How China’s Urbanization Is Shaping the World in the 21st Century

Paper written as a Schwarzman Scholar at Tsinghua University.

Over the past forty years, China’s unprecedented urbanization served as fuel for its meteoric GDP growth and ascendance to global influence. In this paper, I will argue that Nobel Laureate Joseph Stiglitz’s assessment that China’s urbanization is one of the two great events shaping the world in the 21st century is undoubtedly accurate by examining the sectoral transition to manufacturing and subsequent rise of China’s export dominance, the immense economic potential and market influence of Chinese consumers, and the vast environmental toll generated by China’s urbanization. Finally, I will explore prospective reforms in land management, social institutions, and urban finance that China ought to enact to make the best of the urbanization process.

Evidence of Global Impact

China garnered international influence as it rose to become the world’s dominant manufacturer and exporter. Nearly a fifth of China’s GDP growth from 1980–2010 can be attributed to the immense increase in productivity generated by a significant shift of resources and labor to manufacturing and services from the agricultural sector. (World Bank 83) This sectoral transformation of China’s economy alongside policies that increased internal migration led to rapid urbanization as migrants from rural regions sought manufacturing and services employment that offered higher incomes and resource use. Subsequent specialization and adoption of new technologies allowed manufacturing firms in China to seize economies of scale. Jobs in manufacturing were critical to allowing women to transition from low-productivity agriculture employment into higher-productivity employment in the formal urban economy, thereby increasing the potential of China’s productivity. (Lawrence 1) The country quickly became the world’s largest manufacturer and exporter with world foreign trade export volumes rising from 0.8% in 1978 to 11% in 2021. (World Bank 84) After entering the World Trade Organization in 2001, China rapidly became the dominant goods exporter to nearly all of Asia, Africa, South America, and Europe. (Johnson 1) In November 2019, Pictet Wealth Management senior economist Thomas Costerg stated that “[China is] now the dominant supplier for most countries around the world. Trade is becoming increasingly unipolar rather than multipolar…Dominating global trade brings political influence.” (Johnson 3) It is evident that China’s role as the world’s dominant manufacturer and exporter have shaped and will continue to influence the world.

Over the past four decades, more than 500 million people were lifted out of poverty in China and real wage increases for both skilled and unskilled laborers have increased spending throughout the country resulting in a global impact. (World Bank 14) This substantial increase in spending has been felt both internally in China and internationally. Peterson Institute senior fellow Robert Lawrence observed that as Chinese citizens’ income has grown, “Chinese domestic spending has shifted away from investment toward more consumption.” (Lawrence 1) The World Bank found that from 1980–2010, China’s consumption growth rate averaged approximately 8% per year. (World Bank 13) The sheer market size of China makes the country’s consumers and collective spending power impossible for multinational companies to ignore. Parallel to the newfound attention on wealth within China’s borders is the recent social phenomenon of hundreds of thousands of wealthy Chinese emigrating out of China as business investors. The scale of emigration out of China to other countries is unprecedented. In 2012, the annual US quota of 10,000 EB-5 visas was maximized by the influx of Chinese business investors for the first time since the quota’s inception in 1990 and the Chinese share of Australia’s business innovation and investment program was 72.2% of the total granted in the 2012–2013 financial year. (Liu-Farrer 500) The impact of this exodus is felt tremendously in the local economy of the country receiving these wealthy emigrants who reportedly brought an average of 16% of their assets with them and invested in the receiving country’s real estate properties. (Liu-Farrer 505) Immense growth in real wages and GDP have had a significant impact on international enterprises and on countries collectively receiving hundreds of thousands of Chinese emigrants.

China’s urbanization did not materialize without a substantial price on the environment paid by both the country’s residents and global populations. The country’s energy production and consumption is fueled primarily by coal, a dirtier resource than oil and gas. In 2013, China accounted for 48% of world coal production and in 2016, coal accounted for 61.8% of China’s energy consumption. (Naughton 837) China’s coal production and consumption alongside the massive increase of vehicles to 192 million in 2016 have had devastating, quantifiable impact on residents. (Naughton 859) Air quality deterioration accelerated by pollutants produced by industrial factories and household coal consumption led to China’s 30% overrepresentation of world premature deaths and world health costs despite having only 19% of the world’s population. (Naughton 861) Demand for China to enact environmental policies restricting pollution has increased from both residents and global citizens. A 2016 Pew poll recorded that 70% of Chinese responding said that both air and water pollution were big problems and 65% agreed that reduction of air pollution should be prioritized even if it meant slower economic growth. (Naughton 835) In 2017, BP found that China was the largest contributor to global warming with an astounding 27% of global carbon emissions in 2016. (Naughton 870) Urbanization has caused a severe deterioration of the environment that has negatively impacted the health of populations residing in mainland China and abroad.

Prospective Reforms

In order to optimize the urbanization process, China ought to engage in reforms of land management, rigid social institutions, and urban finance. Land management reform consists of innovative policies focused on urban and rural populations and would ultimately increase productivity by incentivizing efficiency in the use of land. A 2014 World Bank report concluded that adopting an approach that improves the efficiency of future urbanization would incentivize the creation of denser cities, a containment of urban sprawl, and the reduction of environmental impacts of urbanization. (World Bank 38) These factors in turn would diminish the necessity for land conversion and generate new streams of revenue for cities. The government ought to ensure that farmers share the same degree of property rights as urban residents to eliminate a significant contributor to the income disparities between rural and urban China. Land management reform would increase overall productivity resulting from urbanization and mitigate income inequality.

Reform of social institutions focuses primarily on increasing the versatility of the household registration system and increasing access to social services for migrants and rural populations alike. Transitioning to a residence-based household registration system would expand access to services including education, healthcare, welfare, and affordable housing that are location-specific. (World Bank 49) This shift from the origin-based household registration system would increase the spending power of migrants who previously compensated for lack of access to welfare benefits with an unusually high savings rate. (Economist 4) Expanding access to healthcare, education, employment, and pension systems for migrant and rural families will foster a sense of permanence that provides incentives to increase spending locally and build communities that beget further economic opportunities as a byproduct of urbanization.

The need for urban finance reform is demonstrated by the current lack of focus on addressing underlying problems of China’s fiscal and financial systems. Allowing local governments to assume greater control over both local expenditures and local taxes would incentivize local governments to exercise financial discipline and keep local leadership accountable. (World Bank 56) Localization of fiscal and financial systems would allow local governments to enact policies that generate revenue from local sources through property tax and increased urban services prices. These policies would result in a greater alignment of the various costs and benefits associated with public spending and thereby increase efficiency alongside the process of urbanization.

Conclusion

The accuracy of Stiglitz’s assessment of China’s urbanization is evidenced by the global influence that China wields in its role as the world’s dominant manufacturer and exporter, the indisputable spending power and consumption of Chinese consumers at home and abroad, and the devastating environmental consequences of China’s rapid urbanization both within and outside of the country’s borders. In order to make the best of the urbanization process, China ought to increase efficiency and overall productivity by enacting reforms in land management, social institutions, and urban finance that broadly increase sense of land ownership, expand access to social services, and increase government accountability and localization of revenue streams.

Works Cited

The Economist. “Building the Dream.” Economist, 2014, pp. 1–14., https://www.economist.com/sites/default/files/20140419_china.pdf.

Johnson, Steve. “The Great Haul of China, Illustrated.” Financial Times. 2020. https://www.ft.com/content/4975eb8a-0ab6-11ea-bb52-34c8d9dc6d84.

Lawrence, Robert Z. “China, Like the US, Faces Challenges in Achieving Inclusive Growth through Manufacturing.” China & World Economy, vol. 28, no. 2, 2020, pp. 3–17., doi:10.1111/cwe.12318.

Liu-Farrer, Gracia. “Migration as Class-Based Consumption: The Emigration of the Rich in Contemporary China.” The China Quarterly, vol. 226, 2016, pp. 499–518., doi:10.1017/s0305741016000333.

Naughton, Barry. The Chinese Economy: Transitions and Growth. MIT Press, 2007.

World Bank. “Urban China: Toward Efficient, Inclusive, and Sustainable Urbanization.” 2014, doi:10.1596/978–1–4648–0206–5.

Schwarzman Scholar | Columbia University