Urban haves and rural have-nots: China’s 6.5-trillion-dollar urbanisation plan

Chinese income and wealth is highly concentrated in its megacities along its coastline. In an attempt to tackle the urban-rural gap, Chinese premier Li Keqiang has stated that the focus of the next wave of urbanisation will be on small and medium-sized cities.

Flickr/FriendsofEurope Images PRC Premier Li Keqiang speaks on urbanisation at a conference during his visit to Berlin in May 2013.

Flickr/FriendsofEurope Images
PRC Premier Li Keqiang speaks on urbanisation at a conference during his visit to Berlin in May 2013.

Li Keqiang, who took over as prime minister in 2013, sees further urbanisation as critical to China’s economic success. Li, having called urbanisation a gigantic engine for growth, oversees the central government’s plan to invest 40 trillion yuan (6.5 trillion US dollars) in the urbanisation of small and medium-sized inland cities.

“China’s ongoing efforts to actively and prudently drive the country’s urbanisation will result in hundreds of millions of farmers becoming urban residents, thereby creating an ever increasing market demand”, Chinese premier Li highlighted in an interview to the Swiss newspaper Neue Zürcher Zeitung during his visit to Switzerland in May 2013. Can Li deliver on this plan given China’s recent trajectory of urbanisation and the central government’s control over investment? And could it tell us where Chinese market expansion will happen in the not so distant future?

The figures of China’s urbanisation trend since 1980 are impressive: China’s urban population stood at 670m in 2010, compared with less than 140m in 1980. Its urbanisation rate has increased from just 14% to around 50% today. For the first time in China’s history, its urban population outnumbers its rural one. Given these figures Li’s ambitious plan to increase the urbanisation rate to around 60% (the OECD average lies around 80%) until 2020 and to 70% by 2030 seems less utopian. However, in numbers this means that an additional 130m people are to become urbanites by 2020 and another 140m by 2030 – that is a total of 270m in barely 17 years.

In order to achieve its goals, the Chinese government intends to gradually abandon limits on farmers under the household registration, or “hukou” system, which restricts migration into cities. It will be easier for farmers to sell or lease land, look for work in the cities and qualify for public services there. The overhaul of the hukou system is supposed to come along with an expansion in the coverage of social welfare, including pension and medical insurance, for rural migrants in small and medium-sized cities.

The small-city first strategy will require substantial funds to help local governments pay for the costs of absorbing rural migration, including investment in infrastructure, housing, education, and social insurance. This is expected to stir domestic demand as the most urbanised cities do exhibit the highest per head consumption expenditures in China. The story is supposed to work like that: Demand grows as rural residents move permanently to the city, earning more in productive manufacturing and service jobs than they do from their agricultural plots back home. In general, this urbanisation process should boost domestic spending.

The Economist Intelligence Unit (2014) The relationship between urbanisation rate and annual per head consumption expenditures for Chinese prefecture-level cities as predicted by 2030

The Economist Intelligence Unit (2014)
The relationship between urbanisation rate and annual per head consumption expenditures for Chinese prefecture-level cities as predicted by 2030

So far, urbanisation and the emergence of megacities have mainly occurred in coastal provinces. The densely populated Yangtze River Delta, unsurprisingly, features prominently with average urbanisation rates that will have reached 80% by 2030, which is comparable to developed countries

However, Chinese officials have been worried that allowing Chinese citizens to move freely to China’s biggest cities would risk the creation of ring cities and slums as in Latin America and Africa. Thus, the choice to channel migration towards small and medium–sized cities has to be regarded as an attempt to avoid further uncontrolled migration towards the more developed coastal megacities.

Some critics say that trying to channel residents into smaller cities leads to wasteful spending and empty housing projects as migrants head to the larger cities anyway in search of jobs. In fact, many smaller Chinese cities, in particular in the north-east, are already ringed by empty industrial parks and vacant housing projects. These so-called ghost cities have been financed by a surge in debt without creating the necessary jobs to attract people.

In fact, when looking at recent urbanisation waves in China it is not entire clear whether people came first to the coastal cities and industrial jobs were created as a consequence, or if people just followed already existing jobs in the coastal areas. It will be interesting to see whether local stakeholders will use the urbanisation plan’s funds to jump-start a similar industrial development process as in the Pearl and Yangtze River deltas.

Are the success stories of the Yangtze and Pearl River deltas related to their local network of business actors and government agencies pushing industrialisation? Or did cities in these regions just happen to have the initial advantage of a larger size, which attracted rural migrants and then led to industrialisation? The answer to this question will tell us whether an additional 270 million Chinese will wake up living Li’s urban dream in the coming decade.

Neue Zürcher Zeitung (2013) Warum ich ausgerechnet die Schweiz besuche. http://www.nzz.ch/aktuell/startseite/warum-ich-ausgerechnet-die-schweiz-besuche-1.18085487, 23 May 2013. Web 31 Oct. 2014.

The Economist Intelligence Unit (2014) China’s Urban Dreams, and The Regional Reality. http://www.eiu.com/Handlers/WhitepaperHandler.ashx?fi=China-urban-dreams.pdf&mode=wp&campaignid=ChinaUrbanDreams, Report by The Economist Intelligence Unit. Web. 31 Oct. 2014.

The Wall Street Journal (2014) China’s Leaders Push Urbanization as Engine for Growth. http://online.wsj.com/articles/SB10001424052702304202204579259221407331500, 15 Dec 2013. Web 31 Oct 2014.

The Wall Street Journal (2014) China Unveils Urbanization Plan. http://online.wsj.com/articles/SB10001424052702303287804579444112058812626, 16 Mar 2014. Web 31 Oct 2014.

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