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Can China’s urbanisation save the world?

Last year marked a milestone in China’s several-thousand-year history: for the first time, more people lived in cities and towns than in the countryside. The country’s 690 million urban dwellers now account…

China’s 690 million urban dwellers now account for 51.3 percent of China’s total population of 1.35 billion. AAP

Last year marked a milestone in China’s several-thousand-year history: for the first time, more people lived in cities and towns than in the countryside.

The country’s 690 million urban dwellers now account for 51.3% of China’s total population of 1.35 billion. China’s recent urban transition is definitely a historic event of global importance. Nobel laureate Joseph Stiglitz has called the process one of the two main forces shaping the world in the 21st century.

In 2012, China’s urbanisation landmark has assumed even more significance for the global economy. With Europe’s debt crisis, and the US and Japan struggling to maintain growth, many look to Asia as the saviour of the world economy. The huge potential of the Asian market, based on the assumption of a rapidly rising middle class across the continent, has fuelled hopes for a global rebound and growth for the next two decades.

Not surprisingly, China has played a major role in that scenario of Asian consumer growth. Today the “China dream” is more vivid than ever. Another 300-400 million are expected to be added to China’s cities in the next 15 years. As a result, many business writers and consultants have presaged a surge in consumers in China.

Yet internally, China continues to face the problems of re-balancing its economy, away from its heavy reliance on investment and exports to domestic consumption. Can urbanisation do the trick by expanding China’s middle class rapidly to raise the consumption share and have the economic machine running on a more sustainable basis?

China’s urbanisation has fascinated observers for generations, but misinterpretations and mis-prognostications abound. China’s urbanisation is indeed complex and it would behove us to look beyond simply extrapolating the Western experience of urbanisation.

Among the most optimistic prognoses, Brookings Institution analyst Homi Kharas has put forward a scenario of China’s middle class rising from 12% of the population in 2010 to about 50% in 2021. That means that the size of this consuming class will surge from about 150 million to about 670 million, a leap of about 520 million in a span of slightly more than a decade.

But where, exactly, will this newly-prosperous half billion people come from? Is this a mirage, or is it based on reasonably expectable true economic and social mobility?

In many other developing countries, traditionally the major gains to the middle class were found among rural migrants arriving in cities. When a migrant leaves the farm and shifts to an urban job, he or she receives a higher wage and can afford to consume more. Trading their farm jobs and subsistence lives for industrial or service jobs in the city, migrants can now live in apartments furnished with appliances.

It is true that China is undergoing rapid urbanisation “on paper”, if one simply looks at the number of people relocating to cities and the new buildings being erected. But although China’s rural-urban transition has many of the trappings of recent urbanisation elsewhere in the world, the process there is a much more complicated phenomenon.

China’s hukou system allows rural migrants to go and work in the city but denies their access to urban social security. Kam Wing Chan

The popular narratives have too often overlooked China’s special set of conditions, especially how the rural-urban divide is buttressed by such institutions as the hukou (household registration) system.

Under the present hukou system, peasants are allowed to go and work in the city but at the same time are not permitted to acquire an urban registration.

My recent analysis shows that out of the 666 million Chinese urban dwellers in 2010, at most only about 460 million had urban hukou status. The difference - 206 million - is made up mostly of migrants, who live and work in cities but still have rural hukou status.

This labour force with rural hukou is what has supplied China with a huge pool of cheap labour and largely driven the country’s phenomenal boom of the last 30 years. But the majority of these migrants are prevented from fully participating in the urban prosperity.

Lacking urban hukou, these low-income workers and their families cannot access public education, public housing and social security programs in the city. The consequences of this exclusion are a wider income gap between rich and poor, and only a very limited contribution by rural-urban migrants to the growth of the middle class.

With upward mobility through migration largely blocked by the hukou barrier, and the urban natural increase rate likely to hover at very low levels for decades, one really has to consider this projected rising prosperity a myth, unless major changes in the urbanisation model are enacted.

That well-trodden urbanisation path to prosperity is premised critically on having most migrants being able to move up eventually. To follow that path, China will have to treat migrants more than merely labour but as equals in the city. This would mean granting them urban hukou, giving them the same rights and opportunity as natives of the city.

In late February the central government renewed its modest hukou reform effort by publicising new rules for migrants to apply for hukou in cities except the largest 40. While this provides a glimmer of hope, much more action is needed.

As equally important as boosting domestic consumption, a new condition has emerged in the wake of the global financial crisis that is also pressing for stronger action: more and more of the migrants, being better educated than their parents, have greater aspirations to stay in the city. They are also far more aware of their rights and what unsatisfactory conditions they face than the previous generation - and are demanding change.

In China, there is a broad consensus for more hukou reform. Of course, it would be unrealistic, perhaps even reckless, to dismantle the hukou system overnight. Neither would it be desirable to continue the slow pace of small hukou reforms, as has been done in recent years. In my view, a program to phase out the hukou system over the next 10-15 years is not only reasonable, and workable, but also very desirable, especially in view of the new conditions described above.

To meet this time frame, China will have to speed up hukou reform, by converting about 15-20 million migrants to urban-hukou residents every year in substantive terms (not just in name, as some cities have done).

This is far greater than the average of about 3 million conversions per year that I have estimated for the last decade. To reach that higher number, deeper hukou reform will be needed in the largest 40 cities, including places such as Beijing, Shanghai, and Shenzhen, where most migrants congregate (because that’s where most jobs are found).

Moreover, the central government has to lead in that endeavor as migrants in large cities are mostly from afar and any serious hukou reform will inevitably involve interregional fiscal, population and administrative issues.

It would be grossly inadequate to simply let local governments try out piecemeal and limited, and at times, distorted, hukou reforms within their own jurisdictions.

China has had some 30 years of economic growth, but this has been done through a rather skewed urbanisation model. Hampered by an obsolete hukou system, that model has constrained the growth of the middle class and consumption demand. A major overhaul is needed to unleash the economy from that shackle. Once that is in place, one can begin to envision China urbanising its way to prosperity – and taking the rest of the world along with it.

This piece first appeared on China Daily USA. It has been reproduced with permission from the author. Read more of Kam Wing’s views on his website.

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22 Comments sorted by

  1. Ian Donald Lowe

    Seeker of Truth

    Amazing!
    Throughout this entire piece, the author neglects to mention that China is still a totalitarian state and the will of the people means little or nothing to the leaders of the Chinese Communist Party. Kam Wing Chan also forgets to mention how the current Chinese economic model is strongly linked to consumerism and ongoing increased consumption of it's products, both at home and abroad, in a way that is known to be totally unsustainable, in a world of diminishing resources.

    "Can China's…

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    1. Wei Ling Chua

      Freelance Journalist and Author at Self Employed

      In reply to Ian Donald Lowe

      Ian, your comment that China is a totalitarian state demonstrated your lack of knowledge about China. "Elections in so-called "democratic states" give us the illusion of choice while maintaining a status quo that sees the rich get richer and the poor scrambling to redefine their definitions of "rock bottom" [ http://www.globalresearch.ca/index.php?context=va&aid=30792];

      many Western democracies are nothing more than having a skeleton structure of an election system, it did not ensure a caring…

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    2. Ian Donald Lowe

      Seeker of Truth

      In reply to Wei Ling Chua

      The failings of Western democracies are manyfold but the ideas of freedom, equality and self-determination are better than any government can ever aspire to be.

      As Winston Chuchill once said, “Democracy is the worst form of government, except all the others that have been tried.”

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    3. Wei Ling Chua

      Freelance Journalist and Author at Self Employed

      In reply to Ian Donald Lowe

      Ian, it is this mentality of Winston Chrchill that deprive western ability to further improve on its political system over the last few decades. Just have a look at how Julian Assange been treated by the "free" world, you will understand how "free" we really are:

      Julian Assange is doing humanity a favor by exposing the senseless killing of civilians by the US and NATO forces in Iraq and Afghan. Australian government should be proud of him and protect him. However, as usual, their royalty is with…

      Read more
  2. John Newlands

    tree changer

    I suspect it is physically impossible for China and India to achieve a universal middle class with Western levels of consumption. Land, water and fossil fuels will run out before the dream materialises. That will lead to conflict with the West the current Australian examples being Ord Stage 2 farmland and Galilee Basin coal. However I believe Western affluence will decline and perhaps meet the average Asian middle class somewhere in the middle. Whether this will a happy state of affairs is hard to say as it will involve less home and car ownership, less meat consumption and higher power bills for us.

    At the moment we are not noticing China's 8 billion tonnes a year of emissions (out of 31 world total) but that must change when things get serious. At that point all kinds of trade restrictions may be implemented, current example the EU airline tax. When that gathers momentum it will take with it the dream of a universal middle class in China.

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    1. Yoron Hamber

      Thinking

      In reply to John Newlands

      Maybe we need new definitions for what a middle class should be? Education, the Internet, redistributing what we have for a fairer treatment of us all. You can only use one item at a time so to speak. To have three cars may look good but it's only one of them you can use. People look more to brands that they do to functionality it seems :)

      We need a way out where it isn't profit that decide, because that I believe will be the sustainable way to treat our planet. But I guess it won't happen until forced upon us,

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  3. Gil Hardwick

    anthropologist, historian, novelist, editor and publisher at eBooks West

    Sorry to butt in here, but in Australia 89% of the population is urbanised, growing at around 1.2% a year.

    Australia has the highest per capita emissions in the OECD, and ranks 9th in the world in increasing carbon emissions

    We call this freedom, and disparage China?

    I dare suggest that it is not China's urbanisation that might change the world (as if such a silly idea is viable), but China's continuing recognition of its rural populations and their restrictions on rural migration to the cities, something that made even Mao stand out in stark contrast to the British, and to Stalin.

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  4. David Elson

    logged in via Facebook

    It's been my impression (and I believe that the article backs this point) that much of China's past growth has been driven by the migration of rural Chinese and other wai di ren to the cities, and acting as a source of cheap labor not just in terms of wages but also in terms of the cost governments avoid by not needing to provide educational and health services to these "non citizens".

    If this were to change and rural Chinese were able to become full fledged citizens or if the pool of rural migrant Chinese were to dry up would this have a negative impact on Chinese economic growth?

    Perhaps urbanization is not the way to save china.

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    1. Wei Ling Chua

      Freelance Journalist and Author at Self Employed

      In reply to David Elson

      David, Anything that involved China, the issues are always complex. Just 2011 alone, the number of people leaving their place of residencies for more than 6 months are more than 271m people (12 times the size of the entire Australia population), this is an analysis up to 2010: http://faculty.washington.edu/kwchan/Chan-migration.pdf; There is no government on earth is able to handle such social issue overnight.

      The Chinese government is making enormous amount of effort to solve the problem. Taking…

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    2. Kam Wing Chan

      Professor, Department of Geography at University of Washington

      In reply to Wei Ling Chua

      Yes, I agree: Chinese issues are always quite complex. Since W Chua raised the issue of China's high-speed train project, let me weigh in here and share a piece I wrote 4 months ahead of China's famous high-speed train wreck in Wenzhou last July:

      China’s High-Speed Trains: Too Fast, Too Furious

      http://www.chinausfocus.com/political-social-development/china%e2%80%99s-high-speed-trains-too-fast-too-furious/

      More of my commentaries are on my site.

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    3. David Elson

      logged in via Facebook

      In reply to Wei Ling Chua

      While it is true that China's education system has improved considerably over the last decade (is by many measures superior to Australia's), it is also true that China's comparative advantage steams from lower costs of production (input of labour and energy), and their low pegged currency.

      So my question was would urbanisation end this advantage, at least in terms of the labour cost, and probably in terms of cheaper energy also, if residential energy demand rose heavily due to greater urbanisation…

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    4. David Elson

      logged in via Facebook

      In reply to Kam Wing Chan

      It's pretty amazing (and more than a little terrible!) to see the migrant Chinese moving through their Chinese stations at Chinese New Year.

      Not too mention how many sleep and stay around the station waiting for their train :*(

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    5. Wei Ling Chua

      Freelance Journalist and Author at Self Employed

      In reply to David Elson

      David, if we measure income through the concept of Purchasing Power Parity, you will find that, for the same amount of money, China residents are able to buy a lot more than Australians in Australia: http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29 ; Labor cost only made up a small portion of product cost in China, Therefore, despite the drastic rise in wages over the last 8 years, it did not dent Chinese export as their workers have become better educated and skilled,(ie, an increase…

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    6. Wei Ling Chua

      Freelance Journalist and Author at Self Employed

      In reply to David Elson

      David, this is the reason why high speed train is needed. The population is simply to huge. One-child policy not only is the most humane solution for China is the long term, but the world as well.

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    7. David Elson

      logged in via Facebook

      In reply to Wei Ling Chua

      I'm not entirely sure this is the case.

      How will China deal with the encroaching demographic time bomb of multiple elderly person being supported by the effort of smaller and smaller numbers of the young?

      I've heard that the city of Shanghai is in some cases relaxing this "one-child" policy.

      Personally I'm happy for China to increase their population and export any surplus to lesss populated nations such as Australia :D

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    8. David Elson

      logged in via Facebook

      In reply to Wei Ling Chua

      It is true that productivity is possibly more important than the individual unit cost of labour. This is another area where Australia is falling behind, over time our workforce has become less productive.

      Although while China's wages have risen they are still relatively low compared to western nations.

      My point is that much of Australia's residential land is already owned and therefore it is difficult for the government to quickly release new land or approve the construction of apartment buildsing…

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    9. Wei Ling Chua

      Freelance Journalist and Author at Self Employed

      In reply to David Elson

      David, the answers to all your questions are in this article: Democracy Needs Reform: Human Rights – Housing Policy – Australia and China Compared: http://outcastjournalist.com/index_files/human_rights_housing_policy_australia_china_compare.htm; Everything is possible, if there is a will, there will be a way.

      A lot of open minded westerners living in China are impressed by all the unimaginable social engineering the communist party has achieved within such a short period of time. If our media were honest about their reporting, there are many things we can learn from China to improve on our own.

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    10. Wei Ling Chua

      Freelance Journalist and Author at Self Employed

      In reply to David Elson

      David, The world is facing an aging population. Leaders with an average mind will try to expand population by either offer incentives for their citizens to produce more; or through on/off immigration policy; And usually those who are least educated and affluence will take up the incentives to produce more. However, they usually use the extra for their own enjoyment instead of their children, as a result, the quality of the population is declining. Australia is in this category. The trouble is, such…

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    11. David Elson

      logged in via Facebook

      In reply to Wei Ling Chua

      Impressed by social engineering or the fruits of economic growth?

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    12. David Elson

      logged in via Facebook

      In reply to Wei Ling Chua

      A permanent decline in world population is not occuring, in fact it is the opposite with ongoing population.

      If there was to be a sudden decline, wouldn't this surely lead to falling economic outcomes overall?

      Look at the economic decline and population decline occuring in Japan over the last few decades...

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