Reforms will inevitably bring pain to some as urbanization and competition increase

As everyone in China seems to be celebrating Beijing's newly adopted 60-point program on "comprehensively deepening" reform, few have pointed out that putting it into practice will inevitably bring pain to some people and some interest groups.

The more rapidly the market-oriented reform progresses, the more heated competition it will bring, which means there will be winners and losers. And as the new round of reform centers on urbanization, local governments are likely to engage in a cut-throat battle to grab the spoils of change.

Economists say one of the driving forces in China's reform has always been competition between local governments. That is generally a healthy thing, but as has become clear, some cities have already lost out in the relatively simple game of chasing higher GDP. Many greater challenges lie ahead, and more cities will have to reorient their development strategies.

Economists say that for every percentage point rise in China's urbanization ratio (urban residents in proportion to the total population), the country will have to move about 10 million people from the country into the cities. And from now until 2020, the urbanization ratio is set to rise by about 20 percentage points, which means about 200 million people will take off-farm jobs.

Which cities are equipped with the right industries and right services, and are able to satisfactorily absorb so many people? None as yet.

The three largest city clusters, those in the Pearl and Yangtze deltas and around Bohai Bay, account for only 35 percent of national GDP, while major city belts in the more developed economies account for 60 to 70 percent. This suggests that even the largest and most economically and culturally diverse cities - Beijing, Shanghai and Shenzhen - are well short of playing host to highly skilled workers to the extent that cities elsewhere, such as New York and San Francisco, do.

So, to a great extent, implementing Beijing's 60-point reform program is about building some new cities, or creating the urban settings able to hold and fully utilize the best human resources available to China. In practice, all the reform efforts will result either in Beijing and Shanghai revolutionizing themselves or in some other cities surpassing those two in business activity and attracting investors. Either will require changes that may not come easily.

Cities of the latter kind will have to feature:

Relatively clean and effective local justice and public service systems;

Diverse local financial services able to help more small enterprises;

Local industries with a strong niche in national and international markets;

Diverse educational and cultural programs, especially colleges run by private educators;

More decent living conditions for young professionals;

Many new companies and research activities, done by local college graduates in entry-level jobs but led by highly skilled employees recruited nationwide, and even worldwide;

An abundant supply of unskilled workers;

Convenient transport and distribution, high-speed train services and regular international flights;

Relatively good environmental and nearby resort facilities;

Ability to attract key operations set up by national and international corporations.

Where are such cities in China today? In fact, there are few anywhere in the world. But people will see a trend in that direction with ever more intense inter-regional competition in China.

In some of the coastal cities that pioneered China's opening up in the 1980s and 1990s, little follow-up investment has been made in local productivity. They have built few new colleges and are continuing to rely on manufacturing labor, which is no longer cheap, to win global orders.

There are also cities that continue to count on local mineral resources for their people's well-being.

By contrast, in some more recently opened-up interior cities, things have improved rapidly, supported by younger, better-educated locals.

Which types of cities are likely to be the winners? That should soon become apparent.

The author is editor-at-large of China Daily. Contact the writer at edzhang@chinadaily.com.cn.

(China Daily European Weekly 11/29/2013 page13)