Myths and Realities of China’s Urbanization
Lu Ming
August 2015
Introduction
At the root of China’s many urbanization problems lie a number of misunderstandings about the nature of urbanization at all levels of society. The most common of these misunderstandings are captured in several often-stated assertions: (1) urbanization in China will lead to a reduction of arable land; (2) urban expansion will inevitably mean a deteriorating quality of life, not least because of congestion and pollution; and (3) the costs of comprehensively reforming China’s system of residency permits system (or hukou)—a system that, if reformed, would entitle migrant workers to the full range of public services—will threaten the country’s fiscal sustainability.
Taken together, these three misconceptions have had a powerful impact on government policy in China. Indeed, as a direct result of these deeply held beliefs, Beijing has relied on administrative controls, not market mechanisms, to direct China’s urbanization process.
But such an approach has yielded some major deficiencies in China’s overall urbanization policy. For one thing, Beijing has imposed tight hukou controls on the country’s biggest cities, thus restricting their ability to grow. Second, the Chinese government has relied excessively on administrative power to accelerate urbanization in China’s central and western regions, even though people are, in fact, moving largely to the country’s coastal areas. Third, Beijing has encouraged the development of small and mediumsized cities, but these are usually scattered far away from regional economic centers.
Unfortunately, then, these policies have been economically inefficient, and so they have hindered China’s economic growth momentum in several ways. One way they have held China back is that the extensive growth of China’s central and western regions has resulted in unsustainable levels of local debt. At the same time, the proportion of non-permanent residents in large cities (those who do not have an urban hukou) has continued to rise,exacerbating potential social instability.
Finally, unlike other countries that have experienced rapid urbanization, income disparities between urban and rural areas, as well as between different regions of China, have widened instead of narrowed. This policy memorandum proposes several policy adjustments aimed at mitigating the distorted economic effects of the policies that have flowed from these misunderstandings. Five specific areas of China’s current urbanization policy require changes:
1. China’s hukou system needs dramatic change, not just in the thirdand fourth-tier cities that are the current focus of policy but also in large and very large cities.
2. The allocation of construction land quotas should be consistent with the direction of labor flow.
3. China’s fiscal transfer payment system should be shifted from support for productive investments to support
for public services.
4. Economic growth and tax revenue targets should be deemphasized in the evaluation and promotion system for officials and cadres.
5. China’s large cities should make better use of planning tools in metropolitan areas and urban cores.
Only in this way can cities expand while mitigating urban ills such as congestion and pollution. For instance, through better design of infrastructure and public service provision, China can effectively respond to the challenges that have bedeviled urbanization in other countries.
