Over the last 30 years, the rate of urbanization in China has left other nations in the dust. More than 500 million Chinese citizens have moved into the country’s mushrooming cities since the early 1980s, altering the landscape of the country. By 2030, the country is expected to have 1 billion people living in urban centers.

As part of this process, China’s leaders have been focusing on the nuts and bolts of expanding their cities. Fixed-asset investment skyrocketed in the last five years while China spent money on roads and railways.

Now, however, China watchers are waiting for a new urbanization plan, one that focuses on social services, the environment and integrating the hundreds of millions of migrants into the fabric of the cities in which they live.

Equitable access

“In the past, ‘urbanization’ meant rapidly raising the share of the urban population and building a lot of urban infrastructure,” says Andy Rothman, China macro strategist at CLSA, a financial services group. “Today, I think ‘urbanization’ means providing more equitable access to social services for the people already living in cities, especially migrant workers.”

The residency system that provides access to social services, the hukou system, has long been in conflict with the rapid migration happening in China. It links many benefits with original place of residence and registration.

Only 35 percent to 40 percent of China’s population actually has urban residency. Seventeen percent of the population is living in cities without a local hukou permit. Without it, residents are unable to obtain city health insurance, send their children to school and access a range of social services.

Many migrants have to return to their homes in the countryside to obtain health care or register their marriages. Their children have to remain at home to attend schools and take nationwide tests. Without a local permit, many migrants live on the fringes of China’s cities.

“A lot of people focus on the hukou system as a way of limiting migration,” says Kam Wing Chan, a professor of geography at the University of Washington, whose research focuses on the hukou system. “It was like that originally but, since about 25 years ago, that has changed. The hukou system has just served to allocate benefits, not to limit physical mobility.”

This worked to help China become the world’s factory, flooding the cities with cheap labor that was transient and did not need the high salaries required to settle in a city permanently. A report released by China’s Bureau of Statistics in 2011 found that fewer than 1 percent of migrant workers had purchased homes in the cities where they lived and worked.

If China is hoping to promote domestic consumption, the country needs urban residents with more disposable income and enough of a social safety net that they feel comfortable spending a portion of that income.

“There are a lot of people withholding consumption because of the uncertainty of living in the city without residency rights,” says Chan. “Residency permits could help incentivize some people to come to the city and create stability for those people who have already migrated. They can think about raising a family; they can go and buy housing.”

China has already shown signs that the new urbanization policy will come with a rethinking of the hukou policy. There are also a number of pilot programs in cities across China that have allowed, on a limited basis, a greater number of urban hukou permits to be distributed each year. In these cities, a points system based on education, employment and tax history allows a small number of people to apply for and obtain urban residency in their adopted cities.

These projects, however, have been small-scale and have been implemented in wealthy cities.

Moving to smaller cities

Attempting to shift migration into smaller cities could provide a solution, but Chan is skeptical of this plan.

“Recently, the Chinese government made clear that they want to ... open up the smaller cities,” says Chan. “But already getting hukou in a small city is not really that difficult. So, why is that not working?”

It’s not working, he notes, because migrants have minds of their own and still prefer the big cities, where jobs are more easily found.

“I think at this stage of the Chinese economic development, it is still Beijing, Shanghai and Guangzhou that are the big magnets,” he says. “Not only do they have many service jobs, these places have very large nearby industry as well; they are major hubs, and they have the jobs that attract migrants.”

Comprehensive approach

In 2009, a report from McKinsey Global Institute offered some details on what a comprehensive approach to urbanization would look like.

Cities will have to stretch their social services, increasing efficiency to do more with their resources, the report noted.

Concentrated growth — increasing density in larger cities rather than expanding a city’s footprint — is a more efficient model than the urban sprawl that past development initiatives have supported.

These sorts of dense, super-sized cities would also be well-served by implementing city development plans that are centered on public transport and developed according to strict zoning regulations.

Administration takes up a large percentage of government spending, and cities could work to streamline their bureaucracy and eliminate any repetition. Cities could also stretch their health-care services by encouraging primary care, opening convenience clinics and boosting initiatives related to prevention.

“Public housing is something they will have to expand,” adds Chan. “Certainly, a portion of the migrant population will qualify for public housing.”

Chan says the hukou system can be reformed gradually with little additional cost. “There are a lot of good advantages to this, like making the urban labor force younger, that would help ease the financial burden,” he says. “I’ve proposed a program that would need to be very gradual — it would take at least 15 years.”

Under Chan’s plan, urbanization would favor the educated and skilled first and then move on to other social groups. Moving gradually would help China realize the benefits of urbanization without overtaxing city resources.

“This will also give people the incentives to improve themselves,” he notes.

Adapted from http://www.knowledgeatwharton.com.cn. To read the original, please visit: http://www.knowledgeatwharton.com.cn/index.cfm?fa=article&articleid=2838