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China’s New Urbanization Plan

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China Power

China’s New Urbanization Plan

A major conference on urbanization in China prioritizes hukou reform over construction and relocation projects.

China’s New Urbanization Plan
Credit: flickr/ Jay Galvin

During China’s recent Central Economic Working Conference (CEWC), the Politburo Standing Committee announced China’s six major economic tasks for 2014. One item not on the list nevertheless stands to have a substantial impact on all six tasks — China’s urbanization push stands to affect food security, industrial overcapacity, local debt, regional development, standards of living, and China’s economic openness.

Urbanization was the focus of an entirely separate conference that met in Beijing during the CEWC. Xinhua described the Central Urbanization Work Conference (CUWC) “the most high-level meeting the Chinese leadership has ever convened on urbanization.” The conference underscored China’s commitment to urbanization, calling it “the road China must take in its modernization drive.” However, the conference called for a more “human centered” approach to urbanization, in an attempt to avoid the many potential pitfalls that could affect China’s other economic goals.

Urbanization has long been seen as the key to unlocking China’s domestic demand, and thus to providing a steady source of growth for China’s economy. In a 2012 article translated by,current Premier Li Keqiang wrote that “urbanization has the greatest potential for boosting domestic demand.” He estimated that “every rural resident who becomes an urban dweller will increase consumption by more than 10,000 yuan (US$1,587).” This potential shot in the arm to domestic consumption is irresistible for Chinese leaders as they seek to rebalance the country’s economy.

However, the Chinese leadership is not content to wait for the natural process of urbanization — wherein rural residents see increased opportunities in cities and move of their own accord — to run its course. “People have been leaving the mountains to work in the cities on their own, but this hasn’t happened fast enough,” the New York Times quoted a local Communist Party official in charge of urbanization as saying this summer. Currently, according to Xinhua, a little over 51 percent of Chinese live in cities. The government hopes to boost this number to 60 percent by 2020.

There are numerous pitfalls in rapid, government-mandated urbanization. In an article for the New York Times this summer, Ian Johnson explored the contradictions in China’s urbanization policy, noting widespread problems with unemployment that exacerbated the sticker shock of much higher urban prices. Local governments have also been a bit too eager to construct massive new urban housing projects, leading China’s leadership to worry that urbanization policies are contributing to two already worrisome issues: local government debt and the potential for a real-estate bubble. Back in May, Reuters reported that Li Keqiang rejected a proposal on urbanization due in part to these concerns.

To help address these problems, the CUWC announced a “human centered” urbanization policy. Rather than emphasizing the building of new homes and new cities, the top priority will be helping rural residents who have already migrated to the cities win the status of official legal residents. As Xinhua’s English-language report put it, “the primary task is to enable migrant workers to win urbanite status in an orderly manner.” In other words, urbanization will focus first on solving the hukou problem.

The issue of hukous, or residence permits, is the flip side of China’s urbanization dilemma. On one hand, there is the government’s itch to speed up the process, which can result in new cities that have residents but no jobs or stores. On the other hand, many rural residents who head to the cities of their own accord, in hopes of finding better-paying jobs, become second-class citizens. These migrants lack the residence permits (hukou in Chinese) that provide access to local schools and health care. In fact, as the Xinhua article pointed out, many of the Chinese currently counted as “city-dwellers” are not officially city residents because they lack hukous. Reuters estimated that, if these migrant workers are excluded, China’s urbanization rate may be as low as 35 percent.

The problem has received increasing attention in recent years, to the point that even Xinhua, China’s official state media outlet, has no problem calling the hukou system “a major barrier holding back the country’s urbanization process.” The CUWC called for concrete steps to reform the hukou system, but in a tiered approach. In coming years, China will “fully remove hukou restrictions in towns and small cities, gradually ease restrictions in mid-sized cities, setting reasonable conditions for settling in big cities while strictly controlling the population in megacities.” In other words, China will continue to emphasize the growth and development of “small cities” by removing hukou restrictions for these underdeveloped areas. But “megacities” like Beijing and Shanghai will likely continue to have strict limitations on hukous in a bid to fight overcrowding and rising housing costs.

The Chinese-language Xinhua report on the CUWC added more details, calling for migrants with steady employment and housing in cities to be become urban residents. As part of hukou reform, China’s leaders hope to begin breaking down the socioeconomic gap between registered urban residents and rural migrant workers. Such a plan wouldn’t technically increase China’s urbanization ratio, since non-registered migrants are already counted as urban residents. However, reforming the hukou system would achieve the underlying goal of urbanization by increasing domestic consumption. Providing residence permits for migrants workers would raise their standard of living, which in theory would lead to increased consumption by this demographic. In other words, rather than focusing entirely on the quantity of urban residents, Beijing is seeking to raise the quality (suzhi in Chinese) of city-dwellers.

While reforming the hukou system was the number one priority for China’s urbanization efforts, the conference listed five other tasks as well: more efficient land use, a sustainable funding system, better patterns of urbanization, holding construction to a higher standard, and providing stronger management of urbanization as a whole. These goals promise that China will continue to relocate current rural residents even while it addresses the needs of people already living in cities.

However, the government wants to ensure that urbanization does not come at the price of China’s already-damaged environment. The CUWC report included numerous mentions of China’s ecology and natural resources, showing these concerns are constantly on the minds of leaders.  The report also reflected a concern with China’s food security, demanding that there be a “red line” for the quantity and quality of arable land that is left available for farming. Urbanization is also expected to proceed hand-in-hand with modernization of farming techniques to make up for the loss of both farmland and rural agriculture workers.

Finally, the government remains cautious about the potentially negative economic aspects of urbanization, including ballooning local government debt, housing bubbles, and economic imbalances between urban and rural regions. To address these concerns, the government seeks to strengthen its management of the entire urbanization process, ensuring tighter control over local officials. Of course, strengthening central government control is always easier said than done in China, but the call to do so proves China’s leaders are aware of the potential for local governments to abuse the new emphasis on urbanization for personal gain.