China's Urban Billion by Tom Miller

Author:Tom Miller
Language: eng
Format: epub
Publisher: Zed Books
Published: 2012-08-16T16:00:00+00:00

After years of see-sawing policies on urban development, China appears set to follow a dual model of concentrated and distributed urbanization. This is almost unique. In other developing countries, the simple megacity model predominates: migrants overwhelmingly head for the big smoke, be it Manila, Mexico City or Bangkok. By contrast, China has around 700 small cities and big towns with populations below 1.5 million. India, with five big metropolitan areas and a plethora of mid-sized cities, is probably the only country with a chance to replicate China’s dual urbanization model. This is not the most efficient pattern of urban development that China could pursue, but it is too late to change the facts on the ground.

BOX 4.2 Scrabbling to fill the city coffers: the role of local government investment companies

Local governments in China are frequently vilified for stealing land from farmers and selling it on to developers for a massive profit. The greed of officials anxious for skim-offs is one explanation for this practice. But another is fiscal pressure: local governments have enormous expenditure requirements and scant budgetary resources. Without land, local governments would be unable to fund social services or finance vital investment in urban infrastructure.

In China’s cities, municipal governments must fund nearly all social welfare services, including health and education, on top of most infrastructure spending. The first priority is to ensure that schools and hospitals remain open, even if that means selling appropriated farmland. Once social services are taken care of, there is often little money left for financing the kind of grand construction projects that help to get local officials promoted. So local governments have no option but to borrow the funds. But here they face a fundamental problem: local governments are neither allowed to borrow from banks nor to issue bonds.

Local governments therefore had to come up with an alternative way of financing infrastructure spending. Their solution was to set up financing platforms – conventionally termed local-government investment companies (LICs) – that can borrow and invest funds on their behalf. Land, once again, is the key. Local officials take a piece of land and inject it into the new company, which then uses it as collateral to secure a bank loan. LICs are government-owned but nominally independent, so they operate outside the municipal budget.

The oldest LICs, typically known as ‘urban development and investment companies’, are legitimate organizations that finance city infrastructure projects. The number and type of LICs proliferated over the past decade, however, as rural counties and even development zones decided to get a piece of the action. LICs of different stripes help to finance every type infrastructure project: highways, rural roads, railways, power plants, harbour facilities, irrigation systems. But they have been accused of working in cahoots with real-estate developers to push up land and property prices. Roughly 70 per cent of LICs operate at the county level, where finances are generally much weaker than in large cities.

Today there are more than 10,000 LICs. The number surged after the government endorsed the creation

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