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Urbanization Drives High Quality Development of China's Economy

China's urbanization rate lags behind those of similar emerging economies, but policy reforms can help bridge the gap and drive the domestic economy

By Zhang Qingchen Updated Jun.12

Urbanization will be a crucial driving force of China's economic development in the future, said Zhang Qinghua, a professor of Guanghua School of Management, Peking University, the news portal Guangming Daily reported.

According to Zhang, urbanization means the economic focus will shift from the agricultural sector to the industrial sector and the services sector. Decentralized agricultural production will be replaced by concentrated and high-productivity industrial and services production.  

Although the path of urbanization of China's population is generally in line with global trends and the absolute size of the urban population is expanding rapidly, it cannot be ignored that the speed of urbanization in China lags behind that of countries with the same income level. 

World Bank Open Data shows that the annual growth rate of urbanization in China from 1978 to 2018 is less than 4 percent, lower than the growth level of 5-6 percent in countries with the same income level. In 2017, the urbanization rate in China was 57 percent, also lower than the average urbanization level in countries with the same income level. 

The main reason why China's urbanization process is relatively sluggish is that the rural migrant population in China has not fully integrated into the city and they cannot access the same public services as urban residents, Zhang said. 

Yet, Zhang said that the greater urbanization gap between China and other countries means that China still has potential. For instance, if there is reform of the household registration system which will allow people to legally become urban residents, and if there is improvement to urban social security and basic public services, China's urbanization process will be significantly accelerated. 

Based on predictions from the United Nations and China’s National Bureau of Statistics, by 2025, the urbanization rate will reach 66 percent and by 2035, it is expected to be 75 to 80 percent. This means that in the next decade or so, nearly 300 million people will move from rural areas to cities.  

The scale of China's cities is growing, but the urban structure has issues. For instance, the scale of cities is generally not big enough, and there are too few large cities.  

In the future, the adjustment of urban scale structure will significantly increase per capita income and promote overall economic efficiency, Zhang said. Data from the National Bureau of Statistics shows that the per capita disposable income of urban residents in China was 39,251 yuan (US$5,674.9) in 2018. If the city’s structure can be optimized and essential production factors, such as capital or labor, can freely flow between different cities, the per capita disposable income in more than half of the cities in China can be increased by 12,000 yuan (US$1,734.9) or more. 

It is expected that China will develop urban agglomerations and give full play to the "agglomeration effect" of cities, in order to improve production efficiency and per capita disposable income. Also, urbanization can drive domestic demand and promote the transformation of China's economy from high-speed growth to a high-quality development stage.