The devil is in the detail of China's urbanisation blueprint

PUBLISHED : Monday, 31 March, 2014, 4:09am
UPDATED : Monday, 31 March, 2014, 6:45am

China's long-awaited urbanisation blueprint raises the proportion of urban residents from about 54 per cent of the population to 60 per cent by 2020. This will still lag urbanisation rates in developed countries. But moving about 100 million people from rural areas into tier-two and three cities and giving them urban household registration will present challenges staggering in their scale and complexity, including the question of where debt-burdened local governments will get the money for essential services such as housing, water, sanitation, education, social welfare and health care. They call for nothing less than a new urbanisation model based on land and financing reform.

The country's leaders have fixed on urbanisation as a key engine of economic growth through increased consumption and productivity. But from now on it must be more sustainable. Key to that will be pilot trials to be conducted in tier-two and three cities. Urbanisation elsewhere has been driven incrementally by industrial and technological change. It says something about the scale of China's vision that it plans to ensure that every city of more than 200,000 will be connected by standard rail and express roads by 2020, while every city of more than 500,000 will be connected by high-speed rail.

The blueprint envisages a radical break with the old development pattern of heavy capital spending and high environmental costs, in favour of a consumption-driven, green model. To help launch it, labour-intensive industry would be guided to clusters of cities in central and western regions. A more market-based investment and financing system involving private enterprise would cut local government's reliance on land acquisition and sales, which drives farmers into megacities without household registration and social services. But it must be accompanied by land reforms to allocate resources in a more efficient, transparent manner that is fair to farmers.

If handled successfully, urbanisation could be a key growth engine for decades. It depends on the construction of adequate housing and infrastructure and the ability of second- and third-tier cities to attract investment and business. Cities will need new governing structures that enable them to raise money through debt financing. The ultimate challenge will be for places with new populations to develop sustainable growth that creates jobs and flow-on economic benefits. It is a good plan, but the devil is in the detail of the execution.