China needs to urbanize 'strategically', former Treasury chief Paulson says

Henry Paulson, former US Treasury secretary under President George W. Bush, said that the global economy and environment depend on the success of China's urbanization program, which he said is threatened by the country's stressed financial system and "inefficient" building sprees.

China's growth in the next two decades depends on "how it urbanizes sustainably" so that the country can transition from growth built off the backs of exports and capital-intensive investments to one that is environmentally-friendly and "people-centered," wrote Paulson in a piece for the website of CNN's "Money" section that was published Monday.

China needs to "urbanize strategically and sustainably, not just rapidly," he wrote. "Simply packing more people into cities and building infrastructure will not automatically raise living standards for the next 300 million and will only worsen pollution, congestion, and inefficiency."

Interconnected problems such as job creation and a normalized labor market with legal migrants need to be solved because the existing growth model has "frayed," he said.

Like many other critics, Paulson said that China's economy needs to shift to a consumer-centric one; a problem that he said can be made better by legalizing China's migrants. "Legal urban residents working at good jobs can help to do this. Indeed, China needs to create millions of new jobs," he wrote.

Paulson said that a more lax hukou system is needed. The residency system restricts migrants from becoming legal residents and one that the central government has addressed as a priority as it begins to enact its Third Plenum reforms this year.

The government, which recently convened for an urbanization work conference in December, has proposed lowering the barriers for China's 230 million migrant workers and help the 70 million non-local residents settle into their cities, according to the news agency Xinhua.

The conference is expected to release a new urbanization plan, which is "seen as a guideline for the country's next urbanization moves," Xinhua said.

"Paulson has a good point about urbanization because I agree that Chinese urbanization does need to be more sustainable - it has to take into account environmental protection and also minimize income gap among its residents," said Jia Lu, assistant professor of geosciences at Valdosta State University, in an interview with China Daily.

"Right now, Chinese growth is fueled by low-cost labor in the manufacturing sector, but a lot of labor costs are going up so the low-cost labor model will not work for very long," she added. On hukou reform, Lu said that even though the hukou system is a lot better than it used to be, it still causes major inconveniences for many migrant workers and there is a large disparity between benefits that migrants receive and those that native residents do.

Problems with the hukou system are compounded when land development in China doesn't necessarily match economic or social demand, Andrew Perlstein, a consultant on Chinese cities and sustainability, told China Daily.

"You go to a lot of cities and you see a lot of high-rise apartments being built, but they remain vacant for long periods of time, or they're bought by people who can afford to buy property, but they're not necessarily serving the needs of migrant workers," he said.

"The governments are saying, 'We'll lease this land and get it under development because we have the developers who sense that there's enough of a market and they want to move forward.' It also projects the image that the city is developing, it's prospering, and there's tangible evidence of that. "

Ann Lee, professor of economics at New York University, was more wary about what she said were Paulson's "platitudes" on how to fix China's urbanization problem.

"If you don't have any specifics, then you're not suggesting anything valuable, because to do it all at once, you can overwhelm cities with too many migrant workers. They can't build hospitals overnight," she told China Daily.

"It's hard to blame the Chinese government when they just announced this. Things don't happen overnight. It's completely unwarranted criticism when the US can't even get their own house in order," Lee said.

amyhe@chinadailyusa.com