Editor's note: Chinese Premier Li Keqiang, expounded his views on China's urbanization drive in an article published in Chinese in Qiushi semimonthly's fourth issue of 2012 on deepening the strategy of domestic demand expansion in the course of reform and opening-up when he was still Vice Premier of the State Council. Following is a translation of the excerpt of the article concerning the urbanization issue by He Shan and Chen Xia.
Urbanization has the greatest potential for boosting domestic demand. The promotion of a coordinated urban-rural development is a major source of domestic demand. China's urban population exceeded 50 percent of its total population in 2011, marking a historic change. However, as a whole, our country still trails developed countries, and even the world's average level in terms of urbanization. Related statistics show that the urbanization rate of developed countries has reached 80 percent, and some developing countries with similar average income levels to China topped 60 percent. China is experiencing exponential urban growth which will spur investment and consumption and play a significant role in expanding domestic demand. Foreign economists once predicted that China's urbanization and U.S. high technology would emerge as twin engines of the global economy in the 21st century. Related statistics show that urban residents spent 3.6 times more than rural dwellers in 2010, with the average annual consumption of urban and rural residents standing at 15,900 yuan (US$2,525) and 4,455 yuan (US$707) respectively. Based on those figures, it is estimated that every rural resident who becomes an urban dweller will increase consumption by more than 10,000 yuan (US$1,587). And each one percent increase in the urbanization rate in only one year will see more than 10 million rural residents absorbed into the cities. This will, in turn, translate into consumption totaling more than 100 billion yuan (US$15.9 billion) and correspondingly create more investment opportunities. China currently has 240 million rural workers, about 150 million of whom have left the countryside to seek jobs. However, there remains a massive untapped labor pool in the villages, leaving great potential for domestic demand as a result of urbanization. The urban-rural dual structure has remained fundamentally unchanged. However a new phenomenon has emerged in towns and cities, in which we see a dual structure which includes a disparity in the production and living conditions of urban residents and migrant workers and their dependents. We also see a disparity in the living conditions of those residing in historical squatter settlements and the majority of urban residents. This issue causes conflicts and difficulties; however it is also the source of our greatest potential. Stepping up efforts to abolish the "two-tier class system" will help rebalance urban-rural development, resolve social conflicts and unleash the untapped potential for domestic demand which will result from urbanization.
Urbanization should be advanced steadily on the basis of fully respecting the rights and expectations of farmers and strictly preserving arable land. The government should draw up mid and long-term plans as well as comprehensive policies and measures to steadily promote the process of urbanization. In conformity with the objective law of urban development, we should beef up urban planning and administration while taking into consideration each city's capacity. The government should also oversee population flow and industrial transfer and promote reasonable, coordinated, comprehensive and integrated development of cities and towns. The government should formulate and ensure the seamless implementation of policies and measures which encourage migrant workers to integrate into cities, while also ensuring that they are covered by, and have equal access to basic public services, including urban social security, health care, education and culture. The government should help them solve problems concerning employment, housing, health care and children's education. Qualification requirements should be relaxed for those rural migrant workers with stable jobs and housing to become permanent urban residents of mid-sized and small cities. The government should introduce regular investment and financing policies for city construction, further improve the land management system, introduce an integrated transport system in line with urban planning principles, and enhance the building of urban infrastructure, including public transportation, pollution prevention, and public utilities. The healthy development of the real estate market is a key issue which must be addressed during the course of China's urbanization. We should retain the tightening measures placed on the real estate market and consolidate the early fruits of macro control. We should press ahead with the construction of affordable, government-subsidized apartments while effectively increasing the supply of ordinary commercial residential housing. We should also accelerate the establishment of a long-term mechanism to ensure the stable and healthy development of the real estate market so as to facilitate the steady development of urbanization.
Promoting coordinated regional development constitutes another source of the growth of domestic demand. The government should push ahead with the overall strategy of regional development and the strategy of main functional regions. With the current shift of economic growth in eastern China, the government should increase support for the development of western China. It should invigorate the old industrial hubs in northeastern China and facilitate the rise of central China, particularly with regard to increasing aid to old revolutionary bases, areas inhabited by ethnic groups, as well as border and poverty-stricken regions. Regional development is closely related to urbanization. Less-developed regions lag behind in terms of growth, especially in urbanization. In areas which boast mature development conditions and large environmental capacity, the government should actively and steadily facilitate urbanization by reasonable allocation of resources, centralized layout of businesses and encouragement of intensive land usage to fire up new engines of growth and enhance the local capacity for self-sustained development. The government should tailor its regional, industrial and land policies to different regions and sectors, rather than adopting general and all-inclusive policies. On condition that energy conservation and environmental protection are seriously executed, high quality and safety are guaranteed with sound coordination among sectors, certain national key development zones in China's western region should be granted differential policies when developing region-specific industries.
The service sector has the greatest potential for contributing to the growth of domestic demand. China has, after years of effort, become a leading global manufacturer, with a plenty of industrial products leading the world in terms of output. The competitive edges of "Made in China" have been constantly sharpened and there is still plenty of room for future growth. Relatively speaking, the development of China's service industry still lags behind other sectors and has become a weak point in China's overall economic growth as it only accounts for a small portion of the national economy. Related statistics show that China's service industry accounted for 43.1 percent of China's GDP in 2010, which was not only well below developed countries' average level of about 70 percent, but also below mid-income countries' average level of about 53 percent. China's production-related and life-related service sectors enjoy a large market demand and have great growth potential. The service sector which, in the main, belongs to the real economy, can both create social wealth and increase national power. The service sector is capable of absorbing the largest number of new employees and is an important driving force behind scientific and technological innovation. Industrialization requires both the development of industries and the development of the service sector. The combination of industrial and service sectors will help enhance the quality and competiveness of industrial development. China's 12th Five-Year Plan has set a target of increasing the service sector's value-added output in GDP by 4 percentage points within five years. We should work hard in order to ensure that we hit the target.
Escalating the growth of the service industry is critical to adjusting the industrial structure. Effective measures should be taken to build a favorable environment for the growth of the service industry, both in terms of its size and quality. The government should promote the development of production-related service industries such as modern logistics, e-commerce and scientific research and design. It should also ensure that consumption-related services such as tourism, recreation, care of the elderly and domestic services receive a boost, and the development of small and mid-sized service companies gets support. Meanwhile, the government should actively promote the development of strategically significant new industries, as well as high-tech industries and advanced manufacturing industries. We should master core technologies in order to gain a competitive advantage, explore new markets, particularly with regard to attending to domestic demand, and accelerate the optimization and upgrading of industries.
It should be underlined that, during the course of industrialization and urbanization, agricultural modernization should also be promoted. Successfully tackling issues regarding farmers, the countryside and agriculture aids the task of stabilizing growth and taming inflation, as well as government efforts to boost domestic demand, adjust the economic structure and advance the process of urbanization. We should be tireless in promoting rural initiatives through such methods as enhancing policies to enrich and empower farmers, boosting agricultural scientific and technological innovation, and reinforcing rural infrastructure construction. Additionally, we should protect arable land to ensure there is sufficient land for planting grain, increase synthesis productivity of staple agricultural products, ensure food safety, promote stable agricultural development, and continuously increase farmers' incomes, as well as the overall development of rural areas.