China’s new urban plan is promising

I have been asked to do a segment on CCTV America on China’s new urban plan. In this column, I would like to share the questions and answers I will be giving.

The National New-type Urbanization Plan (2014-20), issued by the Central Committee of the Communist Party of China and the State Council, is the country’s first official plan on urbanization.

First consider that China has 174 cities with more than 1 million people. The United States has nine. Yet 48 percent of the Chinese population still lives in rural areas.

1.  The Hukou system is said to be the biggest hurdle to China’s urbanization. Is there a major change/loosening of restrictions in the plan?

The Hukou system does not restrict movement. It simply attaches your educational and social benefits to a specific location. If you are there you can use the services for free or low cost, but if not you have to pay. In the case of medical insurance, which is deducted from people’s pay, you receive a medical card which allows you to use services at any hospital.

Two organizational issues: Many cities are overcrowded and taking in more people would exacerbate the problems. The Hukou currently is an important source of revenue for smaller local governments, whose younger populations have moved to the cities. With dwindling populations, these areas are not in demand. The local governments are not able to lease lands, a source of income which often makes up 50 percent of their local revenues. The Hukou funds they receive are often barely enough to provide a low level of services to a population of the very old and very young.

Tangen

2.  The dilemma China is facing: a huge population and limited resources. Do you think in the long run Hukou will still be a necessary tool for the government to address the dilemma?

The answer is yes, which is why the proposed Hukou reform is rather modest. The Hukou system can be used as a carrot when necessary and would be virtually impossible to do away with completely as the government needs to move people to where the work is and get the most out of their infrastructure investments.

In the United States we tend to think of our mobility as a right, but in fact it can lead to a loss in value due to mismatches in human resources and capital. The flight from cities and older industrial regions in the Northeast and Midwest over the last 30 years left behind functional infrastructure, while new infrastructure had to be created in the south and west to accommodate the newcomers. In some cases people are unwilling to move, resulting in endemic generational unemployment, which can have profound psychological and societal costs.

3.  Many migrant workers are now the so called second-tier citizens in municipalities. Do you think the reform will help them enjoy the same welfare as the other urban residents?

The government seems intent on improving conditions for migrants in terms of education and social services. It acknowledges the importance of this group who build China’s infrastructure and provide the workers for its factories.

4.  This plan will bring new investments, jobs, consumption. Do you think it will help support the new round of phenomenal growth in China? Will it function as another round of massive stimulus?

Yes. The new cities will require massive infrastructure investment, meaning cement, steel, rubber, copper, glass fiber, glass, aluminum, insulation, paint, construction equipment, etc.

City infrastructure is an excellent investment as long as you are able to maximize its use. Spending on the scale China is embarking on is incredible and will affect all aspects of the market from raw materials and machinery to food and consumer goods. Where things are built, people are paid and they start the economic multiplier.

5.  In which sectors do you foresee business opportunities, especially for foreign investors?

  • Pollution control equipment.
  • Smart systems to control water and chemical use in manufacturing.
  • Consumer products in general.
  • Cars, electric and alternative vehicles and transportation systems.
  • Energy-saving products with less than a three year payback.
  • Pollution masks.
  • Soil cleanup and remediation processes and machinery.
  • Elderly care services and centers.
  • Schools and after school care.
  • Housing, low and middle income.
  • Pet services and products.
  • Entertainment and hospitality.
  • Essentially anything you can bring, protect and sell that the Chinese want and cannot make themselves.

6.  Do you think small cities may have a better chance in the new round of reforms?

Yes. Smaller cities, which can provide the right mix of opportunities, character and lifestyle, will do better competitively than those which cannot offer the same.

7.  Green and smart…Those are two qualities China hopes its future cities will embody. That probably will require more than only money. What’s your suggestion?

China needs to capture the low hanging fruit. Its buildings use twice as much energy as their western counterparts. Basic pollution control equipment is lacking. Disposal of toxic materials is poisoning the air, water and soil. As those issues are addressed, China needs to find technologies with short payback periods to improve its manufacturing and quality of life. Beyond that, as it becomes increasingly middle class, it needs to offer the quality of life its increasingly demanding population desires as part of their pursuit of a Chinese Dream.

As you consider the enormity of the task China has laid out for itself, keep in mind that it would not be possible unless the government had the tools to accomplish its goals. China is leaving its adolescent stage, both politically in the world and at home. It is a marked difference between our systems, which we should take careful note of.

Einar Tangen, formerly from Milwaukee, now lives and works in Beijing, China. He is an adviser to Heilongjiang Province, Hebei Province QEDTZ, China.org.cn, China International Publishing Group, Beijing Baotong and DGI DESIGN. He is also a weekly public affairs commentator for CCTV News’ Dialogue and the author of “The Kunshan Way,” an economic development history of China’s leading county level city. While in Milwaukee, he was a partner at Jackson, Morgan and Tangen, president of E-Tech and a senior vice president at Stifel Nicolaus. He chaired various boards in Milwaukee and was a member of the Federal Home Loan Bank of Chicago. Readers who would like to submit questions or suggest areas of interest can send an e-mail to steve.jagler@biztimes.com.

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