Beijing’s Ambitious Urbanization Plans

Beijing’s top leaders, over the weekend met for the first time to set the formal road map for Premier Li Keqiang’s ambitious plan to move millions of people from rural areas into cities. Li and his planners believe that urbanization holds the key to stimulating domestic demand to revolutionize the export-led economy.

The exodus of China’s rural citizens to the cities has already been growing at a staggering pace, recording annual growth of 0.64 percent from 1978 to 1996, then soaring by 1.39 percent annually to 52.6 percent in 2012. The government wants 70 percent of China’s residents in cities by 2030, and is engaged in a huge program to move the cities to the countryside as well as allowing rural residents to move to expanding regional cities.

But pulling off a task involving the movement of as many as 260 million people into new housing, jobs and social programs will take enormous amounts of money, straining local, regional and national government budgets. It will be necessary to expand local governments’ tax revenues, allowing local governments to issue municipal bonds. According to the Chinese Academy of Social Sciences, it will cost RMB131,000 to provide urban citizenship for each migrant over the entire migrant population. The total bill is expected at RMB34 trillion US$5.59 trillion), or 65.5 percent of 2012 gross domestic product.

Also, issuing orders from Beijing, especially for the breakneck construction pace envisioned by the government, is a lot different from what happens in capitals thousands of kilometers from the capital.

Local governments across China already face vast debt problems. In the last decade, strapped for operating funds, they turned to “local government financing vehicles” to get around strictures against running up debt. The LGFVs, as they have come to be known, have run up breathtaking liabilities, estimated at nearly US$3.1 trillion. The central government started an audit in August in an attempt to discover just how much the debts actually are. While the central government says the debt is “manageable,” there is no indication of how the debt will be cleaned up.

Then there is the problem of keeping a rein on shoddy construction as unscrupulous entrepreneurs, able to easily get around lax inspection, have built almost unlivable places. These problems are exemplified in other sectors, including with the national high-speed rail system, collapsing bridges and buckling highways.

Plans have actually been underway for nearly a decade, with the construction of vast developments that have earned the title “ghost cities” – although residencies appear to be taken up belatedly and the problems are not as bad as advertised – and spurred widespread concern over the substandard construction and the displacement of millions of rural residents into housing they find depressing and miserable.

For instance, a Nov. 9 New York Times article by Ian Johnson said that “signs of social dysfunction abound. Young people, who while away their days in Internet cafes or pool halls, say that only a small fraction of them have jobs. The elderly are forced to take menial work to make ends meet.” Suicides, the article said, are on the rise in the planned developments as well.

Nonetheless, China is charging ahead with a series of key tasks emerging from the urbanization committee, including doing away with the infamous houkou system to gradually allow the millions of workers who have migrated from the rural areas to have residency rights, giving them the right to vocational training, medical attention, schooling and other amenities. City residential permits for towns and small cities are to be liberalized. Currently, the ratio of the migrant population – 23 percent of the urban population – to public services is 45.2 percent and their standard of living is 51 percent of their urban counterparts.

Authorities in larger cities will gradually allow qualified rural migrants to become city residents, although Beijing is expected to keep strict controls on the populations of the so-called mega-cities in an effort to forestall the chaos that has overwhelmed other Asian cities such as Bangkok, Mumbai, Manila and Jakarta, where rural residents have swarmed into urban areas in search of jobs and other opportunities.

The urbanization committee also set land supply rules, with intensive use of existing land encouraged, with the quantity and quality of arable land hopefully maintained. The government will seek to reduce land supply for industrial purposes while increasing residential living space.

In an effort to provide adequate funding for local governments, Beijing is working to establish a multi-sourced, sustainable funding system to identify main tax revenue sources. The central government says it will link the scale of fiscal transfer payments to local governments, establish a local debt issuance management system and encourage private investment in construction and operation of urban infrastructure.

Fourth, Beijing says it will seek to “optimize” the locations of cities and towns outside the major capitals. In fact, the government plans to expand 20 major inland capital cities to house 7 million people each to serve the needs of more than 800 million people to make them the growth focal points in their respective areas

Fifth, in an apparent acknowledgement of the problems that have dogged the current satellite cities, the committee said it will “improve urban construction levels by realistic positioning and scientific planning” while trying to preserve countryside landscapes.

Sixth, local governments will be required to propose realistic urbanization plans and cultivate specialists in city management.

“Consumption and demand is expected to increase in the future in line with the new urbanization model, but overestimations must not be made,” according to researchers Choi Myeong-Hae and Han Na-La of the Seoul-based Samsung Economic Research Institute in a study published last month. “Although internally driven consumption and demand will increase with the 20~25 million people flowing into the cities on a yearly basis, developing into huge consumption-driven districts where both migrants and urbanites enjoy the same privileges, will entail significant cost and time.”