China's urbanisation plan may fall short in terms of funding
Ambitious urbanisation target raises questions about ability of smaller cities to pay for the infrastructure to support population shift
The target has been set - Beijing wants to turn 100 million rural folk into city dwellers by 2020.
In a press briefing on urbanisation in Beijing, officials gave some guidelines but little in the way of concrete information.
"Ensuring funding is an important condition for pushing forward urbanisation," said Deputy Finance Minister Liu Kun. "We will accelerate reforms in the fiscal and tax system as well as the investment and financing system, boost financial innovation, ease market barriers, and gradually build up a diversified and sustainable mechanism to ensure funding."
The urbanisation plan puts fiscal reform at the forefront of the overall economic restructuring campaign by the Chinese leadership to spur domestic demand and cut reliance on exports and investment. "We think public finance reforms, including tax and land reforms, hold the key to the success for China's new urbanisation plan," said Wang Tao at UBS Securities.
Qiao Runling, a vice director at the China Centre for Urban Development under the National Development and Reform Commission (NDRC), told the that cost-sharing is probably one of the most challenging tasks. "The government, enterprises, and migrant workers need to share the spending. But the way to share would differ greatly in cities at different development stages," he said.
Liu said the Finance Ministry plans to grant local authorities some scope to borrow as part of efforts to expand their financing capability. The government will also encourage private capital to participate in urban infrastructure projects. There has been no official estimate yet how much the country will need.
To be sure, the nation's plan does not centre on moving more rural people to already teeming cities. Instead, the leaders are keen to develop the capacity of smaller cities and even townships to cope with more migrants, although lower-tier governments face tight fiscal conditions.
The mainland's fiscal boom is gone, with national fiscal revenue growing only 10.1 per cent in 2013, the slowest in more than a decade. Local authorities have relied heavily on land sales to support infrastructure spending, an unsustainable model that has fuelled asset bubbles. Qiao said authorities should open public services to private investors and offer subsidies to compensate the poor as public goods prices might rise.
Wang said local governments "lack the funding and incentive" to accelerate urbanisation that requires greater spending on public services. Finding a good solution might "go through careful design, fierce debates, arduous negotiations and difficult rounds of implementation in the coming years", she said.
China claims it will raise the share of urban residents to 60 per cent by 2020 from 52.6 per cent in 2012. By then, around 45 per cent of the 1.3 billion population would have an urban hukou, up from 35.3 per cent in 2012.
A hukou is the household registration system on the mainland, divided between rural and urban areas. An increase in those with an urban hukou would mean more people joining urban social welfare networks, requiring wider coverage for medical, healthcare, education, and other services.
Expanding housing along with building more subways and roads would require massive financial spending. The government also plans to improve the urban sewage, waste treatment and water supply facilities to promote green development.
The cost of an illegally obtained hukou could be as much as 170,000 yuan in Beijing and 150,000 yuan in Shanghai, said a survey by HorizonKey, a private research organisation.
But a report by a state radio station said it could be four to five times more. The high cost of becoming an urban resident to some extent reflects the big gap in living conditions between China's countryside and cities.
