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August 27, 2013

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Home » Opinion » Chinese Views

Urbanization should put people first, not property or investment

Source: Xinhua | August 27, 2013, Tuesday | Print Edition

Upgrading China’s urbanization process to bolster a slowing economy is a daunting task for the new government.

Since the government was formed in March, it has emphasized that the need to develop a new kind of urbanization, putting people at its heart.

Analysts believe that urbanization will boost consumption and investment, but the inertia of local governments stuck in the old urbanization rut may hinder the effort.

The government sees urbanization as a way to push domestic consumption as the main growth engine, replacing exports and investment, which powered China’s economic rise for the past 30 years. Depressed external demand and lack of endogenous dynamics have trapped the economy in a persistent slowdown, with growth pace easing to 7.6 percent in January-June, the weakest first-half performance in three years.

Accelerated urbanization can keep the economy expanding by around 7 percent for the next 10 years, expanding the proportion of middle-income groups and invigorating domestic demand, said Chi Fulin, director of the China Institute for Reform and Development.

China’s urban residents accounted for 52.6 percent of total population last year. That figure will grow by about 1 percentage point each year and reach about 65 percent in the 10 years, according to Chi’s estimates. That means another 150 million rural residents will move to cities and towns, adding to the current 260 million migrant workers — a process that is expected to generate investment demand of 40 trillion yuan (US$6.5 billion) and consumption of 45 to 50 trillion yuan by 2020.

In comparison, developed economies in Europe and the United States are about 80 percent urbanized.

True urban status

Considering the prospects, the government has been working on an urbanization plan since 2010. Granting migrant workers true urban status (with benefits) and fostering sustainable development of cities are the core of the plan, which is  expected to be unveiled later in the year.

“The biggest problem is that local governments are liable to stick to their old urbanization path,” said Zhuang Jian, an economist at the Asian Development Bank. Increasing the value of land through expropriation and population aggregation has been the most effective way for local authorities to attract investment and grow the local economy over the past years, a great incentive to boost urbanization.

Failure to give urban citizenship to rustics who leave their rural homes has drawbacks, including issues of unfair treatment, loss of arable land and the piling up of local government debts, said Kuang Xianming, director of economic research at the China Institute for Reform and Development.

Each year, millions of people from the countryside come to work in big cities, often in low-paid manual work. The migrant workers only earned an average 7,019 yuan in net income last year, compared with 24,565 yuan for the average urban workers’ salary.

“Some local governments are good at economic construction. But they have no idea how to push urbanization required by the central government, to focus more on promoting equal public services, city planning and low-carbon technology needed to support green urban development,” Zhuang said.

And some local heads intentionally repeat their “constructing cities” campaign because the emphasis on improving public services and conservation-oriented urbanization will further squeeze cash-strapped local finance. Due to a disproportional distribution of fiscal income between central and local governments, local finance largely relies on revenue from sale of land, mostly for real estate development.

The sheer focus on construction of real estate has created uninhabited cities across the nation. Erdos City in Inner Mongolia Autonomous Region has been put under the microscope for its sparse residential communities.

Experts believe that reform of the government itself, such as changes in government functions and official assessment mechanisms, will play a vital role in keeping the urbanization drive on track. Past years have seen the formation of government-dominated and investment-led city development, but this should give way to a model that features the market and demand, said Kuang.

Zhuang shares his views. “The government can make plans and offer guidance, but should refrain from interfering in the process of urbanization,” he said.

Chinese Views


 

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