2014-15 Canada-China Business Forum Magazine | Page 64

URBANIZATION

The Central government aims
to shift urbanization outside
of the major eastern cities and
reinforce less developed city
clusters in the interior, including
the Chengdu-Chongqing
Corridor and the Central
China Plain. Sustaining this
geographic dispersion will
involve heavy infrastructure
spending. According to
the plan, every city with a
population over 200,000 will be
accessible by regular railways
and expressways, while highspeed railways will connect
every city of over 500,000
people. The civil aviation
network will also expand to
service over 90 per cent of the
population.
Critics point out that the
effort to focus new urban
growth in smaller, non-coastal
centres may work against the
government’s efforts to reinvent
the national economy. Moving
rural residents into small cities
will not boost productivity,
output and consumption if
there are no jobs for them.
Edward Leman, President of
Chreod Ltd. and long-time
consultant on China urbanism,
observes that the ability of
cities to act as drivers of growth
lies in the agglomeration
economies most often found in
large metropolitan areas. By
reinforcing a twenty-year-old
policy of limiting the growth of
megacities, the plan falls short
of its potential to spur industrial
restructuring and upgrading.
Whether the National New-Type
Urbanization Plan will succeed
at limiting growth in China’s

“The ability of
cities to act as
drivers of growth
lies in the
agglomeration
economies
most often
found in large
metropolitan
areas.”
larger cities is another question.
A 2014 report published by the
Economist Intelligence Unit predicts
that, despite the new plan,
urbanization will lag in Western
and Northeastern China as
migrants continue to move to
more developed metropolitan
areas. Many prefecture-level
cities may actually see a drop
in their urban population based
on current migration and birth
trends. Local governments
in smaller cities could end up
overspending on ambitious
projects for a population that
never arrives.
A further issue is how local
governments will finance
their part of the national
urbanization project. In
an effort to move local
governments away from their
dependence on land fees,
the Central government has
started to allow certain cities
and provinces to issue bonds.
Discussions are also underway
to institute a new property
tax. The Central government
also appears to be increasing
its support of Public-Private
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Partnerships (P3s) as a means
of funding new infrastructure
investment. In April 2014, the
State Council opened 80 major
public infrastructure projects to
private investment in industries
that used to be dominated
by SOEs, including railway
and harbour construction, IT
infrastructure and clean energy
projects. Next on the State
Council’s list for opening up to
private-sector investment are
public utilities, water resources
and airport construction.
Many of these contracts
may be opened to foreign
companies. Shortly after the
new urbanization plan was
announced, Xu Xianping,
Vice Minister of the National
Development and Reform
Commission, declared that the
Chinese government welcomed
international companies to
participate in China’s new type
of urbanization. Project finance
is one area that Canadian
banks and financial institutions
may want to participate as
a growing option in China.
Canadian companies that can
provide planning, engineering,
architectural services are also
well-positioned to participate in
the new city building drive. The
Toronto-based architectural
firm B+H has already designed
a number of large projects
in China, including several
airports.
Growth in China’s smaller
cities, combined with improved
transportation infrastructure
is opening up access to new
consumer markets and lower
labour costs. Writing for The
Atlantic, Matt Schiavenza notes
that there are over 160 cities in

China with a population over one
million people. There are nine in
the U.S., by comparison. Betting
on this trend, in early 2014,
H&M, the world’s second largest
fashion retailer, announced plans
to open 80 to 90 new stores in
China, many in China’s secondand third-tier cities. But such
expansion strategies must be
pursued with an eye to regional
specificity. Not all of China’s
smaller cities will experience
population growth in the coming
years and per capita consumption
levels will vary widely from city
to city.

CHINA’S LOCAL DEBT
Currently, state land transfer fees
for converting agricultural land to
construction land make up more
than half of the revenues for many
local governments in China. This
has led to wasteful projects and
unrestricted urban expansion,
causing Chinese and international
scholars to call for fiscal reform at
the municipal level. Over the last
few years, the Central government
has been experimenting with
allowing wealthier provinces and
cities to directly issue bonds.
Twenty years ago, concerned about
reckless borrowing by provincial
and municipal governments,
Beijing banned local borrowing.
Local go