Urbanization: Opportunity or Maelstrom for China?
Chinese news in recent months has been dominated by information and speculation regarding the direction of the country’s ongoing urbanization. Discussions largely address the appointment of a new management team and anticipate the content of upcoming announcements from the government (particularly at the plenary session of the CPC next fall) on new policies and reforms related to urbanization. Points that come up most frequently are partly economic and conjectural (for e.g. Is urbanization a source of economic growth, or the opposite? What will urbanization truly cost the country and what adequate funding systems should be implemented to address these costs?); and partly strategic, structural and social. Adding to the mounting issues and concerns is the reformation of China’s hukou system, a prerequisite and sine qua non of a socially equitable urbanization that has nonetheless encountered several obstacles at the local level of implementation
The Wealth Daily and The Economist explain the intentions of Premier Li Keqiang’s proposed program, which aims to make the Chinese economy less dependent on its exports by stimulating domestic demand. According to him, urbanization, which lies at the heart of this economic program, should achieve the largest consumer market in the world through human capital (especially from rural areas). At his first press conference in March 2013, Li Keqiang explained that “urbanization [will] generate a huge demand for consumption and investment, increase employment opportunities, create wealth for farmers and bring benefits to the [entire] population”.
The World Bank estimates that by 2030, Chinese cities will expand by 13 million more people every year. Demand and investment for housing, infrastructure and services will increase the economic growth rate, but will this increase be sustainable? Optimists believe this investment will sustain a growth model based on a consumer society.
Others, such as the economist Michael Pettis, are more skeptical. According to him, “Urbanization does not necessarily stimulate growth but growth inevitably leads to urbanization.” In other words, urbanization can stimulate growth, but only in specific circumstances. On the one hand, urbanization generates growth if the creation of jobs in the city is considered significantly more important than stimulating rural area growth. It can also cover the construction costs of new urban areas. On the other hand, if China’s economic growth declines to the point that unemployment becomes problematic, urbanization and big construction works may then get in the way of getting the economy back on track.
But as Caixin Online emphasizes, successful urbanization begins with the reformation of the hukou system to authorize the settlement of millions of migrants and their descendents into cities. About 260 million migrant workers spread across the country are still denied basic public services (access to employment, the education of children) and social welfare (healthcare coverage). This reform is expected to be announced this fall, but it is already facing resistance from local communities, which has slowed down the process considerably. The Wealth Daily reported three categories of challenges that must be met at local level: 1) logistics (housing, infrastructure, and additional services that need to be increased in anticipation without creating oversupply); 2) financial (experts estimate the cost of urbanization to be 100,000 yuan per migrant, which requires the establishment of an efficient financial system to prevent the country from going into debt); and 3) social acceptance (the gap in living standards and education between the rural and urban population is still such that many urban people may not accept low-income migrant settlements in proximity to their homes).
For more details see China Analysis, Dossier n°42, Urbanization in China, Asia Centre, April 2013 and Decoding the urbanization, by Li Tie, guest to the show “Interview with Caijing”, Sina, March 2013 – 李铁做客新浪《财经面对面》解读城镇化.