China must follow its own path of urbanisation

Dan Steinbock says urbanisation in 21st-century China will necessarily differ in scale, purpose and circumstance from that in the West 100 years ago, and a direct comparison is misleading

PUBLISHED : Thursday, 03 October, 2013, 12:00am
UPDATED : Thursday, 03 October, 2013, 2:42am

In the next few weeks, Premier Li Keqiang's "new type of urbanisation" is expected to take off. In the West, the response has often been sceptical and occasionally very critical. It is time for a sanity check.

Some critics argue that Beijing is about to create a "Chinese city of 260 million people", which Gordon Chang, author of The Coming Collapse of China, compares with the "Bohai Economic Rim, centred on Beijing and Tianjin". These critics also believe that authorities hope to combine nine major cities in Guangdong into a single city of more than 40 million people, which they call "China's Maoist vision".


True, there is a plan - actually, a long-standing one - to network the infrastructure of Guangzhou, Shenzhen, Dongguan , Foshan , Huizhou , Zhaoqing , Jiangmen and Zhuhai . But the goal of Chinese planners is not Fritz Lang's nightmarish Metropolis. Rather, they hope to integrate cities with provinces, and provinces with the nation. By strengthening ties of these megacities, they will strengthen the Chinese economy, social cohesion and urban welfare.

Ironically, big-city dreams are less appealing to Chinese leaders, who seem to prefer urbanisation based on medium-sized cities of between one and five million people, whereas many Western consultants advocate the idea of large-city urbanisation, due to economic efficiencies.

In reality, Chinese scenarios are no different from the kind of interplay of industrialisation and urbanisation that first took place in Britain. What is different is China's population size.

Today, more than half of China is urban. A century ago, Britain was at the same point. At the time, its population was 31 million, fewer than that of Chongqing , while the mainland's population exceeds 1.3 billion. It is not that Chinese urban planners are imposing "bigness" on China. Rather, it is imposed on them. They have few alternatives but to think big.

In addition to scale, there is the issue of lower levels of prosperity. When the industrial revolution first took off in Britain, average prosperity was already at the level that China reached only around the late 1980s. Today, Chinese per capita income remains less than 20 per cent of that in the United States.

Integration challenges, the massive scale and prosperity levels make Chinese urbanisation unique.

Other observers argue that Chinese plans are fuelled by the "urbanisation fallacy". They believe China bulls see urbanisation as the answer to the nation's slowdown in growth, which is wrong because urbanisation is a response to growth. "Countries do not grow because they urbanise," says economist Michael Pettis, "[but] they urbanise because they are growing and there are more good and productive jobs in the cities than in the countryside."

That, however, begs the question why those jobs are in the cities and not in the countryside in the first place.

It is not that Chinese urban planners are imposing 'bigness' on China. Rather, it is imposed on them

As any economic historian, geographer or urbanist would argue, the process of urbanisation has played a critical role in growth. This is why the Nobel-prize- winning economist Simon Kuznets dated the very beginning of modern growth from accelerated urbanisation, which fuels rapid increases in prosperity, labour migration to cities and internationalisation.

However, urbanisation alone is not enough. In much of Latin America and the Middle East, demographic dividends have been wasted because migrant flows were not coupled with job creation, which led to the favelas in Latin America and instability in the Middle East. Successful urbanisation requires vibrant job creation.

Indeed, both Chinese reformers and their critics agree on the fact that what really matters is productivity. However, in different nations, urban productivity has evolved in different ways. What worked in early 19th-century Britain or in the US at the turn of the 20th century may not work in China in the 21st century.

In the past, China's growth was driven by net exports and investment, but primarily in the first-tier coastal provinces and megacities. In these regions, the nascent middle class is now a reality. Tax revenues are beginning to support a nascent social model, and growth is increasingly fuelled by consumption.

However, Chinese planners cannot impose such a model on poorer, less-developed regions in which growth is still driven by investment, industrialisation has barely started and the level of urbanisation is lower. In these cities, the middle class barely exists and tax revenues cannot yet support a social model. These regions need industrialisation and urbanisation that will accelerate economic development.

That, in turn, requires investment that creates infrastructure, which supports property markets, which attracts industry, retail and services while raising Chinese living standards.

In the historical West, urbanisation relied on small populations, but relatively high per capita income and it occurred in an era of relatively free trade, capital and people. China's new urbanisation must cope with huge populations and low prosperity levels, and it occurs in an era of policy-fuelled capital flows, regional trade friction and low migration.

It is model that will remain misunderstood in the advanced West, but that has much to offer to megacities in emerging and developing nations.

Dr Dan Steinbock is research director of international business at India China and America Institute (USA) and visiting fellow at Shanghai Institutes for International Studies (China) and the EU Centre (Singapore)