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Chinese cities' four modernizations

By William Antholis (China Daily) Updated: 2014-04-30 07:33

The key role of migration in China's economic development is reflected in the Third Plenum's road map, which is most explicit in addressing hukou - the household registration system that restricts access to social services to one's place of origin. Under the new plan, rural migrants settling in smaller towns and cities will gain access to services such as healthcare and education, and the government will gradually relax hukou restrictions in medium-size cities. These efforts, it is hoped, will ease the burden on larger cities like Beijing and Shanghai, which are already overwhelmed with migrants.

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The final major issue affecting the urbanization process - stressed in the Third Plenum communique - is how to finance infrastructure and human services. As it stands, local governments foot most of the bills. But, given that few local governments have the authority to levy their own taxes, they have largely turned to real-estate development to generate revenue.

The problem is that the elaborate credit systems that they have created to underwrite infrastructure or property development - so-called "local-government financing vehicles" - undermine more sustainable borrowing and lending, while weakening State-owned banks' balance sheets. In order to make local-government borrowing more transparent and accountable, the Third Plenum called for streamlining the distribution of revenue between the central and local governments, increasing transfer payments to cities, and allowing local authorities to issue municipal bonds independently. Here, the challenge lies in implementation.

It is highly likely that this new phase of urbanization will yield diverse results across China. How leaders address infrastructure investment, land rights, migration, and financing will help to determine the sustainability of the fundamental transformation that lies ahead.

The author is managing director of the Brookings Institution and the author of Inside Out, India and China.