Urbanisation seen as key to growth

Economists focused on the longer term in China have long seen the country's astonishing urbanisation process as the reason why the economy is still likely to keep expanding, despite slowing expansion.

Last week the State Council – China's cabinet – and the Central Committee of the ruling Communist Party announced the National New-type Urbanisation Plan (2014-2020), which aims to expand its cities still more and at the same time improve public services to support economic growth by allowing millions more rural residents to migrate to urban jobs.

The aim is to get China on a “human-centred and environmentally friendly” path.

Under the blueprint, the share of China’s population of nearly 1.4 billion that live in urban areas will be increased to 60 per cent, from nearly 54 per cent now, which means a shift of about 90 million people.

The average in developed nations is 80 per cent and 60 per cent for developing countries with similar per capita income levels as China.

The US, for example, has 82 per cent of its people living in urban environments, and Japan 91 per cent.

China said it will invest more than 1 trillion yuan (€117 billion) to redevelop shantytowns during the current year.

Urbanisation has been a pillar of China’s economic growth for the party and is seen as the catch-all solution to China’s economic woes, which include an ageing population, rising labour costs and falling returns on investment.

Central to the plan is raising the number of migrant workers who have a hukou , an urban residence permit, which gives them access to public services such as healthcare, education and pensions in the city they live in, rather than in the place from which they come.

Allowing people to migrate into cities for higher-paid jobs is supposed to kickstart domestic consumption and fuel growth rather than relying on trade and investment.

“An increasing urbanisation ratio will help raise the income of rural residents through employment in cities and unleash the consumption potential,” the plan says.

It will also give a major lift to demand for investment in urban infrastructure, public service facilities and housing construction, thereby boosting growth.

“Domestic demand is the fundamental impetus for China’s development, and the greatest potential for expanding domestic demand lies in urbanisation,” the plans says.

The Economist Intelligence Unit’s Duncan Innes-Ker wrote in a research note how urbanisation is also seen as the key to bringing about China’s long-anticipated rebalancing towards private consumption.

The urban population is forecast to reach nearly 940 million by 2030, compared with 670 million in 2010, but he believes the size of China’s urban population will mask a sharp moderation in its growth and the urban population will expand by an estimated average of 1.7 per cent a year in 2011-30, compared with 5.4 per cent in 1981-2010, as the country’s unfavourable demographic structure takes hold.

“The urban population is likely to decline gradually after peaking in the mid-2040s,” Innes-Ker wrote.

There will also be efforts to improve the quality of life in China’s cities. The blueprint plans to optimise city layouts by “enhancing the leading role of major cities, increasing the number of small and medium-sized cities and improving the service functions of small towns”.

Last year, the number of rural migrant workers increased 2.4 per cent to 268.94 million. Migrant workers account for 19.76 per cent of the country’s total population, according to data from the National Bureau of Statistics.

The drive to greater urbanisation has long been part of the Communist Party’s policy, although this is the first official plan.

Increasingly, however, there is a focus on trying to make the quality of urban life better, especially since pollution became such a politically sensitive issue.

The plan says China should strive for “harmonious and pleasant living conditions in its cities by making basic public services accessible to all permanent urbanites and pursuing better ecology, more clean air and safe drinking water”.

Premier Li Keqiang said earlier this month that tens of millions of residents still live in shantytowns and there would be major efforts to build more subsidised housing. China completed 1.12 trillion yuan of investment in subsidised housing last year.

Every city with more than 200,000 citizens will be covered by standard railways by 2020, with high-speed services connecting cities with more than 500,000 residents. The civil aviation network, meanwhile, will cover about 90 per cent of the populace.

"Continued urbanisation should provide support to economic growth but will unlikely lift China's growth from its current trend, so should not be considered as a short-term 'stimulus'," said UBS economist Wang Tao.