How to fund China's urbanisation
Winston Mok proposes a funding plan for the national project of turning 500 million Chinese into bona fide urban residents, which can work only if the central government takes the lead
After extensive consultation, co-ordinated by the National Development and Reform Commission, the long-term plan for China's urbanisation is being finalised. Behind all the complex issues is one fundamental question: how will it be paid for?
Based on estimates by the State Council's Development Research Centre and other sources, 100,000 yuan (HK$125,000) to convert one rural resident to an urban dweller may be a reasonable starting point. So, converting 500 million people (which would see 70 per cent of China urbanised) by 2030 would cost about 50 trillion yuan, or US$8 trillion, the equivalent of China's gross domestic product last year. A comparison may be German reunification, which cost some US$2 trillion for a much smaller base of 16 million people. At four times the cost, China's urbanisation would be 30 times the size of German unification on a human scale.
In this context, suddenly abolishing household registration is unfeasible. Even if hospitals and schools could be built overnight, there is no way to pay for them. Instead, a gradual approach is more realistic. While financially challenging, it should be possible to implement such social integration over two decades. Anything faster is beyond China's financial capacity but anything slower may compound social discontent.
With about 15 million rural people coming to cities every year, the annual costs for their integration would amount to 1.5 trillion yuan, higher than China's projected 2013 budget deficit of 1.2 trillion yuan (about 2 per cent of GDP). Moreover, of the nearly 500 million rural people to become urban citizens, more than 200 million are semi-urban residents who already live in cities. This accumulated urbanisation deficit of 20 trillion yuan would take time to digest. To amortise this manageably over two decades would add 1 trillion yuan per year.
Even at this measured pace, the annual costs would total 2.5 trillion yuan. While daunting, the issue must be addressed now before it compounds.
Urbanisation is a national project. However, the central government has provided limited financial support for it, leaving the job mostly to local governments, who as things stand can hardly service outstanding debts, estimated at 10-20 trillion yuan (20-40 per cent of GDP). Pending reforms in municipal finances, they cannot afford such a burden.