Urbanization in China: a ghost town

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China desperately needs better quality urbanization, with a people-orientated strategy, through reforms to social welfare programmes and the so-called hukou system, the household registration process. Without urgent redress, the rapid urbanization drive threatens to sow the seeds of social instability and exacerbate the divide between the rich and poor.

As Xi Jinping and Li Keqiang settle into China’s twin thrones, as president and premier respectively of the world’s second largest economy, a word is on everyone’s lips: urbanization. Everywhere you go in the People’s Republic these days, you hear it muttered, from back alleys to the polished hallways of the ongoing National People’s Congress. Urbanization, said Li in November, represented a “huge engine”: the only way China could hope to sustain economic expansion, and secure its aspirational credentials as a middle-income nation. A month later, Xi – one of the country’s bona fide “princelings”, boasting genetic credentials that stretch back to the founding of the Chinese Communist Party – weighed in, listing urbanization as one of the country’s paramount objectives, alongside the more prosaic issue of tax reform. Nor is this empty political rhetoric. Urbanization, Li has written in the mainstream People’s Daily newspaper, isn’t just about building larger cities or forcing rural workers to abjure the delights of China’s vast hinterland. Rather, he noted, it’s about “a complete change from rural to urban style in terms of industry structure, employment, living environment and social security.” A trained economist, Li is correct in what he says – in theory. Urbanization in, say, mid-19th Century Great Britain, or in America a half-century later, produced many tangible economic and social benefits. As people moved from village to city, the gains piled up. Living standards rose. Social benefits were delivered to a grateful populace. Wages rose. For many, work became less arduous and more humane. Yet many saw this as a gradual and largely inclusive process, driven by the needs of the people, whose voices – a point omitted by Xi and Li – were heard on the hustings and reflected in the ballot boxes. Urbanization begat democracy, as the people, their pockets and lives fuller than ever before, clamoured to be heard. In China, by contrast, notes Anne Stevenson-Yang, co-founder and research director at Beijing-based consultancy J Capital Research, urbanization is a misunderstood concept. “It’s ridiculous,” she says. “No one knows what they mean here when they use the word. The concept of urbanization exists all over the world. It just doesn’t bear any relation to what is happening in China.” One of the key challenges here, believes Stevenson-Yang, is the issue of home ownership, and the concomitant departure of theory and reality. China’s leaders like the theory: in their minds at least, migrant workers move to cities, find gainful employment, pay their taxes and, using their new-found capital reserves, buy property. They bed in, marry, and have children, deepening social stability. This, for Party leaders, is a sacrosanct aim, relating at its core to Communist ideology. Think here of Marx: “From each according to his ability, to each according to his need”. Yet theory and reality rarely see eye-to-eye in modern China. The sad truth is that few migrant workers (many of which lack an urban work permit or hukou that would allow them to hang around in their temporary home) own their own house, or are likely to do so. Most of the millions of new properties assembled each year in China are snapped up by upwardly mobile, asset rich urban citizens. “Housing has nothing to do with urbanization,” says Stevenson-Yang. “Are new houses being bought by migrants? No, none of them can afford one. On the other hand, I’ve never met an urban 24-year-old who owns less than two [houses].” At the heart of this issue, again, is the definition of urbanization. In the Western world, the concept is clear and simple. Urban living, in its idealized form, presses people closer together; it also creates flatter societies with an equality of opportunity with respect to wages and living standards, in particular. Here, the poor leave their villages, seeking their fortune – or at least the prospect of one – in a faraway city. Willing to work for less (a process that works to their comparative advantage), their toil helps keep industrial and consumer prices low, benefiting themselves, society, and the state. In China, this process is muddled. “When you say the word ‘urbanization’, you are thinking of poor people moving to the city,” says Stevenson-Yang. “That’s not what China’s leaders mean at all.” Somewhere along the way, then, the definition became clouded. It isn’t hard to see why. China, notes Michael Pettis, a professor at Peking University's Guanghua School of Management, has become wedded to the idea that its economic growth is tied up in – and indeed driven by – the urbanization process. And this, he says, has muddled their thinking. “Urbanization doesn’t create growth, it’s the other way round,” he says. “It’s not a constant: when growth speeds up, so does the pace of urbanization. When it slows, so to does the flow of workers into a city.” This process, common in many emerging economics, was clearly visible following the Lehman Brothers crisis: before stimulus-spree investment kicked in, in early 2009, Chinese buses and trains were filled with jobless migrant labourers making the long journey back to the boondocks. Perhaps the worst aspect of what one China-based consultant refers to as the latterday “cult” of urbanization is how it wrecks romantic notions of progress. Across the country, land is requisitioned for industrial use, forcing local councils to build costly apartments in which to house displaced workers and farmers, now deprived of the one asset – land – that granted them a sustainable living. “This is poor economic thinking that benefits no one,” the consultant uncompromisingly notes. Towns like Ordos in Inner Mongolia spring up literally overnight, built to house hundreds of thousands of people. Only it turns out, no one wants to live in a frozen, soulless urban tundra. These new cities quickly turn into ghost towns, in large part because no one has planned any jobs, schools, or hospitals. “Very often the people planning these cities have very little education, and very little planning experience,” says Stevenson-Yang. “The whole process is deluded.” The biggest challenge, for China’s new rulers, will be to change, or at least modify, such thinking. This won’t be easy. Party officials at all levels have become accustomed to equating urbanization (or at least the process of building on arable land) with development and personal advancement. This process benefits existing and higher-earning urban dwellers, rather than the rural poor. Beijing means well, but its policies are often rammed through – reflecting the reality of a one-Party system – without public consultation. This means that, somewhere along the way, the process of urbanization became twisted and warped. China’s migrant workers, notes Nicholas Lardy, a China expert and senior fellow at the Peterson Institute for International Economics in Washington, have made a “very positive impact on economic growth”. But their toil has all too often become divorced from the traditional concept of urbanization: once their contracts are up, most workers, rather than stay and put down roots, opt to collect their salaries and head home. “A large part of the urbanization process in China doesn’t involve migrant workers at all: it involves existing urban citizens,” adds Lardy. Sooner or later, this could spell trouble for a new set of leaders desperate to start bridging the increasingly yawning gap between rich and poor. Lardy draws a sobering conclusion: “The new leadership believes urbanization is its salvation, and I really don’t think it’s going to be.”

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