Urbanisation in China

| Friday August 17, 2012 00:00

China's urban population surpassed that of rural areas in 2011 for the first time in the country's history after three decades of economic development which encourages farmers to seek better living standards in towns and cities.

Urbanisation has become synonymous with China's modernisation. Urbanisation is the physical growth of urban areas as a result of rural migration and even suburban concentration into cities, particularly the very large ones.

Rural-urban migration describes the population movements from the countryside to towns and cities that usually accompany economic expansion. One of the consequences of the integration of the Chinese economy into the world market is the transition from agrarian society to one based increasingly on industrial production, a phenomenon that has fuelled rural-urban migration in China. China's urbanisation is unprecedented in terms of scope, scale, influence and the number of people involved. American Nobel Laureate in economics Joseph Stiglitz has said that one of the two most important things that will impact human history in the 21st century will be the urbanisation process in China.

China surpassed the United States in the mid-1970s to become the nation with the largest number of urban dwellers in the world. Ironically, this happened at the end of a period in which China's public policy was intensely anti-urban. Much has changed since then. China's 'opening up', and the introduction of market oriented reforms in the early 1980s, accelerated urbanisation across China, such that, today, 600 million urban Chinese constitute 44 percent of the country's population.

China launched its urbanisation programme at the beginning of its reform and opening-up policy in 1978 in a bid to accommodate rural labour and achieve development in rural areas. After the reforms in 1978, rural productivity was greatly increased, resulting in a large number of surplus rural labourers. The government proposed the strategic policy of transferring rural labour into non-agricultural sectors. From then on, the surplus labourers began to move into towns and cities.

In the last three decades, China has experienced the largest rural-to-urban migration the world has ever seen.

Worldwide it took the United Kingdom 120 years, France 100 years, the US 40 years and Japan 30 years to achieve 40 percent urbanisation, while China needed only 22 years to achieve the same level by 2003. China's population urbanisation rate, which reached 51 percent in 2011, will further climb to near 60 percent in 2020 bringing the country's urban population to around 850 million, according to the China Population and Development Research Centre. China reached a historic point in 2011, as the number of people living in the nation's urban areas passed the number living in rural ones.

The country's urbanisation rate will hit 52 percent in 2015 and grow to 65 percent by 2030, the annual report on urban development by the Chinese Academy of Social sciences  (CASS - a top Chinese think tank), shows. The urbanisation rate during the country's 12th Five Year Plan (2011-2015) will grow by 0.8 to 1.0 percent each year.

That means more than 10 million rural residents will move to cities and towns annually - a process that is expected to contribute 4 percentage points to the country's GDP growth each year. The latest McKinsey & Company study shows that about 1 billion people will be living in the country's urban areas by 2025, and more than 200 cities will have a population of 1 million or more. The firm also predicts that about 90 percent of China's GDP will eventually come from the country's urban economy.

China is now at the stage of industrialisation and urbanisation, with each promoting development of the other.According to the country's development road map, industrialisation will be basically achieved by 2020. By that time, the urbanisation ratio would rise to 60 percent. Such a high level is expected to a big boost to much-needed consumption and promote sustainable economic development.

There have been two main drivers of urbanisation in China. There is rural-urban migration. But contrary to popular impressions of a massive wave of migrants to coastal cities from poor central and western provinces, the major driver of urbanisation in China has been in situ suburbanisation of formerly farming populations into urban economies.

The impression that many have of a China of megacities teeming with people is not accurate. A large share of China's urban population is located in small and medium size cities.The assumption is that a rural-urban shift will transform poor farmers into industrial and office workers, raising their incomes and creating a massive consumer class. In other words urbanisation will create jobs for rural folks. Secondly, it will create a big market for rural areas, as farming products can be sold in towns and cities. More jobs and bigger markets mean increasing income for farmers. This will in turn ignite rural consumption and eventually promote overall economic growth.

The major threat of development under rapid urbanisation and economic growth in China is increasing socio-economic inequalities, especially between rural and urban areas. Due to a long-standing dual economic structure, economic development in rural areas has lagged far behind urban areas. Incomes in China's cities are three to four times higher than in the countryside. The current 12th Five Year Plan wants to stop the deterioration.

Since 1997, farmers' income has stayed at a low level, with the income gap compared to their urban counterparts continuously widening. In 2008 the annual net per capita income of farmers accounted for only 4,761 yuan ($679), equivalent to urban residents' income level in 1996. In 2009, the disposable income of the urban population stood at 17,175 yuan ($2,453) per capita, but the net income of the rural population was 5,153 yuan per person.

In China, urbanization is seen by policy makers and planners as a formal strategy to closing the rural-urban gap.

According to the 12th Five Year Plans, specific interventions to improve the standard of living in rural areas are expected to focus explicitly on increasing rural urbanisation, agricultural modernization and intensification. The goal of urbanisation is to create jobs and improving people's standard of living through economic development.At one level the urbanisation strategy seems to be working very well for the country. Construction of skyscrapers and high rise buildings, wider streets and huge squares have changed the look of almost all Chinese cities.

In terms of industry, the migration of surplus rural labourers to towns and cities provides local industry with an abundant cheap labour force. Millions of jobs are being created every year across all sectors of the economy.

Accelerated urbanisation enables the country to invest more in infrastructure construction, which will drive domestic demand and economic structural adjustment. At the same time, rising urbanisation means that the government will be able to offer well-developed education, medical care and housing networks for more people, a move that is also expected to help people to be more willing to spend.

As for agriculture, those who have moved to the city contracted their land to those who stayed in rural areas. With the scattered land put together and the introduction of intensive farming, the land productivity is raised.Nationwide, per capita rural incomes after inflation rose 14.3 percent in the first quarter (2011) from a year earlier, double the increase in urban disposable income, thanks to higher farm prices and bigger remittances by migrant workers. So, China's vast rural economy, home to over 700 million people, seems to be doing well. But urban China is doing much better, and the resulting inequality continues to be a nagging concern for the ruling communist Party.

However, concerns have been raised about the unfolding urbanisation that is engulfing China. In most cases, the rural urbanisation process is accompanied by land dispossession and forced migrations of the population from rural areas to new cities or towns. Some town municipalities are acquiring farmland by force from farmers, with little compensation, and selling this land to real estate developers as this provides an important source of revenue for local governments. Some local governments are financially dependent on land sales and use all sorts of methods to turn farmland into construction land. Statistics show that between 2006 and 2010 an average of 440,000 acres of land was transferred every year. Some argue that industrialisation since China's reform and opening up has meant exploitation of farmers.

The exploitative process involves multiple participants including state-owned capital, private capital and foreign capital. Huge numbers of migrant workers have been sucked into the process of industrialisation, which should in theory mean progress. But the degree of exploitation to which they have been subjected is extreme. What enterprises depend on for survival and development is the unlimited supply of migrant workers. In the meantime, the migration of rural workers to urban areas is draining rural areas of their valuable human resources.

There is also the problem of unemployment in respect of the rural migrants as more and more farmers are being deprived of their land with neither jobs nor effective social security to cover their loss. Excessive supply of labour has left big cities staring at the ghosts of unemployment and expensive housing which cannot be afforded by farmers.

One Chinese scholar warned that radical urbanisation might harm farmers' welfare and create 'urban slums'. He says if the country's urbanisation moves too fast, the cities might not be ready to provide proper public service for newcomers, who have lost their farmlands at hometown.

Urbanisation will continue at an unprecedented scale and speed in China. The country has adopted it as the way to further modernise itself and improve the livelihood of its citizens. Urbanisation will hopefully help the country convert its enormous consumption potential into a strong propulsive force for sustainable economic development.Cities are major areas of consumption. And urbanisation is key to consumption.

As China looks inward for growth, the 12th Five Year Plan emphasises the importance of shifting to consumption-driven growth for several hoped for outcomes; reducing income disparity, moving away from foreign asset investment because of overcapacity concerns, as well as reducing China's dependency on exports and thus reducing its current account surplus and need to maintain an artificially weak currency. In order to enable consumption to grow quickly, the government plans to increase social safety nets, such as health care and social welfare payments.

Over the long term, the health and vitality of China's rapidly growing urban areas will be central to continued growth. Cities are strong engines of growth. They permit economies of scale and scope in production and distribution, and facilitate technology spillovers. And because of higher population densities in cities, private and public investments are more cost effective and yield higher returns.