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Challenges for China’s Sustainable Urbanization

[Editor’s Notes: The Red Flag Manuscript, a political and theoretical semi-monthly publication under Qiushi Journal, published an article by Bao Zonghao, Director of the Huaxia Social Development Research Center. Bao discusses eight challenges that China faces as it continues urban development. ] [1]

Over the next ten to twenty years, China’s sustainable urbanization will face eight major challenges.

1. The Challenge of Limited Resources

A. The land resource constraint. Of all of China’s land, less than 55% is agricultural, while the land that has actually been cultivated is only 10%. Both indices are lower than the world average. Much of the land in China is either desert or rocky hills. Roads and residential areas also account for 20% of the land. There is a fairly large amount of grassland, but less than 75% of that is usable.

B. The water resource constraint. China’s per capita supply of water is only a quarter of the world’s average. China is one of 13 counties whose water shortages the United Nations reports as being the most severe. Currently, two thirds of China’s cities are short of water. The water resource constraint manifests mainly as a water shortage, wasted water, and flooding. Among the seven major water systems in China, only the Zhu River and the Yangtze River have good water quality. The Songhua River is lightly polluted, the Yellow River and Huai River are moderately polluted, and the Liao River and the Hai River are heavily polluted.

2. The Challenge of Urban Air Pollution

Canadian scientists produced a global air particle pollution map from 2001 to 2006 based on NASA satellite data. North Africa, North China, East China, and Central China were colored the deepest red, meaning that the air in these regions has the highest concentration of particles.

3. The Challenge of the Lack of Urban Development Planning

The lack of planning in urban development in China can be seen in three areas: a. Material planning (planning and construction of industrial areas, commercial areas, and buildings) has been emphasized more than economic, political, cultural, and social planning. b. Project implementation has been emphasized more than strategic planning. Most cities do not have strategic plans for 30, 50, or 100 years into the future.  c. Above-ground construction and planning has been emphasized over underground infrastructure construction, resulting in street flooding after heavy rains.

4. The Challenge of Diminishing Public Space

In recent years, as China’s cities have rapidly developed, the reduction in public space can be seen in three areas: a. As cities have expanded, farmers have lost their land, their jobs, and their homes. b. As cities expand, social stratification has resulted in a growing trend toward regionalization and compartmentalization by social status. c. The wealth gap is increasing. In the past five years, residents’ income has lagged behind the pace of economic growth: i) China’s GDP increased by 74 times and fiscal spending by 59 times in the past 30 years, but the average family income increased by only 27 times for farmers and 36 times for urban dwellers. ii) Residents’ disposable income as a percent of national income decreased from 55.36% in 1990 to 41.42% in 2008. iii) Urban residents’ income was 2.2 times that of farmers in 1990, but the gap jumped to 3.3 times in 2009.

5. The Challenge of Traffic Congestion

As China experiences rapid urbanization, the increasing severity of traffic congestion epitomizes a series of problems such as the shortage of space, a resource shortage, and environmental pollution. The cause: a lack of foresight in urban planning and an imbalance among urban industries. When it emerges, any improvement over the existing urban plan is “to spend more effort to gain fewer effects.”

6. The Challenge of an Increasing Urban Population

China’s trend toward urbanization has resulted in a rapid growth in the urban population. Estimates were that Beijing would have 18 million residents by 2015, but it reached 18.5 million in 2009. Shanghai had 18.6 million residents in 2008 and an estimated 20 million in 2010; Guangzhou’s population increased to 12.9 million in 2010; Shenzhen’s jumped to 13 million in 2009.

The rapid growth of the urban population has caused such problems as traffic congestion, poor living conditions, employment challenges, and a wealth gap, as well as a reduction in land for agriculture and food shortages. Moreover, the ballooning urban population has increased the release of CO2, NOX, and SO2 into the air from breathing, burning, and industrial usage, causing acid rain, photochemical smog, and the greenhouse effect.

7. The Challenge of the Push to “Capitalize”

Since 2000, China’s urbanization, driven by “land capitalization,” has increasingly evolved into a “fiscal land policy” at all levels of government. Many local governments rely more and more on income from transferring the right to use the land as a means to support their local government spending; in addition, they take in tax income from construction and from the real estate industries. The local government is in sole control of all of these incomes. Thus, local governments develop cities following the model of “taking land from the public, selling the land, levying taxes and charging fees, taking mortgages from banks, and taking the land from the public again.” This “capitalization” drive with “land fiscal policy” as its core exhibits four major fallacies.

A. The “Objective Fallacy”

The goal of sustainable urbanization is for all citizens to enjoy the improvement of their living standard and the quality that urban development and prosperity bring. However, by embracing the “fiscal land policy,” the hot pursuit of “making money from land” puts the means as the goal. In the past ten years, the local land transfer fee as a percent of the total local fiscal budget has continued to climb. (Editor’s note: In China, the right to use the land can be transferred but not the ownership of the land. The government retains ownership of all land.) Data from the China Index Research Institute shows that in 2010, land transfer fees in 120 cities reached 1.9 trillion yuan, an increase of 50% over the previous year, thus setting a new record. This approach draws excessively on the future generations’ land resources. It not only does not let residents enjoy the benefits of urban development and prosperity, but also exerts huge pressure with regard to housing and reduces happiness. Clearly, the relationship between the means (selling land to obtain capital for urbanization) and the goal (obtaining capital for urbanization to maximize public service and improve living standards) are reversed, with the means now being the goal.

B. The “Economy Fallacy”

First, the expansion of land capital results in a scarcity of land, resulting in a lack of space for its own expansion. The compartmentalization of urban space by function also increases the distance between a laborer’s residence and where he actually works. The cost of the dwelling and the commute decreases the space and time for laborers to improve their knowledge and technical skills. Second, the “fiscal land policy” (land capital) increases the cost of capital. Not only is there an extra cost due to the ever-increasing rent, scarceness of natural resources, and high transportation costs, but the scarceness of land and the existing distribution of the ownership of the right to use the land also create a market that favors the owner, which becomes an important cause of corruption and thus directly or indirectly increases the cost of capital. Third, the “fiscal land policy” slows down adjustments to the structure of industries and exacerbates the overcapacity problem. The direction of the government’s investments of its large capital resources sets the direction (of the economy and) changes in the industrial structure. For many years, the income generated from local governments’ land transfers have gone primarily to urban construction, which stimulates construction, the real estate industry, and the development of other related industries, including construction materials, consumer electronics, consumer hardware, and civilian chemicals, causing an excess capacity in these low-end industries. The rapid development of this industry chain has taken away a lot of social resources, and it is in opposition to the central government’s directives on accelerating transformation of China’s economic development model.

C. The “Social Fallacy”

The “Social Fallacy” is mainly in three areas: (i) The “fiscal land policy” creates a high price for land and consequently a high price for housing, which is not in keeping with the philosophy that state-owned land belongs to all of the people. (ii) Given the high price of land and the high price of housing, housing properties continue to be concentrated in the hands of the rich, leaving the majority of citizens at a disadvantage in obtaining a residence, thus creating social unfairness. (iii) The regionalization and compartmentalization resulting from over-urban-expansion makes it hard for disadvantaged groups to get good, quality public resources in education, medical service, environment, and so on. In other words, as urban social classes diverge, urban resources are not equally available to those at different levels of the spectrum.

D. The “Ecological Fallacy”

Excess “fiscal land policy” creates an unlimited desire for capital expansion. Urban space and population expand rapidly. Natural resources, especially non-renewable energy, become more and more scarce. At the same time, the “machine” of “fiscal land policy” and land capital eats away more and more natural resources, which then become air waste, wasted water, and trash, creating threats to the ecological environment.

8. The Challenge of Urban Versus Rural

The farm population is 2.25 times that of the urban population in China. There is a severe conflict in the urban-rural dual structure. During the Twelfth Five-Year period, to resolve the conflict of the cities versus villages, China must make a breakthrough in resolving the problem of off-farm laborers becoming real urban residents and also coordinate the development of big, mid-size, and small cities.

First, China needs to spend 20 years to resolve the “semi-urbanization” problem (land urbanization is ahead of people urbanization), starting from the Twelfth Five-Year period. In other words, China needs to resolve the issue of transitioning 300-400 million off-farm laborers to become real urban residents. It is possible, but there are still several critical issues to be resolved: a. Off-farm laborers not only need resident status, but, more importantly, they need corresponding resident living conditions and treatment. Getting resident treatment is more important and more substantial than simply getting a resident status. Therefore, education system reform and social welfare system reform are very important. b. Local governments should stop the practice of exchanging land for social welfare or urban resident status. There is a legal problem in using land in exchange for social welfare. A farmer’s right to land is a property right. It is protected by law and can be inherited, but social welfare itself is not property. It is a welfare that the government provides to its citizens and can’t be inherited. They are not the same and are not interchangeable. c. The way to transition off-farm laborers into urban residents is to implement the same system in the city as in the village. We should adopt a unified employment system, basic retirement system, public education system, housing guarantee system, and public medical service system, so that farmers and city residents have the same rights and the same treatment.

Second, China should develop small towns at a low cost. Focusing on the development of mid-size cities and small towns should be the main direction for China’s urbanization. The government should build some towns in the neighboring rural areas of large cities where the off-farm laborers can live. It will reduce their cost of living.

[1] Qiushi Journal, “The Eight Challenges for China’s Sustainable Urbanization,” January 25, 2011.