Urbanization Could Help Solve China’s Shrinking Workforce

China’s urbanization rate is set to beat previous international predictions over the next decade, providing an antidote to the country’s shrinking workforce and declining birthrate, an influential Chinese economist said.

About 75% of the Chinese population will be living in cities by 2030, up from the current 64%, according to Lu Ming, an economics professor at the Shanghai Jiao Tong University specializing in urban development.

“Even if China’s workforce or overall population starts to decline, urbanization can still make sure that the labor supply to the manufacturing and services industry will keep expanding,” said Lu, who participated in an economic round-table with President Xi Jinping last August. “The process of population flowing into bigger cities will lead to more efficient utilization of labor resources, which will lead to continued economic growth,” he said in an interview recently.

Rapid urbanization has fueled China’s economic boom over the past four decades, with the share of urban residents surging from around 20% of the population when economic reforms started in 1979. In the past decade alone, the country added more than 236 million city dwellers, supporting a booming housing market, a rising retail sector, and global commodity markets.

Urbanization Could Help Solve China’s Shrinking Workforce

Lu’s expectation for urbanization is faster than other observers, with the World Bank and United Nations forecasting 70% of the population will be living in cities and towns by 2030. However, the 2020 census shows that both the government and the United Nations had been underestimating the rate of urbanization, according to a recent report from Roselea Yao, an analyst at Gavekal Dragonomics.

“For the housing market, the effect of faster urbanization greatly outweighs the effect of slower total population growth,” Yao wrote. “A stronger urbanization trend also means the number of new urban residents in coming years will be higher than previously expected, delivering more fundamental demand for new housing.”

Urban Infrastructure

It’s vital for governments to respect the flow of population among regions and cities as they look to increase urbanization, Lu said. That means making more investment in housing, transportation, hospitals and schools in cities where population is growing, while cutting back investment in regions with population outflows, he said.

Mega-cities like Beijing and Shanghai in the past few years have made plans to cap the size of their populations in the future due to a shortage of public resources, but Lu argues those cities should continue to reform their household registration systems to make it easier for migrants to settle there, and also increase public investment.

It’s wrong for some local authorities to think that population will stop flowing into big cities at a certain stage and that low-skilled workers will leave the cities, because urban residents’ need for services will only expand as the economy grows, he said.

Lu said China’s urbanization rate could reach the level of developed economies at 85% to 90% in the coming two to three decades. By comparison, the urbanization rate was 83% in the U.S. and 92% in Japan last year, World Bank data shows.

“The trend of population flowing into major city clusters will not change,” said Lu. “The biggest challenge to China’s urbanization will be how to expand investment to cater to that inflow, in cities where public services and facilities are already in a shortage.”

©2021 Bloomberg L.P.

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