Photo: China Daily
This translation was made for information purposes only. The views expressed in the article are that of the author and him alone.
Author: Chen Gong, chief analyst, Anbound Group – a Beijing-based economic research and consulting agency
Link to original essay: SOHO Tabloid’s latest issue , published in part on their blog
A translation by André Holthe
The Limits of China’s Urbanisation
My view is that China’s urbanisation is approaching its limit, and if this hypothesis is proven true, a reform of the wealth of the Chinese society and its value system is inevitable, inevitable is also a world panic, because the stock and real estate market will plunge. This follows a logical pattern, but let’s say that it’s unlikely to plunge, then the market will at least have to shrink.
Paul A.Samuelson writes in an article from the book “The Price of Prosperity” that we should stop beating around the bush. Perhaps Samuelson understood that it’s no easy job to be reasonable and sober when talking about the dream of the city. After all, the city bears the weight of so many dreams, the prosperity of the city adding illicit love to the meaning of these dreams, making the problem even more challenging. The ultimate result is that it’s even harder to describe the story of the city boom, even though, as it turns out, this is the problem we are facing today.
Factor 1 – An urbanisation overloaded with dreams
On a Beijing TV program a while back, I carelessly voiced my opinion on the urbanisation and the limits of growth. I did not expect that the two other participants would jump up immediately, as if they had received an electric shock.
They believed that the Club of Rome and the research in “The limits of Growth”, the book that has been translated to more than 30 languages, and sold more than 40 million copies, was wrong. They were like the many men of this world, who struggle eagerly to be famous. They claimed that according to their own research, the growth of cities was unlimited, just as the authors of this years “No limits to growth”, both refuting “The Limits of Growth”.
Generally speaking, I have deep respect for things that are “Unconditional”, “Unlimited” and that have “No Boundaries”, because it’s only God and Heaven that can be described with these words and they was never meant for mortal hands. So every time I run into people who challenge “the limit”, my heart jumps and head starts swelling, but even though I feel dizzy, I try not to lose focus.
What I have a hard time understanding is that, in the face of the city pipe-dream, how can it be so many people who don’t know what “a cycle” is? One should now that no city can grow forever. A linear urban development is impossible because it’s a complex and uncertain system with an internal structure. It’s self adapting and cannot be controlled. Urban development will automatically form a cycle, it’s inevitable, because urban development will be accompanied by the accumulation of environmental limitations. Sooner or later it will silt up on the road of development, ultimately constitute a development cycle.
A cycle has limits, limits with opposite boundaries, so acknowledging the cycle is part of what one might call a basic urban knowledge. It’s a pity though, that today objective urban knowledge is concealed by colourful dreams. People would rather believe the idea that development is endless, than succumb to sober knowledge,…. it seems as though dreams are forever.
Factor 2 – Urbanisation and irreversible environmental damage
A lot of people think that environmental awareness is only for the wealthy and that environmental protection only matters after you’ve become rich. This thought is the origin of the expression pollute first, manage later. One should not think that this is only seen in the attitudes of local officials eager for economic development, as there are, as a matter of fact, scholars who support this view and believe that urbanisation is “unlimited”. They are both ignoring reality: the environment can not always recover, a lot of the damage to the environment is irreversible!
In 2008 I drove across the Shanxi province from north to south to investigate the environment. I still remember the Luliang district with its dried up rivers. Looking at villages with clouds of dust churning and the distant ridges covered in coal dust, withered and yellow, I was deeply moved. Over the course of just 50-100 years, Shanxi’s environment has reached a point were the changes are irreversible. A local journalist drove south along the river of Fenhe to investigate the pollution and later wrote: “Wherever I go I am speechless. It’s incredible how none of the leaders in the cities and counties along the river are protecting or taking care of the river. They’ve made a stranger out the river, letting the industry abuse it, pollute it. Continuing to cause misery and suffering to the river. It seems as though the river is hurting, shedding tears of grief.”
Don’t get the idea that environmental disasters only occur in provinces rich in natural resources. One only have to recall the disastrous pollution of the Songhua river and how water was completely cut off in Ha’erbin, a city situated along the river. An even more catastrophic event occurred in the south, namely in Xianyou county, Fujian province, where the pollution of a smelting factory caused lead poisoning of 203 people, among 200 of them children. Data from the Department of Environmental Protection is alarming: Every day at least 100 million tons of raw sewage is discharged directly into the nation’s waterways. More than half of our countries seven big water systems are polluted, 30 % of the waterways are not suitable for fish, 20 % of the waterways are not suitable for irrigation, 90 % of cities’ water sources are severely polluted, 50 % water townships water sources does not meet the standard of drinking water and 40 % of our total water sources are not drinkable at all. Southern cities have a water shortage of 60-70 % percent, all because of water pollution.
Every city and town is its own system, big or small, but this system exists within an even bigger system. To cities, this bigger system is the ecosystem. Today there are clear signs that the ecosystem can’t it take anymore. Unless we pay attention to the environmental problems around us, rehabilitate and develop the nature, slowing down the pace of our growth, disastrous consequences are just around the corner.
Factor three – Urbanisation and The New Shortage Economy
The plan economy was a shortage economy, during those times there was a shortage of everything; sunglasses and jeans were commodities that amazed the girls of that time. Nobody raised any eyebrows about the shortage, after all people lacked everything; they ate meat once a year, peanuts and melons were only to be seen during the spring, and most daily necessities were only available with food stamps, which was why is was called the Stamp era. Because of the major shortage of goods in the economy, China begin to reform and open to the outside world in 1978 and the open society immediately revealed an inexhaustible strength. Following years of growth in the Chinese economy, the shortage economy left us, and China entered an era as the world’s factory, providing the world with everything from toilet paper to boats and aeroplanes. However, even though the manufacturing industry was capable of accumulating wealth, the pace of the accumulation was not even close to what happened when real estate was opened up for development. As soon as the opening of the real estate market was used as a platform for investment activities, cities began to be immersed in a fanatic atmosphere. Cities promptly started to expand, established on the bases of extravagant consumption, driven by commodity demand bubbles were created. The shadow of a New Shortage Economy emerged.
From 2008 and up to now, it is as if the word “shortage” have started to appear more and more often in the press. At first it was coal shortage, the coal industry made it clear that production had reached its limit, but demand was still growing. Moreover, coal transportation has become a tremendous problem; 70% of all the coal relies on railway transportation, but it’s not sufficient, heavy trucks driven by gasoline are still rolling on at full speed along the road. Even so the coal reserves of electric power plants in cities all over the country have reached alarming levels. After coal shortage comes oil shortage, gas shortage, and needless to say, a continues rise in gasoline prices. Demand has at times even exceeded the supply, creating an extremely severe gas shortage. A famous picture from Chongqing in 2009: a crowd of cabdrivers waiting in an endless queue to fill gas on their cars. The shortage of energy has resulted in a tense situation, and shortage of electricity is inevitable. Not only small and medium sized cities are cutting power to limit consumption, even cities like Shanghai, Guangzhou and Beijing have gone to this extreme measure.
Of course, the basic requirements of a city are not limited to energy, the supply of energy is just the system input, the material output of cities is equally questionable, and the problems related to waste management are even more severe. It’s reported that waste originating from Beijing is managed at landfill sites along the fourth and fifth ring road, because this was originally the outskirts of the city. Because of the accelerating speed of urbanisation, follow by the construction of the sixth and seventh ring road, the fourth and fifth ring road have become down town areas in many cities, gradually creating an absurd situation where the centre of Beijing is in fact surrounded by a gigantic dump. In today’s Beijing it’s becoming increasingly hard to find places suitable for waste management, while the cities sewers are about to face a grave crisis.
Every city is like a gigantic organism and everything we consume poses a great challenge to the city’s infrastructure. City planners are claiming that the population of Beijing will reach 30 million people, maybe even 40. This is all jolly good, but from the perspective of infrastructure and public utility, it’s just idiotic nonsense, because it’s absolutely impossible. People who support this plan are perhaps not aware of that some of the pipelines still in use in Beijing were built during the late Qing. Maybe pipes have to start bursting before our officials and scholars are convinced that “The limit of urbanisation” is a reality and will be reached!
Factor four – Urbanisation and an Ageing Population
Urbanisation requires a continuous supply of people, especially energetic young people with a spending desire, otherwise the urbanisation cannot continue; it’s like building a house you can’t sell. China is a populous nation, but can China withstand endless urbanisation? Right now it seems like the outcome is far from that. Even though China is a populous country, the urbanisation has reached a limit.
There was a news article a while back that told the story pretty good: An early winter day, in Shan county, Henan province, the car bouncing along the bumpy village-to-village highway. But the villages around were bleak and desolate, there was no trace of human habitation, like the depressing villages in the poems of Du Fu. The tidal wave of 30 years of Chinese market economy has swept across the entire countryside, leaving only hollowness. Traditional peasantry is sentimentally attached to the soil, but attracted by the prospects of making a living in the multicoloured cities people have left. Pastoral landscapes filled with songs have become pastoral landscapes without any music, the old expression “returning late with hoes on one’s shoulder” has become “longing for somebody to come home”. In Zhongwang village, Henan province, there’s a total 19 600 people, a third of who have become migrant workers. Most men go to Beijing, Shenzhen, Shanghai and the likes to do construction, the girls who are in their 20s go the coastal areas to work at factories, while middle aged women go to Xinjiang to pick cotton. Being the most populous province in China, the population in Henan began ageing in 1998, and due to the large number of young and middle-aged people who move to the cities, the rural areas have already become “super-old” societies, and social security system coverage for elderly people in rural areas is poor. The poorer an area, the more people become migrant workers, and the more dreary the situation become for the old people who stay behind.
From 1999 to 2003 the world’s urban population increased by 2,1 % annually, among low and middle income countries the increase was about 2 . By contrast, the increase in China was 4,6, twice the world average. In 2007, China’s urbanisation rate reached 45% and therefore some people talk about that China’s urbanisation can go a step further and that we are far from the limit. The different viewpoints should all strive for logic, but people still claim that the world is not at the same development stage as us, the environment is not the same, so a difference in urbanisation rate is expected, whereas no difference would be abnormal. Some have a urbanisation rate of more than 70%, so we should strive towards the same. Where’s the logic here?
According to the American Population Reference Bureau, 48 % of the world’s population lived in urban areas in 2005, among which 77% were living in developed areas and 23% in underdeveloped areas. Looking at the statistics continent by continent, 73-79% of the population in developed areas like North America, Europe and Oceania lived in urban areas, 38% in Asia and the African urban population was the lowest, only 37%. The underdeveloped areas of Latin America and the Caribbean have an excessive urbanisation, and maintain the same level of urbanisation as developed countries, about 76%. Looking at these data, an urbanisation rate of 45 % in today’s China is already more than the Asian average, a reasonable level, but it has already reached a critical point. If it continues to rise, through the roof, then it will most likely have disastrous consequences, like in Latin America.
Factor 5 – The Critical Point of Urbanisation
In 1975, the American geographer Raymond M. Northam’s massive study of the world’s urban populations showed that the urbanisation follows a clear pattern. He showed that the relative changes following urbanisation within a country and an area in a broad outline took the shape of an “S” and he divided the urbanisation into three stages, namely low urbanisation rate – the initial stage with relatively slow development – the middle period – with an increasingly rapid shift of population towards the city, and the final stage – where the urban population growth is slow, sometimes even stagnating.
According to the Northam curve, the initial stage has an urbanisation rate of 10%, which indicates that urbanisation has started. In this stage the urban areas have a population below 25% of the total, the urban development is slow, the stage lasts for a long period of time, and most regions are still traditional agricultural societies. In the accelerated middle stage, urban areas have a population of more than 30% of the total, the rural population starts arriving in the city in large numbers and the urban population is rising quickly, the cities expand, the number of cities increases, the urban population reaches 60-70% of the total and the industry dominates the regional economies and social life. The final stage is stable. After the urban population reaches more than 60 % of the total, the growth slows down, and enters a period of stable growth.
Because of an ageing population and other national conditions, today’s China has an urbanisation rate of 45-50 %, already in the middle stage of the Northam curve and approaching the stable stage. Even though China’s urbanisation rate can be further increased, the extent and space of the increase is shrinking, which means that we are close to the critical point between the accelerated stage and the stable stage. Today, Shanghai’s post 80’s generation is already returning to their hometowns in large numbers, which is indicated by statistical data: For every percent age point of GDP growth, cultivated land increases ten times the size of Japan. Thus resources as well as living costs are the boundary conditions of future urbanisation, which indicates that the urbanisation is approaching a critical point.
Factor 6 – Forced demolitions and bloodshed over land
The evening of November 29 was the most tragic moment of China’s urbanisation. Chengdu’s Jinniu district resident Tang Fuzhen blocked the authorities from demolishing her home. Standing at the top of the building protesting, she ultimately sat herself on fire. Even though people rushed to save her, but she was severely injured and the attempts to save her failed. Today Tang’s relatives are either hospitalised or arrested on criminal charges and local authorities are still labelling the incident a “violent protest”. The government has showed indifference, unlike the old Chinese saying “people have a sense of natural justice”. If you google Tang Fuzhen it will reveal 1.179.000 results, and this number is more powerful than the memorial ceremony and all people who’ve expressed their deep concerns about the land economy.
Just when Chengdu was “demolished”, Tang Fuzhen’s death gave rise to a storm of controversy in the media on the governments forced demolitions. In the city of Changzhou, Jiangsu province, a 76 year old lady hanged herself because of the demolition, and thousands of residents gathered to mourn and plead for the demolition to stop. Our focus once again shifted back to Beijing, and at that time in the capital’s Haidian district, the neighbourhood committees of Beiwucun and Yuquancun were carrying out the eviction of a resident by the name Xi Xinzhu. Xi Xinzhu poured gasoline over his head and lit himself on fire, the result being a badly burned face. The wife of Xi Xinzhu tells the story of what happened: 2 in the afternoon, one day before the demolition deadline, Xi Xinzhu was having a rest in the apartment when men wearing safety helmets and dark working clothes suddenly rushed in one after another. “We are here to demolish the building.” Xi Xinzhu, who was laying on the sofa, tensed (he had already gotten his leg broken by the unidentified personnel, and he had yet to recover). Their family had saved some gasoline to warm themselves, so he took the left over gasoline to prevent the demolition and poured it on himself, took out his lighter and threatened to light it in order to make the workers leave. But they did not stop, and even said “You just light it, come on, light it.”. At that time the wife was calling for help when she suddenly heard a sound behind her. She turned around and saw that her husband was already on fire. The workers hurriedly extinguished the fire and took him to the hospital. That very afternoon, Xi Xinzhu was hauled down to demolition office and their home was immediately demolished.
Urbanisation requires land and the government is making money on land, so the common model has been to acquire it through force and tricks. But lately following the rise in property prices, but the fight for land has become increasingly blood-soaked.There has already been three mistaken land reforms during in China in modern times. The first one during the struggle between the Nationalists and the Communists (1927-1937). The CCP launched a land reform in their base areas which read: “rely on poor peasants and farm labourers and unite them with middle peasants, restrict the rich peasants, protect medium-sized and small industrialists and merchants, wipe out the feudal landlords class, abolish the feudal and semi-feudal land system and replace it with a peasant land system” . The second during the War of Resistance against Japan (1941) when they implemented land policies that forced landlords to reduce rent and interest for the peasants,a policy also know as the “double reduction, double turnover” policy. The third was during China’s War of Liberation, and the “China’s land law outline” of 1947 which stipulated: “landlords’ land should be confiscated, putting into effect the system of land to the tillers, equal distribution of land per head.” I discovered that throughout history, China have been inseparable from the tangle of land, so are we going have a fourth land reform? Those of us who experienced the bloody Cultural Revolution have no wish for another revolution.
Factor seven – An inefficient growth model
Countless economists have warned us that the growth of the Chinese economy is investment-driven, and the investments depend on the development of the real estate market and the land economy. All like the wheels on a vehicle; even though it turns faster and faster, you can’t stop it, as soon as you stop it, there’s no more growth, no fiscal revenues for the government. As it turns out, the last years’ economic growth seem to support the logic of Chinese economists, the GDP growth rate steadily rising. Some economists even think that 10 % economic growth is not too fast, that China can still grow better and faster.
The problem is that these economists are only telling people one side of the story. Investment driven economic growth is inefficient economic growth. This kind of economic growth is kick-started with money, and in order to increase the growth you have to spend even more money. If there’s no investment, the economic growth will promptly grind to a halt. This situation is of course ridiculous, spending large amounts of money to obtain certain figures, but nevertheless, this is the reality.
Let’s zoom out.
Lately I have participated in discussions on the twelfth Five-Year Plan for a western province. In advance the Development and Reform Commission had decided upon various development indicators and certain things that must taken over of: increased investment to maintain gross investment growth, all calculated to keep the economy growing. I noticed that according to their numbers, despite high investment and high economic growth, the growth of per-capita income would still be very low, an average income would barely be 10 000 RMB a year. So rather than doing it like this, we should direct a portion of investment towards common people, which will have immediate results. One should be aware of that economic growth can be examined from the perspective of income; it is possible to have real economic growth and a target income at the same time. But if we do that, we can do nothing about all these planned projects. But if we look at it from a different angle, maybe it’s a good thing if we don’t carry out these projects, after fall the input of these projects is inefficient capital investments.
Let’s say that our economy grows inefficiently for a long period of time, then we touch upon an important issue: Does our country, our society have money to continue like this? The answer is, we still got money, but if we continue like this, as the plate gets bigger and the productiveness lower and lower, we will soon be out of money!
Seven factors, seven stories, all directly related to the urbanisation. The urbanisation resembles all these factors, they all have their own aftermath and conditions. Today’s conditions are about to take a turn for the worse, everything from the environment to population and society, and the situation is not optimistic. The consequences suggest that we can’t continue like this, and that the economic growth in fact is a black hole with unknown depth. Facing this black hole, we should perhaps stop and think for a second to find the most sensible alternative.
I must clarify that I am not saying that urbanisation will come to an immediate end. Under these circumstances that’s impossible, my point is that China’s urbanisation is approaching a limit, and I have good reasons to believe these fundamental factors. So if this view turns out to be true, a reform of the wealth of the Chinese society and its value system is inevitable, inevitably is also a world panic, because the stock and real estate market will plunge. This follows a logical pattern, but let’s say that it’s unlikely to plunge, then the market will at least have to shrink.
Recommended reading:
Who will pay for China’s bad loans? by Michael Pettis
The difficult arithmetic of Chinese consumption by Michael Pettis
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