How much is needed for the New-type Urbanization
Recently, China’s Central Economic Working Conference on urbanization was held in Beijing, and announced six major tasks to further promote future urbanization. But where does the money for urbanization come from? It’s an unavoidable question in the process of urbanization. According to the report, China Development Bank estimates that China’s urbanization in next three years requires 25 trillion yuan’s.
In fact, it is not the first time that China calculates the cost of urbanization. Since 2006, besides China Development Bank, there are 6 institutions which have calculated the costs of urbanization, including Chinese Academy of Sciences, the former Ministry of Construction, China Development Research Foundation, Development Research Center of the State Council, and Chinese Academy of Social Sciences. The estimation of per capita cost for the citizenization of migrant workers differs from 20,000 yuan to 130,000 yuan.
Where is the cost ofurbanization come from?
Besides a lot of infrastructure investments, majority of current researches focus on the costs of “the citizenization of migrant workers,” which is the costs for migrant workers, who currently do not or rarely enjoy urban public services, to enjoy the same public services as urban residents. According to Jin Sanlin and Xu Zhaoyuan’s calculation in their book Cost Calculation of the Citizenization of Migrant Workers, the costs are roughly formed by following aspects: 1. educational costs of the children who migrant with their parents; 2. costs of medical care; 3. costs of pension and insurance; 4. cost of other social security expenditures by civil affairs departments; 5. cost of social management; 6. cost of security housing.
The expenditure would be huge, if we multiply per capita cost of the citizenization of migrant worker with the number of the migrant worker. The 2012 Surveillance and Investigation Report on Migrant Workers throughout the Country, issued by the National Bureau of Statistics on May 27th 2013, indicates that China has 262.61 million migrant workers currently. On the other hand, we need to notice that such a huge expenditure does not need to be paid immediately, but a total cost during future decades. Jin Sanlin and Xu Zhaoyuan have pointed out: the citizenization of migrant workers and its expenditures are in a long process, so that this is not a one-time input, but a graduate process along with the citizenization of migrant workers. From a short period perspective, compulsory education and security housing are two major expenditures; from a long period perspective, pension and insurance subsidies will be the major expenditures. Generally, the cost of compulsory education and security housing occupy around one-third of the total cost, the pension and insurance subsidies occupy about 40%-50% of the total cost, while the pension and insurance subsidies are affected by pension policies. If the dozens and trillion huge cost is shared in the future 70 years, then the number won’t looks too big.
The ignored benefits
The more important thing, behind the costs, is the huge gain that citizenization of migrant workers could generate.
Firstly, with more and more young population flowing into cities, the huge amount of cash flow they bring in would improve the current urban financial expenditure structure.
In most Chinese urban cities, aging becomes a realistic and unavoidable problem that the current pay-as-you-go pension system needs more young people urgently, in order to support those urban seniors. For instance, according to the registered population of 2011, Shanghai has 3.31 million citizens who is older than 60, which is 23.4% of the total registered population, while the proportion of young working force with the age between 25 to 44 is 26.9%. The aging and the low birth rate have brought huge pressures to urban cities’ pension system. Although the per capita GDP of Shanghai ranks the second in the whole country, the pension payment of Shanghai is lower than the average level of the whole country. For a long time, there will be a nearly 10 billion yuan fund gap in Shanghai’s pension system. The situation was relatively improved in 2012, because Shanghai started to regulate the insurance collection of non-registered population. The social security payments, collected from nearly one million young labor forces, provided a huge amount of cash flow for the city. In fact, it is not a single phenomenon that only exists in Shanghai, but exists in most of urban cities.
Secondly, the citizenization of migrant workers will bring vitalities to the whole economy.
Urbanization is important, not only because constructions of roads and bridges will bring GDP, but also because professionalization and social division, led by the concentration of population, will make people’s life better. Due to the aggregation of population, the use-cost of urban public utilities will be reduced in a large scale, meanwhile new job opportunities will appear. People’s life in an agricultural society is self-sufficiency; but in urban cities, division of labor and cooperation are necessary to increase production efficiency and therefore create more value. Due to the same reason, although government may regard urbanization as a challenge, many merchants think it is a great business opportunity.
One of McKinsey’s reports shows that, from 2010 to 2030, China’s urban population will increase from 630 million to 990 million, which will occupy one-fourth of the newly increased global urban population. The number of cities, which has population over 5 million, will increase from 14 to 32, occupying 40% of the similar scale cities in the world. From 2005 to 2025, human migration will occupy 70% of the increased urban population. By 2025, the proportion of current immigrants (103 million) and future new immigrants (243 million) to the total urban population will reach 40%. To promote this kind of citizenization of migrant population will stimulate a great domestic consumption and upgrade the human capital. From this point of view, urbanization is the engine of China’s economy.
The government’s thinking ofurbanization needs to be improved
As mentioned before, urbanization can bring numbers of benefits, but why the government, especially local governments, always regard urbanization or the citizenization of migrant workers as a huge burden?
In my opinion, there may be two reasons: first, most of time government spent huge amount of money on infrastructure construction which needed by urbanization, but cannot return those benefits to the public due to a lack of reasonable taxation mechanism. As a result, private sectors gain most of the whole benefits instead, so that governments sometimes think it is a burden. In fact, if government is able to design a reasonable finance and taxation system, this is not an insolvable problem. Second, due to the inertial thinking of public services, government has taken the whole responsibility for providing public services, which also brings huge financial pressures. People sometimes ignore the fact that governments can actually adopt market-oriented ways to provide diversified services. Public services should not be burden; on the other hand, it could attract labor force to create more value for the society. Under this situation what the government should do is to improve the mechanism of public services providing, and let the market play its roles. No one in 1980s, when materials were poor, could foresee our achievements today within 30 years.
To describe financing method for certain city or particular urban public service, we need to completely identify different entities that are responsible for each item of service; need to analyze the relations among different entities, such as franchises and subsidies; need to study how each entity finances for its net expenses, etc. Only in this way, we can conclude what’s the proper proportion of public service cost, which should be covered by local users, local taxpayers, national taxpayers, and future taxpayers etc. If the market can have great achievements in the aspect of providing materials, then so can it in the aspect of public services.
There are scholars suggest that fiscal revenue of currently China’s urban cities mainly come from the added-value tax, business tax, and the profits from granting land use right. These tax categories encourage urban cities to attract investment, but not to attract new residents from other places. Reforms should be carried out in China, which should tax people’s residential property and commercial property according to the value. Taxation on residential properties will both encourage cities to accept new comers, and help cities financing their public services. This idea is same as the “the perfection of local tax categories,” which put forward in the Third Plenary Session of the 18th Central Committee of the Communist. The costs of urbanization won’t be problem, if we put more efforts in the marketization of financing. From this point of view, the cost urbanization, talked by numerous experts, may be exaggerated.
Published on China Times | 2013-12-18
