Social Mood in China: Opposing the Leadership's Big Plans

China's big plan to keep growth rates high is to push urbanization deeper into the central and western provinces, plus increasing the flow of migrants into existing cities. But even the Chinese people have their limits.

China Urbanization to Hit Roadblocks Amid Local Opposition

“Nobody wants such a big group of migrants to be their neighbors and share their so-called civilized space. This is a conflict of interest,” Li, director-general of the China Center for Urban Development under the National Development and Reform Commission, said at the forum. “We are facing rejection from the hearts of so many mayors and city elites who have enough ability to influence decision making.”

This comment is once again illuminating in the context of the immigration debate in the United States. Even within China, there is growing opposition to Chinese migrants.

In a report last month, HSBC estimated the total fiscal cost for local and central governments on public housing and children’s education would be 6.24 trillion yuan for 260 million migrant workers in cities, equivalent to 53 percent of China’s national fiscal revenue in 2012.

Local authorities are barred from directly selling bonds or borrowing from banks and can’t run budget deficits. To raise money to fund spending they set up thousands of financing vehicles, racking up debts that Fitch Ratings Ltd. said in April increase risks to the country’s financial stability.

If the growth materializes, then this can be paid for. What happens if the growth estimates are too optimistic though?

Taking Beijing as an example, Mao said that assuming 700,000 people moved into the city each year, it could cost the local government at least an extra 77 billion yuan a year in urbanization-related spending, equivalent to doubling its annual land sales or a 25 percent increase in tax revenue.

“This is totally beyond the affordability of a local government, Beijing can’t afford it,” Mao said. He also questioned whether China needs more cities when most migration has been to the 70 biggest conurbations.

“These big cities interest people because they have more job opportunities, education opportunities and medical resources,” Mao said. “Those other 610 cities can’t attract people even though they already exist,” he said, adding “it indicates some of those 610 cities have problems or can’t survive.”

If social mood declines in China, opposition to government plans will grow and that will guarantee a lower growth rate. That isn't to say the urbanization plan will succeed—it could lead to even bigger problems down the road—but without that gambit or a new strategy, slower GDP growth rates are all but guaranteed.