Survey of China's Urbanization: New Problems and New Trends

Because the citizenization of farmers is tied to land property rights, quite a few instances of "counter-urbanization" have appeared in some places. Some migrant workers are unwilling to take urban household registration, and even many people who already have urban household registration hope to switch to rural household registration in order to get a share of farmland.

In recent years the pace of China's urbanization has already been slowing. Data show that from 2006 to 2010, the national urbanization rate rose by an average of 1.39 percentage points per year, with the eastern region rising by an average of 1.58 percentage points per year; in the first four years of the "12th Five-Year Plan," the national urbanization rate rose by an average of 1.21 percentage points per year, while the eastern region rose by only 0.98 percentage points per year, so the pace is declining in both. The central and western regions are still accelerating so far, but in 2014 the urbanization rate of the central region was 49.8% and that of the western region was 47.4%, already close to 50%. During the "13th Five-Year Plan" period, the urbanization rates of the central and western regions will also gradually slow. From a development perspective, the pace of China's urbanization will decline in the future, and comprehensively improving the quality of urbanization will be a new normal for China's urbanization in the future. This is called urbanization transformation.

What are the reasons for the slowdown of China's urbanization?

First, China has already entered the deceleration stage of rapid urbanization. Whether by our calculations or those of the United Nations, China's urbanization rate in 2030 will be around 68%. What does this concept mean? We know that an urbanization rate of 30%-70% is the range of rapid urbanization, within which 50% is a turning point. Before that is the acceleration stage, and after that is the deceleration stage. It is expected that China's urbanization rate will reach about 70% in 2033, which means China still has nearly 20 years of room for rapid urbanization, but this rapid advance is a decelerating advance.

Second, the development philosophy and the external environment have changed. In the "13th Five-Year Plan," the central government put forward the "five major concepts," among which the very important one is the concept of green development. In the past, China's urbanization was supported by high consumption, high emissions, low efficiency, low wages and low costs. Under the new development philosophy, this low-cost supporting environment no longer exists. For example, in the past China's industrialization relied on low labor wages and low land prices. Another point is that we did not pay the cost of citizenizing migrant workers; not paying does not mean it did not need to be paid, it was only deferred. It was not paid before, and now and in the future it will have to be paid. There is also the distortion of resource prices, with the cost of environmental pollution shifted onto society, such as the problem of smog and air pollution. Resource prices did not reflect the true costs, and this extensive urbanization path supported by low costs has reached its end.

Third, urban employment demand will decline, and the growth rate of jobs will also decline. The central government has proposed innovation-driven development, and combined with rapidly rising wages, these two factors will lead many enterprises to use robots or more capital to replace labor, so labor demand will decline.

Fourth, the impact of citizenization. In China, the citizenization of the agricultural transferred population is separate from and disconnected from urbanization. The cost of citizenization has been deferred, and next we must make up for the shortcomings in citizenization. We once made calculations that the cost of citizenizing the agricultural transferred population nationwide is about 130,000 yuan per person on average; the cost of citizenizing farmers in Beijing is 512,000 yuan per person on average in concentrated urbanization areas and 200,000 yuan per person on average in non-concentrated urbanization areas. Considering the cost of citizenization, China's future urbanization cannot advance too quickly.

What are the key problems currently facing China's urbanization?

The problem currently facing China's urbanization is first of all not a question of whether the level is high or low, nor a question of speed, but that the quality is too low, that is, the gap between the urbanization rate of the registered population and the urbanization rate of the resident population is too large. This is a key problem. The core of comprehensively improving the quality of urbanization is to advance the citizenization of the agricultural transferred population.

But now there is a difficult problem, namely that the willingness of the agricultural transferred population to become citizens shows a declining trend. Surveys by the National Bureau of Statistics show that since 2014, the willingness of the agricultural transferred population to become citizens has been relatively low in many regions, at only 30%-50%. What does this reflect? Under the past urban-rural dual structure, because the welfare gap between urban and rural areas was large, farmers strongly hoped to enter the cities, but due to institutional and policy reasons, farmers could not get in. In recent years the central government has accelerated reform of the household registration system, many cities have abolished agricultural and non-agricultural household registration, and small and medium-sized cities have fully opened up, encouraging farmers to enter the cities, yet farmers are not very willing to enter the cities. The reasons are, first, the central government has clearly granted farmers more property rights. Second, public finance has tilted toward "agriculture, rural areas and farmers," and the level of rural public services has continued to improve. Third, farmers' expectations have continued to increase, and the opportunities for future development choices have also increased. From the perspective of development opportunities and expectations, this is the most important reason for the decline in farmers' willingness to become citizens. To solve this difficult problem, it is necessary to accelerate reform of the rural collective property rights system and open up the channels of connection between urban and rural areas.

The urban-rural income gap has shown a trend of continuous narrowing

Since 2009, China's urban-rural income gap has been continuously narrowing. The ratio of per capita disposable income of urban residents to per capita net income of rural residents was 3.33 in 2009 and 2.90 in 2015. So, is the narrowing of the urban-rural income gap in recent years a long-term trend or a short-term trend? In my view, it is a long-term trend. That is to say, in the future China will enter a new period in which the urban-rural income gap steadily narrows. Why do I say this? This is linked to China's stage of development. First, China's industrialization has entered its late stage, and the past city-oriented industrial growth will decline in its driving force for economic growth. In the future, China's small cities, small towns and rural areas will show enormous development potential. Second, the large-scale transfer of the agricultural population to cities in recent years is conducive to carrying out appropriately scaled operations in rural areas and also conducive to increasing farmers' income. To increase farmers' income and solve the "agriculture, rural areas and farmers" problem, it is necessary to reduce the number of farmers. Is not reducing the number of farmers precisely urbanization? Third, in the new stage, the central and local governments have the ability to direct more resources, especially public resources, toward the "agriculture, rural areas and farmers" field. It can be said that the narrowing of the urban-rural income gap is an important precondition for ensuring China's long-term stable, medium-to-high-speed growth.

Under the new situation, it is increasingly difficult to increase farmers' income

To narrow the urban-rural income gap, the approach is not to push down the income of urban residents, but to find ways to accelerate the growth rate of farmers' income. In recent years, the growth of farmers' income has faced a major problem, namely that farmers' income growth is highly dependent on wage income. The proportion of wage income in farmers' household net income was only 20.2% in 1990 and rose to 45.3% in 2013; the proportion of household operating income fell sharply, from 75.6% in 1990 to 42.6% in 2013.

From the perspective of the sources of contribution to farmers' income growth, the contribution rate of wage income to farmers' income growth has risen sharply. From 1991 to 1997, the contribution rate of wage income growth was only 26.8%, and from 2010 to 2013 it rose to 52.5%, while the contribution rate of household operating income growth fell from 68% to 33.8%. If the net income from planting within household operating income is calculated, its contribution to farmers' income growth will be even lower. From 2014 to 2015, the contribution rate of wage income to the growth of rural residents' disposable income reached 47.6%, while the contribution rate of net operating income was only 28.6%. Farmers' income growth is highly dependent on wage income, and agriculture's contribution to farmers' income growth is getting smaller and smaller and its proportion is getting lower and lower. This is abnormal.

In the future, with the advancement of urbanization and the acceleration of citizenization, it will become increasingly difficult to increase farmers' income. There are mainly two reasons for this: First, the problem of calculating income after citizenization. In the past, when farmers went to the cities to work, most of their wages flowed back to the countryside, that is, a considerable part of wage income was counted in farmers' household income. After they are counted as urban residents, statistically their income is part of urban residents' income rather than farmers' household income. In this way, the contribution of wage income to farmers' income growth will decline. Farmers' income growth will rely more on operating income and property income. Second, the problem of agricultural profit space. From the perspective of household operating income, prices have a ceiling and costs have a floor, and costs are continuously rising. At present, a considerable portion of domestic agricultural product prices exceed international market prices. Under such circumstances, the room for domestic agricultural product price increases and profits will be limited. For example, from 2004 to 2014, the total production cost of China's three main grains - rice, wheat and corn - grew by an average of 10.5% per year, faster than the GDP growth rate, of which material and service expenses grew by an average of 7.6% per year, labor costs by an average of 12.2% per year, and land costs by an average of 14.2% per year. During this period, of the increase in total agricultural production costs, 45.4% came from labor costs, 32.4% from material and service expenses, and 22.2% from land costs. At present, the cost of land transfer is about 800-1,200 yuan per mu, while the income from growing grain for a year is only a few hundred yuan.

Two-way flow of urban and rural factors will become a new trend

In the past, China's population, capital and technology all flowed from rural areas to cities, a one-way flow. Now some new situations have appeared:

First, the migration from rural areas to cities has shown a trend of slowing down. From 2001 to 2002, the number of migrant workers leaving their hometowns in China increased by an average of 13.11 million per year; from 2003 to 2012, it increased by an average of 5.87 million per year; from 2013 to 2015, it increased by an average of 1.83 million per year, less than 2 million. The growth rate of the scale of migrant workers leaving their hometowns is declining.

Second, from a development perspective, the transfer speed of the agricultural labor force will gradually slow. Although at present it is still accelerating - the share of agricultural labor employment fell by 1.04 percentage points per year from 2001 to 2005, by 1.62 percentage points per year from 2006 to 2010, and by 1.8 percentage points per year from 2011 to 2014 - this accelerating decline is unsustainable. On the one hand, the base of the share of agricultural labor employment is getting lower and lower, already below 30% in 2014; on the other hand, the transfer speed of migrant workers leaving their hometowns is declining and the pace of urbanization is slowing, so the speed of labor transfer will also decline in the future. I estimate that within the next 15-20 years, the transfer speed of the agricultural labor force will gradually slow, and it is expected that by 2030 China's share of agricultural employment will fall to around 12%.

Third, the pace of capital going to the countryside, technology going to the countryside and talent going to the countryside is accelerating. In the future, China's urban-rural integration will be a two-way urban-rural integration. At present, developed regions such as the Beijing-Tianjin-Hebei region, the Yangtze River Delta and the Pearl River Delta have already entered a new stage of two-way urban-rural integration.