Ensuring Efficiency and Equality in China's Urbanization and Regional Development Strategy
Zhao Chen and Ming Lu
The Importance of Being Urbanized Correctly
There is not a modern country in the world that is not highly urbanized. It is no exaggeration that a sustained increase in the level of urbanization is the prerequisite for China to achieve modernization. China must go beyond merely increasing the urbanization level to formulating an efficient urban system and an efficient urban spatial distribution. The core of an urbanization and regional development strategy that is both efficient and equitable lies in ensuring that factors of production are freely mobile across the urban-rural divide and across the different regions. This free mobility of production factors will generate a regional economic growth pattern that is driven by mega-cities and city clusters to achieve agglomerated economic development and effective division of labor in regional economies. This growth pattern will be characterised by balanced urban-rural development, and by convergence in per capita income across regions.
Current policies in China restrict the mobility of production factors in multiple ways in order to slow down the process of urbanization, and restrict the population size of big cities. In the “12th Five Year Plan (12-FYP)”, the goal is to increase the proportion of urbanized population (the urbanization rate) from 47.5% in 2010 to 51.5% in 2015, an increase of 4 percentage points in 5 years, which is lower than the 2000-2010 average rate of about 1 percentage point a year. This official target is contrary to the international experience that the urbanization rate normally accelerates when it reaches around 50%! Specifically, the 12-FYP promotes the development of small and mid-sized cities and towns, and restricts the development of mega-cities: “Mega-cities should control their population size, big and mid-sized cities should continue to play an important role in absorbing migrant population. Midsized and small cities and small towns need to relax Hukou requirements according to actual circumstances.”
The growth of towns and cities necessarily mean the reduction of land zoned as rural; and rural land are zoned for either agriculture-use or construction use. (Construction-use land includes rural residential land.) The central government maintains a strict control on the amount of agricultural land in order to ensure adequate land for food production. The conversion of agricultural land into construction-use land is generally a difficult thing to do.
Right now, Chongqing and Chengdu are conducting experiments in land-swap schemes within their municipal boundaries called the "balance between occupation and compensation of agricultural land" scheme. Under this scheme, the amount of agricultural land converted into construction-use land in district A could be increased as long as district B increases agricultural land by an equal amount (i.e. district B reduces the amount of construction-use land by an equal amount). Under this land-swap scheme, the total amount of land for each use is kept the same by consolidating land use in district A and district B. In this process, district B receives an economic compensation from region A.
This "balance between occupation and compensation of agricultural land" scheme is currently only operational only at the municipal level and cannot be employed to ameliorate the inefficiency of construction-use land quota allocation across regions. At the same time, given the insufficient interregional population mobility, the central government supports the development of underdeveloped regions by allocating to them relatively larger construction-use land quotas and fiscal transfer payments.
Three wrong assumptions are behind the policies and institutions that restrict the interregional mobility of production factors, and they are (1) China’s big cities are overly large and are hence marked by inefficiencies; (b) the development of mid-sized and small cities and the development of big cities are two competing urbanization paths; and (3) economic agglomeration in the eastern regions contradict the ideal of balanced regional development. This article will first discuss these three misunderstandings concerning China’s urbanization and regional development mode; and then propose an agenda on urbanization and regional development that is efficient and equitable.
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This report is published in:
Wing Thye Woo, Ming Lu, Jeffrey D. Sachs and Zhao Chen (eds.), 2012, A New Economic Growth Engine for China: Escaping the Middle-Income Trap by Not Doing More of the Same, Imperial College Press, and World Scientific.
