China’s new urbanisation plan aims to energise economy, but is it ‘rash and impetuous’?

SCMP | August 01 , 2024

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■ A five-year undertaking could see 70 per cent of all Chinese settled in large cities, with newly granted urban-residency status and benefits.

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China has unveiled a five-year plan to ensure that 70 per cent of its population settles down in urban areas – a push that is believed to be aimed at unleashing new demand, but which has also raised questions about its ability to truly stimulate the economy.

Rural residents, who account for roughly half of the 1.4 billion Chinese population based on their permanent residence registration, or hukou, would have basically no restrictions from the originally rigid system if they want to relocate to cities with populations of fewer than 5 million people, according to the action plan released by the State Council on Wednesday.

Calling urbanisation “an important solution to expanding domestic demand and promoting industrial upgrades”, the plan encourages farmers to move to cities and promises them the same entitlements enjoyed by city dwellers – something millions of migrant workers have had little access to because of the hukou hindrance.

The plan followed a pledge from the Communist Party’s reform-themed third plenum two weeks ago – to grant urban-residency status to new city joiners – and it came at a time when China is struggling to absorb excess supply in the real estate market, which remains a persistent drag on the economy.

“This is the biggest piece of cake for the Chinese economy now, and it is also low-hanging fruit,” said Wang Huiyao, founder and president of the Beijing-based Centre for China and Globalisation think tank, who has been calling for reform in urban-rural integration for years.

As of the end of last year, slightly more than 66 per cent of China’s 1.4 billion people lived in urban areas, but only 48.3 per cent had an urban hukou, according to official figures. This means there are hundreds of millions of people currently living in cities while being denied access to urban benefits.

These people are now free to register their hukou in cities with permanent urban populations of fewer than 3 million, and the requirements for doing so in cities with permanent populations of between 3 million and 5 million will be “comprehensively relaxed”, according to Wednesday’s plan.

For cities larger than that – mostly municipalities and provincial capitals – a grading system to select applicants will continue to be in place, but an upper limit of annual inflow is encouraged to be cancelled, it said.

Beijing, for instance, has nearly 22 million residents, and Shanghai has nearly 25 million, according to official figures.

As one of the major policies issued after the third plenum, the plan was the result of “leadership’s awareness of the dividends brought by migrant workers and urbanisation in the past decades”, Wang said.

“It will bring some vigour to the housing market,” he explained while noting that “authorities might proceed with caution, depending on how well the policies work, but this is a step in the right direction”.

To accelerate urbanisation, support measures will include better access for migrant workers and their families to education and more affordable housing, the plan said. Fiscal support will be increased for affordable rental-housing programmes, as well as urban infrastructure upgrades.

As property woes persist and the West intensifies its economic-containment measures against China, the nation has been increasingly focusing on the domestic market, which prompted the release of the latest plan, said Liu Zhiqin, a senior researcher with Renmin University’s Chongyang Institute for Financial Studies.

But he called the urbanisation plan a “rash and impetuous” decision, adding that “some academicians and officials are bewildered and unprepared for the downward pressure the economy is experiencing”.

Instead of pinning hopes on the relocation of farmers to further drive the nation’s economy, Beijing should focus more on improving the quality of rural life and elevating it to the level seen in urban areas, he urged.

“Chinese cities need more diversified industries to create enough jobs for migrant workers, otherwise it will be impossible [for them to settle down],” he said.

Professor Xiong Wansheng, who specialises in urbanisation at the East China University of Science and Technology, welcomed the policy, which he said reflects the government’s determination to narrow regional gaps and equalise people’s rights.

But when it comes to clearing housing inventories, Xiong said he suspects it will not have much of an impact.

He noted that many young people born in rural areas are already working in urban regions, and that older residents may not respond to the plan because many do not have social security in cities and tend not to live with their adult children there, amid a trend of shrinking families.

“Now, with property being less investible in China, home buying is becoming a very personal decision that is less impacted by government policies,” he said.

From SCMP， 2024-8-1