24 June 2019

Who will benefit from new vertical urbanization?

The just-concluded China Central Economic Work Conference was a four-day affair, taking longer than in the past when such meetings were usually wrapped up in 2-3 days. The lengthy meeting could partly be explained by the fact that the nation’s top brass was holding the first-ever Central Urbanization Work Meeting at the same time. While both the events were important, if were to rank the two in terms of significance for the future, the two-day urbanization meeting definitely scores.

According to a press release issued after the meeting, a blueprint has been laid out for further urbanization in the years to come. The plan states clearly at the outset that urbanization is not merely an expansion of cities or combination of towns. Instead, it should be a human-centered process that will enable peasantry to settle down and take root in the cities in an orderly manner.

In the broad sense of urbanization, China’s urban population has already outstripped the rural population number. But the National Development and Reform Commission noted that only 37.7 percent of the people in the country have urban “hukou” or city household registration, which is essential for entitlement to social welfare benefits in the cities. For a ratio of 50 percent, about 200 million peasants and their families need to have urban household registration.

However, opening the door wider to an influx of farmers is a difficult task given the limited capacities in urban social infrastructure. Besides, greater horizontal urbanization will put the agriculture sector in jeopardy over the long run.

Given this situation, the high-level meeting has put some norms for the new urbanization drive going forward. First, expansion of cities should not go beyond the “bottom lines”. Second, population growth in key metros will be subject to strict restrictions. Third, raising the plot ratio of land in existing cities will serve as a compromise between housing demand and food security.

From these perspectives, urbanization in China will move toward a vertical development model in which crucial importance will be given to the second- and lower-tier cities, which will serve as the major destinations for surplus peasants moving out of the countryside. It would mean, among other things, that the places would become the centers of real-estate vitality in the future.

Moreover, widespread increase in the plot ratio in lower-tier cities will imply a great boost in population density. This process will generate huge long-term demand for mass transportation such as underground rail systems. Amid this scenario, CSR Corp. (01766.HK) and China CNR Corp. (601299.CN), the country’s two leading rolling stock makers, are well-positioned to take a good ride on the urbanization initiatives.

– Contact the writer at [email protected]


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