Urbanisation: China's silver bullet?

Urbanisation: China's silver bullet?

BEIJING - Some four decades ago, tens of millions of young, urban Chinese were sent by Mao Zedong to the countryside to be politically educated, and to help ease the government's twin headaches of widespread joblessness and rural underdevelopment.

Among them was a young Mr Li Keqiang, who yesterday took charge of the economy as China's new Prime Minister.

Sent in 1974 to do manual labour in an impoverished county of eastern Anhui province, Mr Li, then 19, observed the rural-urban gap that plagued China then - and still does today. Now, as Mr Li, 57, faces the next decade's challenges of closing this gap and creating urban jobs for a more demanding younger generation, his toil in rural Anhui may have germinated the solution - urbanisation.

It is likely to be one of the top priorities Mr Li will stress in his first press briefing as Premier tomorrow, as part of a plan to sustain relatively fast and fair growth for the world's No. 2 economy.

In fact, urbanisation is being touted as the silver bullet in his arsenal of economic strategies.

Bringing the rural masses into cities "is the key way to generate new demand and close income gaps", noted government think- tank researcher Yuan Gangming.

Two-thirds of China's nearly 1.4 billion population could live in cities by 2030, a 2012 study by the State Council's Development Research Centre forecasts. This compares with just 52 per cent now.

This could mean another 300 million to 400 million rural residents taking up jobs and buying houses and other goods in cities.

The influx would also spur spending on social services such as health care and education to equip urbanites for services and skilled jobs as China transforms from the world's low-cost factory into a more innovative powerhouse.

All these scenarios could kick China's domestic demand growth engine into high gear.

It could even help "support annual growth of 7 per cent to 8 per cent in the next 10 years", say bullish analysts such as China (Hainan) Reform and Development Research Centre professor Chi Fulin.

That seems like a dream compared with the dire risk that the World Bank is warning China about: the middle-income trap. This occurs when a developing country's economy slows amid rising wages and competition from lower-cost markets overseas.

China has already surpassed the World Bank's definition of a middle-income nation of US$4,000 (S$5,000) per capita income by more than 25 per cent.

And Mr Li's task - set by predecessor Wen Jiabao during the leadership transition late last year - is to double this by 2020. This is where his brand of "new-style urbanisation" comes into play.

"In the past, urbanisation was primarily about raising GDP, but the new style emphasises holistic development," said Professor Ni Pengfei, a Chinese Academy of Social Sciences analyst.

Not only can this approach help unleash the potential for China's workforce and restructuring, but also it can direct resources to raise living standards and wages.

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