China will spend $6 trillion over ten years to urbanize 400 million more people but will destroy current cheap urban villages housing 130 million migrants

China aims to spend an estimated $6 trillion on infrastructure, including housing, as a projected 400 million people become urban residents over the next decade.

About 130 million Chinese migrants live in tiny, sub-divided rooms rented out by former farmers whose villages have been swallowed by sprawl.

Policies to provide government-built housing while razing these shabby “villages within cities” result in a net loss of housing units, according to urban planners and academics, while choking off the private rental market that for decades has enabled China’s massive urban migration.

Local officials put muscle behind a policy of clearing such sites, often declaring these dwellings illegal by noting non-agricultural land allocated to villagers cannot be used for commercial purposes. Land reclassified as “urban” can be sold at a huge profit.

“Not everyone can live in a high rise. Especially those of us who work in the recycling business,” Zhang Baofa, who rented out the used shipping containers in one of the more creative solutions to Shanghai’s shortage of cheap housing.

Rooms of about 12 square meters each house families of three, for an affordable 500 yuan ($80) a month.
A regular apartment would be more comfortable, but it’s about 2,000 yuan a month

Within the next two years, Beijing city is expected to allow migrants to rent but not buy city-built housing units. Even so, many migrants won’t qualify to rent, and the number of government-built units often falls short of the number of migrants displaced.

“There is going to be less of this type of housing, because almost all cities have policies now to demolish ‘villages within cities’,” according to estimates by Tom Miller, author of “China’s Urban Billion”.

For two decades, Chinese local governments have been able to ignore the problem of housing migrants, thanks to the makeshift villages and other arrangements that accommodate about 40 percent of migrants.

Of 1.35 billion Chinese, 690 million are estimated to live in cities, but only about half of those can claim urban residency status due to an archaic national registration system that ties all citizens, and public benefits, to their hometowns.

City governments often lack figures for how many people live in neighborhoods targeted for demolition, but they can document their destruction with precision. Beijing’s most recent city plan notes that 171 “villages within cities” had been “cleaned up” in the previous five years, but as of 2011, there were still 100 left.

The loss of affordable housing could accelerate, according to a Beijing plan released Thursday to catalogue “illegal” buildings on collectively owned land and then destroy them next spring. Coal briquettes burned in unheated slum villages contribute to Beijing’s choking winter pollution.

Will China’s Urban Transition Work ?

Yale University economist and famous China bull Stephen Roach has long argued that the country can shift its economic model from investment and exports to consumption-driven growth.

Roach highlighted five reforms that will signal if president Xi Jinping and his crew are moving in the right direction. (The first three are crucial, he noted, while the last two are less critical.)

1. Lifting of the hukou system. China’s urbanization process will create 100 new cities of more than 1 million in population in the next 17 years. Removing the household registration system, called “hukou,” which limits benefits and rights that are available to migrant workers, is a crucial step in creating vibrant cities, said Roach. Plus there’s the fact that hukou is a disaster for migrants and their families.

250 million are migrants who live and work in cities but are denied social benefits due to the household (hukou) registration system. Migrants are forced to save more of their income to spend on health care and their children’s education, as they’re ineligible for social benefits.

Yet to abolish the household registration system overnight may ignite an enormous influx of people that exceeds the capacity of cities. Urban slums that skirt modern buildings in cities like Rio de Janeiro and Mumbai could also appear.

Tom Miller (author of “China’s Urban Billion”) said Shanghai has set a model for household registration reform. The rural migrants of China are the linchpin of the country’s further urbanization.

Those who have a temporary Shanghai residency certificate and have stayed in the city for at least seven years may apply for a local Shanghai hukou. They’re then registered as Shanghai residents covered by the local social welfare system.

In countries like Japan, household registration isn’t linked to the allocation of social benefits. But Miller admits that although it may be the end game of China’s reform, it has to be carried out gradually.

2. Creating new urban jobs, especially in the service sector. “Urbanization is one of the pillars of their consumer society,” said Roach. “Provided [the Chinese government ] can combine urbanization with job creation—mainly focused on service sector—they’ll create a lot of labor income.”

3. Improvements to the social safety net. Funding a robust social safety net that gives households the confidence to spend rather than to save is crucial. That will result in Chinese households converting “labor income into spending power,” Roach said.

4. Interest-rate liberalization. “The interest rates consumers get on deposit accounts is depressed below market level,” said Roach. Allowing these to be set by markets instead of by the government, as they currently are, is key to boosting Chinese household wealth.

5. Shifting the dividend policy for state-owned enterprises (SOEs). As a final milestone, Roach highlighted that he would like to see a raising of dividends from SOEs, which are “piling up cash.”

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