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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
Photo: simpalsmedia.com

The scale and pace of Chinese urbanization have no precedents in the history of mankind. If in 1980 year 18,6% of the PRC population lived in cities, then in 2016 this indicator was 56,8%. For comparison: in India, the level of urbanization from 1980 increased from 22,7% to 33,1% of residents.

On estimated McKinsey Global Institute, while maintaining current trends (which, incidentally, is unlikely), the population of cities in China will reach a billion people already by 2030. But if in the early stages of economic development the emphasis on ultra-rapid 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 the cities for work, are recorded as citizens in the statistics, although they do not have a city registration - hukou (户口). In fact, the proportion of the population with urban registration is much less than the official level of urbanization and is about 33%. Migrant workers living in demountable communal apartments on the outskirts of towns and having a rural residence permit now constitute about 11% of the urbanized population.

A high percentage of urbanization is also achieved through the re-qualification of rural land in urban areas. Rural residents are deprived of their land plots (often forced) and settle on the same land (although sometimes it happens in another province) in multi-storey houses. In this case, they often retain a rural residence permit. Such retrained city dwellers 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. According to the estimates of the Hong Kong organization China Labour Bulletin, only in 2010, 61 million children were forced to stay in the countryside for months and sometimes not seeing their parents for years.

In the past 20 years, authorities have gradually softened the hukou system, but most of the changes are cosmetic. The integration of migrant workers into the urban social security system is 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 noted by the head of the consulting company J Capital Ann Stephenson-Young in the book "China Alone", reflects not only the real migration of peasants in search of a better share, but also in many respects the fictitious process of re-registration of rural land in urban areas. This phenomenon is a product of the existing tax system in China.

Until 2015, the regional authorities of the People's Republic of China were prohibited from borrowing or issuing local bonds to cover the budget deficit, and the collected taxes were mainly collected by the central authorities. To finance the budget, regional companies LGFV (Local Government Financing Vehicles) were used. Through them, municipalities sold or mortgaged land, the main resource of replenishment of the budget. The land was sold for construction and infrastructure projects affiliated with regional authorities to developers who easily received loans for their projects in the provincial offices of state-owned banks. As a result, all participants in the scheme turned out to be interested in uncontrolled building and growth of 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 resettlement of the peasants, the developer shows the bank that the first stage of the project is extremely successful, fully sold out and populated. To return money to the regional authorities and make a profit for themselves, the developer proceeds to the second stage of the scheme - convinces the bank to give him a loan for a much more large-scale development, designed for tens or even hundreds of thousands of residents. Rationale - holiday homes for residents from large cities, tourism, domestic demand and so on.



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 the investment boom of recent years gave rise to the phenomenon of ghost cities in China, which are completely rebuilt, but do not have residents. There is no exact data on vacant cities, but there are approximate evaluation - 49 million vacant apartments as of 2013 year. At this point, 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 city absorbed the surrounding countryside in several stages in the 2000 – 2010-s. Originally there was one big city - Chongqing itself. It was surrounded by several smaller towns and rural settlements scattered over an area approximately equal in area to modern Austria. 14 million people lived in nine central districts of Chongqing, around 20 million more outside the city border. By 2015, some rural residents were urbanized according to the scheme described above, the coefficient of urbanization in the region reached 50%, by 2020 year 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 - http://carnegie.ru/commentary/74778.