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Urbanization to headache

Expert of the Carnegie Moscow Center on the problems of the growth of Chinese cities

If China's emphasis on ultra-fast urbanization and infrastructure construction could be justified, China's urban development policy is now destructive. The authorities will have to address urgently the problems of adapting resettled peasants to the city, as well as issues of public discontent due to the growing disparity between migrant workers and indigenous citizens.

Urbanization to headache

The scale and pace of Chinese urbanization is unprecedented in human history. If in 1980 18,6% of the PRC population lived in cities, then in 2016 this figure was 56,8%. By comparison, India's urbanization rate has grown since 1980 from 22,7% to 33,1% of residents.

On estimated McKinsey Global Institute, if current trends continue (which, however, is unlikely), the population of cities in China will reach a billion people by 2030. But if in the early stages of economic development the emphasis on ultra-fast urbanization and infrastructure construction in the PRC was justified, now the Chinese methods of urban development are becoming dangerous from several points of view.

The Chinese Way of Urbanization

Despite the impressive growth dynamics of the urban population in China, these levels of urbanization are deceptive. They are achieved not only and not so much due to the actual resettlement of villagers to the cities, but because of the peculiarities of Chinese urban planning policy and statistical accounting.

Migrant workers from rural areas who come to cities to work are recorded in the statistics as urban residents, although they do not have a city registration - hukou (户口). In fact, the share of the population with urban registration is significantly less than the official level of urbanization and amounts to about 33%. Migrant workers living in rented communal apartments on the outskirts of cities and having a rural registration now make up about 11% of the urbanized population.

A high percentage of urbanization is also achieved through the retraining of rural land to urban. Rural residents are deprived of their land plots (often forcibly) and settled on the same land (although sometimes it happens as in another province) in multi-storey buildings. At the same time, they most often retain their rural registration. Such re-qualified townspeople make up about 14,3% of the official urban population.

The so-called new townspeople hardly look like townspeople in the Western sense. Migrant workers, as a rule, do not have city registration and are infringed in civil rights. The propiska system excludes them from the social security networks used by urban residents: first of all, education, health care, social insurance and pensions.

In fact, the life of a significant part of these people is not much different from the life of illegal migrants in other countries. For example, migrants cannot educate their children in urban schools and are forced to leave them in the village under the care of relatives. Hong Kong-based China Labor Bulletin estimates that in 2010 alone, 61 million children were forced to stay in rural areas for months and sometimes years without seeing their parents.

Over the past 20 years, the authorities have gradually relaxed the hukou system, but most of the changes are cosmetic. The integration of migrant workers into the urban welfare system has been slow. And the average salary of rural migrants is several times lower than the salaries of other urban residents - 2,5-3 thousand yuan against 7-10 thousand.

City as a speculative asset

The emergence of rural labor migrants in cities, as the head of the consulting company J Capital Ann Stevenson-Young notes in the book "China Alone", reflects not only the real move of peasants in search of a better life, but also the largely fictitious process of re-registering rural land into urban land. This phenomenon is a product of China's tax system.

Until 2015, the regional authorities of the PRC were prohibited from attracting loans or issuing local bonds to cover the budget deficit, and the collected taxes were mainly transferred to the central authorities. Regional companies LGFV (Local Government Financing Vehicles) were used to finance the budget. Through them, municipalities sold or mortgaged land, the main resource for replenishing the budget. The land was sold for construction and infrastructure projects to developers affiliated with the regional authorities, who easily received loans for their projects in the provincial branches of state banks. As a result, all the participants in the scheme turned out to be interested in uncontrolled development and the rise in prices for land and real estate.

The scheme of such artificial urbanization is as follows. In a small town with a population of 100-200 thousand inhabitants, the developer lays the bank initially agricultural land received from the regional authorities. The loan is used for construction and payment of monetary compensation to several thousand peasants (which is partially subsidized by the state). The latter are removed from the land they cultivate and are moved to apartments in multi-storey new buildings. New "citizens" pay apartments out of compensation payments, hoping to get work in the management of housing and communal services in new homes, as well as live on rental income from new apartments and shops, and so on.

After the relocation of the peasants, the developer shows the bank that the first stage of the project is extremely successful, completely sold out and populated. To return the money to the regional authorities and make a profit for himself, the developer proceeds to the second stage of the scheme - he convinces the bank to give him a loan for a much larger-scale development, designed for tens or even hundreds of thousands of residents. Rationale - holiday homes for residents from large cities, tourism, domestic demand, etc.

The scheme operates with different variations throughout China. For example, in the city of Ordos in Inner Mongolia, developers offered local cattlemen as a new employment to become rentiers, providing them with several apartments at once (as a result, the average level of ownership in Ordos, as Stevenson-Young wrote, was 10 apartments per family). To hand them over, however, there was no one.

As a result, uncontrolled urbanization and investment boom in recent years have spawned the phenomenon of ghost towns in China, which are completely rebuilt but do not have residents. There are no exact data on empty cities, but there are approximate evaluation - 49 million vacant apartments as of 2013. At the moment, perhaps this figure doubled... The share of vacant residential space in China is significantly higher than in other countries: this figure reaches 22,4% against, for example, 9,4% in Europe.

City without borders

Such a strategy of absorption of rural land by the city leads to an uncontrolled increase in the size of cities. The largest example is the city of central subordination of Chongqing in Sichuan province. Chongqing is now the largest metropolis in China and the world, which, along with Beijing, Shanghai and Tianjin, is on the list of cities of central subordination and has the status of a separate province.

The absorption of the surrounding countryside by the city took place in several stages in the 2000s – 2010s. Initially, there was one big city - Chongqing proper. It was surrounded by several smaller cities and rural settlements, scattered in an area approximately equal in size to modern Austria. In the nine central regions of Chongqing, 14 million people lived, outside the city border - about 20 million more.By 2015, part of the rural population was urbanized according to the scheme described above, the urbanization rate in the region reached 50%, by 2020 is planned bring it to xnumx%.

Chongqing is difficult to call a city in the classical sense: it is common for urban areas to consider a single labor market in the same space as urban areas. Chongqing (the same applies to Beijing) is no longer a single city, but a whole agglomeration that formally merged, but has separate labor markets (the earlier Japanese example is Tokyo-Yokohama).

The environmental and social costs of such expansion of cities in the destruction of agricultural lands and natural space have long been evident, but do not have a significant impact on the pace of urbanization. Joint study of Asian Development Bank and Tsinghua University notes, that only 1% of the five hundred largest Chinese cities meet the WHO air quality criteria.

Additional negative impact on the environment is the dependence of the PRC on coal energy. In some Chinese cities, including Chongqing, are observed exceptionally high levels of the incidence of asthma and other respiratory diseases.

Destructive urbanization

As a result, the Chinese model of urbanization is an investment project of city authorities, developers and banks, for which the interests of citizens and residents of rural areas are at least secondary. If in the early stages of economic development the emphasis on ultra-rapid urbanization and infrastructure construction could be justified, now the Chinese policy of urban development is destructive. The authorities will have to urgently address the problems of the resettled peasants in the city, as well as issues of public discontent due to the growing disparity between migrant workers from rural areas and indigenous citizens.

Also, the process of urbanization in the PRC is closely related to the problems of bubbles in the real estate market and the growth of the debt of regional authorities due to excessive financing of infrastructure projects. Often, the uncontrolled pursuit of local administrations for increasing urbanization was in fact fraught with the destruction of the agricultural base and enormous environmental costs.

All these problems must inevitably be in the focus of structural economic reforms that Beijing plans to conduct in the next political cycle that began after the October 19th Party Congress. The question is, does the PRC leadership have the political will to solve the urgent internal problems, or will the authorities prefer to flood the problems with money and wait for them to dissolve by themselves.

The material is published on the website of the Carnegie Moscow Center -

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