China's Risky Love Affair With Urbanization

The migration of rural population into Chinese cities is seen by some as the way to ensure a new burst of economic growth. But urbanization-by-state-planning is not the right road.

A construction worker in Shenzen, Guangdong Province
A construction worker in Shenzen, Guangdong Province
Wang Jilin

BEIJING — As the world’s most populous country, China has a general economic advantage in its lower labor costs and huge domestic demand. To a certain degree, both can raise the economy’s potential for growth. Indeed, the so-called “demographic dividend” helps explain a large part of China’s economic growth and rapid industrialization over the past dozen years.

From a global economic perspective, China’s manufacturing with cheap wages and the economic model of encouraging exports to Europe and the United States’ are jointly responsible for creating the “made in China, consumed in the West” model.

After China joined the World Trade Organization in 2001, its demographic dividend also sparked major demographic changes. A mass of labor shifted from the rural regions to the coastal areas to mostly wind up in export-oriented manufacturing. The Chinese economy was soon soaring under the stimulation of new factories, supporting infrastructure and real estate investment.

The “Dual Sector” model of economic development introduced by Nobel-prize winning economist William Arthur Lewis does well to explain China’s economic growth path over the past dozen years. Under the binary economy, the agriculture-based rural labor productivity is significantly lower than that of the industrial and service-oriented urban labor. The steady stream of rural migration into urban, manufacturing areas greatly improves productivity while simultaneously bringing in huge investment demand.

But eventually, the Chinese economy began a steady decline in 2010. Its GDP growth has fallen from 12.1% in the first quarter of 2010 to 7.8% in the third quarter of this year. America’s financial crisis and Europe’s debt are the twin fuses that have sparked China’s economic downturn. Even more important, China’s own economic structural imbalance also began to be exposed — the over-reliance on investment led to its sensibility to the problem of debt. Meanwhile, insufficient domestic consumption has stalled China’s economic transformation.

A singular fix-all

The process and concept of urbanization jumped into people’s vision precisely at this moment, and is assigned with the mission of fueling continued economic growth and guiding people to revise their pessimistic forecasts.

In Shekou, Shenzhen — Photo: Thomas Galvez

Since the new Chinese administration came to power, it has mentioned urbanization much more frequently than any of its predecessors. According to data from China’s National Bureau of Statistics, China’s urban resident population rate was only 52.57% in 2012, which is still a long way from the developed countries’ average rate of over 70%. Assuming that China’s urbanization rate increases by 1% each year, it means there will be continual rural migration into cities. This signifies huge infrastructure and real estate investment demand, as well as other sustainable consumption needs. This process could last for the next 20 years.

This emphasis on urbanization by many scholars and the press leads to an illusion — the various economic structural imbalances that used to worry us suddenly become irrelevant, and the doubts about whether China’s economic growth is sustainable seem but a pessimistic argument of the past.

But when we put too much faith in urbanization, and local authorities collectively undertake the large-scale transformation of villages and old towns, aren’t we imposing too much subjective control over the economy? Besides, how much do we really understand about urbanization itself?

Under any good framework, economic growth is but a result. When an economic growth problem appears, we should reflect on the economy itself — not the search for a quick source of economic growth. As such, urbanization itself should be a spontaneous result of economic development.

Of course, China’s hukou — the urban household registration system and land system — to a certain extent hinders a spontaneous urbanization process. But when the hukou system no longer stands in the way of the rural population’s free movement, and when they are allowed to freely dispose of their land and migrate where they choose, then the economic individual’s spontaneous choices and free trade combine to form an optimal and sustainable path to urbanization.

In other words, the best we can do is simply remove institutional barriers to people settling in cities. The rest should be left to the market.

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How China Flipped From Tech Copycat To Tech Leader

Long perceived as a country chasing Western tech, China's business and technological innovations are now influencing the rest of the world. Still lagging on some fronts, the future is now up for grabs.

At the World Semiconductor Conference in Nanjing, China, on June 9

Emmanuel Grasland

BEIJING — China's tech tycoons have fallen out of favor: Jack Ma (Alibaba), Colin Huang (Pinduoduo), Richard Liu (Tencent) and Zhang Yiming (ByteDance) have all been pressured by Beijing to leave their jobs or step back from a public role. Their time may be coming to an end, but the legacy remains exceptional. Under their reign, China has become a veritable window to the global future of technology.

TikTok is the perfect example. Launched in 2016, the video messaging app has been downloaded over two billion times worldwide. It has passed the 100-million active user mark in the United States. Thanks to TikTok's success, ByteDance, its parent company, has reached an exceptional level of influence on the internet.

For a long time, the West viewed China's digital ecosystem as a cheap imitation of Silicon Valley. The European and American media described the giants of the Asian superpower as the "Chinese Google" or "Chinese Amazon." But the tables have turned.

No Western equivalent to WeChat

The Asian superpower has forged cutting-edge business models that do not exist elsewhere. It is impossible to find a Western equivalent to the WeChat super-app (1.2 billion users), which is used for shopping as much as for making a medical appointment or obtaining credit.

The flow of innovation is now changing direction.

The roles have actually reversed: In a recent article, Les Echos describes the California-based social network IRL, as a "WeChat of the Western world."

Grégory Boutté, digital and customer relations director at the multinational luxury group Kering, explains, "The Chinese digital ecosystem is incredibly different, and its speed of evolution is impressive. Above all, the flow of innovation is now changing direction."

This is illustrated by the recent creation of "live shopping" events in France, which are hosted by celebrities and taken from a concept already popular in China.

10,000 new startups per day

There is an explosion of this phenomenon in the digital sphere. Rachel Daydou, Partner & China General Manager of the consulting firm Fabernovel in Shanghai, says, "With Libra, Facebook is trying to create a financial entity based on social media, just as WeChat did with WeChat Pay. Facebook Shop looks suspiciously like WeChat's mini-programs. Amazon Live is inspired by Taobao Live and YouTube Shopping by Douyin, the Chinese equivalent of TikTok."

In China, it is possible to go to fully robotized restaurants or to give a panhandler some change via mobile payment. Your wallet is destined to be obsolete because your phone can read restaurant menus and pay for your meal via a QR Code.

The country uses shared mobile chargers the way Europeans use bicycles, and is already testing electric car battery swap stations to avoid 30 minutes of recharging time.

Michael David, chief omnichannel director at LVMH, says, "The Chinese ecosystem is permanently bubbling with innovation. About 10,000 start-ups are created every day in the country."

China is also the most advanced country in the electric car market. With 370 models at the end of 2020, it had an offering that was almost twice as large as Europe's, according to the International Energy Agency.

Photo of a phone's screen displaying the logo of \u200bChina's super-app WeChat

China's super-app WeChat

Omar Marques/SOPA Images/ZUMA

The whole market runs on tech

Luca de Meo, CEO of French automaker Renault, said in June that China is "ahead of Europe in many areas, whether it's electric cars, connectivity or autonomous driving. You have to be there to know what's going on."

As a market, China is also a source of technological inspiration for Western companies, a world leader in e-commerce, solar, mobile payments, digital currency and facial recognition. It has the largest 5G network, with more than one million antennas up and running, compared to 400,000 in Europe.

Self-driving cars offer an interesting point of divergence between China and the West.

Just take the number of connected devices (1.1 billion), the time spent on mobile (six hours per day) and, above all, the magnitude of data collected to deploy and improve artificial intelligence algorithms faster than in Europe or the United States.

The groundbreaking field of self-driving cars offers an interesting point of divergence between China and the West. Artificial intelligence guru Kai-Fu Lee explains that China believes that we should teach the highway to speak to the car, imagining new services and rethinking cities to avoid cars crossing pedestrians, while the West does not intend to go that far.

Still lagging in some key sectors

There are areas where China is still struggling, such as semiconductors. Despite a production increase of nearly 50% per year, the country produces less than 40% of the chips it consumes, according to official data. This dependence threatens its ambitions in artificial intelligence, telecoms and autonomous vehicles. Chinese manufacturers work with an engraving fineness of 28 nm or more, far from those of Intel, Samsung or TSMC. They are unable to produce processors for high-performance PCs.

China's aerospace industry is also lagging behind the West. There are also no Chinese players among the top 20 life science companies on the stock market and there are doubts surrounding the efficacy of Sinovac and Sinopharm's COVID-19 vaccines. As of 2019, the country files more patents per year than the U.S., but far fewer are converted into marketable products.

Beijing knows its weaknesses and is working to eliminate them. Adopted in March, the nation's 14th five-year plan calls for a 7% annual increase in R&D spending between now and 2025, compared with 12% under the previous plan. Big data aside, that is basic math anyone can understand.
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