A ‘New Normal’ for Urbanisation - China Development Forum

 

Remarks by Angel Gurría

Secretary-General, OECD

China Development Forum, Session on Development and Governance of the Metropolis

Beijing, 21 March 2015

(As prepared for delivery)

 

Distinguished Guests, Ladies and Gentlemen,

 

China is one of the great urbanisation success stories of the last 35 years. Its urban population has quadrupled since 1980, to more than 700 million. Another 240 million are expected to move to urban areas in the next 35 years. Rapid urbanisation has helped sustain economic growth and has transformed the lives of hundreds of millions of people for the better.

 

Yet, the process has not been perfect. Rapid urbanisation has contributed to rising inequality and increasingly acute environmental problems. But nevertheless, China has largely avoided many of the problems we see in other fast-urbanising economies - like the explosive growth of slums.

 

Today, China needs a new model of urbanisation. For decades, urbanisation and economic development have been underpinned by four factors: cheap labour, cheap land, the under-pricing of environmental externalities and rising export demand. None of these factors can be counted on in the future.

 

As China’s economy shifts to a ‘New Normal’, GDP growth will become increasingly reliant on domestic consumption, efficient and sustainable resource use, and rising productivity. This demands a ‘New Normal’ for urbanisation, with city policies that reflect the shift of gear.

 

What makes cities successful?

 

Building on several decades of urban work, including over 30 metropolitan reviews , we have recently produced two reports The Metropolitan Century and Governing the City.

 

These reports contain messages that are relevant to China. One of the key findings is that as urbanisation beds-in, productivity growth will be less reliant on the expansion of cities and more and more dependent on the quality of urbanisation decisions. It is not how big cities grow, but how well they function!

 

Ensuring that a city is well-functioning is dependent on many factors: including getting transportation and land management right; reducing administrative fragmentation; and ensuring that cities are governed at the relevant scale. China can make this happen!

 

What does this mean for China?

 

What does this mean for urban decision-makers in China’s cities? In our National Urban Policy Review we set out policy recommendations that could be rolled-out during the 13^th Five-Year Plan.

 

First, too much new urban development in China is characterised by extreme segmentation, poor internal connectivity and inadequate public transport. Road networks should be designed to better support foot traffic and public transport, and density should be managed at smaller scales.

 

Moreover, land-market reforms and urban planning can make China’s cities greener and more liveable, as well as more efficient and inclusive. Our report All on Board: Making Inclusive Growth Happen in China picks up this theme. It highlights how land zoning for industrial use deprives many millions of migrants of quality homes.

 

But things could be very different. If the proportion of land used for industry in Chinese urban areas fell to typical OECD levels, the land available for housing would increase by 70%. That’s a lot of new homes!

 

Second, the segmentation of the labour market based on residence registration, or hukou, must be overcome. Labour-market dualism is bad for both growth and equity. The July 2014 reforms mark a milestone on the path towards full liberalisation of the household registration system, but more needs to be done to improve conditions for migrants in larger and mega cities; in particular by removing the link between registration status and access to certain essential services.

 

Perhaps the most critical issue here is in the area of education. The long-term costs of under-educating a generation of Chinese young people are huge.

 

Third, policy co-ordination at metropolitan scale will be increasingly important. At present, the incentives for competition among local governments are strong, while mechanisms for co-ordination are weak.

 

As Chinese cities grow together to form vast urban regions, reforms need to be linked to a clearer allocation of competences, with a better matching of financial resources to responsibilities. More could also be done to manage co-ordination of land use and transport across the local governments that constitute a single metropolitan area.

 

Ladies and Gentlemen, moving towards the ‘New Urban Normal’ in China will call for improved co-ordination in governance, and demand that policies more accurately reflect urban realities. The OECD will be on hand, as you take your next steps.

 

Thank you.