Urbanization: a tool to reduce inequality?
- Borst, Nicholas and Ryan Rutkowski (2013) China’s new populist urbanization. China Economic Watch, 19 March. http://www.piie.com/blogs/china/?p=2376 (accessed 20 March 2013).
- Rutkowski, Ryan (2013) Will municipal bonds save China’s urbanization plan? China Economic Watch, 19 February. http://www.piie.com/blogs/china/?p=2320 (accessed 20 March 2013).
China’s new populist urbanization
Since Li Keqiang was tipped to succeed Wen Jiabao as China’s premier, analysts have been trying to come to a better understanding of Li’s thoughts on urbanization. This is because Li has prominently identified urbanization as the growth engine of the Chinese economy and one of the main focuses on the new administration.
Li’s first press conference as premier this past weekend helped shed a bit of light on what urbanization (城镇化) might mean in terms of policy. Premier Li’s description of urbanization focused on the issue of inequality, both between poor and rich within cities and the urban and rural areas across China. The solution, according to Premier Li, is to better integrate migrant workers into cities and to spread urbanization out into the smaller cities and less developed regions of the country. This activity will generate significant new investment opportunities and raise domestic consumption levels helping to rebalance the Chinese economy.
This represents a profoundly populist spin on urbanization, which has historically been one of the primary drivers of inequality in China. Read more
Will municipal bonds save China’s urbanization plan?
Increasingly China’s new leadership has revitalized the topic of urbanization. Last November, the vice-premier, Li Keqiang, wrote an article calling urbanization a “huge engine” for future economic growth. More recently, the newly released income inequality plan has even described urbanization as a tool to reduce income inequality.
This renewed emphasis on urbanization appears to have re-opened the topic of financing local infrastructure projects. In the fourth quarter 2012 monetary policy report released earlier this month, the Peoples Bank of China (PBC) wrote an exhibit entitled “the international experience of financing construction for urbanization.” In this exhibit, the Peoples Bank observed a strong correlation between urbanization and municipal bonds across countries from the 1950s to today. They found that the use of municipal bonds backed by tax revenues was the most effective tool for supporting urbanization “no matter whether you have a federal or centralized system of government.” Read more