China faces social, financial risks in urbanisation push

BEIJING Thu Mar 7, 2013 7:01am GMT

Wang Baiqiang and his family walk along a dirt road on the way to the station in his hometown of Dong'an, Henan Province, ahead of a trip to work in a shoes factory at coastal industrial area of Jiangsu Province February 17, 2013. China's new leaders are planning a system of national residence permits to replace the household registration or 'hukou' regime, a government source said, a vital reform that will boost its urbanisation campaign and drive consumption-led growth.The hukou system, which dates to 1958, has split China's 1.3 billion people along urban-rural lines, preventing many of the roughly 800 million Chinese who are registered as rural residents from settling in cities and enjoying basic urban welfare and services.Picture taken February 17, 2013. REUTERS/Carlos Barria

Wang Baiqiang and his family walk along a dirt road on the way to the station in his hometown of Dong'an, Henan Province, ahead of a trip to work in a shoes factory at coastal industrial area of Jiangsu Province February 17, 2013. China's new leaders are planning a system of national residence permits to replace the household registration or 'hukou' regime, a government source said, a vital reform that will boost its urbanisation campaign and drive consumption-led growth.The hukou system, which dates to 1958, has split China's 1.3 billion people along urban-rural lines, preventing many of the roughly 800 million Chinese who are registered as rural residents from settling in cities and enjoying basic urban welfare and services.Picture taken February 17, 2013.

Credit: Reuters/Carlos Barria

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BEIJING (Reuters) - China's urbanisation drive could fuel social unrest over land disputes and pose financial risks if money is thrown around recklessly, a senior communist party official and a leading economist said on Thursday.

Shifting people from the countryside to cities is a policy priority for China's new leaders as they seek to sustain economic growth that last year slowed to a 13-year low of 7.8 percent. The government hopes 60 percent of China's population of almost 1.4 billion will be urban residents by 2020.

The urban population jumped to above 700 million from less than 200 million in the previous three decades, but that explosion has triggered sometimes violent clashes over expropriation of farmland for development as well as water shortages, pollution and other problems.

"These are severe challenges as we are trying to sustain the urbanisation process," said Chen Xiwen, head of the Office of Central Rural Work Leading Group, the top body which guides China's farm policy. "Many people have worries and such worries are understandable," he told a news conference on the sidelines of China's annual parliament session.

The government must protect farmers from losing their land in the process as local governments have been relying heavily on land sales to finance local investment, Chen said. "If the urbanisation process becomes a process of depriving and harming farmers' interests, it cannot be sustained and society cannot maintain stability."

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Li Yining, an influential economist at Peking University, warned that China's banks could be dragged into another spending binge that could spark a financial crisis.

"When we talk about urbanisation, it seems the whole country is going into mass action to spend heavily ... this could trigger a financial crisis," he told the news conference.

China plans to issue guidelines on urbanisation in the first half of this year, the head of the National Development and Reform Commission, the main economic planning agency, said on Wednesday. The commission sees the urbanisation rate rising to 53.37 percent this year from 52.57 percent in 2012.

Chinese leaders have pledged to steadily reform the rigid household registration, or hukou, system that could help turn millions of rural workers from savers into consumers.

The hukou system has split China's population along urban-rural lines, preventing millions of Chinese who are registered as rural residents from settling in cities and enjoying basic urban welfare and services.

(Reporting by Kevin Yao; Editing by Ian Geoghegan)

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