Govt debt and urbanization

The key to any sustainable economic development program, with or without urbanization at its core, is planning even for the distant future, which is not the case with China now.

Urbanization is central to China's economic future but it should follow at a far more modest, gradual pace. The funding and spending worries will recede once this is made clear by the central government - and is accepted by all.

Any debate on urbanization should segment China's vast territory in regions according to their level of urbanization/modernization and need for further urbanization. Following the example of the special economic zones (SEZs), the central government could now think of establishing a few "special urbanization zones" (SUZs). For funds, it could work closely with the private sector and provide good enough incentives to attract foreign direct investment (FDI). Till date, 80 percent of all FDIs in China has flown into the eastern coastal provinces, not far from the SEZs. Maybe it's time to direct some of it toward SUZs.

This, however, does not mean the local governments will lose their importance. They still have a crucial role to play in SUZs despite the funding and spending being channeled through the central government and sourced from the private sector. The local governments, or rather those that are part of the initial SUZs, will be best placed to direct and coordinate investment most effectively. But while doing so they have to keep longer-term societal benefits in mind and forget about making short-term gains.

Many would justifiably argue that the SUZs, no matter how many in the initial stage, should be close to China's first-tier cities and/or SEZs. But such is the economic gap between East and West, and urban and rural China that there is a real danger that it may never be bridged. Such a divide may prevent future "trickle-down" effects from spreading across China.

Therefore, the SUZs, maybe four initially, should be in North and West (or Southwest) China and as geographically apart as possible from each other. SEZs and East China were the sine qua non of China's economic emergence. Perhaps it is time for SUZs and West China to take the country through the next phase.

The author is a researcher at Nottingham University's School of Contemporary Chinese Studies and visiting professor at China's University of International Business and Economics.