Potential pitfalls in China's road to urbanisation

EVERY Chinese New Year, China experiences the massive "Spring Festival Travel" (chunyun), as millions of urban residents return to their villages for family reunions.

This year, Chinese citizens made a staggering 3.6 billion passenger trips by train, plane and automobile, setting the world record as the largest-ever migration of people in just 15 days.

China is gearing up for a massive urbanisation drive, the scale of which will also be unprecedented in human history. More than 200 million people are slated to migrate to the cities and towns by 2020, when about 60 per cent of the population is projected to live in urban areas. As urbanisation speeds up, the annual Chinese New Year migration will inevitably decline in importance.

Since he assumed office last March, Premier Li Keqiang has been describing urbanisation as China's next engine of economic growth. It would also help rebalance China's economy by promoting greater domestic demand.

The bigger urban economy, largely service- oriented, will generate a new wave of investment in urban infrastructure and amenities along with a rise in demand for services ranging from housing to entertainment.

Since Premier Li's declaration, China's top planners have been put to work to map out a viable plan for sustainable urbanisation. At the Third Party Plenum held last November, President Xi Jinping, general secretary of the Chinese Communist Party, also named urbanisation among the key priority areas in his new round of reforms.

On Dec 14 last year, a Central Urbanisation Work Conference attended by top leaders was convened in Beijing. At this conference, Mr Xi declared that urbanisation was "the road that China must take in its future modernisation drive".

Several Chinese leaders also hinted that China's urbanisation strategy would be "people-focused". But no further information or any concrete policy package related to urbanisation has been released yet. Urbanisation is a very complex process.

It entails reshaping not just the physical environment but also economic structures, social relations and the cultural fabric of society.

The problems involved are not formidable if the process were to take place gradually, allowing various social sectors to adjust. But China's urbanisation did not occur in such a natural way. Instead, it was a highly regulated process of controlled rural-urban migration.

Urbanisation with Chinese characteristics

THE urbanisation process is typically marked by the shift of rural population to the urban areas. According to Nobel economist W. Arthur Lewis, the agricultural sector typically has an unlimited supply of labour (what economists call a perfectly inelastic supply curve).

As agricultural productivity grows, more rural surplus labour becomes available for transfer to the urban areas for industrial development. The process goes on until the rural labour supply reaches a "turning point" - the so-called "Lewis turning point", in which the marginal product of rural labour becomes positive, indicating that there is no more redundant labour.

China started its urbanisation at a very low level. In 1950, only 13 per cent of the population was urbanised. In 1978, at the start of economic reform, it was still only 18 per cent.

Apart from low agricultural productivity, which resulted in the majority of the rural labour force being tied down to farming, China's slow rate of urban growth was mainly caused by the government's stringent measures to control rural-urban migration through the hukou (household registration) system.

In this sense, China's highly regulated pattern of urbanisation is unique. In most developing countries, urbanisation moves ahead of industrialisation. As a result, Third World cities from Manila to Mumbai are plagued by widespread urban poverty, along with urban sprawls and slums.

Thanks to its regulated growth, Chinese cities have been largely spared those urban woes. However, the downside of China's regulated urbanisation quickly surfaced once its industrialisation picked up as a result of market reforms.

In 1990, 27 per cent of China's population was urbanised. By 2000 it reached 35 per cent, still well below the world average of 57 per cent. After 2000, however, the pace of urban growth picked up as the government started to relax the hukou system to meet growing labour shortages in urban areas.

By 2012, China's urban population finally reached 52.6 per cent (slightly above the world average), having absorbed 250 million migrant labourers by changing the hukou system to legalise their residence in urban areas. Considering China's double-digit rates of economic growth and industrialisation since the 1978 reform, however, the nation's urbanisation rate has been manifestly slow.

Now, China's urban planners have been given the daunting job of removing many of those anti- urban policy distortions in an orderly manner. They need to come up with effective measures, not just to dismantle the old hukou system, but also to address the related issues of the rural-urban disparity and rural land ownership. All these involve exceedingly complicated policy options.

Because of this, the government cannot rush the process by releasing a detailed urbanisation plan too early.

The perils of planning

THE future shape of Chinese cities much depends on how the present Chinese leaders want them to develop. Many Chinese cities today face serious problems such as pollution and traffic congestion. Obviously, the first challenge for the planners is how to avoid aggravating those problems.

China today counts a total of 657 cities by administrative definition. They comprise four municipalities, 283 prefecture-level cities, and 370 county-level cities. The four municipalities, actually mega-cities with populations of more than 10 million, are Beijing, Shanghai, Tianjin and Chongqing.

The main thrust for future urban growth, therefore, is to focus on developing the smaller Tier-two and Tier-three cities. The planning also involves selecting a cluster of cities in different parts of China to develop as regional hubs.

The ultimate objective of modern urban development is for cities to become socially diverse, culturally vibrant and environmentally "liveable". Before this can be achieved, however, top priority must be given to developing a strong economic base so as to ensure adequate employment.

Many cities in the West have decayed due to chronic economic crises. In China, some local governments have also created satellite towns through rampant property speculation. But without supporting economic activities, they just became "ghost towns".

This brings to the fore the central issue of "good planning". It is no longer about the old controversy of "to plan or not to plan". China has already committed itself to planned urbanisation. The pertinent point then is not so much "how to plan" as "what to plan" and "how much to plan".

All plans, in varying degrees, represent the preferences of the planners, which may well be different from what most people actually want. Also, no plan in the world can adequately address the issue of future uncertainty. All planners are also influenced to some extent by dominant social values and existing technology of the times, the so-called "zeitgeist thinking".

To minimise those hazards, it would clearly be better for Chinese planners to be more pragmatic and less ideological from the start - more market-oriented and less centrally directed.

The basic sin of central planning is "one size fits all" - or yi dao qie (to cut all in one stroke) in Chinese. Planning future urbanisation for such a vast country calls for more flexibility. It should also allow for greater diversity. China's regional hubs and its many local cities should preserve their own local characteristics.

China's next phase of urbanisation certainly abounds in many economic and social promises. But its road to urbanisation carries a lot of uncertainty and potential pitfalls as well.

stopinion@sph.com.sg The writer is a professorial fellow at the East Asian Institute, National University of Singapore.

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