Can China’s New Urbanization Plan Work?

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Can China’s New Urbanization Plan Work?

Bringing people to the cities will not be enough. Rural rights also need reform.

Can China’s New Urbanization Plan Work?
Credit: REUTERS/Stringer

With the release of the “National New-type Urbanization Plan” by China’s State Council in March, it appears that China’s leadership is betting that urbanization can be a main driver of the country’s economic growth, as the government attempts to shift away from an investment-based economy. The plan has attractive extensive media coverage, which has emphasized that it calls for relaxing restrictions on access to urban household registration, or hukou, and that urbanization could be a way to boost China’s domestic consumption, which has remained consistently low.

This idea that increased urbanization could help the economy was included in China’s five-year plan in 2011, and it is normally associated with the new leadership who came to power in 2013. China’s second-in-command, Premier Li Keqiang, was giving speeches and releasing policy papers advocating for a new urbanization program in the years before he and President Xi Jinping came to power. Setting the stage for formal proposals like the State Council’s new plan, Li argued in 2012 that since urban people had higher incomes and consumed more and because China was still under-urbanized when compared with developed countries, “every rural person who becomes an urbanite can increase consumption by more than 10,000 renminbi ($1,600).”

While the rhetoric of promoting urbanization has been around for a few years now, for China watchers, it is odd to witness the Chinese government pinning its hopes for growth on increased urbanization. For decades, the distinctive feature of China’s urbanization model has been its bias against settling rural-to-urban migrants in the cities, a bias created via the hukou system. While other developing countries accumulated slums and squatter settlements around their cities, China’s policymakers did their best to make urban spaces as unwelcoming as possible to potential permanent migrants by keeping migrants’ access to local public services severely restricted.

In 2014, more than 200 million Chinese migrant workers live in places where they are not registered and are thus legally excluded from some local public services, although not every city’s policy is equally restrictive. This means that there are millions of children of urban workers who live in rural areas apart from their parents because they are legally excluded from the schools in the city. Likewise, many migrants must return to their home villages for health care because they have limited access to these services in the places they live and work.

In the context of a country where cities apparently cannot support even the migrants who have already arrived, it seems surprising that the Chinese government would expect increased urbanization to be the key to future growth. The solution to this apparent paradox is that China’s government has no intention of opening up the big cities to urbanization. Instead, the State Council plan stated that China would “comprehensively open” small towns, “methodically open” small cities with fewer than one million people, “reasonably open” bigger cities with one to three million people, “reasonably determine” the population for cities with three to five million people, and “strictly control” the megacities with more than five million people.

The meaning of this bureaucratese is that at least the twenty biggest cities would be either “strictly controlled” or “reasonably determined,” hardly a radical departure from the current hukou regime. For years, migrants have been able to easily acquire urban hukou in most poor small towns, but why would they want to?

True, the document does say its objective includes “not just opening up small cities, but also relaxing restrictions in larger and medium-sized cities,” but China’s cities have been slowly becoming more migrant-friendly for at least a decade, and the urbanization plan does not seem like a catalyst for accelerating this process. Even if the new urbanization plan works perfectly, the State Council document predicts that in 2020 there will still be 100 million migrant workers living in cities without urban hukou and thus without equal legal standing. This, along with the policy saying that the largest cities will remain “strictly controlled,” implies that the core of the urbanization plan is to corral rural people into small towns.

Some Chinese commenters, such as Renmin University professor Wen Tiejun, have argued that promoting these small towns will actually lead to a decrease in the population of the large cities. The plan’s overall strategy appears to be premised on the idea that China can reap the benefits associated with urbanization, such as rising middle classes, by driving more rural people to small cities and towns that lack both the employment opportunities and the quality social services of the metropolises that might actually attract migrants.

It is in fact unusual for a country to explicitly promote urbanization as a growth strategy. The correlation between economic growth and urbanization is primarily a result of growth causing urbanization, not the other way around. Li’s observation that urban people on average make and consume more than rural people does not imply that picking up a farmer and placing her in the city will magically triple her earning power.

Instead, the argument for growth based on urbanization is reminiscent of Mao’s disastrous Great Leap Forward, a policy apparently based on the observation that rich countries produced a lot of steel. For China to grow rich, the thinking went, it should put all its efforts into steel production. During the Great Leap, China did indeed increase its steel production, but at the cost of the most severe man-made famine in human history. In the 21st century, we have the experience to know that this kind of central planning simply doesn’t work.

Perhaps surprisingly, it is new rural policies, such as strengthened rural property rights, rather than the proposed changes to urban policy, which are most likely to improve migrants’ welfare. People familiar with China’s migrant workers have long known that many migrants do not want to change their hukou to the city, either because they plan on returning to live permanently in their hometown or just because their rural hukou has benefits they don’t want to give up. Many migrants don’t register even for temporary residence in the city because they worry that registering outside of their village could threaten their rights where they are permanently registered.

Stronger rural property rights could change that, and in a sign of hope for China’s rural people and migrants – taken together a majority of China’s population – China’s government has sent a series of signals that rural rights need increased protection. The new administration’s most important new policy document, the communiqué of the Third Plenum released in November, explicitly called for a strengthening of farmers’ property rights.

The leadership, including Xi himself, has been drawing attention to land reforms pioneered in Anhui province as a blueprint for future reforms. Anhui was the site of the return to household farming and the vanguard of China’s market-oriented reforms in the late 1970s. Recently the province has been experimenting with increased rights to renting and transferring land.

When China passed its contentious property rights law in 2007, leftists protested that private property violated China’s socialist constitution, and the law’s exclusive use of terms such as “land use rights” makes clear that individual property rights remained a bridge too far. Yet in recent months, several documents, including the new urbanization plan, use terms like “property rights” and “transfer rights,” and signal that greater protection of rural land rights may be in China’s future. Last week, Xinhua reported that local governments would phase out the current land requisitioning system and farmers will eventually get market prices for their land.

Strong rural land rights would enable migrants to leave their land without worrying about the local government taking it, and would potentially allow migrants to benefit from their land by renting or selling it. Presently, such arrangements lack full legal protection because of the ambiguity surrounding rural land rights.

Time will tell if the Chinese state is serious about these reforms. Even with the new language of promoting rural land rights, local governments may be too addicted to land expropriation, which is often their primary revenue source, for rural people to ever trust central government decrees absent an independent judiciary or some other mechanism for protecting their rights. Proposals for property taxes that would give local governments a stake in protecting property rights and help mitigate the current bias for commercial real estate development have so far only touched on urban property. Still, the use of the “property rights” language in the rural context could represent an important step forward for a country which typically has trouble affirming the value of such rights.

Last year, Reuters reported that an earlier urbanization plan was scrapped by the top leadership because they worried it would signal new rounds of investment-based economic stimulus. The new rhetoric is that the government is promoting “people-centered urbanization,” in contrast to earlier stimulus projects. Yet true people-centered urbanization would protect the rights of the poor and empower them to make their own decisions about how and where they can best make a living.

As long as the Chinese government insists on “strictly controlling” access to its biggest cities, rural rights protections, along with the ultimate delinking of rights from the hukou, are the best hope for improving the welfare of China’s poor.

Adam Tyner is a Ph.D. candidate in political science at UC San Diego. Follow him on Twitter @redandexpert