Future growth must harness China's growing ranks of urban consumers
- By Kerry Brown
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E-mail Beijing Review, November 18, 2013
The communiqué issued after the Third Plenary Session of the 18th Central Committee of the Communist Party of China (CPC) on November 12 was striking because it raised questions about what a China where the majority of the people live in urban areas would look like. The new Party leadership in place since November last year, who assumed office as of March, have spoken a great deal about the issue of urbanization. This plenary session has given two views on how accelerated urbanization might occur. One is to address the household registration system, so that there is more parity between rural and urban dwellers. The second is to steer China toward a service-orientated economy, and at the heart of that is a drive to build a strong financial sector.
Most would feel that China's urbanization process has been rapid and extensive. In 1978, at the start of the reform and opening-up process, only 15 percent of people lived in cities. Over a third of the economy was agricultural. One of the most important effects of the reforms was to improve agricultural productivity by granting farmers the right to sell surplus crops to the state for profit. This freed up surplus labor and led to "town and village enterprises," a vehicle for pursuing non-agricultural economic goals.
In the 2010 national census, the survey showed that China was now effectively a society in which—for the first time ever—as many people lived in cities as in rural areas. This follows a global trend, but it raises the question of what an urban China might be like. Over 250 cities now exist in China with populations exceeding 1 million. Cities like Shanghai have exploded from 10 million residents in the early 1990s to nearly 25 million today. In any week, 12,000 new dwellers arrive in the city, creating challenges for infrastructure, welfare, employment and social cohesion. This is a pattern repeated, to varying degrees, across the country.
Urban sprawl
The plenary session's communiqué underlines the fact that the path to a more urban China is not one that the country can ignore. The higher value, more service sector orientated economy that Premier Li Keqiang has referred to in many of his statements and speeches is one which will inevitably be urban. Fast, sustainable growth must come from urban areas, meaning that rural areas will be able to produce more food, introduce more mechanization to the agricultural sector and maintain more land for produce so that China's food security challenges can be met in the coming decades.
An urban China, where as many as three quarters of the population live in cities, will be a radical break from the past. The great sociologist Fei Xiaotong (1910-2005) wrote, in 1947, that Chinese society remained agrarian, a world where people lived in tight -knit communities in which everyone was known and the bonds of trust were strong. In 2013, Chinese society is no longer like this. Change has been profound and rapid. More and more Chinese live in communities in which they were not born. They are amongst the most mobile people on the planet, with perhaps 200 million migrant laborers, living for extended periods away from their rural homes in urban settings.
An urban China, as the plenary session made clear, will need to have a flexible labor system, and one where residency rights will be easily transferable. It will be a China in which those who live in cities will have access to public goods on the same level as natives of the place they have moved to. That will mean that local governments will have great challenges in providing public goods to migrants, including medical care, education and social security. There will need to be adjustments to how this is funded. All of these issues have been widely debated in China over the last two decades as the urbanization process has accelerated. There will now need to be a consensus on the best administrative structures and policy instruments to satisfy the expectations and the challenges of a newly urbanized Chinese citizenry.
This leads to the second issue: What economic structure might an urban China have? The plenary session's communiqué refers explicitly to the need to create a strong financial sector. The service sector currently accounts for 46 percent of China's GDP. In a developing economy, this is 10 percentage points higher, at 56 percent. In a developed economy, it is as high as 80 percent. Strengthening the sector has been part of the government's strategy to create growth for a number of years. Finance is a critical part of the service sector. There is another dimension to this. An urban China is also one where another challenge that China faces becomes more soluble—increasing consumption. Consumption remains only a third of GDP, compared to over double this in a developed economy. An urban China is a China where consumption is likely to increase, and where consumers are likely to become users of services.
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