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Future driver of growth


DEC 26 - At a meeting on economic and social development and reform held on Wednesday, Vice-Premier Li Keqiang pointed out that urbanization will be the main driver of China’s economic growth in the future and the country should gradually convert migrant workers to urban residents through reform of the hukou, or household residence registration system.

Li’s remarks, together with the message from the just-concluded Central Economic Work Conference, are a clear singal that China’s new leadership views urbanization as a key part of its efforts to launch a new round of reforms.

As the conference highlighted, China will establish a scientific scheme for the development of its large, middle and small cities, one that actively and steadily advances intensive, green and low-carbon urbanization. That means China will pursue higher quality urbanisation and seek to really integrate migrant workers, who are usually excluded from cities’ welfare networks, into urban areas. Higher quality urbanisation also means more efficient use of newly acquired land instead of blind expansion. In this process, farmers should have more access to sharing the country’s “urbanisation dividend” instead of their interests being compromised due to the expropriation of their land.

The emphasis China’s new leadership has put on urbanisation is in the context of the lingering global economic slowdown and declining economic benefits from export and investment expansion. This situation, however, also offers China the opportunity to introduce more viable measures to boost its weak domestic demand and its capabilities for innovation, pushing forward the transformation of the country’s economic development model.

The remarks made by Party chief Xi Jinping during a recent inspection tour of Guangdong province and the recent stress put on the “reform dividend” by Vice-Premier Li Keqiang were unambiguous signals that a new round of economic reforms will be launched. Pushing for a new style of urbanisation is undoubtedly a good way to start such reforms.

China has huge potential to advance its urbanisation given that a half of its population still lives in rural areas. Currently, the country’s urbanisation ratio is about 51 percent - some experts estimate the country’s real urbanisation ratio is 35 percent if those who have settled in cities but failed to gain a hukou in them are taken into account - such a ratio is far below that of some developing countries at a similar development stage, not to mention developed countries, where the urbanisation ratio is more than 70 percent. However, this means China still has huge potential to raise its urbanisation ratio in the years ahead.

According to some experts’ estimates, China’s urbanisation ratio will rise by one percentage point every year during the next 20 years. This would mean the country would have 65 percent of its population living in urban areas by 2025. Together with the estimated 200 million living in cities without an urban hukou, this would mean an additional 400 million urban residents in the next 10 years. According to the calculation that there is 100,000 yuan ($16,000) of investment in infrastructure and public services for each urban resident, China would need to invest an additional 40 trillion yuan as a result of urbanisation in the coming decade, which is equivalent to its gross domestic product in 2011. Such a colossal investment is sure to have a positive and widespread influence on the national economy.

Aside from the huge investment potential it will create, urbanisation will also play a positive role in boosting domestic demand. Statistics show that urban residents’ consumption capacity is usually three times that of their rural counterparts. This means that an increase in the country’s urbanisation ratio of one percentage point will result in an additional 1.4 percent increase in the volume of consumer goods sold. The increased consumption resulting from a raised urbanisation ratio will undoubtedly help change long-running imbalances in China’s economic structure.

To promote the higher quality urbanisation mapped out by the new leadership, China should reform its rural land system and raise the current levels of compensation for the expropriation of rural land. It should also establish a rural land shareholding system and promote the smooth transfer of collective rural land. The country should also try to reform its long-controversial dual urban-rural household residence system and forgo the long-held practice that closely links people’s hukou to their eligibility for local welfare services. Without changing this, the efforts to convert migrant workers to city residents will go nowhere.

Promoting balanced development between urban and rural services and setting up a unified public service system are also expected to be on the new leadership’s agenda. These demand practical measures be taken to tilt fiscal revenues from the central government to local governments.

China’s remarkable economic achievements over the last three decades and its status as the world’s second-largest economy are the result of reform and opening-up. It can be expected that new reforms to promote a new style of urbanisation will lead the country to even greater heights.

Zhao Xiao is a professor with the School of Economics and Management, Beijing University of Science and Technology, and Teng Qizun is a member of the university’s Research Section of China’s Economy

Posted on: 2012-12-27 09:15

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