China needs new market-based approach to urbanisation - World Bank

by Reuters
Tuesday, 25 March 2014 07:30 GMT

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By Xiaoyi Shao and Jonathan Standing

BEIJING, March 25 (Reuters) - China should let market forces play a greater role in its drive to boost the urban population to accomplish its goal of ensuring sustained, consumer-led growth, the World Bank said in a report on Tuesday.

In the report jointly prepared with China's Development Research Center, a top-level policy think tank, the World Bank said a market-based allocation of resources would lead to sustainable urbanisation.

"The government would need to rebalance its involvement from exercising administrative control to regulating market-based allocation of people, land, and capital across China and provision of public services to support these allocations," the report said.

China wants to increase the proportion of urban residents among its population of almost 1.4 billion to 60 percent by 2020, up from 53.7 percent now, as it looks to turn the economy into one driven by consumption and services rather than investment, credit and exports.

Last week the government said it was planning a major expansion of its transport networks and urban infrastructure to push the urbanisation drive and would also focus on the environment, amid growing complaints about toxic levels of smog and water pollution.

"China can maintain a strong performance in its economic development if the government makes the necessary adjustments to policies," World Bank Managing Director Sri Mulyani Indrawati told reporters on the sidelines of a forum to launch the report.

China's leaders have repeatedly said they will accept slower growth as they attempt to re-engineer the world's second-largest economy.

It has slowed markedly in the first two months of the year, with growth in investment, retail sales and factory output all falling to multi-year lows.


The report listed six areas for change that it said would lead to a "new model of urbanisation" for China.

The reform of land management to strengthen the rights of farmers, limit the amount of land that can be requisitioned by local governments and market-based pricing would be a priority, the report said.

Urbanisation must no longer be driven by financing opportunities arising from land conversion, while a higher portion of local government expenditures should be supported by property tax and charges for urban services, Indrawati said.

Her views are backed by Chinese officials. The government has promised to speed up legislation for a property tax this year.

"Currently city construction is mainly supported by revenues from land sales. This situation is unsustainable," China's Vice Finance Minister Shi Yaobin told the forum.

China does not have a nationwide property tax but hopes to introduce one to temper record house prices and increase local governments' revenues. Currently, property tax is levied annually on owners of spacious and expensive homes in two pilot cities: Shanghai and Chongqing.

A second major issue is reform of the "hukou" registration system that controls the benefits residents can enjoy and denies basic services to those who relocate without permission.

The report also recommended allowing local governments to borrow money directly within strict rules, as well as reforming city planning, managing environmental pressures and improving governance by making local governments more transparent.

"If China stays committed and implements the necessary reforms, it could become a global model on urbanization, while winning the war on pollution, sustaining high growth rates for its economy, making cities more liveable and allowing more people to benefit from development," Indrawati said in a statement accompanying the report.

(Editing by Tomasz Janowski & Kim Coghill)

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