MNI: China’s Urbanisation Target Needs Broader Reforms

MNI (BEIJING) - Local governments will struggle to implement China’s new growth-orientated urbanisation policy due to tight fiscal resources and a weak labour market, raising doubt over whether the plan will boost domestic demand as much as stated by policymakers, advisors told MNI. 

Beijing’s aim to expand urban residency to 70% from 66% was achievable, but the five-year deadline showed authorities had prioritised speed over people’s well-being, said Liu Zhiqin, a senior researcher at Renmin University’s Institute for Financial Studies.

A lack of job opportunities will make it hard for migrant workers to settle down in cities amid higher levels of college-graduate unemployment and an increasing number of company failures, he said, noting the development of artificial intelligence will exacerbate the problem in the long term. Without a broader policy approach the current plan could deliver false prosperity, Liu said. 

China’s infrastructure build had increased rural-urban flexibility and reduced the need for forced population movements, he said, arguing that reaching a 70% Western urbanisation benchmark was not a necessity – 60% would be more in line with China’s needs. 

EQUAL TREATMENT

The State Council released an outline late July following the Communist Party's Third Plenum to boost urbanisation and grant migrant workers the same entitlements as city residents, previously denied under the Hukou system. Economists have long argued giving China’s 200 million migrant workers who lack local residency status access to urban public services would significantly accelerate the country’s consumption growth rate.

Higher levels of migration based on equal treatment would also reduce volatility as China’s GDP transitions from medium-to-high speedgrowth down to 3% a year over the next decade, said Fang Ning, former director at the Institute of Political Science, Chinese Academy of Social Sciences.

But local governments would struggle to fund the initiative unless other issues such as declining tax revenues were resolved, Fang noted, adding some administrations had missed salary payments. 

County-level cities that had relaxed Hukou registration have found attracting rural residents difficult as they gravitate towards metropolitan areas and city clusters with greater populations and resources, Fang said. However, he saw little chance tier-one cities would ease migration conditions anytime soon, despite some stronger tier-two jurisdictions offering Hukou status to homebuyers to stem the real-estate downturn.

BOOSTING DEMAND

The National Development and Reform Commission estimated an increase of one percentage point in urbanisation equated to CNY200 billion of additional consumer spending and trillions in new investment. (See MNI: Beijing Shifts Focus To Consumption To Boost H2 GDP)

However, Liu cautioned such results required urbanisation alongside other policies to support raising incomes, stable employment, steady prices and effective supply.

"Boosting employment needs China's industrial policy to be optimised," Liu said, noting the government should avoid repeating the heavy-handed regulation and sharp adjustment methods used in the property and education sectors.