The largest migration in world history is now taking place -- from Chinese rural to urban areas.  China's urban population has jumped from about 10% of total in 1949 to about 50% today.  By the year 2030, it could even be two-thirds.  And based on the experience of advanced countries like the US and Japan whose urban populations are about three-quarters of total, China's urbanization will continue beyond 2030.  Let's have a quick look at the trends and issues.

When the People's Republic of China was established in 1949, the country embarked on a national strategy of intensive industrialization, modelled on the former Soviet Union.  This involved a movement of workers out of the agricultural sector, and into the cities.  By 1960, China's urban population had jumped to about 20%.

This massive expansion of the urban population was putting pressure on cities.  So to control this movement, the government implemented regulations by which all citizens of China are assigned an agricultural or non-agricultural designation ("hukou") at birth, based on that of their parents.  Originally, residents with non-agricultural hukou were granted ration cards for a wide range of basic foodstuffs and commodities and were entitled to employment in cities, largely with state-owned enterprises or government agencies that provided full housing, healthcare and education services.

Under this two-tier management system, agricultural-registered residents were not entitled to urban hukou benefits as they were assumed to be agricultural workers, and hence entitled to farm collectively owned land as the basis of their livelihoods.  While the original rationing entitlements have by now largely disappeared as most commodities and services have been marketized over the last 25 years, hukou is still today used to preclude access by agricultural-registered citizens to subsized healthcare, unemployment insurance, guaranteed minimum incomes and basic welfare support which are only available in cities.

During the unstable times of the "Great Leap Forward" and the "Cultural Revolution", China's rate of urbanization fell back to 15-16%.  Then urbanization recommenced in earnest when the government started opening up to the global economy, beginning with the establishment in 1980 of special economic zones in four coastal cities.  Economic reform has continued progressively, leading to substantial industrialization in urban areas, with the result that about 50% of China's population now lives in urban areas.

Recognizing that new sources of revenue were needed by local governments to upgrade severely under-invested urban infrastructure, the central government introduced in 1988 the current system of leasing long-term rights for the use of state-owned land, allowing most revenues to be retained by municipalities.  This soon became the principal source of off-budget revenues for municipal governments, and led in many cities to massive redevelopment of inner-city neighborhoods, and to new residential and industrial parke development in outer urban and suburban areas.  The influx in the 1990s of foreign investment in manufacturing in many coastal cities, and the resulting real estate boom, has largely driven China's ecoonomic growth for the past couple of decades.

Town governments then went further by acquiring farm land by force from farmers, with little compensation ("land grabs"), and selling this land to real estate developers.  This has provided an important source of revenue to town governments, and also been a major source of corruption.  The land grabs have also provoked substantial protests and social instability.  Town governments have also amassed substantial debts as they mortgage municipal landholdings to finance infrastructure through loans from commercial banks.

There have been two main drivers of urbanization.  First, there is rural-urban migration.  But contrary to popular impressions of a massive wave of migrants to coastal cities from poor central and western provinces, less than a third of migrants to China's cities come from other provinces.  The major driver of urbanization in China has been in situ suburbanization of formerly farming populations into urban economies.

Overall, the shape of China's urban structure is as follows.  Shanghai and Beijing are two cities with urban populations over 10 million.  The temporary or migrant population accounts for one-quarter of their combined population of 33 million.  There are six smaller metropolises with populations in the 5-10 million range, comprising 38 million urban residents in total -- Shenzhen, Chongqing, Tianjin, Guangzhou, Dongguan, and Nanjing.  The "temporary" population share of 43% in this city-size group is skewed somewhat by Shenzhen and Dongguan

There is a much larger group of 61 metropolises of 1-5 million residents each, which accounts for the largest share of China's urban population, that is 123 million.  90 Metropolises with between 0.5-1.0 million account for 64 million people.  The smallest size class of cities, those under 500,000 residents, holds the second largest share of China's urban population with 103 million people.

Thus the impression that many have of a China of megacities teeming with people is not accurate.  A large share of China's urban population is located in small and medium size cities.

Urbanization is placing considerable stress on China's systems of governance by: creating a myriad of new functional responsibilities for local governments; increasing the scale of existing responsibilities; causing serious strains on municipal public finance and on the commercial banking sector from which local government are increasingly borrowing to cover both capital and recurrent expenditure; and placing pressures for the re-allocation of some responsibilities between governments on the basis of both efficiencies.

Of particular importance to China's urbanization is the better integration of vulnerable groups like: laid-off and unemployed urban workers; newly-graduated students looking for work; the chronically "old poor" who are under the support of the civil affairs bureaux; migrant workers and increasingly their families; landless famers in urban areas; and over the longer term, a significantly expanded cohort of the elderly.  It is esepcially urgent to abolish the hukou system which is a great source of inequity.

Another major issue for China's urban centers is air and water pollution.  China's cities face serious challenges in both the quantity and quality of water.  While progress is being made in many cities on control of SO2 through upgrades to thermal power generation, a growing contributor to air pollution is carbon monoxide and nitrogen oxide through motor vehicle emissions.

Over the long term, the health and vitality of China's rapidly growing urban areas will be central to continued rapid growth.  Cities are strong engines of growth.  They permit economies of scale and scope in production and distribution, and facilitate technology spillovers.  Thanks to higher population densities in cities, private and public investments are more cost-effective and yield higher retruns.  And by bringing a critical mass of talent together in a compact space, cities often become crucibles for innovation.

But for urbanization to be supportive of rapid ane efficient growth, it should be "smart" as well as rapid.  Smart urbanization involves delivering adequate levels of public services -- especially health, education, transport, water and energy -- in ways and at prices that encourage efficient use.  Finally, cities that invest in effective risk reduction and disaster response capabilities often find these will be among the best public investments they make.

Perhaps the most important recommendation for smart urbanization is the critical need to improve the fiscal strength of municipalities (along with other local governments) and reduce the large disparities in resource availability between cities.  Otherwise, local governments will continue to use land sales as a key source of revenues.  Besides increasing the pressure on arable land, this practice also tends to continuously expand city size, contributes to urban sprawl, reduces population densities, and raises costs of transport and infrastructure.

The second complementary policy would be to restain the geographic expansion of cities and increase the population density of cities.  Several Chinese cities are already quite densely populated by international standards, but for those that are not, further increases in density will lower the cost of public and infrstructural services, improve energy and transport efficiency, and reduce the loss of arable land.

The third is the importance of strengthening urban land use planning.  Urban areas that mix residential, recreational, shopping, and business facilities tend to develop more vibrant communities, have a smaller ecological footprint, enjoy lower crime rates, and generally improve the quality of life.

The fourth is effective and good urban governance including efficiency, integrity, transparency, and responsiveness to citizen needs by using the energy and capabilities of private enterprises and civil society organizations.  One way is to invite citizen participation in land use planning and zoning, which not only harnesses public creativity, but also reminds officials to look beyond the interests of individual sectors.

The fifth recommendation is to advance the governments efforts to make cities knowledge centers and incubators for innovation.  One approach is to ensure that as many cities as possible provide the essentials for becoming knowledge centers -- sound infrastructure, modern transport and telecommunication facilities, local universities and research centers, and a critical mass of skilled labor.

Lastly, we can't finish this note without mentioning some of the global impacts of China's industrialization-driven urbanization.  The most obvious are environmental pollution of coastal waters by industries and untreated urban wastewater; cross-border and inter-continental air pollution from power plants, industries, and motor vehicles; and emissions that have made the country the largest contributor to global warming.

But less obvious linkages are equally important: China's transformation into the world's biggest consumer of steel, cement and a wide range of resource commodities, including carbon-based energy sources, that is beginning to affect availability and supply prices in other countries; the transformation of China's cities into the world's factory; and the rapid evolution of the urban populace into a consumer base that is changing what global firms produce, and how they market them.  In short, economic changes in China's cities are fundamentally changing the global strcuture of flows of natural resources, products, capital, technology, information and people.

References:

Kamal-Chaoui, L., E. Leman and Z. Rufei (2009), “Urban Trends and Policy in China” , OECD Regional Development Working Papers, 2009/1, OECD publishing, © OECD.

http://www.oecd.org/dataoecd/28/21/42607972.pdf

World Bank.  "China 2030"

www.worldbank.org