For much of the year China has been waiting for a roadmap outlining the country’s future urbanization. Premier Li Keqiang, on his ascension to the role in March, promoted urbanization as both the next driver of economic growth and a tool for addressing the gaping divide in income and quality of life between rural Chinese and urbanites.

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    A group of children of migrant workers eat lunch at a school for migrants’ children in Hefei, east China’s Anhui province.

    A Communist Party leadership took a swing at the issue in an ambitious reform blueprint. And it aims big.

    Farmers will be given greater rights to their land, including being able to mortgage it, according to the plan. The blueprint also promises easing barriers to moving to cities and eventually better access to subsidized public services.


    It’s an attempt to right policies that often make rural Chinese second-class citizens. Farmers routinely have their land taken from them to make way from urban expansion and industrial development projects, and they are regularly under compensated for it. Forced into cities, many find few employment opportunities. Those that move voluntarily and find jobs often still don’t have access to the education and medical care available to city residents.

    On Friday, Chinese leaders sided with farmers over local governments and property developers. It differentiated between farm land and land occupied by homes, but in both cases it said they would be allowed to mortgage them or transfer their use rights. It also said that the government would safeguard their rights over their homes. Village markets would be set up to trade people’s property.

    Rural land is collectively owned, and until now only the government could change how it is used. So the changes, if they come to pass, would improve the bargaining position of farmers.

    Another major obstacle addressed by the blueprint is China’s unique system of household registration – the hukou system. Designed to keep people from moving to the cities and forming the sort of slums that plague other developing nations, the hukou is issued at birth, fixing Chinese as rural or urban dwellers and defining their access to social services.

    After 30 years of rapid economic growth, that system has broken down as people have flocked to the cities in search of better opportunities but without approval to live there.

    According to the blueprint, the hukou system will be gradually dismantled, with restrictions on rural residents moving to the towns and small cities being totally removed, to mid-sized cities being relaxed “in an orderly way,” and access to big cities being based on “rational sets of conditions.”

    However, access to China’s mega-cities—unnamed in the document but presumably Beijing, Shanghai, Guangzhou – must be strictly controlled.

    Rural residents have long been excluded from enjoying the same social services that people registered as urban dwellers enjoy. Even workers who have lived in city for years after leaving the countryside, still need to return home to their home village to access subsidized education and medical care – the quality of which is generally lower than that in the cities.

    The blueprint said that the government’s goal is to extend those benefits, with the goal of “gradually extending the provision of basic services to fully cover the long term urban population,” and “absorb rural residents that have settled in urban areas into the urban housing and social safety net.”

    That will result in a significant fiscal burden for local governments that are already strapped for cash. The blueprint also signaled the Beijing is willing to ease that burden, saying that certain expenses paid for by local authorities could be transferred to the central government.

    It also said that the government would work to “straighten out” the division of incomes between the local and central governments. Currently about 80% of all tax revenue goes directly to Beijing – despite the central government being responsible for about only 20% of expenditures – which it then redistributes back to local administrative bodies. That means local governments have very little discretion over funding. The blue print could be signaling that local governments will likely get a larger share of the tax pie, without saying so explicitly.

    The blueprint said that it would “establish a transparent and standardized mechanism for funding urban infrastructure,” without going into details. However, it also said local governments would be permitted to issue bonds in order to fund urban construction without specifying whether that applied to all levels of government and when the change might be implemented. Some provinces and municipalities are already allowed to do on a trial basis.

    At the moment most local governments aren’t allowed to raise debt directly, instead using companies – which they wholly own – to do so. That’s resulted in the ballooning of debt that local governments are ultimately responsible for, but with very little transparency. Beijing is struggling to track how much the financing vehicles have borrowed.

    – Dinny McMahon. Follow him on Twitter @Dinny_McMahon



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