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China’s modernization picks up steam

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China’s future is now firmly urban. Already around 54 per cent of its people live in cities, and the proportion is rising fast as ever more jobs are created in offices, factories and construction sites, luring ever more people from the countryside. There are now around 250 million rural migrants living in cities.

Despite many wobbles, in the property market and elsewhere, this extraordinary revolution has been surprisingly smooth. There are, for instance, few shanty towns of the sort that you see in Brazil or India. At the heart of prosperous, urban China, however, sits an enormous inequality, based upon the hukou system of household registration.

To have full access to schools and hospitals in the cities at subsidized urban costs, you must have an urban hukou. If you were born in a rural area, though, your hukou and that of your children is registered there, and changing that is difficult. Only 36 per cent of the people who live in cities qualify as residents there. This has, in the past, helped control the flow of people and kept urban labor costs down while letting the new urban middle class retain its privileges.

The first generation of migrants was happy simply to get paid more in the cities. Now many complain about how unjust the system is, and it has begun to look politically dangerous. The labor of these poor migrants built China’s new cities, and today they and their children form an increasingly angry urban underclass, unable to live the "Chinese Dream" being touted by President Xi Jinping.

That explains the importance of the government’s long delayed "people-centered" plan on urbanization, released on March 16. It wants 60 perc ent of China’s people to live in cities by 2020, putting it broadly in line with the current average for countries with income levels similar to China’s, and it wants 45 per cent of them to have full urban hukou.

This is a huge change. It involves giving full urban hukou to 100 million of the 250 million migrants. It could be a significant boon to the economy, too, enabling migrants, who now save a large proportion of their wages because of fears about the cost of health care, to consume more.

The plan should, however, have gone much further. There are two main areas in which it falls short.

First, the hukou liberalization focuses on cities with less than five million people. However, most new jobs are being created in the 16 big cities with populations of more than five million, and most of the dubious government debt seems to be concentrated in the smaller cities whose officials are therefore unwilling to fork out for benefits for new urbanites. Large cities can give urban hukou, but only on a complicated, points-based system which tends to favor the prosperous, giving graduates and skilled workers a better chance. When tried elsewhere, that has ended up allowing mainly the elite to migrate. The points-based system should be scrapped and the door opened faster and wider.

The second problem is bigger. Though migrants hate the way they are discriminated against in cities, many are nervous about accepting an urban hukou, even if offered, because they do not see it as a reliable source of security. Urban welfare systems are so new and so imperfect that migrants doubt, with good reason, that they will be able to draw on unemployment benefits or a promised pension, especially if they move to another city. So they keep one foot in the countryside, holding onto their tiny patch of land and never making the break.

Even if they want to sell their land, they still are not allowed to do so. The plan thus needs two other important strands: more cash for public services in the cities and the establishment of a rural land market, so that the buying and selling of land could help enrich farmers in the same way that it has enriched urbanites.

These are massive changes, but success in the next stage of China’s epic modern development depends on them. Only then can it become the urbanized, modernized nation it longs to be, and only then can the Chinese Dream become reality.



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