According to a blue paper, published by the Chinese Academy of Social Sciences on July 30 2013, China needs to accommodate 390 million farmers into its cities by 2030, at a cost of about 51 trillion yuan (US$8.3 trillion).

If this is the case, the biggest problem in China's urbanization is where the money is going to come from to provide for the housing, pensions and other areas of welfare for the farmers, after they become urban residents. .The key to successful urbanization is therefore whether or not we can find a rational funding model to pay for the costs of accommodating farmers into the cities.

However, the blue paper defines the cost of as a public expenditure, in other words a fiscal investment in building and maintaining infrastructure, and public services. Clearly, this method of calculation is confusing, and has exaggerated the level of government investment in urbanization. Quite apart from drawing a lot of attention, , this calculation might mislead policy on urbanization.

In fact, calculating the cost of urbanization is not so simple. Premier Li Keqiang once emphasized that urbanization is the biggest form of domestic demand, meaning that it will boost China's economic growth in the future. Economist Gu Shengzu concluded that demand from domestic consumption will rise from 16 trillion yuan (US$2.6 trillion) in 2011 to 30 trillion yuan (US$4.9 trillion) in 2016, based on the current pace of urbanization.

At the same time, urbanization will boost investment in infrastructure and real estate. Over the next 10 years, the 390 million farmers moving into the cities will produce 40 trillion yuan (US$ 6.5 trillion) in investment. Therefore, if the policy is implemented properly, urbanization will have a macro effect on economic growth and restructuring.

The cost of urbanization is borne through a sharing mechanism. The cost of social welfare is shared by the government, enterprises and individuals. The gap in the pension system between migrant workers and urban residents has been gradually narrowing. Therefore, the cost of urbanization for the government is not as large as the blue paper claims. What's more, in some areas, the cost to individuals is higher due to regional differences.

In conclusion, the key to successful urbanization is a rational and carefully designed financing model, to avoid turning urbanization into a heavy burden on public expenditure.

This post was first published in Chinese and translated by Li Shen.

Opinion articles reflect the views of their authors, not necessarily those of China.org.cn.

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