China Sets Out Urbanization Plans to Support Economic Growth

Photographer: Brent Lewin/Bloomberg

Workers assemble pens at the A.W. Faber-Castell (Guangzhou) Stationery Co. factory in Guangzhou. Close

Workers assemble pens at the A.W. Faber-Castell (Guangzhou) Stationery Co. factory in Guangzhou.

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Photographer: Brent Lewin/Bloomberg

Workers assemble pens at the A.W. Faber-Castell (Guangzhou) Stationery Co. factory in Guangzhou.

China will map out city clusters across the country’s central, western and northeastern regions and develop them into engines for growth as part of its urbanization strategy, according to the nation’s leadership.

“Diverse and sustainable” funding mechanisms will be developed to finance policies, they pledged at an urbanization conference, according to a report of the meeting by the Xinhua News Agency yesterday. Attention must also be paid to the environmental impact of such development, they said.

China’s leaders pledged last month to speed up urbanization as part of a package of policies that represent the biggest expansion of economic freedoms since at least the 1990s. Premier Li Keqiang has championed the strategy as a “huge engine” for growth as he seeks to shift the world’s second-largest economy toward a model that relies on domestic consumption rather than investment and exports.

“Pushing forward urbanization is an important path to solve problems related to agriculture, rural areas and farmers,” according to Xinhua’s report posted on the central government’s website. It is also a crucial tool “to boost China’s domestic consumption and drive industrial upgrading.”

‘Highest-Level Meeting’

President Xi Jinping and Li spoke at the two-day conference, with Xi emphasizing principles and priorities and the premier giving more detailed plans, according to Xinhua, which said it was the highest-level meeting the Chinese leadership has ever convened on urbanization.

China’s urban population surpassed that of rural areas for the first time in the country’s history in 2011. Even so, millions of migrants who have moved to towns and cities can’t benefit from urban welfare, education and health services because the household registration system, known as hukou, classifies them as rural residents.

The National Development and Reform Commission, the nation’s top economic planning agency, said today it will promote urbanization and issue supporting policies on residency, land, capital, housing and public services.

Priority will be given to investments in projects such as shantytown redevelopment, construction of affordable housing, more railway infrastructure in central and western China and major projects to promote energy saving, emissions reduction and environmental improvement, it said.

Surging Debt

One of the thorniest issues facing policy makers is who pays for urbanization -- the cost of the physical infrastructure and the recurring annual spending on providing millions of new residents with health care, welfare and education services.

Local authorities are barred from directly selling bonds or borrowing from banks and can’t run budget deficits. To raise money to fund spending they set up thousands of financing vehicles, racking up debts that Fitch Ratings Ltd. said in April increase risks to the country’s financial stability.

The urbanization conference agreed that the taxation system for local authorities will be improved and categories of taxes that are “local-government oriented” will be gradually established, according to Xinhua. A mechanism will also be set up that links fiscal transfer payments from the central government with the pace at which farmers become urban residents, it said.

The management system for local authority bond sales will be improved and the government will study the establishment of financial institutions for urban infrastructure and housing, according to Xinhua’s report, which didn’t give further details. Private investors will also be encouraged to participate in building and running public facilities, it said.

Primary Task

The conference repeated a pledge made in a document released after last month’s Third Plenum to relax the household registration system. Allowing migrant workers to gain urban residency status in an “orderly manner” will be a primary task, according to yesterday’s statement.

Concerned that local authorities will see urbanization as an opportunity to boost infrastructure or develop too quickly, the conference warned that targets should be “practical and realistic,” Xinhua said. Officials should not pursue “quick results,” rather they should push forward in an “active and steady manner,” it said.

The conference reiterated the strategy outlined in the Third Plenum document that urbanization and the reform of the hukou system should focus on small and medium-sized cities, while migration to the biggest cities should be strictly controlled.

“Not every city or town has to grow like a giant,” the conference pointed out, according to Xinhua.

To contact Bloomberg News staff for this story: Wenxin Fan in Shanghai at wfan19@bloomberg.net; Stephen Tan in Beijing at ztan39@bloomberg.net

To contact the editor responsible for this story: Stanley James at sjames8@bloomberg.net

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