China’s decisive step on urbanization, a boost to economy

On April 8th, the Chinese central government announced an official paper entitled “Priorities in Urbanization Development 2019”. Some commentators believe this document, if implemented, will drawing a dividing line between the “old” and “new” style of China’s development and result in elimination of many traditions that has been inherited for thousands of years for social and political management in China.


Primarily this official paper is about the reform of the household registration system (Hukou in Chinese) which officially registers and identifies a person as a resident of an area with information such as name, parents, spouse, and date of birth.


Until recent years the household registration system served the government well as an effective tool for social management as it belonged to an integral system about public education, healthcare, employment and distribution of rations. Furthermore it has effectively built China into a dual society as public services and social security benefits are distributed differently between the rural and urban sectors.

In the old days when a peasant visited relatives in cities he needed to hand over a pass issued by his hometown government to the local government where he was visiting.


The authoritativeness of this household registration system has dramatically reduced since the start of the reform in 1978 as tens of millions of migrants are encouraged to seek jobs in cities. However some of the key elements of it still remain functioning that prevent rural migrants from settling down in cities. For example, children of migrant families are denied access to public schools in cities; migrants have to pay more when visiting public hospitals in cities as their rural healthcare coverage is by far insufficient in comparison with the one for urban residents.


The request of terminating this discriminatory household registration system run high from time to time in the past but two concerns have prevented such notion from fully implemented.


First, it has always been a worry that massive influx of migrants into big cities would intensify the problems ranging from pushing up housing prices, traffic congestion, crime, and to pollution.


Second, the household registration system which assigns rural residents with a block of land in rural areas has always been considered as a safety net capable of accommodating the return of migrant workers when urban economy runs into trouble.


Therefore, the notion of having a “balanced development between big cities and small-medium cities” has been on the upper hand when urbanization becomes one of the highlighted drives for the economy.


However, such effort has contradicted to the actual movement of people and capital that are mainly heading to southeastern coastal regions. Consequently while the price for land and properties skyrocketed in major coastal cities, oversupply of empty industrial parks and ghost cities become common in the central and western regions. The insufficient use of land and capital has contributed to rapid increase of the debt level to local governments which becomes a huge financial burden to the Chinese economy.


The issue of “Priorities in Urbanization Development 2019” indicates a change of the direction. It stipulates that cities with a population of one to three million should completely abolish the restrictions prohibiting rural migrants from settling down in cities. The cities with a population of three to five million should fully open to rural migrants and assist their settlement.


These new policies effectively mean termination of the household registration system in most Chinese cities except for a few megacities with population over 10-20 million such as Beijing, Shanghai, Guangzhou and Shenzhen. In addition, by removing the restrictions on movement of human resources this policy is also targeting to accelerate formation of major city clusters with those major cities as core.


Taking Yangzi River delta as an example where Shanghai and another 15 industrial cites located. Shanghai as an international city is now being confined due to lack of land, over population, congestion and pollution. One of the feasible solutions is to shift part of Shanghai’s functions to neighboring cities such as Suzhou, Wuxi, Changzhou, Jiaxing and etc. In such a way Shanghai and its neighboring cities can pursue a differentiated and coordinated development.


To support formation of major city clusters in most advanced regions has become the keynote to advance the urbanization. The other Chinese regions assigned to develop city clusters are Greater Bay District covering Guangdong, Hong Kong and Macau (Peal River Delta); Beijing-Tianjin region; Chengdu-Chongqing economic region, and to a less extent of hub cities such as Wuhan, Zhengzhou, Xian, Changsha, and Qingdao.

Those second tier cities in those city clusters will be offered more land for industrial and commercial purposes along with influx of migrants. The expansion of population and business activities will stimulate investment, enlarge tax pool for the government and reduce the living and production cost for the enterprises and residents in those cities.


The impact to the rural sector will also be profound. Large amount of migrants leaving rural communities for cities will lead to concentration of arable land to professional farmers and agricultural businesses that have had rapid expansion in recent years. The efficiency of the Chinese agriculture will improve substantially thanks to improvement on economies of scale and use of advanced agricultural machinery and technology.


The activities mentioned above are actually part of a process reshuffling the control over economic resources such as land which is simultaneously a process about creation, distribution and exchange of wealth. Particularly those people whose land is being acquired are entitled to have a fair compensation. Those rural migrants who seek work in cities are able to lease their land with a good rental profit. Generation, distribution and exchange of wealth in such a way should transfer into expansion of the domestic consumption and economic stimulation.


However, the challenges are also acute. The free movement of people and reshuffle of resources will put on pressure to the authority in social management. If the government administration and the legal and policing system can not maintain this process in a fair and orderly manner, it will lead to chaos, corruption, resentment, disillusion and formation of mafia.

Ren Zegang

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