China challenged in upgrading urbanization path

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China challenged in upgrading urbanization path

(Xinhua) 21:12, August 23, 2013

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Upgrading China's urbanization process to bolster a slowing economy could be a daunting task for the new government.

Since the government was formed in March, it has emphasized that efforts should be made to develop a new kind of urbanization, putting people at its heart, using the potential of urbanization to support growth in the coming decade.

Analysts believed that urbanization will boost consumption and investment, but the inertia of local governments stuck in the old urbanization rut may hinder the effort.

The government sees urbanization as a way to push domestic consumption as the main growth engine, replacing exports and investment, which powered China's economic rise for the past 30 years.

Depressed external demand and lack of endogenous dynamics have trapped the economy in a persistent slowdown, with growth pace easing to 7.6 percent in January-June, the weakest first-half performance in three years.

Accelerated urbanization can keep the economy expanding by around 7 percent for the next 10 years, expanding the proportion of middle-income groups and invigorating domestic demand, said Chi Fulin, director of the China Institute for Reform and Development.

China's urban residents accounted for 52.6 percent of total population last year. That figure will grow by about 1 percentage point each year and reach about 65 percent in the ten years, according to Chi's estimates.

That means another 150 million rural residents will move to cities and towns, adding to the current 260 million migrant workers -- a process that is expected to generate investment demand of 40 trillion yuan (6.5 billion U.S. dollars) and consumption of 45 to 50 trillion yuan by 2020.

In comparison, developed economies in Europe and the United States are about 80 percent urbanized.

Considering the prospects, the government has been working on an urbanization plan since 2010. Granting migrant workers true urban status and fostering sustainable development of cities are viewed as the core ideas of the plan, which is expected to be unveiled later in the year.

"The biggest problem is that local governments are liable to stick to their old urbanization path," said Zhuang Jian, an economist at the Asian Development Bank.

Increasing the value of land through expropriation and population aggregation has been the most effective way for local authorities to attract investment and grow the local economy over the past years, a great incentive to boost urbanization.