Urbanization and Rural Development

Lixing Li
National School of Development,
Peking University

The views expressed in this paper are the views of the author(s) and do not necessarily reflect the views
or policies of the Asian Development Bank (ADB), or its Board of Directors or the governments they
represent. ADB does not guarantee the source, originality, accuracy, completeness or reliability of any
statement, information, data, finding, interpretation, advice, opinion, or view presented, nor does it make
any representation concerning the same.
 China’s current policy
• Urbanization (城镇化)
• Urban-rural integration (城乡一体化)
• Balancing the urban and rural development (统筹城乡
发展)
 Three judgments
• Urbanization is the driving force for China’s sustained
growth in the next 20 years
- knowledge accumulation, industrial specialization…
- productivity gains by moving from rural to urban sector
- internal demand
• Urbanization is also the key for rural development
• China is under-urbanized
- urbanization rate only 46%, international experience
indicates 55% for a country with same development level
(World Bank 2008; Henderson 2009)
- existing cities far away from optimal by efficiency
standard (Au and Henderson 2006)
- urbanization lags behind industrialization (Sridhar and
Wan 2007)
 Urbanization rate
World Low Mid High China Japan US India Indonesia Brazil Philippines
1978 46 22 46 74 19 58 74 22 21 65 37
1998 55 30 57 79 34 65 78 27 39 80 57
2005 57 33 60 80 40 66 81 29 48 84 63
Source: WDR 2007
 Recent overview studies
World Bank (2008) China Urbanizes
- summarizes various aspects of urbanization: inequality,
migration, poverty, local finance, energy, water,
governance
WDR 2009: Reshaping Economic Geography
- increasing economic density, reducing distance, and
removing division
Henderson (2009) “Urbanization in China: Policy Issues
and Options”
 Reasons for under-urbanization
• Urban-rural division in the labor, capital and land market
- migration restrictions
- capital/financial market favoritism
- land system
• Distorted government incentives
- rely on land revenue, too much spatial expansion
- rely on manufacturing for VAT, insufficient specialization
- mayors are CEO of city-firm, not public service provider
• Governance structure
- lack of ways to create cities
- government control over service sectors
- higher-order cities are favored, migrants are attracted
into, but are discriminated in terms of public service
 Possible policy choices
• Efficient land use in the city
- property rights, land market, zoning
• City financing
- property tax
• Reforming city governance
- change from development state to service provider
- competition among cities
- decentralize manufacturing to small and medium cities
• Learn from international experience
……
 This paper intends to

• Review China and international evidence

• Summarize existing studies
• Look into more detail of “under-urbanization”
• Address several policies questions, especially some
important issues closely related to rural development
- land reform in the rural area
- administrative reform
 Imbalance in China’s urbanization

• Quick urban spatial expansion vs. slow job creation and

settling-down of migrants
• “Population urbanization” lags behind “land urbanization”
 Urban area expansion vs. population agglomeration

Ratio of urban population (by living place) (left axis) urban built-up area (right axis)

0.4 30000

0.35
25000
0.3
20000
0.25
km2
%

0.2 15000

0.15
10000
0.1
5000
0.05

0 0
82

84

86

88

90

92

94

96

98

00

02

04
19

19

19

19

19

19

19

19

19

20

20

20
 Provinces with fast expansion of urban built-up area
Guangdong Province Fujian Province
Urban area expansion vs. population agglomeration Urban area expansion vs. population agglomeration

urbanziation rate urban built-up area urbanziation rate urban built-up area

60 3500 45
600
50 3000 40
35 500
40 2500
30 400
2000 25
30 km2 km2

%
%

20 300
1500
20 15 200
1000
10
10 500 100
5
0 0 0 0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Shandong Province
Urban area expansion vs. population agglomeration Beijing
Urban area expansion vs. population agglomeration
urbanziation rate urban built-up area
urbanziation rate urban built-up area
45
2500
40 1200
80
35 2000 70 1000
30 60
800
25 1500 50
km2
%

20 600 km2
%

40
1000
15 30 400
10 500 20
5 200
10
0 0 0 0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
 Provinces with slow expansion of urban built-up area
Anhui Province Gansu Province
Urban area expansion vs. population agglomeration Urban area expansion vs. population agglomeration

urbanziation rate urban built-up area urbanziation rate urban built-up area

35 1200 30 500
30
1000 25
25 400
800 20
20 300
km2
%

600 15 km2

%
15
400 200
10 10
5 200
5 100
0 0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 0 0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Hebei Province Qinghai Province

Urban area expansion vs. population agglomeration Urban area expansion vs. population agglomeration

urbanziation rate urban built-up area urbanziation rate urban built-up area

35 100
1200 35
30 30 80
1000
25 25
800 60
20 km2 20 km2
%
%

600
15 15 40
400
10 10
20
5 200 5
0 0 0 0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
 Population density in urban built-up area (person/km2)

29000

27000

25000

23000

21000

19000

17000

15000
1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
 Explanations

• Slow “population urbanization”

- demographic change and labor market, human capital
development and education, inclusive growth, social
policy and protection
• Quick expansion of cities
- rigid land expropriation system
- city government finances from land selling
- lack of market for collectively-owned construction land
 Rural land reform
• Less noticed in existing studies
• Key in the unification of rural and urban factor markets
and the so-called “urban-rural integration”

• Rural land reform also matters for

- portability of rural wealth for migration to be permanent
- the hard-to-solve “urban villages” and “small-property-
rights housing” problem
- food security
The undergoing land reform - roadmap
• Property rights delineation and land titling
- arable land (long term)
- forest
- construction land for TVEs
- rural households residential land
• Market for the user rights of above types of land
• Rural land used as collateral
• Market for land development rights between city
suburban and remote rural village
• An integrated market for rural collectively-owned
construction land and state-owned city land
• Land expropriation system strictly restricted to public
purposes
Imbalance between rural land resources and
income level

Income (yuan/person) Land resources (m2/person)

urban rural ratio urban rural ratio

China 13786 4140 3.3 : 1 27 200 1:7

Chengdu,
14849 5642 2.6 : 1 33 133 1:4
Sichuan
land development rights exchange
After land development rights exchange
- rural residential construction land reduced
 Administrative structure and under-
urbanization
• Central government retains the power to decide which
jurisdictions can achieve urban administrative status
• The county-to-city upgrading policy and under-
urbanization
• Before 1997: too many cities, cities too small, too few
people
- no effect on growth and public service
• After 1997: lack of a viable way of creating new cities
 number
19
8

100
200
300
400
500
600
700
800

0
19 1
8
19 2
8
19 3
8
19 4
8
19 5
8
19 6
8
19 7
8
19 8
8
19 9
9

county-level cities
19 0
9
19 1
9
19 2
9
19 3
9

year
19 4
9
19 5
9
19 6
9
19 7
prefecture-level cities 9
19 8
9
20 9
0
20 0
0
20 1
0
20 2
0
Number of Chinese cities

all cities

20 3
0
20 4
05
 Developing big cities vs. promoting small
cities and towns
• A long-existing policy debate
• A more market-oriented way to governing urban units by
eliminating distortion in factor prices
• Mega cities – big cities – medium cities – small cities –
towns – “new rural communities”
• With village land consolidation, encourage farmers’
migration into nearby communities/towns with subsidized
infrastructures and public services
- a better way to achieve “urban-rural integration” than
subsidizing each village
 Ratio of population living in cities > 1 million
1990 2005
average 14 18
Low income 10 12
Middle income 18 24
Euro Countries 28 27
China 14 15
US 40 42
Japan 42 44
Germany 40 42
Malaysia 6 5
Indonesia 9 11
Philippines 14 14
Source：Li and Xu（2008），p271.
 Governing urbanization
• Income inequality, congestion, pollution, water shortage
poor health, crime, social unrest
- try to avoid urban slums
• Challenges to city management
- zoning, transportation, …
- abolish the hukou system means huge fiscal pressure
on city government, abolish land expropriation system
also poses huge fiscal pressure on city government
- public finance reform (property tax …)
- redefine the role of local government

• In sum: enormous gains by further increasing

urbanization