Urbanization: China's Driver for Growth and Stability
   2012-12-17 17:13:20    CRIENGLISH.com      Web Editor: Liu Ranran

China's new leadership has set out its economic goals for the year ahead during the country's annual Central Economic Work Conference, vowing to maintain a "proactive fiscal policy and a prudent monetary stance". In 2011, the government vowed to continue making progress whilst maintaining stability throughout 2012. Macroeconomic regulations were focused upon throughout the past year in order to maintain steady and fast economic growth. Agriculture was also a specific focal point for 2012, as was the acceleration of economic restructuring in an effort to create a coordinated path of economic development. The goals identified during this year's conference provide no huge departure, though the pressing need to focus upon boosting domestic demand in the light of world events has come to the forefront of China's economic plans.

The risk-averse nature of the goals set out for 2013 reveal that the Chinese leadership strongly expects a low growth rate from the global economy. The desire to tap the domestic market, a goal which has been talked about since the late nineties, has become more prominent following export growth figures posted in November, which stood at 2.9 percent year-on-year; down from 11.6 percent the month previously. Coupled with rising protectionism abroad, referred to in the official statement released following the conference, the central government is hoping to avert economic stagnation by boosting demand at home through urbanization.

There has been speculation regarding the scale of the so-called household consumption problem in China, as spending by households on housing is actually excluded from consumption; leading many to talk about a statistical problem rather than the existence of a consumption problem. Nonetheless, the goal of boosting the level of domestic consumption entails addressing other challenges within the country in the hope of cultivating domestic demand. The official statement released following the Central Economic Work Conference stated that the country will actively push forward urbanization to realize domestic consumption potential. Urbanization is therefore one of the main drivers for boosting domestic consumption; identified in the report as the strategic basis for China's development.

At present, due to the development course of China over the past three decades, there is a massive disparity between labor productivity in rural and urban areas. Furthermore, the consumption behavior of urban and rural dwellers differs drastically. Migrant workers find themselves caught between this urban-rural divide, as the newest generation of migrant workers spend very little and send the majority of their earnings home to rural areas; though they increasingly believe that they have the right to make a life for themselves in urban areas. Discrimination against migrant workers, from a political and market perspective, poses a serious problem for the country both economically and socially.

The government's decision to center its efforts on improving the quality of urbanization will be vital in terms of achieving quality growth and maintaining the country's social harmony. If the Chinese government can effectively settle migrant workers from rural areas into urban settings, those new urban dwellers will eventually start consuming more. In addition, effective urbanization will likely improve the state of China's service sector development, which has struggled despite being a strategic priority in the upgrading of the country's industrial structure. Though China's service sector has been criticized for its levels of quality and efficiency, factors which must be addressed separately in order for the industry to raise its development level, increased urbanization would lead to an increase in demand for services which would likely drive efficiency as competition improves.

The topic of conversation during the recent meeting between China's Vice-Premier Li Keqiang and World Bank President Jim Yong Kim at the end of November focused solely on the nation's unprecedented urbanization push strategy. Urbanization is important not only for the transformation of China's economic growth model; it is also a necessary task in order to address problems related to inequality and social peace. As a result, failure to achieve urbanization at a rapid and effective pace will likely prove damaging in the long run, both for the economy and society at large.

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