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Economy

China should let its big cities grow

Chinese leaders have announced plans to reform the country's household registration, or hukou, system to transform domestic migrant workers into local citizens of the cities where they work and live. Such a policy change would mark a momentous development.

     But officials still regard the country's megacities as exceptions whose population growth must be restricted. Shanghai's mayor even vowed in late January that he would cap the city's population at 25 million, leaving little room to grow from the official count of 24.3 million as of the end of 2014.

     To optimize resources and efficiencies, the government should let the market decide the population of the biggest cities.

     As the government has said in a different context, policymakers should "respect the rules of urban development." In spite of a policy bias towards smaller cities, China is experiencing a trend toward population concentration in large cities. If the government let the market decide resource allocation, the number of people living in large urban centers would continue to grow as a proportion of the population.

     The key mechanism of urbanization is economies of scale. Manufacturers and consumers enjoy a greater variety of goods and production inputs and benefit from the learning effects of interaction between large numbers of people. Large cities have greater economies of scale than smaller ones, but higher costs as well.

     Perhaps as a consequence, most Chinese do not understand why large cities are important for modern economic development. Many think that population growth in large cities should be controlled to reduce the impact of urban diseases. Over the long run, however, the spatial distribution of population and the sizes of urban systems are determined by fundamental economic rules.

     Looking at this from a global perspective, it is a fact that heavily populated countries have more large cities. In a study with Professor Chen Zhao of Fudan University, we constructed a dataset of 142 countries to study the relationship between each country's population and the size of its primary city. The research revealed a very close correlation within countries between overall population and the size of the biggest city. To a large extent, we could predict the population size of each primary city on the basis of the country's total population.

     This correlation holds true for Asian countries, although slightly less closely than for the overall global data set. Since China is the world's most populous country, it follows that Shanghai, its largest city, should be the largest city in the world - and even larger than it is now.

     This can be largely explained by two factors. First, China is still undergoing the process of urbanization. In our model, countries that are further along the path of urbanization will have larger primary cities. Second, interregional mobility of Chinese labor is not free, mainly because of the hukou system. China will see its large cities grow further as more rural people move to them and obstacles to labor mobility will have to be removed sooner or later.

Core and periphery

Our conclusions are in line with Zipf's Law, another useful tool for predicting the shape of urban systems based on the relationship between the sizes of urban areas and their economic comparative advantages. According to our study, which used Chinese census data for 2000 and 2010, China's urban systems fit Zipf's Law more closely in the later year, reflecting growing urbanization and adjustments to the country's urban system. However, China would conform with Zipf's Law even more if the country's larger cities had bigger populations and its smaller cities had fewer people than they do.

     Urbanized China features a core and periphery pattern, with cities in coastal regions showing greater population concentrations than those in the hinterland. Restrictions on the population sizes of big cities remain. For example, China's 12th Five-Year Plan, which ran until 2015, promoted the development of small and mid-sized cities and towns and restricted the development of megacities. A new round of campaigning has been launched to control population growth in Beijing and Shanghai, although past attempts to achieve this have all failed. The truth is that when compared, for example, with the metropolitan areas of Tokyo and New York, there is no evidence that China's three biggest city clusters -- Beijing, Shanghai and Guangzhou -- are too large in population size. In developed countries such as the U.S. and Japan, population concentration is much greater, while regional income disparities are much smaller than in China.

     Even if population growth in large cities led to a greater incidence of urban diseases, the government could improve infrastructure and public services. The experience of developed countries suggest that urban diseases can be managed in large cities. Furthermore, the freedom to choose where to live and work is a basic right. This freedom should be guaranteed in the future, even if hard to achieve in the short run.

     Our study suggests that China's government should adjust its policies on urbanization and set fewer restrictions on the growth of megacities. Policy guidelines should allow free movement of labor and capital between regions, especially in relation to megacities. This would mean fewer restrictions on migrant workers and more local discretion over the conversion of agricultural land to other uses. In addition, changes in the use of land should be on the basis of market prices rather than central government quotas.

     Food security should be a national goal, while the megacities should be allowed to develop more industries and services to create jobs. A policy of narrowing differences in regional per capita gross domestic product should replace the current policy of trying to equalize economic scale by moving resources to laggard regions. Almost each county has its own industrial park. Many new towns have been built in regions losing population to attract people to settle, but many remain "ghost towns." The debt incurred by local governments to finance industrial parks and new towns are not generating sustainable returns.

     China should change its strategy of regional development to allow free mobility of labor. While people have more freedom to move for better jobs and pay than they used to have, the central government should also promote a more equal distribution of local public services to ease the burden faced by megacities seeing rapidly rising numbers of migrants.

Ming Lu is a professor of economics and director of the Center for China Development Studies at Shanghai Jiaotong University.

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