Why Chinese Urbanization Is Different

In the next few weeks, Premier Li Keqiang’s “new type of urbanization” is expected to take off. In the West, the response has often been skeptical and occasionally very critical. It is time for a sanity check.

Integration, scale and prosperity

Some critics argue that Beijing is about to create a “Chinese city of 260 million people,” which Gordon G. Chang , the author of The Coming Collapse of China (2001), compares with the Bohai Economic Rim, centered on Beijing and Tianjin. These critics also believe that Guangdong hopes to combine nine major cities in Guangdong into a single city of more than 40 million people, which they call “China’s maoist vision.”

True, there is – actually, a longstanding – plan to network the infrastructure of Guangzhou, Shenzhen, Dongguan, Foshan, Huizhou, Zhaoqing, Jiangmen, and Zhuhai in Guangdong. But the goal of Chinese planners is not Fritz Lang’s nightmarish Metropolis (1927). Rather, they hope to integrate cities with provinces, and provinces with the nation. By strengthening the ties of these megacities, they will strengthen Chinese economy, social cohesion and urban welfare.

Ironically, big-city dreams are less appealing to Chinese leadership, which seems to prefer urbanization based on medium-sized cities of 1-5 million people, whereas many Western consultants advocate the idea or large-city urbanization, due to economic efficiencies.

In reality, Chinese scenarios are no different from the kind of interplay of industrialization and urbanization that first took place in Britain. What is different is China’s population size.

Today, more than 50 percent of China is urban. A century ago, Britain was at the same point. At the time its population was 31 million, less than that of Chongqing, a single Chinese megacity, while the mainland’s population exceeds 1.3 billion. It is not that Chinese urban planners are imposing bigness on China. Rather, bigness is imposed on them. They have few alternatives but to think big.

In addition to scale, there is the issue of lower prosperity levels. When the industrial revolution first took off in Britain, average prosperity was already at the level that China reached only around the late 1980s. Today, Chinese per capita income remains less than 20 percent of that in the U.S.

Integration challenges, massive scale and prosperity levels make Chinese urbanization unique.

Urbanization reflects modern growth

Other observers argue that Chinese plans are fueled by the “urbanization fallacy.” They believe that China bulls see urbanization as the answer to the mainland’s growth slowdown, which is wrong because urbanization is a response to growth. “Countries do not grow because they urbanize,” says economist Michael Pettis, but “because they are growing and there are more good and productive jobs in the cities than in the countryside.”

That, however, begs the question why are those jobs in the cities and not in the countryside, in the first place?

As any economic historian, geographer or urbanist would argue, the process of urbanization has played a critical role in growth. This is why the Nobel-awarded economist Simon Kuznets dated the very beginning of modern growth from accelerated f urbanization, which fuels rapid increases in prosperity, labor migration to cities and internationalization.

However, urbanization alone is not enough. In much of Latin America and the Middle East, demographic dividends have been wasted because massive migrant flows were not coupled with job-creation, which led to the favelas in Latin America and instability in the Middle East. Successful urbanization requires vibrant job-creation.

Indeed, both Chinese reformers and their critics agree on the fact that what really matters is productivity. However, in different nations, urban productivity has evolved in different ways. What worked in the early 19th century Britain or in the U.S. at the turn of the 20th century may not work in China in the 21st century.

Urban growth, with Chinese characteristics

In the past, the mainland’s growth was driven by net exports and investment, but primarily in the 1st tier coastal provinces and megacities. In these regions, the nascent middle class is now a reality. Tax revenues are beginning to support a nascent social model, and growth is increasingly fueled by consumption.

However, Chinese planners cannot impose such a model on poorer, less developed regions in which growth is still driven by investment, industrialization has barely started and the level of urbanization is lower. In these cities, the middle class barely exists and tax revenues cannot yet support a social model. These regions need industrialization and urbanization that will accelerate economic development.

That, in turn, requires investment that creates infrastructure, which supports property markets, which attracts industry, retail and services while raising Chinese living standards.

In the historical West, urbanization relied on small populations, but relatively high per capita income and it occurred in an era of relatively free trade, capital and people. China’s new urbanization must cope with huge populations and low prosperity levels, and it occurs in an era of policy-fueled capital flows, regional trade friction and low migration.

It is model that will remain misunderstood in the advanced West, but that has much to offer to megacities in emerging and developing nations.

A shorter version of this commentary was released by South China Morning Post on  Oct 3, 2013