Asit K. Biswas and Kris Hartley

CHINA DAILY | November 12, 2013 

With a combined population of 43 million, nearly the size of Spain’s, and a combined GDP of $550 billion, which would rank 20th in the world, China’s two flagship cities have often determined the economic fate of the rest of the country. They are also prime examples of the challenges for megacities, such as escalating house prices, traffic gridlock, extensive air and water pollution, and overcrowding.

However, the megacities are no longer the only story. It is estimated that in the coming decades China’s urban population will grow by 250 million.

The accelerating rural-to-urban population migration will increasingly impact China’s secondary cities, those with populations between 1 and 10 million (some 135 cities in total). It is these cities that are expected to absorb much of the country’s growth in the coming years.

The global emergence of the inland secondary cities in China is a result of shifting patterns of business investment, the lower costs of living, their healthier environments and ambitious local leadership. Reforms to the household registration system, such as those proposed by Chengdu, are also facilitating rural to inland urban migration as benefits are extended to the families of migrant workers.

In September, Premier Li Keqiang emphasized the importance of economic expansion in inland China, describing these areas as the “biggest space” for development.

The majority of China’s rapidly growing second-tier cities are in the central and western provinces, and their proximity to large rural populations and low land costs will drive growth, as workers seek industrial jobs closer to their home regions.

This opportunity is already recognized in the international business environment. For example, since 2005, more than one-third of Changsha’s foreign direct investment has come from Western countries.

This growth is partly the result of a new policy model. A common vision for urbanization is growth driven by the consumption of the middle- and high-income groups. Rising disposable incomes are expected to support domestic demand for locally manufactured products. According to the World Bank, domestic consumption accounted for only 36 percent of China’s GDP in 2011. It accounted for 72 percent in the United States that year, 65 percent in the United Kingdom, and 59 percent in India. China’s domestic markets have the potential to sustain the economic growth of secondary cities, even if the global economy continues to stagnate.

What makes secondary cities different from primary cities? Aside from being smaller and having less economic activity, second-tier cities represent unique opportunities. First, they can learn from the mistakes of the congested, crowded and poorly planned first-tier cities. These lessons include preserving historic buildings, planning for congestion, creating green spaces to enhance the urban environment, and maintaining clean air and water.

Second, they have greater flexibility to seize potential economic opportunities: They are closer to the untapped inland consumers and the inland labor markets, and their land costs are significantly lower than megacities. They also have more recently constructed infrastructure, which is better designed and more up-to-date. Communications technology, commercial parks, institutional structures, or enabling entrepreneurship, whatever it is, secondary cities are often in the early planning stages and do not have to work around legacy infrastructure and entrenched institutional and political systems. The inland cities are now witnessing the relocation of heavy industries from coastal areas and growth in the high-value technology sector.

However, such growth is not always rosy for secondary cities. In central areas large real estate projects spring up where much-loved historical neighborhoods once stood. At the suburban edges, a new wave of modern development is encroaching on farmland and villages. And as property values rise in the secondary cities, conversion of land into taxable residential and commercial properties is a common way for local governments to raise revenue.

Also rapid city-level economic growth is not always sustainable. Cities capturing fast growth at the margins of economic expansion risk losing it just as quickly. For example, Yantian, once an agricultural town on the fringes of the Pearl River Delta, experienced high growth from foreign industrial investment throughout the 1990s. Today, however, fewer than half of its manufacturing facilities are still operating. The faltering global economy, rising wages, and a stronger renminbi (up 34 percent against the US dollar since 2005) drove many local manufacturers to bankruptcy.

Cities losing manufacturing can experience rapid population decline, which weakens the consumer base. This is especially true for cities that fail to address the pitfalls of the household registration system, as workers denied social support services are increasingly transient.

China’s secondary cities will also suffer a widening infrastructure deficit as population growth—both native and migratory—strains existing systems. Nearsighted urban planning strategies emphasizing speed over prudence have exacerbated this problem.

The benefits of urban real estate development are uncertain. Some inland cities are now experiencing an oversupply of housing. This undermines the strategy of “building to grow.” Additionally, some farmers have aggressively protested at the seizure of agricultural land for commercial purposes when they were not been paid the market prices.

Finally, an ageing workforce and slowing population growth rate are creating economic headwinds in China, impacting not only secondary cities but all cities. Indeed, the UN projects that China’s labor force is expected to shrink by 67 million between 2010 and 2030. By 2030, China will have more elderly people than the current population in the US.

Secondary cities must have diversified growth strategies and a sustainable competitive position to survive inevitable economic slowdowns.

Economic growth will produce many job opportunities in China’s inland cities, as producers in the coastal megacities suffer lower productivity due to congestion and higher labor and land costs.

However, wise planning can help to mitigate these inevitable impacts of problems in the inland cities. Decision-makers should start by heeding the lessons to be learned from the development experiences of the country’s megacities.

China’s inland secondary cities have a roadmap to achieve this goal, but it will require visionary leadership and comprehensive policies that address all dimensions of urban society.

Asit K. Biswas is the distinguished visiting professor at the Lee Kuan Yew School of Public Policy, Singapore, and co-founder of the Third World Centre for Water Management. Kris Hartley is a doctoral student at the Lee Kuan Yew School of Public Policy.

Source: http://bit.ly/1TSo3Nm