While it's widely
acknowledged that the urbanization drive
will help sustain China's economic
growth, it's still a matter of
debate whether the government will be
able to finance the massive
rural-urban shift.
City governments
have been working to grant migrant
workers equal access to welfare, but
most said they are struggling to
find the fiscal means to foot
the bill.
So how much
will the urbanization process
cost?
Feng Qiaobin, a professor
of economics at the Chinese Academy
of Governance, has an
answer.
Based on her
calculations, the total cost of the
urbanization drive, which includes expenses
for education, pensions, housing and
employment that would allow 158 million
migrant workers to settle in cities,
is likely to amount to 1.8 trillion
yuan ($292.7 billion).
She said
housing issues are the biggest concern
for migrant workers, followed by the
education expenses for the children
moving with them, and then pensions
and subsidies, social security and
healthcare.
"It's not a
question of whether the government has
that amount of money or not,
but, instead, of how to adjust
the allocation structure to make it
work," Feng said.
She said
a common problem is the concentrated
fiscal allocations to key cities,
which encourages huge migratory inflows
to those cities.
In an
ideal scenario, the central government
would cover the costs of social
security and education, and the local
governments should provide social assistance
and low-cost housing.
Meanwhile,
eastern cities are expected to have
higher housing costs.
"If we
choose to prolong the urbanization
process to 2030, that will translate
into 101 billion yuan per year, which
is a totally acceptable amount," Feng
said.
And regardless of the
urbanization drive, the government has
essentially been paying some of the
bills, such as the new Rural
Cooperative Medical Care System, an
initiative launched to overhaul the
healthcare system and make it more
affordable for the rural
poor.
That means the total
expenditure for the urbanization process
might be even lower than expected,
Feng said.
Institutional reform
is happening more slowly than the
labor market integration process, which
is being facilitated by migration.
Therefore, many sociologists have been
calling for a thorough reform of
the budgetary and taxation systems,
which prevents the local governments
from relying heavily on land
sales.
It is thereby of
critical importance to unify the
country's budgetary system, which is
now handled both by the central
and local governments, experts
said.
A Moody's Investors
Service report issued in March said
that China's 2013 draft budget is
credit negative for the local
governments.
The results are
likely to constrain the ability of
local governments to fund mounting
demands to provide services and
infrastructure amid the country's
continued urbanization drive, said
Moody's senior credit officer Debra
Roane.
The pressures are likely
to lead some local governments to
increase borrowing via financing vehicles,
a practice likely to trigger high
local debt burdens, Roane
noted.
On the one hand,
it is necessary to have a
unified budget management of the
governments' funds, since many non-budgetary
funds are not included in the
budget system at present.
China
has reached the point where it
is time to introduce another round
of tax reforms, said Jia Kang,
director-general of the Ministry of
Finance's Institute for Fiscal
Science.
"In 1994, China introduced
the tax-sharing system, which categorized
the country's tax revenues into
central taxes, regional taxes, and
several shared taxes. Transfer payments
from the central government to
localities are also part of the
system to narrow regional differences,"
Jia said.
While the system
has allowed the central government to
have better access to tax revenues,
it eventually led to the local
governments' financial difficulties, he
added.
"The key lies in
the balance between local finances and
central government funding and the
need to keep in check any
overflow of money in one area,"
Jia said.
He urged accelerated
reforms to unify the system so
that local governments can have a
stable source of income.
Global
experiences show that during the
course of urbanization, income from
tax revenues declines while the urban
population keeps expanding, making it
hard for modernization projects to
stay on track.
Therefore,
innovative public-private partnerships may
provide a pragmatic solution to
reconcile these opposite
trends.
According to Robert
Haas, senior adviser at GIZ GmbH,
a government-appointed development solution
provider, improvements in urban living
can be made through partnerships that
combine innovative philanthropic efforts from
the private sector, forward-thinking policies
from local governments, and support
from nonprofit
organizations.
"It's rare to
see the public and the private
sectors here in China make actual
contacts in the urbanization process.
In Germany, government input will
result in seven times the investment
amount from enterprises," he
noted.
Rather than simply
cutting back on services like
healthcare, education and transportation, in
the face of budget deficits, local
governments can work with companies to
change the way they are delivered,
Haas said.