New residential buildings in a village in Jiangsu. (Photo/CFP)
China's premier, Li Keqiang, said last week at the 2013 Fortune Global Forum in Chengdu that China has entered the middle-income stage of its development and its urbanization process will bring huge demand to help upgrade the country's economy. Since urbanization has gradually become the main driver for China's economic growth, the foreign media is terming it Li's "silver bullet."
In the theory of economic development, urbanization is practically a byword for economic growth. The country's transition from a planned economy to a market economy has created a steady flow of formerly agricultural workers towards the cities.
By the end of 2012, China had a total urban population of 714 million, compared to only 200 million in the 1980s.
Li's new economic policy is also based on this trend. While China's economic reforms over the past three decades have attained great achievements, its economy is yet to mature. A mature economy is mainly composed of industrial and business sectors and has a 3%-10% agricultural population. However, China's farm worker population still accounts for 35% of the total, while its agricultural output only contributes 10% to national GDP.
If Li wants China's economy to be upgraded, he has to carry out large-scale changes in the industrial structure through urbanization.
Currently, China's urbanization rate is about 53% and this is expected to approach 70% by 2030 when the urban population is forecast to exceed 1 billion.
Under Beijing's urbanization plan, 10 second- and third-tier cities are expected to be home to 40% of the country's total population and account for 68% of its GDP.
The progress of China's urbanization has been different from other countries around the world, mainly because the country is characterized by a model of "underground urbanization," which means the development process has surpassed policies and systems.
For instance, a large number of migrant workers coming from rural areas to the cities for work are not covered by medical care or social welfare programs, and their children do not get educational opportunities because they are not able to register their households in the cities where they work.
Currently, China's registered urban population accounts for only 35% of the total, which means that nearly 18%, or up to 250 million migrant workers, have become second-class citizens.
The Paris-based Organization for Economic Co-operation and Development published a report on China's economy in late March that said there were two key methods for improving the country's "systematic social inequality." These included relaxing its household registration and delinking social welfare and local household registration to allow migrant workers to enjoy the same social welfare status as registered city residents.
Second, reforming the rural land use system to reduce the monopoly and control of local governments over land and relaxing restrictions to allow farmland for business and residential use would allow farmers to sell their land to developers.
As part of his PhD thesis in 1994, Premier Li had proposed that the government should relax its household registration policy to break out of the system of urban and rural separation and push rural residents to congregate in small towns in order to develop small- and medium-sized cities. After he assumed the post of premier in March, his first economic bullet was aimed at the household registration system for promoting urbanization. Let's see how the premier's reform dream from 19 years ago is realized in the next two decades.