Source: Financial Times

Expand Cities to Stop DissentCivil unrest in China is on the rise. Purely political revolts, similar to those in the Middle East, are rare – even though, by launching a crackdown on dissidents, including the artist Ai Weiwei, the state is not taking many chances. But protests motivated by economic injustice, such as the truckers who last week besieged a Shanghai port complaining about rising fuel costs, are growing more common. If China is unable to share its growth more equally, these could soon threaten the government’s hold on power.

Beijing’s grand strategy assumes that with economic progress, political liberalisation can wait. But with a mounting sense of unequal opportunities, estimates suggest that the number of “mass incidents” has doubled in recent years. Despite pronouncements signalling the need for more responsive approaches, these are also more likely to incur the wrath of security officials.

Equality lies at the heart of this. China’s inequality is high, and rising. Yet the level alone is not the problem: China is as unequal as Singapore and the U.S., but more equal than both Brazil and South Africa. Rather, it is the speed and geography of the rise that matter. Location matters in particular: unlike other Asian countries, China’s inequality stems mainly from differences between urban and rural areas, rather than within them.

With two-thirds of China’s population in interior provinces and more than half in rural areas, this regional differentiation is now a major contributor to internal instability. There are no quick fixes for Beijing here but one solution could be increasing household mobility – a step that would also fundamentally transform China’s economic and social landscape.

China’s equality problem stems from its regionally unbalanced growth strategy, which concentrated resources along the coast, to spur manufactured exports but restricted the movement of labour. This created a pool of 200m temporary migrant workers, to whom China’s hukou system restricts residency rights, access to social services and employment. It also encourages them to leave their dependents behind when they find jobs in cities.

Policymakers are reluctant to liberalise this system for fear that China’s large cities would become unmanageable in the face of unrestricted labour inflows. Instead they hope that fairer spending, along with cosmetic suggestions to raise minimum wages and curb higher salaries, will do the job. This seems unlikely, given that more productive activities will still gravitate to the major coastal cities. Instead, given the size of the population relative to arable land and resources, China’s urbanisation rate should be much higher and its major cities should be much larger.

Legal barriers that inhibit changes in residency therefore need to be eliminated, allowing rural and urban areas to be better connected. More formal property rights are important. In order to move to cities, families need to be able to cash in their farm land. Since all land is owned by the state, markets to allow farmers to sell or rent are essential. In urban areas, meanwhile, redevelopment of plots formerly used for traditional housing is a major source of state revenue in the absence of property taxes. More must be done to lessen pressures to seize such holdings so as to curb rising housing prices.

This seems challenging but South Korea has shown just how a country can move rapidly from low to high income and grow more equal. South Korea succeeded not just by moving away from manufacturing but also with rising internal migration and urbanisation. Without hukou-type restrictions, its urbanisation rate went from about 30 per cent in 1960 to almost 80 per cent by 1990. Korean inequality now also compares favourably with China’s.

This process of rapid urbanisation generates its own tensions, not least among Chinese citizens who will want to know that they are taken seriously by authorities when they vent their frustrations. But that is a problem for the future. In the interim, by increasing the mobility of labour, China can fundamentally reverse decades of rising disparities and foster the more just society in which its leaders claim to believe.