Aug. 28 (Bloomberg) -- China must spend at least 41.6 trillion yuan ($6.8 trillion) over two decades to integrate rural workers living in cities and towns so the country realizes benefits of urbanization, a United Nations report said.
Spending may exceed 75 trillion yuan in a scenario with a higher rate of investment to improve living conditions and housing quality, according to the report released yesterday in Beijing. The study’s baseline assumptions are for the urban population to rise to 976 million in 2030 from 666 million in 2010 and integrate about 210 million migrant workers.
The report quantifies the urbanization challenges faced by Communist Party leaders as they prepare for a November meeting to discuss deepening policy reforms amid an economic slowdown. Officials are considering changes to the hukou residence-registration system that excludes migrant workers from taking advantage of schools and pension benefits in cities.
“Much more needs to be done to eliminate the continued gaps between migrant workers and registered urban residents,” said the report, produced by the United Nations Development Programme and the Institute of Urban and Environmental Studies of the Chinese Academy of Social Sciences, a government-run research organization. “These will not be conducive to social stability, city livability or sustainable development.”
A major question is how to pay for the urban shift while regional governments face rising debt burdens. Local-government debt may have surged to about 18 trillion yuan, according to Societe Generale SA, from an official estimate of 10.7 trillion yuan at the end of 2010. The National Audit Office said July 28 that the cabinet ordered a new nationwide government-debt review.
Jia Kang, director of the Ministry of Finance’s fiscal science research center, said in June that urbanization will require financial support of 60 trillion yuan based on a 150,000 yuan per-capita cost of making 400 million rural residents into urban dwellers. Jia said that China should develop a public-private partnership in financing urbanization.
The UN report said funding may need to shift “from today’s one-source, government-dominated financing to a mix of sources.”
Li Tie, an official with China’s top economic planning agency, said earlier this month that plans to encourage rural residents to settle in cities face opposition from local governments. “Nobody wants such a big group of migrants to be their neighbors and share their so-called civilized space,” Li, director-general of the China Center for Urban Development under the National Development and Reform Commission, said at an Aug. 10 forum.
Mao Daqing, executive vice president of China Vanke Co., the biggest developer by market value traded on the country’s stock exchanges, told the forum some local governments may be hard pressed to pay for urbanization.
Separately today, China’s State Council said the nation will work to ensure steady growth in the second half while maintaining the consistency and stability of economic policies, the official Xinhua News Agency said, citing a report delivered to a session of the National People’s Congress Standard Committee.
Premier Li Keqiang is banking on hundreds of millions of migrant workers and their families becoming permanent urban residents to boost consumption and sustain growth at his bottom line of 7 percent a year, as the government restructures an economy that’s expanded at an average 10 percent a year over the last two decades.
Speaking at his first news conference after becoming premier in March, Li said, “Urbanization will usher in a huge amount of consumption and investment demand, increase job opportunities, create wealth for farmers, and bring benefits to the people.”
The 41.6 trillion yuan figure is based on an assumption of an 80,000 yuan cost to fully integrate migrants into urban areas, a number calculated by the Development Research Center of the State Council, or cabinet. Without pension expenses, the figure would be 46,000 yuan, according to the UNDP report.
China reported nominal gross domestic product of 51.9 trillion yuan last year.
HSBC Holdings Plc estimated in an October report that the movement of 10 million rural residents to become urban residents every year for the next 20-30 years would create more than 100 billion yuan a year in additional consumer spending.
“The model of relying on resource-intensive use and sacrificing the environment for rapid urbanization is unsustainable,” Xie Zhenhua, an NDRC vice chairman, said yesterday at the report’s release.
The country’s urbanization increased to a majority of its population from 10 percent in six decades, a transition that took 150 years in Europe and 210 years in Latin America and the Caribbean, UNDP Administrator Helen Clark said in a statement.
Asian stocks dropped for a second day on concern the U.S. will take military action against Syria. The MSCI Asia Pacific Index was down 1.5 percent as of 2:20 p.m. in Tokyo.
Elsewhere in Asia today, Japan continues meetings of panels of experts to review the nation’s plan to boost its sales tax to 8 percent from 5 percent in April. That move would be followed by a jump to 10 percent in 2015.
While a higher consumption levy may improve the nation’s finances, the increase could also undermine the nation’s rebound under Prime Minister Shinzo Abe’s recovery program, by dragging down consumer spending. Tokyo University Professor Takatoshi Ito said yesterday that the tax should rise as planned.
“Economic indicators show the economy isn’t in a bad state and raising the sales tax wouldn’t slow the economy or the bid to end deflation,” Ito, a former Finance Ministry official, told reporters. Not proceeding in line with the plan could lead to falling stocks, a stronger yen and a spike in bond yields, Ito wrote in a statement submitted to a panel.
Around the world today, economic releases span home sales and mortgage applications in the U.S., retail sales in Italy and money supply in the euro area.
To contact Bloomberg News staff for this story: Zhou Xin in Beijing at email@example.com
To contact the editor responsible for this story: Paul Panckhurst at firstname.lastname@example.org