Research and analysis

China: urbanisation: plans go concrete April 2014

Published 16 April 2014

This research and analysis was withdrawn on 18 June 2014

This document is no longer current.

The National Urbanisation Plan was published in March. It has been more than a year in the making. A week later, the World Bank and State Council Development Research Centre (China’s most influential think tank) published a report covering similar ground but with a more ambitious agenda for change – embracing land reform and fiscal transfers between central and local government.
Urbanisation has become a buzzword, but is also a key plank of economic policy. China’s economic growth is still driven mainly by export demand and public investment. But Premier Li Keqiang has said that urbanisation offers huge potential for generating domestic demand, helping to rebalance the economy.

Urbanisation is also an important issue for public finances. According to the World Bank, local government in China delivers 80% of public services, but has just 28% of the revenues. Recent research from Peking University suggests that the shortfall - more than 70% of local government revenues - is generated through land sales.

Another issue is rural migrants. There are currently an estimated 260 million – and growing - rural migrants without an urban “hukou” (registration). This restricts their access to public services such as health and education. The Plan suggests allowing 100 million migrants access to urban public services by 2020. This would likely be in the medium and smaller urban centres, not the likes of Beijing and Shanghai. And it would leave over 200m rural migrants without an urban hukou. But it still represents a huge increase in demand for public services. Estimates vary of the costs – with the State Council suggesting it could be as low as $13,000 per person but some suggesting as high as $30,000 annually. That implies a total cost of $3 trillion.

Some kind of fiscal rebalancing between local and central government must be on the cards. The World Bank proposes a property tax as part of that, and there are also interesting references in the National Urbanisation Plan to new models of urban financing, like municipal bonds and PPP.

The Plan also touches on the increasing concern about the environmental consequences of urbanisation. Air quality remains poor across swathes of China, in spite of new policy initiatives. And a new World Health Organisation report suggests that air quality is the world’s largest single environmental health risk, causing 7 million deaths worldwide. 70% of outdoor air-quality related deaths occur in the South East Asia/Western Pacific regions. Water quality and is also an increasing concern.

0.1 Comment

There are significant opportunities here for the UK. Infrastructure UK is already working with the Chinese Ministry of Finance and National Development and Reform Commission on Public Private Partnership models. The NDRC have also approached us to help with a new initiative on “low-carbon urbanisation”. Following the publication of the Plan, they want to develop a low-carbon urbanisation framework and guidelines, based on the best of UK and international experience. It shows the high esteem the UK’s climate change and urban planning policy has here in China. On the infrastructure investment, UK firms can’t compete with Chinese competitors when it comes to pouring concrete. But our master-planning, consultancy, engineering and architecture companies are in hot demand. Built environment and airports are both High Value Opportunity projects here in China, and urbanisation will be a key theme of China’s Great Campaign 2014. As the flesh is put on the bones of this Plan, UKTI will be looking to ensure UK business is well-placed to maximise the opportunities.

0.2 Disclaimer

The purpose of the FCO Country Update(s) for Business (”the Report”) prepared by UK Trade & Investment (UKTI) is to provide information and related comment to help recipients form their own judgments about making business decisions as to whether to invest or operate in a particular country. The Report’s contents were believed (at the time that the Report was prepared) to be reliable, but no representations or warranties, express or implied, are made or given by UKTI or its parent Departments (the Foreign and Commonwealth Office (FCO) and the Department for Business, Innovation and Skills (BIS)) as to the accuracy of the Report, its completeness or its suitability for any purpose. In particular, none of the Report’s contents should be construed as advice or solicitation to purchase or sell securities, commodities or any other form of financial instrument. No liability is accepted by UKTI, the FCO or BIS for any loss or damage (whether consequential or otherwise) which may arise out of or in connection with the Report.