Building Inclusive and Innovative Megacities in China

August 28, 2015

With the right measures in place, the influx of human capital to China’s biggest cities can drive future growth

If the fact that, since the introduction of market reforms in 1979, China’s urban population has soared from 19.6% of its total population to 54% today, doesn’t seem impressive on its own, a simple search for precedent makes it clear.

China’s rise to a predominantly urban nation in a little over three decades matches what took 200 years in Britain, 100 years in the U.S. and 50 years in Japan. And this trend is only accelerating. By 2030, 70% of China’s population – some one billion people – will live in cities.

How these cities take shape holds great importance for China’s economic future. Some analysts see the clustering of industrial facilities and large, concentrated markets in the biggest cities as the catalyst for innovation that could fuel the next decades of growth.

According to the Organization for Economic Cooperation & Development, China currently has 15 megacities – cities with a population of 10m or more – with more on the way. Already, Chinese state planners’ visions for these cities—such as unifying existing cities to combine their manufacturing, tech and shipping capabilities on a never before-seen scale—are making headlines. In July, Chinese officials announced the development of a mega economic planning region linking 130m people across the cities of Beijing, Tianjin, and Hebei. The Jing-Jin-Ji region, as it is called, will be spread over 82,000 square miles, about 6 times the size of New York City.

Which begs the question: how will China ensure that its continued urban growth is economically inclusive for its present and future urban citizens?

As we’ve covered previously, enhancing urban mobility in terms of ease of moving from point A to Point B can be a powerful driver of social mobility. Infrastructure improvements, such as a subway and light rail system, are planned to link each city over the next 5 years. As a World Bank Report published last year, China: A New Approach for Efficient, Inclusive Sustainable Urbanization notes, it’s also key that transportation infrastructure provide access within the cities themselves, especially to urban centers. The report also notes that enforcement of environmental standards as a major priority.

These closely related factors, efficient transportation infrastructure and the environment, were also highlighted in a report by the McKinsey Global Institute, The China Effect on Global Innovation, as areas where improvements could help turn China’s cities into engines of innovation by drawing top talent.

That this should be the case is perhaps unsurprising, because at heart these measures are about ensuring that human capital can flourish in these cities. This is why it’s also key to enable new arrivals to fully participate in the economic dynamism of the megacities.

“A critically important aspect is that each of the Jing-Jin-Ji region’s cities should be complete in their services, including medical and financial services,” says Professor Li Gan, Director of the China Household Finance Survey.

“To drive financial and economic inclusion in such a larger region, mobility of labor and population is critical, as well as a level-playing field so that inhabitants have better access to resources like schools,” says Kam Wing Chan, professor at the University of Washington. “This will require substantial, not superficial, reform of the hukou system. ”

The hukou system makes record of a family’s residence and identification information, and allows them to access school and hospital systems at subsidized costs. While initially serving as a means of geographically ordering the country, over the past thirty years it’s served to socially, politically, and economically stratify it.

If a migrant worker now living in Tianjin, for example, was born in a rural village, his or her hukou (as well as their children’s) is registered there, not Tianjin. Getting the registry to change is exceedingly difficult. This has meant that only a minority of current urban citizens hold hukou over their local residence in the city. In fact, today only 36% of China’s population holds an urban hukou.

“Such an approach has created tremendous inequality between China’s urban natives and its migrant workers,” says Chan. “To be inclusive, China will have to quickly tackle this big issue and allow migrant workers to become equals in the city.”

China’s unprecedented urbanization has been central in its first decades of impressive growth. The right measures can ensure that the continued influx of human capital to China’s biggest cities will be a powerful driver of new growth in the decades ahead.

 

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