China is facing an impressive migration of its population from the countryside to the cities. Over 300 million people have already moved in the past, and 350 million – of which more than 240 million will be migrants – will do so by 2025, as a study of the McKinsey Global Institute and the Chinese Premier himself predicted.
“Of the people living in the countryside, more than 100 million are set to be absorbed into cities over the next decade or so.”
Premier Li Keqiang, September 8, 2013
The Urban Billion
It has been reported that 691 million people, which is more than 51% of China’s population, lived in urban areas at the beginning of 2012. This number seems to increase and they are expected to be 1 billion (about 70% of the population) by 2030. There will be 221 cities with more than 1 million inhabitants – there are 35 in Europe today – of which 23 will have more than 5 million and 15 with average populations of 25 million. Compared to other countries, China’s urbanisation has been extremely rapid. In 1980, when government reforms were first introduced to loose controls on where people could live, only 20% of people was located in cities. In the US in 1920, it was 70%. However, this urbanisation is still below 70-80% rates seen in Japan, US or Europe. Yet Li Keqiang, during his speech at Davos 2015 a few months ago, said:
“China’s rate of urbanisation is more than 20 percentage points lower than developed countries. This means a massive space for increasing public goods and services.”
Driving the growth
Not only is this urbanisation at scale an economic and demographic transformation that is changing almost everything (cities, infrastructures, environmental impact, natural and human resource supply), but also a cultural phenomenon since it is putting people closer to each other. This movement into the cities represents the search for opportunity and a better life, and is crucial in the lives of many workers, students or entire families. And for many Chinese people urbanisation means more wealth, which is very clear in the cities where we can see both an increase of inhabitants and an increase in spending power per person. Private consumption, mainly derived from rapidly growing middle class, has been a major driver of China’s growth.
On the other hand, it has raised a variety of questions about its impact. Even though in the last few years China has experimented an average GDP growth of 10% – now slowed down at 6-7% – some may challenge the sustainability of its capital intensive, industry-led, and export-oriented economy, also characterised by high savings and investment rates. But a focus solely on the GDP growth will not be enough. China’s growth strategy will mostly depend on how the even higher land demand for urban development affects its land rights policies, since the former has to be moderate to maintain the country’s food security. Furthermore, rising inequality between rural and urban areas is still a sensitive topic, despite the fact that over 500 million people went out of poverty.
What’s next for China?
These unprecedented opportunities need capital and knowledge infusion, and greater efficiency and productivity. This has given rise to new public-private partnerships and more private-sector investments have been concentrating in the cities. While China seems to have acquired a clear understanding of the importance of these critical issues and how to manage its rapid urbanisation, the coming years will be the turning point. In order to shift its urbanisation strategy from one mainly focused on GDP growth to one prioritising the productivity of urban areas, policy actions at local and national level are necessary. Doing so, by 2025 China could increase its per capita GDP by 20%, reduce public spending by 2.5% of urban GDP and reduce private sector resources by 1.7% of GDP.