Towards sustainable urbanisation in China

China continues to face serious impediments in the urbanisation process

China has received enormous dividends from its decades of urbanisation, which provided labour resources for the development of its industrial and service sectors and rapidly raised the income of the Chinese people. A large number of Chinese farmers became part of the country’s modernisation process, facilitating poverty alleviation in rural areas. At the end of 2016, the urbanisation rate of China stood at around 57 per cent.

China however continues to face serious impediments in the urbanisation process. 

One of these is the country’s household registration system or the hukou, which connects a person’s right to access public services with whether or not he has a resident status in a locality. The reality is that some one-third of city dwellers in China are trans-regional immigrants who actually do not possess local household registration. As a result, they do not enjoy the same level of social security and public services as local urban residents. 

This is a particularly serious social problem for China. One major consequence of linking the hukou to public service is that there exists 60 million liushouertong, or children left behind by their migrant parents in their home villages in China. These children are more or less left to fend for themselves and meet their parents only sporadically over a year. At the same time, there are about 30 million migrant children in China’s cities who also do not enjoy the same education opportunities as local urban children with the hukou. 

The difficulty of educating these 100 million children is a chronic malady of the urbanisation process in China today. If not addressed, this problem poses a great threat to the healthy and sustainable development of China’s economy in future.

China’s system of land allocation is another big barrier to urbanisation. The government controls the quantity of agricultural land that can be converted to urban land under a “construction land index system”. As a result, the supply of newly added land is very limited and in cities such as Shanghai and Beijing, house prices are extremely high.

At the same time, the government provides greater allocations under the construction land index to those areas which see a large population outflow, so as to help them develop local industries and build up new cities. While the intention is to retain the population, in reality, a large number of industrial parks are idle and new cities remain empty.

These problems are closely related to two popular but erroneous ideas in China. The first is that the population in Beijing and Shanghai is too high; the other is that it is the concentration of economic development only in the coastal areas and super large cities that leads to unequal economic development between regions. 

In reality however, Beijing and Shanghai are more than just cities — they are metropolitan areas composed of a number of cities around the central city. They have an area of about 16,000 sq km and 6,000 sq km, respectively, and can be compared to the Tokyo metropolitan area. However, while the latter had a population of 37 million-plus at the end of 2015, the population of Beijing and Shanghai stood considerably lower at 21.75 million and 24.15 million respectively. Even including the small cities nearby, Beijing and Shanghai lag behind Tokyo. 

Meanwhile, in terms of regional imbalance, the problem is not overcentralisation of economic activity. There is, in fact, a lot of evidence to prove that China’s economic agglomeration is far lower than that of developed countries and lower than some developing countries at a similar stage of development. The real problem is that the distribution of the population is not in tandem with the economy’s requirements, leading to the widening gap in the per capita GDP of different regions. 

The solution to the problem is not to seek greater evenness in regional economic distribution but to let the population move still more freely. This would allow each region’s GDP to accord more naturally with whatever its share of the population is.

In practice, however, China’s household registration system and discriminatory public services system have become ways to limit population in the mega cities. The government also uses administrative power to transfer resources to the less developed regions in order to balance regional development. After 2003, the land supply to the in-flow areas was tight while land supply was eased in the out-flow areas. As a result, house prices in some first-tier cities reached astonishingly high levels while a large number of third- and fourth-tier cities have turned into ghost cities.

The Chinese government purports to respect the laws of urban development, but Chinese society itself is not educated about the laws of urban development. Only by realising the prevailing laws of urbanisation — that the rate of urbanisation will constantly move upward and that the population will naturally concentrate in big cities — can resource allocation during urbanisation adhere to market principles. The Chinese government needs to increase the supply of land as well as public services and infrastructure availability to all residents in in-flow areas, to ensure that China’s urbanisation follows a healthy and sustainable trend in the future. 

The writer is Professor of Antai College of Economics and Management, Shanghai Jiao Tong University. This article is part of a series by Chinese economists facilitated by the Institute of Chinese Studies, Delhi