China's Great Uprooting: Moving 250 Million Into Cities
Comment of the Day

June 17 2013

Commentary by Eoin Treacy

China's Great Uprooting: Moving 250 Million Into Cities

Thanks to a subscriber for this interesting article by Ian Johnson for the New York Times. Here is a section
The country's new prime minister, Li Keqiang, indicated at his inaugural news conference in March that urbanization was one of his top priorities. He also cautioned, however, that it would require a series of accompanying legal changes “to overcome various problems in the course of urbanization.”

Some of these problems could include chronic urban unemployment if jobs are not available, and more protests from skeptical farmers unwilling to move. Instead of creating wealth, urbanization could result in a permanent underclass in big Chinese cities and the destruction of a rural culture and religion.

The government has been pledging a comprehensive urbanization plan for more than two years now. It was originally to have been presented at the National People's Congress in March, but various concerns delayed that, according to people close to the government. Some of them include the challenge of financing the effort, of coordinating among the various ministries and of balancing the rights of farmers, whose land has increasingly been taken forcibly for urban projects.

Eoin Treacy's view China's greatest challenges lie in governance. The fact that local governments rely on land sales to fund services because there is no property tax helps fuel the building boom the PBOC is so committed to curtailing. The courts function on a “guilty until proven innocent” system and even then, well connected people are immune to prosecution. The “hukou” system of residency permits is grossly unjust and will need to be reformed if the rollout of education, healthcare and social security services to hundreds of millions of rural dwellers is to be successful.

China is a nation of savers, not least because there is so much uncertainty with regard to how people can fend for themselves as they age or become unemployed. If progress is made on the above issues, perceptions of China's ability to foster a consumer culture will improve.

The Shanghai Property Index has returned to test the region of the 200-day MA near 3350. A clear upward dynamic is now required to confirm the return of demand in this area.

Back to top