Details on China’s Urbanisation Plan

Last week China’s urbanisation plan has been approved, allowing to move more people to cities in order to boost economic growth. This move might be a population shift of about 100 million over the next few years.

The plan, approved by the State Council (Cabinet) calls for China to have about 60 % of its more than 1.3 billion people living in urban areas by 2020, up from 52.6  at the end of 2012. This means that millions of farmers move to cities. However there are still some restrictions on farmers’ migration under the household registration, or “hukou” system, but the government will make it easier for farmers to sell or lease their land, look for work in the cities and qualify for public services there.

The government considers urbanisation as a strong engine to keep economic growth at a sustainable pace and on a healthy track. Domestic demand is the fundamental drive of our nation’s economic development, and urbanisation has the greatest potential to expand domestic consumption.

Hand in hand with migration goes an expansion in the infrastructure network. All cities with more than 200000 residents will have a rail connection by 2020, those with more than 500000 residents will have high speed rail. About 90 % of the population will have access to a nearby airport.

The easing of “hukou” will apply majorly to smaller cities, without giving more specifics. The plan further projects that only about 45 % of the population will be granted full rights as urban residents by 2020, meaning threes are eligible for city pensions and medical coverage, as well as education for their children. At the end of 2012 the rate settled at 35.3 %.

With the plan, no timetable or specific targets for easing restrictions on the sale or leasing of land by farmers were indicated. However, this is the key part of the programme, because farmers need to have cash in their pockets when they move to the more expensive cities.

Some smaller cities have already eased their “hukou” controls to attract more rural labourers. These efforts have been only partially successful, because man y people prefer to move to larger cities for better job opportunities and public services.

Another element of the plan is the expansion of the coverage of social welfare, including pension and medical insurance, and by reducing the costs of paying social insurance. However, also there, no specifics were given.

Further authorities will allow local governments to issue municipal bonds and push ahead with a property tax law aiming to boost revenue to help covering the cost of increased urbanisation. The plan also calls for expanding resource taxes to cater to local government budgets. But also there, no specifics were given.

All in all, the plan will trigger another round of aggressive government spending, particularly under the aspect that the central government is already concerned about massive levels of local government debt. The central government has repeatedly warned about the dangers of excessive local government borrowing to cover infrastructure development.