center for
Chinese Studies, the Harvard China Health Partnership Research Award from the Harvard
T.H. Chan School of Public Health, the FIABCI Scholarship Foundation, and the
International Association for China Planning.

I thank all of my peers and colleagues who have influenced this work, including those not
listed. I benefited from the discussions with Dr. Yang Dingliang, Saul Wilson, Dr. Gan
Xinyue, Dr. Xia Ying, Dr. Fan Haobin, Wang Shuning, and my colleagues from NBBJ and
UN-Habitat. I owe thanks to the warm supports from Zhang Bingzhen, Dr. Yang Jiaxi, Xia
Yang, Zhang Liya, and Zhu Bingbing. Special thanks to Yang Yihan from Syracuse
University for helping me with the digital models.

Most importantly, my heartfelt gratitude goes to my parents. I owe a great deal to them for
being often away from family in the past 13 years but always find them by my side. They
gave me faith to start this journey, and I could never make it here without their love, trust,
and support.

ix
List of Figures:
Figure 1. Employment in "Eds and Meds Across U.S. Counties (Florida, 2013)............................................................. 14
Figure 2. Share of Eds and Meds Employment to Total Employment in U.S. Metro Regions, 2015 .............................. 15
Figure 3. The Trilogy of Medical, University, and Research............................................................................................ 16
Figure 4. Mapping the Scales and Building Uses of the LMA, TMC, and the UPenn Campus....................................... 17
Figure 5. Three Pathways of Translational Medicine (Fuster, 2014) ................................................................................ 21
Figure 6. The Changing Composition of Population in China, 1987-2018 ...................................................................... 23
Figure 7. The Trilogy of Industry, University and Research ............................................................................................ 27
Figure 8. The Framework for Comparative Analysis ....................................................................................................... 34
Figure 9. The Breakdown of U.S. Labor Statistics by Industry Sector, July 2020 ........................................................... 40
Figure 10. The Number of Full-time and Part-time Hospital Employees (in millions), 1995-2016 ................................ 41
Figure 11. The Impact of Community Hospitals on U.S. Jobs (in millions), 2016 .......................................................... 41
Figure 12. The Effect of Community Hospital Expenditures on State Economic Output, 2016 ...................................... 42
Figure 13. The Percentage of Total Employment Supported by Hospitals, 2016 ............................................................. 42
Figure 14. The Ratio between Manufacturing and Eds & Meds Jobs in U.S. Counties, 2005 and 2015 ......................... 47
Figure 15. The Percentage of Eds and Meds and Manufacturing Jobs to Total Jobs in Pittsburgh, PA Metro Area;
and Philadelphia-Camden-Wilmington, PA-NJ-DE-MD Metro Area ............................................................. 48
Figure 16. The Percentage of New Jobs in Eds and Meds and Manufacturing to Total New Jobs in Pittsburgh,
PA Metro Area ................................................................................................................................................. 49
Figure 17. The Percentage of New Jobs in Eds and Meds and Manufacturing to Total New Jobs in Pittsburgh,
Philadelphia-Camden-Wilmington, PA-NJ-DE-MD Metro Area ................................................................... 51
Figure 18. The U.S. Health-Care Expenditures as a Share of GDP, 1960–2018 .............................................................. 52
Figure 19. OECD Countries Public and private Health Expenditures to GDP, 2000 & 2017 .......................................... 55
Figure 20. National Health Expenditures in the United States, 1970 and 2019 ............................................................... 58
Figure 21. National Health Expenditures in the United States, 1960 - 2019 .................................................................... 59
Figure 22. National Health Expenditures in the United States by Services, 1970 and 2019 ............................................ 64
Figure 23. Hospital Expenditures in the United States, 1960 - 2019................................................................................ 65
Figure 24. Awards, average funding, and total funding by the NIH, 2010-19 .................................................................. 68
Figure 25. U.S. Healthcare Venture Capital Fund-raised, 2009-19 .................................................................................. 69
Figure 26. Gates Foundation Funding by Program, 2006–2019....................................................................................... 72
Figure 27. The Prescribed Drugs and Medical Device Expenditures to Total Health Care Consumption in the
United States, 1960 - 2019 .............................................................................................................................. 77
Figure 28. Number of University Start-ups and Capital Raised in United States, 2006 - 2019 ....................................... 82
Figure 29. The Share of Local Budgetary Revenue and Expenditure to Total, 1978–2019 ............................................. 87
Figure 30. Urbanization Rate, GDP, and Economic Structure in China, 1960–2019 ....................................................... 91
Figure 31. Growth of Urban Built-up Areas in China, 1981–2017 .................................................................................. 92
Figure 32. Relationships in the Land Commodification and Financialization Process .................................................... 97
Figure 33. The Share of Land Conveyance Fee in Local Government Revenues, 2001–2018 ........................................ 98
Figure 34. Fixed Asset Investment and Real Estate Investment in China, 1986–2018 .................................................... 99
Figure 35. The Average Housing Unit Prices (CNY per m2) in 100 Major Cities, 2010–2018 ...................................... 100
Figure 36. Debt Ratio of Cities (Municipal Investment Bonds over Fiscal Income Levels), 2017................................ 101
Figure 37. Total Health Expenditures and Percentage to GDP in China, 1978–2018 .................................................... 107
Figure 38. Health Expenditures by the Government, Society, and Individual in China, 1980–2000 ............................. 110
Figure 39. Health Expenditures by the Government, Society, and Individual in China, 2001–2018 ............................. 112

x
Figure 40. Outpatient and Drug Cost per Visit [A]; Inpatient and Drug Cost per Visit [B], 1990-2017 ........................ 118
Figure 41. Bed Occupancy Rates of Tertiary, Secondary, and Primary Hospitals, 2010-2019 ...................................... 119
Figure 42. The Number of Treatments in Tertiary, Secondary and Primary Hospitals, 2010-2019 ............................... 120
Figure 43. The First Hospital Affiliated with Zhengzhou University (Zhengdong New Area Hospital) ....................... 123
Figure 44. Locations of Three Hospitals Affiliated with Zhengzhou University ........................................................... 127
Figure 45. Change in the Numbers of Public and Private Hospitals, 2011-2020 ........................................................... 130
Figure 46. The Number of Patients Treated in Public and Private Hospitals, 2011-2019 .............................................. 131
Figure 47. The Geographical Distribution of Land Sales in Beijing, 2018 .................................................................... 134
Figure 48. The Distribution of Tertiary Hospitals in Shenzhen ...................................................................................... 135
Figure 49. The Collaboration Model between Shenzhen and Hong Kong ..................................................................... 136
Figure 50. The Location of LMA in Connection to the T System in Boston.................................................................. 137
Figure 51. The Farmland in front of the Boston Children’s Hospital in 1914 ................................................................ 138
Figure 52. Historical Maps of the LMA in Roxbury County and in 1906 (left) and 1931 (right) .................................. 140
Figure 53. The LMA Campus and Some of its Key Institutions .................................................................................... 141
Figure 54. The Spatial Composition of LMA and the Percentage of Floor Areas for each Program ............................. 143
Figure 55. The Change of Building Footprints in the LMA, 1906-2019 ........................................................................ 145
Figure 56. NIH Funds Received by the LMA, 2005-2016 ............................................................................................. 148
Figure 57. The Geography of Life Science Industry Clusters in Massachusetts ............................................................ 150
Figure 58. VC Investment in the Massachusetts Biopharma Industry............................................................................ 153
Figure 59. The Nexus of Top Institutions in Boston ....................................................................................................... 154
Figure 60. The Location of TMC in Connection to the Light Rail System in Houston ................................................. 155
Figure 61. Overlooking the TMC and the Downtown Houston ..................................................................................... 156
Figure 62. The TMC Campus, 1944-2019 ...................................................................................................................... 161
Figure 63. The TMC Campus and Some of the Key Institutions ................................................................................... 162
Figure 64. The Spatial Composition of TMC and the Percentage of Floor Areas for each Program ............................. 163
Figure 65. The Change of Building Footprints in TMC, 1944-2019 .............................................................................. 165
Figure 66. The Changing Employment Structure in Houston-The Woodlands-Sugar Land, TX (MSA), 1990-
2020 (Observation made in Months) ............................................................................................................. 167
Figure 67. Venture Capital Funding in Houston, 2012-2021 .......................................................................................... 169
Figure 68. Aerial photograph of NASA’s Lyndon B. Johnson Space Center (JSC), originally named the Manned
Spacecraft Center (MSC) .............................................................................................................................. 170
Figure 69. The Overall Planning of the Zhongguancun Life Science Park .................................................................... 174
Figure 70. The Peking University Health City and the Included Projects ...................................................................... 175
Figure 71. The Location Peking University Health City in Connection to the Metro Lines .......................................... 176
Figure 72. The Built Area of Beijing Metropolitan Region, 2005, 2010, 2015 .............................................................. 177
Figure 73. The Peking University International Hospital ............................................................................................... 178
Figure 74. The Sixth Hospital Affiliated with Peking University Changping Campus .................................................. 180
Figure 75. Boya C-Center Phase 1-3 and the Street View of C-Center Phase 1............................................................. 182
Figure 76. The Commercial Tenants in Boya CC and some of the Office Tenants ........................................................ 183
Figure 77. Rendering of the PKUCare Innovation Park and the PKU Resources Health Industrial Park...................... 184
Figure 78. The PKU Resources Health Industrial Park .................................................................................................. 187
Figure 79. The Spatial Composition of PHC and the Percentage of Floor Areas for Each Program ............................. 188
Figure 80. The Equity Holding Structures of PKU Founder and PKU HEALTHCARE ............................................... 192
Figure 81. The Equity Holding Structure of SVCs and their Projects in the PHC ......................................................... 193
Figure 82. The Medical Institutions inside the HMC ..................................................................................................... 196

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Figure 83. Exhibition Model the HMC Campus............................................................................................................. 197
Figure 84. The Location of HMC in Connection to the Shanghai Metro System and Downtown ................................. 198
Figure 85. The Built Area of Shanghai Metropolitan Region, 2005, 2010, 2015 ........................................................... 199
Figure 86. The Location of HMC in the Hongqiao Business Park ................................................................................. 200
Figure 87. The Programmatic Diagram of the HMC Campus ........................................................................................ 201
Figure 88. The Medical Technology Center ................................................................................................................... 202
Figure 89. Entrance at the Huashan Hospital West Campus........................................................................................... 203
Figure 90. Architectural Rendering of the Parkway Hospital and under Construction .................................................. 204
Figure 91. Specialty Hospitals in the HMC .................................................................................................................... 205
Figure 92. Specialty Hospitals in the HMC under Construction .................................................................................... 206
Figure 93. The Spatial Composition of HMC and the Percentage of Floor Areas for Each Program ............................ 207
Figure 94. Skywalks Connecting the Medical Technology Center and other Hospitals................................................. 209
Figure 95. Equity Holding Structures of the Development Companies in the HMC ..................................................... 210
Figure 96. Equity Holding Structures of the Public-Private Partnerships in the HMC .................................................. 212
Figure 97. Diagram of the Analytical Framework .......................................................................................................... 214
Figure 98. Geographical Locations of the Case Studies and Centers of the Cities ........................................................ 215
Figure 99. The Scales of Four Cities and the Locations of Case Studies ....................................................................... 217
Figure 100. The Scales and Densities of Four Case Studies........................................................................................... 219
Figure 101. The Spatial and Programmatic Compositions of Four Case Studies ........................................................... 223
Figure 102. Per 1,000 People Hospital Beds in the United States and China, 1970-2017 ............................................. 235
Figure 103. The Abstract Diagram of the Spatial Organization of an Ideal Medical City ............................................. 242
Figure 104. R&D Expenditure to the Government Budget in the United States and China, 1985-2019 ....................... 247
Figure 105. Total R&D in China, R&D Expenditures on Fundamental Research, and the Ratio of Enterprise
R&D Expenditures to the Total Expenditures, 2002–2018 ........................................................................... 248

List of Tables:
Table 1. Selected Health Towns/Cities ............................................................................................................................. 25
Table 2. Total Employment and R&D Cost in Selected Industries, 2018 ......................................................................... 76
Table 3. Top Universities Producing Start-up Founders (Undergrad + MBA), 2019 ....................................................... 81
Table 4. Health Resources in China since 1980 ...............................................................................................................111
Table 5. Summary of the Features of Insurance Schemes in China................................................................................ 115
Table 6. Share of Hospital Income to Total Health Expenditure in China, 2010-2018 .................................................. 117
Table 7. MASCO Institutions on the LMA Campus ....................................................................................................... 142
Table 8. The Bed Number of LMA Institutions .............................................................................................................. 144
Table 9. LMA Institutions among the Top 50 NIH Funds Receivers, 2019 ................................................................... 149
Table 10. The Bed Number of TMC Institutions ............................................................................................................ 164
Table 11. Performance of the PKU International Hospital, 2014-2019 .......................................................................... 179
Table 12. The Preferential Policies for Industrial Innovation in Changping District ..................................................... 186
Table 13. The Balance Sheet of PKU Founder, 2013-2019 (in Billion CNY)................................................................ 194

xii
Chapter 1: Introduction

1.1 Medical Cities in Contexts

1.1.1 Urban Hidden Assets in the United States

Eds and Meds and Anchor Institutions

The growth of American cities is largely accredited to the nation’s industrial past. Cities
grew alongside factories and businesses, which employed workers, paid taxes, and
purchased goods and services from other businesses. But the role of businesses in cities
has transformed over the past few decades. Suburbanization, technological innovations,
and globalization have shifted the idea of businesses and cities across the United States. As
the devastating effects of factory closings forced cities to adapt to a new economic climate,
they turned to two sectors that seemed not only immune to decline but were growing:
universities and hospitals (Renn, 2012). The “eds and meds” sectors, often related through
the university’s medical school and its affiliated hospitals, became a great stabilizer for
many places. They maintain and foster strong connections to the places where they are
located and serve many of the same functions as early industrial leaders. They participate
in local and national markets, employ workers, and purchase from other businesses. These
institutions are often referred to as “anchor institutions” according to Michael Porter’s
invention (Porter, 2016), which support cities’ competitiveness in economic development.

Because hospitals are open 24 hours a day and provide one of the most labor-intensive and
skill-intensive products, they generate a considerable amount of high-paid local jobs. The
hospital industry employs 5 million Americans and, in aggregate, hospital-sector
procurement is over $600 million annually (Ross, 2014). About 8-9% of total hospital
revenues are typically accounted for by “patient revenue” (Erickson, Gavin, & Cordes,
1986). Sometimes, due to a range of factors including the geographical location, size of the
market, the proximity of other hospitals, reputations, and specializations of hospitals, and
even the state of a region’s transportation infrastructure1 , hospitals become regional or
national providers, as they could attract patients from all over the country and beyond
(Moretti, 2015, p. 140; Nelson, 2009). Hospitals could further expand their capacity by
creating healthcare systems. For example, the University of Pittsburgh Medical Center
13
(UPMC) is a $21 billion integrated global nonprofit health enterprise closely associated
with the University of Pittsburgh and is anchored upon its flagship hospital, the UPMC
Presbyterian 2 . The Johns Hopkins Health System Corporation (JHHS) is a non-profit
organization collaborating with the Johns Hopkins University School of Medicine known
as “Johns Hopkins Medicine”3. These hospitals effectively produce a tradable service that
is exported outside the local economy and therefore their presence is an important driver
of local wealth. Meanwhile, universities represent roughly 3% of the U.S. GDP and employ
more than 3 million people annually. U.S. hospitals and universities spend a combined $1
trillion per year and employ 8% of the labor force.

Figure 1. Employment in "Eds and Meds Across U.S. Counties (Florida, 2013)

Existing research on “eds and meds” and urban and regional economies focus primarily
upon large research-based universities. Harkavy and Zuckerman found that by 2000, in
Washington, Philadelphia, San Diego, and Baltimore, “eds and meds” accounts for more
than half of the jobs generated, while nearly 550,000, or 35 % of the 1.6 million people
who work for the top ten private employers in the largest 20 U.S. cities are employed by

14
“eds and meds” (1999). These institutions and the cities in which they are based offer
significant resources such as access to global streams of financial and intellectual capital.
By the end of the twentieth century, the “eds and meds” sector accounted for 34.7% of jobs
in the largest 20 U.S. cities (McKee, 2016). But the stature of health care and higher
education institutions are likewise growing in importance for regional economies in smaller
cities and regional centers in the United States (Parrillo & de Socio, 2014). Figure 1,
composed by the Martin Prosperity Institute, found that across the nation in 2013, “eds and
meds” make up roughly 13% of total employment in U.S. counties regions. But the range
is considerable, as “eds and meds” employment in the county-level could range from
roughly 4% with the lowest share to nearly 30% with the highest share (Florida, 2013).

Figure 2. Share of Eds and Meds Employment to Total Employment in U.S. Metro Regions, 2015
Source: SSTI Analysis of County Business Patterns data

These measurements can increase significantly at the metro regions defined by

employment and economic activities. Figure 2 further shows that “eds and meds” make up
26.9% of employment in New Haven-Milford, Connecticut; 21.6% in Rochester, New York;
19.8% in Boston-Cambridge-Newton, Massachusetts; 19.7% in Pittsburgh, Pennsylvania;
18.4% in Baltimore-Columbia-Towson, Maryland, and 17.1% in New York-Newark-Jersey
City, NY-NJ-PA. Some of these metros, such as New Haven, Providence, and Boston, have

15
world-class clusters of medical and higher education institutions and are therefore among
the places most likely to benefit from greater competition and clustering of these industries.
Others have solid but not spectacular institutions that may enable them to survive if in
shrunken form.

The MUR Triangle

Today healthcare and university mixed-use districts, so-called "meds and eds" clusters, are
becoming a prevalent urban typology, breathing new life into urban areas across the United
States. The Medical-University-Research (MUR) triangles is the principal mechanism
behind such clustering as the history of “Medical Metropolis” can be traced to a time since
the 1920s, when not-for-profit hospitals, medical schools, and universities claimed that
their threefold work in patient care, medical education, and biomedical research, or what
the Houston Chamber of Commerce called the “eternal triangle”4. The definition of MUR
can be traced back to Berg’s definition of a “medical complex” (Berg & Klink, 1996).

Medical

University Research

Figure 3. The Trilogy of Medical, University, and Research

He defined it as a set of mutually related activities, situated in a town or region, aimed at

promoting health care at a high level of specialization. A medical complex performs three
functions: university, research, and health care. In the grounds of the medical complex, or
in its vicinity, various related activities can be located, such as research institutes, private
health clinics, conference facilities, and laboratories. Tim Bartik and George Erickcek of
the Upjohn Institute (SSTi, 2018) uses five NAICS (North American Industry
Classification System) codes to define “eds and meds” industries as “service industries
16
whose original primary goal is to enhance human capital, either through education or health
care.” Three of these NAICS codes represent health care industries: ambulatory health care
services (621), hospitals (622), and nursing and residential care facilities (623). Two
represent educational industries: junior colleges (6112) and colleges, universities, and
professional schools (6113). Therefore, this research uses MUR as the mechanism to
specifically describe such modern campuses that are results of “eds and meds” clustering,
and perform the functions of university research and health care.

Figure 4. Mapping the Scales and Building Uses of the LMA, TMC, and the UPenn Campus

This typology has been widely adopted for urban development in the United States. The
spatial organization of MUR is a result of clustering around the anchor institutes, and the
functioning of MUR is based on the synergic relationship among the medical, university,
and research components. These campuses typically integrate spaces for patient care &
clinics, medical school and training facilities, and research labs. Figure 4 selects three
MUR examples to demonstrate such a synergic relationship. The Longwood Medical Area
(LMA) located in Boston is anchored to the Harvard Medical School and many other

17
hospitals and research buildings located inside the campus. The mapping also shows that
the LMA is equally divided between the academic and cultural institutions, and the medical
and health science institutions. The campus of Texas Medical Center (TMC) adjacent to
Rice University is dominated by medical and health science institutions. The Perlman
Medical School in the University of Pennsylvania Campus attracts medical and health
science institutes and formed a cluster inside the university campus.

The Brookings Institution examined the impact on metropolitan economic development to

expand healthcare and higher education institutions from four impacts (Bartik & Erickcek,
2008) and finds that this typology promotes economic development with three instruments.
First of all, universities promote innovation by training analysts, producing new knowledge
for local businesses thereby increasing productivity and attracting firms. The expansion of
research universities in particular often translates into increased technology transfer and
spinoff activities related to health care (Huffman & Quigley, 2002). The medical school
also trains talents for both hospital and research. Secondly, university raises residents’
earnings by improving their skills as residents are more likely to earn college degrees and
remain in the area to work and tend to attract more students from outside of a metropolitan
area. Thirdly, hospitals and universities employ large numbers and purchase large amounts
of goods and services from the local marketplace. These increase wages and employment
opportunities for local residents. Hospital pays higher regardless of workers’ skills and
demographic characteristics and is likely to encourage other employers in a region to pay
higher, thus raising wages in general. Fourthly, it opens up new possibilities for healthcare
communities, creating space for other uses, including residential, hospitality, and retail,
which attract developers thereby appreciating the value of surrounding properties.

Inside the MUR campuses, the medical, university, and research institutions enjoy benefits
brought in by agglomeration5, which has been believed to be able to concentrate capital,
attract talent, promote entrepreneurship (Chatterji, Glaeser, & Kerr, 2014; Glaeser,
Rosenthal, & Strange, 2010; Jacobs, 1969; Saxenian, 1994). The anchor institutions act as
the gravitational center in attracting talents and other institutions, which seek for
opportunities to expand production through establishing collaborative relationships with
anchoring institutions in biomedical and pharmaceutical research projects that has potential

18
market returns (Nie, 2019). Evidence suggests that that agglomeration economies exist in
the hospital service industry (Jing Li, 2013). Firstly, large hospitals, measured by the
number of beds in a hospital, are more likely to provide intermediate medical services in-
house. This is consistent with the idea that large hospitals are more likely to exploit internal
economies of scale when providing certain types of medical services, and empirical
research shows that a 10 % increase in the number of hospitals per capita is associated with
a 4.6% increase in hospital productivity (Bates & Santerre, 2005).

Secondly, more hospitals in a market area result in lower prices and better health outcomes
as a result of competition because it helps contain costs, improve quality, and encourage
innovation6. Research finds that an increasing spatial concentration of hospital services
results in a decreased cost of obtaining intermediate medical services (Friedson & Li, 2015).
The concentration of medical industry promotes the entry of intermediate medical service
suppliers into the local area and the increased number of intermediate suppliers then results
in lower prices for intermediate goods due to increased competition. Specialization (market
differentiation) also leads to reduced input costs, which is a traditional Marshallian input
sharing mechanism7. Kessler and McClellan’s empirical approach found that using data in
the United States, competition led both to substantially lower costs and significantly lower
rates of adverse outcomes after 1990, therefore hospital competition unambiguously
improves social welfare (2000).

These benefits to hospitals from spatial concentration come from labor market pooling,
which provides better job matches, incentives to innovate, shared input suppliers. But
spatial characteristics and distance equally matter. A condensed campus saves time for
information and material exchange, ensuring the frequency of activities. Physicians and
doctors from different institutions can also move freely for consultations. Students from
medical school can easily intern in a medical institution. Although telecommunication
nowadays could drastically facilitate these exchanges of information, particularly in the
post-COVID world with Zoom meetings, empirical work suggests the importance of trust
and face-to-face communication. Sociologists have long asserted that spatial propinquity
greatly facilitates relationship formation (Kono, Palmer, Friedland, & Zafonte, 1998;
Sorenson & Stuart, 2001). To establish a firm, the entrepreneur must persuade investors to

19
commit funds to an uncertain venture. Entrepreneurs must also convince established
organizations to transact with their new ventures which is dependent on entrepreneurs’
social relationships in attracting the resources (Shane & Stuart, 2002). Co-location in
spatial networks of interrelated economic activities lowers the cost of face-to-face contact.
Gaspar and Glaeser (1998) also pointed out that despite the advances in information
technology since the mid-1980s, business travel has continued to increase. This finding
could be interpreted as the importance of face-to-face communication in cementing the
trust required for establishing new business relationships.

Meanwhile, another crucial advantage, or perhaps the most important one, of clustering is
information spillovers, or the Marshallian notion of “knowledge spillovers,” which could
make places more productive (Cohen & Morrison Paul, 2008; Faggio, Silva, & Strange,
2017; Marshall, 1936). For example, the increased adoption and dispersion of new medical
technologies resulting from the clustering of hospitals may lead to reductions in post-
surgical mortality. Baicker and Chandra (2010) found that if quality improvements at one
hospital diffuse to others in the same hospital market, then there is a case for subsidizing
investment in high-quality care. But the more important aspect is on innovative ideas. In
dense areas, ideas spread between people and people become more productive when they
can learn from each other, as communication and exchange of ideas and knowledge could
help creating business opportunities and enhancing economic productivity (Glaeser, 2011;
Glaeser et al., 2010). This has been proven true in the cases of route 128 and Silicon Valley
that condensed high-quality human capital enhanced collaboration among diverse groups,
as well as promoting competition among individuals as a stimulus for productivity
(Saxenian, 1994). A team from Harvard Medical School found that the quality of research
is raised when the collaborators are less than one kilometer away, and the effect was even
larger if the authors were in the same building (Moretti, 2015, p. 135).

The key to success is partnerships with like-minded organizations. As clustering of

activities and the increased complexity in research causes the borders between disciplines
to fade (Chiesa, 1995), this leads to closer relations among various sciences8, between
science and private enterprise, and between research and care. This is due to the evolving
practice of “translational medicine”, as shown in Figure 5, which aims at finding new

20
methods to introduce better care for patients. Instead of researchers working off-site in
sequestered laboratories, they are brought onto the hospital campus, close to clinicians and
patients. Today’s researchers, clinicians, and educators whose work bring multiple medical
disciplines together with patients and require facilities that benefit all users. University and
research are particularly important. The university works together with a venture capital
firm to promote the transmission of new techniques to the market. Human capital
significantly contributes to economic growth, and the growth effects are even larger in
nonmetropolitan counties (Q. Fan, Goetz, & Liang, 2016). For US metropolitan regions,
the presence of high-quality doctoral programs in life sciences and engineering is positively
associated with employment growth (Ehlenz, Birch, & Agness, 2014). The intensity of the
interaction with universities and hospitals makes it important for certain companies to settle
in their vicinity (Berg & Klink, 1996), to be able to “drop-in” furthers the interaction
between health care, research, and product development (Wachtel, 2012). The scale and
scope of the medical enterprise will engage the entire community9.

Figure 5. Three Pathways of Translational Medicine (Fuster, 2014)

There are several ways in which MUR could benefit its local community (Initiative for a
Competitive Inner City, 2011). As a cluster anchor, it could stimulate the growth of related
businesses and institutions in the community, creating a healthier business environment
that improves productivity, enhances the quality of research institutions, accelerates the
commercialization of research and development, and attracts more research and
development funding. The community could benefit from more jobs, a stronger tax base,
and has better access to all levels of employment opportunities. As an employer, it could
offer, not only professional jobs in the hospitals but also general service jobs, to local
residents through the multiplication of jobs10. The community as a result could have access
21
to local jobs with opportunities for advancement, increased demand for local goods and
services, and increased dollars spent in the community. As a workforce developer, it could
address the workforce needs of the cluster, increasing job retention. The community could
access job training and opportunities for advancement, improving the local wage level. As
a real estate developer, it could access desirable real estate and anchor local economic
growth through development. The community benefits from appropriate real estate
development in distressed areas, ability to leverage private development money for mixed-
use projects. This has been adopted by real estate developers to drive community planning
and development, for example, the Lake Nona Medical City in Florida. It is expected to
bring 30,000 permanent higher-paying jobs, making an overall economic impact of $7.6
billion over the next 10 years (Hairston, 2014).

1.1.2 Urban Experiments in China

Emerging Market in Health Care

“Medical city” in China is a concept constantly redefined by urban experiments, and the
changing demographics together with preferential government policies for promoting the
healthcare industry have created the market for such experiments. “Medical city” as a
popular concept that has been crowned to many urban planning projects in China, for
example, “ecological healthy city,” “senior housing complex,” or new urban development
projects anchored to a mega-hospital (Ai, 2015; Z. A. Lin, 2017; Qian, Wang, & Zhen,
2012; Yingchi Wang & Lei, 2014). Because urban planning in China is essentially a state
apparatus for mobilizing economic resources, which is dependent on land-based-financing
and real-estate market (T. Liu, Cao, Yan, & Wang, 2016; Qun, Li, & Yan, 2015; Rithmire,
2017), such “medical city” concept could just be misused for urban projects that are
essentially real-estate property development trying to grip on the market niche (S. He &
Wu, 2005a; X. Zhang, 2015).

China’s demographic transition is rapid, crossing the “aging society” threshold in 2000
(World Bank, 2016). Figure 6 shows that the percentage of elderlies over 65 years old has
been continuously increasing. In 2015, China had approximately 144 million people aged
65 years or older, accounting for 10.5% of the total population. This number has risen to

22
176 million counting for 12.6% of the total population in 2019. This, paired with the
lagging-behind capacity of the system that cares for older people11, makes long-term care
a concern. The term “long-term care” is a relatively new one in China, where the term
“providing/caring for seniors” (yang lao) has been in use for a far longer time12. In China,
as in most other countries, care for older people is provided primarily by family members
and other informal (unpaid) caregivers, supplemented by formally paid care, if available
and affordable13 (Feng et al., 2020). These trends have led to the recent surge in demand
since the 2000s for formal long-term care (Feng et al., 2011; Flaherty, 2009).

Figure 6. The Changing Composition of Population in China, 1987-2018

Source: China Statistics Yearbook, 1987-2018; National Bureau of Statistics, 2020

In response, policymakers are striving to develop a modern long-term care system that is
affordable, high quality, and suitable for the needs of the aging population14. Since 2013,
China has promoted the integration of health care and long-term care services (yi yang jie
he) as the new policy priority15 (State Council of China, 2013a). The government has
promoted the construction of residential care facilities by setting targets for bed supplies16,
and giving financial inducements and preferential policy treatments including tax breaks
and land allotment or leasing to incentivize entry of the private sector. These incentives
include lump-sum subsidies for new constructions and recurrent subsidies for occupied
beds and reduced utility rates. In 2019, the State Council in China issued a new policy
directive that urges local governments to improve engagement with the private sector17

23
(State Council of China, 2019b).

These incentives have caused considerable growth of the residential care sector 18 ,
particularly real estate property development under the name of long-term care. It is
estimated that the size of China’s elderly market would reach 2.98 trillion CNY in 2020
and 48.52 trillion CNY in 2050 (DataStory, 2019). The market size will grow at a rapid
rate of 9% per year, which is extremely lucrative for senior housing. Based on the “9073”
model proposed by the government, which aims at 90% home care, 7% community care,
and 3% facility care, the number of senior housing apartments is estimated to reach 13.26
million (Q. Chen, 2017). This market share is even further highlighted by the "Healthy
China 2030" Planning Outline issued by the State Council in 2016, which promotes the
integration of health and tourism to foster health industries (State Council of China, 2019a).
In 2019, the central state invested 300 billion CNY to support the "health care + tourism +
real estate" mode (D. Wu, 2019). Sensing the vast market potential, many real estate
developers have decided upon senior housing construction as their strategic development
aim, as well as an opportunity for business transformation, revenue restructuring, and
change in their growth model19. The increasing market share in the long-term care sector
and the government policy directives have collectively created the fever of building so-
called “medical cities,” or “health towns” in China, which are essentially real estate
development projects based on the consumption of branded places.

“Health towns” own their origin to characteristic towns (te se xiao zhen), which is one of
China’s latest industrialization and urbanization strategies. The development of small
towns is considered as an urbanization model to improve the lives of both urban and rural
dwellers (X. Wang, Liu, Sykes, & Wang, 2019). As premier Li Keqiang has promoted the
development of smaller towns (cheng zhen hua) rather than relying on large urban
environments (cheng shi hua) (Saich, 2015, p. 237), China insists on taking the road of
new urbanization and proposes to develop characteristic towns (H. He, 2019). Originating
in Zhejiang, characteristic towns are efforts of entrepreneurial governments to rebrand
urban places as real estate commodities (Zou & Zhao, 2018), and are also expected to serve
as platforms for industrial upgrading20 . In the 2010s, “health towns” have proliferated
across the Chinese urban landscape. Table 1 shows some existing models based on the

24
relationship among institutional partners21.

Table 1. Selected Health Towns/Cities

Area Investment Institutional

Name Time Location
(1000 m2) (billion CNY) Partners
Guangzhou International
2013 Guangdong 148,300 34.85 Govt, Enterprise
Health City
Enterprise, Health,
Hunan Health City 2016 Hunan 150 /
Financial Institutes
Shanghai Yuanda Health
2012 Shanghai 165 4 Enterprise
City
Enterprise, Govt,
Wuhu Life Health City 2008 Anhui 10,000 / Health Research,
Financial Institutes
Xi”nuo International Govt, Enterprise,
2011 Ningxia 3,500 22.8
Health City Banks
Xiangjiang New Area Int
2015 Hunan 800 30 Enterprise
Medical and Health City
Yanda Int Health City 2009 Beijing 1,060 7 Enterprise
Zhengzhou Xuanju Health University,
2010 Henan 14,000 20
City Enterprise, Govt
Enterprise, Govt,
Fuchunshan Health City 2013 Zhejiang 40,730 4
Banks
Zhujiang Life Health City 2010 Guangdong 13,333 50 Enterprise, Govt
Baguang Int Biovally 2017 Jiangsu 2,000 / Govt, Enterprise
Quhai Life Health Town 2016 Jiangsu 3,500 8 Enterprise, Govt
Fogao District Life Health Govt, University,
2012 Guangdong / /
Town Enterprise
Shaoxing Int Health Town 2016 Zhejiang 3,950 10 Govt, University
Boaole City Int Medical Gov, Healthcare
2013 Hainan 20 0.5
Tourism Pilot Zone Institutes
Tai’an PKU Resource Enterprise, Govt,
2017 Shandong 1,333 2
Tech Town University
PKU Resource Pension Enterprise, Govt,
2017 Shandong 3,333 14
Health Town University

Source: Table redrawn from vcbeat, (Luo, 2017a)

In principle, these health towns are organized and categorized into three planning
typologies according to their advantages (China Business Industry Research Institute,
2017). The first one is nature-based “Health Tourism Town.” These towns are essentially
tourism towns with their essential businesses being entertainment, ecological farming, and
medical tourism. The second is industry-driven “Health Tech Town,” which resembles

25
more of biomedical and pharmaceutical valleys based on existing life science or “big health”
industry. Their core businesses are biotechnology and pharmaceutical R & D, VC
incubation, and educational research and medical services. The third type is service-driven
“Medical Health Town.” This type of town is based on medical facilities and health care
providers, similar to the “Health Tourism Town,” their core businesses are medical services,
rehabilitation care, and health care for the elderly. These developers have constructed
“health towns” by building real estate properties around pension facilities, community
medical care, high-end medical care, and medical malls (Luo, 2017b).

However, it is important to understand that these urban experiments with “medical cities”
are market-driven, land-dependent real estate projects branding place-making 22 . These
“medical cities” are far from the MUR triangle. With no research and knowledge
production, “Health Tourism Town” or “Medical Health Town” remain mere commodities.
Although “Health Tech Town” strives to create businesses around the biotech industry, its
isolation from university and hospital makes it closer to industrial parks built to attract
investments and capture production. It is important to clarify that in this research, “medical
city” in China should specifically refer to the connection among hospitals, universities, and
research, in a similar fashion to MUR in the United States.

The IUR Triangle

Perhaps the more appropriate comparable in China is the Industry-University-Research

(IUR, chan xue yan) triangle, which resembles the MUR triangle and is becoming the new
slogan in planning urban development projects in China. “Industry” represents enterprises
and companies, who look for collaboration with scientific research institutions and
universities. “University” represents the training of talents to accommodate for the demand
of the industry and professionals from the industry could in return educate the talent in the
universities. “Research” represents the collaboration between the research institutions and
enterprises, using the market demand to direct new research and to transform academic
research into marketable products. Although the origin of IRU in China could be traced
back to the 1990s23, it was inspired by earlier international precedents (Li Zhang, 2020).
For example, Japan established a national industry-university cooperation research
committee in 1933 and issued the "University Technology Transfer Promotion Law" in
26
1988. The UK has implemented a series of plans to encourage cooperation between the
scientific and technological sectors and the industrial sectors since 1975. The United States
promulgated the “National Cooperative Research Act” in 1984, encouraging the formation
of science and technology industrial parks and "industry + university" research centers. In
2019, the Fourth Plenary Session of the 19th Central Committee of the Communist Party
of China (Xinhua News Agency, 2019) points to “establishing a technological innovation
system with enterprises as the main body, market-oriented, and in-depth integration of
production, education, and research”. Therefore, in the Chinese context, the enterprises
are the frontiers in translating research into products24.

Industry

University Research

Figure 7. The Trilogy of Industry, University and Research

Under such policy directives, universities and research institutions have jointly created an
urban typology of Science and Technology Park, which resembles industrial parks. The
parks engage in the development of high-tech products and the transformation of research
through binding universities, research institutions, enterprises, and the government. This
typology has been deemed an opportunity to upscale to the knowledge economy,
technological innovation, and economic development. Specific to the medical and
pharmaceutical industry, there are more than 100 medical and IUR pharmaceutical parks
approved by state departments and local governments. The idea is that the research
institutions are expected to pilot the initial stage of production, which is dominated by
advanced offshore companies and their satellites. In the later stage, locally generated high-
technology-pioneering firms become globally competitive through their acquired
technologies (Walcott, 2002).
27
However, the IUR has gradually become a slogan for real estate developers to secure land.
The central leadership of China has been promoting “green water and green mountains are
golden and silver mountains” (lv shui qing shan jiu shi jin shan yin shan), which focuses
on environmental sustainability. This includes tighter control over land for development in
China. Although such move has a more profound political and economic considerations, it
is harder for real estate companies to acquire land for development. But IUR is a window
because the central government favors development that facilitates IUR. As a result, the
local governments also give preference to joint ventures between real-estate companies and
tech companies (including medical and pharmaceutical companies) during the land
acquisition stage. As a result, IUR unsurprisingly becomes an instrument for developers
and local governments to achieve their financial and political goals.

Furthermore, the Chinese state has favored building industrial parks (Zheng, Sun, Wu, &
Kahn, 2017), which caused a “zone fever” (Cartier, 2001). Developers and government
agencies tend to assimilate the IUR with industrial parks (Science and Technology Parks)
that focus on firm agglomeration and labor pooling rather than knowledge agglomeration
of advanced technology. Geographical proximity, represented in the co-location of firms
and research institutions, does not necessarily lead to the complete IUR triangle (PKUCare
Industrial Park, 2017). The IUR triangle, if compared with the MUR triangle in the United
States, should bind various institutions in an integral environment, so co-location is a result
of such integration rather than the cause of it. Particularly for medical cities in China, the
results of the current IUR schemes are usually mega urban projects anchored to mage-
hospitals and driven by expansive real estate development strategies. Therefore, it is
necessary to differentiate medical cities in the United States from “medical cities” in China
because they have to be contextualized in different political and economic environments
and situated in different urban planning systems and spatial production paradigms.
Nonetheless, the emerging opportunities in the health care industry and the real estate-
driven urban system are key to understand “medical cities” in the Chinese context.

28
1.2 Research Methodologies
1.2.1 Research Questions

“Eds and meds” in the United States laid a foundation for the burgeoning of MUR
campuses as an urban typology. It has worked successfully in regional economic
development, as existing literature has widely studied the economics of “eds and meds”
and its economic impacts on urban development since the early 2000s (Adams, 2003;
Bartik & Erickcek, 2008; Berg & Klink, 1996; Erickson et al., 1986; Harkavy &
Zuckerman, 1999; Parrillo & de Socio, 2014). Its neighborhood impacts have also been
widely studied (Day, 2016; Ehlenz et al., 2014; Moore, 1974). Their research found
agglomeration as the underlying principles that increases the productivity and reduces cost
for patients (Baicker & Chandra, 2010; Bates & Santerre, 2005; Cohen & Morrison Paul,
2008; Friedson & Li, 2015; Kessler & McClellan, 2000; Jing Li, 2013). They also
highlighted MUR trilogy, where the medical, university, and research institutions co-locate
and collaborate. Although some literatures have studied the MUR campuses (Conner, 2016;
Glaser, Harrison, & Wall, 1991; McKee, 2016), they primarily focused on the historical
aspects (Kellar, Bush, & Lemaistre, 2017; Wainerdi & Newcomen Society of the United
States, 1993), ignoring the more fundamental mechanism for such organization (Yin, 2015).

But the more profound question is on its implications for similar typologies emerging in a
different geographical, economic, and political context. This research finds the concept of
“medical city” in China popular, or somehow unavoidable, for urban planners and
government officials because of the changing demographic composition, economic
restructuring, and increasing healthcare demand from its population. This typology in
China is restricted and altered by multiple institutional characteristics in land policy,
planning paradigm, government intervention, and of course the healthcare system. The
difference is not only apparent in their spatial characteristics, but also in the policy
instruments and institutional actors that have shaped them.

The birth and growth of medical city as an urban phenomenon has not yet been
systematically studied in the current literature. To add to existing literature, this dissertation
aims at offering insights into “medical cities” in the United States and China, and
contextualize them in the different institutional, political, and economic environments.
29
Therefore, the research question concerns the differences between “medical cities” in the
United States and China and further explores the underlying factors that shaped these
differences. This research contributes to existing research by drawing links between
medical cities and their wider socio-economic narratives of the transforming economy, the
shifting urban governance, the varying civic engagement, and the changing civic-health
relationship. This research further offers insights on the specificities of institutional
characteristics in the United States and China and how they have shaped an urban
phenomenon similar in concept but drastically different in their practical values.

Because the research question challenges an open field that has not yet been extensively
studied. Using Gabriel’s (2013) methods for deductive approaches, smaller research
questions are provided to narrow the scope of the study. The dissertation is decomposed
into three smaller sections: OBSERVATION, INTERPRETATION, and THEORIZATION.

OBSERVATION: This section uses literature to draw theoretical frameworks for medical
cities in the contexts of the United States and China. It examines the economic, political,
and social factors that led to the rise of healthcare industries and dissects into the
institutional environments that have shaped medical cities in the United States and China.
It makes the argument that the burgeoning healthcare industry in the United States is a
result of the “knowledge-material circuit”, and the experiments with medical cities in China
are “institutionalized spatial practices”.

INTERPRETATION: This section conducts four case studies, two in the United States and
two in China. The in-depth case studies aim at identifying key features of the spatial
characteristics of the medical cities, and the policy instruments and institutional actors that
have collectively shaped these cases. The cases are in four global cities: Boston, Houston,
Beijing and Shanghai, and each of the case represents unique characteristics that will be
organized for comparative studies in the following section.

THEORIZATION: This section organizes the findings from case studies into comparative
studies to test the arguments made in OBSERVATION. Then, based on the comparative
studies, the essential elements for making medical cities in the contexts of the United States
and China are identified to theorize the underlying mechanisms that have led to the

30
similarities and differences among the case studies. Based on these theorized findings,
policy recommendations will be made for medical cities in both countries.

This dissertation is organized in such: OBSERVATION includes Chapter 2 on the United

States, and Chapter 3 on China; IDENTIFICATION is in Chapter 4, and THEORIZATION
is in Chapter 5, also concluding this research with policy recommendations for both the
United States and China.

1.2.2 Analytical Framework

OBSERVATION

This section uses literature review to construct theoretical frameworks to understand

medical cities in the United States and China. The scope of study focuses on the
“knowledge-material circuit” made possible by the transformation of the urban economy
through healthcare industry and the commercialization of academic research to market
products in the United States, and the “institutionalized spatial practice” shaped by the
growth-driven and land-dependent models of urban development and the resource-
dependent healthcare system in China. The economy in many American cities has
transformed from an industrial past to a knowledge-intensive economy based on research
in medical technology and biomedical science that improves life science and medical
treatment, which also leads to more spending in health care (Stevens, 2008). Meanwhile,
the healthcare industry in the United States has been a dynamic equilibrium among
different stakeholders (Chernew, 2020; Musgrave, 2015), particularly of the political
system in which the federal government debates on the ideology and spending for health
care (Berdine, 2014; Kumar, Ghildayal, & Shah, 2011; Schoenbaum, Audet, & Davis,
2003), and the market forces and insurance systems (Dauda, 2018; Ng et al., 2020; Sood,
Ghosh, & Escarce, 2009; Starfield, 2005). This research makes the argument that this
economic output is a result of the “knowledge-material circuit” based on the biopharma
industry which has long been involved in the capital market (Lakdawalla, 2018;
Lakdawalla et al., 2009; Tulum & Lazonick, 2018), and the increasing number of start-ups
capitalizing on the biopharma and medical device markets (Cerone & Tull, 2015; Choi,
Lee, & Bae, 2019; Curfman & Redberg, 2011; Kang & Ku, 2018). The “knowledge-

31
material circuit” capitalizes innovation and knowledge translating them into marketable
products, and the profits led to more research in such fields, further strengthening such
circuit (Harvey, 2020). Medical cities in the context of the United States are spatial
representations of such economic upscaling and concentration of capitals.

China has been believed to embrace an ideology of “developmental state” (M. Lu, Xiang,
Démurger, & Solanko, 2016; F. Su, Tao, & Yang, 2018), which is structured by a unique
central-local relationship (Afonso & Fernandes, 2008; C. He, Zhou, & Huang, 2016; Saich,
2015). This enables the state to facilitate its economic reforms while not letting go of its
extended “shareholding” as a manager (Yingyao Wang, 2015), affecting local governments”
decisions for spending on public services (Zhimin Chen, Jing, & Osborne, 2017; Yao, Zhu,
& Yu, 2020). So that debt-driven and land-based urbanization made Chinese cities “growth
machines” (Chien & Woodworth, 2018; Curien, 2014; F. Pan, Zhang, Zhu, & Wójcik, 2016;
Wu, 2015b). The Chinese state has instrumentalized urbanization to mobilize resources and
to achieve growth. Meanwhile, health care in China has always been a conundrum if not a
“Gordian Knot”. It has been going through a series of reforms and is a result of the interplay
between institutional forces and historical legacies (Luk, 2017).

It started from a state socialism system (Gu, 2001) of public ownership and welfare, mass-
based collectivism and egalitarianism (Cockerham, 2007), achieved universal health
insurance coverage (Zhu Chen, 2009; A. He & Wu, 2017; L. Wong, Tang, Lo, & Tang,
2006; H. Yu, 2015), and ongoing reforms strive to alleviate pressure on urban services
caused by the growing and aging urban population (Dou, Wang, & Ying, 2018; P. Gong et
al., 2012; M. Li, 2015; S. Tang, 2004). Public hospitals in China enjoy an incumbent
advantage. The majority of medical resources and patients are concentrated in public
tertiary hospitals, which is described as the “reverse pyramid” and is widely criticized for
its inefficiency (Xi Li et al., 2017; X. Lin & Ai, 2009; W. Yang & Kanavos, 2012; Yip et
al., 2019). This research will go through the underlying causes for the public hospital
systems (World Bank, 2010; Yi, Yuan, & Zhao, 2019; Liang Zhang, Yan, & Wang, 2009),
focusing on the financing of insurance (M. Chen, Palmer, & Si, 2017; J. Sun & Yao, 2005;
Xiao & Liu, 2013; S. Yang & Liu, 2015; S. Zhang, 2015; M. Zhu & Li, 2017), payment
methods (Lele Li, 2018; D. Wang, 2019; D. Wang & Wang, 2013), and the medical school

32
system (Griffiths & Tang, 2011; Jie Li, Qi, Guo, Peng, & Zhang, 2012). This research,
therefore, argues that because of the unique institutional characteristic of urbanization and
the healthcare system in China have made experiments with medical cities the
“institutionalized spatial practices.”

INTERPRETATION

According to Gomm, Hammersley & Foster’s guidance on case studies (2000), in-depth
case studies are designed to collect a large number of features to “understand its activity
within important circumstances” (Stake, 1995). Therefore, this section identifies key cases
rather than outlier or local knowledge cases (Thomas, 2011), to reflect the contextual
institutional forces whose patterns and logic could be generalized (W. Yu, 2020). For cases
in the United States, to better test the “knowledge-material circuit” argument, the case
studies should reflect the MUR triangle and its association with the production of urban
space, and to avoid “eds and meds” that focuses on community revitalization or real estate-
driven community planning such as Lake Nona in Florida. Therefore, the case studies in
the United Sates are the Longwood Medical Area (LMA) in Boston, and the Texas Medical
Center (TMC) in Houston. The LMA is the exemplification of the “knowledge-material
circuit” and is a node on the nexus of top research, university, and medical institutions in
Boston. The TMC is a result of the place-based policy for economic transformation and to
rebrand Houston as a destination of domestic and international tourism.

For cases in China, although “medical city” as a concept in China that has been used in
various urban projects and brought confusion to its scope of definition, to ensure
comparability with the cases in the United States, this research avoids cases that are purely
driven by real-estate. The cases are the Peking University Healthcare City (PHC) in Beijing,
and the New Hongqiao International Medical Center (HMC) in Shanghai. The PHC is
anchored to the Peking University International Hospital and was initiated and led by the
PKU Founder Group, which is a university-owned enterprise. The HMC was initiated by
the Shanghai municipal government is an aggregate of private high-end specialized care.
According to Thomas’s guidance on designing case studies (2011), the case studies are
“explanatory in purpose and descriptive in approach” when reflecting upon the spatial
characteristics, and “instrumental in purpose and interpretive in approach” when
33
examining the policy instruments and institutional actors. A combination of study in history
and policy, spatial analysis, and expert interviews will be used.

THEORIZATION

Adm Pol
cto rs on inis ic
rati trati y In
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ing Fisc me
x’ Insti Fin
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itiat
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In titu
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Diversity
Diversity
Spatial Characteristics

Spatial Characteristics
Density
Density

Pla n
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ing u
Locality

Locality
d
Pro
Ad
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Ca
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Figure 8. The Framework for Comparative Analysis

Comparative analyses are designed to critically reflect the similarities and differences
among the cases. The purpose is to use “grounded theory” (Strauss & Glaser, 2017) to
“compare each unit (case) for analysis with other ones so to bring out the distinctive
elements or nature of the cases studied.” The findings, as a result, could be organized into
generalizations to interrogate the underlying causes. To structure the comparative analyses,
the discovered features of case studies are organized around the aspects of policy
instruments, institutional actors, and spatial characteristics shown in the conceptual
framework articulated in Figure 8. The diagram illustrates the three axes and each two of
them further converges to form the institution, planning, and production aspects when
using the findings of the case studies to reflect upon the generalized contexts in the United
States and China. In a nutshell, the axes of policy instruments, institutional actors, and
spatial characteristics are designed to structure the findings from the case studies (medical
34
cities per se), and the aspects of institution, planning, and production are used to reflect
upon the contexts in the two countries which have shaped the medical cities.

INSTITUTION

The grids break into the project initiator, financing process, operation on the institutional
actors’ axis, and administrative, fiscal, and capital policy incentives on the policy
instruments’ axis. The two axes converge to become the “institution” aspect for cases. This
is reflected by the two fundamental actors of any urban project: the state-market
relationship, so the urban could be understood simultaneously as a “presupposition, a
medium, and an outcome of the conflictual, continually changing social relations of
capitalism” (Harvey, 1978). Hutton (1995) identifies three ideal models: the “free market”
model that minimizes the role of the state and seeks the greatest freedom for the market;
the “social market” model the capitalist market is not a natural force that results from
individuals pursuing their own end, but has to be consciously organized and monitored;
and the “developmental state” model which has been implemented in Asian countries
where the state is particularly focused on national economic growth and plays a significant
role but not in quite the comprehensive manner of the social market model. State
intervention is high, but it is oriented almost exclusively to this national economic goal.
The institution aspect is particularly important for China because the state–market relations
are the subject of many recent studies on its imprint on urban spaces (S. He & Lin, 2015;
Yeh, Yang, & Wang, 2015). Under the evolving neo-liberal urbanism in China which has
been actively pursued by municipal governments as a strategy to negotiate and contest with
the new power relations established by the post-reform regime (G. C. S. Lin, Li, Yang, &
Hu, 2015), the state, especially the local state, is no longer a social welfare provider (S. He
& Wu, 2005a). Local governments gained autonomy to take on risk through speculative
investments and public-private partnerships.

PRODUCTION

It specifically refers to the theoretical frameworks for the production of contemporary

urban space. The axis spatial of characteristics encompasses the diversity, density, and
locality of the selected medical city, and the axis joins with the axis of institutional actors

35
to elaborate on the production of urban space. Marked by Lefebvre (2003), space is one of
the “privileged instruments” of state institutions to mobilize and regulate the social
relations under capitalism. On the production of state space, Brenner (2004b) argues that
one could investigate the evolution of state spatiality in relation to specific regulatory
problems under capitalism, for instance, those associated with capital accumulation, social
reproduction, and political legitimation. As market-oriented reforms are introduced in
urban China, the power of the market rather than the once omnipotent state is significantly
reshaping urban landscapes25. The local state and enterprises have jointly endeavored to
promote rapid urban (re)development, which is strongly based on real estate development
(S. He & Wu, 2005a). It refers to a contradictory hybrid of weak-state intervention in local
economies through the “proactive promotion of local economic development by local
government in alliance with other private-sector agencies” (Lauermann, 2018). The
framework highlighted the changing role of government officials as municipal
governments seek out their own funding sources, particularly in the process of capitalizing
on land (G. C. S. Lin & Yi, 2013). Therefore, to understand spatial practice with the medical
city as an urban typology, it is crucial to put “state spatial strategies” into discourse.
Specific to the production of the industrial complex or urban forms resembling it, Gordon
& McCann (2016) found production links central to the clustering process, They identified the
social-network model to measure the co-operative behavior among organizations pursuing
mutually beneficial ventures. Current research on industrial park-related processes actively
improves the investment system supported by financial credit and social financing, led by
government support (J. Ma, Xia, & Li, 2012). These point to the important roles played by the
market or institutional actors in the market during the process of producing urban projects.

PLANNING

The policy instruments axis converges with spatial characteristic axis to articulate planning
paradigms. The shifting role of the state is important for understanding urban planning
discourses. Urban planning is the publicly mediated attempt to make interrelated decisions
that collectively shape concrete spatial development patterns at various institutional
scales 26 (Thornley & Dierwechter, 2012). The “great debate” over to what extend has
urban planning served the state has not completely settled. A key moment was the
publication “General Theory” by John Maynard Keynes (1936) claiming that stability was
36
needed in the economic system and the state should intervene in the market. Karl Polanyi
published the “Great Transformation” (1944), blaming market forces for leading to
destruction unless carefully regulated. Planning was also attacked by the Marxist left such
as Foglesong (1986) that the planning system was an agent in maintaining the capitalist
system and legitimizes the existing capitalist system and the inequality of power in society.
In the 1970s, a new theoretical approach was propounded by some authors such as
Lindblom (1977), suggesting that the government and the private sector need each other.
The government does not have the resources, particularly risk capital, to undertake ventures,
while the private sector requires legitimacy to support its need for stability. But from the
1980s on, the power balance tipped toward the market. The crisis of the 1970s led to market
dominance, which is expressed in the work of Friedrich Hayek (1945). He saw central
planning for the national economy as inappropriate for modern society because it involves
such great complexity that it cannot be fully understood and controlled. Any “plans” result
in oversimplicity, have detrimental side effects, and slow down innovation. These ideas
had a major influence on politicians, especially in the United States and Britain (Thornley,
1991), resulting in a shift in the approach to urban policy and planning.

In the Chinese context, He & Lin (2015) argue that the growth and spatiality of new
urbanism in China can be better understood by a critical analysis of how the state, market,
and society interact in the processes of producing and consuming urban spaces. Municipal
governments have proactively engaged in land commodification marked by “socialism
with Chinese characteristics” (Lim, 2014). The “developmental state” uses its capacity to
rescale capital allocation(Nee, Opper, & Wong, 2007), and uses policy intervention to
change the state-market relationship, which leads to a new wave of urban growth and
development (S. He & Wu, 2009). Planning is strong so it can contribute to this national
economic objective, but in other areas such as housing, quality of the urban environment,
or encouraging public participation, the state does not play a significant role. At the same
time, specific to the processes resembling agglomeration, the state uses policy tools to forge
development in urban projects such as industrial parks. Literature on the making of
industrial parks or large urban projects has also outlined the significant role played by the
government during the planning projects (S. C. Y. Chen, 2011).

37
Chapter 2: “Knowledge-Material Circuit” in the United States

Chapter 2 argues for a “knowledge-material circuit” in the making of medical cities in the
United States. The “knowledge-material circuit” should be distinguished from the
traditional Marxist critique on the “consumption-production circuit.” From a Marxist point
of view, the capitalist economy is a spiral of endless expansion and growth marked by the
circulation and accumulation of capital, as money flows in search of profit through the
different moments of production, realization (consumption), distribution, and reinvestment.
In the “knowledge-material circuit” the research or knowledge is translated into market
products in the health care industry. These products, in return, helped capital accumulation
which further gives incentive for the production of knowledge. Knowledge and money
flow together in search of profit through the different moments of production, consumption,
distribution, and reinvestment. In this process, the “knowledge-material circuit” helps to
complete the capital circulation.

This chapter synthesizes the argument from the perspectives of the consumption capacity,
and the research or knowledge-driven economy of the American health care industries. On
the consumption end, neoliberal governance across American cities seeks to “re-
entrepreneurialize” cities through “knowledge economy,” the public and private interests
and for-profit and non-profit organizations in making the American health care an “industry”
that relies on market and revenue, rather than a “service.” On the research end, the federal
government and philanthropic organizations, such as the Bill & Melinda Gates Foundation
that is recently in top news, have funded basic research for life sciences, and the market,
with private dollars from private equity and venture capital, provided financial incentives
for knowledge translation. Backed by the lucrative pharmaceutical and medical device
industry, university faculty members are incentivized to produce spin-offs and startups that
commercialize their research products. Medical cities, in this retrospect, are no longer
urban forms, but rather a spatial representation of the circulation of knowledge and capital.

38
2.1 Consumption-Based Industry
2.1.1 Transforming the Urban Economy

The Impacts of Health Care Industry

Many believe that the growth of the health care industry and its impact on American cities
has been one of the most fundamental economic shifts in recent urban history (Day, 2016).
The conceptualization of health care as an industry has been represented by the inter-
sectoral transfer of administrative and management principles such as the “lean
management” or “lean and six Sigma” (Deblois & Lepanto, 2016), as well as the translation
of an industrial complex to a medical complex as the economic growth pole (Berg & Klink,
1996). The term “lean” was coined in 1990 following the exploration of the Toyota Motor
Company model that led to the “transference” thesis sustaining the concept that
manufacturing problems and technologies are universal problems faced by management
and that these concepts can be emulated in non-Japanese enterprises (Teich & Faddoul,
2013). It was Joseph Juran who linked manufacturing and the healthcare industry (Manos,
Sattler, & Alukal, 2006). He wrote:

“as the health industry undertakes…change, it is well advised to take into

account the experience of other industries in order to understand what worked
and what has not. … In the minds of many, the health industry is different. This
is certainly true as to its history, technology and culture. However, the decisive
factors in what works and what does not are the managerial processes, which
are alike for all industries.”

This is the reasoning that allows the principles of lean production and management to be
applied in healthcare, despite these being originally developed for application in other
industries. Indeed, scholars and policymakers now clearly identify health care as an
industry comparable with steel, oil, gas, and the railroads in the nineteenth century. Since
World War II, the rapid expansion of the U.S. health care system has played an often-
determinative role in shaping the spatial organization of cities, defining the provision of
urban public services, and not least, providing a primary source of jobs in many
metropolitan areas. Health care has emerged in the late twentieth and early twenty-first

39
centuries as an economic driver of change and, in the views of many, an essential
revitalizing agent for American cities suffering from economic decline.

Figure 9. The Breakdown of U.S. Labor Statistics by Industry Sector, July 2020
Source: Table B-1. Employees on nonfarm payrolls by industry sector and selected industry detail, U.S.
Bureau of Labor Statistics 2020

The U.S. Bureau of Labor Statistics reports that the health care field added 358,000 jobs in
June, increasing 2.3% to a seasonally adjusted 15.6 million, with Hospitals added about
6,700 jobs in June, their first monthly increase since the beginning of the pandemic in
March (U.S. Bureau of Labor Statistics, 2020). Shown in Figure 9, health care in total,
including ambulatory service, hospitals and nursing and residential care, contribute to 11%
of the total jobs in the U.S. by July 2020. This number is close to the other three major
industry sectors: professional and business services (14%), trade, transportation, and
utilities (19%), and government (16%). As the health sector becomes a greater portion of
GDP, employment and related activities in the health sector also grow (ASPE, 2005).
Related industries such as hospitals, pharmaceuticals and medical equipment suppliers
have higher than average research and development levels, in addition to a positive balance
of trade (EBRI, 1993a). As shown in Figure 10, with these “ripple effects” included, each
hospital job supports about two additional jobs, and every dollar spent by a hospital
supports roughly $2.30 of additional business activity. Overall, hospitals support 16.5
million total jobs, or one of 9 jobs, in the U.S. Support almost $3.0 trillion in economic
40
activity, support almost $3.0 trillion in economic activity (AHA, 2018).

Figure 10. The Number of Full-time and Part-time Hospital Employees (in millions), 1995-2016

Figure 11. The Impact of Community Hospitals on U.S. Jobs (in millions), 2016
Source: Both remade from dataset of AHA (2018)

While the pharmaceuticals and medical and dental instruments and supplies are also part
of the health care industry, health care expenditures directly drive health care services
delivered in hospitals, physicians’ offices, nursing homes, and increasingly, outpatient
clinics and inpatient’s homes by home health care agencies (EBRI, 1993a). Hospital care
is an important component of the health care industry. In 2016, America’s hospitals treated
143 million people in their emergency departments, provided 605 million outpatient visits,
performed over 27 million surgeries and delivered nearly 4 million babies (AHA, 2018).
In most regions and states, hospitals are the largest employer-based upon employee
headcount. As shown in Figure 11, hospitals employ nearly 5.9 million people, purchase
$903 billion in goods and services from other businesses. The goods and services hospitals
purchase from other businesses create additional economic value for the community.
Health care research and development creates jobs and companies in biotechnology,
medical devices and many other areas.
41
 Figure 12. The Effect of Community Hospital Expenditures on State Economic Output, 2016

Figure 13. The Percentage of Total Employment Supported by Hospitals, 2016

Source: Analysis Based on American Hospital Association Annual Survey data for 2016

Furthermore, emphasis has been given to identifying and examining the factors through
which health spending impacts the local market. Money spent on health care flows into

42
industries that provide employment and contribute to the U.S. production and exports, the
tax base, capital investment, and R&D. Shown in Figure 12 and 13, although the effect of
hospital expenditures on total state economic outputs vary significantly dues to the
geography of uneven economic development, but on the percentage of total employment
supported by hospital employment average at 11.33% national level, making significant
contributions to the regional economy. Health care is a typical metropolitan service sector,
as only large, urbanized regions can offer a market for specialized care and research.

The rising demand for medical services to treat aging baby boomers, combined with shifts
in approaches to treatments to curb rising costs, significantly increases the need for new
and refurbished medical office buildings. Meanwhile, the changing demography of the
migrant population from the rural to the urban and their aging trend demand a critical
volume of health services in the cities. It is widely believed that internal migration rates in
the United States, that is, population flows between regions, states, or cities within a
country, are higher than in other countries (Molloy, Smith, & Wozniak, 2011). Several long-
term trends and drivers contribute to the demand for both a higher number of medical
facilities and different types of products: baby boomers living longer and requiring a
variety of services; technology changes necessitating retrofits or new development; an
increase in the number of people insured under federal health care legislation; an increase
in healthcare-related jobs; a shift toward more outpatient centers; and an increase in doctors
employed by hospitals (Newhouse, 1992; Shilling, 2011). Although the rising expenditures
on health care has been a debate, in aggregate the growth rate of employers spending on
health care have a smaller impact on the growth rate of total compensation than does the
growth rate in wage and salaries (EBRI, 1993a). Some economists note that rising health
care spending has important benefits, often outweighing the increased costs (Cutler &
McClellan, 2001). When adjusted for improvements in quality, these economists found that
the cost of medical care is in fact in decreasing. In this view, increased health care spending
increases access to new technologies providing both new options of treatment and
treatment for a greater number of individuals.

As a result, health care institutions are taking on new roles in leading economic
development. Even cities that are driven by financial services and are known for economic

43
prosperity, such as New York City, are actively seeking opportunities to transform the
economy through the health care industry. According to the Office of the State Deputy
Comptroller for the City of New York, in 2018 there are 780,000 people employed in the
healthcare and social assistance industry in NYC (DiNapoli & Bleiwas, 2019), 22% of the
4.55 million total employment (U.S. Bureau of Labor Statistics, 2020), with 1.8 billion
dollars of venture capital (VC) funding to NYC-based healthcare companies in 2018, an
increase of 700 million dollars from 2017 (NYCHBL, 2018). Embracing the mission to
promote health care in NYC, the New York Economic Development Corporation
continuously facilitates projects that take advantage of the largest public healthcare system
in the U.S., world-class private medical centers, and the cutting-edge R&D landscape
(NYEDC, 2019).

Towards a Knowledge Economy

The city can enjoy growth and prosperity because of its inherent locational advantages to
attract financial, natural and human resources, leading to polarization and cumulative
causation. The ascendance of the globalization era has led to a shift of attention from
functional and territorial integration to global competition and an expansion of scope from
the city as a growth center to the global city-region (Sassen, 2013; Scott, 2001). These
global city-regions, as the pillars and engines of growth for the national and global
economy, are believed to have derived their energy from the benefits generated by the
unique combination and agglomeration of favorable natural endowment, innovative and
competitive labor force, infrastructure, and social/cultural environment (Porter, 1996,
1998). One specific transition to be noted is the prevalence of neoliberal governance across
American cities, with which rules, regulations, programs, and policies resuscitate cities as
sites for capital accumulation (Brenner & Theodore, 2002b; Ward, 2000). This governance
seeks to “re-entrepreneurialize” cities physically and socially (D. Wilson, 2013), as cities
actively search for growth poles through real-estate, high-tech, and venture. Many old
industrial regions have undergone a massive exodus of skilled labor due to their shrinking
job markets (Coniglio & Prota, 2008; Houston, Findlay, Harrison, & Mason, 2008). From
the 1950s to the 1970s, social critics and futurologists imagined a “post-industrial”
transformation that would banish smoking factory chimneys and replace assembly-line

44
workers with service employees, consumers, and robots (Bell, 1973).

Because this vision was built on expectations about advances in science and technology,
and it arose during a massive expansion of colleges and universities, it inspired a new trope:
that of the “knowledge economy” (Powell & Snellman, 2004). As globalization and neo-
liberal policies have transformed the urban economy from production of materials to
production of knowledge, it was the insertion into city space of large-scale manufacturing
industry acting as the primary trigger of the third urban revolution (Soja, 2000, p. 76). The
capitalist industrial economy produced its own space, which differed radically from its
predecessor agrarian and mercantile economies. But if a new knowledge-based economy
is emerging, it is similarly expected to produce its own space to suit the new circumstances
of production and consumption (Madanipour, 2011). As centers of power, cities mobilize
economic resources and turn them into investments on a grand and even global scale. First
in factories, then in skyscrapers, and now in incubators, accelerators, and coworking spaces,
cities literally put in place new ways of organizing production (Zukin, 2020).

Some scholars also found that professional and managerial staff tended to move to
“escalator regions” such as South East England in pursuit of professional and personal
development, especially at the early stages of their career (Fielding, 2006; Findlay, Mason,
Houston, McCollum, & Harrison, 2009). The “consumer city” hypothesis (Glaeser &
Gottlieb, 2016; Glaeser, Kolko, & Saiz, 2001) claimed that contemporary urban growth
increasingly hinged on whether the cities were capable of providing services and consumer
goods and thus were attractive to high human capital residents. In today’s competitive
knowledge-based world, the availability of a large pool of human resources has been
widely recognized as a fundamental linchpin of economic growth (Lucas, 1988; Romer).
Knowledge spillover, pooling of skilled labor, and the backward and forward linkages in a
large market are three causes of increasing returns (Fujita, Krugman, & Venables, 1999).

As urban services now dominate the advanced economies, large cities and the economic
future of cities depend on services (Jade, 2010). The concept of the economic and
ecological interdependencies has been widely discussed and it arises from the purposeful
clustering and collective cohabitation of people in space (Soja, 2000, p. 12). Three forces
of agglomeration economies, which ultimately determine the location of workers and
45
companies and thus shape the futures of entire communities. These forces are thick labor,
thick markets for specialized service providers, and knowledge spillovers (Moretti, 2015,
p. 117). Bigger cities certainly attract more skilled workers, and there is some evidence
suggesting that human capital accumulates more quickly in urban areas (Glaeser &
Resseger, 2010). Urban agglomeration and density increase productivity and innovation.
Cities are hubs of knowledge, entrepreneurship, and innovation, crucibles of creativity and
growth, and sources of transformative ideas (Moretti, 2015). In this sense, inflows of highly
skilled and educated people may foster the accumulation of human capital, thus facilitating
innovative activities and enhancing the endogenous growth potential of receiving regions
(Ye Liu & Shen, 2014).

Florida et al (2006) contend that as the United States continues to transition from an older
industrial economy towards a service-based high technology “creative” economy,
institutions of higher education are increasingly important for economic development. A
commonly referred case was California’s Silicon Valley and Route 128 in Boston
(Saxenian, 1994). Even in the contemporary context, cities such as New York has actively
embraced innovation and entrepreneurship, causing a huge increase in startups. It is
inevitably true that universities are key to developing new technologies as the Silicon
Valley example demonstrates. Research shows that the presence of a college or university
in a city increases both the supply of college graduates, by educating some and attracting
others from outside, and the demand for college graduates, by making them more
productive (Moretti, 2004).

But an often-ignored fact is that universities are also important for developing the kinds of
talent required in the service and high technology-oriented creative economy. These
services enable firms to focus on what they are good at, without having to worry about
secondary functions. By the mere act of moving into a large cluster of similar firms, a
company in effect becomes larger overnight, because it can draw on specialized local
expertise (Moretti, 2015, p. 127). Figure 14 collected the number of jobs in manufacturing
and eds and meds in 2005 and 2015 across counties in the United States. It is shown that,
in 10 years, there has been a significant shift of jobs from manufacturing to eds and meds,
signaling the fading of the industrial past the coming of a knowledge economy in cities.

46
Building upon theory and evidence, policymakers in the United States have increasingly
realized the value of health care industry in the cities, particularly the eds and meds
industries. A focus on health care also helps to enrich a growing literature on the rise of
service sector jobs over manufacturing ones and high technology over the heavy industry
as part of the development of a broader neoliberal project, such as Barry Bluestone and
Bennett Harrison who drew an explicit connection between postindustrial transformations
and neoliberalism (Bluestone & Harrison, 1982).

Figure 14. The Ratio between Manufacturing and Eds & Meds Jobs in U.S. Counties, 2005 and 2015
Source: County business patterns, 2005and 2015. Washington, DC: U.S. Dept. of Commerce, Bureau of the
Census, Data User Services Division.

A comparative study between Pittsburg and Philadelphia shows that the adoption of eds
and meds is an inevitable alternative to deindustrialization as cities transition from

47
manufacturing to a knowledge economy (Adams, 2003). As shown in Figure 15, Pittsburgh
has made its transformation prior to 2005 that there is a large portion (19.7%) of jobs in its
metro region that are for eds and meds, while its 9.7% of manufacturing jobs continued to
decline till 2015. The Philadelphia-Camden-Wilmington metro region, on the contrary, has
made its transformation between 2005 and 2010, with eds and meds jobs rising from 8.32%
(less than 8.82% manufacturing jobs) in 2005 to 18.58% in 2010. Its manufacturing jobs
continue to decline as well. Both of the cities represent the glorious industrial past of the
United States, however, facing the declining jobs in manufacturing caused by globalization,
they inevitably have to undergo hard transformations to embrace opportunities brought
about by the health care industry, which is one of the knowledge-intensive industries.

Figure 15. The Percentage of Eds and Meds and Manufacturing Jobs to Total Jobs in Pittsburgh, PA
Metro Area; and Philadelphia-Camden-Wilmington, PA-NJ-DE-MD Metro Area
Source: County business patterns. Washington, DC: U.S. Dept. of Commerce, Bureau of the Census, Data
User Services Division.

Pittsburgh is a fading industrial city located in the heart of the Rust Belt, whose recent
history is marked by decline, population loss. But recently it has often been touted as a
“model city” for health care and “eds and meds” boosters. Once the global center for steel
production earlier in the twentieth century, the collapse of the city’s steel industry in the
48
1980s ushered in decades of social stress, population decline, and broad-based urban decay
in the mill towns and valleys surrounding Pittsburgh. Marked by Andrew Simpsons in his
book “The Medical Metropolis,” in 2008, the University of Pittsburgh Medical Center
(UPMC) hoisted its logo atop the U.S. Steel Building, “symbolically declaring that the era
of big medicine had replaced the era of big steel in Pittsburgh, and the transition between
an industrial economy and a service economy strongly grounded in health care is now
central to how Pittsburghers see the identity of their city for the next century.”

Figure 16. The Percentage of New Jobs in Eds and Meds and Manufacturing to Total New Jobs in
Pittsburgh, PA Metro Area
Source: County business patterns. Washington, DC: U.S. Dept. of Commerce, Bureau of the Census, Data
User Services Division.

However, back in the 1970s, most inpatient and nondoctor’s office medical care was
provided by a broad range of either unaffiliated or loosely affiliated hospitals. The
University Health Center of Pittsburgh was a loose federation of six hospitals with annual
revenues of approximately $10 million. The services provided by these institutions were in
large part limited to residents of the surrounding neighborhoods and were staffed by
attending physicians based in these institutions which, for the most part, respected market
boundaries between competing hospitals (Levin, 2005). But by the early twenty-first
century, the situation had shifted dramatically. By 2005, most hospitals in the city had
affiliated into a network dominated by UPMC. All of these institutions have experienced
49
major restructuring processes with UPMC becoming more like a private for-profit
corporation than a not-for-profit charitable institution. UPMC’s affiliated hospitals have
been organized into managed service networks designed to compete for customers. By then,
thirteen of the region’s twenty-seven hospitals were affiliated with UPMC (Day, 2016).

At UPMC and other large medical centers, business organizations, competition,

discriminatory marketing, and financial bottom-line concerns dominate not only the
service elements of health care, but increasingly they also shape the activities of research
and teaching centers. Thus, the potential efficiencies of more aggressive, systematic, large-
scale, organization management have become centered around private institutional gain
and survival, rather than community or public accountability, local health needs, and
general cost-effectiveness. In recent years, large health care networks such as UPMC have
increasingly become models for policymakers and lawmakers in other cities looking to
revitalize inner-city communities or to catalyze economic integration between academic
centers and emergent high-tech sectors (Levine, et al., 2008). Adams (2003) contends that
precipitous deindustrialization in Pittsburgh and other rust belt cities provided the incentive
for reformist urban governments to direct resources towards the non-profit sector,
particularly research universities and medical facilities. In this model, health care becomes
a key vector for transforming moribund urban economies, and the expansion of healthcare
facilities is often back by the progressive city vision and state-supported urban change
(McKee, 2016; Conner, 2016).

Similarly, the state and municipalities in Pennsylvania have largely viewed universities and
hospitals as land developers, with positive effects of being anchors of employment in
neighborhoods in distress and positively impacting neighboring property values. In the last
few decades, eds and meds has been one of the few growing parts of Philadelphia’s
economy. Philadelphia was the workshop of the world. Manufacturing jobs could be found
throughout the city. According to Dent (2016), in 1953, about 359,000 people worked in
manufacturing in Philadelphia, representing 45% of the workforce. But the most recent
count from 2013 put the number of manufacturing employees at 21,117, not even 4% of
the workforce. Put another way, since 1970, Philadelphia lost 94% of its jobs in that sector.
Compared to 1970, Philadelphia has about 25% fewer jobs. That number hasn’t changed

50
substantially in the last 20 years, meaning that the recent growth still won’t bring
Philadelphia anywhere close to where it used to be. But “eds and meds” could be Philly’s
economic savior. Even during the recent recession from 2008 to 2011, employment
increased in “eds and meds” each year.

Figure 17. The Percentage of New Jobs in Eds and Meds and Manufacturing to Total New Jobs in
Pittsburgh, Philadelphia-Camden-Wilmington, PA-NJ-DE-MD Metro Area
Source: County business patterns. Washington, DC: U.S. Dept. of Commerce, Bureau of the Census, Data
User Services Division.

In 1998, about 29% of Philadelphia’s workforce consisted of “eds and meds” workers.
These days the number is even higher. According to Figure 17 from the Census’ County
Business Patterns, 38% of employed people in Philadelphia work in the “eds and meds”
sector in 2013, a total of about 144,000 employees in healthcare and 81,000 in education.
Another way to see their dominance of Philadelphia’s economy is through the city’s biggest
employers. Nine of Philadelphia’s top 10 largest private employers and 12 of its 15 largest
are eds and meds. In 2000, only five of Philadelphia’s biggest private employers were “eds
and meds” (Harkavy & Zuckerman, 1999). While the share of Philly’s workers who are
employed in this sector is massive, it’s not unheard of. Almost every major city has at least
one university or health system among its top 10 private employers. Baltimore has an even

51
greater percentage of employees in the sector, at 41%. Some of Philadelphia’s economic
success with “eds and meds” couldn’t just start thriving without universities and hospitals
from investment. Penn had been a top university since Ben Franklin founded it27 , and
Drexel and Temple have risen in terms of enrollment and academic prestige in the last 25
years. All of them have received grants and donations for research and foundations that
have allowed them to grow.

2.1.2 Mixed Health Care System

Public and Private Interests

Figure 18. The U.S. Health-Care Expenditures as a Share of GDP, 1960–2018

Source: CMS, NHE Summary, including share of GDP, CY 1960-2018

The U.S. healthcare system is characterized as the world’s most expensive yet least
effective compared with other nations. Illustrated in Figure 18, the total national
expenditure on health care in 1970 represented 7.1% of the GDP. By 2003 this figure had
risen to 15.3%, which is 140% above the average for OECD (Organization for Economic
Cooperation and Development) countries (Kowalska, 2010). In 2018 healthcare spending
represented 17% of GDP, and healthcare costs are expanding at twice the country’s
economic growth rate. While the increasing spending on health care has created many jobs
and contributed significantly GDP in the United States, it is rather a result of a combined
52
force from the changing demand of the demographics, various initiatives and leaderships
from the state, market, and society, and a hybrid public-private health care system which
at the same time provides physicians and hospitals with incentives for for-profit activities28.
It is commonly believed that major drivers of healthcare costs are institutionalized medical
practices and reimbursement policies, technology-induced costs and consumer behavior
(Kumar et al., 2011). These have to be accredited to the competitions that the hospitals had
engaged since the 1970s, as well as characteristics of the health care system at the national
level: fee-for-service medicine, tax exemptions for employer-provided health insurance,
Medicare and Medicaid financing (Risse, 1999), the overuse of intensive, costly care that
is often of dubious clinical benefit (E. S. Fisher et al., 2003a, 2003b), and the underuse of
effective, high-quality care (Baicker & Chandra, 2010).

For example, one cause for the rising spending on health care is the growing use of third-
party payers, which has become widespread since World War II. The U.S. has made above
70% population covered by private health insurance (HIAA, 1992) and 96% of the elderly
covered by Medicare by 1990 (EBRI, 1993b). Because the majority of patients pay through
third-party payers, they may not be aware of, or concerned about, the magnitude of health
care costs. They therefore increase the use of medical services, because patients are not as
constrained in their decision-making to purchase medical care as they are in the
consumption of other goods and services for which they pay directly as healthcare spending
per privately insured person is three times higher in some parts of the country than in others
(Nunn, Parsons, & Shambaugh, 2020). Empirical research has found that the rising costs
have caused social issues for the American economy29.

Yet going back to the more fundamental institutional perspective viewing the health care
industry in the United States, the American health care system in itself has questions and
debates over the nature of health care, while explicitly inclining towards a market-based
solution to transfer health care to individual responsibilities. There exists a lasting debate
on “who’s right” to health care in the American health care history. After signing the
Affordable Care Act (ACA)30 in 2010, President Barack Obama declared “we have now
just enshrined the core principle that everybody should have some basic security when it
comes to their health care” (Obama, 2010), acknowledging that Americans have a right to

53
a basic level of health care. However, others hold a very different view, stating that “Health
care is a service that we all need, but just like food and shelter it is best provided through
voluntary and mutually beneficial market exchanges” (Mackey, 2009). Yet the conflicts
between the two opinions in the American health system could be rooted in the underlying
cultural values of the United States since the American Revolution. The United States has
been a country that puts primacy on the rights of individuals. Social justice is most often
defined in terms of the individual. In the United States, conflicts between individual needs
and group needs tend to be resolved in favor of the individual (Barr, 2016, p. 44). Perhaps
this could have explained, from an ideological perspective, the heavy influence of
marketization and commodification of health care as an industry in the United States.

Scholars believe that there is no single narrative, a single explanatory history, or a unifying
historical framework of health care. Instead, there are many possible histories, reflecting
the diverse ways in which American health care is embedded in the economy, politics,
power structures, and culture of the United States (Stevens, 2008), and is referred to by
some as an “accidental system” (Reagan, 1999). American health policy is the sum of
manifold experiences, dashed experiments, clashing themes, and multiple advocates. The
organizing, financing, and delivery of health care in the United States are affected by a
broad range of forces, public as well as private, national as well as local. There are not two
independent public or private sectors. Instead, the two are inextricably interconnected and
mutually dependent. These forces in total make American health care fundamentally an
“industry” that relies on market and revenue, rather than a “service.” Because of the profits,
it offers incentives for technological innovations (which induces more profits when used),
a robust body of medical professionals, and hospitals that provide cutting-edge care.

The U.S. health care system is a complex combination of public and private mechanisms
for providing care and paying for care31. It is financed largely through health insurance,
either public or private. In addition the various private health insurance options, there
several types of publicly financed health insurance: Medicare - the federal program for
those 65 or older and for disabled people; Medicaid - the combined federal-state program
for poor people; Children’s Health Insurance Program (CHIP) - a combined federal-state
program for children in lower-income families who do not qualify for Medicaid; Veterans

54
Affairs health system - for certain categories of military veterans; Defense Department
health system - for those on active military duty; and Indian Health Service—for Native
Americans both on reservations and in cities. Figure 19 shows that compared to other
OECD countries (with selected ones in the graph), the United States has an interestingly
larger share of private spending of 8.72% to its GDP in 2017, slightly larger than its public
spending of 8.35%. Compared to its performance in 2000, the ratio between public and
private spending has remained roughly the same, with its private spending dramatically
larger than other OECD countries. This is illustrative to the point that U.S. health care is a
mix of public-private systems.

Figure 19. OECD Countries Public and private Health Expenditures to GDP, 2000 & 2017
Source: World Health Organization (WHO), Global Health Expenditure Database 2017

Data: Public expenditures include government schemes and social health insurance schemes. Private
expenditures include compulsory private insurance schemes, voluntary health care payment
schemes, household out-of-pocket payments, and rest of the world financing schemes (non-resident).

Two massive governmental purchasing programs were tossed in the late 1960s: Medicare
and Medicaid. These two programs were the results of the progressive reformers’ retreat in
1950 from proposing universal, government-sponsored health insurance. On the one hand,
the great majority of the working population and their dependents could be covered by
employer-sponsored, privately organized health insurance. On the other hand, health care

55
for individuals on welfare could be covered through state and local welfare provisions.
Medicare32 is the first program designed to aim at the elderly, making the age of 65 a
convenient marker for inclusion because the average retiree simply could not afford the
price of experience-rated private health insurance. All people 65 years of age or older who
qualify for Social Security benefits are automatically eligible for Medicare. The Centers
for Medicare and Medicaid Services (CMS) is the federal agency that manages the
Medicare program. In 1972, Congress further extended eligibility for Medicare to
individuals of any age with proven disabilities, and to those with end-stage kidney disease,
who would die without access to dialysis or a kidney transplant (Stevens, 2008). Since the
implementation of Medicare in1966, older Americans have had extraordinary access to
inpatient hospital services, from neurosurgery to knee replacements with everything in
between, and have come to expect those services to be available to them on a timely basis.

But even under Medicare, patients are still responsible for paying a number of different
costs33. To gain coverage for these items, 86% of Medicare beneficiaries obtain some form
of supplemental medical insurance policy (Barr, 2016), often referred to as a “Medigap”
policy that pays for these gaps in Medicare coverage. There are four principal ways for
beneficiaries to obtain Medigap coverage. First, the beneficiary can purchase the policy
from a private insurance company; second, the beneficiary can obtain the policy from her
or his former employer as a retirement benefit; third, the beneficiary can receive Medigap
coverage from the Medicaid program or other publicly financed programs if his or her
income is below the Federal Poverty line (FPL); fourth, the beneficiary can join a Medicare
managed care plan. Each Medigap supplemental insurance plan will have its own set of
covered benefits.

At the same time, Medicaid is an assertion of national and state responsibility for health
care for low-income Americans. The initial idea that Medicaid could cover those who were
“medically indigent,” that is, a socially-productive individual could become poor because
of high medical bills (Stevens, 2017). Medicaid was also established as a voluntary
program for the states, with each state free to choose whether to participate. The share of
the program that the federal government pays depends on the economic condition of the
state. States with lower per capita incomes have a higher share of the program costs paid

56
by the federal government, while states with higher per capita incomes are reimbursed a
lower percentage of program costs. However, similar to Medicare, the cost of Medicaid
has risen rapidly and threatened to bankrupt many of the states and the federal government.
The federal government responded by initiating a number of changes on a state-by-state
basis. Medicaid rapidly began to change from a purely fee-for-service payment system to
a capitation system, shifting much of the financial risk of providing care to poor people
from governments to health maintenance organizations (HMOs) and other types of
managed care insurers and providers. Soon after Medicaid’s creation in 1965, most states
began to restrict the amount they would pay physicians for treating Medicaid patients. As
Medicaid costs skyrocketed in the 1980s and 1990s, states cut back even farther on what
they were willing to pay. As a result, physicians in many areas of the country receive only
30 to 40% of their usual charge for taking care of a Medicaid patient, therefore in 2013
only 69%of physicians nationally were willing to accept new patients on Medicaid (Hing,
Decker, & Jamoom, 2015).

When Medicaid and Medicare were both created in 1965, the two programs had
fundamentally different goals. While Medicare was intended to provide essentially
universal coverage for the elderly, Medicaid was initially intended to provide limited
coverage to only certain subsets of the poor. The expansion of Medicaid eligibility under
ACA, shows every sign of shifting Medicaid to a form of universal coverage for all those
who are poor or near poor34. Although Medicare and Medicaid since 1965 helped the push
for universal insurance, the more government money available, the more private,
entrepreneurial opportunities there were (Ehrenreich, Ehrenreich, & Health/PAC, 1970).
This market approach has its long history since the post-world-war II years. Senator Taft
said in 1949 (Hearings on S 1106, S 1456, S 1581, and S 1679, 1949) that:

“It has always been assumed in this country that those able to pay for medical
care would buy their own medical service, just as under any system, except a
socialistic system, they buy their own food, their own housing, their own
clothing, and their own automobiles”.

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 Figure 20. National Health Expenditures in the United States, 1970 and 2019
Source: CMS, National Health Expenditures by type of service and source of funds, CY 1960-2019

This ideology of personal responsibility for medical care has been one potent thread of
national politics through the last six decades. This illustrated the distrust of big government;
reliance on individuals to pay for medical care out of their own pocket and/or through
private health insurance. Employers have been given a federal tax incentive, beginning in
the 1940s, to encourage them to offer health insurance for their employees. The selling of
private health insurance policies boomed after the Second World War, stimulated by tax-
subsidized employee benefits packages, union negotiations, and an expanding economy.
Commercial insurance firms were quick to recognize the potential profits in specially
tailored insurance policies. Insurers thrived in the marketplace of the 1980s and 1990s,
offering networks of preferred providers to purchasers of health insurance as a less
expensive alternative to the unregulated provision of services. Successful action by
commercial firms took the healthiest Americans out of the insurance pool35. But the shift
to a market-based system of managed care was largely the result of the need to control
costs (Barr, 2016), because an individual is either uninsured or poor when not having access
to care (Starfield, 2005). Figure 20 shows that compared to 1970, expenditure by private
health insurance has expanded y 10%, while the coverage of both Medicare and Medicaid
has expanded by roughly 10% as well. These in total dramatically reduced out-of-pocket
payments. Figure 21 further illustrates that, while Medicare and Medicaid have drastically
reduced patients’ out-of-pocket costs since their implementation in 1965, private insurance
has remained a robust industry.
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 Figure 21. National Health Expenditures in the United States, 1960 - 2019
Source: CMS, National Health Expenditures by type of service and source of funds, CY 1960-2019

In attempting to keep costs under control, insurers imposed “gatekeeper” and other
requirements on consumer behavior36. Together they comprised a “booming competitive
industry,” and insurers had become the “ubiquitous third party” beyond doctor and patient
as the first and second parties (Somers & Somers, 1961). Particularly by the mid-1980s,
the balance of power in national health care policy was shifting away from the traditional
producers of medical care, the hospitals and physicians, to insurers who were the
increasingly powerful purchasers of care. This process was completed in the 1990s
(Stevens, 2008), signaling the “coming of the corporation” (Starr, 1982). However,
insurance was typically partial and limited in scope, even for those who were relatively
well covered. Its role was to protect individuals from the costs of major, unexpected bouts
of acute illness, which were, ideally, curable via ever-advancing medical procedures,
medications, and technologies. Insurance was not designed to pay for less expensive doctor
visits, eye checks, and eyeglasses, psychotherapy, or dentistry, which could be scheduled
into family budgets. The typical insurance policy also excluded long-term care and other
care outside the hospital that might be essential for the improvement and/or maintenance
of health for those with chronic illnesses. Over the past decades, the expanding availability
of insurance, including the expanding costs of Medicare and Medicaid caused by increased
coverage and increasing availability of technology, increased the demand for medical care,

59
particularly for hospital services. This demand steadily yet significantly increased national
health care costs. All of these features of the mixed public-private insurance system in
American health care signals that, as concluded by historian Rosemary Stevens (2008),“the
United States had a health care industry rather than a health service”.

Although having health insurance coverage is related to the use of health care services and
enables people to have a consistent source of care (Lillie-Blanton & Hoffman, 2005;
Starfield & Shi, 2004), one cannot be sure that having insurance guarantees the receipt of
high-quality care. This risk gives rise to an insurance system that shields patients from the
price of care, dampening their incentive to use care judiciously and to seek care from
providers offering high-quality care at affordable prices. Market-based health care could
fail because patients often lack the information needed to assess both their care needs and
the quality of their care, and illness and health care needs are inherently difficult to predict.
This information problem, amplified by insurance, reduces the ability and incentives for
patients to seek low-price, high-quality providers and impedes well-functioning markets
(Chernew, 2020). The weaknesses associated with market-based health care systems are
severe, but that does not mean the market should be abandoned. Markets have proven
successful in many ways, for example, they have been effective at encouraging innovative
care delivery and financing approaches, promoting efficient reallocation of resources, such
as from inpatient to outpatient care or from the nursing home to community-based care
(Chernew, 2020). Insurers in more concentrated markets are able to exercise a
countervailing power and offer significantly lower prices to hospitals (Dauda, 2018), and
the market concentration of the public healthcare insurance market has remained relatively
stable over the past decade (Ng et al., 2020). In fact, many of the “single-payer” health care
systems around the world have some market components, and many are actually expanding
the role of markets. The more important question is how government and markets can
complement one another37.

Non-profit and For-profit Organizations

Throughout most of the twentieth century, there was little room in the American health care
delivery system for for-profit organizations. While a number of for-profit insurance
companies offered health insurance as one of their products, the predominant model for
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health insurance was the Blue Cross / Blue Shield system, organized on a nonprofit basis.
Physicians often practiced as professional corporations, but few worked for organizations
that operated on a for-profit basis. In 1981, nearly 90% of HMO patients were members of
nonprofit plans (Barr, 2016). The 1980s brought a fundamental change to the American
political landscape. Ronald Reagan was elected president and a Republican majority was
elected to the Senate. Fundamental to President Reagan’s free-market philosophy,
legislation was introduced to end the government’s ability to regulate HMOs. By 1988, the
end of President Reagan’s term in office, Congress had eliminated all federal funding for
new HMOs and had relaxed considerably the criteria for HMOs to obtain federal
certification, including the elimination of any requirement that HMOs operate on a
nonprofit basis. By 1989, nearly half of all HMOs operated on a for-profit basis and by
1998 nearly two-thirds of this enrollment was in for-profit plans. The old idea that non-
profit hospitals were “charities with public responsibilities” had diminished almost to
extinction. Investor-owned hospitals and non-profits competed in a single, profit-oriented,
health care market. Patients, or “consumers”, could not generally tell under which kind of
ownership each operated. Today, the president of a major investor-owned or not-for-profit
hospital and senior executives may be paid as business executives, with incentives for
increased performance by the institution.

Medicare and Medicaid are the primary government purchasers of health care in the private
sector in the United States. The purchasing power of Medicare and Medicaid from the late
1960s led to huge opportunities and changes in disconnected aspects of health care
provision. These included the building of a new (largely for-profit) nursing home industry;
encouraging major public hospitals to close their doors, on grounds that the poor and the
elderly would now be covered under Medicare and Medicaid; and giving older Americans
the privilege of by-passing primary care and seeking direct access to medical specialists in
private practice, thus strengthening the decline of primary and coordinated medical care
and encouraging the rise of single-specialty medical firms. In some areas, profitable
enterprises such as orthopedic surgical or cardiovascular groups have provoked
competitive bidding among local hospitals to buy their exclusive services or started their
own single-specialty hospitals. In turn, independent professions such as physicians and
non-profit organizations such as hospitals and have embraced a for-profit orientation.
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The rise in the sovereignty of the American medical profession was based on a somewhat
idealized view of physicians as altruistic agents38 (Talcott, 1975, 2013). This view of the
medical profession led state and local governments to vest considerable authority in
physicians and their professional organizations over medical education and the practice of
medicine. Physicians are separated into two categories: primary care physicians and
specialists. Primary care physicians are physicians who provides continuing,
comprehensive, coordinated medical care that is not differentiated by gender, disease, or
organ system. Specialists are those physicians who have received extra training in a specific
field, and who treat only a certain type of patient39. While physicians were granted this
authority because of their specialized knowledge and skills, they often used this power to
further their own ends. By creating and maintaining a system that approached medical care
as a market commodity, physicians were able to establish their right to charge a separate
fee for each service they provided, and to base that fee on whatever the market would bear.
In making medical decisions in a fee-for-service system, physicians were simultaneously
looking out for the needs of the patient and for their own financial interests.

Regardless of what method is used for paying for care, health care decisions are still largely
made by physicians. Even though physicians account for only about 20% of health care
expenditures, they influence between 70% and 80% of all expenditures (Barr, 2016).
Medications are prescribed by physicians, tests are ordered by physicians, and patients are
admitted to a hospital or nursing home by physicians. Thus, physicians’ decisions
effectively determine how much health care costs. A number of physicians have become
entrepreneurs and have been involved in the creation or management of HMOs, physician
practice management companies, or biotech firms. These business activities should be
judged by the ethical standards of business rather than medicine. There are a number of
contexts, however, in which practicing physicians have become involved in the ownership
or management of for-profit enterprises that offer care to the physicians’ own patients.
These physicians are in the somewhat tenuous dual role of self-interested businessperson
and, presumably, disinterested physician.

Throughout much of history, hospitals were not place for healing. They were places to die,
mostly for poor people. It was during the Napoleonic Wars that doctors first started treating

62
all of the wounded and sick soldiers in one place. Hospitals gradually became places for
the scientific study of medicine for treating ill patients in an effort to prevent death (Ryan,
1991). Affiliation of medical schools with universities, hospitals, especially university-
based hospitals, became the principal locations for medical research. If primary care is
provided in the physician’s office and secondary care is provided in either the specialist’s
office or the hospital, tertiary care—the third level of care—is provided in specialized
regional facilities that serve the needs of many hospitals and communities. Examples of
tertiary care centers are neonatal intensive care units, burn centers, and transplant surgery
centers. It is at these highly specialized, tertiary referral centers that much of the training
of future physicians takes place. For some types of new, often-experimental procedures, a
fourth level of care has developed—quaternary care. Some facilities function as national
referral centers for certain diseases and procedures such as heart and lung transplantation
or experimental cancer treatment. Most tertiary care centers, and nearly all quaternary care
centers, are located within hospitals affiliated with a university medical school. These
academic medical centers fulfill a dual role. They provide most of the medical research that
leads to new types of treatments, and they train the future physicians who will be applying
those treatments. This process leads to the aforementioned “translational medicine.”
Academic medical centers play a crucial role in maintaining and advancing the quality of
medical care.

Hospitals have traditionally been run on a non-profit basis in the United States40. In parallel
with the movement to for-profit care, a move to for-profit ownership of hospitals has also
taken place in the United States. There was nothing particularly new about diverse
ownership patterns for hospitals in the United States, or even a business orientation
(Stevens & American Council of Learned Societies, 1989). What was new was the
expectation that hospitals were in business for themselves. After the enactment of Medicare
and Medicaid, many investors saw the potential of operating hospitals as money-making
businesses. Beginning in the 1970s, investor-owned, for-profit corporations began to
purchase hospitals and other types of institutional care facilities (Stevens, 2017). Using
capital obtained through the sale of stock, corporations took over formerly non-profit
hospitals and began to run them on a for-profit basis. Firms such as American Medical
International and National Medical Enterprises developed chains of hospitals throughout
63
the country, all operated as for-profit entities. This trend continued into the 1990s,
supported by the stock market boom. In the 1990s, newer firms such as the Hospital
Corporation of America (later Columbia HCA) rapidly expanded their network of for-profit
hospitals by using sales of new stock to acquire community hospitals that were struggling
with the problems of high costs and low occupancy (Barr, 2016). Also shown in Figure 22,
hospital care continues to be the largest sector where the American health expenditure has
gone since 1970.

Figure 22. National Health Expenditures in the United States by Services, 1970 and 2019
Source: CMS, National Health Expenditures by type of service and source of funds, CY 1960-2019

Attempts by hospitals to extend their own service networks in the 1980s and 1990s had
mixed results. The urge to increase or defend their local market share in a climate of fierce
competition for patients led some hospitals to diversify and hospital mergers blossomed in
the health care market. Huge investor-owned hospital chains in the 1990s exemplified the
power of private enterprise. However, as in other economic sectors, not all succeeded. The
fall of Columbia/HCA in 1997, one of the largest investor-owned hospital companies, was
accompanied by charges of fraud in government Medicare billings, as well as cost and
management deficiencies, and ethical concerns about incentive payments made to doctors.
Figure 23 also shows that, although Medicare expenditures in hospitals are declining, the
portion for private insurance and Medicaid + CHIP has been increasing since the 1990s.
Rather than reducing hospital costs, for-profit hospitals increase costs compared to
nonprofit hospitals, without corresponding increases in quality or improvements in

64
outcome (Silverman, Skinner, & Fisher, 1999). The hospitals that switched to for-profit had
significant improvements in their financial performance increasing the amount they charge
for care (Joynt, Orav, & Jha, 2014). Bai and Anderson (2015) found that for-profit hospitals
tend to increase charge-to-cost ratios. Hospitals in more concentrated markets are also able
to use their market power to secure significantly higher prices from insurers (Dauda, 2018).
Market competition is also found to be associated with managerial priorities on controlling
per-patient treatment costs (Johansen & Zhu, 2014).

Figure 23. Hospital Expenditures in the United States, 1960 - 2019

Source: CMS, National Health Expenditures by type of service and source of funds, CY 1960-2019

In the early 1990s, as part of the general expansion of for-profit organizations, a number of
investors— physicians among them—realized that certain aspects of hospital care were
generally more profitable than others41. While it might be relatively unprofitable to operate
a labor and delivery ward or an emergency room, certain surgical procedures had relatively
high rates of payment. For the general hospital, the low-profit centers and the high-profit
centers balance each other out. However, these types of specialized hospitals on high-profit
care had the potential of generating substantial profits for the owners and research found
that for-profit hospitals specialty hospitals are more likely than non-profit or government
hospitals to provide relatively profitable types of services (Horwitz, 2005). Physicians in
several areas of the country began to invest in these “specialty hospitals.” Principal among
them were orthopedic hospitals and cardiac care hospitals. Typically, physicians whose

65
practice included the type of specialized care offered in the hospital would team up with
private investors to build the specialty hospital. Specialty hospitals were advantageous to
their physician owners in a number of ways. As licensed hospitals, they often received
higher reimbursement rates from Medicare and other payers. In addition, the physician
could select which patients to refer to the general hospital and which to refer to the specialty
hospital, creating the opportunity to have the sicker, and thus costlier patients treated in the
general hospital and the less sick, and thus less costly patients treated in the specialty
hospital. By 2003, 14% of general hospitals were operated on a for-profit basis, while more
than 90% of specialty hospitals were operated on a for-profit basis (Iglehart, 2005).

66
2.2 Research-Driven Economy
2.2.1 Institutional Leaderships

The Federal Government

This understanding of the relationship between non-profit health care institutions and civic
health was prioritized as part of efforts to expand the New Deal state by Harry Truman and
his successors after World War II by making large amounts of funding available for
biomedical research 42 . Non-profit health care institutions, such as university medical
schools and their affiliated hospitals, were important beneficiaries of a philosophy that
linked scientific research with social and economic progress. Three large-scale, but
unconnected federal programs stimulated a health care economy based on biomedicine and
technology and encouraged doctors to become entrepreneurial specialists (Stevens, 2008).
The Veterans’ Administration (VA) encouraged returning servicemen to enter residency
programs in specialties through government educational benefits. At the same time, federal
veterans’ hospitals became linked to medical schools and thus more focused on
specialization and research. In the late 1980s, the VA operated the largest health care system
in the United States but was training few primary care doctors. A second federal program
begun under the Hill-Burton Act (1946), provided federal subsidies to build or expand
community hospitals, chiefly in rural areas, thus building new centers for specialized
medical practice across the United States.

The most important one is the National Institutes of Health (NIH), which is the world’s
largest funder of biomedical research. It affirmed the value of specialized science and
techniques by funding super-specialized research and clinical fellowship. Through the NIH
the U.S. government provides in excess of $30 billion per year to support life sciences
research, implemented through a well-established network of government, non-profit,
university, and hospital research labs. Figure 24 shows that the NIH has continuously
funded around 50,000 awards with an average of $25 billion annually since 2010. Beyond
that, NIH has an FY2020 program level of $41.685 billion and has received emergency
supplemental appropriations in three COVID supplemental appropriations acts, totaling
over $3.59 billion—an 8.6% funding increase over regular enacted FY2020 appropriations
(Sekar, 2020).
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 Figure 24. Awards, average funding, and total funding by the NIH, 2010-19
Source: U.S Department of Health and Human Services, NIH Portfolio Online Reporting Tools (RePORT),
Budget and Spending

Furthermore, exemption from most federal, state, and local taxes was another way that
some health care institutions enjoyed a special status. This privilege was not without
obligation. To qualify for their not-for-profit status, hospitals were required to provide
some degree of care for patients unable to pay. What this care looked like varied over time
from an almshouse model that linked treatment to service in the hospital to a model that,
by the early twentieth century, often had an explicit expectation that charity patients were
clinical material for scientists, physicians, and medical students (Rosenberg, 1987).
Hospitals and other not-for-profit health care institutions like medical schools were the
physical spaces where this vision of civic health was articulated.

Private Equity and Venture Capital

The government has undertaken leadership in directing resources and money into the health
care industry. However, it is definitely not the sole player that fostered the growth of this
industry. The U.S. health care system relies heavily on private markets. In addition to
governmental support, private dollars, which had been an important part of medicine before
World War II, remained an essential part of the overall health care funding mix. These
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private dollars include private equity (PE), and venture capital (VC). Investors in health
services provide venture capital for early-stage companies, growth capital for mid-stage
companies, and equity capital for buyouts of mid-stage and mature companies. Private
equity firms work by pooling money from investors that they use to buy businesses, create
value beyond the purchase price, then sell off the combined portfolio company and return
the profits to the investors (Shryock, 2019). According to the Bloomberg Businessweek,
many believe that PE-backed practices have reshaped the environment for health care in
the United States (Perlberg, 2020). They have spent billions of dollars to purchase well-
known companies such as HCA ($32 billion value) and Manor-Care ($6 billion–plus value)
and are investing in young, unfamiliar companies pursuing innovative strategies in health
care services (Robbins, Rudsenske, & Vaughan, 2008). In 2018, the number of private
equity deals alone reached almost 800, which had a total value of more than $100 billion
(Gustafsson, Seervai, & Blumenthal, 2019), bringing innovation to health care through new
delivery models, technologies, and operational efficiencies43.

Figure 25. U.S. Healthcare Venture Capital Fund-raised, 2009-19

Source: Silicon Valley Bank, remade from Norris, Vig, & Harris (2020).

Meanwhile, developing innovative VC projects is rapidly becoming an essential element

of the U.S. health system's strategy to ensure long-term financial viability. In the past five
years, healthcare VC programs and innovation labs have become essential tools for health
systems. VC firms provide funding to startups having the potential to disrupt existing
industries in exchange for ownership and some control over strategy and operations. VC
businesses have recently funded hundreds of startups developing technology-enabled

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digital health products, including wearable devices, mobile health applications,
telemedicine, and personalized medicine tools. VC investments in the U.S.–based
healthcare startups totaled nearly $131 billion in 2018 (O'Brien, 2019). Between 2010 and
2017, the value of investments in digital health increased by 858%, and the number of
financing deals in this sector increased by 412%; more than $41.5 billion has been invested
in digital health this decade (Gondi & Song, 2019).

According to the American Hospital Association, as of 2017, 72% of the large 400+ bed
hospitals in the nation had innovation centers to support venture investing or were planning
to do so (2017). The Silicon Valley Bank, one of the largest players in the healthcare venture
funding market, reports that U.S. healthcare venture fundraising reached an all-time high
of $10.7 billion in 2019, a 10% increase over the previous year (Norris et al., 2020). Figure
25 shows that the fund raised by healthcare in 2019 almost tripled the amount in 2011.
Biopharma exits and returns nearly equaled 2018’s record year that of the 50 venture-
backed public offerings in 2019, 20 reached more than $1Billion market cap at year-end.
Two companies went public at a at least $2 billion valuation and positive post-IPO gains
for the IPO class of 2019 and four of the eight IPOs ended the year at a minimum $1 billion
valuations. VC firms not only focuses on biopharma, but also reach health tech, dx/tools,
and devices. In 2019, $12,168 million investments were made in biopharma, while $6,073
millions in health tech, $3,659 millions in dx/tools and $4,019 millions in device (Norris
et al., 2020).

Philanthropic Organizations

While the government and the market have been actively taking the responsibility in
shaping the landscape of directing resources and capitals, philanthropic entities also
provide new direction and creative approaches. A study shows that in New York City, a
major voluntary general hospital received 24% of its income from charitable contributions
and only 11.6% from the government in 1940 (Ginzberg, 1991). It was estimated that
charitable giving to healthcare organizations rose a strong 7.3% in 2017 (Betbeze, 2018).
The level of philanthropic spending is estimated as, on average, 7% of overall health
spending, or about $150 billion annually according to National Health Expenditures
Accounts data tables (Shaw-Taylor, 2016). When a point estimate of charity care provided
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by hospitals and office-based physicians is added, the value of nongovernment
philanthropic expenditures reaches approximately $203 billion, or about 10% of all health
spending annually. According to Giving USA 2019 (White, 2019), American giving
reached $427.71 billion in 2018, an increase of 0.7% in terms of current dollars but a
decline of 1.7%from 2017.

Well-known philanthropic organizations such as the Robert Wood Johnson Foundation, the
Kaiser Family Foundation, and the W.K. Kellogg Foundation have a frontline presence in
their work with federal government agencies and local health departments. These
foundations are engaged in activities such as public health preparedness, immunization
programs at the local level, and workplace wellness programs. Bur in the new millennium,
no private organization has provided greater material resources for strengthening public
health in developing countries than the Bill and Melinda Gates Foundation (Stevenson &
Youde, 2020). The Foundation has remained firmly grounded in the principle that “all lives
have equal value” (Bill & Melinda Gates Foundation, 2020a) and has primarily and
resolutely sought to assist people around the world in reaching their full human potential44.
The Bill and Melinda Gates Foundation has redefined global health funding, becoming the
first major private fund dedicated to worldwide health and development projects and a
strong, incredibly generous, and important advocate for improving measurement of health
and development outcomes and impact. Moreover, beyond being the second-biggest
contributor of voluntary funds to the World Health Organization (WHO) (World Health
Organization, 2020), the foundation also makes grants to various global health
organizations, such as the GAVI Alliance, the World Bank, the Global Fund to Fight AIDS,
Tuberculosis and Malaria, prominent universities, and non-governmental organizations
(McCoy, Kembhavi, Patel, & Luintel, 2009).

It is believed that the Gates Foundation is a major contributor to global health with
enormous financial power and policy leverage in other organizations (McCoy et al., 2009).
The foundation has undergone few reforms so prior to 2006 the global development
program and the united states program were not listed in the data. Figure 26 shows the
allocation of contributions to the three major programs for the period of 2006-2019, and
there has been a clear trend, beside the growth of total funding, to expand global

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development while global health always been a center piece of it. From its inception
through 2019, the Gates Foundation has made humanitarian investments and contributions
totaling more than $54.8 billion, with a foundation trust endowment of $49.8 billion (Bill
& Melinda Gates Foundation, 2020c). Billionaire philanthropist Warren Buffett pledged
more than $30 billions of his $44 billion in stock holdings of Berkshire Hathaway to the
Foundation in 2006, thereby doubling its endowment and making it the largest private
philanthropy in the world. According to Koch et al (2019), Buffett’s substantial
contributions to global health is not only a gift to help to support Bill Gates as his close
friend and business partner, but also, more importantly, to be grounded in the knowledge
that the relentless pursuit of data and performance measurement by the Gates Foundation,
combined with the ability of the foundation to harness markets and technology, ensures a
worthy investment and outcomes.

Figure 26. Gates Foundation Funding by Program, 2006–2019

Source: Bill & Melinda Gates Foundation, Annual Reports (Bill & Melinda Gates Foundation, 2020b)

Moreover, the increasing ability of disease advocacy groups to influence the direction of
federal health research spending also played a critical role in helping to build a biomedical
research economy (Cook-Deegan & McGeary, 2006). Private interest groups lobby
politicians to influence public policy that lobbying is associated with higher political
support, in the form of congressional “soft earmarks” for the diseases. Lobbying increases

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with disease burden and is more likely to be associated with changes in NIH funding for
diseases with higher scientific opportunity, suggesting that lobbying by private groups
influences federal funding for biomedical research (Hegde & Sampat, 2015).

2.2.2 Research Commercialization

Pharmaceutical and Medical Device Industries

The importance of hospitals to their communities extends far beyond health care. As
Guenter Risse (1999) has noted in Mending Bodies, Saving Souls, in recent decades,
hospitals have become “houses of technology,” providing mostly intensive patient care
aided by a range of powerful and technologically advanced therapeutic and diagnostic tools
and machinery. The medical application of biotechnology involves intensive research
efforts. However, none of these is achievable without quality research and the collaboration
between hospitals and university medical schools where major biotech research is done.
The federal state and philanthropic organizations fund basic research, while the market
helps research projects to be commercialized. Health care services are delivered in
hospitals, physicians’ offices, nursing homes, and increasingly, outpatient clinics and
inpatient’s homes by home health care agencies. These are driven by health care
expenditures while industries that supply health care providers and delivery facilities also
employ large numbers of workers and generate billions of dollars in revenues annually
through pharmaceutical supplies (EBRI, 1993a), as the U.S. market for pharmaceutical
drugs is the largest in the world, with government agencies paying in excess of 40% of
these expenditures. The 2003 Medicare Modernization Act (MMA) established Medicare
Part D, which began providing prescription drug coverage to Medicare beneficiaries in
2006. Part D sets a standard prescription drug benefit level, then provides a subsidy worth
at least 75% of the actuarial cost of this standard benefit. Low-income beneficiaries are
eligible to receive even higher subsidies. While the original fee-for-service Medicare
system features public administration of insurance claims, Part D subsidizes the purchase
of private insurance for prescription drugs45.

The pharmaceutical industry accounts for a substantial chunk of the U.S. economy’s
research and development investments 46 , because the “national innovation system”

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(Lundvall, 2010) provides unique advantages for drug R&D. Most of the new
pharmaceutical products approved by the U.S. Food and Drug Administration (FDA) are
available only by prescription from a licensed physician or other health care provider. Some
new products are available for sale “over the counter,” directly to patients without a
prescription. But these play a lesser role in pharmaceutical policy. As the health care system
began to experience rapidly increasing costs in the 1970s, the cost of prescription drugs
also began to rise. Improved scientific and technical capabilities contributed to an
increasing supply of new drugs coming to market. The Kaiser Family Foundation (2010)
concluded that this increase has been caused by increases in the number of prescriptions
issued, manufacturers’ price increases for existing drugs, and shifting from a less expensive
drug to a more expensive drug for the same illness. High drug prices and economies of
scale provide pharmaceutical companies with ample profits that can be allocated to new
drug discovery. Indeed, the largest U.S. pharmaceutical companies that are included in the
S&P 500 Index spend about 16% of revenues on research and development (R&D) (Tulum
& Lazonick, 2018).

Moreover, adding to these advantages for funding pharmaceutical drug innovation, the
United States is the only major nation that does not regulate pharmaceutical drug prices
(Kantarjian & Rajkumar, 2015; Lakdawalla et al., 2009; Lazonick, Hopkins, Jacobson,
Sakınc, & Tulum, 2017). Unlike in most other developed countries, pharmaceutical pricing
in the United States is largely decentralized, albeit influenced by several powerful public-
sector buyers. It is also quite disintegrated, involving private insurance companies,
pharmaceutical manufacturers, pharmacies, drug wholesalers, and pharmacy benefit
managers (PBMs) (Lakdawalla, 2018). Compared with S&P 500 companies generally, the
pharmaceutical companies are highly profitable, made possible by high unregulated drug
prices as the U.S. prices of patented drugs in 2014 were about two and a half times those
of other OECD countries (Tulum & Lazonick, 2018).

Driven by shareholder-value ideology, the U.S. pharmaceutical industry has adopted a

highly financialized business model. Its key performance metrics are stock-price yield and
dividend yield, supported by distributions to shareholders through large-scale stock
buybacks and cash dividends (Tulum & Lazonick, 2018). With this financial behavior

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incentivized by stock-based executive pay, value extraction from corporations for the sake
of distributions to shareholders comes at the expense of drug innovation. Profits result from
the firm’s success in generating innovative products, and the investment of profits to
augment the company’s innovative capabilities provides the financial foundation for the
continued growth of the firm. Many criticized that those drug companies strayed from their
original mission of discovering and manufacturing useful drugs and yet became vast
marketing machines. Drug companies routinely rely on publicly funded institutions for
their basic research, and they rig clinical trials to make their products look better than they
are (Angell, 2004). Manufacturers are also enabled to set the prices of new products at or
slightly above the prices of existing therapies, giving rise to an upward trend in launch
prices (Howard, Bach, Berndt, & Conti, 2015). Under the Orphan Drug Act of 1983,
pharmaceutical companies can receive, among other benefits, 7-year market exclusivity
from the time that the FDA approves a drug for rare and genetic diseases. These companies
may also receive various types of research or tax subsidies at federal, state, and local levels
(Lazonick & Tulum, 2011). With their legions of lawyers, they are able to stretch out
government-granted exclusive marketing rights for years.

Apart from its importance to healthcare costs and progress, the pharmaceutical industry is
unique firstly because it is an R&D-intensive industry (Lakdawalla, 2018). Table 2
provides R&D costs and employment for selected North American Industry Classification
System (NAICS) industries in 2018. Total R&D costs are highest between pharmaceuticals
and computer electronics, but R&D costs per employee are more than twice as high in
pharmaceuticals than in computer and electronic products, and is even much higher than
the professional, scientific and technical services. This perfectly exemplifies the
knowledge-material circuit that once abundant capital is accumulated from the materials
(pharmaceutical products), more capital is invested in the production process, which
requires knowledge (R&D) in seek for more materials that could generate more profits. It
is in this process of knowledge-material translation that capital completes a round of
production and consumption. However, the pharmaceutical industry also faces arguably a
much wider array of government regulation and salient public policies than industries like
computers and electronics, publishing, or professional services. New drugs must proceed
through a lengthy and formalized process of testing for both safety and efficacy47. The very
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public nature of drug development and testing makes corporate secrecy much less useful
for protecting pharmaceutical R&D investments than for most other R&D-intensive
industries (Lakdawalla, 2018). Thus, pharmaceutical firms rely on patent protection and
other forms of market exclusivity created by regulatory fiat.

Table 2. Total Employment and R&D Cost in Selected Industries, 2018

R&D Costs Projected

Percentage R&D
NAICS paid by Worldwide
Industry of R&D Costs per
code Company Employees
Employees Employee
(million) (thousands)

Pharmaceuticals and Medicines 3254 $125,902 1,080 17.7% $116,576

Computer and Electronic Products 334 $110,085 2,763 16.8% $39,843

Transport Equipment 336 $44,545 2,940 8.8% $15,151

Machinery 333 $17,918 1,788 7.9% $10,021

Medical Equipment and Supplies 3391 $18,179 936 8.0% $19,422

Professional, Scientific, and

54 $29,647 405 16.2% $73,202
Technical Services

Information 51 $130,594 2,851 17.3% $45,806

21-23,
All 31-33, $558,974 31,345 8.2% $17,833
42-81
Source: National Science Foundation/National Center for Science and Engineering Statistics and US
Census Bureau, Business Enterprise Research and Development Survey (BERD), 2018

The medical device industry has exhibited a different pattern from the pharmaceutical
industry in the United States. It includes five specific industries: surgical and medical
instruments (SIC 3841), surgical appliances and supplies (SIC 3842), dental equipment and
supplies (SIC 3843), X-ray apparatuses and tubes (SIC 3844), and electromedical
equipment (SIC 3845) (Choi et al., 2019). It also receives competitive tax and trade policies
which foster the industry's growth (Cerone & Tull, 2015). Medical device firms often
experience a “valley of death” transitional phase where developing technology is deemed
promising yet without validated commercial potential and therefore fails to attract the
capital necessary for continued development (National Research Council, 2009). Funding
for scientific advancement comes from two dominant sources: public funds used to
generate knowledge, and private sector funds in the pursuit of commercial products.

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Medical device firms generally do not make significant investments in basic science,
staying relatively independent from basic scientific research conducted at universities and
leading laboratories. Therefore, some scholars argue that the medical device industry is one
of few sectors where manufacturing remains in the United States (Kang & Ku, 2018).

Figure 27. The Prescribed Drugs and Medical Device Expenditures to Total Health Care
Consumption in the United States, 1960 - 2019
Source: CMS, National Health Expenditures by type of service and source of funds, CY 1960-2019

Many Americans benefit from the implantation of medical devices, such as artificial joints
and lifesaving defibrillators. Each year, nearly a quarter of a million patients with advanced
painful arthritis receive a total hip replacement in the hope that it will restore mobility and
improve their quality of life (G. A. Wu, 2012). Compared to the pharmaceutical industry,
where the rising cost and tremendous profit made has been the discussion either in
academia or congress for years, medical device, on the contrary, has shown a stable patter.
Figure 27 shows the percentage of prescribed drugs and medical device expenditures to the
total health care consumption cost in the United States from 1960. While the
pharmaceutical has shown a cobra head since the 1990s (totaling $370 billion in 2019), the
share of the medical device has been somewhat stable, with a total value of $140 billion.
Yet the medical device industry also faces regulatory policies. On July 20, 2011, the U.S.
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House Energy and Commerce Subcommittee on Oversight and Investigations held a
hearing entitled “Medical Device Regulation: Impact on American Patients, Innovation,
and Jobs.” The subcommittee’s chairman, Congressman Cliff Stearns (R-FL), argued that
FDA regulation of medical devices is too burdensome, stifles innovation, and drives device
manufacturers overseas since rushing untested and potentially dangerous medical devices
into the marketplace carries serious risks.

An important feature about the medical device industry is that, it is inherently dependent
on innovation and entrepreneurship, or as some scholars described, the external knowledge
sources (G. A. Wu, 2012). A significant number of firms in the industry were founded based
on technologies from universities or research institutes, and their innovations were often
achieved by knowledge gained from public research. Second, because using patenting as
evidence of knowledge generation is routine in the medical device industry, it is appropriate
for investigating firms’ knowledge search behaviors. Funding, on the other hand, is a
material way of circulating economic, social, and cultural capital between old and new
founders (Zukin, 2020). This is specifically true for VC that the investors target promising
start-ups in the medical device industry, capitalizing on their products. These products, in
return, feed VC investors with their share of the market return.

Knowledge Translation

Research universities lead to the concentration of technology transfers to regional firms,

the creation of startup and spin-off firms from university-based research, and the
commercialization of university intellectual property (Bagchi-Sen & Smith, 2012).
Academic research generates the kind of knowledge spillovers needed, and this spillover
effect is particularly relevant in pharmaceuticals and medical technology (Jaffe, 1989). In
recent years, a growing number of research universities have been aggressively advancing
a technology commercialization agenda as U.S. universities are increasingly viewed as a
source for the creation of high-tech firms. As a result, there is a growing need for
universities to develop more rapid linkages between science, technology and utilization
and serve a “third-mission” of contributing to local economic development (O'Shea, Allen,
Chevalier, & Roche, 2005). They are competing for government-funded research grants
that prioritize innovation, trying to attract students (and their tuition dollars), and
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demonstrating to the city government that they create value for the innovation complex
(Zukin, 2020). Funding of higher education R&D has increased consistently year over year.
Total R&D expenditures reached $79 billion in 2018, an increase of more than $4 billion
(5.5%) from FY 2017. At a federal level, the government-funded $42 billion of R&D costs
in colleges and universities. Institutions themselves funded nearly $20.5 billion in FY 2018.
When adjusted for inflation, the three-year (FYs 2015–18) growth is 10% for total R&D
and 5% for federally funded R&D (M. Taylor, 2020). Furthermore, the U.S. legal system
facilitates the transfer of federally funded research to business enterprises and grants
pharmaceutical companies 20-year patents on drug discoveries (Tulum & Lazonick, 2018).

Since the early 1980s output of university research has been increasing dramatically along
many new dimensions such as patenting, licensing, and the creation of spin-off firms. The
changes started in the U.S. universities have subsequently increased their commitments to
converting scientific discoveries into commercial opportunities (O'Shea et al., 2005). This
process has taken various forms, but it is generally assumed that technological advances
are created by faculty and research staff and diffused to society through a technology
transfer process, either through licensing of the technology to established firms or through
the creation of new spin-off firms. Technology Licensing (or transfer) Offices (TLO/TTO),
incubators, and science parks have in turn been created to facilitate such technology
transfer (Rothaermel, Agung, & Jiang, 2007). Technology transfer is the process by which
university-developed technologies are transformed into marketable products. Universities
have traditionally sought to license their technologies to established private and public
firms, usually in exchange for the reimbursement of patent costs, an up-front licensing fee,
and a percentage of product sales. Scientists produce both publications and inventions in
response to monetary and other incentives (for example, promotion and tenure rules and
intrinsic motivation) (Belenzon & Schankerman, 2009). As universities have become more
involved in technology transfer, an increasingly common transfer mechanism is to license
a technology to a start-up company rather than to a larger, established firm (Powers &
McDougall, 2005). Technology transfer involves two distinct activities: innovation by
faculty scientists and commercialization by the TLO/TTO.

The last forty years have seen an increasing fraction of academics are engaging in

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entrepreneurial activities (Thursby & Thursby, 2007). This is not only because of the
institutional environment created at the university, or perhaps the trending entrepreneurial
environment that took place in the United States, but also because of the benefits academic
staff would receive. According to an interview with Harvey F. Lodish, a molecular and cell
biologist, professor at MIT and Founding Member of the Whitehead Institute for
Biomedical Research, there are several ways academic staff receives benefits 1 . The
university allows them at least one day off in a week, encouraging them to participate in
commercial activities related to their research. They could, through financial benefits,
participate in the commercialization process in two ways. One is to become an advisory
board member, and the benefits are not cash payments. It’s is equity sharing in the business,
which could go quite astronomical once the company goes public. Another way is directly
translating their research into products and building firms on it. For instance, Professor
Lodish is also the co-founder of Rubius Therapeutics, a 197-employee public
biotechnology company founded in 2013 with a $7.68 share price and market capitalization
value of $603.69 million as of December 31, 2020 (yahoo!, 2020).

Some businesses are created directly as a result of academic research. The dramatic
increase in the rate of university spin-offs over the past decades is attributed to several
reasons: the germination of biomedical research in the 1970s, and the passage of the Bayh-
Dole act in 1980 to transfer ownership of intellectual property from the research sponsor
to the university, increased financing of research by industry, changes in university
guidelines and behavior, and changes in the scientific ethos of faculty and researchers
(Mowery, Nelson, Sampat, & Ziedonis, 2004). The Bayh-Dole (or Patent and Trademark
Law Amendments) Act explicitly permits research institutes, including the nation’s leading
research universities, to transfer the results of federally funded research to commercial
entities (Mowery, Nelson, Sampat, & Ziedonis, 1999, 2001). Recent research indicates that
the passing of the Bayh-Dole Act in 1980, which encouraged universities to exploit their
innovations commercially, resulted in job growth for communities near universities
(Moretti, 2015, p. 140).

University alumni create a lot of new firms (Åstebro, Bazzazian, & Braguinsky, 2012), and

1
Interview conducted through Zoom with Professor Harvey F Lodish on 17th Dec 2020.
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this is particularly true for MIT and Stanford. According to earlier statistics, the percentage
of university alumni which start businesses are approximately 24% from both MIT and
Stanford business school (Hsu, Roberts, & Eesley, 2007; Roberts & Eesley, 2011).
Approximately 5% of alumni at Harvard Business School start businesses within one year
of graduation and 13% of those are successful (Joshua Lerner & Malmendier, 2013). VC
is a key indicator of a successful fast-growth startup. By analyzing the relationship between
VC and a startup founder's college, it could be told which colleges are preparing students
to be entrepreneurs. In an analysis of 13,000 startup founders, PitchBook tailored first-
round-funding between 2006 and the end of August 2019 by the startup founder's college
or university. The global analysis revealed that 9 out of the 10 top schools for VC funding
were in the U.S. As one might expect, Silicon Valley schools rank highly, as do Ivy League
schools in the Northeast (Tai, 2020). Table 3 uses PitchBook data to show the numbers of
founder, company, and capital raised in each academic institution is listed. Combining both
undergraduate and MBA programs, Harvard is listed the top followed by Stanford (if just
undergraduate) and University of Pennsylvania.

Table 3. Top Universities Producing Start-up Founders (Undergrad + MBA), 2019

Capital Raised
University Founder Count Company Count
(millions, USD)
Harvard University 2,433 2,191 80,894
Stanford University 2,221 1,954 65,761
MIT (Undergrad-only) 1,012 881 25,565
University of Pennsylvania 1,702 1,537 46,529
Cornell University 932 867 26,747
Columbia University 996 929 24,036
University of Michigan 912 826 17,345

Source: PitchBook Universities: 2019 (PitchBook, 2019)

Researchers have found multiple contributors to this process. Among them, the
significance of faculty quality has been repeatedly emphasized (Showalter & Jensen, 2019).
Earlier research on the role of universities in fostering entrepreneurial economic
development almost exclusively covers spin-offs by faculty and staff. Universities may
stimulate science and engineering students and recent graduates to create new firms of high
quality (Åstebro et al., 2012). Empirical studies have examined startup formation across

81
U.S. universities and found a positive relationship between startup formation and faculty
quality (Di Gregorio & Shane, 2003). Startup formation is also found to be positively
related to faculty quality and size, federal funding, TTO size, the fraction of industry
funding, and past success in startups (O'Shea et al., 2005). Evidence in biotechnology
further supports the importance of faculty quality on technology transfer outcomes.
Important work shows that close collaboration by “star” scientists in the development and
commercialization of biotechnologies has a significantly positive effect on commercial
success (Jensen, 2016; Zucker & Darby, 2001; Zucker, Darby, & Armstrong, 1998).
Especially where stars are involved, startups are the preferred method of collaboration and
licensing (Powell, Koput, & Smith-Doerr, 1996; Zucker & Darby, 1996). This is also
known as the “professor’s privilege” (Hvide & Jones, 2018).

Figure 28. Number of University Start-ups and Capital Raised in United States, 2006 - 2019
Source: PitchBook Universities: 2019 (PitchBook, 2019)

Although some argue that the availability of venture capital and the technological density
of the local regions matter, empirical analyses reached a consensus that the amount of VC
available in a particular location has no significant effect on start-up activities, therefore
suggesting that capital markets distribute VC efficiently over geographic space (Di
Gregorio & Shane, 2003; Zucker, Darby, & Brewer, 1998). Figure 28 shows that while

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university startups are declining after 2015, it has created a glorious peak between 2012
and 2015, raising more than $200 billion. Moreover, both existing and new biotechnology
firms tend to cluster near universities that house these star scientists to reduce collaboration
costs, thereby allowing more collaboration and improving the probabilities of success and
spurring local economic growth (Zucker, Darby, & Brewer, 1998). Knowledge translation
is not only a market behavior, but a joint effort from the government, the universities, and
the academic staff and students. The political support from the federal government and the
research institutions in commercialization and financialization of growth-pole industries is
consistent with scholars who argue for neo-liberal governance situated in a re-politicalized
relationship between the corporation and place (Pendras, 2009). These actors together
complete the “knowledge-material circuit.”

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Chapter 3: The “Institutionalized Spatial Practice” in China

Instead of simply assuming medical cities as a product by the state or the market in China,
this chapter argues that it is an “institutionalized spatial practice” under the collective
forces from the state and market to mobilize the resource-dependent health care sector with
land-driven strategies. Instead of growing out of agglomeration, the medical city in China
is dependent on the “resource releasing” process, where the state resources include land
and health care. Meanwhile, the market provides for the speculative capital to facilitate the
consumption and production of urban space. This chapter looks at the growth-driven spatial
strategies and resource-dependent health care sector to substantiate the argument.

For urbanization, the reshuffled central-local relation under the neoliberal movement
provided an institutional foundation for a “Chinese-style federalism” or “local state
corporatism.” Urbanization and urban planning practice are instrumentalized for “growth
machine agendas” to defend the state dominance through sponsorship and supervision of
capital-market operations that drive pro-growth aspirations. These aspirations are based on
the commodification and financialization of land, which is backed by the real estate market.
The Chinese urban landscape is therefore decomposed into episodes of various urban
megaprojects, and the medical city is one type of it. In the health care sector, China has
gone through a series of healthcare reforms. Public hospitals, because of their incumbent
advantages, have squeezed private hospitals out from the health care market, forcing them
to use competitive differentiation to secure the niche market including long-term care and
high-end specialty care. The university-hospital affiliation (fu shu yi yuan) further
reinforces this stymied system. On the one hand, the public hospital system, growing
demand from the population, preferential land policies, and inter-local competition have
together led to building more mega public urban hospitals. On the other hand, public
hospitals are still the major providers of health care. Private hospitals are generally smaller
in size. Local governments have tried to use urban space (hospital) to reshape territorial
socio-economic orders (geographical distribution of health care resource).

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3.1 Growth-Driven Spatial Strategies
3.1.1 The Institution-oriented Perspectives

Shifting Central-local Relationship

The growth and spatiality of China’s new urbanism could be better understood by revisiting
the concepts of the “state spatial projects” (Brenner, 2004b), as the dramatic urbanization
of the Chinese spatial economy in the recent decades has owed its origins to the reshuffling
of state power, particularly the restructuring of the central–local relation (G. C. S. Lin et
al., 2015). This reshuffling of central-local relation is aligned with a global trend of
neoliberal urbanization: within the process of “re-territorialization” in both socio-economic
and political-institutional spaces, states are rescaling the territory in which they can
exercise power in the most effective way (Brenner, 1998; Swyngedouw, 1997). Among
these changes, the rescaling of the state, or the so-called “glocalization” of state
responsibilities (Brenner & Theodore, 2002a; Swyngedouw, 1997, 2000), meaning the
process of decision-making shifting downward to local state authorities pushing local
governments to the forefront of neo-liberalization (Lauermann, 2018), is one of the most
important shifts. There were two clear types of governmental functions: production, such
as the construction of physical infrastructure, and consumption, such as the provision of
social welfare. While the central government focused on the production function, local
institutions tended to play a redistributive role in the provision of welfare services (Harding,
2005; Harvey, 1989). However, increasing globalization since the 1970s has challenged
this traditional division of labor, making local governments, even in different political
contexts, become increasingly preoccupied with innovative decisions to foster local
employment and economic development (Jessop & Sum, 2000; Porter, 1995).

The neoliberal discourse argues that as a response to the post-1970 round of global
economic restructuring, the state capacity has reconfigured territorially and functionally
across all levels of governance (Brenner, 1997; Goodwin & Painter, 1996). It describes the
retreat of the state from the social provision and the dominance of market exchanges
(Harvey, 2005). The triple transitions of decentralization, marketization, and globalization
have created a growth-oriented environment, and empowered local states in pursuit of
growth (Harvey, 1989). Market forces have replaced the state as a more effective and
85
crucial mechanism in generating optimal allocation of investments and resources, which
leads to the processes of “denationalization” of the state and “destatization” of the political
system 48 (Jessop, 2000). As the state gradually reassigns the responsibility of social
welfare and infrastructure provision to the market, local governments became
entrepreneurial in reaction to a restructuring of the Keynesian welfare state49 in an effort
to fill the political-economic void hollowed by neo-liberalization (Brenner, 2004a; Jessop,
2002; Macleod & Goodwin, 1999; Sbragia, 1996). Precisely as part of an entrepreneurial
strategy, the local state is acting as an agent to produce and sell urban spaces as its products
(Harvey, 1989).

This neoliberal strategy not only prevails in North America and Western Europe, but also
affects East Asia including Japan and Korea (Peck & Tickell, 2002). Particularly for China,
since the late 1970s when market-oriented reforms were introduced in convergence with
the global trend (Unger & McCormick, 1996), the interplay between powerful capitalist
globalization and inherited institutional infrastructures in China has been reshaping urban
landscapes (Harvey, 2005; Liew, 2005; Wu, 2008). The Chinese state has seen the
transformation of scale from central to local governments since economic reform. It is the
local state that proposes growth-oriented targets and drives local economic growth (Walder,
1995), a concept of so-called “local state corporatism” (Oi, 1992, 1995). However, in
China’s neoliberal urbanization, a strong state presence shapes a quite different urban
development path 50 . It is a battle between the central government which regulates the
markets towards rational development, and local governments who pursue aggressive
development through deregulation and removing supply-side constraints. At the national
level, the state attempts to implement prudential market-oriented reforms based on trial-
and-error experiments. At the local level, the state seeks short-term returns and visible
achievements through implementing “creative destruction” of institutional arrangements
and extracting value from the urban redevelopment.

From 1949 to 1978, the Chinese Communist Party (CCP) adopted a centrally planned
economy framework based on Marxist ideology51. The rigid centrally planned economy
and state power soon developed its inherent problems, despite impressive achievement in
industrialization (Stavis, 1983, p. 184; W.-W. Zhang, 2000). Thus, they changed their

86
perception of the market and launched economic reforms. Since the “open door” in 1978,
a series of institutional reforms have been implemented in China to convey the transition
from a centrally planned economy to a market economy. Among these reforms, the
governance of the national economy is delegated to subnational governments. These
include creating new incentives at the sub-national level to increase efficiency and
production, transferring the development pressure confronted by the central state to the
lower levels of the state apparatus (Wu, 2002). Moreover, in 1994, to cope with the trend
of fiscal decline, the central state replaced the previous revenue-sharing system with a tax-
sharing system (fen shui zhi) (G. C. S. Lin & Zhang, 2015). The revenue-sharing system
was a highly redistributive system, transferring intergovernmental revenues to balance
yielded revenue and permitted local expenditure. But under the tax-sharing system,
revenues were reassigned between the central and local governments52.

Figure 29. The Share of Local Budgetary Revenue and Expenditure to Total, 1978–2019
Source: China Statistical Yearbook, 1978-2019

The introduction of the tax-sharing system represented a milestone in the reshuffling of

state power. The tax-sharing system introduced a central–local fiscal contract, and
effectively started the decentralization of state power (L.-Y. Zhang, 1999). Decentralization
is a central element of the neo-liberalizing process, since it results in the rescaling of the

87
state and the emergence of competitive sub-national spaces through which expanded
capital accumulation can be generated (Brenner, 1998; Macleod & Goodwin, 1999;
Perreault & Martin, 2005). Figure 29 shows that the fiscal reform effectively raised the
ratio of government revenue to GDP and the proportion of central government revenue to
total revenue. The local government only keeps 25% of value-added tax but is able to keep
all extra-budgetary revenue, this leads to the huge fiscal gap between revenue and
expenditure for local governments. Due to this fiscal decentralization and greater local
autonomy, local officials began to seek revenue maximization (Wu, 2018). The fiscal
responsibility of local government was strengthened with greater local decision-making
autonomy, which turned the “entrepreneurial local governments” (Duckett, 2001) into
organizations similar to industrial firms (Walder, 1995). As a result, local economies are
relatively self-contained, and local governments have influence or even direct control
rights over a substantial amount of resources, such as land, firms, financial resources,
energy, and raw materials (C. Xu, 2011). The local state is no longer a social welfare
provider (S. He & Wu, 2005b), often compete in initiating or testing new reform policies
in the form of experiments53.

This fiscal decentralization, together with other complementary reforms, provided an

institutional foundation for a “Chinese-style federalism” (Montinola, Qian, & Weingast,
1995), or “local state corporatism” (Oi, 1992). China’s emergent central-local governance
can be appropriately understood as a state-orchestrated rescaling process (Wu, 2016b).
Local governments in China show many features of a large business corporation and their
officials behave like managers or entrepreneurs in seeking profit/revenue opportunities for
their own jurisdictions. At the same time, local officials who demonstrate entrepreneurial
behavior are a constituent of the state apparatus (Wu, 2018). This localism has profoundly
changed the behavior of local government, which now pays more attention to land
development because land revenue has become an important source of local revenue (R.
Tao, Su, Liu, & Cao, 2010). The fiscal change has led to the increasing role of local
government in spatial development during political and economic decentralization (Lei
Wang, Potter, & Li, 2014; Jiawen Yang & Li, 2014).

88
Urbanizing for Growth

Understanding Chinese urban governance requires a reading of the state–market

relationship (Logan, 2008; Yeh et al., 2015). Contemporary urban transformation is
characterized by the rising dominance of the capitalist urban process which is evolving
towards a greater role for the market (Harvey, 1978; Peck, 2011, 2017). A structural shift
towards rapid implementation of growth-oriented policy came with the onset of market
reforms in 1978, which rationalizes and promotes a “growth-first” approach to urban
development. In line with the theory of local corporatism, China’s story is also built on the
state’s ability to create and maintain a supportive growth climate (J. Y. Lin, Cai, Li, & Hong
Kong Centre for Economic Research, 1996). China’s urban growth is characterized by the
overweening role played by the party-state system. Specifically, China’s governing system
continues to be based on a Leninist bureaucratic structure featuring a strict administrative
hierarchy of political power paralleled by a party system that manages staffing and
personnel review. Subnational government officials are appointed from above, and the
appointment and promotion of subnational government officials serve as powerful
instruments for the national government to induce regional officials to follow the central
government’s policies (C. Xu, 2011).

In the evaluation criteria for governmental officials, the primacy of political conformity
has given way to economic performance and other competence-related indicators (H. Li &
Zhou, 2005). The central government rewards and punishes local officials on the basis of
their economic performance, motivating them to develop local economies54 (Blanchard &
Shleifer, 2001). In addition, the governments at higher levels assign economic “quotas” to
be achieved by lower-level governments. The quota system establishes connections
between local officials’ personal rewards with the economic development they have
incurred (Oi, 1992, 1995). Unsurprisingly, local leaders are strongly motivated to generate
economic growth during their tenure in office by any means, and thus they place much
focus on promoting construction projects that drive economic growth and spatial
transformation (Chien & Woodworth, 2018). Empirical evidence points out that the
likelihood of promotion for provincial leaders increases with improved economic
performance (H. Li & Zhou, 2005).

89
Furthermore, Chinese local leaders do not know how long they will remain in their
appointed positions. In principle, the party determines tenure and appointment and can
promote or remove from office whomever it chooses at any point55 . As a result, local
leaders have powerful incentives to accelerate urban expansion projects and select large-
scale mega-projects with significant spatial and economic impact, rather than piecemeal
incremental urbanization (Wu, 2015b). Local leaders, although they are public officials,
become virtual CEOs of “urban development corporations” (Chien, 2008). The pressure on
local public finance drives the government to initiate mega urban development projects to
gain land revenue to fill the gap between budgetary fiscal income and expenditure.

This competition for GDP growth also lead to competition for urbanization since urban
areas are the major drivers of economic growth and innovation as higher urbanization rates
coincide with higher levels of human development (Saich, 2015, p. 236). The local state
and enterprises have jointly endeavored to promote rapid urban (re)development, which is
strongly based on real estate development (S. He & Wu, 2005b), and the adoption of the
land-leasing system and housing commodification facilitates the development of the real
estate market as commodification and privatization. It was land and housing reform that
made possible the commodification of urban land and housing and the privatization of
public service provision such as public housing provision (S. He & Wu, 2009). Therefore,
the burgeoning real estate industry has become a shortcut to growth and excels other rivals
in fierce competition (X. Q. Zhang, 2005). This leads to the theoretical notion of the
“growth machine.”

A growth machine is built upon the common goals of the economic and political sectors to
promote long-term growth within a community (Molotch, 1976b, 1993). The notion of the
urban growth machine emerged as a way of explaining the coalescence of pro-growth
alliances comprising local governments, various non-state landholding actors and local
industrial and commercial interests (Harding, 1994; Molotch, 1976a, 1993). In the growth
machine theory, land is the most important source of wealth and power, and growth is
property driven. This interurban competition has driven local states to adopt the so-called
strategy of “glurbanization” (Jessop, 1998), in which localities compete by supplying
world-class infrastructure, producing city brands, and selling “places” to industrial and

90
 property investors. The built environment has been politically used to trigger economic
growth in various countries (Manuel B Aalbers & Christophers, 2014). The urban built
environment has been seen as a distinct sphere of capital investment separated from the
production sector (Christophers, 2011; Gotham, 2009), which is related to the urbanization
of capital and the capital switching theory that the circulation/transfer of capital between
its different circuits is a fix to accumulation crises56 (Harvey, 1978, 1985). As major arenas
for market competition and economic growth, cities have become increasingly important
geographical targets and institutional laboratories for various neoliberal experiments,
including place-making, urban development corporations, public–private partnerships,
new forms of local boosterism, and property-led redevelopment (Brenner & Theodore,
2002a; N. Smith, 2002; P. J. Taylor, 1995).

16,000.00 100%

90%
14,000.00

80%
12,000.00
GDP (Billion Currennt USD)

70%

10,000.00
60%

Percenntage
8,000.00 50%

40%
6,000.00

30%
4,000.00
20%

2,000.00
10%

0.00 0%
1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
Primary Industry Secondary Industry Tertiary Industry Urbanization Rate GDP

Figure 30. Urbanization Rate, GDP, and Economic Structure in China, 1960–2019
Source: World Bank Open Data & China Statistical Yearbook, 1960-2019

In China, since the 1990s there has been an equally remarkable embrace of “growth
machine” agendas (Jingxiang Zhang & Wu, 2006). China’s neoliberal urbanism is
characterized by state dominance through sponsorship and supervision of capital-market
operations that drive pro-growth aspirations and gentrification strategies (Yongshen Liu &
Yau, 2020). Local governments are also engaged in the promotion of their own areas by

91
providing external investors with various incentive schemes and partnerships (Wu, 2000).
By promoting urban development through the construction of new urban districts and
large-scale real estate projects (Lichtenberg & Ding, 2009; Wu, 2015b), urban development
has increased “place promotion” and reinforced the competition between cities (Hsing,
2010).

City building has become a competitive enterprise for local governments who seek to outdo
each other in “place-making,” both to attract investments and to conjure up highly visible
trophy projects through this shift local states have supported entrepreneurial urban growth
driven by manufacturing and real estate investment (Lei Wang et al., 2014). As a result,
since the turning point in 1979 when China began to open up to the market and the rest of
the world, it has experienced double-digit growth and an unprecedented rate of
urbanization. Figure 30 shows that accompanying the GDP growth, the number of people
dwelling in cities has risen to 60.6% of the population in 2019. Chinese cities have become
powerful production and wealth-creation machines.

60,000

55,000

50,000

45,000

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

0
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Urban Population (10,000 ppl) Areas of Built Districts (sq km)

Figure 31. Growth of Urban Built-up Areas in China, 1981–2017

Source: China City Construction Statistical Yearbook, 1981-2017

Note: In 2005 and before, Urban Population is the population of the city proper

92
However, this has also caused over-urbanization, meaning more urban spaces, or property
development, than what the population actually needs (S. Liu & Zhang, 2020). Figure 31
further illustrates that the growth trends between urban population and urban built-up areas.
It is clear that after 1994 and 1995 the growth of urban population has slowed and even
decreased, while the growth rate of urban built-up areas has maintained its momentum.
This has many reasons behind, such as the household registration system (hukou) that
separates migrants from the city residents, and the over-construction of housing property
without actual buyers or dwellers (ghost city). But the fundamental phenomenon has not
changed: urbanization in China is been driven by the building of urban areas, which is
caused by the local governments’ competing interests in driving up growth. Therefore,
urbanization is a state instrument, rather than simply being a result of population growth.

Planning as a State Apparatus

In the western context, urban planning is the publicly mediated attempt to make interrelated
decisions that collectively shape concrete spatial development patterns at various
institutional scales (Thornley & Dierwechter, 2012). But the Chinese state seems to learn
from the “developmental state”: a concept largely derived from the East Asian countries
(Olds & Yeung, 2004; Wade, 1990; Woo-Cumings, 2019). The developmental state
influences economic development through state-led comprehensive and territorial planning.
The “developmental state” uses its capacity to rescale capital allocation and the
accumulation process to ameliorate uneven economic-geographical development (Nee et
al., 2007). Similarly, the Chinese state uses policy intervention to significantly change the
relationship between the state and the market, which leads to a new wave of urban growth
and development (S. He & Wu, 2009), so that planning is strong where it can contribute to
this national economic objective.

Urban planning in China is characterized by a hyper-functionalist system and a strict

vertical pyramid structure of the Chinese political and administrative system: the state
policies originate in Beijing and are then deployed to the different interlinked
administrative-territorial levels including the provinces, autonomous municipalities,
special administrative regions or autonomous regions, municipalities or counties, and
towns or villages (Curien, 2014). The first key and fundamental element is the allocation
93
of ground to be urbanized: an “overall land use plan” (tu di li yong zong ti gui hua), which
adheres to the principles of the “land use law” (tu di guan li fa) of China, defined by the
Ministry of Land Resources (now the Ministry of Natural Resources). Province by province,
this national plan designates the maximum area of ground that can be urbanized. Next, each
province defines a land-use plan that sets the maximum amount of land that can be
urbanized, municipality by municipality, and so on down to the town level.

In practice, before the preparation of the urban master plan, a strategic planning outline (gu
ihua gang yao) is usually prepared as an intermediate step. The outline sets down the
principles and major issues, analyzes the technical and economic conditions, opportunities,
and constraints of development, and sets goals for socio-economic development (Wu,
2015b). Dealing with more specific urban planning documents and guidelines, three
different levels range from the abstract to the concrete and from the strategic to the
operational: the regional plan (qu yu gui hua) at the provincial level, the overall plan (zong
ti gui hua) and the detailed plan (xiang xi gui hua) at the municipality or urban district
level57. These various levels of urban planning are interlinked, and the lower-level plan
must follow the principles defined by the upper-level plan (Curien, 2014).

Urban planning in China has trudged through different phases. In the early 1950s, the key
task for city planning was to support the development of industrial cities and site planning
of key state projects (Wu, 2015b). In 1953, China started its first five-year economic plan.
In major cities that had received more than three key state projects, urban master plans
were prepared under the charge of the Urban Construction Committee. Because China
lacked experience in planning, Soviet experts trained Chinese planners and advised on
plan-making in major cities that received industrial projects. Therefore, planning was
heavily influenced by the principles of socialist city planning of the Soviet model of
industrial-driven economic development (J. C. Fisher, 1962). Chinese cities began to
transform from consumption-oriented and government administrative functions to new
economic growth poles. The dominant planning rationale at that time was to prioritize
industrial production, which marked the prelude to state-led industrialization and enforced
capital accumulation.

This was achieved through “compressed urbanization” to compress the cost of urban
94
development because investment in consumption was believed to be wasteful and
unproductive58 (Wu, 2011; F. Wu, 2012a). In 1955, the central government ordered the
reduction of “non-productive investment,” because it did not generate value. The
urbanization level, namely the ratio of urban population to the total population, lagged
behind the level of industrialization in China. In other words, the socialist city was “under-
urbanized” (Sxelenyi, 1996), and industrialization in China was achieved without
urbanization.

However, the failure of the Great Leap Forward and the withdrawal of Soviet assistance to
China changed the emphasis from promoting heavy industry and large cities to the
development of agriculture and small- and medium-sized cities. Since 1960, China started
to experience economic difficulties and entered a period of recovery and consolidation. It
was not until 1978 when city planning began to be restored. The development of planning
in the 1980s was in essence a process that strengthened the role of the local government,
coinciding with the decentralization of economic decision-making in post-reform China
(Wu, 2016a; Yeh & Wu, 1999). In the post-reform period, urban planning is funded by
ambitious local governments to justify their expansionist approach to the central
government59, to circumvent the regulatory constraints imposed by the central government,
and even to capture opportunities such as special entitlements (Wu, 2015b). Particularly
for some mega urban projects, urban planning has become a tool to rationalize urban
expansion and obtain land development quotas from the central government (Wei, 2012).
In that sense, the central government still maintains its power60.

This planning practice in China could be characterized as “planning for growth” as

planning has been transformed and utilized to defend the dominance of the state (Wu,
2015b). In a “growth machine,” planning is an auxiliary actor that is affiliated to growth
interests and has benefited from growth. In China, “planning for growth” is the other way
around: using market instruments to achieve state purposes. Planning is adapted to the new
environment and reinvented as a state apparatus, justifying the legitimacy and interests of
the state during the market transition, and solving the crisis created by the contradictions
arising during urbanization and urban transformation (Wu, 2018). Rather than being
replaced by market power, state power is reinforced by its use of market instruments.

95
3.1.2 Land-based Strategies

Commodification and Financialization of Land

In China, the state–market relation makes China’s urban policies institution-directed,

growth-oriented, and land-based (Wei, 2012). The local state and enterprises have jointly
endeavored to promote rapid urban (re)development, which is strongly based on real estate
development. Apart from a behavioral explanation that stresses “GDP tournament,” the
structural explanation stresses the dynamics of land revenue generation (R. Tao et al., 2010)
to meet the demands of local public expenditure (F. Su, Tao, Xi, & Li, 2012). Fiscal
decentralization tightens local budget constraints, stimulating local governments to
urbanize land to relieve fiscal distress and to employ land development to mobilize more
capital investment for growth (C. He et al., 2016). As a result, land plays a crucial role
because it is an important asset to either attract external capital or be converted into funds
to finance urbanization (Theurillat, Lenzer, & Zhan, 2016). As the most valuable resource
on hand, land has become the key for local governments to plan for growth by attracting
domestic and foreign investment.

Land in China has been viewed as the main trigger of capital accumulation since the 1990s,
which is characterized as “land-driven urbanization”. Scholars have highlighted the role of
land in China’s urbanization process and the institutional and political changes that have
gone along with it (Cartier, 2002; Ding & Knaap, 2005; L.-h. Li, 1999; Yeh & Wu, 1996;
J. Zhu, 2005). Hsing (2010) observes an urban model shift from industrialism to urbanism.
In the 1990s, land development first focused on developing industrial districts. Since the
mid-2000s, especially in the post-Global Financial Crisis era, urban development has been
mainly based on property development along with megaprojects, based on consumption
activities like shopping and leisure centers, tourism, etc. (Hsing, 2010; Wu, 2015b), and
megaevents (S. X. Zhao, Ching, He, & Chan, 2017).

The unique rural-urban dual land ownership allows the local governments to generate
revenue through “land finance” (tu di cai zheng). Three major interest groups exist in a
local land market: the central government, the local government, and local developers.
Economic coalitions are expected to form between a local government and developers, and

96
political coalitions are expected to exist between the central and local governments (S.
Zhang, 2014). Figure 32 highlights the key institutional participants in the land conveyance
process. Local governments, acting as regulators market players and intermediaries, have
been able to exploit large profits generated from the gap between the initial villagers’
relatively low compensation and the land conveyance fee received later (Hin & Li, 2011;
G. C. S. Lin, 2009). While rural land is collectively owned by village collectives, urban
land is owned by the state, and the power to manage the land is largely in the hands of
municipal and county governments. It is through the expropriation by the state that rural
land is converted to urban land. Villagers whose land is expropriated receive compensation
from the government, which is, at a maximum, thirty times the average value of the
previous three years' agricultural production.

Figure 32. Relationships in the Land Commodification and Financialization Process

Specific to this land-driven urbanization, for a municipal government, the revenue

generated out of land development usually includes three main components61. The first is
land conveyance income paid by commercial land users to the state when the rights to use
97
state-owned land is conveyed or granted. The second is tax revenue generated directly from
land use and development, which includes housing property tax, urban land use tax, land
value-added tax, cultivated land occupation tax, and deeds tax. The third is tax revenue
generated indirectly from land use activities and development, including corporate tax and
income tax paid by the housing and construction industries (G. C. S. Lin et al., 2015, p.
1973). Integrated into “extra-budgetary funds” (B.-s. Tang, Wong, & Liu, 2011; C. P. Wong,
2013), land conveyance revenues are usually used to finance infrastructure construction
and the provision of public goods62, and research found local governments’ pursuance of
urbanization is based on increasing reliance on land revenues (Lynette H Ong, 2014).

12,000 80%

70%
10,000

60%

8,000
50%

6,000 40%

30%
4,000

20%

2,000
10%

0 0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Local Government Revennue (Billion CNY) Land Conveyance Fee (Billion CNY) Percentage

Figure 33. The Share of Land Conveyance Fee in Local Government Revenues, 2001–2018
Source: China Land and Resources Bulletin, and S. Liu and Zhang (2020).

Figure 33 further demonstrates that the percentage of land conveyance feel has been a
significant portion of the local government revenues. However, it is also important to note
that among Chinese cities, their reliance on land commodification varied through time and
across space. Although in some places land-related revenue accounted for up to 60% of
total local fiscal income (Ding, 2007), the importance of land commodification in
municipal finance varies according to the level of economic growth. Reliance upon land
commodification as a main source of revenue gets weaker as the level of economic growth

98
increases as the local tax base sufficiently augments and the local land stock exhausts (G.
C. S. Lin & Zhang, 2015, p. 2795).
700,000 25.00%

600,000

20.00%

500,000

15.00%
100 Million CNY

400,000

300,000
10.00%

200,000

5.00%

100,000

0 0.00%
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Total Fixed Asset Investment Real Estate Investment Percentage

Figure 34. Fixed Asset Investment and Real Estate Investment in China, 1986–2018
Source: China Statistical Yearbook, 1986-2018

Meanwhile, the willingness of the developers to pay for the land conveyance fee has to be
credited to the land and housing reform since the late 1980s and the early 1990s which
facilitates the real estate market (Ding & Knaap, 2005). It boosts a new approach to urban
redevelopment characterized by heavy private investment 63 . In 1987, the Shanghai
municipal government published China’s first regulation allowing developers to obtain the
use rights of urban land plots within a certain period. By paying land-leasing charges and
land use fees to the government, developers could also transfer the land use rights they
obtained according to the regulation (Dowall, 1993; Yeh & Wu, 1996). Housing reform is
another important shift. Until the end of the 1980s, average housing conditions in most
Chinese cities were still very wretched. Free housing allocation and the low rent public
housing system were blamed for this severe situation, and reforms were urgently needed
(Y. P. Wang & Murie, 1996; X. Q. Zhang, 2000). In 1999, the Ministry of Construction
published a document for the privatization of public housing.

Transforming housing provision from work-unit allocation to market provision and

increasing homeownership are the major objectives of housing reform. Privatizing public
housing, including selling houses owned by local housing authorities or work units to

99
individuals, is also an important component of housing reform. Thereupon, real estate
investors and developers began to actively participate in the land market and urban
redevelopment projects. Figure 34 shows that while the total fixed asset investments in
China have risen dramatically during the 2000s, the ratio of real estate investment has
already risen since the 1990s. Accompanying the housing reform, Figure 35 further shows
that the average housing prices in 100 major cities in China have almost doubled
themselves over a matter of 8 years from 2010 to 2018.
¥60,000

¥55,000

¥50,000

¥45,000
2010 Average Price per Square Meter

¥40,000

¥35,000

¥30,000

¥25,000

¥20,000

¥15,000

¥10,000

¥5,000

¥0
¥0 ¥5,000 ¥10,000 ¥15,000 ¥20,000 ¥25,000 ¥30,000 ¥35,000 ¥40,000 ¥45,000 ¥50,000 ¥55,000 ¥60,000
2018 Average Price per Square Meter

Figure 35. The Average Housing Unit Prices (CNY per m2) in 100 Major Cities, 2010–2018
Source: Wind Database

Land can further be used as an asset to stimulate local capital accumulation by mobilizing
bank loans (G. C. S. Lin & Yi, 2013). Local governments use land as the collateral to raise
money from banks, thus financing urban development and the construction of urban
infrastructure. In fact, land-mortgage loans have become the key investments driving urban
land expansion in China (S. Liu & Jiang, 2005). However, it is important to note that bank
debts intended for local government projects are not actually held by local governments.
Budget legislation restricts localities from using debt financing for projects of any kind

100
(Lynette H. Ong, 2012). To circumvent this, local municipal governments have used local
financing platforms (LFP) since the early 2000s. Acting as “private” companies, LFP could
obtain bank loans and funds from other financial sources. Thereafter, local governments
have established thousands of urban development investment corporations (cheng tou gong
si) and various local-government financing vehicles (di fang rong zi ping tai) to secure
loans for projects. Local governments use administrative means to shift assets, especially
landholdings, onto the balance sheets of these financing vehicles in order to augment their
capitalization and obtain correspondingly larger loans.

¥8,000

¥7,500

¥7,000

¥6,500

¥6,000

¥5,500
2017 Fiscal Income (100 Million)

¥5,000

¥4,500

¥4,000

¥3,500

¥3,000

¥2,500

¥2,000

¥1,500

¥1,000

¥500

¥0
¥- ¥500 ¥1,000 ¥1,500 ¥2,000 ¥2,500 ¥3,000 ¥3,500 ¥4,000 ¥4,500 ¥5,000 ¥5,500 ¥6,000 ¥6,500 ¥7,000 ¥7,500 ¥8,000
2017 Issued City Investment Bonds (100 Million)

Figure 36. Debt Ratio of Cities (Municipal Investment Bonds over Fiscal Income Levels), 2017
Source: CSMAR Database

In the context of stiff inter-city competition, the push for faster and ever-larger growth
agendas is channeled through such investment platforms (Chien & Woodworth, 2018). This
model is known as “virtual capital circulation” (zi ben kong zhuan) (Wu, 2015b), meaning
that the land corporation had no initial capital but used undeveloped land as collateral to
draw capital from the banks. After land development, the profit is used to pay back the loan,
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or to roll over loans for the next phase of development. When the loan is paid back, the
capital circulation is complete. This is a form of “financial innovation” similar to the
“securitization of subprime mortgages” (Manuel B. Aalbers & Christophers, 2012; Wu,
2015a). Access to greater credit eases the capacity of city governments to initiate large-
scale projects. Figure 36 shows that mortgage is correlated with the fiscal income of
municipal governments. The better the ability to pay back loans, the higher value of the
land, the more mortgage the local government is willing to take on, the more loans the
banks are willing to issue. But this land-based financialization has caused very high debt
levels for municipal governments, which could cause severe social issues (S. Li & Cao,
2020; F. Pan et al., 2016).

But sometimes local governments are also willing to “give out” land to capture long-term
growth. With the investment-driven growth model prevailing in China, another competition
is for FDI (Li Zhang, Wang, & Xu, 2011). Local governments are able to accumulate low-
cost land under the current land administrative system (Ding, 2007). As the sole supplier
of land, they can then provide land at a very low price to attract industrial investors through
site-clearing-style packaged development (G. C. S. Lin, 2007). Liu et al. (2008) and Tao et
al. (2010) confirm that leasing land for industrial and commercial uses contributes to local
budget revenue growth by generating a stream of future revenues, income, and business
taxes. Yang and Wang (2008) find that a low price transfer strategy was commonly
practiced for industrial land. This effectively converts once-for-all land income into a long-
term source of revenue (R. Tao et al., 2010).

Furthermore, it is found that the construction of public infrastructure is positively related

to urban economic growth (X. Fan, Zheng, & Shi, 2016). To attract both domestic and
foreign investment, substantial revenues accumulated from land development have been
used to invest in urban public infrastructure (W. Y. Chen & Hu, 2015; G. C. S. Lin & Yi,
2013; Yew, 2012). But gaining long-term tax revenue is not the ultimate gain from
promoting industrial land development, because the local government can only retain 25%
of value-added tax under the current system. The aim is to use industrial development to
stimulate the local economy as a whole and use the “spill-over effect” to increase demand
for housing and for commercial and retail space. The local government can retain the retail

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sales tax and the profit from land development. Inflated residential and commercial land
values can expand local revenue by raising land values in the primary land market, where
the local government is a monopolistic supplier. The price gap is an important source of
revenue and lays down the foundation of the entrepreneurial city (Hsing, 2010; G. C. S.
Lin & Ho, 2005; Yeh & Wu, 1996).

This self-reinforcing mechanism is referred to as a “land-value capture” process (F. Wu,

2012b). Local municipal governments use cheap and subsidized land to attract investment
in manufacturing industries64 . They expand the overall GDP volume through industrial
development which in turn raises the land value of the city (Theurillat et al., 2016). They
lease the serviced land for commercial and residential markets via auction or bidding so as
to capture the differentiated rent between pre- and post-conveyance. They then use the land
revenue to replenish the local tax deficiency and invest in infrastructure, after which they
annex rural land at a lower value and convert it into serviced land so as to raise its value
and attract investment, leading to a premium price for commercial and residential
development. Consequently, more land conversion for urban use equates to increased
investment and rapid economic growth.

Development through Mega Projects

There are several typologies of urban megaproject produced under the state apparatus of
urban planning with the purpose of development. Development zones are often
championed by local cadres as the answer to industrialization (Yew, 2012). In the attempt
to compete for foreign investment, local jurisdictions in China set up a large number of
development zones for industrial and commercial uses. An economic development zone is
a government-designated area for industrial and commercial development 65 . Export-
oriented development in China through special development zones contributed to both
rapid economic growth and indiscriminate reproduction of special zones (Cartier, 2001).
Although the earliest development zones were all established by the initiation of the central
government, local governments in China quickly recognized this useful development tool.

A typical development zone is located at the edge of an urban area. The local government
first draws up a blueprint that delineates the land area for development and lays out the

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stages of planned development. It then raises funds through various channels such as bank
loans or sales of land use right to local developers. Using these funds as well as some tax
revenue, the local government builds infrastructure in the development zone. In addition
to the tax breaks granted by the central government, local governments will often offer
additional incentives for FDI located in their development zones, which may include local
tax breaks, discounted land rents, and lowered utility prices in the early years of investment.
In several periods of time, development zones mushroomed at such a rampant pace that the
central government had to intervene in order to prevent the rapid reduction of agricultural
land (Junfu Zhang, 2011).

At the same time, specific to the process resembling agglomeration in China is industrial
park, with its distinction made from naturally emerged clusters. Following the successful
experiences with Special Economic Zones, there was a “zone fever” in the 1990s with the
increasing autonomy of local governments in land management (Cartier, 2001). A large
number of industrial parks and high-tech parks were planned and developed by the
governments to attract investors at different administrative levels66. Industrial parks are
authorized by different level governments: state, provincial, or prefecture (or below)
government and enjoy more favorable policies, such as lower interest rate loans, larger tax,
land price and utility price discounts (Y. Ma, Ji, Xu, & Fu, 2018). China’s government has
spent hundreds of billions of dollars to invest in new industrial parks with the intent of
boosting economic growth, by attracting new firms into the parks and also generating
spillovers for the local economy. Given that Chinese mayors increase their promotion
chances by raising local economic growth, they have strong incentives to pursue pro-
growth strategies (Zheng et al., 2017). The city government can easily convert agricultural
land at the edge of cities into urban use and allocate a large parcel of land to build an
industrial park and engage in land assembly in ways that are impossible in the United States.

Meanwhile, the rapid urban expansion in China is characterized by the development of new
towns (Hsing, 2010; J. Shen & Wu, 2013). In particular, the university town, or Higher
Education Mega Centre, indicates aggressive production of urban space (Yongshen Liu &
Yau, 2020). From an international perspective, there are two types of university towns. One
is the original type in European cities, where university towns are often hundreds of years

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old, having been founded before or around the Industrial Revolution. These include Oxford,
Cambridge, Durham, Leuven, Ghent, Heidelberg, which were developed not only into the
center of higher education, but also the core of political, cultural and social dynamics. The
second type, referring to the new type of university towns, is mainly built in the United
States around 1900, acting as a conduit for new institutions to serve growing student
populations (Gumprecht, 2003). The distinction between the two types of university towns
lies in their relation to the city or towns. In Europe, universities emerged organically in
locations where scholars and students gathered over time, while in the U.S. large-scale
settlements came after the emergence of universities (Z. Li, Li, & Wang, 2014).

In the 2000s, China began to see the impact of economic restructuring and realize the
importance of science and technology. Universities were allowed to significantly expand
their student recruitment. Local governments were enthusiastic about expanding
educational uses. As large Chinese cities had entered a period of rapid urban expansion and
soon faced tighter land management by the central government, a compact form of
suburban development was encouraged. But the suburbs were largely underdeveloped or
scattered with urban sprawl. In order to increase the attractiveness of the suburbs, the local
government released suburban land cheaply to universities that were allowed to borrow
development funds based on their projected student recruitment numbers. Through the
development of university campuses, the suburban new town could attract more residents
to justify the development of infrastructure and services. The development of university
campuses thus became an effective way to stimulate initial suburbanization (Wu, 2018).

In essence, university towns are mega urban projects, similar to other major infrastructure
developments (Y. Jiang, Waley, & Gonzalez, 2016). These new towns are planning
products. Against the backdrop of China's recentralized land-use regime, local
governments utilize a variety of projects such as the “new city,” “eco-city,” or “university
town” to generate profits (Z. Li et al., 2014). With the increase in land values, such a
compact development form is becoming possible, as now only a smaller amount of land is
needed to capture the land value needed to support infrastructure development. As such,
the underlying reason for making university towns is attributed to the efforts of local
governments to generate extra finances from lands. That is, the impact of university towns

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on surrounding communities engenders not only an increase in revenues for the city directly,
but also serves to raise the value of land in surrounding areas (Z. Li et al., 2014).

They represent not just residential suburbanization but also post-suburban development
which involves the participation of multiple actors through entrepreneurial land
development and infrastructure provision. The implementation of suburban development
requires innovative use of market instruments and governance adjustment. Their
development also represents a financialized approach to urban development (Theurillat et
al., 2016), which facilitates capital accumulation (J. Shen & Wu, 2017). University town is
a strategy used by local states against the recentralized land use controls. On the one hand,
differing to the leasing of land for commercial uses that requires the auctioning of land, the
leasing of lands for educational use can utilize the method of negotiation, an approach more
attractive to land users as educational land uses were exempted from the compulsory land
auction which had been introduced since 2004. Moreover, against the context of
strengthened land use controls, it is relatively easier to obtain the agreement of the central
governments for lands utilized for educational purposes. In this case, university towns are
not a product of a post-Fordist knowledge economy, which sees the dispersal of economic
activities clustered at specific localities (Wu, 2018).

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3.2 Resource-dependent State Projects
3.2.1 Health Care System in Transition

The Undulating Role of the State

Figure 37. Total Health Expenditures and Percentage to GDP in China, 1978–2018
Source: China Health Statistics Yearbook, 1978-2018

The key in understanding the transition of the health care system in China has to be rooted
under the interplay of institutional, historical forces that together formed the ideology
behind. It cannot be simply concluded either the state or the market has played or has been
granted the dominant role in delivering health care in China. Unlike the American
counterpart which operates based on a mixed public-private system, the Chinese state has
not settled on a clear role, undulating back-and-forth, experimenting with different
strategies to reform its healthcare system. In general, the building of China’s Healthcare
System can be divided into four stages: the state-dominant era (pre-1978) when the state
was in the dominant role in providing health care as a pillar to a socialist state; the market-
dominant era (1978-2002) when the state retreated from the provision of health care and
relied on the market which transformed the public health facilities into profit-seeking
entities; the reform era (2002-2012) during which the state stepped backward to the health
sector, established a basic universal health coverage (UHC) system; and the post-reform
era (2013-now) when the Chinese government invites market strategies and private
hospitals back in hope to reform the public-hospital system. Figure 37 shows that the total

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spending on health care (including both government spending and individual spending) has
substantially grown up since the 2000s. But the ratio of total spending to GDP has
experienced several waves of fluctuation.

In the state-dominant era, the centrally planned health care system was regarded as a major
pillar of state socialism, which emphasized public ownership and welfare, mass-based
collectivism and egalitarianism (M. S. Chen, 2001, p. 456). The CCP under the leadership
of Mao undertook the immediate task to rebuild the nation after the end of warfare67. It
made health a priority and regarded the health care system as a major pillar of state
socialism (Gu, 2001, p. 197). The centrally planned economy created a national, centrally
planned health care system that the government played a major role in providing and
financing health care (Luk, 2017, p. 29; Yip & Hsiao, 2015). Health care was seen as an
integral component of the communist system and important to the development of a
collective Maoist Chinese identity (Daemmrich, 2013).

Broadly, health policy from the 1950s through the 1980s was characterized by a focus on
meeting the basic health needs of peasants, soldiers, and workers (Daemmrich, 2013).
Private firms and market incentives were eliminated throughout the system (Jingqing Yang,
2010). In 1949, China had only 40,000 doctors to care for a population of nearly 540
million (Daemmrich, 2013). Mao considered the communist movement to have originated
in the peasant class and the party consequently made rural healthcare one of its top
priorities (Fang, 2018; Wen, 1974). Therefore, new care providers were trained in three-to-
six-month crash courses starting in the early 1950s and sent to open rural clinics68. Named
“barefoot doctors,” which is equivalent to community health workers (N. Zhu, Ling, Shen,
Lane, & Hu, 1990), they acted as the frontline practitioners also gained international
recognition. Healthcare institutions in cities were all publicly owned and fell into two
categories: general hospitals and specialist hospitals affiliated with governments at all
levels and large industry organizations, and clinics and health centers affiliated with
enterprises and public institutions. General hospitals and specialist hospitals were
responsible for treating more serious diseases and rare illness while clinics and health
centers were responsible for treating common diseases and injuries for employees of
enterprises69 and public institutions they were affiliated with (Fang, 2018, p. 25). almost

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everybody enjoyed equal access to very basic health care.

Then the healthcare system changed. Since 1978 when China liberalized its economy and
moved away from a central planning to a socialistic market economy, public goods such as
health care, education, and housing became rapidly commodified to occupy a much bigger
proportion of personal expenditure, more in line with consumption patterns in developed
countries70 (Zhan, 2013). The rising spending on welfare conflicted with spending on other
priority areas and the incentives for local governments are poorly aligned to expand the
pool of people included in welfare programs (Saich, 2015, pp. 290-291). The Chinese state
has radically cut back its role in funding health services (Duckett, 2011). Between 1978
and 2002, policymakers focused on economic development and market orientation spread
from the economic to the social sector71 (Fang, 2018, p. 28). In 1985, the ministry of health
phased out support for barefoot doctors (D. Zhang & Unschuld, 2008). Those able to pass
qualifying examinations were now termed “rural doctors”, while others were re-
categorized as health workers or medical aides. Physicians and trained medical personnel
likewise moved to cities. In fifteen years, township health centers across China lost nearly
all of their qualified doctors (Y. Gong & Wilkes, 1997). In the urban areas, reforms of the
SOEs produced massive downsizing, and the laid-off workers lost their social safety nets.
Although the government piloted an Urban Employee Basic Medical Insurance (UEBMI)
scheme in 1994, it only covered formal sector employees, leaving the majority of urban
residents uninsured (Yip & Hsiao, 1997).

Public hospitals were encouraged to operate income-earning sideline services and

businesses besides regular medical services. The public health clinics and hospitals were
relying on selling medicines and ordering imaging and laboratory tests and other charges
to generate their incomes without strict government regulation. A 15% mark-up on drugs
was also allowed. Furthermore, Public health agencies could also establish fee-for-service
health centers and hospitals for delivering curative services and selling medicines (Yip &
Hsiao, 2015). Therefore, these public facilities became for-profit entities particularly after
the “Instructions on Health Reform72” (State Council of China, 1992). As the profit motive
became dominant, at the expense of patient care. Hospitals, clinics, and village doctors
gradually became profit-seeking entities73. As a result, providers overprescribed drugs and

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tests, and hospitals raced to introduce high-tech services and expensive imported drugs that
gave them higher profit margins. These medical practices caused rapid health expenditure
inflation. Figure 38 shows that between 1980 and 2000, out-of-pocket (OOP) spending by
individuals thus increased drastically from 21.19% to 58.98% of all health expenditures.
The government’s share, by contrast, shrank significantly from over 36.24% to 15.47%.

Figure 38. Health Expenditures by the Government, Society, and Individual in China, 1980–2000
Source: CSMAR, China Health Statistics Yearbook, 1980-2000

Conceptually, health care in China shifted from a public good to the private responsibility
of each individual. Healthcare in this period was seen as a consumption activity rather than
a fundamental right of the people. Furthermore, the government has been unwilling to
spend resources on what it sees as unproductive investments (Saich, 2015, p. 287; Wu,
2015b, p. 43), including the provision of public goods and services. Since the mid-1990s
the development of China’s health system has largely fallen behind that of its economy
(Browne, 2001; Eggleston, Li, Meng, Lindelow, & Wagstaff, 2008). As shown in Table 4,
although healthcare services grew considerably as both the number of beds in health care
facilities and healthcare workers have increased substantially, as a result of rising health
service charges and lack of insurance coverage, Chinese people increasingly experienced
difficulty in accessing or affording reasonable quality health care (Hu et al., 2008; S. Tang
et al., 2008; Yip & Hsiao, 2008). This situation was summarized in the widespread and
popular lament: “kan bing nan, kan bing gui,” or “insurmountable access barriers to health

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care, insurmountable high health costs” (Yip & Hsiao, 2015).

Table 4. Health Resources in China since 1980

Beds in Health Care Healthcare Hospital Beds per 1000 Healthcare Technicians
Year
Facilities (10 thousand) Workers People per 1000 People
1980 218.44 353.5 2.02 2.85
1985 248.71 431.3 2.14 3.28
1990 292.54 490.6 2.32 3.45
1995 314.06 537.3 2.39 3.59
2000 317.70 559.1 2.40 3.64
2005 335.10 644.7 2.62 3.50
2008 401.90 755.2 3.05 3.90

Source: China Health Statistical Yearbook, 1980-2008

The new President Hu and Premier Wen (Hu-Wen) regime came to power and they had a
different set of social values. They gave higher priority to equity in people’s wellbeing
between the rich and poor, and rural and urban residents. They campaigned to establish an
ideology of a “socialist harmonious society” that China had to balance economic and social
development. The government had a responsibility to provide its citizens with a social
safety net, including health care, education and pensions74. In order to address the pressing
social issue in health care, by 2008 the Chinese government established a shallow social
health insurance called the New Cooperative Medical Scheme (NCMS) for the rural
residents with a partial government subsidy to cover large hospital expenses. A few years
later, the government established a similar program, the Urban Resident Basic Medical
Insurance (URBMI) in to cover urban residents not already covered by the UEBMI. This
pro-government approach fundamentally shaped the reform plan in 2009–2012 and
provided detailed actions for basic health care75. The government committed 124 billion
USD of additional public spending. By 2012, the multi-layered health insurance system
has covered above 95% of China’s population (Dou et al., 2018), with the benefit packages
gradually expanded to cover 50% and 75% of expenditure for outpatient and
hospitalizations respectively (Yip & Hsiao, 2015). Figure 39 shows that in 2001, personal
expenditures accounted for 59.97% of total health expenditures, but in 2012 it dropped to
34.34%, reflecting an increased level of government expenditures for healthcare from
15.93% in 2001 to 30% in 2012. The decreasing spending by individuals dropped to 28.61%

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in 2018, while the share of government expenditure has not changed significantly.

Figure 39. Health Expenditures by the Government, Society, and Individual in China, 2001–2018
Source: CSMAR, China Health Statistics Yearbook, 2001-2018

To further some unfinished tasks left from the 1978-2002 period, China launched its new
cycle of reform in 2013. Privatization and marketization are encouraged to reform the
public hospital system characterized by the for-profit nature and delivery of wasteful,
inefficient, and low-quality medical services76 (Yip & Hsiao, 2015). The below-market
wage and labor fees plus the massive room for profits with medicine sales and various tests
and check-ups “twisted” public hospitals’ behaviors to sell medicines and unnecessary
services. This has led to the worsening problem of the over-prescription of medication, a
problem that further contributed to the issue of increasing healthcare costs (Fang, 2018, pp.
110-111). The adoption of market strategies was with the intention to use private-sector
competition to stimulate changes in the otherwise stymied public hospitals. It encourages
private health insurance to cover private hospital services and to supplement the basic
social health insurance, including long-term care, while considering using private
insurance firms to serve the purchaser’s role and to set up their own health care facilities
(Xinhua News Agency, 2014). In addition, China designated health services and
biomedical as top growth industries that would enjoy favorable government tax and fiscal
policies (State Council of China, 2013b).

Yet the issue of poor access to healthcare services has not seen significant improvement

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and became the focus of healthcare reform since 2016. Particularly after the innovative
experiences of Sanming City, the central government started to realize that the problems of
increasing healthcare costs for patients and the poor accessibility of healthcare services
were not due to the marketization of healthcare during the market reform era, but as a result
of distorted behavior by healthcare institutions and medicine firms from both the
“administrative culture” and commoditization (Fang, 2018, p. 132). Since then,
experiments have been directed to the primary health sector, trying to “sink” (xia chen)
healthcare resources to the primary care sector and prevent “osmosis” (hong xi) of
resources to tiered hospitals (Zhuang, 2018). Further reforms are underway to control
medicine and service prices, to standardize health insurance schemes. This could be
achieved by a compromise between the pro-government and pro-market policies.

The Increasing Burden on Individuals

There are four distinct phases in health insurance systems in China: the first phase is that
of pre-reforms (1949–78); the second is the 1980s and the 1990s; and the third phase begins
from the early 2000s to the present (Nundy, 2014). From 1949 to 1978, access to health
services was based on the process of collectivization that provided health security to all in
rural areas. Health care financing for urban and rural areas developed on distinctly different
lines and has been so since then. With the collapse of the collectives, the period of the
1980s and 1990s witnessed a breakdown of a comprehensive health services system.
Escalating costs of health care were part of the many dire consequences of this collapse of
a holistic policy. The process of transition to bring the state back into the health sector in
order to increase access was debated all through the 1990s. This resulted in newer systems
and insurance mechanisms being introduced in the 2000s.

The actual health insurance reform began in the mid-1980s. Before 1978, these centrally-
planned programs greatly improved Chinese people’s access to care77 (Luk, 2017, pp. 37-
42). However, the consequential issues were obvious too. Because patients and health care
providers did not have to face the actual financial burden, they tend to overuse medical
resources and services. Furthermore, health care providers relied on over-prescription and
unnecessary medical tests and treatments to gain more revenue because prices of medical
services and drugs were set below actual costs during Mao’s era and health care providers
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were not compensated by the government. The “Report Concerning a Number of Policy
Issues Connected with the Health Service Reforms” in 1985 by the Ministry of Health
(MOH) marked the initiation of exploration in the reforms (Ministry of Health, 1985).
Local governments were encouraged to raise charges for medical services in order to
reduce consumer moral hazard in becoming more cost sensitive.

In the 1980s and 1990s, the Chinese were principally self-insured since few employers
provided health insurance and only expatriates had access to private insurance. Even in
cities, health insurance became rare, with a decline in the number of people covered during
the 1990s that eventually bottomed out at 40% (X. Liu, Liu, & Chen, 2000). When ill, they
drew upon savings, family funds, and friends and co-workers to pay medical expenses. As
a result, the Ministry of Health in 2000 warned that nearly one-quarter of new cases of
poverty could be attributed to medical expenses (Meng & Hu, 2000). Prior studies also
found a 44% increase in the number of rural households living in poverty as a result of out-
of-pocket medical spending (Liu et al. 2003). Beyond that, many Chinese patients who
were advised to go to hospitals for treatment did not follow because of financial burdens
(Yip & Mahal, 2008). Starting in the mid-2000s, the Chinese government began to increase
spending on healthcare, mostly to expand insurance coverage but also for biomedical
infrastructure of hospitals and research facilities (Barber & Yao, 2011). As part of a package
of fiscal stimulus measures in 2009, the government announced 850 billion RMB ($136
billion) in new health sector spending, spread among the urban and rural insurance schemes.

Till today, China developed a mixed health insurance system consisting of Urban
Employees Basic Medical Insurance (UEBMI), New Rural Cooperative Medical Scheme
(NRCMS), Urban Resident Basic Medical Insurance (URBMI). These insurance schemes
are mainly financed by the local government. UEBMI, launched in1998 as a mandatory
employment-based insurance program for urban employees of state-owned or private
enterprises (C. Wang, Rao, Wu, & Qian, 2013; Yip et al., 2012), is financed through payroll
(8-14%) from both employer (6%) and employee (2%) (Xin, 2016). NRCMS is a voluntary
program that was launched in 2003 (Meng & Tang, 2013). Premiums come mainly from
the central and local governments, while the rest comes from individual contributions (Cao,
Shi, Wang, & Dong, 2012; Meng & Tang, 2013). URBMI, launched in 2007 to target the

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unemployed, children, students, and the disabled in urban areas, is voluntary basic health
insurance (H. Liu & Zhao, 2014). It is mainly financed by the government, while urban
families only contribute a small share of premiums. In 2012 the inpatient and outpatient
reimbursement rates of the two insurance schemes reached 55% and 50%, respectively
(Yip et al., 2012). After more than two decades of effort, the system reached about 95%
coverage for the Chinese population (Süssmuth & Florian, 2017; H. Yu, 2015). The share
of OOP to total health care expenditures dropped to 28.61% in 2018 because of the
insurance coverage, as the reimbursement rate of inpatient care have risen dramatically
between 2010 and 2016, close to 40% for both rural and urban patients (Yip et al., 2019, p.
1196). Table 5 lists these medical insurance schemes with their main features78.

Table 5. Summary of the Features of Insurance Schemes in China

Name Financing Mechanism Beneficiary Reimbursement Limit

Employer & Individual: Employee and Retiree:
12% Monthly Salary (10% Urban Employees,
UEBMI Outpatient: 20,000 CNY/year
individual, 2% by employer) Retirees
+ 3 CNY (individual) Inpatient: 300,000 CNY/year
Government and Individual:
Urban Residents Outpatient: 3,000 CNY/year
Govt varies at local scale,
URBMI not covered by
Individual 220-300 Inpatient: 200,000 CNY/year
UEBMIS
CNY/year
Outpatient: 60%-20%, less at
Government and Individual: higher tier facility
NRCMS Govt varies at local scale, Rural Residents Inpatient: 60%-30%, less at higher
Individual ~200 CNY/year tier facility;5,000 CNY/year
Severe Illness: 200,000 CNY/year
MA / wu bao and di bao /
Employee:
Outpatient: 80% for <3000 CNY;
90% for >3,000 CNY
Inpatient: 90% for <10,000 CNY;
Free Medical All Government 94% for >10,000 CNY
/
Service Servants Retiree:
Outpatient: 90% for <3000 CNY;
95% for >3,000 CNY
Inpatient: 95% for <10,000 CNY;
97% for >10,000 CNY

Source: Updated according to information in 2019; future reforms may change these schemes.

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At the same time, payment systems in China can be divided into post-payment and pre-
payment. The post-payment system consists mainly of fee-for-service (FFS), while pre-
payment systems include various methods such as GBPS, capitation, per episode/diem, and
disease-related groups (DRGs) (Linan Wang, Zhu, & Hu, 2018). The post-payment system
can ensure the quality of care but is also widely criticized for over-treatment, since payment
is calculated based on type and quantity of service and physicians tend to provide more
services, resulting in huge expenditures (Lele Li, 2018). Since payment is calculated based
on type and quantity of service, physicians tend to provide more services, resulting in huge
expenditures (Dou et al., 2018; D. Wang, 2019). Currently, most payments in China are
done through FFS, but the government is planning to replace them with pre-payment
methods (R. Wang & Wei, 2018). On the contrary, pre-payment methods can control
expenses due to the predetermined budget but may lead to decreased quality of care and
pushing away patients who need more treatment (Z. Yang et al., 2018). Currently, most
payments in China are done through FFS, but the government is planning to replace them
with pre-payment methods (D. Wang & Wang, 2013; R. Wang & Wei, 2018).

However, issues remain in the current system. Inflating expenditure on health expenditure
emerged between 2008 and 2017 real total health expenditures increased at an average
annual rate of 12.2%, outpacing the annual rate of real GDP growth. It was found that about
70% of the increase in health expenditures was due to an increase in volume, and about 30%
could be attributed to increases in charges per admission or visit (Yip et al., 2019). There
is little private insurance coverage and providers operate with low margins79. The system
instead relies heavily on baseline insurance under government programs and co-insurance
by individuals out of their savings. Out-of-pocket spending is extremely high and
contributes to a world-leading savings rate (Daemmrich, 2013).

Therefore, although universal coverage was achieved in China, challenges still lie ahead.
The increasing demands from the population and the government’s fiscal concern have
been in conflict and remained stagnant. While basic costs were covered, the expensive
drugs and tremendous costs associated with severe illnesses have not yet been solved.
Paired with the institutional reform in the hope to regulate healthcare providers and shift
medical resources downwards to primary care, the ongoing health care reform has

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inevitably made ways for the market to solve some of these issues.

3.2.2 Hospital-centered System

The “Reverse Pyramid”

Public hospital in China has few parallels internationally. Most of these hospitals enjoy
considerable autonomy in financial and asset management, retaining their financial
surpluses, opening and closing services, expanding or contracting their physical plants and
equipment, and entering into and servicing debts. The central government also envisages
public hospitals as having full decision-making authority over management and operations
(State Council of China, 2015c, 2015d). Although reforms since 2013 have been trying to
use market-oriented strategies and competition to enhance the performance of public
hospitals, the results have not yet been proved significant. Public hospitals, because of their
incumbent advantages, have in fact squeezed private hospitals out from the market,
therefore private hospitals have to use competitive differentiation to secure the niche
market80. Because of that, the private sector sees public hospitals as “the stones in a glass
bottle” where the bottle is the total share of the market.

Table 6. Share of Hospital Income to Total Health Expenditure in China, 2010-2018

Total Health Expenditure Total Public Hospital Public Hospital Income to

Year
(100 Million CNY) Income (100 Million CNY) Total National Health Expense
2008 14,535.4 6,643.4 45.6%
2009 17,541.9 8,108.5 46.2%
2010 19,980.4 9,699.2 48.5%
2011 24,345.9 11,640.7 47.8%
2012 28,119.0 14,212.6 50.5%
2013 31,668.9 16,430.1 51.9%
2014 35,312.4 18,915.7 53.4%
2015 40,974.6 20,842.6 50.9%
2016 46,344.9 23,270.1 50.2%
2017 52,598.3 25,468.8 48.4%
2018 59,121.9 28,052.1 47.4%
2019 65,841.4 31588.5 48.0%

Source: China Health Statistics Yearbook, 2009-2020

With few exceptions, hospitals in China are built, owned, and operated by public authorities.

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They receive national, provincial, or city government funding based on metrics such as the
number of beds filled on a monthly or annual basis and staff size relative to the number of
patients treated and discharged. Most public hospitals in China are governed directly by
government bureaus. It is each bureau’s responsibility to assess and enforce
implementation and to engage directly with hospital managers. Some bureaus may be
reluctant to sanction public hospitals for lack of compliance because they see the hospitals
as extensions of the government administrative apparatus. Except in a limited number of
pilots, no independent supervisory structures such as boards or councils have been created
or given the responsibility to oversee and monitor hospital activities and performance
related to quality, efficiency, or fulfillment of social functions.

[A]

[B]

Figure 40. Outpatient and Drug Cost per Visit [A]; Inpatient and Drug Cost per Visit [B], 1990-2017
Source: CSMAR Database, China Health Statistics Yearbook, 1990-2018

Furthermore, most Chinese public hospitals are for-profit entities and half are sponsored

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by either society or individuals. While they deliver wasteful, inefficient, and low-quality
medical services, these public hospitals provide over 90% of the country’s inpatient
services and more than 50% of outpatient services (Yip & Hsiao, 2015). As a result, public
hospitals account for a high proportion of China’s total health spending. Table 6 shows that,
from 2008 to 2019, hospital income has steadily absorbed around half of the total health
spending in China. The high level of expenditures that happen in hospitals care are caused
by strong incentives to maximize the number of patients seen by doctors81, make heavy use
of diagnostic and scanning equipment, and push branded prescription drugs for kickbacks82
(Yip, Hsiao, Meng, Chen, & Sun, 2010). Figure 40 shows that although the percentage of
drug costs for both outpatient and inpatient costs per visit has decreased, the total costs per
visit have maintained their growth as revenues are gained from non-drug services. This
pattern is more observable for inpatient visits.

Figure 41. Bed Occupancy Rates of Tertiary, Secondary, and Primary Hospitals, 2010-2019
Source: CSMAR Database

Beyond that, most medical resources are concentrated in public tertiary hospitals. About
57.3% of health resources are concentrated in public tertiary hospitals, 24.6% in public
secondary hospitals while only 18.1% are in primary care facilities (Yip et al., 2019, p.
1198). Hospitals are also the point of entry into the health system for most Chinese seeking
care. In 2018, More than half of patients’ first contacts with the delivery system for an
illness episode, and 40%of all outpatient visits, occur in hospitals (World Bank & World

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Health Organization, 2019, pp. 162-163). This phenomenon is described as the “reverse
pyramid” and is widely criticized for its inefficiency (Xi Li et al., 2017; X. Lin & Ai, 2009;
W. Yang & Kanavos, 2012).

On the one hand, social insurance systems make patients favor hospitals over primary care
even more. Although the increase in insurance coverage rate has made expensive medical
services available to low-income individuals, it also increased the likelihood of the use of
hospitals rather than primary care facilities (J. Chen, Xu, & Gao, 2020). The alleviation of
medical costs has led to more patients going to upper-level hospitals for both minor and
serious illnesses, not to community health service institutions, despite the fact that the latter
offers both cheaper and timelier medical services compared to major hospitals. Figure 41
shows that, based on monthly data from April 2010 to November 2019, the tertiary hospital
is usually in shortage of beds therefore need to add extra beds (jia chuang, represented
as >100% occupancy rate); beds in primary care (in data is represented by primary hospitals)
are usually only occupied close to half capacity around 60%. Although seasonal
fluctuations exist, the overall structural composition has remained unchanged.

Figure 42. The Number of Treatments in Tertiary, Secondary and Primary Hospitals, 2010-2019
Source: CSMAR Database

On the other hand, the rising middle class demands for specialty and high-tech care, which
is heavily concentrated in tertiary hospitals. Medical professionals are more concentrated
in hospitals compared to less-qualified medical professionals in primary care. Particularly
in the early 1990s, the administrative boundaries of the health service system gradually
disappeared, allowing freedom of choice for all patients. People prefer to see medical
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experts in the best hospitals, and this has contributed to the development of large hospitals
in cities. This has given rise to a proliferation of specialists and the excessive use of drugs
and high-technology diagnostic tests, whilst cost-effective primary care services have been
neglected because patients generally do not trust the services provided in primary
facilities83. Shown in Figure 42, the number treatments in tertiary and secondary hospitals
have remained very high and are even increasing significantly since 2010, compared to the
flat line indicating a low number in primary hospital.

Although it has been suggested that up to 70% of people’s health problems can be solved
at the primary care level, as opposed to secondary and tertiary care treatments and
operations in hospitals (Y. Wang et al., 2013), limited government funding and the low
spending on medical training significantly restrict the ability of medical staff to treat
patients at primary care. This causes residents to distrust primary care or community health,
and so more people prefer to see doctors in hospitals than in community health institutions,
even for minor illnesses (Y. Yang & Yang, 2009). In addition, doctors prefer to work in
hospitals rather than community health institutions – not only because hospital work
generates a higher personal income, but also because as hospital doctors they gain greater
respect and recognition. Therefore, strengthening primary health care systems (PHC) and
diverting patients with common diseases from hospital-based care to community-based
care is one of the top priorities of the current health care reform (R. Chen et al., 2014; Shi
et al., 2017).

The ultimate goal of this reform is to sink medical resources from tertiary hospitals into
PHC systems (Lian, Zou, Wang, & Chen, 2019). The National Healthcare Security
Administration (NHSA) of China has been publishing policy articles addressing the
growing trend of remote medical payment, such as a patient pays for treatment received in
another city or province from his or her residence (State Council of China, 2018a). These
together pushed local governments to experiment with an integrated-care delivery system
(IDS), or yi lian ti and yi gong ti. The concept of IDS can be traced to overseas precedents,
and this model has been widely practiced by countries such as Britain, United States,
Australia, Japan, Germany, and Singapore (Ling Li, Xu, & Chen, 2012). IDS is in general
referred to as yi lian ti, defined as a medical organization formed by different levels

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(provincial, municipal, county, village) of medical service providers through vertical
referral or by same level medical service providers through horizontal referral (Q. Huang
& Hu, 2015; Liang et al., 2019). Meanwhile, yi gong ti specifically describes vertical
integration at the county level where a county hospital takes the leadership to collaborate
with county and village health facilities through vertical patient transfer (S. Tao, Mei, Bai,
Qin, & Hu, 2018).

Many of the IDS models in China now are hospital-based strategies, reconfiguring orders
of territorial medical resources through establishing satellite hospitals, instead of actually
“sinking” resources down to primary care. However, multiples studies have nevertheless
pointed out that the solution to the hospital and primary care dilemma in China has to be
eventually solved by increasing the number of second and third-grade medical institutions
in specific regions near the city’s edge, as well as the number of first-grade institutions,
could further improve the performance of hierarchical medical services (X. Sun, Sun, Jin,
& Wang, 2019). Furthermore, inter-local competition has favored hospital construction and
expansion (Y. Huang, 2009). Although local governments are incentivized by growth-
driven policies, they also have administrative goals (zhi biao), such as trophy projects to
demonstrate achievements. Similar to urban megaprojects, large urban hospitals are de
facto trophy projects. Even for for-profit hospitals, local governments are willing to
allocate land (giving land for free) for construction. Moreover, public hospitals also have
privileged roles in debt financing. At present, the most common debt financing for public
hospitals is long-term bank loans, because hospitals, particularly the large urban tertiary
ones, have stable income sources, and therefore good credit (J. Xu, 2016). Some even do
not need to take the initiative to apply - the bank will automatically lend to the hospital.
But debt financing helped public hospitals and their stakeholders to invest in building new
campuses.

Inevitably, large urban hospitals, as an urbanization strategy, have emerged across the
landscape of China. The historical legacy, growing demand from the population,
preferential policies, land-based strategies, and local corporatism have together led to
building more urban hospitals. This has even evolved into a hospital tournament among
local governments. Famous ones include the First Affiliated Hospital of Zhengzhou

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University Zhengdong New Area Hospital in Figure 43. With 230,000 m2 of land area,
780,000 m2 of building are, and 3,000 beds, it was once mocked as the “biggest hospital in
the universe.” But its Iron Throne was soon taken by the Xi’an International Medical Center,
a private hospital complex built on 570,000 m2 of land and is planned to have 15,000 beds.
Reports have suggested that, according to its master planning, it is another mega-hospital
striving to win political attention (Dahe Health News, 2018; HealthcareReport, 2019).

Figure 43. The First Hospital Affiliated with Zhengzhou University (Zhengdong New Area Hospital)
Source: [Link]

Hospital-University Affiliation

A unique feature for public hospitals in China is the affiliation system (fu shu), where a
hospital is usually affiliated with a university medical school. It works differently from the
“teaching hospital affiliation” in the United States. The university has incentives to acquire
hospitals because only with a medical school and its affiliated hospitals could this
university be recognized as a “comprehensive university” and ranked higher for
administrative and financial preferential policies by the central government. The hospitals,
in return, need the large number of students in the universities to facilitate their expansive
visions. These affiliation structures allow necessary teaching, training, and clinical trials to
happen between medical schools (research) and hospitals (practice), which is similar to the

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concept of “translational medicine” (Fuster, 2014). By 2016 there are about 529 million
medical students, whose training internship duties all take place in the hospitals. These
students spend over 60% of their time in the affiliated hospitals of the medical schools
where they are registered as students (H. Wang & Zhang, 2016). More than 50% of
hospitals with more than 800 beds in China are university-affiliated hospitals.

Historically, the earliest mode of affiliation in early modern China is to establish the
medical colleges inside of the hospital campuses (Cheng, Sun, Shi, Huang, & Cai, 2014).
The medical school established inside of Canton Hospital in 1866 was the first western
medical school in China. Later the medical school began to take the lead84. Embracing the
purpose of training specialized and practical personnel, the medical schools were given
relative independence to directly govern their affiliated hospitals. In 1992 the Ministry of
Education published guiding policies to encourage the merging of universities with medical
colleges and their affiliated hospitals to respond to the increase of health care and medicine
as a discipline (Ministry of Health, 1992). By 1995, a total of 342 hospitals were affiliated
to 137 general medical schools and medical colleges (departments) under comprehensive
universities (Cheng et al., 2014). Among them, 234 were directly governed by medical
schools and 108 were indirectly governed. In 1998, China started an ambitious reform of
the world’s largest educational system for health care professionals. Universities of western
medicine that were previously governed by the Ministry of Health were merged into
universities supervised by the Ministry of Education85.

The reform of 1998 was viewed essentially as moving from the former Soviet model of
independent medical training institutions with an emphasis on empirical clinical training,
to a developed country model of health professional education in universities and academic
disciplines based in the natural sciences (J. Hou et al., 2014). By 2016, the top 100 medical
schools or colleges have 310 affiliated medical facilities, among which 263 are tertiary
hospitals (HealthcareReport, 2017). This means that some medical schools or colleges
could have multiple affiliated hospitals, such as Shanghai Jiao Tong University School of
Medicine and its 12 affiliated hospitals including Ruijin Hospital, Renji Hospital, Xinhua
Hospital and other ones. Merge was greater among centrally controlled and funded health
professional schools than in provincial or prefecture schools. Among clinical medical

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education programs, the percentage of merge into universities was estimated to be 72% for
schools linked to the central government, 32% for schools linked to provincial governments,
and 14% for schools linked to prefecture governments (J. Hou et al., 2014, p. 822). Nearly
all highly competitive national medical schools were merged into universities.

Until recently, China did not have a standardized resident training system at the national
level, medical graduates usually went directly to work in a hospital or PHC facility after
graduation. Internationally, the norm is that medical graduates undergo training in clinical
practice (usually for three years) as a resident doctor in a hospital before they can practice
medicine independently. In December 2013, the National Health Commission (2013)
requires medical graduates to complete a three-year standardized residency in an accredited
institution after five years of medical university study. Funding for training institutes and
subsidies for resident trainees are provided by the central and local governments. This
policy, together with the massive increase of medical majored students requires more
hospitals with the clinical capacity to be built.

The models of affiliation are usually direct affiliation (zhi shu) and non-direct affiliation
(fei zhi shu) (Y. Zhao & Li, 2010). Under the direct affiliation, the affiliated hospital is
governed by the medical department (center), which is subordinate to the university (Cui,
Xiong, & Wang, 2015). The hospital’s personnel, financial decisions and business
management are all directly governed by the corresponding departments of the medical
school, while the hospital fully participates in the clinical training and the doctors in the
hospital are also the full-time faculty members of the medical school. Examples include
the Peking University Medical Department (Center) and its first, third, and sixth affiliated
hospitals, and Shanghai Jiao Tong University, and School of Medicine and its affiliated
hospitals. This is more for the late 90s reform when medical colleges, which already have
their affiliated hospitals, were merged with universities. Without reshuffling the
administrative structure, the college and affiliated hospital were treated as a whole and
merged with the university86.

Under the indirect affiliation, their relationship could be more flexible and sometimes
contractual. The hospital is an independent business entity, the medical school provides the
hospital with technology, fund, resources, and branding of its name. In return, the hospital
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accepts students from the medical school for training, and some of the doctors are recruited
as teachers at the medical school. The two parties also pay each other with management
and internship-related fees according to contracts if any. Therefore, the relationship is more
coordinative than subordinate as the hospital is not administratively affiliated to the
medical school. Indirect affiliation is obviously more favored and common. Among the
affiliated hospitals, more than 80% are indirectly affiliated hospitals (Wang, 2016). The
affiliated hospitals could provide the medical school with more beds for training and
research purposes, while the hospitals could use the university or medical school’s brand
to capture more patients for income (B. Su, 2006). Most importantly, indirect affiliation
could help both parties circumvent unnecessary administrative and bureaucratic nuances.

Indirect affiliation allows hospitals and medical schools to collaborate without physical
proximity, therefore new merges usually happen on the territorial scale that the new
hospital is very far from the medical school located in the old city center. The medical
colleges were usually located in the city center before expansive urbanization took place.
Decades later when the university needs to expand its campus or the hospital needs a new
campus, new mega projects usually appear on the city edge. Figure 44, using the example
of Zhengzhou University, its newly affiliated hospital (East Zhengzhou New District
Campus) is far from its medical school (River Hospital Campus).

More importantly, the hospital-university affiliation reinforces the dominance of public

hospitals in conducting research. Although private hospitals account for more than half of
Chinese medical institutions, they rarely participate in biomedical engineering industry
innovation (W. Liu, Yang, & Bi, 2020). This has two causes. One is from the resource
dominance in public hospitals. Public hospitals, particularly the ones affiliated with
universities, serve multiple functions not only for training. Similar to “translational
medicine,” the affiliated public hospitals serve as the platform for clinical practice and
research. Training includes clinical theory and practice, clinical and graduate internships,
and standardized clinician training. Public hospitals also serve as training grounds for
medical technology professionals. Clinical teaching and medical internships are provided
by 90% of third-tier hospitals (Y. Xue, Wang, & Ji, 2005), and by almost all hospitals in
the eastern provinces. Most public hospitals also conduct scientific research that addresses

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needs related to disease treatment and patient nursing and has direct and indirect economic
and social benefits through the application of scientific research.

Figure 44. Locations of Three Hospitals Affiliated with Zhengzhou University

A large number of national and provincial key disciplines and labs are established in the
university-affiliated public hospitals. As a result, more than 80% of research outcomes are
developed from university-affiliated hospitals (HealthcareReport, 2017). Particularly for
clinical research where data has to be collected from randomized trials, the larger number
of beds and patients in public hospitals reinforces their incumbent advantage (Y. Ma et al.,
2018; Jianfeng Wang & Zhang, 2018). According to an interview with Frank Chen, an
expert in pharmaceuticals for Targeted Molecular Therapy, because almost all cancer
patients prefer going to tertiary public hospitals, private companies have to rely on public
hospitals for conducting randomized trials and collecting data2. Therefore, doctors tend to
be exploitative when doing research – using medical products from private companies but

2
Interview conducted in person with Chen Yinqing Frank, an expert in the pharmaceutical industry, on 23rd
October 2020 in Shanghai.
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rarely acknowledge them in publications.

Another reason is the pressure on medical professionals to produce research. In 2009, the
government adopted a new approach in favor of 3-year and 5-year programs to ensure a
workforce that is consistent with reform priorities. The 8-year degree and step-by-step
master and MD or PhD programs aspire to produce world-class academic researchers and
practitioners (D. Xu, Sun, Wan, & Ke, 2010). At the same time, medical professionals have
to be evaluated for professional titles87. Advancement of professional title is an important
component of career development as it is linked to salary and often to pension and other
benefits. However, the professional title evaluation system overemphasizes publication,
which does not reflect differences across positions, specialties, and levels of health care
providers (World Bank & World Health Organization, 2019, p. 246). Unlike the MD and
PhD programs in the United States where they have different focuses on job duties, doctors
in public hospitals in China have equally heavy clinical and research duties. Doctors are
nearly fully occupied by seeing patients but at the same time also have the pressure to
produce scientific research to be published in SCI journals. Their duties are more like
“PhDs in clinical practice.” This pressure reinforces the exploitative behaviors of doctors
when securing resources related to research, including financial, administrative, and data88.

Private Sector Experiments

The health care system in China has moved from an exclusively state-run system to one
that is decentralized and open to private sector investment and service provision. The
government has applied a series of market-oriented policies to endorse the development of
a private hospital sector since 200989. This reform promotes private investment in hospitals,
including privatizing public hospitals and restricting any expansion of public hospitals. On
3rd December 2010, the State Council 90 encourages the development of non-public
medical institutions (State Council of China, 2010). The 12th Five-Year Plan (State Council
of China, 2015a) and the State Council policy directives issued in 2015 (State Council of
China, 2015b, 2015d, 2015e) affirmed the role of private capital in developing China’s
health care system to encourage private participation in the health sector. The government
further lowered barriers to private investment in healthcare. In the 13th Five-Year Plan
(Political Bureau of the CCP Central Committee, 2015), the government allowed up to 100%
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foreign ownership in private hospitals, which previously required a minimum of 30%
Chinese ownership. Private investors were allowed to acquire and manage existing public
hospitals. Some cities are selling their public hospitals to investors91. In addition, China
designated health services and biomedical as top growth industries that would enjoy
favorable government tax and fiscal policies (State Council of China, 2013b).
Pharmaceutical and medical device conglomerates are building or purchasing private
hospitals.

The private sector rapidly expanded in China’s hospital market in recent years. The number
of private hospitals exceeded the number of public hospitals in 2015. The compound annual
growth for private hospital beds is 31% compared to 6% for public hospitals (C. Lee, 2018).
Additionally, the number of private hospitals in China doubled to a total of 16,900 from
2011-2017, and now accounts for 57.2% of Chinese hospitals. There has also been a
significant rise in inpatients number of private hospitals. However, the growth rates of them
were lower than the public (Deng, Li, & Pan, 2018). By 2019 there are now more than
10,000 private hospitals in China, constituting 52.6% of all hospitals in the country. Most
are small (with fewer than 100 beds), and together they accounted for 19.4% of all hospital
beds, 14.7% of admissions, and 12% of outpatient visits in 201592.

Public hospitals are still the major providers of health care. Private hospitals are generally
smaller than public hospitals in China. Figure 45 shows that in recent years nearly all
hospital growth has occurred in the private sector, while the number of public hospitals has
declined. However, according to statistics in 2019, although public hospitals make up only
36.1% of all hospitals, they account for 72.4% of the bed. Similarly, 88% of inpatient
admissions occur in public hospitals. Thus, most public hospitals are relatively large
facilities, averaging 416 beds while private facilities are much smaller, averaging 89 beds.
These numbers have increased from 310 beds in public hospitals and while 67 beds in
private hospitals in 2014 (World Bank & World Health Organization, 2019, p. 163),
suggesting an increased size for both hospitals. But it is not easy to open a private health
facility. There are multiple agencies to deal with, several reports to file, and many payments
to make93. In addition, the numbers and types of medical equipment are highly regulated
by local and provincial authorities in their annual capital plans. In response, a number of

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policies focused on the abolishment of some previous regulatory limitations which had
posed entry barriers for private hospitals into the health care delivery system (State Council
of China, 2015e, 2017, 2018b). Because capital investment and management requirements
are less demanding in small and medium-size hospitals, the private sector expands more
easily in that size facility (X. Hou & Coyne, 2008). Almost all hospitals with more than
500 beds are operated by the public sector.

Figure 45. Change in the Numbers of Public and Private Hospitals, 2011-2020
Source: CSMAR Database, China Health Statistics Yearbook, 2011-2020

Furthermore, private hospitals create significantly lower revenue compared to public

hospitals because of smaller sizes and thus lower patient volume. Empirical analysis shows
that private for-profit hospitals are more sensitive when facing changes in market
competition degree (L. Lu & Pan, 2019). Private and public hospitals respond differently
to more intense competition: private hospitals reduce expenditure, whereas public hospitals
raise health-care service quality (Yi et al., 2019). Figure 46 illustrates that public hospitals
dominate the health care industry in China in terms of market share and patient load in both
the outpatient and inpatient sectors. The number of patients treated in public hospitals is
almost 10 times the number in private hospitals. Furthermore, since private hospitals have
higher out-of-pocket costs for patients, they usually cater to citizens with private insurance,
including foreign expatriates, medical tourists, and affluent Chinese individuals. They tend

130
to lose the market share of permanent urban residents with urban hukou because they
valued private health care less (C. Tang, Xu, & Zhang, 2016).

Figure 46. The Number of Patients Treated in Public and Private Hospitals, 2011-2019
Source: CSMAR Database

It is also harder for private hospitals to recruit high-quality physicians. Their human
resource was found to be much lower than that of public hospitals (Q. Jiang & Pan, 2020).
The share of health professionals practicing in the private sector increased from 14% in
2010 to 15.8% in 2013. The category with the largest proportion in the private sector is
assistant licensed physicians (20.1%) while technicians have the smallest (12.3%). One
possible explanation is unattractive compensation94. Although since 2009 the government
now allows physicians to practice at multiple facilities, this practice is still uncommon -
the primary employer owns a physician’s medical license, physicians must be granted
special approval to practice at additional locations. However, hospitals are unwilling to
share physicians that they have already spent considerable resources training. Physicians
mainly aspire to work for large public or academic hospitals for the prestige, larger facilities,
job security, and research opportunities even if salaries are higher in private hospitals and
clinics. In 2015, only less than 2.2% of China’s over 2 million physicians applied for a
multi-site permit (duo dian zhi yi zhi zhao) (C. Lee, 2018).

But there are several trending practices in the private sector. The first is specialty hospitals.

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Almost all new private hospitals are specialty hospitals because it is easier for a specialty
hospital to become eligible for insurance reimbursements than for a general hospital, while
much of the private sector expansion has been in urban private hospitals that deliver high-
end services, such as cosmetic surgery, VIP services, and “checkups” that are not integrated
with chronic disease case management (Yip & Hsiao, 2014). About 30% of private sector
hospitals are specialty hospitals, where higher margins for advanced technologies produce
huge profits, compared with only 13% of public hospitals (X. Hou & Coyne, 2008; C. Tang,
Zhang, Chen, & Lin, 2014). Specialty hospital reflects private sector’s competitive
differentiation to secure the niche market where public hospitals’ dominance is weaker3.

Specialty hospitals tend to concentrate in several industries. These include, for example,
Cosmetic Medicine, Ophthalmic care 95 , and Traditional Chinese Medicine 96 . A more
common practice is private Clinics. In 2009, the government allowed physicians to practice
at multiple sites to help them simultaneously work in private and public hospitals. One
model for private clinics involves their construction adjacent or in close proximity to
existing top-tier urban hospitals. Clinics such as those operated by Parkway Health, a
Singaporean company, offer better facilities and advance scheduling of doctor visits and
surgical procedures. Private clinics employ the same physicians that work in public
hospitals, but with significantly better compensation. Wealthier patients enjoy a better
experience of high-quality facilities and minimal wait times even as some of the population
pressure on the public system is reduced. Supporters of private care delivery argue that
physicians will continue to work in public hospitals for career advancement and prestige
even as they offset poor compensation from public hospitals (Daemmrich, 2013).

Another type is similar to family doctors in the United States. A famous example is United
Family Healthcare (he mu jia) established in 1997. This type of practice targets wealthier
patients who are willing to pay higher costs for long-term care. According to an interview
in a state-funded research institute in Beijing4, the government is encouraging practices
similar to Unite Family Healthcare and its model of “social capital + private insurance +

3
Interview conducted in person with Prof. Liu Yuanli, Dean of the school of public health of Peking Union
Medical College, on 1st July 2019 in Beijing.
4
Interview conducted in person with Q, a director at a state-funded Government Research Institute, on 1st
July 2019 in Beijing.
132
FFS” to solve issues of long-term care. This model is been continuously innovated. Stella
Chen5 founded DRACAENA in Shanghai. Her strategy is to rent office space as clinics,
and target only CEO-level individuals with personal care packages specifically tailored for
them. DRACAENA recruits a number of physicians and arranges senior doctors from
public hospitals to meet with the patients.

The local government also plays significant roles in pushing the construction of private
hospitals. Policy inclination, including land policy, tax abatement, and government subsidy,
benefits hospital-building (Feng et al., 2020). Local governments tend to decentralize the
responsibility of building hospitals to developers by exerting mandatory requirements
during the land auction process. Real estate giants such as Wanda had to build 200-bed
private hospitals on their newly acquired land in Qingdao, and one 200-bed hospital, with
International Hospitals Group (IHG) becoming its operator, costing Wanda more than
hundreds of millions CNY in China 6 . Wanda is also partnering with the University of
Pittsburgh Medical Center (UPMC) in Chengdu and Guangzhou to build private tertiary
hospitals. This kind of practice is commonly referred to as quan di by Chinese developers,
which is a loss-gainer game that the developer has to provide social welfare in exchange
for land and thereby opportunities for real estate 97 . This action crowds many smaller
developers out of the market because they do not have the money to build hospitals.

Furthermore, local governments in China experiment and innovate their policy instruments
to achieve the goals set by upper-level governments (Saich, 2015; C. Xu, 2011). As a result,
local governments across China have adopted different approaches to achieve a similar
goal. For example, Beijing and Shenzhen have adopted quite different approaches for
developing private hospitals. This is because Beijing is the political center of China with
enormous administrative decisions affecting its planning and growth, leaving small space
for experiments, while Shenzhen has served as the pioneer city for land policy reforms and
has pushed forward market-approach experiments. In Beijing, developers tend to acquire
land through renting or purchasing existing properties98. This is because land is very scarce

5
Interview conducted in person with Chen Ying Stella, co-founder and CEO of DRACAENA Concierge
Medicine, on 11th December 2020 in Shanghai.
6
Interview conducted in person with Y on 1st July 2019. Y was previously employed by Wanda Health and
is now working at Phillips.
133
in Beijing. Beijing has promoted “outflow strategies” to control the population in the city
by driving its low-income population away (Beijing Daily, 2015). All service land (land
intended for healthcare and education uses) are determined to be given on the city edge7.
It is almost impossible for developers to acquire land, or for the government to allocate
land close to the city center. Figure 47 shows that in 2018, only 8 out of 72 land deals were
made near the core area (Diyixian, 2018). A 20-30-year lease of property is very affordable
for developers. Factories and hotels are also easier to be converted to senior housing or
hospitals8, therefore they become the preferred sites for hospitals.

Figure 47. The Geographical Distribution of Land Sales in Beijing, 2018

Source: Data collected from Diyixian: [Link]

In Shenzhen, the local government reduces the land price in the land auction process for
developers willing to build private hospitals. Shenzhen has focused on economic growth

7
Interview conducted in person with M from Beijing Planning Institute on 4th July 2019 in Beijing.
8
Interview conducted in person with Chu Dong Jane, Chief of China Hospital Architects Alliance, on 3rd
July 2019 in Beijing.
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through industrial sectors, but as a young city, it does not have old and prestigious medical
schools or hospitals. Figure 48 illustrates that, despite an equal level of land scarcity in
Shenzhen, a substantial portion of new land was given to industrial (27 out of 61) and
commercial (16 out of 61) uses in 2018, with only 10 for residential (Fanngtianxia, 2019).
In comparison, 52 of 63 land deals in Beijing were for residential use in 2018. Furthermore,
hospital and medical school resources are governed by provincial and national ministries
and commissions. But Shenzhen, a pioneer in testing reforms, does not have the
administrative advantage to attract talents who could otherwise benefit from the institution
(ti zhi) in other major cities. As a result, people in the city turn to hospitals in Guangzhou
or Hong Kong for better health care. Tang Jie9 states that the city has been willing to take
the opportunity cost, through dramatically reducing the land price, to attract health-related
development to improve the provision of health service in Shenzhen.

Figure 48. The Distribution of Tertiary Hospitals in Shenzhen

Source: Data collected from Fangtianxia: [Link]

To capture better resources, many universities establish their branch campuses in Shenzhen,
such as Tsinghua University, Peking University, Zhongshan University, and Harbin
Institute of Technology. Local hospitals in Shenzhen also affiliate with prestigious medical

9
Interview conducted in person with Professor Tang Jie, former vice mayor of Shenzhen and now a professor
at Harbin Institute of Technology Shenzhen Campus, 27th July 2019 in Shenzhen.
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schools outside of Shenzhen, for example, Shenzhen No.4 People's Hospital with
Zhongshan University Medical School and the University of Hong Kong-Shenzhen
Hospital (HKU-SZ) with University of Hong Kong Li Ka Shing Faculty of Medicine.
Figure 49 visualizes the inter-local affiliation between HKU-SZ and University of Hong
Kong Li Ka Shing Faculty of Medicine. In this model, Shenzhen borrows the health care
resource from Hong Kong (operation strategy, staffing, and technology) to operate the
hospital built by Shenzhen. This mechanism represents a case in which the local
government uses its urban space (hospital) to reshape territorial socio-economic orders
(health care resource).

Figure 49. The Collaboration Model between Shenzhen and Hong Kong

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Chapter 4: Case Studies with Medical Cities

4.1 The Longwood Medical Area (LMA)

4.1.1 Dense Network of Institutions

“Ground Zero for Health Care”

Figure 50. The Location of LMA in Connection to the T System in Boston

Longwood Medical and Academic Area (LMA) is Boston’s city-within-a-city, one of the
densest, most thriving and dynamic medical communities in the country combining
medical, academic, research, and cultural institutions to create a powerful economic engine
for the city and the state. The LMA is located on a 213-acre (861,980 m2) site, three miles
southwest of downtown Boston, adjacent to the neighborhoods of the Fenway, Mission Hill,
Audubon Circle, and the Town of Brookline. With 12 million square feet (1.1 million m2)
of space, the LMA hosts 2.3 million annual patient visits and creates more than $10 billion
of revenue. Figure 50 shows that the green line of Boston Metro connects the LMA with
downtown Boston, intersecting with the lines that connect with Harvard and MIT (where
Kendall Square is located), and Logan International Airport. The relatively small scale of
Boston eases vehicular access among key destinations – for example, in normal traffic, it
takes between 15-20 minutes to drive from the Logan Airport or Harvard to the LMA,

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although traffic jam around 4-6 pm could significantly slow it down.

What is seen today as the LMA has a history dating back to the 18th century. Harvard
Medical School was a small class held in Harvard Hall in the Cambridge campus when it
was established in 178299. The medical school moved from Cambridge to Boston in 1810
and relocated several times. In 1906, the School moved to Longwood Avenue in Boston,
its current site. At the time of the move, the site was Ebenezer Francis Farm and in 1914
the Children’s Hospital relocated to its current address on Longwood Avenue immediately
adjacent to the Medical School. Figure 51 shows the farmland in front of the Boston
Children’s Hospital, which is right adjacent to the Harvard Medical School. The
combination of a new medical school and empty land drew hospitals to the neighborhood
now known as the Longwood Medical Area.

Figure 51. The Farmland in front of the Boston Children’s Hospital in 1914
Source: Compiled by Jeremiah Manion/Boston Globe Library

The next neighbor was Brigham and Women's Hospital, which was established with the
1980 merger of three Harvard-affiliated teaching hospitals: Peter Bent Brigham Hospital,

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(established in 1913); Robert Breck Brigham Hospital (established in 1914); and Boston
Hospital for Women (established in 1966 as a merger of Boston Lying-In Hospital,
established in 1832, and Free Hospital for Women, established in 1875). Peter Bent
Brigham was a Boston restaurateur and railwayman who was born in Vermont in 1802 and
died in Boston in 1877. At his death he made the bequest to philanthropically build a
hospital (Black, 1991):

"At the expiration of twenty-five years from his decease, the executors of his estate
should dispose of the residue of his property and all of the interest and
accumulations that should have accrued then for the purpose of funding a hospital
in Boston for the care of sick persons in indigent circumstances residing in the
County of Suffolk''.

The money appreciated to $2,000,000 by 1902. It was used to establish the Peter Bent
Brigham Hospital and the site ultimately chosen for the hospital was the Ebenezer Francis
estate in Roxbury, located adjacent to the newly relocated Harvard Medical School
(Offodile II & Katz, 2017). The Peter Bent Brigham Hospital was intended to be a
university hospital that would further develop the model created by Johns Hopkins
University. Brigham's nephew, Robert Breck Brigham (1826-1900), was also a restaurateur
and successful businessman. He followed his uncle by endowing the Robert Breck Brigham
Hospital, just a half-mile from the current site of Brigham and Women’s Hospital. In 1975,
the Boston Hospital for Women merged with the Peter Bent Brigham and the Robert B.
Brigham Hospitals forming the Affiliated Hospitals Center, which is 1980, became known
as the Brigham and Women’s Hospital, a teaching affiliate of the Harvard Medical School.

Figure 52 shows that the LMA in Roxbury county has evolved from empty farmland in
1906 to a site where hospitals and schools have proliferated in 1931 with the Boston
Children's Hospital and Brigham and Women's Hospital surrounding the Harvard Medical
School. The Harvard Medical school currently has 15 affiliates, among which 5 are inside
the LMA campus. These institutions are Beth Israel Deaconess Medical Center, Boston
Children's Hospital, Brigham and Women's Hospital, Dana-Farber Cancer Institute, and
Joslin Diabetes Center. The Brigham and Women's Hospital and Massachusetts General
Hospital in 1994 formed the Mass General Brigham (formally called Partners HealthCare),
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a Boston-based non-profit hospital and physician’s network. The Boston Globe described
Mass General Brigham as the largest private employer and biggest healthcare provider in
Massachusetts, treating more than a third of hospital patients in the Boston metropolitan
area (The Boston Globe Spotlight Team, 2008). Throughout the remaining years till now,
institutions continue to agglomerate around the Harvard Medical School and its affiliated
hospitals, evolving to the LMA of now.

Figure 52. Historical Maps of the LMA in Roxbury County and in 1906 (left) and 1931 (right)
Source: Mapjunction [Link]

In much the same way that Cambridge's Kendall Square has evolved into one of the nation's
premier clusters of biotechnology research, the LMA has become “ground zero” for
medical facilities. Arthur Mombourquette, vice president of support services at Brigham
and Women's Hospital, said that "as we're seeing in Cambridge, where we were able to
build a critical mass (of companies) doing science, that has worked” (Archambeault, 2003).
The site has become the premier destination for many of the city's hospitals, and because
many of the city's top health institutions are clustered in Longwood, pharmaceutical
companies want to be there, too. LMA will continue to symbolize the region's health care
industry. David Clem, the managing partner at Lyme Properties, says that "I don't think
anyone thinks there's a better location for institutional and R&D space for the life sciences
than the Longwood Medical Area. It's the No. 1 location."

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 Figure 53. The LMA Campus and Some of its Key Institutions

Figure 53 shows that the LMA is featured with a mix of dense state-of-the-art hospital
buildings, attractive college facilities, and apartment housing. Frederick Law Olmstead’s
graceful Emerald Necklace park forms the northwest corner of the district. Huntington
Avenue, lined with arts and cultural institutions such as the Museum of Fine Arts and
nearby Isabella Stewart Gardener Museum, marks the southeastern edge and is known as
Boston's "Avenue of the Arts". Some of the country’s top-ranking medical institutions are
crammed into one 213-acre neighborhood, along with colleges and biomedical firms. One
can walk between the hospitals and labs through a series of tunnels and bridges. Five of
those institutions, Boston Children’s Hospital, Brigham and Women’s Hospital, Beth Israel
Deaconess Medical Center, Dana-Farber Cancer Institute, and Joslin Diabetes Center, all
share an affiliation with Harvard Medical School to train students. Their specialties are
neatly complementary100.

The Medical Academic and Scientific Community Organization (MASCO), a consortium

of institutions in the LMA, offers planning, transportation, and coordination support to the
area's many institutions. MASCO’s members and associate members include several of the
nation’s top medical institutions. MASCO operates shuttle services on the LMA campus.
Shuttle routes connect the LMA with Harvard Square in Cambridge, and Boston stations
including Ruggles, JFK, Fenway, Chestnut Hill, Wentworth. Table 7 summarizes the 18

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MASCO institutions in the LMA campus and their functions. The four associated not-on-
campus members of MASCO are the Boston University Wheelock College of Education
and Human Development (Education), Fenway Community Health Center (Medical
Center/Hospital), Massachusetts Eye and Ear Infirmary (Medical Center/Hospital), and
Merck Research Laboratories (Medical Center/Hospital). Many of the 18 institutions under
the medical center/hospital and medical school categories perform research beyond
providing care and training services. For example, with over $640 million in total research
funding and over 1,000 principal investigators, the BWH Research Institute (BRI) one of
the most powerful biomedical research institutes in the world and the third-largest recipient
of National Institutes of Health (NIH) funding among independent hospitals in the United
States (Brigham and Women's Hospital, 2021), with the other two being the Vanderbilt
University Medical Center and the Massachusetts General Hospital (Philippidis, 2020).

Table 7. MASCO Institutions on the LMA Campus

Medical Center/Hospital Medical School Education Cultural

Beth Israel Deaconess Isabella Stewart
Harvard School of Medicine Emmanuel College
Medical Center Gardner Museum
Massachusetts
Brigham and Women’s Harvard School of Dental
College of Art and Temple Israel
Hospital Medicine
Design
Boston Children's Harvard T.H. Chan School of
Simmons University
Hospital Public Health
Dana-Farber Cancer Massachusetts College of Wentworth Institute
Institute Pharmacy and Health Sciences of Technology
Joslin Diabetes Center The Winsor School
Judge Baker Children’s
Center
Massachusetts Mental
Health Center

Source: MASCO [Link]

The density at LMA was helped by the planning authority. The Boston Planning &
Development Agency (BRA) and the Office of Jobs and Community Services, in
conjunction with the Boston Transportation Department, established a set of development
guidelines for the Longwood Medical and Academic Area in February 2003 known as the
LMA Interim Guidelines (BRA, 2021). The Interim Guidelines are implemented through

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the BPDA's Article 80 development review process. The BPDA's Article 80 is a request
made to the Board of Appeal for relief from zoning code regulations101. Today the LMA is
crowded, and its employees complain about the changing environment. Said by Charles
Weinstein, vice president for real estate at Children’s Hospital (Bailey, 2015):

“Longwood is not overdeveloped, it’s under-demolished…There are too many

buildings that are just three stories tall… There is space for further expansion if
you get rid of all these old, small buildings that really have no place in Longwood
anymore.”

Figure 54. The Spatial Composition of LMA and the Percentage of Floor Areas for each Program

Figure 54 shows the spatial and programmatic composition of the LMA campus. The LMA
is responsible for 20 million square feet (1.9 million square meters) of built space,
including member and non-member facilities. In fact, it is interesting to note that cultural
institutions including the Windsor School, Simmons University, Emmanuel College,
Boston Latin School, Massachusetts College of Art and Design, and Wentworth Institute
of Technology, and Isabella Stewart Gardner Museum, take a significant amount of built

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space (35.3%) in the LMA campus. This is because of the early settlement of the College
of Fenway (COF) institutions. This is important because these cultural institutions provide
labor for essential services including nursing, pharmacy, radiology, design, and social work.

Unsurprisingly, hospitals take the most built area (37.64%) on the campus to sustain the
demand for healthcare services. Table 8 shows that, the Boston Children’s Hospital (415
beds), Brigham and Women’s Hospital (793 beds), Beth Israel Deaconess Medical Center
(631 beds), Dana-Farber Cancer Institute (30 beds), and Yawkey Center for Cancer Care
(150 beds) totaling 2019 beds in this 861,800 m2 of land, which equals to a bed density of
roughly 2,345 beds/km2. Meanwhile, Harvard Medical School and Harvard T. H. Chan
School of Public Health account for 15.53% of the total built area, and the research labs,
on the campus take 11.8% of the total built area. Retail and office uses are kept minimal.
It is crucial to note that, the medical schools, research labs, and hospitals all perform
research projects, making a complete MUR eternal triangle.

Table 8. The Bed Number of LMA Institutions

Institution Name Bed Number Other Information

Boston Children’s Hospital 415
Brigham and Women’s Hospital 793
Medical/surgical beds: 429; Critical care
Beth Israel Deaconess Medical Center 673
beds: 77; OB/GYN beds: 60
Dana-Farber Cancer Institute 30
Yawkey Center for Cancer Care 150 100 exam rooms, 150 infusion beds

Source: Institutions’ Websites

However, the green space ratio in the LMA is quite low – only 18%. This comes for a
reason. Urban planning in the United States is largely accounted for urban governance
rather than specificities in placemaking, such as the “three-level zoning plans” in China (S.
Wilson & Chen, 2021). While the government positions itself as the mediator between
public and private interests, developers could negotiate with the planning department to
override existing zoning plans or preservation plans. This has already happened to the
BPDP (former BRA) with Article 80 for increasing the density of LMA. Combined with
the increasing demand for space in the LMA to host top medical and research institutes,
the density of the LMA is projected to grow even more. It is also notable that several

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parking garage buildings are sitting inside the campus, consisting of 7.4% of the total built
area. These garage buildings, should air rights are granted to developers, could be further
developed into mixed-use research buildings.

Figure 55. The Change of Building Footprints in the LMA, 1906-2019

The growth of building density in the LMA is exponential – for the current 20 million
square feet of built area, it took 60 years from 1900 to 1960 for the LMA to build 5 million
square feet of space, but less than 30 years for the built space in LMA to double from 5
million in 1960 to over 10 million in 1990, and another 26 years to reach 20 million in
2016, which quadrupled the built area in 1960 (MASCO, 2018a, p. 9). Figure 55 illustrates
the change of building footprint in the LMA throughout time. Between 1906 and 1931,
most of the development that happened on the site was the anchor institutions – the Harvard
Medical School, Boston Children’s Hospital and Brigham and Women”s Hospital. By 1969
buildings start to populate the site, and by 1995 the LMA has reached a density close to
today, although more spaces are under demand.

Economic Spillovers

The LMA generates jobs, cares for the sick, and educates tomorrow”s workforce.
According to MASCO data (2018b), over 112,000 people are in the LMA every day, among
which 51% are employees, 26% are students and 23% are patients and visitors. That means,
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each day in the LMA more than 57,000 employees (researchers, physicians, and
contractors), and 29,000 students provide medical care, conduct research, teach, attend
school, or otherwise support these functions. The LMA has added or exceeded 700 new
employees every year for the past two decades, and 7,500 job openings each year (MASCO,
2021). This condensed campus has brought a significant number of jobs to Boston metro
region – among the 57,000 employees, 32% are Boston residents, 12% live in Brookline
and Newton, with another 8.5% commuting from the South Shore, Plymouth, and the Cape.
On top of the human flow from employment, the LMA has 2.3 million patient visits
annually: nearly 92,900 inpatient admissions and 2.2 million outpatient visits (MASCO,
2018b, p. 15). In 2018, of all Boston hospitals and clinics, 41% of outpatient visits to the
LMA, 43% of inpatient admissions to the LMA, and 48% of all staffed beds (about 1,858)
are in the LMA.

These made the LMA an economic powerhouse – the total revenues for MASCO members
in 2016 were $10 billion, offset by expenses of $9.8 billion and leads to net revenues of
$202.7 million. In this $ 10 billion revenue, more than 50% of it ($5.26 billion) were
generated as net patient service revenue for LMA medical institutions. The LMA along
contributes to 2.5% GDP to the GDP of Boston-Cambridge-Newton metro region ($420
billion) in 2016, while the LMA only has 2.2% of the 2,595,809 employments in the metro
area (U.S. Bureau of Economic Analysis, 2021). The LMA payroll of over $2.89 billion
generated about $184 million in state income tax revenues for the commonwealth,
including estimated payroll generated through research funding (MASCO, 2018a, p. 6),
which equals to 1.3% of the $14.390 billion FY16 income tax collections (Massachusetts
Department of Revenue, 2016).

The spillover of the LMA goes beyond the return from research and medical services – the
LMA actively searches for means to invest in the workforce and community development.
According to MASCO, institutions voluntarily contributed $22.3 million to the City of
Boston”s PILOT program in 2016, of which $9.3 million was cash. Members sponsored
nearly $13 million in community programs that draw on their expertise and contribute
significant value specific to Boston residents, as well as to the greater Boston area. Four
LMA medical institutions donated $117 million in state community benefits, including

146
nearly $78 million in Net Charity Care in 2016 absorbing the cost of treatment for those
who cannot pay. LMA hospitals and outpatient clinics build, support and staff mission-
related community health programs to cure and prevent disease, for health care programs,
education and advocacy to Boston and its neighborhoods and the Commonwealth. $2.9
million are invested annually by LMA institutions in the school-based workforce, career
ladder, and mentoring programs.

Massachusetts is the most educated state in the nation, an achievement that translates into
better health and a stronger economy than most Americans experience (Bombardieri, 2020).
Add to that is the concentration of private colleges that draw students from all over the
world, there are the jobs at the hospitals, biotech firms, and other companies that attract to
them to stay. The LMA has nearly 29,000 students including pre-school, public high school,
and fully online students. LMA members have 22,500 traditional students, including
undergraduate and graduate students and students in grades 5-12 (not including pre-school,
Boston Latin School, continuing education students), 37 % of whom are graduate students,
61% are undergraduates. Six of Boston’s 21 four-year small colleges (defined as enrollment
< 4,800), are located in the LMA, and are known as the Colleges of the Fenway (COF).
Their combined campus of 69 acres hosts over 5.2 million square feet in the LMA, which
is a quarter of the total built area. Their total enrollment made up over half (54%) of
Boston’s four-year small college enrollment (MASCO, 2018a). With nearly 20,000
students, COF students comprise close to 19% of Boston’s total students attending four-
year colleges and universities, 39% of whom are graduate level and 61% undergraduate
level. Over half of COF students are from Massachusetts (57%), with over one-third from
out-of-state (36%).

This is important to notice because the COF is rooted in the community, haw a tradition of
community service, and is building the core economy of Massachusetts. Among the COF
students, 57% are from Massachusetts and 64% of COF alumni (134,600) stay in
Massachusetts (MASCO, 2018a, p. 19). They support the Commonwealth”s innovation
economy (e.g., scientific research, higher education and healthcare) because the innovation
economy in life science research works on a cascading scale – while the HMS/HSPH
students and faculties, and some of the COF students and faculty members are the frontier

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in pushing the edge of scientific research, it is also important to have a robust body of labor
pool for fundamental services.

4.1.2 Making the Life Science Industry

Government’s Support

The most important element in the LMA is research. For such a small place, the LMA
gobbles up a tremendous amount of federal research money. Massachusetts was the number
two state recipient of National Institutes of Health (NIH) funding in FY 2016, following
California, receiving $2.57 billion dollars. The LMA is the largest engine that has propelled
Boston to rank as the top recipient of NIH money. World renown medical institutions
including Brigham and Women”s Hospital, Beth Israel Deaconess Medical Center, Dana
Farber Cancer Institute, Joslin Diabetes Center, and other healthcare and research facilities
attract billions of dollars in National Institutes of Health (NIH) funding annually, making
Boston the leading recipient of NIH funding among all U.S. cities for 18 consecutive years
(BRA, 2021). As shown in Figure 56, the LMA is responsible for nearly $1.1 billion in
NIH funding in 2016, or 43% of Massachusetts’ total. The LMA hospitals see 2.6 million
patient visits a year. That’s about a third of the patient flow at the TMC, which claims to
be the largest medical complex in the world. But the LMA draws more than twice as much
National Institutes of Health money as its southern counterpart (Bailey, 2015).

Figure 56. NIH Funds Received by the LMA, 2005-2016

Source: MASCO [Link]

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The LMA institutions, including Harvard’s medical, dental, and public health schools,
secured over $1.2 billion from the NIH in FY 2018, which exceeds funding received by 44
states. If the LMA were ranked as a state in NIH funding, it would be number seven, after
Texas, and before Maryland102. Table 9 shows that in 2020, among the top 50 institutions
receiving NIH funds, three are located in the LMA. This list has changed that in 2019 Dana-
Farber Cancer Institute was ranked 46 with $69,118,749 through 112 awards, Boston
Children’s Hospital was ranked 39 with $77,341,445 through 153 awards, Brigham and
Women’s Hospital was ranked 17 with $140,799,840 through 249 awards, and Harvard
Medical School was ranked 37 with $79,798,644 through 152 awards but fell off the list
(GEN, 2019). The LMA institutions also received over $2 billion in private money for
research. These public and private research funds attract top medical and research
institutions in the LMA, demanding more density and space. For example, the German
pharmaceutical giant Bayer AG will invest more than $30 million over the next five years
to create a lab at Brigham and Women’s Hospital to develop drugs to treat chronic lung
diseases (Saltzman, 2019). The lab in the Longwood Medical Area will employ about 20
scientists from Bayer, Brigham, and Massachusetts General Hospital. The three
organizations will equally share the rights to any discoveries made as part of the venture.

Table 9. LMA Institutions among the Top 50 NIH Funds Receivers, 2019

Rank Organization Name Funding Awards

50 Dana-Farber Cancer Institute $168,968,587 265
42 Boston Children’s Hospital $192,682,552 366
23 Brigham and Women’s Hospital $308,419,887 579

Source: NCI/NIH (Philippidis, 2020)

The economic opportunities and benefits brought by the LMA are the results of the life
science and healthcare industry on a larger scale. Shown in Figure 57, Massachusetts is the
supercluster of biopharma research and business, where the Boston-Cambridge Core is one
among six regions for biopharma clusters. There are more than 700 biotech companies in
the state, according to the Massachusetts Biotechnology Council, with roughly 500
residing in Boston and Cambridge. They employ some 75,000 people in Massachusetts,
according to the Bureau of Labor Statistics, accounting for about $12 billion in wages in
2018 (Garde, 2020). MassBio’s Industry Snapshot Report (2020) shows that the
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Massachusetts biopharma industry jobs grew by 45% in the last 10 years adding over
24,500 jobs. Massachusetts remains an R&D powerhouse, with biotech R&D jobs reaching
46,000 in 2019, an increase of 18% from 2018, only next to California. Industry jobs as a
whole reached nearly 80,000 in 2019, the largest year-over-year growth since 2007 (7.7%
growth from 2018 to 2019), and a 94% increase in the last 15 years. Three of the top four
NIH-funded independent hospitals are in Massachusetts, and they help Massachusetts
receive 54% of all NIH funding to independent hospitals, and Massachusetts centers of
Higher Education and Research Institutes received $1.38 billion in 2019, with Harvard
Medical School leading with $195,688, 539 through 374 awards.

Figure 57. The Geography of Life Science Industry Clusters in Massachusetts

Source: MassBio [Link] page 7

The Massachusetts government has a history of supporting the healthcare and biotech
industry. In the 1970s Cambridge City Council allowed DNA experimentation and become
the first city in the world to establish a local ordinance regulating research with
recombinant DNA, which “de-risked” the biotech industry. In the 1980s Genzyme and
Biogen were established and the latter was granted the first approval for genetic
engineering. This was further developed to the clustering of life science companies in the
region supported by talent pipeline from Harvard, MIT, and top hospitals. The turning point
was the election of Massachusetts governor Deval Patrick in 2006 who pioneered public

150
support for the private biotech industry to make Massachusetts the number one hub for
biotech. Particularly, he passed the 10-year, $1 billion investment of Life Sciences Initiative
(LSI) (Commonwealth of Massachusetts, 2010). The Life Sciences legislation provides $1
billion over ten years, which would fund three major initiatives. The first is $250 million
in funding for discretionary investments in strengthening the “soft infrastructure,”
including grants for Massachusetts-based researchers, workforce development initiatives,
loans and other investments in Massachusetts-based life sciences companies and other
programs to accelerate the transfer of cutting-edge technologies and ground-breaking
therapies into economic growth and business activity across all of the state's regions.

The second part is $250 million in tax incentives provided to certified life sciences
companies which shall be awarded based on strict criteria related to job growth and revenue
for the state. The incentives include credits and other tax benefits to expand life sciences-
related employment opportunities in Massachusetts, promote health-related innovations,
and stimulate life sciences research and development, manufacturing and
commercialization in the Commonwealth. States usually use tax incentives to attract
established companies. Massachusetts chose a different path: using channels such as
LabCentral, it made a bet on homegrown companies. Where other states have tried to use
subsidies to create tech hubs from nothing, Massachusetts instead focused on unlocking
the commercial potential of research already being done at Harvard, MIT, and the
University of Massachusetts. The result is promising – state subsidies for startups helped
Massachusetts win more than $761 million in seed-stage biotech funding from 2009 to
2013 (Bloomfield, 2015). Following what Michael Porter would describe as the “business
cluster” in life science business and research (1996, 1998), Barry Bluestone, a Northeastern
University economist the state hired to measure the program’s impact says that

“If you can attract enough of the small companies that are on the cutting edge of
research, the big companies will follow because they want a front-row seat.”

The third is the focus of this 2008 act – $500 million in capital investments for life sciences
property, plant, and equipment (PP&E) “hard infrastructure” in Massachusetts including
water/sewer systems necessary to support the particular usage needs of the industry and
research and innovative facilities developing leading technologies. According to Bluestone,
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70% of the money disbursed so far has been in the form of direct capital investments that
were used to put up buildings and buy equipment. Every dollar Massachusetts spent under
the program boosted tax revenue by $1.66. In 2018, current Massachusetts governor
Charlie Baker pledged an additional $500 million for life sciences, providing $473 million
worth of capital spending into grants and authorized up to $30 million a year in tax
incentives to help the industry (O’Sullivan & Weisman, 2017). Baker’s bill focused on
workforce development, less on PP&E spending.

The Urban Nexus of Health Care

The biotech and healthcare industry in Massachusetts is an exemplification of the

“knowledge-material circuit” of the MUR triangle. The government strategically
positioned the healthcare and biotech industry as the core industry in the Commonwealth,
provided institutes and firms with funds, policy supports (tax-exempt), and market supports
(transferring or leasing of technology). The top higher education and medical institutions
alone could not complete this trilogy – the government’s support pushed the research
components to the central, and the market and private sectors aggregate the medical,
university and research components. According to MIT professor Harvey Lodish, who has
decades of experience in biotech research and industry, developing a cure for any disease
requires a for-profit company10. In the non-profit sectors, academic laboratories research
the underlying basic cellular and molecular biology, and medical centers and research
hospitals study the disease or condition. With government and philanthropic support for
research and development, the goal is to develop one or more candidate therapeutics that
work in cell structures and/or experimental animals. Then the for-profit sectors kick in –
VC investments, patient or disease-based organizations, small to medium-sized biotech
companies, and multinational biopharma companies, with their private money that the
government does not have, help to translate the research result from the non-profit sector
to an FDA-approved therapeutic available on the market.

VC investment has helped to make the biopharma industry in Massachusetts. Figure 58

shows that VC in Massachusetts biopharma companies was $3.1 billion in 2019. In the first

10
Interview conducted through Zoom with Professor Harvey F Lodish on 17th Dec 2020.
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two quarters of 2020, Massachusetts biopharma companies raised $2.1 billion, despite
economic uncertainty created by COVID-19. Cambridge-based biopharma companies
received 59% ($1,592 million) of all biotech venture investments in the state, and Boston
received 16% ($443 million). The VC investment has helped strong exits from companies
in Massachusetts. In 2019, there were 10 IPOs from Massachusetts biotech companies in
2019, and 23% of all US-based biotech IPOs in 2019 were from Massachusetts companies;
in the first two quarters of 2020, there have been 7 IPOs from Massachusetts biotech
companies, raising an average of $187 million, and 33% of all US-based biotech IPOs in
the first half of 2020 were from Massachusetts companies. In 2019, 31% of all
Massachusetts biotech companies that went public were located in Cambridge, raising a
cumulative $324 million.

Figure 58. VC Investment in the Massachusetts Biopharma Industry

Source: MassBio [Link] page 13

At the same time, geography matters. With a concentration of medical, university, research,
and VC companies (or other private-money institutes) in Boston, an entrepreneur is
allowed to license a novel treatment from a research institute, rent a workbench at
LabCentral to test it, pitch a Tech Square venture capitalist to help fund it, and then find a
hospital among those in the LMA to conduct human trials. If the tests went well, Boston’s
biopharma firms such as Genzyme, Biogen Idec, Novartis, or Vertex are willing to buy it,
injecting more money into the “knowledge-material circuit.” Even during the current strike
of COVID-19, the “Massachusetts Miracle is alive and well,” said Shirley Leung, a

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columnist at Boston Globe (2020). With the Moderna vaccine, Massachusetts is having a
moment. Although named after one company, countless doctors and doctorates at dozens
of labs and companies have risen to the occasion to vanquish a virus.

Figure 59. The Nexus of Top Institutions in Boston

It all works because of the nexus of top-tier research universities, world-class teaching
hospitals, fledgling startups, and multinational pharma companies. Figure 59 shows the
geographical network of these institutions and campuses in Boston. Therefore, the success
of the LMA should be situated in association with its spatial-temporal syntax of an urban
nexus of top health care institutions. Anchor institutions such as the Harvard Medical
School and its affiliated teaching hospitals alone could have not made what we see as the
LMA today. Rather, it is the ecosystem that has been developed with decades of efforts
from both the LMA institutes and the government that enabled the LMA to become the
world-leading medical city. Although Harvard Medical School was the anchor institute 120
years ago, its anchor has been slowly replaced by the agglomeration of top-tier institutes
in the region. The ecosystem for life science industry that connects Harvard, Kendall
Square, MIT, Massachusetts General Hospital, institutions in the LMA, and many other
clusters, is the foundation for their flourish, and the LMA is only a node of the dynamic
nexus of these top research, hospital, and university institutions. This dense urban nexus of
institutions together completes the “knowledge-material circuit” at the territorial scale.

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4.2 The Texas Medical Center (TMC)
4.2.1 Building a Mini Downtown

Philanthropic Legacy

Figure 60. The Location of TMC in Connection to the Light Rail System in Houston

While the oil and natural gas industry remain an important leader for growth (Hudgins,
2012), the health care and the service sectors also play a critical role in Houston’s economy
(Badenhausen, 2012). In April 2008, Forbes named Houston one of the ten “recession-
proof” cities in the United States (Zumbrun, 2008). Houston was able to weather the most
recent economic downturn, in fact gaining more jobs by 2010 than it lost in the 2008 Great
Recession. Since 2007, health care employment has risen by more than 20%, and the Texas
Medical Center (TMC), located only a few miles from downtown, is touted as the “largest
medical complex in the world.” In FY 2018, its management organization, TMC Inc.,
claimed the medical center alone had 106,000 employees and more than 50 million square
feet (4.7 million m2) of developed campus on its 2.1-square-mile (5.4 million m2) of land,
and creates $25 billion of revenue (TMC, 2021). Figure 60 shows that the TMC is located
in south-central Houston, immediately south of the Museum District and west of Texas
State Highway 288. While driving from downtown Houston to the TMC takes 15 mins, the
TMC is also serviced by the METRORail Red Line, a north-south light rail route that
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connects the TMC to Downtown Houston. Shown in Figure 61, home to the world’s largest
children’s hospital & world’s largest cancer hospital, the TMC is a new business district
overlooking downtown Houston.

Figure 61. Overlooking the TMC and the Downtown Houston

The TMC was conceived after the death of Monroe Dunaway Anderson, a banker and
cotton trader who founded a successful cotton merchandising firm called Anderson,
Clayton and Co. The firm was founded in 1904 as a partnership between two brothers,
Frank and Monroe Dunaway Anderson, and their brother-in-law, Will Clayton. As the
partners aged and their health declined, a combination of internal partnership agreements
and federal tax laws forced each of them to start thinking about how to divest their stakes
in the company. M. D. Anderson, who was a bachelor, decided that the best way to handle
his divestment was not to force his partners to pay $20 million for his shares, but rather to
endow a foundation as his primary beneficiary (Macon & Anderson, 1994, pp. 64-65). In
1936 he founded the M. D. Anderson Foundation a four-part mission: to improve working
conditions for laborers; to seek to generally improve the quality of life; to establish and
support the construction of hospitals and other health-related facilities; and to promote
“health, science, education, and advancement and diffusion of knowledge and
understanding among people” (Macon & Anderson, 1994, p. 71).

They combined to a vision of a medical center consists of many hospitals, academic

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institutions and various supporting organizations – “a city of medicine such as envisioned
by Asclepius in ancient Greece” (Wainerdi & Newcomen Society of the United States,
1993). But translating the hope of creating a medical center into the reality of building one
was a difficult and lengthy process. It required cultivating strong links among “local
philanthropists, industries, and the health care community” (Simpson, 2019). Upon
Anderson’s death in 1939, the foundation, as the principal beneficiary of his estate,
received over $19,000,000 in funding, leaving his trustees Colonel William Bates, John H.
Freeman, and Horace Wilkins to decide on the specifics of how to fulfill its mission. None
of these men was in a hurry to spend the Anderson Foundation’s money. They waited until
1941 when the state of Texas passed legislation allowing for the creation of a state hospital
for cancer treatment and research.

In 1941, Texas Governor Lee O’Daniel signed House Bill 268, which authorized a state
cancer research hospital. The Forty-seventh Texas Legislature approved the establishment
of the Texas State Cancer Hospital and Division of Cancer Research. Bates, Freeman, and
Wilkins saw the cancer hospital as a starting point for an entire medical center to be built
from the ground up in Houston. They were also active in helping the Texas Dental College
affiliate with the University of Texas system to become the University of Texas Dental
Branch. These two institutions formed the nucleus of the TMC. To secure the cancer
hospital for Houston, the M. D. Anderson Foundation approached the legislature and
promised a matching donation of $500,000 if money was allocated for the Houston site. In
1942 the University of Texas Board of Regents accepted the offer from the M. D. Anderson
Foundation to provide temporary facilities, furnish a permanent site (Schier, 2021). The
legislature agreed to the Anderson Foundation’s offer, essentially allowing the state to build
a new hospital at half the price (Macon & Anderson, 1994, p. 85). The Anderson
Foundation’s grant provided both temporary quarters and a permanent building site for the
new hospital, further helping to pass the cost of the project along to private donors. The
UT regents also voted to name the hospital for Monroe Dunaway Anderson103.

In 1942, the M. D. Anderson Cancer Hospital acquired the former estate of Captain James
A. Baker, located on Baldwin Street, as a temporary headquarters (Macon & Anderson,
1994, p. 139). The next challenge came in selecting a permanent site for the cancer hospital.

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The Anderson Foundation had two key criteria: it had to have room for expansion, and it
had to be affordable. The trustees learned of a 134-acre piece of property owned by the
City of Houston, just south of Hermann Hospital 104 . The trustees quickly arranged a
referendum election which permitted the trustees to purchase the original 134-acre campus
next to Hermann Hospital for $3,000 per acre, totaling $402,000, for the new cancer
hospital to use as temporary headquarters to start research projects and see patients. On
December 14, 1943, the voters of Harris County approved the sale of the Texas Medical
Center site to the foundation (Orlando, 2014).

The Growing Medical Cluster

Foundation trustees also hoped to bring undergraduate medical education to Houston. The
University of Texas Medical Branch was located in nearby Galveston, and it was unlikely
that the foundation would be able to convince the legislature to build a new undergraduate
medical school with an existing one already nearby. As a concession, they were able to
negotiate for the creation of a new University of Texas Postgraduate School of Medical
Education housed at the state cancer hospital. Having an undergraduate school of medicine,
however, was far more prestigious and gave the TMC a legitimate claim to the missing leg
of the MUR triangle—medical education. Then the opportunity came. In Dallas, the private
Baylor College of Medicine was in a fight with Baylor University and the Southwestern
Medical Foundation over control of that school’s destiny105.

When Baylor canceled its affiliation with the Southwestern Medical Foundation106, both
Baylor and the Anderson Foundation sensed an opportunity to bring undergraduate medical
education to Houston. Baylor was already a name in the state — many of the Houston area
doctors who hadn’t attended the University of Texas Medical Branch had graduated from
there. Moreover, attracting a preexisting school promised substantial cost savings, since
they already had equipment, faculty, and students that would make the move to Houston.
The Anderson Foundation promised an initial infusion of $1 million in cash to pay for the
construction of a new medical school and $100,000 a year for ten years to help pay for
operational costs. The Houston Chamber of Commerce pledged $50,000 a year for ten
years to also help defray operating expenses (SoRelle, 2000, p. 45). Baylor moved into an
old Sears and Roebuck building in Houston in 1943 until its permanent facilities were
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completed in 1947. Hospital facilities for teaching were another priority for the school. In
the fall of 1946, the Department of the Navy built a hospital just to the east of the medical
center site and in 1949 a formal affiliation agreement was signed with Baylor.

The early postwar years also saw the expansion of Hermann Hospital and the construction
of a variety of new general and specialty hospitals within the boundaries of the TMC. As
the only general hospital existing within the site at the time, Hermann needed substantial
upgrades, especially since it was slated to serve as the primary teaching hospital for Baylor.
In 1949, the hospital grew to 625 beds. These new beds helped to transform Hermann into
a major player in the Houston hospital market and a major institution within the TMC. One
of the first hospitals to be built anew was The Methodist Hospital. In 1951, it opened its
doors and was affiliated with Baylor (Sibley, 1989). However, 300 beds proved to be too
small for the rapidly growing hospital, and the hospital broke ground on a major new
expansion in 1960, although did not successfully address the capacity issue. Two other
hospitals were added: St. Luke’s Episcopal Hospital and Texas Children’s Hospital. Other
institutions, including the Dental Branch of UT, the Institute of Religion, The University
of Texas Speech and Hearing Institute, Texas Women’s University’s School of Nursing,
and the Houston State Psychiatric Research Institute also moved to the medical center
(Simpson, 2019, p. 32).

One of the most important was the Texas Institute for Rehabilitation and Research, later
simply The Institute for Rehabilitation and Research, or TIRR, which played a key role in
working with NASA to build space medicine programs during the 1960s and beyond. Their
success served as a catalyst, driving others to join the TMC’s community of non-profit
health care institutions. By 1954, The TMC corporate offices were created to oversee land
distribution and develop the common areas for the new medical city. The Texas Medical
Center, with its charter registered, began making gifts of land from its original property.
The MD Anderson Foundation was able to contribute substantial funds for building
programs to the recipients of the land. Since 1945, the Texas Medical Center has gifted or
leased more than 113 acres at almost no cost to various member institutions. The vision
was that the TMC would grow on land purchased, and then made available without cost,
to institutions so that they would come and build here. Seed money would also be provided

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and people from all over Texas would be asked to help to fund it.

Building a medical center in Houston also required new ways to think about coordinating
hospitals to maximize efficiency. This leads to the creation of Texas Medical Center Inc.,
which was chartered as a Texas nonprofit corporation in November 1945. It was in charge
of the operation including attracting institutions and many day-to-day activities of the
private streets, private utilities, private police, a newspaper, a very large parking operation.
The idea of creating a management umbrella was essential to the success of the new
medical center, since there was not a single dominant institution that could act as a
coordinating body for medical center development. TMC Inc.’s board originally had nine
members, with Dr. Ernst W. Bertner overseeing much of the early coordination, which grew
in later years. Another critical function of TMC Inc. was public relations. Its press machine
was able to leverage contacts in the local and national media to promote the medical center,
helping the medical center to build a narrative that it was a growing space for innovation
and healing that owed its very conception to a combination of market forces and individual
philanthropy rather than federal programs like Medicare.

In 1946 TMC Inc. commissioned James Hamilton and Associates, a Chicago-based

hospital consulting firm, to conduct a market analysis of the Houston region which
recommended that the Houston area’s rapid growth meant that demand for inpatient
hospitalization would continue to grow in the coming decades (Elliott, 2004, p. 96). The
report also recommended that hospitals within the medical center should coordinate
services as a way to hold down costs. R. Lee Clark, the director and surgeon-in-chief of M.
D. Anderson, attempted to share services and binding divergent and competitor hospitals
into a shared enterprise in the name of good fiscal management, such as creating a stand-
alone outpatient facility to serve all medical center hospitals, a plan which never came to
pass. This failure made TMC Inc. act primarily as a facilitator for member institutions
rather than a direct provider of patient care. It embraced this new task – building the roads,
bridges, and flood control structures.

The TMC has reached a considerable scale of buildings and activities in the 1990s. Figure
62 shows that the TMC started from the original woodland in 1944, with buildings start to
populate the site by 1953 and most of the construction took place between 1953 and 1978,
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reaching the scale and density close to today in the 1990s to 2010107. The momentum of
growth continues. The years from the late 1990s to 2010 were a time of dynamic growth
and booming construction in the TMC. From 2005 to the present, the George and Cynthia
Mitchell Basic Sciences Research Building, the Ambulatory Clinical Building, the Cancer
Prevention Center and a new research building on the South Campus opened. The Proton
Therapy Center, the largest facility in the United States where proton therapy is used to
treat cancer, opened in July 2006 (The ASCO Post Staff, 2006). The Memorial Hermann
Healthcare System constructed the six-floor, 165,000-square-foot (15,300 m2) Memorial
Hermann Heart & Vascular Institute. Completed around 2006 was the 30-story Memorial
Hermann Medical Plaza, which is now the largest medical office building in the Texas
Medical Center. The construction was part of the system's citywide "Century Project"
initiative. In 2005, Baylor College of Medicine opened the Baylor Clinic. The TMC rebuilt
and fortified crucial infrastructure, replacing all of the private streets in the complex and
improving drainage, utilities, sidewalks, and even much of the landscaping. By 2014, the
TMC had 54 member institutions, composed of 27 government agencies and 27 not-for-
profit health care facilities.

Texas Medical Center 1944 0.25 mile Texas Medical Center 1953 0.25 mile Texas Medical Center 1978 0.25 mile

Texas Medical Center 1989 0.25 mile Texas Medical Center 2002 0.25 mile Texas Medical Center 2019 0.25 mile

Figure 62. The TMC Campus, 1944-2019

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Today by 2020, the TMC encompasses over 50 million developed square feet (4.65 million
m2) and $3 billion in construction projects underway, offering the home to the world’s
largest children’s hospital and the world’s largest cancer hospital with 10 million patient
visits per year and over 9,200 total patient beds (TMC, 2021). The TMC contains 54
medicine-related institutions, with 21 hospitals and eight specialty institutions, eight
academic and research institutions, four medical schools, seven nursing schools, three
public health organizations, two pharmacy schools, and a dental school. All 54 institutions
are not-for-profit. Among the affiliated medical schools are the University of Texas Health
Science Center at Houston, Baylor College of Medicine, University of Texas Medical
Branch at Galveston and Texas A&M College of Medicine.

Figure 63. The TMC Campus and Some of the Key Institutions

With a sprawling campus that receives over 160,000 visitors daily, the TMC alone ranks as
the 8th-largest downtown business district in the United States, right after Philadelphia and
Seattle (Orlando, 2014). In 2020, Texas A&M announced plans to build a $550 million
complex on the southern side of the TMC including academic, medical office, and housing
buildings (Ackerman & Sarnoff, 2020). Although over the decades, the TMC has expanded
south of Brays Bayou towards NRG Park, and the organization has developed ambitious
plans for a new "innovation campus" south of the river expanding the TMC to a 12.8 km2
campus, this case study focuses on its core area with a land area of 1.4 million m2 shown

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in Figure 63. This core area hosts the earliest institutions include the Baylor College of
Medicine, University of Texas Medical School and School of Public Health, and the M.D.
Anderson Cancer Center, the Houston Methodist Hospital, Memorial Hermann, St. Luke’s
Hospital, Texas Children’s Hospital.

Figure 64. The Spatial Composition of TMC and the Percentage of Floor Areas for each Program

Figure 64 shows the spatial and programmatic composition of the TMC campus of its core
area. The buildings in total make up to 4 million m2 of built area and a FAR of 2.97, which
is higher than the LMA. Similar to its comparable in Boston, the medical and university
programs occupy most the most buildings in the TMC. But the size of hospitals is much
larger than the size in LMA, reaching 59% of the total building area in the campus due to
the agglomeration of medical institutions and their continuing demands to expand. These
hospitals are generally large in size and capacity. As shown in Table 10, the 9 medical
institutions in the core area make up 5,373 of the 9,200 total current patient beds. This
makes a bed density of 3,838 beds/km2 in the core area, compared to 2,345 beds/km2 in the
LMA. Among these 9 hospitals, 5 of them have more than 500 patient beds, which in

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Chinese standards, would qualify them as tertiary hospitals. At the same time, the medical
schools in the TMC account for 17% of the total built area, while research labs only take
1% of the total area. However, this small percentage of areas for research labs does not
harm the overall capacity of innovation and knowledge production in the TMC. Many
research projects are conducted in universities, medical schools, and hospitals.

Table 10. The Bed Number of TMC Institutions

Institution Name Bed Number

Baylor St. Luke's Medical Center 881

Ben Taub General Hospital 444
Houston Methodist Hospital 907
Memorial Hermann-Texas Medical Center 1,014
Children’s Memorial Hermann Hospital 310
Shriner’s Hospital for Children — Houston 40
Texas Children's Hospital 973
TIRR Memorial Hermann 134
The University of Texas M. D. Anderson Cancer Center 670

Source: Institutions’ Websites

Other programs including retail and office uses are also kept minimal. At the same time,
the TMC faces similar challenges of land use to the LMA. Firstly, the green space ratio in
the TMC is also quite low – only 24%, although a bit better than the LMA. The negative
experience with the shortage of green space could be offset by the skywalks connecting
multiple key institutions in the TMC, so people could move between buildings without
necessarily using the exterior space. Having a different history than the LMA which has
gradually evolved spontaneously over a course of 120 years, the TMC is an urban flagship
project celebrating the transforming economy in Houston. It was envisioned to be a mega
medical center even by the time the land was granted. The TMC does not have spaces for
cultural projects, perhaps because it is located right next to Rice University. This allows
the TMC to emerge itself in developing floor areas for medical and research, and the
expanding building footprints and growing building density have annexed green spaces.
Secondly, it is also notable that parking garages consist of 17% of the total built area, which
is very high. Knowing that Houston is a vehicle-dependent city in terms of transportation,
it is not surprising to see large bulks of garage buildings on the TMC campus.
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 Figure 65. The Change of Building Footprints in TMC, 1944-2019

Figure 65 illustrates this change of building footprint in the TMC throughout 1944-2019.
Most of the buildings have been constructed between the 1960s and 1990s, and the density
of TMC has reached a level similar to today by the early 2000s. The TMC had remained
an empty marshland by the 1950s, but by 1995, most of the institutions had been
constructed. With the continuing demand for more space, the TMC expands to the
southwestern side along the Brays Bayou. The TMC has been very ambitious in its
expansive visions. In a recent meeting in 2018, the TMC and city, state leaders announced
the creation of TMC3, a new, multi-institutional translational research campus expected to
be completed in 2022. The TMC3 campus will be located a couple of miles south of the
TMC, between Brays Bayou and Old Spanish Trail between Bertner Avenue and
Cambridge. The ambitious project will bring together the best institutions and brightest
minds in clinical care, research, and industry. A third-party impact study also predicted that
TMC3 will drive $5.2 billion into the Houston economy and create nearly 30,000 jobs
(Becker, 2018). TMC3 is created to support multiple institutions and its goal is to foster
collaboration amid the culture of competition that is embedded within the 61 institutions
that currently make up the TMC. The TMC3 campus will also encourage for-profit industry
leaders to move in from downtown, allowing for commercial partnerships and, ideally, an
influx of venture capital. Alliances between institutions and commercial partners is

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expected to catalyze the development of new therapies, medical devices, and digital health
breakthroughs.

4.2.2 Upscaling to a New Economy

From Oil to Biotech and Health Care

Today the TMC has made a significant contribution to the economy of Houston, with its
10 million patient encounters per year, more than 180,000 annual surgeries. In 2019, its
$25 billion revenue and 106,000 total employees accounted for respectively 5.1% of the
$490.1 billion GDP, and 3.31% of the 3,202,100 total nonfarm jobs in the Houston-The
Woodlands-Sugar Land, TX (MSA). In comparison, with available data in 2016, the LMA
had $10 billion revenue for MASCO members and 57,000 employees, which accounted for
2.4% of the $420.1 billion GDP and 2.18% of the 2,616,400 total nonfarm jobs in Boston-
Cambridge-Newton, MA-NH (MSA). Although the LMA has received more NIH funding
than the TMC, the TMC has a dominant size and economic scale. The TMC is situated in
the history of Houston, particularly the place-based policies rebranding Houston from an
oil city to a biotech city, and the medical market that has made the TMC a famous
destination for international medical tourism seeking specialty care.

Houston is a growing Sun Belt city, and its economy was booming in the postwar years.
The energy sector drives job growth and business activity in Houston, creating
concentration on the west side of the downtown where oil and gas companies are clustered.
Texas has a rich literature on its history with oil, and the oil industry is Houston’s defining
economic sector (Yergin, 1992). The matured oil industry served as the base for a global
oil services industry, petrochemicals, as well as strong finance and legal sector for Houston
citizens (Feagin, 1988). Despite the heavy concentration on the energy sector, the rest of
the city’s economy is diverse and helps spread the wealth that energy brings into the
community to other sectors (Hudgins, 2012). While the energy continues to power the
economy, health care, and technology are gaining.

Houston has emerged as a national model for building an economy from the post-industrial
era through focusing on economic diversification by building strong medical, educational,
and applied research sectors through links with hospitals and universities108 . Figure 66

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shows that mining jobs have been a stable part of Houston’s economy, while the
manufacturing sector, similar to many other post-industrial cities in the United States, has
been dropping. Accompanying this decline is the rising education and health services sector,
surpassing the manufacturing sector in the early 2000s and now becoming the substantial
component of Houston’s economy. Technology and biomedical research became part of a
new narrative for Houston, and this development strategy was guided by non-profit
hospitals and universities that were not only important physical and economic anchors but
also crucial economic and social actors. The technology-focused economic development
situated in market-oriented strategies was linked with the “amorphously defined notions of
innovation and growth” (Simpson, 2015). While local differences do matter for this
transformation, national forces including medical reimbursement, federal biomedical
research funds, and the private medical market for physicians, hospitals, and consumers
constitute a homogenizing role in making Houston’s medical city.

Figure 66. The Changing Employment Structure in Houston-The Woodlands-Sugar Land, TX

(MSA), 1990-2020 (Observation made in Months)
Source: U.S. Bureau of Labor Statistics, [HOUS448NA], [HOUS448EDUHN], [HOUS448MFGN], and
[SMU48264201000000001], retrieved from FRED, Federal Reserve Bank of St. Louis,
[Link]

Commercialization mattered in the process of “knowledge material circuit,” because it was

the point that speculative ventures brought back return on investment. Individual
institutions took a leadership role in creating both marketable technologies and spin-off
companies to produce and sell these technologies in Houston. Baylor had been an early

167
adopter of the idea that technology should be transferred from the laboratory to the
marketplace. From the 1950s to the late 1970s, the patent policy was typically ad hoc. By
1983, the school settled on developing capability internally and founded BCM
Technologies, which was designed to more quickly bring discoveries to the market (Butler
& Ware, 2011, p. 1149). BCM Technologies helped the spin-off of companies established
by Baylor faculty members as Baylor researchers might license their discoveries to
established companies, which allowed them to collect royalties without the distraction of
day-to-day corporate management.

Following Baylor, other health care institutions also started to jump into biotechnology.
For example, in 1984 M. D. Anderson started to explore creating its own for-profit
technology transfer partner named Andetech. Baylor has been a pioneer in genetic medicine
that it has established various research institutes including the Institute for Molecular
Genetics in 1985, the National Space Biomedical Research Institute in 1997 with NASA
and several other medical schools and universities. At the same M. D. Anderson was also
working on capitalization in genetics. In 1994, the institution reached licensing agreements
with several companies, including RGene, Argus Pharmaceuticals, and Intron, which
funneled royalties or stock options back to M. D. Anderson.

However, the new economy of biotechnology cannot be sustained by free enterprise and
institutions alone. Help from new partnerships and organizations, and financial seeds from
capital owners are equally crucial to support and nurture a range of investments in
biotechnology. One of the most important was the Houston Economic Development
Council (HEDC), which described itself as:

“a business-to-business organization dedicated to a primary mission: creating jobs

and investments for the Houston area by retaining existing businesses, stimulating
the formation of new businesses, and attracting businesses from other areas”.

It promised to concentrate on the areas that it saw were the most in-demand, including
space-related technologies, medicine, chemicals, tourism, and the city’s convention sector.
However, the HEDC’s role was not to build new biotechnology companies but to market
the city to new firms at home and abroad and to create a climate that made private-sector

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entrepreneurship in biotechnology viable. The HEDC in 1989 was merged with the
Chamber of Commerce and the Houston World Trade Association in 1989 forming the
Greater Houston Partnership and calling Houston “third coast” in bioscience (Palmer,
2019). In 2002, Governor Rick Perry created a Council on Science and Biotechnology
Development with plans to make the biotechnology and life sciences cluster an economic
development priority.

Another one is Woodlands Venture Capital Group, later renamed Woodlands Venture
Partners, founded by George Mitchell, an oilman and developer109 (Yergin, 1992, pp. 325-
328). The establishment of Woodlands Venture Partners, the most active venture capital
firm in Houston in the late 1980s, was a direct response to the demand in Houston for
venture capital to develop spin-off companies for the future economy on biotechnology.
Between 1985 and 1994, Woodlands Venture Partners raised close to $200 million and
invested more than $15 million in eight Houston area biotech and medical device
companies (Simpson, 2019, p. 114). Mitchell also attempted to promote cross-institutional
collaboration among the University of Houston, Rice University, the University of Texas
at Austin, and Texas A&M by donating land and money for the Houston Advanced
Research Center (HARC) in the hope to generate a critical mass that would serve as a node
for regional high-tech development.

Figure 67. Venture Capital Funding in Houston, 2012-2021

Source: Greater Houston Partnership analysis on Pitchbook Data [Link]
data/quarterly-update-venture-capital

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Several platforms in the TMC have helped the creation of entrepreneurialism. The Texas
Medical Center Venture Fund (TMCVF) is a $25 million initiative designed to support
technologies and early-stage companies to flourish in Houston’s health care ecosystem and
further the TMC’s mission to advance health, education, and research (Texas Medical
Center, 2017). The TMCVF consists of early-stage investors who take a long-term view to
support the commercialization, launch, and growth of innovations in medical devices and
digital health solutions. At the same time, TMCx is a medical device and digital health
accelerator focused on clinical partnerships to improve healthcare delivery and outcomes.
Through TMCx, emerging digital health and medical device startups have access to the
world’s largest medical center. The TMC Innovation team enables connectivity to mentors,
service providers, clinical champions, and corporate partners who share the commitment
to improving access, quality, and cost of healthcare. TMC Innovation drives collaborations
with medicine and cutting-edge technology from around the world to the TMC. It supports
172 TMCx accelerator companies, raised to date $4.71 billion. With 305 life science
startups in the community, it helps 6 successful company exits. Furthermore, Houston has
embraced a growing body of VC investment. Figure 67 shows that VC in Houston has
steadily grown to over $800 million by 2020, $254.6 million (31.8%) was in health care.

Figure 68. Aerial photograph of NASA’s Lyndon B. Johnson Space Center (JSC), originally named
the Manned Spacecraft Center (MSC)
Source: Bill Stafford NASA-JSC Houston T, [Link]

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Simpsons in his recent book made an insightful argument that the space program was,
beyond the entrepreneurial transformation to biotechnology, another stimulator (Simpson,
2019, p. 117). On September 19, 1961, the National Aeronautics and Space Administration
announced that the Houston area was going to be home to the agency’s Manned Spacecraft
Center (MSC), which profoundly changed the region and set the foundation for decades of
collaborative relationships among NASA, the Texas Medical Center, and area universities
(Swenson Jr, Grimwood, & Alexander, 1989). Similar to the COF in Boston was MSC’s
effect on the city’s educational sector. The MSC helped the creation of a Department of
Space Science at Rice University and the University of Houston Clear Lake as a standalone
campus, designed to support and provide training for the NASA personnel at the center.
Institutions in the Texas Medical Center also benefited from NASA’s presence. According
to TMC’s 1963-1965 annual reports (Texas Medical Center Inc., 1963), the Methodist
Hospital, and its medical school partner Baylor College of Medicine, were conducting
neurophysiology research for NASA, making significant progress in space medicine
research. The Texas Institute for Rehabilitation and Research (TIRR) had inked a research
contract to study the effects of immobilization on the human body.

Specialty Care and the International Market

The search for innovation wasn’t limited to the laboratory. During the same years that
biotechnology was the keyword linking Houston with new economic development, the
same discussion was given to the business of delivering care. While biotechnology
remained a speculative venture by that time, clinical services were a stable foundation for
the post-industrial transformation of Houston. This was built on changes in the hospital-
civic relationship brought by clinical services like specialty medicine. The pursuit of
specialty service is a respondence to the combined force. These include the technological
advancement in American Healthcare (Morrisey, 2001), the more commercialized business
model within the non-profit health care sector, and the for-profit invasion of the American
health sector through principles from the corporate sector such as process efficiency,
statistical modeling, and the need to find new markets (Salmon, 1995; Starr, 1982). Beyond
these changes in the American healthcare system, the expansion of the United States’ for-
profit hospital chains into the international medical market from the 1970s onward offers

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new patients and new locations for prominent physicians in the U.S. (Berliner & Regan,
1987; O. F. Lee & Davis, 2004).

Specialty medicine helped the building of TMC in two ways. Firstly, it contributed to
ongoing efforts of giving new identities to Houston as a center of post-industrial innovation,
which helped the concurrent efforts to upscale economies around biotechnology. The
increasing prominence of specialty medicine helped to normalize a more market-oriented
vision of the hospital-civic relationship that emerged by the 1980s and 1990s and helped
to promote investments in biotechnology and in building large health systems. Michael E.
DeBakey, M.D., a young doctor from Louisiana, performed the first successful carotid
endarterectomy in 1953, establishing the field of surgery for strokes. William Spencer,
M.D., often thought of as “The Father of Modern Rehabilitation,” was renowned for
establishing one of the first polio treatment centers in the nation and the institute he founded,
The Institute for Rehabilitation and Research created a Spinal Cord Injury Program that
became the model for the nation’s disability centers. The most memorable media storm
was that in the 1960s, Denton A. Cooley, M.D., and his colleagues designed new artificial
heart valves, and the mortality rate for valve transplant patients fell from 70% to just 8%
(Orlando, 2014). This has continued to be an advertisement for the TMC, entitling Houston
the “City of Hearts.” Furthermore, Hermann Hospital developed expertise in burn care.
Hermann also built a strong liver transplantation program and a strong reputation in
emergency medical services.

Secondly, the rise of specialty medicine created a new import-export economy for clinical
and business knowledge, which is deeply embedded in the capitalism of the increasingly
international medical marketplace. This rescaling of the medical market pushed the
reorganization and expansion of various healthcare systems, further expanding the
capacities of medical institutions in the TMC. The creation of an import-export economy
for patients as well as the elevation of physician-researchers like Drs. DeBakey and Cooley
into symbols of a new economy showed the value specialty medicine had for helping to
reinvigorate the industrial city. This high degree of international involvement in Houston’s
specialty medicine market during the 1980s has, interestingly, helped Houston to become
active in seeking out foreign partners and markets for biotechnology because many of the

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same people who were negotiating to expand specialty care overseas were also addressing
issues of technology transfer and commercialization (Simpson, 2019, p. 116).

The newly expanded medical market in specialty care and the changing landscape of local
and national health care in the United States has also led to the advent of the expansion of
the health care system in Houston. The system was about establishing geographic coverage
of patients and managing the flow of medically complex patients back to the main hospital
through referrals. For example, the Methodist Hospital built a formal affiliation network,
going through a corporate reorganization, and created the Methodist Hospital Health Care
System. Hermann Hospital was also pursuing an affiliation strategy, creating Hermann
Affiliated Hospital Systems in 1980. In 1993 established its own integrated delivery system
(IDS), which allowed a single organization to consolidate a variety of services along the
continuum of care. This strategy in 1997 leads to the merger (while other systems are done
through acquisition such as the University of Pittsburgh Medical Center) between Hermann
and the Memorial Health System, creating the Memorial Hermann Healthcare System.

In Houston, the pathway toward building a post-industrial knowledge economy was

complicated. The emergence of biotechnology as an economic possibility was part of a
larger place-based strategy to rebrand cities as hubs of knowledge and nodes of
competitiveness in a globalizing neo-liberal economy. Timing matters too – the location of
critical facilities and talents, the collapse of the industrial economy that occurred at the
moment that medicine was arising, the federal support for American patent law, and the
transitioning academic culture that introduced new technologies and new standards of
practice. Meanwhile, the private market was not the only actor in creating the infrastructure
for biotechnology and the healthcare economy. It also relied on the emergence of an
entrepreneurial state, as well as the formal structures for the development of for-profit
companies to commercialize research of universities, research institutions, and medical
schools. This process is essential to the new urban economy embedded in the “knowledge-
material circuit.”

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4.3 The Peking University Health City (PHC)
4.3.1 The Aggregated Urban Complex

PKU-led Mega Projects

Figure 69. The Overall Planning of the Zhongguancun Life Science Park
Source: Author’s Photo on the Site

The Peking University Health City (PHC) is located on the northwestern side of Beijing,
inside the Zhongguancun Life Science Park (ZGCLSP) in Changping District. Figure 69
shows the master plan of this 2.5 million m2 mega campus. The name Zhonngguancun was
inspired by the IT industrial agglomeration Zhongguancun Science Park near Tsinghua
University in Beijing, which is also known as the first national-level high-tech industrial
zones and the “Silicon Valley of China.” The name Life Science Park is marked with the
ambition of creating perhaps the “Kendall Square of China,” focusing on life science,
biotechnology, and pharmaceutical research. ZGCLSP’s mission was set to embrace the

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IUR triangle, therefore invited organizations associated with Peking University and
Tsinghua University to locate on the campus. Initiated by the Beijing municipal
government and the Ministry of Science and Technology, the national and local
governments have given various incentives and preferential policies110 (ZGCLSP, 2015a,
2015b). The first phase of ZGCLSP began in November 2000, and later in March 2001, the
municipal government started building its infrastructure and landscaping (Zhongguancun
Life Science Park, 2020).

Figure 70. The Peking University Health City and the Included Projects

ZGCLSP resembles more of an industrial park that hopes to take advantage of the
agglomeration of biotech firms for innovations. PHC, on the other hand, incorporates
medical, university, and research inside its campus. Highlighted in Figure 70, the PHC
consists of 4 major components: the Peking University International Hospital, the Peking
University Institute of Mental Health (the Sixth Hospital Affiliated to Peking University
Changping Campus), the Peking University Science Park • Boya C-Center, and the Peking
University Care Innovation Park (including the Peking University Resources Health
Industrial Park). Although fragmented in several pieces, it is not hard to notice that these
pieces all belong to Peking University. This is because of the specificity of “university-run
enterprises” in China, which is a caveat the case study will return to later. These together
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composed the Peking University Health City, a university-driven mega urban project that
took more than 500,000 m2 of land with more than 1 million m2 of built area, totaling up
for 10 billion CNY of investment, and a floor-area-ration (FAR) of 2.

PHC has been recognized as a regional growth pole taking advantage of the IUR
mechanism. Based on the visions from the leadership level, the PHC has been reported as
a complex of the health care industry, or a “medical city,” rather than a hospital campus (X.
Xue, 2019). Fan Jing, the assistant president of PKU HEALTHCARE, the jointly
established special vehicle company (SVC) to build, operate, and manage PHC and other
properties since 2003, stated in an interview that (Xin Li, 2017):

“The Peking University Health City is an innovation that was envisioned to

integrate industry, university, and research, as well as industry and the city. For a
city, when health joins industry, then becomes a new growth pole…The PHC is not
a site for a mega-hospital or agglomerated hospitals; it is a host for research, a
hub for international communication, a station for converting research to industrial
products, and a provider for incubation and innovation.”

Figure 71. The Location Peking University Health City in Connection to the Metro Lines

Figure 71 shows that, although the ZGCLSP is connected by the Changping Line (at Life
Science Park Station) and 13th Line (Xi’erqi Station) to Beijing downtown, the “last mile

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issue” issue was not solved for PHC. The Life Science Park Station is located about 2.5km
away from the PHC, leaving an awkward distance. Passengers usually choose to find a cab
for a 10-minute-drive. Furthermore, it is 15.3 km away from the Peking University Medical
Department (Center). The location was determined by the Beijing municipal government
through land allocation since the land type inside the ZGCLSP is “research111” (G. Xu,
2010). Figure 72 illustrates that the core area of Beijing has been almost fully occupied by
2005, leaving little room for expansion. The PHC is in Changping district, which is located
at the urban edge and has embraced a large volume of development.

Figure 72. The Built Area of Beijing Metropolitan Region, 2005, 2010, 2015
Source: China Resource and Environment Science and Data Center

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Furthermore, research land is public land not entitled to be commodified. Based on the land
strategies in Chinese urbanization, this type of land is usually used to build tax return, talent
training, and economic development. Allocating 2,490,000 m2 of land near downtown
would be an excessive opportunity cost for any local government because the same amount
of land could be commodified and financialized to generate considerable short-term fiscal
income. By moving mega urban projects to urban peripheral areas, the city also facilitates
urbanization through “value-capturing.” Therefore, while scarcity of land is certainly one
determinant for the location of PHC, the logic of land finance is certainly within Beijing
local government’s consideration in allocating land for the mega projects of PHC.

Figure 73. The Peking University International Hospital

Source: Huaxia Network: [Link]

The Peking University International Hospital, shown in Figure 73, is the flagship project.
This 1800-bed private non-profit mega general hospital was jointly invested and built by
Peking University and PKU Founder112. Its monstrous size of 440,000 m2 built area took
4.5 billion CNY in the early 2000s when the planning began. On 3rd March 2002, the
leadership of Peking University, including the former party secretary Min Weifang, the
former president Xu Zhihong, the former deputy vice-president Han Qide, petitioned to
Beijing municipal government for the construction of Peking University International

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Hospital as a step further in the health care reform (Xin Li, 2017). However, the role of
Founder remained vague. The former CEO of PKU Founder, Li You, suggested that the
international hospital was not the interest of any bank or financial institutes, and it was
“designated” (an pai) to PKU Founder who was rather reluctant because of the cost of
building and managing such an 1800-bed hospital. However, insider’s story also tells that
it was the leadership of Founder Group that anticipated the profits from the health industry,
therefore, took the lead in financing for this project through a large amount of debt11.

The construction of the hospital waited for 5 years to begin in 2007 (PKUIH, 2021). On
28th July 2002, Jia Qinglin, the former party secretary of Beijing, approved the construction,
and soon on 8th August Peking University established the PKUCare Hospital Management
to manage and operate the hospital 113 . The heavy investment and large volume of
construction took time to be restored and completed. Then 12 years since the initiative led
by Peking University, the hospital formerly opened for operation on 5th December 2014.
The business model of the hospital was designed by Li You, the former CEO of PKU
Founder, with the assistance of Lyu Hedong114. However, Li was investigated due to insider
dealing in 2015. Later Lyu Hedong became the vice president of PKU Founder and the
CEO of PKU HEALTHCARE. In 2017, Lyu Hedong resigned from the CEO position of
PKU HEALTHCARE, and Song Jinsong, the former senior vice president of FosunPharma,
became the successor of this position (Gao, 2017).

Table 11. Performance of the PKU International Hospital, 2014-2019

End of Year Total Net Number of Outpatient Number of Discharged

Year
Asset (Million CNY) Services Patients
2014 101.50 2,745 35
2015 / / /
2016 -718.42 460,000 16,000
2017 -1,344.89 642,176 34,325
2018 -1,921.74 812,316 32,278
2019 -2,462.24 956,840 35,571

Source: TianYanCha: [Link] data not available for 2015.

11
Interview conducted in person with K, formerly in the leadership of Peking University, in Beijing on
December 23rd, 2019.
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The financials were the heaviest burden on the Peking University International Hospital.
Table 11 shows that while both the number of outpatient and inpatient services have grown
tremendously since 2014, the total net asset of Peking University International Hospital
has continuously declined. This spreadsheet has raised concerns for both PKU
HEALTHCARE and PKU Founder. This perhaps partially causes PKU HEALTHCARE’s
application for corporate reorganization in 2020 (PKU HealthCare Corp., 2020), and it was
reported that the resignation of Lyu was caused by the unmanageable debts of the hospital.

Furthermore, the international hospital embraced the concept of translational medicine

with its 6-floor teaching and research building, as well as 3,252 m2 of core research lab
spaces. On the 27th of December 2018 the hospital became the 9th hospital affiliated to
Peking University through its Medical Department (Center), now it is known as the 8th
Clinical Medical College of Peking University. With this hospital-university affiliation, the
international hospital has gained privileges that other private hospitals do not have and
could function similarly to tertiary public hospitals in conducting clinical research. By 2018,
the international hospital has established more than 120 research projects of 150 million
CNY and produced 322 publications of which 108 were included in SCI (MedSci, 2019).

Figure 74. The Sixth Hospital Affiliated with Peking University Changping Campus

Shown in Figure 74, right next to the PKU International Hospital is the Sixth Hospital
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affiliated to Peking University or the Peking University Institute of Mental Health. This
hospital is 18,805 m2 in land area and 33,400 m2 in building area, making a FAR of 1.78
(Office of the president of the Party committee, 2020). This is a relatively new member of
the PHC since the planning of it started in February 2014 and its construction began on
30th December 2015 and was finished on 29th April 2020 (P. Liu, 2014). Its operation was
recently approved by the Beijing Municipal Health Commission on 25th May 2020. This
hospital is an extension of the original Sixth Hospital of Peking University located in
Haidian District in Beijing (Beijing Municipal Health Commission, 2020). The document
specifies that the Changping campus should have 270 beds, while the Haidian campus
should reduce its bed number to 30. This is to transfer part of the medical and clinical
function of the Sixth hospital from Beijing city center to its new campus in Changping.

Peking University Science Park • Boya C-Center (Boya CC) was developed by the Peking
University Resources Group Co., Ltd (PKU Resources)115. On 19th June 2012 the signing
ceremony among Peking University Science Park company, PKU Resources Real Estate
company, and PKU Resources Services company was held in the C-Center (PKU Science
Park, 2012). In this partnership the PKU Science Park company is in charge of inviting
investment and firms, the PLU Resources Real Estate company is responsible for
developing and building the project, while the PKU Resources Services company operates
and manages the property. Figure 75 shows that the project was developed in three phases,
and currently phase 1 and 2 are completed while phase 3 is still under planning. Phase 1
takes 60,000 m2 of land area and was developed for 1,100,000 m2 of building area with a
FAR of 1.5. The Primary use of Boya CC is office space for sale (only the use right not the
ownership). The real estate agent website indicates that the price is 20,000 CNY per m2
(Fangxun, 2018), and properties include 70-700 m2 office space, 400-800 m2 entire floor,
and 1,200-9,000 m2 single building, planned to accommodate for different sizes of firms
and companies. Soon on 8th August 2012, the properties began to be sold, raising wide
attention from various companies and enterprises. To be differentiated from traditional
office property development back in the early 2010s, Boya CC proposed the model of
“architectural product + operation service + management service”(Sina Real Estate, 2012).
Integrating the expertise of the PKU companies, Boya CC aims at providing the firms
inside of this campus with assistance for technology transfer or leasing (TT/TL) while
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offering service apartment-like butler services.

Figure 75. Boya C-Center Phase 1-3 and the Street View of C-Center Phase 1
Source: Street View from [Link]

Although named after the Peking University Science Park, the Boya CC eventually fell as
an office property development. This could be attributed to the business strategy adopted
by PKU Resources. PKU Resources started as a department for distributing information
products, but transformed into a real estate developer in 2013, and made real estate its pillar
industry by 2016 (J. Liu, Liao, & Yu, 2019). The development logic for Boya CC is similar
to housing development – properties for sale could quickly generate a large volume of
income. This method has become more prevalent now that developers would adopt various

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strategies such as the “architectural product + operation service + management service”
model as the value-add to marketize and increase the property price. However, 9 years later
in 2021, the Boya CC does not work in the way it was expected. The author made multiple
site visits and observed that the vacancy rate is high. Several floors of the phase 1 building
were closed, and many buildings do not even open. As shown in Figure 76, floor spaces
are rented to non-tech small offices such as K12 education or professional training.

Figure 76. The Commercial Tenants in Boya CC and some of the Office Tenants

On the real estate agent website, the property is for sale on a 50-year term (Fangxun, 2018;
G. Xu, 2010), so it can be concluded that the land for Boya CC is A35 office land. Housing
property development on A35 or M4 cannot be sold, therefore land use was overridden.
Interview with G, the former leadership in Changping District, suggests that the land was
first allocated to Peking Union Medical College Hospital to be located inside the ZGCLSP.
Later PKU Founder purchased the raw (undeveloped) yet consolidated (already acquired
from the villages) land12. PKU Founder was in charge of both primary land development
(provision of buildable land and supporting infrastructure) and secondary (property)
development. During the process of PKU Founder purchasing the allocated land, land use

12
Interview conducted in person with G, the former leaders of Changping District in Beijing, in Beijing on
the 2nd of July 2019.
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could be overridden. It was also reported that some of the land in ZGCLSP were illegally
used for housing development for affordable housing, commercial apartments, villas (G.
Xu, 2010). Developers need quick monetary from housing development, which is
otherwise unfeasible from leasing office space, to pay back construction loans.

Figure 77. Rendering of the PKUCare Innovation Park and the PKU Resources Health Industrial Park
Source: [Link]

The PKUCare Industrial Park Technology Co., Ltd, which was founded in 2010 by PKU
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Founder, invested 1.75 billion CNY in 2013 for the construction of the PKUCare Industrial
Park with 146,000m2 land area and 220,000 m2 built area and a FAR of 1.2. The company
later was changed to Beijing PKU Innovation Park Co., Ltd, which is owned by the
PKUCare Industrial Park Technology Co., Ltd, to operate the PKUCare Industrial Park,
which was renamed the PKUCare Innovation Park. As shown in Figure 77, the PKUCare
Innovation Park (left) and the PKU Resources Health Industrial Park (right) are located
next to each other. The PKUCare Innovation park opened in November 2014 and being
different from Boya CC, the office spaces of the industrial park were demanded by various
biopharma labs, pilot project platforms, and animal labs116.

On the 29th of October 2014, the former deputy secretary of the district party committee,
former district chief Zhang Yanyou attended the opening ceremony of PKUCare Innovation
Park (CN-HealthCare, 2014). Various government supports were in place for the industrial
park. Preferential local (Changping District) policies include tax exemption, government
subsidies, rewards, and special supports. Tax exemption primarily focuses on high-tech and
startups that sales tax for companies that facilitates integration between university research
and industry are exempted (PKUCare Industrial Park, 2013e). This is followed by the
national policy to encourage local governments to innovate in policy supports for
incubators (Ministry of Science and Technology, 2006). Office space rent subsidy is
available for firms inside industry parks (PKUCare Industrial Park, 2013b); government
subsidizes enterprise investments on TT/TL who invested more than 70% of their annual
total investment on TT/TL (Beijing Municipal Bureau of Finance, 2001); the government
also subsidize 50% or up to 500,000 CNY for commercial insurance of the firms inside
ZGCLSP (PKUCare Industrial Park, 2013c, 2013d).

The district government also subsidizes talents with direct personal monetary subsidy and
housing and business subsidies (Beijing Municipal Bureau of Personnel, 2009a, 2009b).
The Changping District established a 5 million CNY annual fund to reward company
patents as well as to reimburse costs during the companies’ application for the rewards
(PKUCare Industrial Park, 2013a). Special supports include government agencies’
assistance to IPO (PKUCare Industrial Park, 2013f); helping companies to mortgage their
patents for cashflow and to more easily apply for bank loans (Zhongguancun Science and

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Technology Park Management Committee, 2010); and to expand institution jobs (shi ye
bian zhi). Table 12 summarizes some of these preferential policies at Changping District.
With these policy supports, there have been 44 companies settled inside the PKUCare
Industrial park between 2014 and 2017, among which 85% are biopharma companies
(PKUCare Industrial Park, 2017).

Table 12. The Preferential Policies for Industrial Innovation in Changping District

Benefit Types Firm Level Individual Level

Tax Exemption Exempting Sales Tax /
Reduced Office Rent; Reimbursed
Monetary Subsidy; Housing
Government Subsidy Investment in TT/TL; Reimbursed
Subsidy; Business Subsidy
Enterprise Insurance
Rewards Patent Rewards /
Special Supports IPO; Bank Loans; Administrative /

Source: PKUCare Industrial Park: [Link]

The PKUCare Innovation Park, being different from the Boya CC, is an actual high-tech
office-lab complex. Among the biopharma industrial parks in China, 80% are government
invested and operated, 20% are enterprise invested and operated (F. Wang, 2019). Parks by
the government usually focus on industrial development and upgrade for tax and job
creation. Enterprise-driven parks could be further divided into two types. The first is driven
by real estate developers through “Industry City Integration” (chan cheng jie he), namely,
to balance space for industry (jobs) and space for residential (labor). This is essentially a
value-capturing process for financial returns. The second type is driven by leading
companies in Big Health, which focus on incubating some new enterprises than expanding
its business through M&A or collaboration. The PKUCare Innovation Park is the second
type. Believing in the prospect of “Healthy China 2030” and encouraged by the 2012
Health Reform, the Changping district government and developers hold a firm belief in the
emerging health care industry. Instead of pursuing the traditional “mega campus,” the
PKUCare Innovation Park gave more attention to the operation. The innovation park
focuses on medical devices, biotech, molecular diagnostics, and digital health. It is
expected to complete the IUR triangle with the Peking University International Hospital.
By building the Peking University International Hospital and the PKUCare Innovation
Park, PKU Founder’s vision was to organize a campus that integrates medical, university,
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and research, making PHC a unique case compared to other medical cities in China.

Figure 78. The PKU Resources Health Industrial Park

Source: Image below from [Link]

As shown in Figure 78, the PKU Resources Health Industrial Park is located next to the
innovation park and is built and operated by the PKU Resources Group Co., Ltd. On the
27th of September 2019, the opening ceremony of the PKU Resources Health Industrial
Park was held on the campus (F. Wu, 2019). The park consists of 5 buildings on 58,418 m2
of land with a building area of 59,334 m2. The 51% green ratio and a 3,000m2 plaza reduce
its FAR to 1.02. Among the 5 buildings, 2 buildings (10,692 m2 and 10,837 m2) will be
used for “headquarters of medical and health service enterprises.” The other 3 buildings
(88,000 m2, 9,216 m2 and 8,321 m2) are headquarters for innovative pharmaceutical
enterprise, international health enterprise zone, and the park service platform. It is
advertised as a complex for “integrating medical, care, long-term, teaching, research,
incubation,” and according to the real estate agent, the property type is “office” built on
“industrial land” for rent (Park-China, 2020). Since it was recently finished the actual
composition of tenants remains unseen. Because it is also developed by PKU Resources, it
could be induced that this is an office property development similar to the real estate logics
for Boya CC.

The Mega-Hospital-Driven Urban Complex

Being a bit different from a traditional industrial park typology in China, the PHC is an
aggregate of multiple urban projects. Figure 79 shows the overall spatial planning, and

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each project (campus) is responsible for a program. The Peking University International
Hospital is taken by the hospital and its research building, plus faculty apartments, student
dorms, and an administrative office building. Because this hospital is affiliated with Peking
University as its clinical medical college, residential needed to be provided to
accommodate for students and faculty that have to travel from Beijing city center. As a
comparison, the Peking University Science Park • Boya C-Center is built mostly for office
space, plus its retail component serving these offices and surrounding medical and research
institutes. Phase 3 is not built yet, so the site remains an open space. This is echoed by the
Peking University Resources Health Industrial Park, which is a complex for office space.
On the contrary, the Peking University Care Innovation Park is more comprehensive in its
composition – it has research labs, office space for incubators, a building occupied by the
Peking University Rehab Hospital, and apartments for researchers.

Figure 79. The Spatial Composition of PHC and the Percentage of Floor Areas for Each Program

It is not surprising that hospital and office spaces take up to almost 70% of the total building

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floor areas. It was because the developers diversified their portfolio to cater to demands
from the market, the users/patients, and the government. First of all, the Peking University
International Hospital serves as the flagship project. The international hospital is stand-
alone, particularly after it became the clinical medical college of Peking University.
However, the distance from the campus to Beijing downtown is a hurdle yet not overcome
– the majority of teaching and research activities happen in the main campus nonetheless,
therefore the research capacity of the international hospital is compromised. But the
hospital’s large clinical capacity and its teaching labs for clinical training integrate the
“medical” and “university” functions.

Secondly, the Peking University Care Innovation Park is a “research” complex focusing on
creating biotech products. Combined with the Peking University International Hospital, the
MUR triangle similar to the LMA and TMC is created. This could conceptually transcend
the IUR triangle where the medical is loosely defined. Yet the Boya C-Center and the
Peking University Resources Health Industrial Park are office development for short-run
revenues. Building a mega-hospital is essentially a trade-off. The international hospital has
caused huge debts by 2019. The former CEO of PKU Founder, Li You, also made clear that
the international hospital was not for making profits:

“the platform provided by Peking University and the International Hospital is

the foundation for making profits from related healthcare industries other than
the hospital itself, including pharmaceuticals, medical device, insurance, senior
housing real estate, and healthcare management…the hospital is a “shell”,
works similarly to the marketing department in a company – spending money
on it in order to make money from other sectors.”

Furthermore, preferential policies and priorities are given to the establishment of biotech
startups and companies, which is reflected in the incremental strategy of developing a small
number of well-cultivated firms to attract more firms. As a result, office development
naturally became a market-oriented solution. This explains the large percentage of office
development in the PHC. Lastly, the PHC has a high percentage of green space. This is
because each of the subsidiary development values green space in urban design strategy –
green space has been increasingly valued by urban design for hospital complexes in China.
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The focus is on “people-centered care” using green space to please the mental well-being
of patients to demonstrate the idea of (Y. Chen, 2013). Contrary to the dense development
in the LMA and the TMC, the “detailed plans” in Chinese urban planning practice have
rigid requirements on green ratio. This controls the developable area and thus the density
of development – the FAR of PHC is only 1.2. It also provides green space to control the
urban design quality. Of course, this has pros and cons – other programs have to sacrifice
their areas for green space, which increases per unit rent/cost of the office space, driving
away potential tenants. Controlled density could also oppress potential agglomeration
effects seen in LMA and TMC.

4.3.2 The Spatialized Corporate Strategy

University-Run Enterprises

The University-Run Enterprise (UREs, xiao ban qi ye) is a concept crucial for
understanding the PHC. But UREs is not an invention by China – international precedents
existed. In the United States, university spin-offs are the predominant form. The TTO/TLO
helps students and faculty members to establish their own companies. Stanford’s
university-industry partnership created the Silicon Valley (Smailes, Cooper, & Keogh,
2002). Companies can also provide the university with funding, technology, and equipment
in conducting research for products with higher returns (Jinbo Yang, 2012). Moreover,
universities could also establish or invite asset managers to operate their funding, such as
the Harvard Management Company and the Harvard Endowment Fund, valued at $41.9
billion in 2020 (Rosenberg, 2020). Occasionally there are semi-for-profit “consulting”
companies run by universities, selling consulting services from faculty to enterprises.

UREs in China focus on profits. Since the market-oriented reform, Chinese universities
had a strong propensity to pursue economic gains and strong internal (R&D and other)
resources to launch start-ups and thus established their own firms (Eun, Lee, & Wu, 2006).
Universities are allowed to establish for-profit companies or become a holding company
of them. Due to limited sources of income, university opportunities were incentivized to
establish for-profit UREs, which would subsidize the universities (Jie Zhang, 2016). UREs
are usually given the name of the university but maintains their independent management

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and accounting system. Unaffected by the administration of the university, UREs usually
share their revenue with the university for using its name and resources. Such companies
such as Lenovo, Founder, and Tongfang had been, by the end of 2002, the top three PC
makers in China. Tongfang was established by Tsinghua University and Founder was
established by Peking University. Lenovo was established by the Chinese Academy of
Sciences. Besides these PC giants, the first listed software company in China is also a URE
– Dongruan, which is run by Dongbei University in Shenyang.

It is important to make a distinction between UREs and university spin-offs. Unlike

ordinary spin-offs that are usually set up by individual academicians with personally raised
funds and off-duty inventions, UREs in China are typically established, staffed, funded,
and managerially controlled by the mother institutions, or the universities. Moreover, UREs
are usually endowed with the de facto right to exclusively take advantage of the mother
institutions’ various assets including research outcomes or resources, such as financial
resources, physical spaces, manpower, social links, and even the title of the university as a
commercial brand (Eun et al., 2006). By 2012, there were 3478 UREs by 489 universities,
totaling 31.9 billion CNY. Among these UREs, the distribution of assets displayed an
uneven pattern – the top 20 UREs scrap off more than 25 billion CNY, more than 80% of
the total (H. Xu, 2014). According to the Ministry of Education and Technology
Development Center (2012a, 2012b), Peking University (3.01 billion CNY), Tsinghua
University (1.14 billion CNY), and Dongbei University (0.69 billion CNY) were the top
three ranked by revenue. Peking University’s Founder Group was ranked the top by its
income of 53.96 billion CNY, Tsinghua’s Tongfang was ranked second with 19 billion CNY
of income, and China University of Petroleum (Huadong)’s Shandong Shida Technology
Group was ranked the third with 5.9 billion CNY of income (data only available till 2010).
It is important to notice that Peking University Resources company, separate from PKU
Founder, was ranked 5th with its 5.69 billion CNY of income.

PKU Founder’s Ambition

The Peking University Founder Group was funded by Peking University in 1986, and Wang
Xuan, academician of the Chinese Academy of Sciences and Chinese Academy of
Engineering laid the technological foundation for PKU Founder to become a tech giant.
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Peking University has 70% equity holding over PKU Founder while the remaining 30%
equity is shared among four individuals. PKU Founder has evolved into a tech giant that
by 2018: it had 38,000 employees, owning 36.06 billion CNY total asset (Founder, 2021).
Its business consists of four sectors – IT sector is its oldest and the foundation business;
the healthcare sector is anchored to the PKU HEALTHCARE founded in 2003 and was
ranked the top in the provision of socially-run medical services in China; the industrial
finance sector covers its various financial products and services; the City-Industry
Integration (chan cheng rong he) sector serves for the incubation of high-tech companies
and is based upon the PKU Resources Group and the Peking University Science Park. PKU
Founder has made tremendous efforts in diversifying its portfolio to improve the allocation
efficiency of the internal capital market (J. Liu et al., 2019). These four sectors help PKU
Founder to cover a variety of industries and become the top URE in China.

Peking University

100% 13.8%

Beijing Zhaorun Investment Management Beijing Peking University Asset Management Co., Ltd.

30% 70% 40% 40%

Peking University Founder Group Co.,Ltd. Leade Technology Development Co.,Ltd.

85.6% 30% 30% 30%

Peking University Resources Group Co., Ltd

30%

Beijing Peking University Science Park Co.,Ltd

0.6%

PKU HealthCare Industry Group Co.,Ltd.

(PKU HEALTHCARE)

100%

PKUCare Industrial Park Technology Co., Ltd

100%

Beijing PKU Innovation Park Co., Ltd

Figure 80. The Equity Holding Structures of PKU Founder and PKU HEALTHCARE
Source: Data collected from [Link] updated in Feb 2021.

PKU HEALTHCARE, which was established in 2003 by PKU Founder and Peking
University, has played a particularly crucial role in the PHC. It is not only the sole investor
and operator for Peking University International Hospital but also the parent company or
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equity holder of the SVCs in charge of the projects that aggregate into PHC – it owns the
PKUCare Rehabilitation Hospital that resides in one of the buildings in the PKUCare
Industrial Park, which is also owned by PKU HEALTHCARE117. Figure 80 illustrates in
detail that PKU Founder and Peking University are the major equity holders of PKU
HEALTHCARE while the Founder also has equity holdings over the PKU Resources
Group, which is in charge of the PKUCare Innovation Park. Under PKU HEALTHCARE
are the PKUCare Industrial Park Technology Co., Ltd and Beijing PKU Innovation Park
Co., Ltd for the innovation park. Figure 81 further visualizes this structure, and it could be
drawn from this holding structure that PKU Founder sits in the center of the network
stretching to all the SVCs in building the PHC complex as both the resource organizer and
the product (urban projects) designer.

Peking University Founder Group Co.,Ltd.

30%

Peking University Resources Group Co., Ltd

30% 30% 85.6%

Beijing Peking University Science Park Co.,Ltd

0.6%

PKU HealthCare Industry Group Co.,Ltd.

100%

Beijing PKU Innovation Park Co., Ltd

Figure 81. The Equity Holding Structure of SVCs and their Projects in the PHC
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PKU Founder together with other UREs owned by Peking University has made PKU the
most profitable university, with a total income of 34 billion CNY in 2019 (Gongguanquan,
2019). However, disillusion came quickly. In 2019 Founder, despite owning more than 360
billion CNY of assets, broke its capital chain. Usually, a 60% asset-liability ratio is a redline
for enterprises, while the more appropriate level is at 30%-40% (Z. Zhao, 2020). However,
according to publicly available balance sheets of PKU Founder, asset-liability ratios of
PKU Founder since 2013 has been very high and over the 60% redline and reaches 80% in
2018 and 2019. Table 4-7 gathers multi-year data on the disclosed accounting sheets of
Founder from the Shanghai Clearing House (2019). In February 2020, the Bank of Beijing,
one of its debtholders, applied for a corporate reorganization of PKU Founder. On 31st July
The Beijing No. 1 Intermediate Court ruled the corporate reorganization of PKU Founder
and its’ subsidiary entities including the PKU HEALTHCARE and the PKU Resources
(Shanghai Clearing House, 2021). Founder is responsible for 736 debts totaling 234.73
billion CNY. The court designates Zhuhai HUAFA Group, Ping’An Insurance Group, and
Shenzhen Tefa Group to establish an alliance to restructure Founder.

Table 13. The Balance Sheet of PKU Founder, 2013-2019 (in Billion CNY)

Year Total Assets Total Liabilities Asset Liability Ratio

2013 55.65 39.49 71.0%
2014 152.09 103.83 68.2%
2015 169.56 142.86 84.3%
2016 239.27 183.82 76.8%
2017 246.12 188.81 76.7%
2018 360.61 295.14 81.8%
2019 365.71 302.95 82.8%

Source: Shanghai Clearing House [Link] data for 2013-2018 are end of year; for
2019 is by the third quarter.

Reports suggest that this is caused by Founder’s expansive strategies of large-volumes

cross-border acquisition and borrowing118. Through M&A of many other ill-performing
companies, PKU Founder quickly doubled its assets to 21.3 billion CNY (Z. Zhao, 2020).
The volume-based expansion strategy brought PKU Founder with many assets and projects
that did not perform to their expected standards and has caused Founder to lose 11.83
million CNY daily (Phoenix Finance, 2020). This has caused huge liabilities since many
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of the merged companies were in debt crisis or management difficulty. PKU Founder’s
audacious try in the health care industry was another reflection of its corporate strategy.
PKU Resources is Founder’s largest business sector, owning a real estate investment of
7.25 billion CNY. However, PKU Resources has pushed Founder to the debt crisis. In 2018
its total asset was 50.52 billion CNY while its liability was 47.94 billion CNY, leading to
an asset-liability ratio of 95% (Z. Zhao, 2020). Furthermore, the construction of PHC
caused huge debts for Founder. According to the interview with K, among the fixed assets
of Founder, the Peking University International Hospital is the most favorable one since
after years of cultivation the hospital has been operating well and has gained recognition13.

PKU Founder, along with many other UREs, is a unique institutional actor. As an enterprise,
Founder has access to resources of Peking University including its talents, research,
branding, and governments’ preferential policies (such as a 5.34 billion CNY national state
funding in 2018) (Gongguanquan, 2019) that usual companies do not have. As a university-
owned institution, it also has the capital that other research institutions or universities do
not possess. The combination of resources and capitals grant PKU Founder with ability to
develop mega urban projects, standing as a frontier in the processes of Chinese
urbanization. Based on these resources, PKU Founder has not only exercised the IUR
triangle in its industrial parks elsewhere, but also the MUR triangle inside the PHC campus.

13
Second interview conducted in person with K, formerly in the leadership of Peking University, in Beijing
on the 10th of November 2020.
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4.4 New Hongqiao International Medical Center (HMC)
4.4.1 The Mega Consumption Center

Expanding the Provision of Health Care

Figure 82. The Medical Institutions inside the HMC

Shanghai has been the frontier in implementing healthcare reform. The New Hongqiao
International Medical Center (HMC) in Shanghai is a representation of such aspiration and
determination. Being different from the PHC in its programmatic composition and strategic
vision, the HMC was designed as an agglomeration of high-end hospitals and services
(Foresight Industrial Research Institute, 2018). According to the “Layout Planning of
Medical and Health Facilities in Shanghai (2008-2020)”, Shanghai municipal government
plans to build two “medical extension centers” in Pudong district and Hongqiao Business
Park in Minhang district to relocate specialty care services out from public hospitals in
Shanghai (Q. Song, 2013). While the Shanghai International Medical Center in Pudong is
essentially one single mega-hospital, Figure 82 shows that the HMC is a campus hosting
multiple hospitals, currently with 2,681 beds (1,881 for non-public hospitals). According
to the press conference of the Shanghai Municipal Government in July 2015, the campus
as a whole was initiated and approved by the National Health and Family Planning
Commission and the Shanghai municipal government in March 2010, with the first phase
covering 420,000 m2 out of the total 1 million m2 of land, and a built area of 700,000 m2
with a total investment of 10 billion CNY (W. Song, 2015).

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The HMC is an aggregate of multiple specialty hospitals ranging between 150-450 beds,
except for the 800-bed Huashan Hospital West Campus and the 450-bed Parkway Hospital.
Among the eight hospitals inside HMC, the six specialty hospitals are the Luye Ellium
Cosmetic Hospital, the Fudan StarKids Children’s Hospital, the Ci Hong OBB/GYN
Hospital, the Concord Cancer Hospital (in collaboration with the M.D Anderson Cancer
Center), and the Lanhai Rehab and Orthopedic Hospitals. Even for the Huashan Hospital
West Campus, it was designed as a clinical medical center, also known as a teaching
hospital, serving mostly for the neurosurgical department for the original campus in the
city center while only maintaining a minimal capacity as a general hospital (Shanghai
Hongqiao, 2017). Because most of the hospitals are currently still under construction,
Figure 83 shows a photo of the model for the HMC campus.

Figure 83. Exhibition Model the HMC Campus

Source: Photo taken at the Medical Technology Center, updated in October 2020.

The construction of HMC begot in 2012 and has received various supports and recognition
from government agencies including the National Development and Reform Commission,
the National Health Commission, Ministry of Human Resources and Social Security
(Information Office of Shanghai Municipality, 2018). The HMC, as an experiment for
reforms led by National Health Commission and Shanghai Municipal Government,

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receives bundles of policy supports for permitting foreign institutes and doctors, supporting
the multi-site practice of domestic doctors, and preferential policies for importing medical
device and pharmaceuticals (Foresight Industrial Research Institute, 2018). The document
by the Minhang District government, referred to as the “10 policies for the HMC campus”
(Shanghai Minhang District People's Government, 2019b), specifically encourages
resource (professionals) sharing between public and private hospitals (inside the HMC),
pioneering clinic trials with drugs and medical devices, and to further build the HMC a
destination for medical tourism. According to an interview with Yang Jie, the chairman of
the Shanghai New Hongqiao International Medical Center Construction Development Co.,
Ltd in charge of the development of operation of the HMC, the HMC was envisioned to
borrow experiences from the TMC to use agglomeration economics of health care to drive
the local economy (X. Duan & Zhou, 2020).

Figure 84. The Location of HMC in Connection to the Shanghai Metro System and Downtown

HMC’s geographical location, similar to PHC, is distant from Shanghai downtown. Figure
84 shows that the NMC is located close to the Hongqiao Railway Station and Hongqiao
International Airport along Metro Line 2, which leads to the Pudong International Airport.
However, the last-mile issue has not been well solved – passengers have to take a 10-minute
cap drive if departing from Xujingdong, which is the last stop of Line 2, or a 20 minute-

198
drive if departing from the Hongqiao transport hub. HMC is also about 16.9 km away from
the Shanghai Medical College of Fudan University, to which the Huashan Hospital is
affiliated. This distance to Shanghai downtown is passively determined but also
strategically decided.

Figure 85. The Built Area of Shanghai Metropolitan Region, 2005, 2010, 2015
Source: China Resource and Environment Science and Data Center

As shown in Figure 85, most of the land in Shanghai city center has been urbanized by
2005, while development after 2010 happened around the peripheral areas of Shanghai,
including where the HMC is located. Similar to PHC, for megacities such as Beijing and
Shanghai, land availability is the essential determinant for the geographical location of new
developments. However, being different from the PHC, the HMC demonstrates proximity
to transport hubs, which enhances its spatial accessibility. At the same time, the east-west

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divide of the two medical centers proposed in “Layout Planning of Medical and Health
Facilities in Shanghai (2008-2020)” is to create a dumbbell diagram that pulls patients from
Shanghai city center to the east and west side of Shanghai, in hope to achieve the designed
decentralization of health care provision.

HMC

Figure 86. The Location of HMC in the Hongqiao Business Park

Source: Shanghai Municipal Bureau of Planning and Natural Resources, retrieved from
[Link]

Health care provision in west Shanghai is weak and is reliant on community health centers
or small private facilities, therefore is in demand for high-quality hospitals. Locating the
HMC in west Shanghai is expected to resolve this issue (Shanghai Hongqiao, 2017).
Furthermore, being located on the west side of Shanghai, the HMC benefits from
geographic proximity to cities in Jiangsu province such as Suzhou and Wuxi, capturing
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patients from the expanded market of Yangtze River Delta (Z. A. Lin, 2017). According to
Chen Yujian, the head of Minhang district, the HMC was envisioned strategically as a
“health zone” among other creative culture, game competition, and business zones planned
to enhance the vitality of Minhang district (China Business News, 2020). Furthermore,
Figure 86 shows that the HMC is located in the Hongqiao Business Park, which is a
strategic zone (mega planning project) for economic development. The land is specified
“C5 for healthcare/medical use.” According to the “List of Land Use for Allocation”, it
could only be allocated to non-profit hospitals for free (State of China, 2001). Other than
Huashan Hospital, the remaining for-profit specialty hospitals have to spend on land
acquisition. But being located inside the Hongqiao Business Park, the HMC was given a
strategic and geographical privilege in winning reputation and attention.

Figure 87. The Programmatic Diagram of the HMC Campus

Source: Photo taken at the Medical Technology Center, updated in October 2020.

Furthermore, most of the hospitals in the HMC are still under construction, this study could
only focus on phase one, while phase two (shown as yellow blocks in Figure 87) consists
of medical and even education projects. The media press release suggests that these projects

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will include a brain hospital, a diabetes hospital, and the Luye-Cleveland General Hospital,
partnering with the Cleveland Clinic (Shanghai Hongqiao, 2017), making the total bed
number 3,750 inside the HMC (M. Duan, 2021). Most importantly it will include
pharmaceutical and biotech research institutions to integrate research with the medical and
clinical (university) in to complete an MUR triangle. The commercial centers on the north
edge campus are designed to include retails, hotels, and rental apartments to support the
activities and serve the passenger flows in the HMC (Z. Wang, 2018).

The HMC is unique in representing the ongoing health reform. It is designed to remove
high-end specialty care and their able customers from the public health care system. Bed
turnover rate in China is quite low because doctors tend to keep the inpatient patients for
more services in gaining income, while patients also tend to stay longer because of blinded
trust in public hospitals and untrust to rehab facilities (C. S. Sun & Chen, 2016). Removing
these patients from the public hospitals could increase bed turnover and open up access for
other patients, who cannot afford expensive OOP in private facilities thus actually need the
public systems for treatments.

The Interconnected Medical Cluster

Figure 88. The Medical Technology Center

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As the central piece for the HMC, the Medical Technology Center shown in Figure 88 is a
unique invention. It provides various services for the medical institutions located inside the
HMC and manages the campus. With an investment of 960 million CNY, the construction
started in July 2013 and was finished in September 2015 (CN-HealthCare, 2015). It takes
32,500 m2 of land with a total built area of 89,300 m2 leading to a FAR of 2.75. The
Shanghai Health Commission designed a “1+2+10+X” strategy where the “1” is the
Medical Technology Center as the sharing platform; “2” represents the two general
hospitals; “10” represents the specialty hospitals; and “X” means the multiple clinics in the
campus (Shanghai Minhang District People's Government, 2020b). The Medical
Technology Center is connected with some of the medical institutions through skywalks
(similar to the TMC), pedestrian, and underground tunnels (Herui Consulting, 2020b).
According to Gresham Smith, the architect for the HMC master plan, the Medical
Technology Center has 8 aboveground floors and 3 underground parking and loading floors.
Among the 8 aboveground floors, the 1st and 8th floors are for business and retail uses, the
6th and 7th are offices, the remaining are for medical services and clinics (G. Smith, 2020).

Figure 89. Entrance at the Huashan Hospital West Campus

Source: The Architectural Society of Shanghai China [Link]

Huashan Hospital (Figure 89) is a public tertiary hospital directly administered and
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operated by the National Health and Family Planning Commission. It is affiliated with the
Shanghai Medical College of Fudan University119. The hospital takes 67,000 m2 of land
with a total built area of 128,900 m2 and a FAR of 1.92. In an effort to expand its capacity
as well as to increase its service area to west Shanghai, the 800-bed west campus in the
HMC was built as a tertiary hospital with a “strong capacity as a specialty hospital and a
minimum capacity as a general hospital.” By doing so, the neurosurgery, neurology,
dermatology, rehabilitation, and integrated TCM and western medicine departments are
removed from Huashan Hospital’s main campus to the west campus. The Huashan Hospital
West Campus is an extension of the campus in Shanghai downtown. The Minhang District
government, Shanghai municipal government, and Huashan Hospital (and arguably the
National Health and Family Planning Commission) have reached a consensus on
determining its location and function. On the one hand, it complies with the government
strategy to enhance the provision of care in west Shanghai. On the other hand, the west
campus also enjoys the reputation and the local and non-local patient flow to the HMC.
Since the opening of Huashan Hospital West Campus in June 2018, the hospital has
received 150,000 patients, discharged 11,000 patients, and 50% of them (75,000) are from
outside of Shanghai (Shanghai Minhang District People's Government, 2020b).

Figure 90. Architectural Rendering of the Parkway Hospital and under Construction
Source: Rendering Photo taken at the Medical Technology Center, updated in October 2020.

Parkway is owned by IHH healthcare group, the second-largest market value in the world,
building and operating 77 hospitals across 10 countries with more than 15,000 beds. The
Parkway Hospital is co-invested and built by Parkway Pantai Limited and Shanghai

204
Hongxin Medical Investment Holding Co., Ltd with a total investment of 1.48 billion CNY.
The 450-bed hospital takes 31,000 m2 of land with a total built area of 84,400 m2 and a
FAR of 2.72. The Parkway Hospital is the only foreign-invested hospital in the HMC, and
it serves as a general hospital. Guo Jingtao, the organizer of the 2020 Medical Exchange
Conference held on the 23-25th October 2020, mentioned that the Parkway Hospital is a
result of the preferential policy to encourage foreign investment to build private hospitals14.
According to X, who used to work at Parkway Hospital, the hospital serves mostly
expatriates in Shanghai who seek high-quality which could be expensive15. Although it is
a general hospital, the Huashan Hospital and Parkway Hospital serve different patient
groups. The hospital is still under construction, as shown in Figure 90, and the COVID-19
pandemic has devastated the operation of other Parkway hospitals in China because
expatriates are leaving China.

Figure 91. Specialty Hospitals in the HMC

Source: Rendering Photo taken at the Medical Technology Center, updated in October 2020.

Figure 91 shows the specialty hospitals. They demonstrate models of public-private

partnership. For example, the Lanhai Orthopedic Hospital is a privately-built but publicly-

14
Interview conducted in person with Guo Jingtao, chief editor of VistaMed, in Shanghai on the 11th of
December 2020.
15
Interview conducted in person with X, the former clinical doctor at Parkway Hospital, in Shanghai on the
11th of December 2020.
205
ran: the Lanhai Medical Investment Co., Ltd developed the hospital and the sixth hospital
affiliated to Shanghai Jiao Tong University, a public tertiary hospital expertized in
orthopedics, operates the 400-bed hospital which is still under construction. Shanghai
Hongxin Medical Investment Holding Co., Ltd, Shenzhen Vanke enterprise stock asset
management center (now owned by Shanghai FOSUN Hospital Investment Co., Ltd), and
Shanghai Fudan Medical Industry Investment Co., Ltd together invested and built the
Fudan StarKids Children’s Hospital, and the Children’s Hospital affiliated to Fudan
University operates this hospital. The 150 hospital takes 12,000 m2 of land and a built area
of 35,000 m2 with a FAR of 2.9, and the total investment is 450 million CNY. Furthermore,
the Ci Hong OB/GYN Hospital is developed by the Shanghai Hongci Health Investment
Development Co., Ltd, but operated by the Obstetrics and Gynecology Hospital Affiliated
to Fudan University. It has 375 million CNY of investment and 131-bed and takes 9,972
m2 of land and a built area of 29,130 m2 leading to a FAR of 2.92.

Figure 92. Specialty Hospitals in the HMC under Construction

There are also fully privatized hospitals. The 330 million CNY Luye Ellium Cosmetic
Hospital is developed by Luye Medical Group. This hospital reflects the “Medical Beauty”
industry in China, and Luye Medical Group is planning its phase 2 Luye-Cleveland
Hospital with 450 beds under a partnership with the Cleveland Clinic. Meanwhile, the 400-
bed Concord Cancer Hospital is developed and operated by Concord Medical Services
Holdings Limited, with an investment of over 3 billion CNY. Concord Medical Service
Holding Ltd. invited M.D Anderson Cancer Center as its strategic partner in operating this
cancer hospital, and this hospital takes 70,000 m2 of land and a built area of 160,000 m2
with a FAR of 2.28. Meanwhile, the 200-bed Lanhai Rehab Hospital is developed jointly
by the Lanhai Medical Industry Investment Co., Ltd and Shanghai Hongxin Medical
Investment Holding Co., Ltd. It takes 14,000 m2 of land with a total built area of 43,000

206
m2 with a FAR of 3. This hospital is designed to serve patients from other specialty
hospitals inside the HMC. Figure 92 shows these hospitals under construction.

Figure 93. The Spatial Composition of HMC and the Percentage of Floor Areas for Each Program

The HMC in principle is to reduplicate the TMC thus building a “hospital zone.” As shown
in Figure 93, almost 70% of space in the HMC is taken by hospitals, while other uses are
kept minimal, except for retail. Compared to the PHC, instead of having one mega-hospital,
the HMC consists of multiple smaller hospitals. Because the Huashan Hospital West
Campus essentially serves the neurosurgery department, it could be assimilated to a
specialty hospital. Its teaching and clinical capacity are also limited by its less bed number
compared to the Peking University International Hospital. Because the HMC is located
inside the Hongqiao Business Park, residential is not an essential program for the campus,
while real estate development in the Hongqiao Business Park could accommodate these
demands. Meanwhile, a strategic purpose if the HMC is to serve patients in the Yangtze
River Delta, the hotels and retail space at the commercial centers could serve the inflow of
patients. The Medical Technology Center serves for the purpose of sharing among the
medical institutions. It is the only mixed-use building in the HMC. However, experts have

207
expressed concerns that the Medical Technology Center is only a supply-side innovation,
while the actual collaboration may be underperformed16. The most concerned is sharing
patients’ case files – hospitals may remain reluctant to share case files because they use
different case management systems.

While the PHC is a “spatialized corporate strategy” in the booming “big health” industry,
the HMC is led by the government, therefore, serves the vision of the Shanghai Municipal
Government in furthering the ongoing health care reform. The government has short-run
and long-run goals. In the short run, the HMC has been recognized by the central and local
governments as a “medical care center,” serving to enhance the health care service. The
increased capacity in providing health care, which is measured by patient flow, is a more
direct reflection of the government’s achievement. Research, on the other hand, serves
long-run because it takes time to translate research into products. Local cadres, in hope of
political achievements, would favor short-run results over the long-run ones when planning
for government investment. The HMC has over 40% green space ratio and the medical
technology center is connected with hospitals through skywalks. This is the advantage of
the master plan. The HMC moves surface parking to underground and each hospital is
provided with green space. Although the density at HMC is still lower compared to the
American counterparts, the significance of green space cannot be ignored especially for a
medical complex because patients favor green space over the concrete pavement.

4.4.2 Innovation in Partnerships

Partnerships Inside the Campus

One unique feature of the HMC is its partnerships among various institutions. Yang Jie, the
chairman of the HMC claimed that “shared health care is the future trend” (X. Duan &
Zhou, 2020). In doing so, the HMC innovates in the provision of both hard and soft
infrastructures and cost-sharing. Hard infrastructure includes roads, pipes, electricity, and
green space. The Shanghai New Hongqiao International Medical Center Construction
Development Co., Ltd, established on the 13th of March 2011 by the Minhang district

16
Interview conducted in person with Guo Jingtao, chief editor of VistaMed, in Shanghai on the 11th of
December 2020.
208
government, is in charge of delivering such physical infrastructures. An energy station is
constructed and operated by the Shanghai Shenneng New Hongqiao Energy Co., Ltd,
which is co-established by the Shanghai New Hongqiao International Medical Center
Construction Development Co., Ltd and the Shanghai Shenneng Energy Service Co., Ltd.
In 2016, the station began to provide the HMC with energy. With a saving rate of more
than 20%, the station saves 2400 tons of coal and energy (Shanghai New Hongqiao
International Medical Center, 2020a, 2020b).

Figure 94. Skywalks Connecting the Medical Technology Center and other Hospitals
Source: Conceptual rendering retrieved from [Link]

The Medical Technology Center delivers soft infrastructures including property

management, public services, medical technology department, and health informatics. This
provision of soft infrastructure is an “intensive sharing platform” (Shanghai New Hongqiao
International Medical Center, 2016a). For example, hospitals could share the services
provided at the Medical Technology Center including case management, blood bank, lab
testing, image services, pharmacy, IT, office space, conference rooms, medical device
exhibition hall, and training center. Sharing these services could reduce the cost that each
hospital has to otherwise built by itself (X. Duan & Zhou, 2020). Furthermore, Figure 94
shows that inspired by the skywalks in the TMC (Shanghai New Hongqiao International
Medical Center, 2020c), the HMC also develops a skywalk system to connect the Medical

209
Technology Center with the hospitals. The Medical Technology Center fulfills the vision
proposed by R. Lee Clark, the director and surgeon-in-chief of M. D. Anderson in TMC in
building a centralized entity to share costs. Furthermore, the Shanghai New Hongqiao
International Medical Center Construction Development Co., Ltd is the equity holder of
multiple hospitals in the HMC. This centralized organizational structure also reflects
Clark’s vision 60 years ago of building a central entity that binds the divergent hospitals in
a medical campus.

Figure 95. Equity Holding Structures of the Development Companies in the HMC
Source: Data collected from [Link] updated in Feb 2021.

The protagonist in the organizational structure is the Shanghai New Hongqiao International
Medical Center Construction Development Co., Ltd, which is 100% owned by the
Shanghai Minhang District State-owned Assets Supervision and Administration
Commission (Shanghai Minhang District People's Government, 2019a). According to its
general manager Liu Wei, the company is in charge of master planning, project investment,
provision of infrastructural services, operation, and logistics (Xinhua News Agency, 2020).
Figure 95 shows the holding structure of Shanghai Hongxin Medical Investment Holding
Co., Ltd, which is 51% owned by the Shanghai New Hongqiao International Medical

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Center Construction Development Co., Ltd, in developing the HMC. The Parkway Hospital,
Lanhai Rehab Hospital, Ci Hong OB/GYN Hospital, and Fudan StarKids Hospital are built
privately and run publicly. Shanghai Hongxin Medical Investment Holding Co., Ltd, as the
state-owned company, has equity holdings over them. For the Shanghai Minhang District
State-owned Assets Supervision and Administration Commission, the “state-owned assets”
refers to land as capital. The land use for the HMC is C5 medical use, and it is given to
developers through the land auction if the development is for-profit. Since these specialty
hospitals are for-profit, it is unlikely that land was given through allocation. Yang Jie, the
chairman of the HMC, also specified that the HMC and the Minhang district government
hold the land to leverage private developers for the development of HMC (Jie Yang, 2020).

Partnerships Outside the Campus

The HMC has also established various external partnerships through market strategies.
These external partnerships are grounded on the HMC’s special position as a national-level
project. The HMC is a result of policies guiding the health care reforms in China (Shanghai
New Hongqiao International Medical Center, 2016b). These policies include inviting
private sectors to health care services, developing health care as an industry, and channeling
social capital to the development of medical facilities (State Council of China, 2010, 2013b,
2015d). Local documents also support the development of the HMC to further the national
reform policies (Shanghai Minhang District People's Government, 2019b). Huang Guoying,
the president of Children’s Hospital affiliated to Fudan University, states that the
development of specialty hospitals in the HMC is supported by the governments because
one direction of reforming public hospitals in Shanghai is to “extract specialized care
services from the public hospital system.” (P. Chen, 2013).

Backed by these government policies, the market is willing to invest in the HMC. It was
estimated that the demand for high-end health care services, including demands from
expatriates, was 16.5-18.6 billion CNY in 2015, and more hospitals are needed to
accommodate for such demand (Shanghai New Hongqiao International Medical Center,
2016b). Therefore, the Minhang district government and the Shanghai Municipal
government are willing to establish the HMC as a pilot to enhance the provision of high-
end care. Based on the policy supports, market demands, and government initiatives, the
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HMC is a unique and privileged medical city in China.

Shanghai Minhang District State Owned Assets

Supervision and Administration Commission
100%

Shanghai Shangxin Investment Shanghai New Hongqiao International Medical

Management Center (Limited Partnership) Center Construction Development Co., Ltd
14% 49% 51% 1% 49%

Shanghai Hongxin Medical Investment Holding Co., Ltd Shanghai Shenneng New
Hongqiao Energy Co., Ltd

40% 20% 30% 20% 99%

Shanghai Ci Hong Shanghai StarKids Parkway Lanhai Rehab Shanghai Hongxin Medical
OB/GYN Hospital Children’s Hospital Hospital Hospital Technology Center Co., Ltd

45% 1% 1% 79% 70% 80% 51%

Shanghai Hongci Health Fudan Healthcare Shanghai Fuer Yixing Parkway Lanhai Medical Industry Shanghai Shenneng
Investment Development Co., Ltd Investment Co., Ltd. Hospital Management Co., Ltd Pantai Limited Investment Co., Ltd Energy Service Co., Ltd

Figure 96. Equity Holding Structures of the Public-Private Partnerships in the HMC
Source: Data collected from [Link] updated in Feb 2021.

Figure 96 illustrates the equity holding structures and public-private partnerships among
institutions in the HMC. The central piece is the Shanghai New Hongqiao International
Medical Center Construction Development Co., Ltd and the Shanghai Hongxin Medical
Investment Holding Co., Ltd. The Shanghai Shangxin Investment Management Center is
the market partner of the Minhang district government. While the government buys shares
through the provision of land, the Ci Hong OB/GYN Hospital, StarKids Children’s
Hospital, Parkway Hospital, and Lanhai Rehab Hospital are co-developed by their market
partners. The market partners also operate the hospitals due to their expertise. For example,
the StarKids Hospital is co-developed by the Fuer Yixing Hospital Management Company,
which is an SVC owned by Fosun Pharma. Hongxin Medical Investment Holding offers
capital investment in this partnership (C. S. Sun & Chen, 2016). Fudan Healthcare provides
the hospital with operation in exchange for shares because Fudan Healthcare’s equity
holders include multiple hospitals with expertise in operating hospitals. Fudan Healthcare’s
assets, including doctors and permits, could also help doctors in public hospitals to provide
services in StarKids through multi-site practice (duo dian zhi yi). This type of public-
private partnerships invites capital investments from the market, resources from expert
public hospitals, at the same time grants the Minhang district government with decision-
making right.

These partnerships are supported by two investment and financing platforms. One is the
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Shanghai Hongxin Medical Investment Holding Co., Ltd120. This holding company co-
developed four hospitals with its market partners. Another platform is an HMC Healthcare
Industry Fund, established with China Resources SZITIC Trust Co., Ltd, to raise funds and
invest in drug centers, specialized hospitals, high-end clinics, and other projects (Shanghai
New Hongqiao International Medical Center, 2016a). These two platforms helped the
HMC leverage billion of CNY for the development and operation of the campus and its
institutions. However, one challenge is collaborating with public hospitals. The HMC is
administered by the Minhang District Government of Shanghai Municipality. It is difficult
for a district government to negotiate for municipal or provincial level resources by which
the public hospitals are administered (X. Duan & Zhou, 2020). Public general hospitals
tend to retain their patients. Without supports of patient referral from public hospitals, the
public and private hospital sectors are still segmented. But the HMC suggests a future trend
of medical cities in China – agglomeration of high-end private specialty hospitals.

This chapter reveal the individual characteristics of the four cases through their spatial,
historical, and institutional specificities, and test the hypothesis made in Chapter 2 and 3.
The Longwood Medical Area (LMA) in Boston is a representation of the MUR triangle
and the “knowledge-material circuit,” and the significance of LMA has to be understood
in association with the urban nexus of top institutions in life sciences industries. The Texas
Medical Center (TMC) in Houston, is an urban flagship extolling the transformation of the
urban economy and place-based policies that rebranded Houston as the biotech rising star.
The Peking University Health City (PHC) in Beijing is a spatialized corporate strategy of
PKU Founder’s expansive business and real estate model exploring the market of the “big
health” industry in China. The New Hongqiao International Medical Center (HMC) in
Shanghai is a government-led medical care center reflecting the current health care reforms
in China. Backed by the government, the HMC is a platform provided to the private sector
for exploring the market of high-end specialty care. Therefore, medical centers are the
results of the collective efforts of the government, market, civic leaders, and health care
systems.

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Chapter 5: The Contested Urban Projects

5.1 Contextualizing the Case Studies

5.1.1 Spatial Characteristics
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Figure 97. Diagram of the Analytical Framework

The four case studies in Boston, Houston, Beijing, and Shanghai identify their
characteristics and situate them in the analytical framework. Figure 97 reiterates the
analytical framework for comparative studies among the four cases, organized around the
axes of spatial characteristics, policy instruments, and institutional actors. Each of the three
axes is decomposed into specific themes that will be used to guide the comparative studies.
Under the spatial characteristics, the case studies will be examined on their localities, built
densities, and programmatic diversities. Under the policy instruments and institutional
actors, the case studies will be situated in the wider historical and societal contexts.
Specifically, the cases will be examined by policy interventions on their administrative,
fiscal, and capital aspects, and under the institutional actors, the cases will be examined
with association with their initiators, financing mechanisms, and organizational structures.
Retrospectively these comparative findings will further contextualize these urban projects
in the institution, planning, and spatial production systems.
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Locality

Figure 98. Geographical Locations of the Case Studies and Centers of the Cities

The comparative study begins with the spatial characteristics of the case studies. First, it
studies the localities of them. Figure 98 maps their geographical locations in association
with the downtown of the cities in which they are located. The LMA and TMC are located
very close to the downtown of Boston and Houston, respectively, while the PHC and HMC
are located quite far from the downtown of Beijing and Shanghai. This has specific
historical, institutional (land policy), and policy reasons. Both the LMA and TMC were
born at a relatively earlier time. The actual history of the LMA could be traced back to
1906 when the Harvard Medical School was moved to the current site on Longwood
Avenue, followed by the Boston Children’s Hospital History and the Peter Bent Brigham
Hospital. Because Fenway was an open farm and marshland in the 1900s, acquisition of

215
open land was not an issue, even though 120 years later land availability became a real
challenge for the LMA. The early birth of the LMA grant it land close to downtown.
Similarly, upon the acquisition of the open woodland in the current site of the TMC in 1941,
land availability was not expected to be an issue. Some of its early members including the
M. D. Anderson Cancer, Baylor College of Medicine, University of Texas Postgraduate
School of Medical Education, Hermann Hospital, The Methodist Hospital, together created
a gravitational pull that attracts more medical and research institutions to join the
knowledge cluster at the TMC. Although much later than the LMA from a historical
perspective, the TMC was able to acquire land not far from the city center.

The LMA was not a designated medical campus from the beginning, but rather a cluster of
medical, research, and educational institutions (including those COF institutions) that
emerged from the spontaneous clustering process. The TMC’s original 134-acre of land
was designed to be a medical complex. Another difference is land availability. In Boston,
there is only a handful of possible land for expansion with reasonable proximity to existing
clusters (such as the Allston development site). But the TMC has had abundant land in
southwest Houston, therefore, has been enjoying expansive growth. The TMC will remain
the “biggest medical center” through its continuous expansion. With that said, the LMA
remains significant because it still receives a large number of federal research support.

The Beijing and Shanghai cases have different contexts for their locations. The PHC was
conceived in the early 2000s while the HMC was in the 2010s, both are quite recent and
arguably both two projects have learned from international precedents of medical centers,
including the LMA and TMC in the planning stage. Land is extremely scarce thereby
valuable in Beijing and Shanghai, and it is very unlikely to acquire large pieces of land for
such developments of medical centers because the equal amount of land could be used for
real estate development which equates to a quicker and larger volume of capital return from
a fiscal perspective. Although the availability of land pushed the PHC and LMA far from
the downtowns, the institutional contexts for land should be considered with equal weight.

As urbanization in China is driven by peri-urban megaprojects that continuously convert

rural land to urban land, medical cities, as a type of urban megaproject, are instrumentalized
for state purposes. The PHC is located inside the Zhongguancun Life Science Park, which
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was designated as the “district for life sciences.” For the HMC, its location in the Hongqiao
Business Park was to enhance the quality of medical services in west Shanghai (Minhang
District) and to take advantage of the Hongqiao transportation hub to cover patients from
the Yangtze River Delta. Therefore, being different from the LMA and TMC, urban
planning in China gave the PHC and HMC “strategic” significance in their locations.

Figure 99. The Scales of Four Cities and the Locations of Case Studies
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Another significant factor is scale. Figure 99 shows that both Boston and Houston are small
in scale, with 232 km2 and 1,733 km2 of areas respectively, compared to Beijing and
Shanghai with 16,808 km2 and 6,340 km2 of land area. The perception of time in traveling
is different because of this difference in scale. For example, in Boston driving to Logan
International Airport from downtown takes less than 20 mins unless running into traffic.
However, driving from the city center to the airport in Beijing and Shanghai would take
close to 1 hour. It is very common in Beijing to spend 1 hour on the metro just to travel
from east to west. The large scale of Chinese cities has transformed the human perception
of traveling time that driving under 30 minutes could be called “short.” The distances
between the medical cities and city downtown in Chinese is a “scale up” process.

However, the distance could hamper the function of medical cities. In the cases of LMA
and TMC, they are located close to downtown where important financial institutions are
located. These institutions are key actors in translating research results into commercial
products. Furthermore, medical schools and hospitals are closely located to each other so
the exchange of talents, skills, and information could happen easily. This is something
missing in the Chinese cases. On the one hand, the university-hospital affiliation and the
dominant capacity of tertiary public hospitals in China enabled these hospitals to build their
on-site clinical teaching buildings or classrooms for the resident students. For example, the
Peking University International Hospital has 1,800 beds and a building specifically given
for teaching and a few residential buildings given to students and faculty members. On the
other hand, their location is far from the city center where key faculty members, who
usually work in their offices in the old research building of hospitals or medical schools
located in the city center, and financial institutions such as VC offices and banks are usually
located. This distance could significantly compromise the interactions among them,
affecting the intensity and frequency of knowledge and capital exchange.

Density

Density wise the Chinese cases have significantly different planning approaches than the
American cases, where the concept of “spatial planning” is weak. As shown in Figure 100,
the LMA and TMC are significantly larger than the PHC and HMC on size. The LMA and
the core area of TMC have 862,000 m2 and 1,360,000 m2 of land areas respectively. The
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current total area of the TMC is even larger up to 5.4 km2 of land area after decades of
expansion. The PHC and HMC are much smaller with 528,000 m2 and 400,000 m2 of land
areas respectively. The PHC is located inside the 2.5 km2 ZGCLSP (AAAS, 2020), while
the phase 2 expansion of the HMC will increase its total area to roughly 862,000 m2. The
fundamental difference here is the approaches to land acquisition. In the United States, the
process of land acquisition is a spontaneous process by individual actors, and the smaller
pieces of land aggregate over time to form the medical cities seen today.

Figure 100. The Scales and Densities of Four Case Studies

On the contrary, in China, the land is held firmly by the local governments so that land
acquisition is rather a top-down process and the public sector “releases” its resources to the
private sectors. This releasing process is essential in the Chinese planning system because
it directly responds to the tradition of economic planning such as the “five-year plans.” The

219
government as the sole resource holder decides upon the volume of resources (land) to be
released to the market to gauge growth. Many believe that the combination of public
control and private participation in the Chinese land system has made the urban land reform
in China a “socialist experience of a capitalist land system” (L.-h. Li, 1999), which is a
direct result of “socialist market economy” (X. Q. Zhang, 1997).

The densities of the LMA and the TMC (2.19 and 2.97) are also much higher than the PHC
and HMC (1.20 and 1.58). Firstly, this difference is deeply rooted in the different planning
systems in the two countries. Urban planning in the United States concerns both space
making and urban governance and address various interests of the public and private
stakeholders. While the zoning plan often decides upon an envelope that limits the building
heights that directly relate to building densities, the private sector could take various
approaches to negotiate on the zoning regulations. There are rooms for zoning overrides
should the developer accommodate certain public interests. This has already happened to
the LMA that Article 80 allowed the increase of density in the LMA.

On the contrary, developers surrender to the pyramid-like and strict planning system in
China. Urban planning in China is instrumentalized by the state to regulate economic
growth through urbanization and real estate. Unsurprisingly this process puts the local
states as both the manager of land resources and the beneficiary of the real estate market
(S. Wilson & Chen, 2021). As the single manager of land resources, the local governments
and the planning bureaus put strict articles on the land use, density, and building heights to
regulate the development, which is protected by the planning laws (Standing Committee
of the National People's Congress, 2015). For example, the 196,600 m2 phase 2 developable
area of the HMC was recently approved by the Minhang district as a headquarter cluster
for biomedical research and development, specifically given to the research headquarters
of Yunnan Baiyao, Corning Jerry, and Weigao Group. Specific limitations have been
superimposed on the site including limiting the FAR under 3.0 and building heights under
60 meters (Shanghai Minhang District People's Government, 2020a). These limitations are
non-reversible and directly affect the density of the site.

Perhaps a more fundamental explanation is the endogenous growth and time-span of the
medical cities. Both the LMA and the TMC reached the density close to today’s density in
220
the 2000s. The LMA begot in 1906 and the TMC was conceived in 1941, which is 115
years of development for the LMA and 80 years for the TMC. The formation of the LMA
has been more of a result of endogenous growth where investments in knowledge and
human capital generate economic growth through spillover (Braunerhjelm, Acs, Audretsch,
& Carlsson, 2010). The anchor institutions continuously attract other institutions to locate
within their proximity and formed a regional economic growth pole. Regional policy
incentives, specifically the ones by Deval Patrick, came much later in the late 2000s. On
the other hand, the TMC was conceived as a medical center, and its formation reflects the
trend of economic upscaling around biotech in Houston. But early settlers in the campus
acted as anchors similarly to the ones in the LMA in attracting other institutions to locate.

Yet the forces of endogenous growth surrendered to planning in the PHC and HMC. A
mega project in China is planned as a whole and is approved after a master plan is created,
and institutional settlers were designated before even way before the construction of the
campuses begins. The limitation is that there is no room for other institutional actors to
locate inside the planned campus unless they acquire another piece of land adjacent to the
campus to engage in the process of clustering. But the odds of doing so are very small
because the government has its strategic visions on using land, which may not align with
the private sector’s aspirations. This explains the low densities because FAR regulation in
the planning process has limited endogenous growth. In many urban megaprojects,
endogenous growth may even be is missing (Jici Wang, 2021a). In the PHC and HMC,
their densities have been kept at what they are now, but the PHC has only had a history of
fewer than 20 years and the construction of the HMC has not even been fully completed.
More time is needed to see whether density remains a limitation for the two urban projects.

At the same time, density itself can be a dilemma in creating an urban experience. While
density is fundamental to development and the economic activities associated with it, too
much density could affect human experiences. For example, the LMA is overwhelmed by
high-density hospitals and research buildings, and it is very hard to find amenable green
spaces or open spaces around these buildings. Similar to the TMC, its high-density
hospitals and research buildings squeezed out spaces for leisureliness. Furthermore, the
continuing demand for space in the LMA and TMC will keep increasing their densities.

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This will further devastate the human experience. On the other hand, the relatively low
densities in the PHC and HMC guaranteed abundant open space inside their campuses, so
that the urban design quality is more amenable for the people using the campuses.

Diversity

Programmatic diversity is particularly important because diversity is directly related to the

collaboration and competition among the institutions on the campuses. The creation of the
MUR triangle requires collaborative efforts from the medical, university, and research
institutions so their capacities could reinforce each other. The percentage of built space for
each program in a medical center reflects the composition of anchor institutions, which
concerns the strategic visions of the medical cities. Each case study has a unique
programmatic composition associated with its context. First of all, the majority of built
spaces in all of the cases are given to hospitals. This is unsurprising because medical
institutions are the foundation for creating a successful MUR. But the proportion of it varies
significantly across them. The proportion of hospital space is the highest in the HMC,
followed by the TMC, while both LMA and PHC have a relatively lower percentage. This
is because that the HMC was created as a mega-hospital care center from the beginning,
and the phase one campus consists of hospitals. Once the R&D headquarters are built in its
phase two, the percentage of hospital space will be lowered by office spaces. The lower
percentages of hospital spaces in the LMA come from several reasons.

The LMA is a spontaneous agglomeration of multiple institutions, and COF is a significant

part of the campus. Figure 101 shows that student dorms and COF buildings together
consist of more than 45% of the built space in the LMA. Although this seems to squeeze
out space for more important MUR institutions, its significance should not be neglected.
The LMA is a research-based medical center, and research activities are concentrated in
the top institutions inside the LMA. The larger percentage of built space for research labs
in the LMA also reflects the weight of research in this campus. Compared to the other three
cases, only the PHC has several buildings for research labs. While the gravity of these top
institutions continuously attracts top talents to locate in the LMA and directly engage in
research on life sciences, the COF also has an essential role in fueling talents to support
these research activities. Although these talents may not directly engage the professional
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practice in research and medical care, they can support these professionals in providing
technical knowledge related to medical services such as nursing, and non-medical services
including management, business development, and IT.

Figure 101. The Spatial and Programmatic Compositions of Four Case Studies

In comparison, the lower percentage of hospital space in the PHC is more determined by
the PKU Founder’s corporate strategy in real estate development. Unique to the other three
cases, a large percentage of built space in the PHC is given to offices. This is because the
development of the PHC was anchored to the Peking University International Hospital,
while its surrounding properties were built for real estate through the value-capturing
process. Compared to the other three cases, only the PHC has a high percentage of office
space. Office space in the LMA and TMC is very minimal because they are very reluctant
to give space for office buildings, accommodation for research space is their priority. The
HM only has a small percentage of office space located in the retail complex to
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accommodate for commercial activities associated with the patient flow on the campus.

Therefore, the hospital in the PHC is an instrument to attract tenants for the offices, to
capture the increased value of the real estate, and to offer clinical research data for the
tenants. While the LMA, TMC, and HMC have multiple hospitals, the mega-hospital is the
single medical anchor in the PHC, and the mental health hospital and rehab hospital are
supplementary. The singular mega-hospital could be problematic in creating a clustering
effect. Empirical research has shown that competition can drive their price down and
improve their efficiency in providing care. They can also effectively and quickly exchange
talents and information, share equipment and stimulate new research ideas (Chatterji et al.,
2014). These benefits could be missing in the PHC. Moreover, the hospitals in the HMC
are specialty care and the only public general hospital, Huashan Hospital West Campus, is
an extension of its neurosurgery department, making it similar to a specialty hospital. The
other general hospital is the private Parkway Hospital. Among these specialty hospitals in
the HMC, they cover the areas of cosmetics, obstetrics & gynecology, cancer, orthopedics,
pediatrics. This composition reflects the private sector’s competitive differentiation to
secure the niche market in high-end specialty care, to avoid competition to the stymied
public hospitals. Therefore, for the PHC and HMC, a real hospital agglomeration is missing
compared to the LMA and TMC.

Secondly, there exist significant differences in the percentage of built space for medical
schools. Medical schools take up a significant proportion of built space in the LMA and
TMC, but they are “missing” in the PHC and HMC. Creating an MUR triangle in the LMA
and TMC requires close collaboration between hospitals and medical schools. On the
contrary, prestigious medical schools are usually located in the city centers, while the
medical cities are usually located at peri-urban areas far away from the city centers.
Hospital-university affiliation is an attempt to solve the distance issue. Large public or
private hospitals are affiliated with prestigious medical schools so that the medical schools’
administrative and technological resources can be shared. Then teaching facilities and
apartments are built in the hospital campuses so students can stay without traveling back
and forth. These “teaching labs” in the Chinese hospitals replace the function of the medical
schools in the American MUR because teaching labs themselves are the extension of the

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medical schools in China.

However, building “teaching labs” in the PHC and HMC dampen the function of the MUR
triangle because co-locating teaching facilities with the medical centers does not
necessarily bring talent and knowledge. The potential energy of the collaboration between
hospitals and universities in the LMA and TMC is released only because the top scientists,
faculty members, and researchers are located adjacent to each other. They are the driving
force for producing research. While teaching labs in the PHC and HMC could solve the
issue of locating students on the campus, it does not solve traveling issues for scientists,
faculty members, and researchers in Beijing and Shanghai, because they tend to stay in the
downtown area. Hospitals alone cannot produce cutting-edge research as quickly and
effectively as hospitals that are collaborating with medical schools.

In a nutshell, compared to the LMA and TMC, the PHC and HMC are relatively weak in
creating the MUR triangle because both the agglomeration of hospitals and top talents of
medical schools are missing. Without a complete MUR, the capacity of medical cities is
limited. From the spatial perspective, this missing link is caused by the land and urban
planning systems. First of all, the location of medical cities in China is determined by the
government. Secondly, the urban planning paradigm preconceives the density and
programmatic diversity of medical cities. This ignores endogenous growth, which usually
occurs through agglomeration that cannot be planned beforehand. The dilemma is that the
local governments have to prepare master plans beforehand to get permission from upper-
level government authorities. This top-down process forced local governments to “think
big” and “draw big” instead of calibrating appropriate scales and sequences of development.
This planning tradition often prioritizes the “image” of urban projects, but successful
agglomeration and clustering usually happen spontaneously. But it is almost certain that
public general hospitals cannot agglomerate in China because each of them is powerful and
dominates its urban territory. Health care resources are also strictly controlled by the
government, so the location of public hospitals is determined by the government, serving
for its strategic and administrative purposes. Therefore, medical cities in China are
produced by the urban planning system, which is a state apparatus and is also affected by
the health care system.

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5.1.2 Policy Instruments and Institutional Actors

Administrative, Fiscal, and Capital

While the spatial characteristics of the four medical cities reflect specificities in the
processes of urban space production, the case studies are also situated in the broader
environments. On the one hand, government policy instruments provide the case studies
with administrative, fiscal, and capital supports. On the other hand, institutional actors
affect the initiatives, financing mechanism, and operation of these case studies. First of all,
there are similarities between the policy instruments in the United States and China. Both
governments have celebrated government-led visions on its territorial development and put
emphasis on administrative decisions on preferential policies. While the birth of LMA has
historical specificities, its growth to the top medical and biotech cluster in the world is the
result of the network of top institutions and agglomeration of life science industries in
Boston, also in Massachusetts. The former governor Deval Patrick who pioneered public
support for the private biotech industry made Massachusetts the number one hub for
biotech. He used his administrative commands to pass the LSI of $1 billion. This bill
includes direct fiscal money to support the biotech industry, for example, human talent
training and tax credits for startups, as well as capital investments in life sciences property,
plant, and equipment. In 2018 Governor Charlie Baker pledged an additional $500 million
for life sciences, providing $473 million worth of capital spending into grants and
authorized up to $30 million a year in tax incentives to help the industry. Similarly, the
TMC is a product specific to Houston’s desire to upscale its economy and to become an
international city. The successful transformation is a result of a series of place-based
policies by the government to encourage life science industries, to push forward
privatization of medical care, and to brand Houston as the new international center of health
care. Furthermore, both the LMA and TMC have benefited tremendously at the national
level by NIH and Federal Search Grants from the federal government.

Similar to their American counterparts, both the PHC and HMC have received significant
administrative, fiscal, and capital supports. Above everything else, administrative support
is mandatory for any mega project in China because planning proposals have to be
permitted by upper-level governments and they also make decisions on mobilizing

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institutional resources to facilitate the development of the approved mega project. The PHC
is a private mega project that adhered to the Changping local government’s strategy of
becoming the “sub-city center for health care” of Beijing. This strategy was actually
decided by the grander visions of the Beijing government and the state government.
Located in the ZGCLSP, the PHC has also benefited from national administrative supports.
These include designating it an official base for internship and start-up, setting up
incubators and intellectual property protection service offices to facilitate the patent
transfer, and preferential bank loans and IPO services. On the contrary, the HMC has had
a much better experience. It was designated as a national-level project before its conception,
and both the state, Shanghai prefectural, and Minhang local governments have published
various documents to emphasize its significance, to encourage institutional partnerships,
and to brand it as a destination for medical tourism.

At the same time, the PHC has received both fiscal and capital supports while the HMC
received mostly capital support. The PHC is located inside the ZGCLSP where the land for
the “research” type was allocated by the Beijing local government, even though for-sale
office development occurred later. Allocation means that the land was given to ZGCLSP
for free because the purpose was to use the free land to build industrial parks to attract
business so that the fiscal return for the local government is long-run tax income and
additional benefits from human capital training. Although PKU Founder somehow
overrode the zoning for the allocated land so that commercial development in the PHC
could happen, the land was initially given to the ZGCLSP to incentivize business
development. Furthermore, because the PKUCare Innovation Park, which was designed as
a biotech research lab complex, is located inside the PHC, multiple fiscal incentives were
given by both the local and upper-level governments. These include tax exemption,
government subsidy for rent and reimbursements, and patent rewards. However, because
the research component for HMC is forthcoming in phase II, preferential fiscal policies
specific to research have not yet been published. But the Minhang local government has
helped with HMC with supports for infrastructural building, including building the Medical
Technology Center, roads, and the energy station. This is because the HMC is based on a
public-private partnership that the government offers the basic soft and hard infrastructure
so that private sectors, specifically private hospitals, could come and locate at a lower cost.
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Besides the similarities, there exist significant differences between the policy instruments
in the United States and China. Both the LMA and TMC have benefited from federal laws
that protected patents and help individuals to transfer research to commercial products. In
the United States, individual faculty members or research could take the initiative and
enjoy the convenience provided by the broader legal framework and TTO/TLO in the
universities. The TTO/TLO office serves as platforms while the researchers are the
protagonists for commercializing research. However, the research-product transfer process
in China has been dominated by the government agencies who “push” for the technology
transfer. China has only recently started to use the market to “pull” for commercialized
research. The technology transferring process is usually administratively dominated by
government TTO/TLO agencies, and it has been criticized that this administrative
dominance of government TTO/TLO agencies creates issues such as information
asymmetry that dampens researchers’ incentives and efficiency of technology transfer (C.
Shen, 2019).

Moreover, the LMA and TMC are the products of regional place-based policies while the
PHC and HMC are produced by project-specific policies. Both the governments in the
United States and China have adopted place-based policies in structuring growth and
development, for example, the industry-specific state-provided financial incentives in the
U.S. (Moretti & Wilson, 2014) and the economic zones in China (Y. Lu, Wang, & Zhu,
2019). Specifically, the LMA is a significant node on the life science research nexus in
Boston, while the city is a reflection of the larger pro-biotech environment in the state of
Massachusetts. The TMC is similarly a culmination of the transforming economy in
Houston and a representation of the broader environment for biotech business. Both Boston
and Houston are “medical metropolises” sculpted by regional policies that focus on specific
industries. The LMA and TMC are urban spatial products reflecting the macro-
environments in Boston and Houston.

On the contrary, the PHC is located inside the ZGCLSP while the HMC is located inside
the Hongqiao Business Park. Both are crafted by place-based preferential policies. The
place-based policy is a typical practice of urban entrepreneurialism, influenced by neo-
liberal movements. But this practice has been adopted in China in a quite different form.

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While in the United States these policies focus on urban governance that promotes a
business-friendly environment to enhance local government’s competitiveness, in China
the policies focus on the regional strategic masterplans that designate industrial
organization and guides the production of urban space.

Initiator, Financing, and Operation

It is very hard to ascertain which actor took the initiative in creating the LMA because,
through the history of it, the LMA is an agglomeration of multiple institutions. But
specifically on the anchor institutions, the earliest settler was Harvard Medical School that
moved to the open farm and marshland near Fenway in 1906. Following Harvard Medical
School was the Boston Children’s Hospital, and the Peter Bent Brigham Hospital, which
latterly became the Brigham and Women's Hospital. The Peter Bent Brigham Hospital was
the result of a philanthropic bequest of Peter Bent Brigham. The TMC, on the contrary,
enjoyed a grand vision of Monroe Dunaway Anderson. His philanthropic legacy was the
M.D Anderson Foundation and its missions around creating better health for people. This,
combined with Texas Governor Lee O’Daniel’s House Bill 268, clinched the acquisition of
the 134-acre of land and paved the foundation for the later flourishing and expansion of
what is seen today as the TMC.

While the PHC is an aggregate of multiple sub-projects, the flagship core project is the
Peking University International Hospital, and the initiatives were taken by both Peking
University and PKU Founder. Specifically, Peking University publicly demonstrated its
effort in making this hospital that the former party secretary Min Weifang, the former
president Xu Zhihong, and the former deputy vice-president Han Qide of Peking University
petitioned to Beijing municipal government for the construction of Peking University
International Hospital. At the same time, the initiatives of PKU Founder remain vague. The
former CEO of PKU Founder, Li You, suggested that the local government designated the
hospital to Founder, who was rather reluctant in accepting this offer. However, another
story was that the leadership of Founder anticipated the profits from the health industry,
therefore, took a step forward in fulfilling its expansive corporate vision. Compared to the
PHC, the initiatives for the HMC were rather simple. It was conceived and branded by the
Shanghai Municipal Government who wanted to use the HMC to experiment in the
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ongoing healthcare reform in China, to improve the provision of health care in Minhang
District, and to build a new destination of medical tourism.

It is important to note that the LMA and TMC are not industrial parks built by the
government. The entrepreneurial governments are reluctant to directly finance these places
to avoid financial burdens and risks. The local governments’ role is to create the
macroclimate for businesses while private sectors would mobilize their private money to
build the businesses and institutions. Therefore, in both the LMA and TMC, they are places
where businesses and institutions cluster and each of them would individually seek the
source of financing from the market. Each hospital or research building is developed by its
owners and financiers who expect returns from the built project. Meanwhile, VC is a key
player in both the LMA and TMC. Although not directly inside the LMA, the strong
presence of VC in Boston has helped to create the entrepreneurial environment for the life
science industries in Boston. LMA, as an important node on the nexus of top institutions
located in Boston, has benefited tremendously from the VC money. At the same time, VC
has also helped the flourishing of the TMC. For example, the TMCVF was created to
partner entrepreneurs interested in making investments with the world-class member
institutions we serve at the TMC. The TMCVF consists of early-stage investors who take
a long-term view to support the commercialization, launch, and growth of innovations in
medical devices and digital health solutions.

The PHC and HMC are very different compared to the financing process of the LMA and
TMC. PKU Founder was the major owner of multiple companies and SVCs that financed
and developed the sub-projects inside the PHC. For example, PKU Resources developed
the Boya C-C, and PKU HealthCare financed and developed the PKUCare Innovation Park.
However, although the PHC appears to be a PKU Founder-led project, PKU Founder is a
URE of Peking University so the equity holding structure makes the Peking University
Asset Management Company and Peking University the effective beneficiary of the PHC.
Meanwhile, because the HMC is a government-led megaproject, the Minhang local
government facilitated the development of the campus through land and shareholding.
Using land as capital to leverage urban development has been a tradition in China’s specific
context of political economy. The Shanghai Minhang District State-owned Assets

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Supervision and Administration Commission owns the Shanghai New Hongqiao
International Medical Center Construction Development Co., Ltd, which owns 51% of the
Shanghai Hongxin Medical Investment Holding Co., Ltd that holds shares of multiple
institutions within the HMC. The Minhang district’s state-owned asset is land, so that the
local government has both supported and controlled the development process of HMC.

Although financing-wise decentralized, operation wise both the LMA and TMC have
organizations in charge of the campuses. The MASCO is a consortium of 18 institutions in
the LMA, offering planning, transportation, and coordination support to the area's many
institutions. Four additional institutions under the MASCO are located outside of the LMA.
In the TMC, Texas Medical Center Inc. was chartered as a nonprofit corporation to manage
operations including attracting institutions and many day-to-day activities of the private
streets, private utilities, private police, a newspaper, a very large parking operation. Both
the MASCO and Texas Medical Center Inc are independent entities and have independent
financing and management boards. Furthermore, a very important management system in
the United States is “hospital systems” that connect multiple hospitals and clinics, improves
the bed turnover at each hospital, increases the capacity of the newly formed system as a
whole, and expands its geographical coverage. The hospitals in the LMA and TMC also
created their system such as Mass General Brigham in the LMA and Memorial Hermann
Health System in the TMC.

The PHC is different from the LMA and TMC in that there is no umbrella company in
charge of the management of the company. The multiple sub-projects in the PHC are
developed by different companies and SVCs under PKU Founder, and they have their
management teams. For example, the PKUCare Innovation Park and PKU Resources
Health Industrial Park are developed by the PKU Resources Group and operated by Beijing
PKU Resources Property Management Group. Co., Ltd, which is co-owned by the PKU
Resources Group and PKU Founder. On the contrary, the HMC also has a centralized
management entity, the Medical Technology Center. It provides various services for the
medical institutions located inside the HMC and manages the resource sharing inside the
campus such as patient case management, blood bank, clinics, and imaging labs.
Furthermore, in fulfilling the vision of R. Lee Clark, the former director and surgeon-in-

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chief of M. D. Anderson, the Shanghai New Hongqiao International Medical Center
Construction Development Co., Ltd was the central equity holder of multiple hospitals in
the HMC, therefore binds the divergent hospitals in the medical campus and centrally
manages the HMC. Although the Integrated-Care Delivery System could have acted as the
Chinese version of “hospital systems,” no presence of such practice has yet been shown in
the cases of the PHC or HMC.

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5.2 Innovating the Medical Centers
5.2.1 The Shifting Civic-Health Dynamics

The Changing Roles of Hospitals

Similar to other high-tech industries, the health industry is heavily reliant on research and
innovation. In the urban settings, medical cities in the United States are concrete
representations of the innovative and entrepreneurial environment, thus the “knowledge-
material circuit” under the MUR triangle. In the American context, the MUR triangle offers
jobs, higher wages, innovations, and thus economic development. First of all, hospitals in
the United States have gone through privatization and corporatized management schemes
such as principles of “lean management” (Deblois & Lepanto, 2016; Teich & Faddoul,
2013) at the individual hospital level. This has transformed the role of hospitals from
“service providers” to “enterprises” seeking profit. This changing role of hospitals in the
United States was matched by the market force and third-party payers so that capital is
unceasingly circulating and making hospitals both the production end for research and
consumption end of services and products.

Secondly, on the territorial scale hospitals, tend to cluster similarly to firms (Jing Li, 2013).
For the hospital end, clustering increases the efficiency and productivity of hospitals (Bates
& Santerre, 2005; Cohen & Morrison Paul, 2008). These benefits to hospitals from spatial
concentration come from labor market pooling, incentives to innovate, shared input
suppliers, and “knowledge spillovers” (Faggio et al., 2017; Marshall, 1936), which increase
the efficiency of care (Cohen & Morrison Paul, 2008). The Marshallian notion of
knowledge spillovers is crucial in providing productive care and research outputs (Moretti,
2015, p. 135). The increased adoption and dispersion of new medical technologies resulting
from the clustering of hospitals may lead to reductions in post-surgical mortality (Baicker
& Chandra, 2010). From the civic perspective, clustering of hospitals reduces costs of
health care. Clustering brings competition, and competition in health care markets benefits
consumers because it helps contain costs, improve quality, and encourage innovation
(Friedson & Li, 2015; Kessler & McClellan, 2000). Hospital choice is grounded by the
fundamentals of consumer decision-making (Bhangale, 2011; Boscarino & Steiber, 1982;
Luft et al., 1990).
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The firm-like behaviors of hospitals in the United States have fundamentally shifted the
civic-health relationship for Americans. Their profit-driven enterprise behaviors have led
to the increased level of consumption in the health industry and while their regional inter-
hospital competitions have also improved their efficiency and productivity. However, this
is something missing in the Chinese context. Firstly, Public hospitals are overly dominant
in the Chinese healthcare system, and there are several reasons for that. Tertiary public
hospitals are usually dominant in size and perceived quality by the public. Moreover,
because of the lack of medical professionals, combined with the “university-hospital”
affiliation which concentrates the best professional resources in public tertiary hospitals,
there could hardly any competition that could threaten the incumbent advantage of public
hospitals. Due to their strong individual capacity, public hospitals tend to refuse
collaboration among themselves, further exacerbating this inertia. Removing this inertia is
the primary purpose of the new round of Healthcare Reform in China since 2012, which
introduces private participants and market forces.

Secondly, compared to the strong presence of private third-party payers in the United States,
insurance scheme works quite differently in China. Although there are public programs
such as Medicare and Medicaid CHIP, the larger body of Americans are insured by private
insurance schemes. China has insisted on public schemes in financing health care, but the
universal coverage is offset by limited coverage for the cost that many items are not
covered by the public insurance. However, private insurance has not yet fledged in the
Chinese market, which dampens patients’ enthusiasm for those services because of the
huge OPP. Thirdly, the locations of public tertiary hospitals are determined by the
government in China rather than the hospitals themselves. Urban planning in the Chinese
context is essentially an instrument to mobilize state resources, and hospital and the
healthcare resources behind it is one of the state resources. Particularly on urbanization,
the State Council has specific policy targets that drive up the Per Thousand Population
Ratio, which is achieved through building more hospitals. This ratio was 4.55 in 2017 and
is expected to increase to 6 by 2020 (State Council of China, 2020). Figure 102 shows that,
compared to the declining per 1,000 people hospital beds in the United States, the policy
mandates in China have rapidly “pulled” up the number of hospital beds since 2000 through
building more large hospitals.
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 Figure 102. Per 1,000 People Hospital Beds in the United States and China, 1970-2017
Source: The World Bank [Link]

Therefore, one of the primary functions of urban planning is to mobilize the state healthcare
resources to distribute tertiary, secondary, and primary hospitals in urban regions to achieve
this policy target. Meanwhile, the stronger the local fiscal capacity, the more beds the local
government can afford, and empirical research have found that hospital beds also tend to
concentrate in regions with stronger fiscal capacity in financing health care (J. Pan &
Shallcross, 2016). Because governments in China hold the primary determinants on the
size and locations of public hospitals, it is unlikely for China to enjoy a similar civic-health
relationship in the United States. Public hospitals are reluctant to optimize their
management and operation, nor do they tend to cluster. While private hospitals appear to
be an opportunity, their proliferation requires further state policy support on promoting
private insurance schemes, planning support on land granting, and civic support on
breaking the stigmatized public perception that “public hospitals are always better.”
Juxtaposing to the market-driven reforms, one forward-looking national policy direction is
the encouragement of “Internet plus Health Care” (State Council of China, 2018c), and to
help the reforms in the public sector. It aims at instrumentalizing the internet to redistribute
healthcare resources effectively from the state level down to the individual level, for
example, online preclinical consulting, online General Medical Service, online
pharmaceutical consulting, and online health insurance claim settlement. Because it is a

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recent experiment, its result needs more time to be seen.

The Crossroads Ahead

Although the health care industry in the United States has created an economic stimulus,
the danger is unneglectable. The rising cost of health care has been the eternal discussion
by scholars and policymakers because the growing numbers of $3.8 trillion or $11,582 per
person of health care spending, or 17.7% of the GDP, has been problematic. Indeed, the
high consumption has led to increased wage levels, more job opportunities, and incentives
for research. But they come for a price, which eventually has to be paid by the citizens. It
was criticized that the commercialized, profit-driven healthcare system in the United States
overly emphasizes care instead of prevention, on profits instead of social welfare. It has
been criticized by Marxist scholars that big pharma corporations have little or no interest
in non-remunerative research on infectious diseases thus rarely invest in prevention for a
public health crisis. It loves to design cures since profit is generated from the sickened.
Prevention does not contribute to shareholder value. The business model eliminated the
surplus coping capacities that would be required in an emergency (Harvey, 2020). This
issue associated with the cost is exacerbated in crises such as the ongoing COVID-19
pandemic. The average cost of hospital care for COVID-19 patients without insurance or
who receive out-of-network care varies greatly by age, from $51,389 for patients between
21- and 40-years-old to $78,569 for patients between 41 and 60 years old. The highest
averaged allowed amount paid to the provider under an insurance plan was $40,208 for
people over 60 and was the lowest for patients 21 to 40 at $26,152 (Hackett, 2020). These
high costs have caused financial challenges for patients on the individual level.

Meanwhile, these costs will also aggregate and cause hugely for the American healthcare
system. Healthcare Finance further reports that inpatient COVID-19 hospitalizations could
cost the U.S. healthcare system between $9.6 billion and $16.9 billion in 2020. Commercial
payers are expected to bear the majority of those costs, between $5.6 billion and $9.9 billion.
Medicare will pay the second largest portion, between $3.5 billion and $6.2 billion, which
also includes the treatment of uninsured patients. Federal and state Medicaid payments are
expected to range from $440 million to $780 million. This high financial cost for
individuals as well as institutions has made a prevalent complaint on “I don't make enough”
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(Holpuch, 2021) and brings widespread questions to the affordability of the American
healthcare system. But this is unlikely to change even in the post-COVID time because
companies such as Moderna and Pfizer have become the heroic figures in the pandemic,
and health care will continue to be a bargaining chip in the political game between the
Democrats and Republicans.

On the contrary, healthcare in China now is largely state-mobilized and tends to focus on
the provision of welfare. Capital from the market primarily revolves around the increasing
demand from the changing demographics, for example, financial products associated with
long-term and senior care and the real estate development in accommodation for this
population. Although this limits the consumption capacity of health care in China, its merit
is obvious under either pre-COVID or post-COVID times – affordability. Although issues
associated with catastrophic expenditure exist, the affordability of care has been increasing
since the healthcare reform in the 2000s. State-mobilized healthcare resources also
demonstrate the merit of coping with the crisis that China has records of building a hospital
within a week and has successfully contained the pandemic in a few months.

Although the healthcare system in the United States is a combination of public and private
schemes, its operation is nevertheless largely driven by the market. It is very hard to
ascertain which system is better, the market-driven one or the state-mobilized one. The
market-driven system sacrifices affordability in exchange for economic opportunities,
while the state-mobilized system could create systematic inefficiencies but has its merits
in providing affordable care. Particularly for China, the crossroads ahead is fundamentally
a debate between “welfare” and “commodity” in the ideology of health care, and perhaps
the ideal future is a hybrid system in which the public acting as the dominant and the private
as supplementary. The HMC in Shanghai is pushing towards this direction and implies a
future that high-end care is removed from the public health system, and patients who can
afford this care are paying OOP. This could be further supplemented by private health
insurance schemes to encourage more able citizens to participate in private schemes,
leaving the public schemes to the citizens who are less able and thus truly need the public
system. Meanwhile, relating the healthcare system with medical centers in China, the state-
mobilized healthcare system requires medical centers to rely on tertiary public hospitals in

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search of anchors for consumption, and this greatly hampers the potential benefits of
hospital clustering. However, similar to the potential future of a hybrid healthcare system,
future medical centers could consist of a large public hospital to anchor the state healthcare
resources, and a cluster of smaller private hospitals so that agglomeration economics could
occur. But this requires profound transformations in the state strategy, planning system,
and civic-health relationship. Perhaps yi lian ti could be a worthy experiment to connect
smaller hospitals with larger ones, to redistribute healthcare resources at a territorial scale.

5.2.2 Evolving Apparatus for Urbanization

The Place-based Policies

One evident role of the local governments in Boston and Houston is their promotion of
place-based policies for creating a broader environment for biotech. In the notion of "new
economic geography," resources and production come to be concentrated spatially for
reasons other than the standard geographic ones. One highlighted explanation comes from
the growth poles theory (Jici Wang & Li, 2016). In the 1950s, French economic sociologist
François Perroux developed a concept of unbalanced economic development: growth poles
(pôles de croissance). Although originally growth poles were not defined in geographical
settings, the idea was soon developed and modified as a theory and strategy of regional
development, and widely adopted in policy arenas throughout the world in the 1960s and
1970s. The central idea of the growth poles theory is that economic development, or growth,
is not uniform over an entire region, but instead takes place around a specific pole or cluster.
Because of scale and agglomeration economies near the growth pole, regional development
is unbalanced.

This theory dates back decades years ago but still has its valid implications in regional
development. The most evident examples are the American cities that have gone through
economic transformations. From the 1940s to the present, the changing business of
American health care reshaped cities into sites for cutting-edge biomedical and clinical
research, medical education, and innovative health business practices. This transformation
relied on local policy and economic decisions as well as broad and homogenizing national
forces, including HMOs, biotechnology programs, and hospital privatization. The LMA

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and TMC, similar to Silicon Valley and Route 128, are culminations of such territorial
growth poles and regional economic transformations. The reality of these successful cases
is far more complex than the roles of libertarian entrepreneurs that the government’s
catalyzing role was critical in stimulating the growth of the region, sector, or firm. Public
policies at least in the United States focus less on directly distributing resources around but
more on creating attractive environments in each place-based scenario.

Firstly, it is important to ensure that international investors find the place attractive for
investment. In most entrepreneurial hubs emerging in the past two decades, international
investors, not domestic institutions, have made the critical early investments (Joshua
Lerner, 2015, p. 157). These investors are likely to have the depth of knowledge and
experience that enables them to make large bets on the most promising organizations.
Secondly, opportunities of biotech entrepreneurialism mirror the distribution of critical
resources, for example, established biotechnology firms, sources of biotechnology
expertise (highly-skilled labor), and venture capitalists (Stuart & Sorenson, 2003). These
factors are considered similarly fundamental even in the European life science startup
landscape (Van Wilgenburg, Van Wilgenburg, Paisner, Van Deventer, & Rooswinkel, 2019).
Biomedical research is the dominant feature of startup success, and policymakers wishing
to stimulate biomedical startup activity should consider prioritizing biomedical research.
Thirdly, it is also crucial to extend the reach of research universities as anchor institutions
for local economic development. It is widely perceived that high-tech clusters around the
United States owe much of their success to neighboring universities (Baron, Kantor, &
Whalley, 2018), and any life science research is based on basic scientific research.
Particularly for medical centers such as the LMA and TMC, their critical foundation lies in
the existing conditions of human and social capitals. These capital foundations are results
of place-based policies that substantiated the foundation for research output and crafted the
environment for startup entrepreneurship.

The implication for China is quite obvious – instead of relying on the state capacity to
mobilize resources for mega urban projects, the focus of public policies should be extended
to the regional environment. The PHC and HMC can work because they are located in
Beijing and Shanghai, the top cities in terms of financial resources and quality of human

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capital. Yet the focus of policy tools for the PHC and HMC are specific to their campuses.
One often neglected reality is the substantiation of city-wide soft infrastructure, specifically
the entrepreneurial environment and human capital. For example, a quarter of Governor
Deval Patrick’s bill focuses on the development of human capital in Massachusetts and
Boston, which laid the foundation for the biotech industry in Boston and subsequently the
flourishing of the LMA. At the same time, an entrepreneurial environment is fundamental
to the triumph of any industrial park (Jici Wang, 2021b). Particularly for medical centers,
if human talent is the fuel, then entrepreneurialism is the combustion engine. Therefore,
medical cities in China should be paralleled by consolidating the place-specific capacities.

Furthermore, location matters. Economic development in China is uneven and regional

disparities of financial and institutional resources matter in creating the environment for
medical centers. For example, VC and PE investment in 2018 is heavily concentrated in
Beijing, Shanghai, Jiangsu, Guangdong, and Zhejiang provinces in China (CVINFO
Research, 2018). The perception that industrial zones are less affected by location is
because manufacturing is less associated with top talents, but the medical cities’ top talents
in medical care and biopharma research indicates the otherwise. Exactly because of
“institutionalized spatial practice,” institutional resources matter fundamentally, and cities
with dominant institutional resources in health care, education, and finance will triumph
the narratives of building medical cities. It is crucial to correctly recognize the local
industrial advantages before blindly inviting investments and resources to build medical
cities. As the sociologist Manuel Castells observed, the unequal concentration of capital
and markets gives some cities resources to jump-start new businesses (Zukin, 2020).
Empirical research also found that in the form of a higher rate of biotechnology company
births in areas geographically proximate to established biotechnology companies (Stuart &
Sorenson, 2003). Therefore, perhaps the more realistic approach for medical cities in China
is to consider cities with top resources as the primary locations to avoid vain efforts.

The Anchor Organization

Another implication for medical cities is to appropriately recognize and utilize anchor
institutions. The fundamental principle of an “eds and meds” economy is to settle the
anchor institutions to which other institutions with similar goals and business interests are
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attracted. In the LMA, the anchor institutions were Harvard Medical School, which
attracted the Boston Children’s Hospital and the Peter Bent Brigham Hospital. Later these
institutions further attracted multiple institutions such as Dana Farber and Beth Israel. Later
the LMA obtained a critical mass and becomes the regional anchor in Boston and
Massachusetts. Similarly, in the TMC the M. D Anderson, Baylor College, UTHealth,
Hermann, and Methodist were the earlier anchor institutions. Later on, as the mass of
institutions increases, the TMC also becomes a regional anchor in Houston. Both the LMA
and TMC have gone through the process of a single anchor growing into an aggregate of
multiple institutions, which later turned into a regional anchor.

In the Chinese urban planning system, there are two limitations to anchor institutions.
Firstly, the spatial organization of medical cities is determined by the master plan. Secondly,
planning has to be permitted by upper-level governments. Both could dampen the force of
endogenous growth and agglomeration. But there are ways to optimize the organization of
medical cities in China. First is the hierarchical organization for the research space. The
key principle of the IUR triangle that China is promoting is to integrate industry with
research, which equates to the research commercialization process in the United States.
Meanwhile, the production chain exists in the process of knowledge-material transfer. The
conventional approach of industrial parks and economic zones have to be avoided in
designing medical cities because they are essentially different processes. Industrial zones
were early products of the manufacturing sector when the Chinese economy relied on the
transfer of knowledge and capital from foreign firms. Grouping them in industrial parks
was sought to promote local supplier relationships and subsidiary formation (Walcott,
2002). Government-established high-technology parks create a privileged space in which
product development and manufacture occur in more favorable conditions than would
otherwise be possible. Due to the population base and labor market pooling, industrial
parks are favorable to the Chinese economy.

However, the organization of the medical city is on a different path from the industrial
parks – it is based on the new economy around life science research, which is a collective
effort of researchers from firms, hospitals, and universities. Then TTL/TTO platforms help
the transfer of knowledge into products, while the products are manufactured elsewhere

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and then used back in the hospitals of the medical center or other hospitals. Furthermore,
the current understanding of medical cities in China is overly suppressed to its capacity of
consumption referencing to “medical mall” back in the 1980s (Herui Consulting, 2020a).
This overlooked the medical city’s position in a complete production chain. Gordon &
McCann (2016) analyzed the processes which may underlie spatial concentrations of
related activities approximating the industrial-complex model, and found production links
central to the clustering process. Policymaker should realize that path-dependence on
industrial parks does not lead to the future performance of research-led medical cities.

Figure 103. The Abstract Diagram of the Spatial Organization of an Ideal Medical City

Figure 103 shows the conceptual spatial organization of a medical city that optimizes
anchor institutions and their production chain. The central piece is research, a collaborative
effort among the medical, university, and industry institutions on the campus. This space
does not need to be large but has to be dense enough to host the high intensity of knowledge
exchange. The second ring the around the research space is anchoring space where the
medical, university and industry institutions are located. These institutions act as the
support for the central research piece, and their own capacities could also help to transfer

242
the research outcomes to products and to fuel the research space with human capital and
beds for clinic trials. Among them, industry’s products are consumed in the medical;
industry and university together enhance productivity; university and research together
fulfill the education purpose. Therefore, the peripheral ring is the production space, whose
function could resemble industrial parks such as pharmaceutical manufacturing stations.
They can be separate campuses and spatial proximity to the anchoring space is optional.
Being different from an industrial park or a medical mall, in this spatial organization
hierarchy is given to the research space, followed by the anchoring space where the medical,
university, and industry institutions are located. These are the core of a medical center, and
production space such as manufacturing plants are peripheral. This optimizes the linkages
among the institutions and could serve as a conceptual diagram for planning medical cities
in China.

The merit of such organization is profound in community development. A more recent

project that uses the anchor organization is the Lake Nona Medical City. It is a 650-acre
health and life sciences park in Orlando, Florida. The city is home to the University of
Central Florida's Health Sciences Campus, which includes the university's College of
Medicine and Burnett School of Biomedical Sciences. In the future, the campus will also
house UCF's University of Central Florida College of Nursing, the University of Central
Florida College of Dental Man edicine, and a teaching hospital. These anchor institutions
will help to settle economic activities in this medical city and is surrounded by education
facilities, five million square feet of commercial and retail space, and a mix of residential
options. It is estimated that the medical city will create up to 30,000 jobs and have a $7.6
billion impact on the economy over the next decade (Aboraya, 2012).

The narrative is different from the LMA and TMC, but similar to the PHC in Beijing – that
it is an effort from the Tavistock Group. This private company holds the ambition to
develop Lake Nona, a 44 km2 mixed-use planned community within the city limits of
Orlando. The community is developed by Lake Nona Property Holdings, owned by
Tavistock Group, and Tavistock Group took the early initiative in acquiring the land. In
October 2005 it donated $12.5 million and 50 acres of land to the University of Central
Florida to help establish a medical school. In March 2006, the Florida Board of Governors

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voted to approve UCF's proposal to build a medical college at Lake Nona, and in 2012
UCF purchased an additional 25 acres of land at Lake Nona to construct a teaching hospital.
Thereafter the Lake Nona Medical Center’s role became twofold. On the one hand, it is a
private company-led medical center that hopes to use these top institutions in Florida to
creates jobs through the consumption of health care and production of research in the
anchoring space of the campus proper. On the other hand, it serves the larger community
that surrounds the anchoring space, these anchor institutions would attract residents with
jobs and public facilities and appreciate the real estate property of in the mixed-use
community through value-capturing. Perhaps the lesson from Lake Nona Medical City
sheds light on the future of healthcare real estate in China.

The second way to optimize medical cities in China is a public-private partnership in

mobilizing state and market resources. The Lake Nona Medical Center provides a good
example of using the medical city to anchor real estate development. But it requires a
maximum shared value in anchors, as governments and local businesses must work
together. They first need to recognize their own as well as other’s potential, and then
acknowledge the change they can jointly effect. Governments can facilitate introductions
to businesses that are well-suited to work with anchors. Business leaders can encourage
anchors to serve as workforce developers, real estate partners, purchasers of local goods
and services, or providers of intellectual capital (Initiative for a Competitive Inner City,
2011). This collaborative effort emphasizes the social network, which is fundamental for
the cooperative behavior among organizations pursuing mutually beneficial ventures. The
investment system could be supported by financial credit and social financing, which is led
by government support. To solve potential issues in fund shortage, the government could
establish financing platforms for social capital to participate.

5.2.3 The Prospect of Knowledge Economy

Completing the MUR Triangle

The MUR triangle is the foundation for medical cities in the United States, and the creation
of the MUR triangle requires institutional leaderships creating both the external
environment and the internal motivation. The external environment is the enabling

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mechanism that encompasses capital and social investments for human capital training and
fostering their research outcomes. The internal motivation is the incentive structure that
allows individuals to spontaneously push the limits of scientific research. First on the
external environment is philanthropy. The narratives of the LMA and TMC could be
flattened by their history, in which the hospitals and universities are heroic players who
suddenly step into a starring role. However, the visionaries in making the LMA and TMC,
or the MUR triangle in these two urban projects, are the philanthropists who made the bold
and uncontroversial choice to prioritize the development of advanced research and health
care as the new engines of economic development. Philanthropy plays a significant role in
the making of medical cities, with the presence of Peter Bent Brigham, Robert Breck
Brigham, Monroe Dunaway Anderson, and many other unnamed ones who have made
donations.

Furthermore, on the wider extension of the development of the health industry, institutions
such as the Bill & Melinda Gates Foundation, the Robert Wood Johnson Foundation, the
Kaiser Family Foundation, and the W.K. Kellogg Foundation have a frontline presence in
their work with funding healthcare research. It is crucial to realize that it is the funding of
the science base rather than of the biotechnology industry directly that has provided the
foundations for start-ups to be created out of the science base (Prevezer, 2001). The role of
philanthropy is to support opportunities that have value to society but cannot be supported
by strictly market-driven financial incentives (Parthasarathy & Fishburne, 2015).
Philanthropic dollars are used to help visionary scientist-entrepreneurs take the first critical
steps to turn a breakthrough into a legacy for humanity. A modest infusion of capital at the
earliest stages of a company’s life cycle can support the achievement of the scientific and
technical milestones that are necessary for attracting the much larger investments required
to bring products to market.

But this is not to diminish the roles of philanthropy in China. According to a study
conducted by the Harvard Kennedy School Ash Center, in 2018 the total donation amount
by the top 100 donors in China was 29 billion CNY, or 4.4 billion USD (Cunningham &
Li, 2020). But this number still falls behind the donations in the United States. According
to the National Philanthropic Trust, Americans gave $449.64 billion in 2019 (2020). In the

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total giving, corporate giving was $21.09 billion, foundation giving was $75.69 billion, and
the largest source of charitable giving came from individuals at $309.66 billion, or 69% of
total giving. This is very different from the philanthropic landscape in China that among
the top 100 donors – only 25 were individuals and most of the donors were corporates.
Chinese philanthropists are beginning to give directly to foundations, yet such vehicles are
often affiliated with the donor and/or their corporation. This could be problematic because
of, as suggested by Cunningham & Li, distrust in institutions that are truly separate from
the donor (2020, p. 13). Furthermore, compared to the United States, poverty alleviation
and education were the primary donation causes in China. This could be a result of national
policy guidance. Some degree of volatility in top cause areas could be expected, given
shifting national policy objectives, while education, poverty alleviation, healthcare, and
social welfare should continually compete for the top position. This implies that, with the
shifting composition of China’s economy to the technology sector over time, basic science
could appear to be one of the main causes of receiving donations. But this requires a more
profound ideological transformation that giving to research in basic science is not for profit,
but for the long-term good for national competitiveness.

Second on the external environment is the government’s leadership in funding, which

substantiates the work in basic science and training for future human talents as the
foundation for the MUR triangle. The U.S. has had a tradition of supporting education and
research, for example, the Morrill Land Grant Act of 1862. It created the national system
of public universities, through which the U.S. government laid the foundation for future
innovation in science (Ferleger & Lazonick, 1993, 1994). Nowadays, NIH is the largest
single public funder of biomedical research in the world with a 2018 budget of $37 billion,
and discoveries arising from NIH-funded research provide a foundation for the U.S.
biomedical industry (National Institutes of Health, 2018). These funded research projects
have created various full-time and part-time jobs, including jobs for postdoctoral
researchers and graduate and undergraduate students (Pool et al., 2016). For example, in
the TMC the state-funded Cancer Prevention and Research Institute of Texas (CPRIT) has
invested $1.63 billion through more than 1,056 grants since 2010 (Bridges, 2019). CPRIT
funding has attracted nearly 100 cancer researchers and their labs to Texas and prompted
$910.8 million in follow-on investment in CPRIT-supported companies. Furthermore, it
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was empirically estimated that the adoption of subsidies for biotech employers by a state
raises the number of star biotech scientists in that state by about 15% over a three -year
period (Moretti & Wilson, 2014). Thus state-provided funds have become financial
incentives for biotech companies, which are part of a growing trend of placed-based
policies designed to spur innovation clusters. So that the government plays a major role in
subsidizing business investment and specialized education, sets up tech hubs and
innovation districts for real estate developers to thrive.

Figure 104. R&D Expenditure to the Government Budget in the United States and China, 1985-2019
Source: American Association for the Advancement of Science [Link]
and-policy/historical-trends-federal-rd, China Statistical Yearbook on Science and Technology 2020

Perhaps the implication for China is straightforward – to expand the national R&D budget
and to put focus on basic scientific research rather than frenetically “all in” to one industry.
Figure 104 shows that the U.S. federal R&D expense has been high compared to the
Chinese figures. Moreover, nearly 25% of all R&D expenditures in China come in the form
of government subsidies to firms, specifically on the commercialization of new
technologies, for small and medium-sized technology enterprises, and patent application
fees and associated costs (Atkinson & Foote, 2019). As shown in Figure 105, although
enterprises invest for the majority of current national R&D expenditure (over 70%),
funding for basic research is still minimal because enterprises are profit-driven and are
more interested in research outcomes that are ready to be commercialized. Major scientific

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research projects are led by universities and research institutions, keeping the enterprises
marginal and only require them to provide financial support (Lyu, 2020). This neglects the
scientific foundation, which is essential for research in any high-tech industry.

25,000 90.00%

80.00%

20,000
70.00%

60.00%

15,000
100 Million CNY

50.00%

40.00%
10,000

30.00%

20.00%
5,000

10.00%

0 0.00%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Total R&D Expenditure Fundamental Research Enterprise R&D Expennditure to Total

Figure 105. Total R&D in China, R&D Expenditures on Fundamental Research, and the Ratio of
Enterprise R&D Expenditures to the Total Expenditures, 2002–2018
Source: CSMAR Database

Moving onto the internal motivation, the first is to provide the research institutions and the
enterprises with financial incentives and institutional supports to facilitate their
collaboration. The market is the principal force that aggregates the MUR components
together. Health care is increasingly privatized, and hospitals are corporatized. The for-
profit behaviors use newer, better, and of course more expensive medical products. Private
insurance companies helped patients to pay for these expensive services, reinforced care
providers’ desires to use more expansive products. Driven by profits, researchers are
incentivized to produce more cutting-edge knowledge to be translated into market products,
increasing the turnover rate of medical products. Triumph in pharmaceutical research and
innovations in medical devices creates huge market opportunities for the health industry,
and individuals are incentivized to take on more adventurous works in the field of life
science. Matured legal framework for entrepreneurialism matters too, as empirical research
has shown that despite the presence of local VC companies (Prevezer, 2001), the
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technology transfer expertise available, the number of skilled patent lawyers in a region
also matter for technology transfer (Van Wilgenburg et al., 2019).

This “knowledge-material circuit” has become a matured production line in the United
States. Under the market force, the care providers, insurance companies, patients, and
researchers collectively forged the market of the health care industry, which is the
foundation for the medical cities. However, in the Chinese context, this “knowledge-
material circuit” has not yet been fully completed. Specific to the health care industry,
although the IUR triangle accentuates the collaboration between enterprises and
universities, the knowledge transfer rate is low because currently there is a segmentation
between university research and enterprise commercialization as their incentives are not
aligned (Lyu, 2020). Specific to the technology transferring process between research and
commercialization, the Chinese government or the individual medical cities could consider
centralized service platforms such as the Cambridge Innovation Center in Boston (F. Wang,
2019), which connects market demands and research outcomes, in a fashion similar to e-
commerce121.

Meanwhile, it has to be realized that a university alone is no guarantee of economic success.

In the United States, while most large cities have universities, only a small fraction of
metropolitan areas have large concentrations of innovative industries, for example, Cornell
and Yale dominate global academic rankings, but other than employers directly connected
to these universities, there is little in Ithaca and New Haven to suggest a world-class high-
tech cluster (Moretti, 2015, p. 141). Universities are most effective at shaping a local
economy when they are part of a larger ecosystem of innovative activity, one that includes
a thick market for specialized labor and specialized intermediate services. Once a cluster
is established, colleges and universities play an important role in fostering its growth, often
becoming a key part of the ecosystem. This push forwards the need for the development of
a commercially supportive culture to emerge within universities to enable academic
entrepreneurship to flourish (Arrow, 2015). In particular, it demands active partnership and
financial support with industry and government funding agencies, the recruitment and
development of science and engineering academic stars, and the development of
commercial infrastructure to enable the valorization of academic research to occur.

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Ensuring that business and technology students are exposed to entrepreneurship classes
will allow them to make more informed decisions (Joshua Lerner, 2015). In China,
Shenzhen is a pioneering city in such entrepreneurial training, for example, Tsinghua
University has doctorate training programs in Baoan District of Shenzhen (X. Zhang, 2012),
allowing the research students to understand the entrepreneurial world better. Furthermore,
the protection of university intellectual property also needs to be undertaken.

The second internal motivation is an appropriate evaluation system. China particularly

needs improvement on this because the evaluation system has significantly dampened
researchers’ enthusiasm in engaging in research commercialization (Lyu, 2020). In
hospitals, the siloed evaluation criteria for doctors and researchers have discouraged them
from conducting research. In the United States, doctors and researchers carry quite different
tasks, as the former focuses more on practice and the latter focuses more on research.
Meanwhile, in China doctors are often treated literally like machines of surgeries, leaving
them very little time for research. At the same time, university faculty members in China
are constantly under the pressure of teaching, securing grants, and most importantly
producing “research” measured by publications on indexed journals. Publications is the
dominant criteria for securing faculty members’ tenured positions, so research in
universities has become a tournament of paper-writing. While this evaluation system has
merits in maintaining a certain level of objectivity and fairness, it has suppressed
innovation because true innovative ideas are inspired, not forced out. For example, faculty
members in American universities are usually given free time and are encouraged to engage
in businesses and commercial activities. Therefore, reforms in the academic evaluation
system or the introduction of performance pay, which has been shown to increase research
outcomes (Belenzon & Schankerman, 2009), are needed.

Dual Circulation

Lastly is the outlook to the future of medical cities in the transitioning economy of China.
China’s emphasis on growth through exports is now being bolstered by a focus on domestic
demand as the international trade environment comes less supportive. The COVID-19
pandemic has also highlighted the risks and vulnerabilities inherent in deep trade
integration, spurring countries to reduce their reliance on other economies. Dual
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Circulation was promoted earlier in 2020 as relations with the United States continued to
deteriorate, making the external environment less predictable for China. This changing
environment indicated it would be unsustainable for China to continue relying on overseas
demand to keep its vast manufacturing apparatus running. It is essentially a defensive
approach to prepare for the geopolitical and economic changes. In short, Dual Circulation
involves deep-diving into the huge domestic market of 1.4 billion consumers. China will
try to increase the size of its middle class and narrow the wealth gap so domestic
consumption will increase. It also means China’s production system will be repositioned
to focus more on-demand at home rather than abroad.

However, criticism on whether China can truly shift its growth model from state-led
investment and exports to consumer spending without painful reforms of its wealth-
distribution system. Michael Pettis, a professor at Peking University (F. Tang, 2020):

“The new strategy is really just an old plan to rebalance the economy towards
consumption, but the plan would require a massive wealth shift from the state to
households – a process that will not be accomplished easily.”

For many consumers in China, their purchasing power is weakening. Additionally, there
have been structural challenges to the economy, such as a decline in household income, the
widening wealth gap and mounting debt burdens, creating uncertainty about whether
consumer spending will continue at the same pace in the fourth quarter.

But despite these structural uncertainties, Dual Circulation does create opportunities for
creating a health care market, of which medical cities could be the rising frontier to
urbanize the Chinese landscape. China has experienced dramatic economic restructuring
and industrial upgrading in recent years (G. C. S. Lin & Wang, 2013; Wei & Liefner, 2012),
which has caused a pronounced shift in the composition of employment towards skilled
labor. The rapid growth of advanced industries has brought about the great demand for
those who have professional and managerial expertise. Meanwhile, the dramatic expansion
of higher education across the whole country has substantially enlarged the skilled labor
pool for knowledge-intensive industries, and the skilled laborers are paid higher. Therefore,
the number of China’s skilled labor force is growing rapidly, and they are becoming the

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growing middle class in cities. As this group is becoming the primary consumers in cities,
their purchasing power associated with health care could become a substantial part of the
economy because they care more about their health. The increasing demand for health care
could boost domestic consumption in the health industry. Observing this rising market,
healthcare companies will be incentivized to develop more medical products which, if the
MUR triangle could be completed, reciprocally incentivize researchers to commercialize
their outcomes. As a result of this increasing market, medical tourism will also become an
emerging phenomenon in China, leading to an increased level of demand for domestic on
health care by the middle class, or spending from international medical tourism. Cosmetic
surgery-driven medical tourism has brought fortune to Thailand and South Korea, and the
advancing health care sector in China could as well benefit from the market demands of
tourists from secondary markets in nearby Asian countries.

However, the threat is obvious – the tech ban would heavily affect China’s ability to be
involved in global cutting-edge research in biotech or basic science, which detriments
China’s future biotech industry. Talent is proven the primary resource for creating a health
care industry. A recommendation by the U.S.-China Economic and Security Review
Commission is to retain foreign-born talents in the United States for the biotechnology
industry (2019). China’s ability to secure talents is heavily compromised by the current
tech ban, and the domestic research system in biotech and life sciences has not yet fledged.
Another challenge is real estate. While real estate development in a medical city is
important for the participating private sector to balance their spreadsheets, it is crucial to
avoid development that is overly reliant on value-capturing. If housing cost increases, the
change in real estate prices will favor homeowners through redistribution of wealth
(Glaeser, Gyourko, & Saks, 2005). Regulations on land use and property price are
important tools for local governments to secure benefits to jobs rather than property owners.

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5.3 Conclusion
Health care in the United States is an urban asset. Through “eds and meds” the capacity of
medical and university institutions has constantly reshaped the socio-economic and urban
landscape of American cities. Medical, university, and research institutions have clustered
to form “city inside city” seeking means of growth and development. The MUR triangle is
the mechanism behind such clustering, and it highlights the anchor institutions that ground
the foundation for regional economic growth. Based on the anchor institutions, the medical
cities not only benefit from the scaled economy but also improves the performance of
hospitals. But most importantly, it leads to innovation. Chapter 2 makes the argument that
medical cities and the MUR triangle are the results of the “knowledge-material circuit” of
the American health care industry. The privatized health care system causes increasing
spending in health care, and commercialization of research builds the ecosystem for
translating basic science and biotech research into products. Such a “knowledge-material
circuit” has profoundly reshaped the American health care industry, producing medical
cities through both consumption and innovation.

Meanwhile, medical cities in China originated from a very different socio-political

background. The changing demographics have turned China into an aging society.
Paralleled by central leadership’s policy directives to promote various aspects of health,
health care is a rising industry with tremendous market opportunities. Responding to the
market demands, real estate developers have invested in building “health towns” and mega
hospitals under the name of medical cities. To integrate the market with research and
innovation, the Chinese state has been promoting the IUR triangle to mobilize the industry,
university, and research institutions. These attempts in making medical cities are the results
of specific institutional characteristics in China, therefore Chapter 3 argues that medical
centers in China are “institutionalized spatial strategies.” Neo-liberal reforms have
reshaped the state-market and central-local relationships in China, so the production of
urban space is instrumentalized by the urban planning paradigm to mobilizes land for
growth, which structures the Chinese urban landscape through episodes of megaprojects.
After a series of health care reforms, the central leadership sought to invite the market to
address issues in the current public hospital and health care delivery system. This brought

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opportunities for local governments and developers to innovate their spatial strategies.
Urban experiments with mega hospitals, private specialty hospitals, senior care towns,
medical tourism towns, and health-tech towns have proliferated. However, they are usually
urban spaces focusing on the consumption of places but overlooking knowledge production.

To verify the arguments made in Chapter 2 and 3, Chapter 4 uses the Longwood Medical
and Academic Area in Boston, the Texas Medical Center in Houston, the Peking University
International Hospital in Beijing, and the New Hongqiao International Medical Center in
Shanghai as case studies to draw deep observations on their historic, institutional, and
spatial characteristics. It is found that the LMA is a representation of the MUR trilogy, and
the “knowledge-material circuit” that turns talents and research into growth poles in a wide
urban nexus of top medical, university, and research institutions in Boston. The TMC is a
result of place-based policies that have transformed Houston’s economy and rebranded
Houston as the home of biotechnology and a destination of domestic and international
medical tourism. The PHC spatializes PKU Founder’s expansive corporate and real estate
strategies, and Founder’s aspiration to seize the “big health” industry in China. It hopes to
duplicate the MUR trilogy with its private-built mega-hospital and research labs, while the
for-sell office property developments also suggest Founder’s land value-capturing. The
HMC is a government-led campus for the clustering of private high-end specialty hospitals.
It is designed as an experiment for the ongoing national health care reform and designated
as a destination for medical tourism. The public-private partnerships in the HMC also
reflect innovative business strategies in building hospitals. However, the HMC focuses on
the consumption end of health care. The research end comes later in its phase 2, but the
designated corporate research departments bring questions to their ability to innovate in
basic sciences rather than applied research seeking for market return.

These observations are compiled in Chapter 5 to interrogate their characteristics of spatial

forms, policy instruments, and institutional actors. These dimensions are further divided
into subcategories of locality, density, and diversity for the spatial forms; administrative,
fiscal, and capital for the policy instruments; initiator, financing, and operation for the
institutional actors. First of all, the LMA and TMC are located close to the downtown areas
of Boston and Houston, because they were developed when land was available. The PHC

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and HMC are far from the centers of Beijing and Shanghai. Besides the fact that land was
scarce when they were developed, their locations are also strategically designated by the
local and upper-level governments. The PHC is situated inside the ZGCLSP whose location
was determined by the government as an urban-edge mega project. The HMC is located
inside the Hongqiao Business Park near the Hongqiao Transportation Hub, both enhance
the provision of health care service in west Shanghai and serving medical tourism for
Yangtze River Delta. However, because Beijing and Shanghai are larger than Boston and
Houston in size, the distance can also be interpreted as a result of the “scaling up” of city
sizes.

Secondly, both the LMA and TMC are dense campuses with high FAR and per-km2 bed
numbers while the figures of PHC and HMC are lower. Although too much density
dampens human experience in an urban space, it represents the potential of endogenous
growth. Both the LMA and TMC are results of spontaneous agglomeration and land could
be developed in small parcels. However, urban planning directly intervenes in urban space
in China. Developers have to submit complete proposals to upper-level governments for
permission. This gives less spatial volatility for mega projects. At the same time,
programmatic compositions in the cases are quite different. The LMA has a high percentage
of space for COF institutions, the TMC has more hospital space, the PHC has more office
spaces for real estate purposes, and the HMC also has more hospital space and retails space
to support the expected population flow. Urban planning paradigms are the major forces
shaping these differences in spatial characteristics.

Thirdly, on policy instruments, both the LMA and TMC are beneficiaries of place-based
policies that focus on building an economy around biotechnology. As comparatives, the
PHC and HMC received administrative supports from both the local and national
governments so institutional participants in these urban projects are provided with political
incentives. This is particularly the case for the HMC which is a nationally recognized
project. Furthermore, both the PHC and HMC have received preferential land policies.
However, the HMC has not received direct monetary support because money is the
responsibility of the private sector in its public-private partnership. But because of the
research component in PHC, the national government offers help to businesses with IPO

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and tax exemption. Direct government subsidies are also given to businesses in the PHC.

Fourthly, on institutional actors, the four cases have experienced quite different processes.
It is very hard to ascertain which actor took the initiative in creating the LMA because the
LMA is an agglomeration of multiple institutions. But the earliest settler was Harvard
Medical School that moved to Fenway in 1906. Following Harvard Medical School was
the Boston Children’s Hospital, and the Peter Bent Brigham Hospital which was the result
of a philanthropic bequest of Peter Bent Brigham. The TMC, on the contrary, was
conceived by the philanthropic act of Monroe Dunaway Anderson. The M.D Anderson
Foundation and Texas Governor Lee O’Daniel’s House Bill 268 clinched the 134-acre for
what is seen today as the TMC. While the PHC is an aggregate of multiple sub-projects,
the flagship core project is the Peking University International Hospital, and the initiatives
were taken by both Peking University as the public actor and PKU Founder as the private
actor. The HMC is a strategic project initiated by both the Minhang district government
and the Shanghai municipal government.

Lastly, it is important to realize that the LMA and TMC are not direct government
commissions. The local governments’ role was to create the macroclimate for research and
entrepreneurialism. The market has played a major role in financing the LMA and TMC,
particularly through VC/PE for their existing and startup businesses. Meanwhile, PKU
Founder was the major owner of multiple companies and SVCs that financed and
developed the projects inside the PHC. Because the HMC is a government-led megaproject,
the Minhang local government facilitated the development of the campus through land and
equity. Although financing-wise decentralized, operation wise both the LMA and TMC
have centralized organizations managing the campuses. Furthermore, the “hospital systems”
have connected multiple hospitals and clinics with the institutions in the LMA and TMC.
The HMC also has a centralized management entity, the Medical Technology Center, and
the Shanghai New Hongqiao International Medical Center Construction Development Co.,
Ltd is the central equity holder of multiple hospitals in the HMC, binding divergent
hospitals in the medical campus. Meanwhile, the multiple sub-projects in the PHC are
managed by the developers’ own management companies.

Specific to these observations, Chapter 5 offers recommendations for medical cities in

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China. Firstly, health care systems are very different in the United States and China. This
difference affects the level of consumption of health care services. But it has to be realized
that there are innate issues in the American health care system, such as the rising cost. In
China, the issue is the inefficient delivery of care in the public hospital system. But the
government has been making continuous efforts to contain cost, and the merit of a
government-led system is more apparent in crises such as COVID-19. Perhaps a public-
private health system could be the future path for China, in which private insurance and
private high-end care could help to improve the efficiency of care. Meanwhile, yi lian ti
could be a worthy experiment, which connects hospitals to redistribute healthcare resources
at a territorial scale.

Secondly, place-based policies and anchor organization matter. On the territorial level,
public policies in China should focus on creating an amenable environment for both
domestic and international investors, for entrepreneurship, and for VC/PE in health care
industries. Furthermore, because economic development in China is uneven, the more
realistic approach to medical cities is to consider cities with top financial and institutional
resources as the primary locations. On the individual campus level, an “anchor organization”
is proposed. This conceptual diagram highlights the creation of a central “research space”
through the collaboration of medical, university, and industry entities, and these entities are
located in the “anchoring space” around the core area.

Thirdly, completing the MUR triangle requires institutional leadership. Philanthropy is key
in conceiving medical cities and funding basic research for life sciences. The level of
philanthropy should rise in China, and more efforts should be given to research in basic
sciences. More support from the government in funding research and financial incentives
for biotech companies should also be improved. Government funding in basic science is
crucial because any kind of high-tech research has its origin in basic sciences. Furthermore,
efforts should be made into creating service platforms, easing the process of
commercializing research, and correcting financial incentives for collaboration between
the academic and the industry. This is to complete the “knowledge-material circuit” in
China. But most importantly, an appropriate evaluation system for doctors in the hospitals
and academics in the universities is needed. Research in these institutions has become

257
tournaments of paper-writing, but truly innovative ideas are inspired, not forced.

Lastly, the increased demand for health care in cities, the expanding market for long-term
and senior care, and the secondary market for health care in surrounding Asian countries
could together facilitate dual circulation through medical tourism, which translates into
medical cities. However, the challenges are obvious – the unpredictable international
political environment and the tech ban that compromises China’s involvement in cutting-
edge biotech research could detriment the biotech and health care industries in China.

In a nutshell, this dissertation aims at unfolding the mechanisms behind the emergence of
medical cities as an urban typology in the United States and China. The different
institutional contexts in these two countries situate medical cities in the wider socio-
economic narratives of the transforming economy, the shifting governance, the varying
civic engagement, and the changing civic-health relationship. The research finds that
medical city in the U.S. is a reaction to the public and private, for-profit and non-profit
interests of the health care system, a result of the state, market, and civic leadership, a
culmination of place-based policies by the entrepreneurial states, and a representation of
the spatial concentration of knowledge production and innovation. Medical city in China
is a result of the changing state-market interests, a contestation between central and local
governments, a trophy to inter-local competitions, an instrumentalized mega project to
mobilize state resources, a negotiation between the public and private hospitals, and an
experiment for the health care system under reforms.

The semantic definitions of “medical city” have departed greatly in the distinct institutional
contexts of the United States and China, and their practical experiences are also
contradistinguished. The United States should learn about the values of the government’s
role in urban planning and the health care system to fix some of its stymied issues. China,
as an economy transitioning from “capacity-releasing” based on the labor market to
“capacity-building” based on advanced knowledge industries, should realize that various
institutional supports from policy instrument, civic leaderships in philanthropy,
entrepreneurial environment, market amenity, and changing perception of civic-health
relationships matter more than the physical planning of medical cities. It is perhaps better
to see a medical city as an innovated urban form emerging from these changing force
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Notes:
1
See Moore, C. L. (1974). The Impact of Public Institutions on Regional Income; Upstate Medical Center
as a Case in Point. Economic Geography, 50(2), 124-129; and Erickson, R. A., Gavin, N. I., & Cordes,
S. M. (1986). The Economic Impacts of the Hospital Sector. Growth and Change, 17(1), 17-27 for studies
in Syracuse and Pittsburgh.
2
UPMC has 89,000 employees, 40 hospitals with more than 8,000 licensed beds, 700 clinical locations
including outpatient sites and doctors' offices, a 3.7-million-member health insurance division, as well
as commercial and international ventures. Since its creation in 1990, the UPMC has become the largest
private employer in the Commonwealth of Pennsylvania, with steadily growing revenue of over $15
billion per year. The merge and expansion of UPMC started in 1986 and continues till today and includes
more than 23 hospitals now.
3
JHHS allows two distinct yet interdependent organizations, Johns Hopkins HealthCare LLC and The
Johns Hopkins Home Care Group, Inc., to integrate under the Johns Hopkins medical enterprise. Johns
Hopkins Medicine has five hospitals, as well as multiple surgery centers and physician offices located
throughout the Baltimore-Washington, D.C. area. A sixth hospital, Johns Hopkins All Children’s
Hospital, is located in Florida.
4
See Simpson, A. T. (2019). The Medical Metropolis: Health Care and Economic Transformation in
Pittsburgh and Houston. Philadelphia: University of Pennsylvania Press, page 15. The relationship
between non-profit health care institutions and civic health was prioritized as part of efforts by Harry
Truman and his successors after World War II by improving the health care delivery system and by
making large amounts of funding available for biomedical research.
5
Literature on agglomeration of firms find that firms tend to locate near each other and benefit from
external economies of scale also known as agglomeration economies. These benefits arise from various
channels. For instance, firm clusters facilitate the spread of knowledge due to increased opportunities
for learning from nearby workers and firms (knowledge spillovers); clusters of firms also gain the
advantage of drawing upon skilled pools of nearby labor (labor market pooling) as well as the ability to
share valuable intermediate input providers (input sharing).
6
For literatures of the debate on markets for hospital services, see Arrow, K. J. (1963). Uncertainty and
the Welfare Economics of Medical Care. American Economic Review, 53(5), 941–973; Bhangale, V.
(2011). Marketing of Health Care Services in India: A Study on Factors Influencing Patients’ Decision
Making on Choice of a Hospital. Journal of Management and Marketing In Health Care, 4(4), 229-233;
Boscarino, J., & Steiber, S. R. (1982). Hospital Shopping and Consumer Choice. Journal of Health Care
Marketing, 2(2), 15-23; and Luft, H. S., Garnick, D. W., Mark, D. H., Peltzman, D. J., Phibbs, C. S.,
Lichtenberg, E., & McPhee, S. J. (1990). Does Quality Influence Choice of Hospital? JAMA: The
Journal of the American Medical Association, 263(11), 2899-2906.
7
In the Marshallian framework, input production of medical services involves scale economies.
Concentrations of downstream hospitals form a large potential outsourcing demand for intermediate
inputs, which allows specialized input providers to achieve an efficient scale of production and thereby
provide the input services at a lower cost.
8
Important knowledge spillovers might occur between rather than within industries. See Glaeser, E. L.,
Kallal, H. D., Scheinkman, J. A., & Shleifer, A. (1992). Growth in Cities. The Journal of Political
Economy, 100(6), 1126-1152.
9
Penn Institute of Urban Research collected a range of cases on cities with anchor institutions including
Philadelphia, Boston, Chicago, New York and Baltimore to study ways urban universities invest in
revitalization and innovation in their neighborhoods. See Ehlenz, M. M., Birch, E. L., & Agness, B.

259
 (2014). The Power of Eds& Meds: Urban Universities Investing in Neighborhood Revitalization &
Innovation Districts.
10
See Jacobs, J. (1969). The Economy of Cities. New York: Vintage. The advanced activities in the medical
sector also require other relatively fundamental economic activities in the service sector to support the
operation of MUR. Retails, hospitality, and catering can bring visible jobs to the community.
11
In 2010, public long-term care spending in China was estimated to account for about 0.1% of the GDP,
compared with an average of 0.8% across the OECD countries. See Martins, J. O., & de la Maisonneuve,
C. (2014). The future of health and long-term care spending. OECD Journal: Economic Studies, 2014(1),
61-96.
12
Several types of facilities characterize the provision of long-term care in China. These include the public
social welfare facilities (jing lao yuan) used to exclusively serve welfare recipients; nursing homes
residential care facilities that are mostly developed and operated by the private sector, including senior
apartments, assisted living facilities, and retirement communities; and private retirement communities
that target high-income older people and provide a full range of services are scarce.
13
For the majority of older people in China, formal long-term care is paid by direct out-of-pocket payments.
See Feng, Z., Liu, C., Guan, X., & Mor, V. (2012). China's rapidly aging population creates policy
challenges in shaping a viable long-term care system. Health Affairs (Project Hope), 31(12), 2764-2773.
14
In 2000, when China officially became an aging society, 11 ministries and commissions jointly released
a document titled “Opinions on the Accelerating the Building of a Public Welfare System.” In 2016,
China launched long-term care insurance (LTCI) pilots in 15 cities. The goals of establishing LTCI are
to assure older people with affordable care services and to purchase care from the private sector. All of
the pilots are financed by existing social health insurance program—the Urban Employee Basic Medical
Insurance (UEBMI) that covers formal-sector employees and the Urban-Rural Resident Basic Medical
Insurance (URRBMI) that covers the rest of the population—by earmarking a particular percentage or a
fixed amount per person from the existing risk-pooled funds for long-term care services.
15
The goal is to integrate existing medical care and long-term care resources across care settings and
providers to meet both the health care and long-term care needs of older people. There are four yi yang
ji ehe models explained in Feng, et al. (2020). Long-term Care System for Older Adults in China: Policy
Landscape, Challenges, and Future Prospects. The Lancet (British Edition) 396(10259), 1362-1372.
16
Originally, public eldercare institutions were mainly established and run by the government, which is
why “start-up subsidy” is a relatively new term. Government start-up subsidies, which are given to
encourage the development of private eldercare institutions, are in general given to all newly established
institutions. The most common subsidy method is to provide subsidies for a specific number of years
depending on the number of beds the institution has. The national and local governments encourage
various types of public-private partnership models, whereby the government contracts with a private
company to deliver a scope of services or operate a government-built facility, or both.
17
The directive encourages the development of brand names of long-term care services and multi-facility
chains of service providers. It also states that foreign firms providing long-term care in China through
public–private partnerships, government purchase of services, or co-operation with state-owned
enterprises would now benefit from the same policies that are applied to domestic providers, and if they
expand services to low-income individuals, they would also be eligible to receive government subsidies.
18
According to the Ministry of Civil Affairs, the total number of residential care beds more than tripled
from 2.35 million in 2008 to 7.27 million in 2018, and the number of beds per 1000 people aged 65 years
or older more than doubled from 14.7 per 1000 to 29.1 per 1000. See website at Ministry of Civil Affairs:
[Link] Most of the growth was in the private sector. But on average bed
occupancy rate declined sharply from approximately 80.9% in 2008 to approximately 55.1% in 2014.

260
 The low bed-occupancy rates in the private sector can be attributed to high prices, lack of insurance
coverage, insufficient services or amenities, poor quality of care, and inconvenient locations. See
Glinskaya, E. E., & Feng, Z. (2018). Options for Aged Care in China: Building an Efficient and
Sustainable Aged Care System. Washington, D. C: World Bank Publications; and Liu, C., Feng, Z., &
Mor, V. (2014). Case‐Mix and Quality Indicators in Chinese Elder Care Homes: Are There Differences
Between Government‐Owned and Private‐Sector Facilities? Journal of the American Geriatrics Society
(JAGS), 62(2), 371-377.
19
Real estate companies are the major participant in senior housing development - over thirty real estate
developers have entered senior housing development and operations, and over eighty others have
expressed a willingness to enter the market. For details see Deloitte. (2019). China’s Senior Housing –
Now and the Future.
20
Characteristic towns are not administrative units; rather, they are platforms for upgrading distinct
industries, accompanied by the functions of culture, tourism, and community development. In general,
a characteristic town has three aspects of components: production (industry), living (community), and
ecology (environment), which are synergistically territorialized within a geographic space. Small towns
make great efforts in their own environmental optimization, to strengthen the attractiveness and livability.
In essence, the development of the characteristic town depends on a characteristic industry along with
the characteristic factors, such as regional characteristics, ecological environment, and cultural heritage.
21
Ones is the enterprise-driven model where the government is supportive in strategic positioning, planning,
permitting, and infrastructural development. Another model is a collaborative model where the
government and enterprise co-develop the planning and industry. The third is government-driven, which
develops the city where the enterprise is in charge of the operation and managing investments. The
government sets up a state-owned enterprise to attract investment nationwide according to its industrial
positioning.
22
In particular, the ongoing frenzy is backed by the government through not only “start-up subsidies,” but
also preferential policies through land. Developers could rent land or existing properties to reduce the
initial cost, and even to be qualified to acquire industrial land.
23
In April 1991, the National Education Association of IUR Cooperative was established in Shanghai. In
1992, the State Economic and Trade Commission, the State Education Commission, and the China
Scientific Research Institute began to implement the “Industry-University-Research Joint Development
Project”. In 1993, the central state promulgated the "Science and Technology Progress Law of the
People's Republic of China" and the “Central Committee and State Council’s Decision on Further
Strengthening the Advancement of Science and Technology,” which encourage enterprises, colleges and
universities, and scientific research institutions to cooperate and collaborate in order to strengthen IUR
cooperation. This is the first time that IUR has been formally proposed, see Jin, S. (2013). Strengthen
Industry-university-research Cooperation and Promote the Transforming of Scientific and Technical
Results [In Chinese]. China Medical Device Information, 19(9), 7-10.
24
Existing models could be read at “Introduction of eight production-university-research models,” from
[Link] and. “How to do industry-university-research cooperation?
Ten main modes” from [Link]
25
A series of market-oriented reforms have significantly changed the urban redevelopment approach in
China: administrative and fiscal decentralization empowers the local state with stronger decision-making
rights and creates entrepreneurial government; the adoption of the land-leasing system and housing
commodification facilitates the development of the real estate market; and changing demolition and
relocation policies mark the marketization of the redevelopment process.
26
Brenner (2004) articulates that the capacity of state institutions to promote particular forms of economic

261
 intervention and to maintain societal legitimation can emerge only through the successful mobilization
of state strategies, which could be articulated through a range of policy instruments, including industrial
policies, economic development initiatives, infrastructure investments, spatial planning programs, labor
market policies, regional policies, urban policies, and housing policies.
27
The city has not been directly involved in most of their growth and success. But sometimes it has stepped
in with good results. The anchor institution is the Perelman Center for Advanced Medicine, where Joe
Biden stopped there at the beginning of his “Moonshot” mission to cure cancer. Until the late 1980s and
even early 90s, Penn mostly acted as an invasive species in West Philadelphia. It tore up neighborhoods
with little thought for residents. While gentrification in neighborhoods by colleges has been a divisive
issue, Penn and other Philadelphia universities have attempted to give back and develop their
surrounding areas.
28
It was believed that the rapid growth of prices may be partially explained by the increase in the price of
medical labor and capital and slower growth in medical productivity. See “The Role of the Health Care
Sector in the U.S.” by EBRI: [Link]
the-u.s.-economy-48 for more details.
29
See Sood, N., Ghosh, A., & Escarce, J. J. (2009). Employer‐Sponsored Insurance, Health Care Cost
Growth, and the Economic Performance of U.S. Industries. Health Services Research, 44(5p1), 1449-
1464; and “Effects of Health Care Spending on The U.S. Economy. U.S.” from:
[Link] for evidence that
excess growth in health care costs is adversely affecting the economic performance of U.S. industries.
Also see Summers, L. H. (1989). Some Simple Economics of Mandated Benefits. The American
Economic Review, 79(2), 177-183; and Woodbury, S. A. (1983). Substitution between Wage and
Nonwage Benefits. The American Economic Review, 73(1), 166-182, for evidence that firms may reduce
wages (or wage growth) in an attempt to keep total worker compensation (wages and benefits) the same.
See Cutler, D. M., & Madrian, B. C. (1998). Labor Market Responses to Rising Health Insurance Costs:
Evidence on Hours Worked. RAND Journal of Economics, 29(3), 509-530; and Goldman, D., Sood, N.,
& Leibowitz, A. (2005). The Reallocation of Compensation in Response to Health Insurance Premium
Increases. Economics Letters, 88(2), 147-171 for evidence that health care cost increases are offset by
direct wage reductions, increased employee cost-sharing, or increases in the number of hours worked.
See Pauly, M. V. (2003). Should we be worried about high real medical spending growth in the United
States? Health Affairs, 22(Suppl1), W3-W3-27 that the government’s fiscal burden would lead to
increased taxes, or long-term borrowing, and results in greater intergenerational transfers of wealth from
younger to older segments of the population.
30
As health care costs continued to rise and more and more people were left without health insurance, in
2010 President Barack Obama had signed the Patient Protection and Affordable Care Act (ACA), the
most significant reform of the American health care system since the 1965 enactment of Medicare and
Medicaid under President Lyndon Johnson. ACA has extended publicly funded health insurance
coverage to millions of formerly uninsured adults whose income falls near or below the federal poverty
level. ACA has also made affordable health insurance available to millions more Americans who are not
poor, yet who previously could not afford the cost of acquiring health insurance in the private
marketplace, offered access to affordable health insurance to as many as 30 million Americans who
previously were uninsured.
31
For more details on the history of American healthcare, see Stevens, R. A. (1971). American Medicine
and the Public Interest. New Haven and London: Yale University Press; Stevens, R. A., Rosenberg, C.
E., & Burns, L. (2006). History and Health Policy in the United States: Putting the Past Back In.
Piscataway: Rutgers University Press; Stevens, R. A. (2008). History and Health Policy in the United
States: The Making of a Health Care Industry, 1948-2008. Social History of Medicine, 21(3), 461-483;
Stevens, R. A. (2017). The Public-private Health Care State: Essays on the History of American Health
Care Policy. Taylor and Francis; and Barr, D. A. (2016). Introduction to U.S. Health Policy: The

262
 Organization, Financing, and Delivery of Health Care in America. Baltimore: Johns Hopkins University
Press.
32
Medicare has two parts - Medicare Part A and Part B and for both options patients was responsible for
paying a yearly deductible. See Barr, D. A. (2016). Introduction to U.S. Health Policy: The Organization,
Financing, and Delivery of Health Care in America. Baltimore: Johns Hopkins University Press, for
more details on how Medicare works.
33
These include the Part A hospital deductible for each time they are in the hospital; the yearly Part B
deductible; 20% of all charges covered by Part B, and the extra charges, up to 15% of allowable charges,
of physicians who do not accept assignment. Most will pay for the Part A hospital deductible, the Part B
yearly deductible, and the 20% share of providers’ bills not covered by Medicare.
34
The history of “CHIP” could be found in Iglehart, J. K. (2009). Expanding Coverage for Children — The
Democrats' Power and SCHIP Reauthorization. The New England Journal of Medicine, 360(9), 855-857.
35
As contracts could be “experience-rated”—that is, limited to specific risk groups (particularly groups,
such as workers, with low overall medical risks), rather than “community-rated,” where all comers were
included, sick or well.
36
This was because a given doctor could participate in any number of networks, in turn pushing up the
costs in the doctor’s office, while those insured were typically limited to services of doctors in the client’s
insurance network. Gate-keeping required referral to specialists by a primary physician as a condition of
having the insurer pay the specialist’s bill on your behalf. The heavy involvement of private insurers
created a new power body in American health care.
37
Earlier suggestions could be found in Schoenbaum, S. C., Audet, A.-M. J., & Davis, K. (2003). Obtaining
Greater Value From Health Care: The Roles Of The U.S. Government. Health Affairs, 22(6), 183-190.
38
Their role as social agents was guided by a code of medical ethics that placed the utmost importance on
acting at all times in the best interest of the patient. They could be trusted to make decisions on behalf
of the patient in a paternalistic manner, acting always as a disinterested agent on the patient’s behalf.
39
From this perspective, only those physicians who treat a comprehensive range of problems, getting to
know a patient and his or her health status over time, are considered primary care physicians. The point
at which primary care physicians and specialists become identified and differentiated is during residency
training. Nearly every medical student goes on after medical school to receive additional training in a
residency. Residencies are usually based in a hospital and have faculty drawn from a specific field of
medicine.
40
Hospitals in the United States generally have a dual system of administration. The physicians who treat
patients in the hospital are members of the medical staff. No physician may treat a patient in the hospital
unless he or she has first been accepted to membership in the medical staff. The medical staff governs
all aspects of hospital care relating to physician care, such as quality review. A non-physician hospital
administrator governs all other non-physician aspects of hospital activities, such as the nursing,
managerial/administrative, and facilities staffs. Most hospitals have an executive committee where the
leaders of the medical staff and hospital administrators can jointly discuss hospital management issues.
41
Historically, general hospitals were the source of most care that could not be provided in physicians’
offices. As surgical equipment and patient monitoring became more advanced, a number of surgical
procedures previously performed only in a hospital could safely be done in outpatient “surgicenters”:
free-standing operating rooms and recovery rooms affiliated with local physicians’ groups.
42
Government health spending includes state and federal administration of health care programs such as
Medicare, Medicaid, and the State Children’s Health Insurance Program, as well as those of the

263
 Department of Veterans Affairs and the Department of Defense.
43
Health care PE fund managers typically make small investments of $5–$25 million in the start-up or early
stages of new companies; growth capital/mid-market buyout firms typically invest $20–$100 million in
target companies that have already demonstrated an ability to generate earnings from operations; and
buyout firms typically invest larger amounts of $75 million to in some cases $1 billion or more in later-
stage businesses. Increasingly, hedge funds, which use a variety of sophisticated financial tools and
trading strategies to increase returns, are also participating in buyouts of health care companies.
44
See Koch, R., Roa, L., Pyda, J., Kerrigan, M., Barthélemy, E., & Meara, J. G. (2019). The Bill & Melinda
Gates Foundation: An Opportunity to Lead Innovation in Global Surgery. Surgery 165(3), 273-280; and
Kirby, T. (2017). Trevor Mundel: President of the Gates' Foundation Global Health Division. The Lancet
Infectious Diseases, 17(5), 488 for details on the history of the foundation.
45
For more details on Medicare Part D and the economics of drugs and insurances, see Schumock, G. T.,
Li, E. C., Suda, K. J., Matusiak, L. M., Hunkler, R. J., Vermeulen, L. C., & Hoffman, J. M. (2014).
National Trends in Prescription Drug Expenditures and Projections for 2014. American Journal of
Health-system Pharmacy, 71(6), 482-499; Lichtenberg, F. R., & Sun, S. X. (2007). The Impact of
Medicare Part D on Prescription Drug Use by The Elderly. Health Affairs 26(6), 1735-1744 and Yin, W.
(2008). Market Incentives and Pharmaceutical Innovation. Journal of Health Economics, 27(4), 1060-
1077; Duggan, M., & Morton, F. S. (2010). The Effect of Medicare Part D on Pharmaceutical Prices and
Utilization. The American Economic Review, 100(1), 590-607; Lakdawalla, D. N., & Yin, W. (2015).
Insurers’ Negotiating Leverage and the External Effects of Medicare Part D. The Review of Economics
and Statistics, 97(2), 314-331; and Lakdawalla, D. N. (2018). Economics of the Pharmaceutical Industry.
Journal of Economic Literature, 56(2), 397-449.
46
The modern pharmaceutical industry in the United States has its origins in the Pure Food and Drug Act,
passed by Congress in 1906. After Franklin Roosevelt signed the Food, Drug, and Cosmetic Act, the
federal government required all new drugs coming to the market to be tested for safety before being
made available for prescription by physicians. The act also strengthened the role of the Bureau of
Chemistry, which had changed its name to the U.S. Food and Drug Administration (FDA). The FDA was
charged with conducting the premarket testing for drug safety required by the act. Manufacturers of new
pharmaceutical products were required by the new law to provide the FDA with scientific proof of a new
product’s safety and efficacy.
47
The typical pharmaceutical life cycle proceeds as follows discovery; development, including testing,
review, and approval; oligopolistic competition and patent extensions; and finally, generic competition.
See Mossinghoff, G. J. (1999). Overview of the Hatch-Waxman Act and Its Impact on the Drug
Development Process. Food and Drug Law Journal, 54(2), 187-194 for more details.
48
The former refers to the “hollowing-out” of the state that power previously located at the national state
level, and the latter to a relative decline of the state’s direct management and control over economic
development.
49
Managerialism applied a Weberian bureaucratic logic to urban government, emphasizing the potential
for urban managers to effectively manage urban collective consumption and redistribute resources across
the municipal territory. For more literature on managerialism see Williams, P. (1982). Restructuring
Urban Managerialism: Towards a Political Economy of Urban Allocation. Environment and Planning.
A, 14(1), 95-105; Pinch, S. (2012). Cities and Services: The geography of collective consumption.
Florence: Taylor and Francis, page 118-120; and Dunleavy, P. (1980). Urban Political Analysis: The
Politics of Collective Consumption. London: Palgrave Macmillan Limited. Entrepreneurialism implied
a more decentralized geography of urban governance and significantly more autonomy for local leaders,
as national states cut funding and decentralized policymaking authority. Marketization is recognized as
the fundamental means of promoting economic and urban growth, within which real estate development

264
 is one of the leading thrusts.
50
Evolving from a non-market system, the neo-liberalizing process in China inevitably involves
contradictions and inconsistencies, within which a strong state presence is expected. Privatization and
deregulation are only partially fulfilled. Although no longer widely involved in local development, the
state still struggles to complement market operations. Instead of entirely resting on a market logic, the
institutional transformations happening in China are not intended to diminish the role of the state, but
rather to foster market operations through providing necessary governmental services and supports.
51
According to the Marxist viewpoint, market and private property inherently produce inequality and
alienation which are products of capitalist economies, because the “fundamental contradiction” between
“productive forces” and “social relations” is insolvable under capitalism. See Harvey, D. (1973). Social
justice and the city. Baltimore: Johns Hopkins University Press.
52
The scaling down of urban development responsibilities from the central state to provincial and municipal
governments was initially compensated by a system of “fiscal contract” (cai zheng bao gan) in which
local governments were allowed to retain their surplus revenue after a fixed lump-sum revenue has been
remitted to the central state. Under this arrangement, a fixed sum of revenue was negotiated and agreed
upon between the central and provincial governments for remittance to the central. This lump-sum
remittance was fixed in amount for five years. Since the remittance was fixed not by ratio but by amount,
local governments were greatly encouraged to raise more revenue because any surplus generated could
be retained within the province. As the economy expanded later, this arrangement became to the
disadvantage of the central because the share of the surplus increased, but the amount of remittance
remained fixed. As the fiscal revenue expanded, the central remittance remained fixed while the share
taken by local governments kept growing dramatically.
53
Starting from 1978, almost every major step on the path of reform was tried out by a few regions first
before being launched nationwide. This is well echoed by the well-known slogan of the Chinese reforms:
“crossing a river by touching the stones (ban zhe shi tou guo he)”. A successful experiment outcome not
only provides information on which reform program works but also can be used to support the reform
and to persuade the unconvinced.
54
Performance indicators vary from place to place and have changed over time, yet a dominant feature of
personnel review has been the achievement of economic growth and often the attainment of growth
targets handed down through the vertical chain of administrative units.
55
Although current regulations allow a maximum of two five-year terms, in practice the tenure of high-
level local officials in recent decades has commonly been between two and three years, and officials
rarely remain in post for two full terms. See Chen, J., Luo, D., She, G., & Ying, Q. (2017). Incentive or
Selection? A New Investigation of Local Leaders’ Political Turnover in China. Social Science Quarterly,
89(1), 341-359 and Eaton, S., & Kostka, G. (2014). Authoritarian Environmentalism Undermined? Local
Leaders’ Time Horizons and Environmental Policy Implementation in China. The China Quarterly
(London), 218, 359-380.
56
For Harvey, the secondary circuit of capital accumulation is an investment in the built environment
including infrastructure and housing. The built environment has also been boosted by entrepreneurial
and property-led urban policies. For these arguments, see Fainstein, S. S. (2001). The city builders:
Property development in New York and London, 1980-2000 (2nd ed.). Lawrence: University Press of
Kansas; Harvey, D. (1989). From Managerialism to Entrepreneurialism: The Transformation in Urban
Governance in Late Capitalism. Geografiska Annaler. Series B, Human Geography, 71(1), 3; Harding,
A. (1994). Urban Regimes and Growth Machines toward a Cross-National Research Agenda. Urban
Affairs Review (Thousand Oaks, Calif.), 29(3), 356-382; and Leitner, H. (1990). Cities in Pursuit of
Economic Growth: The Local State as Entrepreneur. Political geography quarterly, 9(2), 146-170.
Increasingly neo-liberalized urban redevelopment eagerly pursues private investment and value

265
 extraction, and thus has a preference for seeking short-term returns from real estate investment. See
Smith, N. (2002). New Globalism, New Urbanism: Gentrification as Global Urban Strategy. Antipode,
34(3), 427-450 and Weber, R. (2002). Extracting Value from the City: Neoliberalism and Urban
Redevelopment. Antipode, 34(3), 519-540. Fernandez and Aalbers argue that the built environment
played a key role in absorbing the “wall of money” consisting of global capital surpluses that are looking
for places to affix, pushing for the financialization of the built environment. See Fernandez, R., &
Aalbers, M. B. (2016). Financialization and Housing: Between Globalization and Varieties of Capitalism.
Competition & Change, 20(2), 71-88.
57
The purpose of the regional plan is to guide and organize urban development to deal with economic
centers, system of cities, main industrial zones, main infrastructures. However, the two urban planning
documents that govern the planning and construction of a new city are the overall plan and the detailed
plan. The overall plan sets the objectives, targets, and scales in economic, demographic, and spatial terms
for urban development, and the principles of spatial organization for urban development in the planned
area. The detailed plan is a specific plan for a city, and has an operational outlook that defines, for each
block of the area in question, the use, density, height, and volume of buildings, the proportion of green
spaces, and the proportioning of public and essential services such as water and energy.
58
In the planning sphere, investment projects were divided into “productive” and “non-productive”
categories, the former as an investment in enterprises that could bring direct profit from its investment,
the latter included workers’ clubs, theaters, and stadiums. See Wu, F. (1997). Urban restructuring in
China’s emerging market economy: Towards a framework for analysis. International Journal of Urban
and Regional Research, 21(4), 640-663 and Zhang, J., & Luo, Z. (2013). Urban and rural planning
thoughts in contemporary China [In Chinese]. Nanjing: Southeast University Press, page 39.
59
For example, in response to the designation of various “national strategic and experimental zones,” local
governments utilized planning consultancy services to compete for these entitlements.
60
However, in the planning process, there are also complex interactions between different levels of
government. For instance, the enactment of the City Planning Act in 1989 gave the municipality the right
to prepare urban plans, issue land use and building permits, and enforce development control. Even
projects launched by the central government must apply for land use permit from the local government
before the project can be funded. In addition, the local land administration bureau issues land-leasing
certificates for every plot of land obtained through the market. These measures have laid the legislative
foundation for local state power. Municipalities now have substantial power in regulating local
development. Their role has changed from a complementary one that supported state projects to a more
proactive one that makes the local development strategy.
61
To ensure there is sufficient agricultural land to protect national food security, the central government
has developed a quota system to regulate land conversion and new functions of land. Before 2003, local
governments could sell land use rights to private developers through negotiation. A new regulation was
enacted on August 31, 2003, requiring that the land use right of all commercial land must be sold through
open auction (zhao biao, pai mai, and gua pai) to increase transparency and avoid corruption in land
sales. Hence, the land expropriations peaked in 2002 when local governments hurried to acquire and sell
as much land as possible before the implementation of the new regulation.
62
The lump-sum land conveyance fee can ease fiscal hardship, finance urban development, and improve
and maintain the urban built environment so as to promote economic growth. See Wu, W. (2010). Urban
Infrastructure Financing and Economic Performance in China. Urban geography, 31(5), 648-667.
63
Before land reform launched in the late 1980s, urban land was allocated to government organizations or
work units free of charge. Additional free land was offered by local governments to work units as a
subsidy to facilitate urban redevelopment. The free land allocation system resulted in low efficiency and

266
 financial deficiency in urban redevelopment.
64
However, the distorted land-leasing policy leads them to lower industrial land prices to attract
investments, and to push up commercial and residential land prices in order to pursue revenue. The local
government's distorted land leasing price policy, by which it leases out industrial land at a lower price,
and leases out commercial and residential land at a higher price, could lead to land misallocation between
the industrial and service sectors.
65
In 1984, China opened its first development zone in Dalian. By January 1985, similar development zones
were established in thirteen other coastal cities. The central government granted these zoned areas
various favorable policies for the purpose of attracting FDI. Many of these areas never received any
investment and sat idle for years as undeveloped sites.
66
Local government initiates an industrial park program accompanied by two general packages of policies.
One is that city governments make large capital investments to improve the transport infrastructure,
utilities, storage, and other service facilities. The other is associated with a bundle of preferential policies.
See Wang, J. (2013). The economic impact of Special Economic Zones: Evidence from Chinese
municipalities. Journal of Development Economics, 101, 133-147. The recruitment process in industrial
parks is always operated at the lower administrative committee level on behalf of the city government.
Private negotiations take place between the administrative committee staff and the potential entrants
regarding the exact bundle of subsidies each firm will receive if it agrees to enter the park.
67
Politically, the development of health care was regarded by Mao as a key component of state-building.
Under Mao, the welfare system was seen as subservient to the demands of the economy and to the pursuit
of socialism, with policy structured to encourage greater participation in the workforce and to reduce the
burdens of the vulnerable populations on the state. In practice, this meant that social policy tended to
keep the rural and the urban separate, and privileged provision of the urban and the industrial sectors
over the rural and the agricultural sectors.
68
Between the mid-1960s and mid-1980s, healthcare in rural China was structured into a three-tiered
system termed the Cooperative Medical Scheme (CMS), which operated based on the economic unit of
agricultural production— the commune. The first tier consisted of over one million barefoot doctors by
the mid-1970s. More complex or emergency cases were directed to the second tier of commune-based
health clinics funded by local residents. When more serious care was needed, patients were transferred
to larger county or city hospitals; by the mid-1970s, each county in China operated a general hospital.
Communes paid fees for care out of pooled funds. Urban residents received care directly at hospitals,
typically seeing the first available physician after registering.
69
In urban areas, the state-owned enterprises (SOE) organized and financed clinics and hospitals that
provided health care for workers and their family members. Anyone unaffiliated with an SOE relied on
public neighborhood health clinics and hospitals financed largely by local governments. Prevention was
funded and delivered by the government as well.
70
The Chinese government started to believe that only under an ideal condition could it produce the greatest
social benefits efficiently for a nation and also distribute them equitably as an established public
institution. See Yip, W. C.-M., & Hsiao, W. C. (2015). What Drove the Cycles of Chinese Health System
Reforms? Health Systems & Reform, 1(1), 52-61.
71
Health care was largely ignored, and the Cooperative Medical Scheme collapsed. The government had
completely dismantled the communes to privatize the agricultural economy, which also destroyed the
commune-based health care safety net for rural residents who had to pay for health care directly out-of-
pocket, as was already common in cities. See Liu, Y. (2004). China's public health-care system: facing
the challenges. Bulletin of the World Health Organization, 82(7), 532-538.
72
The agenda of the health care reform was aimed at replacing state-funded health care coverage - which

267
 was deemed too much of a financial burden on the state and therefore unsustainable – with a system in
which the citizen, their work unit, and the local government would share health care costs.
73
Doctors typically receive a significant yearly bonus that adds 40% or more to their salaries. Bonuses are
based on the hospital’s overall revenue or the quantity of services a physician provides, including
admissions, medical procedures, tests, and prescriptions. See Yip, W. C.-M., Hsiao, W. C., Meng, Q.,
Chen, W., & Sun, X. (2010). Realignment of incentives for health-care providers in China. The Lancet
(British Edition), 375(9720), 1120-1130 and “How do public hospitals cope with new challenges and
achieve success in the wave of health care reform?” from: [Link]
74
Furthermore, the severe acute respiratory syndrome (SARS) outbreak in 2003 was the turning point for
China’s healthcare system reforms. It focused the Government’s attention on the deficiencies of the
public health system. The Government realized that if attention is only paid to economic growth, an
epidemic such as SARS could completely slow down or even stop that growth, and the Government
should take responsibility to protect people’s basic health needs (as a legacy, strong government
intervention particularly in preventative measures is reported in the COVID-19 pandemic).
75
In 2006, the Chinese President Hu Jintao acknowledged that the Government would shoulder more
responsibility for the health care system. The government has to finance prevention as a public good and
put equity as a priority, to acknowledge market failures in the health service delivery, and to enhance
primary care. Moreover, the government has to regulate brand-name pharmaceuticals and medical
devices because of their monopoly. In April 2009, the Chinese government announced its health care
reform with the goal to provide safe, efficient and affordable basic health care for all Chinese residents
by 2020. The reform affirmed the government’s role in financing health care.
76
According to Ramesh, M., Wu, X., & He, A. J. (2014). Health governance and healthcare reforms in
China. Health Policy and Planning, 29(6), 663-672, Large urban hospitals earn revenue from markups
on diagnostics and drug sales, leading to direct financial incentives for doctors to over-prescribe brand-
name drugs and diagnostic tests.
77
Before 1978, the health care insurance system in China consists of the Labor Insurance Scheme (LIS),
Government-Funded Health Care Scheme (GHS), and the Cooperative Medical System (CMS). In sum,
these programs provided basically free health care for urban employees and a low-cost prepayment
system in rural areas. The government, SOEs and rural collectives assumed most of the health financing
responsibility while individual contributions only took up a very small proportion.
78
Free Medical Service is a type of coverage that privileges government servants. They usually only have
to pay very little (from 80% to 97% coverage depending on status and type of service) for inpatient and
outpatient services. The government later also established the Medical Assistance (MA) program, which
is targeted at three groups and is under the Ministry of Civil Affairs. These are extremely poor households
(te kun), households that receive five guarantees, namely, food, health care, shelter, clothing and funeral
costs (wu bao), and households eligible for a new safety net program and receive cash transfers (di bao).
Revenue comes generally from the government and donations from social sectors. Catastrophic Disease
Insurance was also launched in 2012 and financed by basic health insurance funds. It is managed by
commercial insurance companies, providing participants with extra reimbursements for medical
expenses after they are reimbursed by their basic health insurance
79
The National Reimbursement Drug List (NRDL) plays an important role in the insurance system. See
Süssmuth, C., & Florian, T. (2017). China’s Healthcare Reform: Status and Outlook. In L. R. Burns &
G. G. Liu (Eds.), China's Healthcare System and Reform. Cambridge, United Kingdom; New York:
Cambridge University Press for more details.
80
Between 1949 and the reform in 1978, the government has control over hospitals through subsidizing
public-owned hospitals. Financing was provided for hospitals through government subsidies and

268
 payments by third-party insurers. Since the 1980s, the main purpose of hospital reform has been to
alleviate the government’s financial burden. These reforms introduced market mechanisms. In 1985, the
Ministry of Health addressed the lack of medical inputs and proposed community-run hospitals as a way
to mobilize social forces in launching health institutions. This reform allowed private capital to enter the
health sector by encouraging retired medical staff to pool funds to launch medical institutions. In 1989,
the State Council developed the SOE reform by promoting various contracting systems for medical
institutions. It also allowed public hospitals to earn profits from specialty medical services and to charge
more for higher-quality services. In 1992, the Ministry of Health expanded the autonomy of medical
institutions, including opportunities to increase revenues by incentivizing public hospitals and their
employees. This was followed in 2000 with attempts to localize personnel policies within a framework
of defined finance, taxation, and copayment financing rules. Hospitals thus began to reform personnel
systems and expanded their self-operating rights.
81
The revenues of hospitals are from selling services to social insurers and self-paying individuals, usually
through selling drugs and FFS. Surpluses are distributed to staff through nontransparent bonus schemes
that are based on service production and revenues, usually at the department level. Under these
conditions, hospitals and their clinicians have strong incentives to maximize revenues by raising service
volumes, ordering expensive procedures, selling pharmaceuticals, providing unnecessary care,
generating admissions, and extending patients’ hospital stays. With a 15% markup permitted on
prescription drugs and diagnostic testing, hospitals earn up to 50% of their revenue and in many cases
90% of profits from just these two areas. Since patients typically fill prescriptions on-site (80% of retail
pharmaceutical sales take place in hospital pharmacies), hospitals capture the difference between
wholesale and retail prices.
82
See Yip, W. C.-M., & Hsiao, W. C. (2008). The Chinese Health System at A Crossroads. Health Affairs,
27(2), 460-468; Li, Y., et al. (2012). Overprescribing in China, driven by financial incentives, results in
very high use of antibiotics, injections, and corticosteroids. Health Affairs (Project Hope), 31(5), 1075-
1082; and Reynolds, L., & McKee, M. (2011). Serve the people or close the sale? Profit‐driven overuse
of injections and infusions in China's market‐based healthcare system. The International Journal of
Health Planning and Management, 26(4), 449-470, for over-prescription in China. Since 2015, public
hospital reform in China pushed for the zero-markup drug policy and implemented the policy of
Separating of Hospital Revenue from Drug Sales (SHRDS). However, the SHRDS policy significantly
reduced the drug expenditure but led to more physicians inducing patients’ healthcare service needs. See
Li, L., & Yu, Q. (2021). Does the separating of hospital revenue from drug sales reduce the burden on
patients? Evidence from China. International Journal for Equity in Health, 20(1), 12.
83
The dominance of public tertiary hospitals is not the only reason for neglecting health care at the primary
level. For basic care, people had to wait in long queues at hospitals. Since patients did not have a regular
primary care physician or clinic, they had to maintain and carry with them personal medical records. See
Liu, Y. (2004). China's public health-care system: facing the challenges. Bulletin of the World Health
Organization, 82(7), 532-538 and Squire, S. B., & Tang, S. (2005). What lessons can be drawn from
tuberculosis (TB) Control in China in the 1990s? An analysis from a health system perspective. Health
Policy (Amsterdam), 72(1), 93-104.
84
Around 1952, China started to learn from the Soviet Union model, regarding clinical the key in medical
education. This leads to the merging between more hospitals and medical schools. See Zhang, R., Xu,
L., Wu, J., & Hu, D. (2016). Study on Practice of Medical Operation and Medical Teaching in
Cooperation between Colleges Hospitals [In Chinese]. Jiangsu Science & Technology Information, 18,
40-43; and Feng, R., Hong, T., Jin, Z., Zhenng, M., & Jin, H. (2003). Give full play to the advantages of
teaching hospitals and improve the continuum model of medical education [In Chinese]. China Higher
Medical Education, 6, 32-33.
85
China has also gradually established a comprehensive medical education system of undergraduate and
postgraduate education and continuing professional development. Students of clinical medicine enroll

269
 directly from secondary school for medical degrees that require three years for a diploma, five or six
years for a bachelor’s degree, seven years for a master’s degree and eight years for a M.D, while
specialists have another two years of training. See Xu, D., Sun, B., Wan, X., & Ke, Y. (2010).
Reformation of medical education in China. The Lancet (British Edition), 375(9725), 1502-1504. This
system produced more than twice as many graduates overall in 2013 than in 2003 and more than four
times as many graduates of higher medical education. See World Bank, & World Health Organization.
(2019). Healthy China: Deepening health reform in China: Building high-quality and value-based
service delivery. Washington, DC: The World Bank and World Health Organization.
86
The affiliation process is based on the unchanging structure of administrative subordination (management
system) and funding channels. Administratively, the medical college, university and university maintain
their administrative ranking as before. If the hospital is governed at the provincial level (sheng shu), the
administrative decisions are co-decided by the university and the provincial party committee. If the
hospital is governed at the municipal level (shi shu), then the administrative decisions are decided by the
university. In both models, the hospital and university are financially independent, where the hospital’s
financial decisions are managed by the same-level financial and health ministries. Particularly for
operating funds, they are allocated by the Financial Ministry to the Health Ministry, then to the hospitals.
87
There are three levels of professional title for physicians in China. At the junior level are resident doctors,
at the middle level are attending doctors, and at the senior level are associate chief physicians and chief
physicians. For junior-level and middle-level health professionals, there is a national syllabus, and a
national technical qualification examination is held at a fixed time once a year across the country with
national evaluation criteria. Evaluation for senior-level titles consists of an exam and individual
assessment at the provincial level. The provincial evaluation committee is set up by the provincial health
and human resources bureaus.
88
Based on the author’s interviews with current resident doctors, they experience pressures on both
publications and clinical training. They sometimes express concerns about the allocation of beds because
their supervisor, who are usually the led doctors in the hospital, allocate beds to their MDs based on
academic performance and other inter-personal aspects. The ones who were given more beds are
privileged in producing scientific research because of the larger number of patients, while the ones given
few beds are usually “not seeing the future.” The ones with better performance (usually 1to 2 MD per
supervisor) could become the successor of the supervisor. This, besides higher pays at private hospitals,
disincentivizes other MDs from continuing their career at the public hospital. They tend to work in
pharmaceutical industries for higher pays, or work at private hospitals.
89
In literature, studies suggest that hospital competition could improve quality of care, reduce medical
expense, promoting the overall hospital performance. For empirical studies in China, see Pan, J., Qin,
X., Li, Q., Messina, J. P., & Delamater, P. L. (2015). Does hospital competition improve health care
delivery in China? China Economic Review, 33, 179-199; Lu, L., & Pan, J. (2019). The association of
hospital competition with inpatient costs of stroke: Evidence from China. Social Science & Medicine
(1982), 230, 234-245; and Hu, H.-H., Qi, Q., & Yang, C.-H. (2012). Analysis of hospital technical
efficiency in China: Effect of health insurance reform. China Economic Review, 23(4), 865-877.
Literature on other countries see Cooper, Z., Gibbons, S., Jones, S., & McGuire, A. (2011). Does hospital
competition save lives? Evidence from the English NHS patient choice reforms. The Economic Journal
(London), 121(554), F228-F260; Leleu, H., Al-Amin, M., Rosko, M., & Valdmanis, V. G. (2018). A
robust analysis of hospital efficiency and factors affecting variability. Health Services Management
Research: An Official Journal of the Association of University Programs in Health Administration, 31(1),
33-42. For missed outcomes or even opposite results, see Longo, F., Siciliani, L., Moscelli, G., &
Gravelle, H. (2019). Does hospital competition improve efficiency? The effect of the patient choice
reform in England. Health Economics, 28(5), 618-640; Gozvrisankaran, G., & Town, R. J. (2003).
Competition, payers, and hospital quality. Health Services Research, 38(6 Pt 1), 1403-1421; Propper, C.,
Burgess, S., & Gossage, D. (2008). Competition and Quality: Evidence from the NHS Internal Market
1991-9. The Economic Journal (London), 118(525), 138-170; and Shortell, S. M., & Hughes, E. F. X.

270
 (1988). The Effects of Regulation, Competition, and Ownership on Mortality Rates among Hospital
Inpatients. The New England Journal of Medicine, 318(17), 1100-1107.
90
The State Development and Reform Commission, the former Ministry of Health, the Ministry of Finance,
the Ministry of Commerce, and the Ministry of Human Resources and Social Security of People’s
Republic of China jointly published the “Comments on Further Encouraging and Guiding Social Capital
to Establish Medical Institutions.”
91
For literatures on PPP models for health care services in China, see Wang, K., Ke, Y., & Sankaran, S.
(2019). Public‐private partnerships in non‐profit hospitals: Case study of China. The International
Journal of Health Planning and Management, 34(4), E1862-E1898; Wu, B., & Xue, Y. (2016). Research
on social capital's participation in public hospitals [In Chinese]. Finance & Accounting (Beijing. 1979),
2, 61-62; Zhang, Y., Fan, J., Sun, X., Liu, S., Li, Y., & Lou, J. (2017). A case study of public hospitals
using Public-Private Partnership model in Pudong new district [In Chinese]. Chinese Journal of Health
Policy, 10(3), 18-23; Cheng, Z., & Wang, S. (2011). Framework design of PPP financing scenarios for
nonprofit hospitals in China [In Chinese]. Chinese Hospitals, 15(8), 49-52; and Wu, J. (2016). Research
on the application of PPP mode in the reform of public hospitals. Global Market, 11, 156.
92
The number of private primary care facilities also has grown considerably recently and is about equal to
the number of public primary care facilities. See World Bank, & World Health Organization. (2019).
Healthy China: Deepening health reform in China: Building high-quality and value-based service
delivery. Washington, DC: The World Bank and World Health Organization, page 279.
93
If foreign investors are involved, a new facility requires approvals from the local health authority, the
National Health and Family Planning Commission (NHFPC), the Ministry of Commerce, the National
Development and Reform Commission, and environmental protection agencies; a business license from
the State General Bureau of Industry and Commerce; and registration with the State General Bureau of
Tax. The process can take more than a year. See Glucksman, J., & Lipson., R. (2010). Private Healthcare:
A Tough Market to Crack. The China Business Review, 37(1), 30.
94
Earnings in the health sector—which typically include a basic salary, a performance bonus, and a
hardship allowance—show significant variation and average earnings in China’s regulated health sector
rank ninth among all sectors, only 13% above the economy-wide average, and annual rates of increase
have been low relative to those in other sectors.
95
Recently, the private aesthetic plastic surgery industry in China is developing rapidly and has become the
fourth largest service industry in the country which contributes to 1.2% of the national GDP. As of 2018,
the number of aesthetic plastic surgery practitioners in China has exceeded six million, and the market
size of the industry has reached 17 billion CNY. Another is Ophthalmic Hospital. See Zhan, L., Safaya,
N., Erkou, H., An, L., Wang, Z., Feng, J., & Xu, X. (2020). A comparative analysis on human resources
among the specialized ophthalmic medical institutions in China. Human Resources for Health, 18(1), 29.
96
For the history and adaptation of Traditional Chinese Medicine (TCM), see Sivin, N. (1987). Traditional
medicine in contemporary China: a partial translation of Revised outline of Chinese medicine (1972):
with an introductory study on change in present day and early medicine (Vol. 2). Ann Arbor: Center for
Chinese Studies, University of Michigan and Unschuld, P. U., & Andrews, B. (2018). Traditional
Chinese Medicine: Heritage and Adaptation. New York: Columbia University Press. For the
contemporary practice of Traditional Chinese Medicine, see Li, W.-F., Jiang, J.-G., & Chen, J. (2008).
Chinese Medicine and Its Modernization Demands. Archives of Medical Research, 39(2), 246-251. For
various payment methods, see Xu, J., & Yang, Y. (2008). Traditional Chinese medicine in the Chinese
health care system. Health Policy (Amsterdam), 90(2), 133-139.
97
Due to the heavy cost of hospital-building, developers in China are innovating in reducing the costs. For
example, Wanda develops a light-asset model. It develops its own Wanda Health team by building the

271
 costly fixed assets, including hospitals and other properties, in exchange for collaboration with
prestigious hospital operators such as IHG. After the Wanda Health team has learned enough from IHG,
it becomes the light-asset operator for hospitals, which are built by other developers in a joint-venture
project. Some other developers and investors are focusing on financial leasing as an alternative to reduce
costs. Since private hospitals are not expected to embrace the large number of patients usually seen in
public hospitals, the medical equipment such as MRI, CT, PET, and Gamma Knife (which could take up
to 20% of the total cost) is usually not operating under their full capacity therefore could be leased out
and the renter pays for the lease. According to Y, an internal rate of return (IRR) of about 16% could be
expected, although the actual number depends on the case.
98
For example, in 2016 Beijing Jingkai Investment Development Company Limited transferred its 11
buildings (totaling 67,700m2) and the land use right associated with the buildings to Beijing Ming’an
Hospital Group for 812 million CNY.
99
It was Charles Eliot, who became the president of Harvard in 1860, established a novel curriculum at the
medical school. Admissions standards were raised, written exams and passing grades were required, new
departments of basic and clinical sciences were established, a three-year degree program was introduced,
and the apprenticeship system was eliminated. Harvard Medical School became a professional school of
Harvard University.
100
These institutions together have contributed to a long history of scientific breakthroughs. See Bailey, M.
(2015, December 21). 5 things to know about Boston’s hospital hotspot. STAT. Retrieved from
[Link]
101
It was adopted in 1996 by the BPDA to provide clear guidelines for the development review process
relating to large projects (adding/constructing more than 50,000 square feet), small projects
(adding/constructing more than 20,000 square feet and/or 15+ net new residential units), planned
development areas (new overlay zoning districts for project areas larger than 1 acre), and institutional
master plans (projects relating to academic and medical campuses). See Boston Planning & Development
Agency Glossary: [Link]
102
These NIH funds are used to find causes of common and rare diseases and accelerate cures for the
community and among LMA research specialties are diabetes, cancer, heart diseases, Alzheimers, SIDS,
and genetic disorders.
103
In the same year the Houston physician Ernst W. Bertner was appointed acting director of the hospital
who invited the first five staff members, four of them were scientists borrowed from the UT Medical
Branch at Galveston to conduct research projects in biochemistry and biology. They all worked in
remodeled quarters on the family estate known as the Oaks, originally owned by Capt. James A. Baker,
who had bequeathed it to Rice Institute.
104
For more historical details, see “Building a City of Medicine: The History of the Texas Medical Center,”
at: [Link]
center/.
105
Simpson’s recent book “The medical metropolis：Health care and economic transformation in Pittsburgh
and Houston” documented the history of the institutions in the TMC. In the appendix of the book
“Richard E. Wainerdi and the Texas Medical Center” by Kellar, Bush and Lemaistre in 2017, page 194-
94, there is also a list of institutions in the TMC between 1943 and 2012.
106
Baylor College of Medicine was founded in 1900 as the University of Dallas Medical Department. The
marriage between the medical school and the university was not a happy one, and Southwestern officials
made it clear that they were going to build a new medical center in Dallas with or without Baylor’s
participation.

272
107
For the development in the 1990s, see Wainerdi, R. E., & Newcomen Society of the United States. (1993).
Texas Medical Center. New York: Newcomen Society of the United States.
108
This is supported by making older core industries efficient through automation, attracting and retaining
the young, educated, upwardly mobile workforce by investing in quality-of-life amenities, and drawing
civic leadership from a new generation of young, hip politicians who can relate to this new “creative
class.” See Florida, R. L. (2004). The Rise of the Creative Class: And How It’s Transforming Work,
Leisure, Community and Everyday Life. New York: Basic Books.
109
Mitchell was born in 1919 in Galveston, Texas, and made his fortune in the oil and gas businesses and
founded Mitchell Energy. Mitchell was also a prominent member of several boards within the Texas
Medical Center and a major donor to Baylor College of Medicine. He strongly believed that Houston
had the potential to leverage its medical facilities to create new, high-paying jobs that would help to
sustain the city’s growth into the next century
110
These include designating the campus an officially recognized internship and start-up base and setting up
incubators and intellectual property protection service offices inside the campus to facilitate patent
transfer so that high-tech research and industrial products could be integrated.
111
In planning protocols A35 office land is allocated for 50 years, B23 commercial land is through the two-
stage auction for 40 years, and M4 industrial land through allocation for 50 years. Housing development
on A35 and M4 cannot be sold unless overriding land use.
112
The hospital has more than 60 clinical and technical departments and was one of the 7 hospitals that
firstly updated the information system to the standards of HIMSS (Healthcare Information and
Management Systems Society)
113
The detailed planning of the hospital complex was approved by the Beijing planning committee on 6th
July 2003, and the former Ministry of Health, and the Beijing Development and Reform Commission
respectively approved the establishment of the hospital on the 31st of December 2004, and 8th April 2005.
Then the foundation for the hospital was laid in March 2007.
114
Professionals at the PKU International Hospital were recruited from more than 100 medical institutes. To
compensate for working at a non-public, non-institution (national government-funded jobs, shi ye bian
zhi) hospital, the international hospital redesigned its salary system as incentives. See “Feng Lan, vice
president of PKU HEALTHCARE Three ways to solve the dilemma of hospital talents.” from
[Link]
115
The registered capital of PKU Resources Group was 900 million CNY and the company was co-owned
by PKU Founder (49%) and PKU Resources Limited (51%).
116
Peking University Health Science Center (the medical school) locates its “four key labs” in the park: the
comprehensive innovative drug research and technology development platform, the translational
medicine center, the national engineering lab of dental digital medical technology and materials, and the
reproductive medicine center of the National Health and Family Planning Commission (NHFPC). See
CN-HealthCare. (2014, Sept 3). Joining the Big Health Alliance in Changping: The Momentum of the
PKUCare Industrial Park.” From [Link]
and CN-HealthCare. (2014, Oct 30). “Planning its Industry with 1.7 Billion CNY: The PKUCare
industrial Park Exploring New Markt in the Health Industry.” Retrieved from [Link]
[Link]/article/20141030/[Link].
117
Other hospitals and companies that are owned by PKU HEALTHCARE could be found on its website:
“Industrial Structure” from [Link]
118
Started off as an IT company, PKU Founder went through a reform in 2003 and became a corporation

273
 owning 6 publicly listed companies. At the same time, PKU started its adventurous path on M&A,
including the 230 billion CNY acquisition of Zhejiang Securities in 2002, the 200 billion CNY
acquisition of Suzhou iron and Steel Group in 2003, together with the 300 million CNY acquisition of
Southwest Synthetic Pharmaceutical (which became PKU HEALTHCARE Corp., Ltd., one of Founder’s
publicly listed subsidiary companies) and a 400 million CNY deal with Wuhan Zhengxin Investment.
119
It was founded in 1927 and was formally known as the Shanghai First Medical College, later merged with
Fudan University in 2000.
120
It is co-established by the Shanghai Shangxin Investment Management Center, which is owned by
Shanghai Trust.
121
These could be sees in China in the examples of “Taobao Villages.” In 2009, clusters of rural online
entrepreneurs who have opened shops on Taobao Marketplace, which are referred to as “Taobao Villages,”
began to emerge in China. For more details see “An introduction to Taobao Villages”:
[Link] and “China Taobao Village Report 2020”:
[Link]

274
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