A story of GDP growth? Or maybe the story of the world’s most robust emerging middle class? Perhaps a story of gradual geopolitical dominance progress? There a quite a few headlines which describe China’s post-1978 journey. Yet an equally important one tends to receive less attention, the story of China’s massive urbanization, with its various implications… both good and bad.
First and foremost, we need to acknowledge that on a worldwide basis, there are two trends with respect to the “rural vs. urban” battle (World Bank data):
- On the one hand, as a function of the world’s increasing population, the nominal rural population value is going up (currently at almost 3.4 billion people)
- However, the percentage of rural citizens has been going down consistently for quite a while, from over 65% in the early 60s to roughly 44.7% today
The first trend is one that is coming to an end, however, as illustrated by the less than impressive worldwide rural population growth rate. While it is true that it has never been in negative territory (because as mentioned previously, the nominal rural population value keeps going up), it is just as true that it is beginning to flirt with the negative growth narrative, in light of the multi-year downtrend the growth rate has been experiencing, a growth rate currently sitting at a record-low value of just slightly above 0.1%.
How is China positioned in this equation?
Up until 1980, 8 out of 10 Chinese citizens lived in rural areas, with China being pretty much at par with most of the world’s least developed nations at that point. 1981 was the first year as of which the percentage in question went lower than 80% and as of that point, the downward trend became more than apparent, with 1994 being the first sub-70% year, 2004 the first sub-60% year and 2011 the first sub-50% year. Fast forward to the present, which has China ending 2018 with only 40.848% of its population living in rural areas.
Switching from percentages to nominal terms, China hit a high of 836,478,966 in 1991 when it came to its rural population but, again, the trend became more than obvious as of that point: under 800 million in 2002, under 700 million in 2009, under 600 million in 2016 and currently at 568,902,350 million individuals. What about the population growth trend? Well, suffice it to say it stopped being positive in 1992, a year that ended with a 0.04% decline and as of that point, the population growth rate remained firmly in negative territory.
When it comes comparatives, India with its 892,321,615 rural population is the only country which surpasses China in nominal terms. The European Union, as a grand total, has a rural population of just 124,887,144 and North America roughly half that. However, when analyzing the rural population of other nations as a percentage of their total population, there are many countries with values higher than China’s 40.848%, from India’s 66% to Burundi’s 87%.
The reasons behind China’s urbanization are complex, mostly revolving around:
- The meaningfully better employment opportunities Chinese rural workers have at their disposal if they migrate to urban areas. In fact, as mentioned on more than one occasion on ChinaFund.com, the rural to urban migration phenomenon represents one of China’s top socio-economic challenges
- China simply aligning itself with Western urbanization mega-trends, as its economy matured and transitioned from one based primarily on agriculture (with agriculture going from representing approximately 50% of China’s GDP prior to 1978 to representing less than 10% nowadays) to one oriented toward higher value-added products and services
- The authorities actually encouraging urbanization through various incentives, in an effort to maximize China’s economic growth potential
… the list could go on and on.
However, it would be unwise to end this article without making it clear that there are systemically-dangerous cons associated with China’s urbanization story. As more and more workers migrate to urban areas, we cannot avoid asking ourselves what exactly is left behind and the answer tends to be less than optimistic, with rural regions lagging behind dramatically when it comes to pretty much all relevant metrics (from education to income opportunities). As such, while the economic growth facilitated (among many other things) by the mass urban migration process enabled China to impressively eradicate poverty on a very large scale (with China going from 90% of its population living below the World Bank’s poverty limit to only low single digits at this point), it also paved the way for massive wealth inequality.
After drawing the line, do the pros outweigh the cons? Yes, they most likely do but this doesn’t mean we can afford to make the dangerous mistake of underplaying the importance of the income inequality dimension, especially in light of China’s one-party political system. While the income inequality trend started a reversal in recent years after leading to problematically wide gaps up until 2008, the progress has been modest and more needs to be done in this respect.