The role of the Government in the process of urbanization in China

Since the reform and opening up, especially since the beginning of this century, China has experienced unprecedented rapid urbanization. Compared horizontally with the BRICS countries (Brazil, Russia, India, China, referred to as "BRIC"), China's urbanization path is unique, especially different from the urbanization path of large developing countries such as Brazil and India. What attracts the world's attention is that the outstanding performance of this road of urbanization with Chinese characteristics is unprecedented. Take highways as an example. China's expressways were only 271km in 1989 and increased by 1741 km in 1998, with a total mileage of 8733 km, ranking sixth in the world. At the end of 2001, the mileage reached 19000 km, ranking second in the world. Ten years later, by the end of 2011, the total mileage reached 85000 km, ranking first in the world. By the end of 2012, the total mileage reached 95600 km. There is no suspense about more than 100000 kilometers at the end of 2013.

The same phenomenon also occurs in railways, urban roads and bridges, airports, water, electricity and coal, telecommunications, warehousing and other infrastructure, but also in the design of avant-garde and massive urban buildings. such as super high-rise buildings, star hotels, urban complexes, new housing and so on. In addition, air routes, cars, home appliances and other facilities and services related to residents' clothing, food, housing and transportation are also growing rapidly. These infrastructure, along with commercial and living facilities, have supported the rapid industrialization of China's economy.

In this century, it is an indisputable fact that China has become the factory of the world. Made in China can be found in every corner of the world. China has not only become the world's largest trading body, but also its total import and export volume once reached more than 70% of GDP. This is unprecedented in the history of great powers and even the world economy. The combination of urbanization and industrialization has successfully created job opportunities. Hundreds of millions of rural people have migrated to cities to work and settle, which has led to a rapid increase in China's urbanization rate, as measured by the urban resident population, which has reached 52.6% by 2012. The rapid urbanization not only changes the appearance of the city with each passing day, but also profoundly changes China's social structure, and thus affects people's values and consumption preferences. China's huge population has gradually shown the great power of its consumption in the process of urbanization. More than 150 years ago, British businessmen expected that "as long as the Chinese use a cotton nightcap every year, the existing factories in England have been in short supply" has come true, and the fantasy is becoming a reality.

Because of this vision, the international academic circles are fascinated by the road of China's urbanization and the corresponding experience of rapid economic growth, and then construct the concept of "Chinese model". In this model, developmentalist government, especially local government, is very important and is the cornerstone of the "Chinese model". Because the government takes economic development as its sole purpose, it is tested by GDP in all kinds of political and social affairs without other preferences. This "neutral government" is the key to promote urbanization and then promote economic growth.

At least on a shallow level, the above observation is true. International experience shows that urbanization does not come out of thin air. If we rely on spontaneous evolution, it will not only take too long, but also hinder the further development of the city because of the lack of planning. What is more serious is that the development of laissez-faire can easily lead to urban diseases such as insufficient employment opportunities, slums, social disorder and so on, and then lead to "urban drift" (urban drifting). Therefore, in urban development, how to play the role of the government has become a subject of knowledge, and the major of urban planning is commonly set up in universities in various countries. The experience of China's urbanization precisely reflects from one point of view: a strong government can prevent the above-mentioned urban diseases.

However, if the investigation is carried out at a deeper level, some questions will arise. First of all, what is the reason why the government has so much enthusiasm to promote urbanization without being affected by other preferences? Secondly, what is the mechanism to ensure that the government promotes the sustainable supply of urbanization resources, especially the abundant sources of funds? Third, is this model of government promoting urbanization sustainable? Obviously, without clarifying these problems, it is impossible to objectively and comprehensively grasp the whole picture of China's urbanization, and then it is impossible to establish the theory of "Chinese model" on a reliable theoretical basis. In this sense, the research essence of this topic is institutional economics, hoping to explore the evolution and significance of the system through empirical analysis.

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The important role of Chinese government in urbanization can be traced back to 1949. Previously, as in other developing countries, China's urbanization did not have strong government intervention, showing a natural process. After 1949, China implemented a highly centralized planned economic system similar to that of the former Soviet Union. In the macro aspect, the mandatory plan is used to replace the competitive price mechanism to allocate resources; at the micro level, administrative production units are used to replace the free enterprise system of survival of the fittest. From the perspective of institutional economics, this institutional information is summarized from the bottom up, while decisions, that is, instructions are carried out from the top down. The central planning organ is the highest or even the only decision-maker, and the local government is only or even the only executor, so that the whole economic activities, regardless of people, property, production, supply and marketing are controlled by the plan. It should be pointed out that this system is a strict system, in order to ensure the smooth progress of the economic plan, we need to make corresponding arrangements in the social system, political system and so on. In addition to maintaining various "units" attached to administrative power in cities, administrative power is used to artificially maintain the division of urban and rural areas in rural areas.

It is very obvious that the operation results of the above highly centralized planned economic system show the characteristics of financial dominance in the financial arrangements, and all economic activities are national economic activities. The so-called finance is half the wealth and half the government. It is the foundation and pillar of national governance and is highly subordinate to the strategic objectives of the country. After 1949, due to the historical conditions at that time, it is urgent to develop industry, especially heavy industry related to national defense and security. In order to develop industry, investment must be expanded, which requires restraining consumption, mobilizing savings and controlling costs. The highly centralized planned economic system and its corresponding social and political institutional arrangements can meet this requirement.

Specifically, the realization mechanism of the above demands is: in rural areas, through the unified purchase and marketing of agricultural products, artificially lower the prices of agricultural products, raise the prices of industrial products, use scissors to mobilize rural savings into industry, and correspondingly lower the cost of wages. Through the people's commune system to bind the rural population to the land, artificially reduce the opportunity cost of population mobility. According to this, not only the low wage cost can be maintained for a long time, but also the industrial capital accumulation can be maintained persistently; in cities, through the establishment of state-owned factories with administrative appendages to ensure that capital is concentrated in the industrial sectors that the country needs most, the consumption is artificially suppressed through the ticket coordination system, and the consumption surplus is constantly mobilized into industrial investment through the monopoly arrangements of state-owned banks attached to finance. In this case, the financial arrangement subordinate to the national strategic goal naturally determines the order of its financial arrangement: first construction, then life. Focus on the development of industry, while cities are regarded as the necessary price for the development of industry and become subordinate. As a result, there was the scene of a Chinese city at that time: tall factories on one side of the road and "dry-hit" dormitories on the other side of the road, with poor living conditions, inadequate living facilities, and a serious lack of urban infrastructure and public utilities. The typical representative of this scene in the emerging industrial base is Daqing, and the typical representative in the old industrial base is Tiexi District of Shenyang.

The highly centralized planned economic system not only brings economic development, but also brings serious drawbacks. On the one hand, at the end of the 1970s, China's industrial system was initially formed, and the total industrial output value accounted for more than 70% of the total social output value, on the other hand, urbanization lagged seriously, and more than 70% of China's population were still farmers. the tendency of dual economic division is not only solidified and deepened, but also sharp antagonism and the worry of fracture. In the language of that time, the proportion of heavy and heavy agriculture was seriously out of balance, the gap between urban and rural areas was widening, and the national economy was on the verge of collapse. The root of the problem lies in the "Stalin model", that is, the highly centralized planned economic system makes mistakes in decision-making, serious waste and low efficiency. It is precisely for this reason that reform has become a historical necessity, and the orientation of reform is naturally to move forward in the direction of the market economic system.

Reviewing the experience of China's reform in the past 35 years, we can see that it has adopted a gradual market-oriented reform. This approach establishes the gene of China's current urbanization model and becomes significant because of path dependence. The reform starts from the highly centralized planned economic system. The logical and practical starting point of the reform is to reduce the degree of concentration, which is represented by the decentralization of administrative power, especially the decentralization of decision-making power. In the relationship between the central and local governments, it is reflected in streamlining administration and delegating power, and local governments have greater decision-making power; in the relationship between government and enterprises, it is reflected in delegating power and profits, which not only allows enterprises to have operational autonomy, but also retains profits; introduce a bonus system into the relationship between enterprises and employees to allow differences between good and bad. With regard to the relationship between the state and the peasants, the unified purchase and marketing of grain has been abolished, the people's commune system has been abolished, the contract responsibility system based on output has been implemented, and on the basis of giving farmers freedom of operation, they have been encouraged to work more and earn more.

This series of institutional decentralization arrangements make China's urbanization road begin to get rid of the traditional model, which is shown in three aspects:

First of all, in the reform of the rural economic system based on the contract responsibility system, farmers can invest and operate independently, so that China's industrialization is no longer state-led industrialization, showing the typical characteristics of Asian industrialization, that is, farmers with monetary income invest in industry under the domination of the law of manual industrialization, township enterprises flourish, and their agglomeration and development has changed the original urban layout. Small towns began to emerge. At the same time, urban construction funds do not rely on financial allocation, but mostly adopt the so-called self-financing arrangements such as fund-raising and shareholding. In a sense, this is the earliest form of public-private cooperation (PPP) in China.

Secondly, the original city is the gathering place of state-owned enterprises. Under the fierce competition of non-state-owned enterprises represented by township enterprises, the performance of state-owned enterprises is generally poor, even serious losses. This not only greatly affects the local financial revenue, but also because the workers are laid off, the severe employment situation forces the local government to attract investment. In order to attract investors, the infrastructure of "three links and one flat" has become a basic condition. However, the transformation cost of the old urban area is relatively high, so the method of building a new town next to the old urban area is adopted, and the development zone model is popular.

Third, streamlining administration and delegating powers provides sufficient conditions for the above-mentioned urbanization development. In the 1980s, with the extensive development of the contract responsibility system in rural areas, the way to mobilize economic surplus from rural areas has been blocked, at the same time, with the decentralization of state-owned industrial enterprises, profit-based revenue showed a downward trend. The front and back attacks shook the original financial foundation and had to change course. After 1984, on the one hand, it began to carry out "allocating loans to loans" and "changing profits to taxes" in terms of fiscal revenue, and on the other hand, in terms of financial expenditure, it began to implement "separate cooking", that is, the central and local governments respectively bear the fiscal expenditure at their own level. This change in the financial system has laid a prerequisite for the local government to organize fiscal revenue in order to meet the fiscal expenditure at the same level. The disconnection between industrialization and urbanization formed under the highly centralized planned economy for a long time has resulted in the debt of urbanization, coupled with the great pressure of rural surplus labor force to transfer employment, forcing local governments to make great efforts to organize income to meet expenditure. As a result, extra-budgetary income is growing rapidly and is increasingly becoming the main source of funding for urban construction.

The study of institutional economics shows that institutional change has the characteristics of "path dependence". Once the initial conditions are given, the institutional research will be carried out along the development possibility space stipulated by the initial conditions, and in the process of this development, the tendency to rely on this path will be continuously strengthened. In China's urbanization, the decentralization arrangement from high concentration of decision-making power to decentralization of decision-making in the 1980s changed the initial conditions and led to changes in the above three aspects. and these changes imply a common path: the financial arrangement of urban development can be realized without formal financial resources (general revenue composed of taxes). And with the passage of time, in various places competing and imitating each other, this path has become increasingly clear, which is the land lease system. That is, through the "raw land to mature land" to increase the value of land, and then through the realization to raise funds. In addition to being used for infrastructure construction, it can also be used for land maintenance and rolling development. The gene of "land finance" is thus established.

As all kinds of resources, including land, are mostly concentrated in local governments, the ability of local governments to raise revenue, especially extra-budgetary revenue, is much higher than that of the central government. From 1980 to 1993, local revenue accounted for an average of 68% of the country's fiscal revenue. In some provinces with rapid economic development and rapid increases in resource prices, especially land prices, their fiscal revenue is growing much faster than that of the whole country. In contrast, the expenditure responsibility of local governments has not changed greatly, especially in some economically developed provinces, the growth of expenditure is less than the growth of income. From 1980 to 1993, local fiscal expenditure accounted for an average of 49% of the national fiscal expenditure, showing a pattern of large financial power and small power.

The continuous decline in the proportion of central revenue in national revenue, even to the extent that it is difficult to maintain central fiscal expenditure, finally triggered the reform of the financial system in 1994. Limited to the conditions at that time, this reform did not make a big adjustment in the expenditure responsibility of governments at all levels, and the main goal of the policy was to concentrate on raising fiscal revenue, especially the fiscal revenue of the central government. Now, the goal at that time was limited, mainly to increase two proportions, that is, to increase the proportion of fiscal revenue in total national income, and to increase the proportion of central fiscal revenue in total fiscal revenue, commonly known as the reform of the tax-sharing system.

In terms of the priority goals set at the beginning, the reform of the tax-sharing system has been a great success. In addition to the increase in the proportion of fiscal revenue in the whole national income, the proportion of central government revenue has also continued to increase. By 2008, local fiscal revenue accounted for only 47% of the national fiscal revenue, down 21 percentage points from 1994. But at the same time, the expenditure responsibility of local governments has not decreased accordingly, and the expenditure has been on the rise. by 2008, the average local fiscal expenditure has accounted for 79% of the national fiscal expenditure, an increase of 20 percentage points over 1994. The gap between revenue and expenditure of local governments is getting bigger and bigger. In order to meet the demand of funds for urban construction, local governments must further expand the sources of funds. As a result, the urbanization investment and financing mode with land as the financing intermediary has gradually sprung up, which has not only become the main mode of urbanization investment and financing since this century, but also become the complete form of "land finance" of local governments in China.

In 1998, the China Development Bank and the Wuhu Municipal Government first created the "Wuhu model" in the field of urban infrastructure loans, that is, several single urban construction projects were tied up, and the financing platform designated by the municipal government was used as the legal person to repay the loans. the municipal government establishes a "debt repayment reserve" as a repayment guarantee. Subsequently, in 2000, the cooperation between CDB and Suzhou Industrial Park further developed this model, creating a new institutional arrangement: the government funded the establishment of a commercial legal person as a lending institution for infrastructure construction, so that the borrower can obtain the project income right to sell the land and cultivate the borrower's "internal cash flow". At the same time, through the financial compensation mechanism, the financial funds such as land transfer income will be transformed into the borrower's "external cash flow". Both of them play a role together, so that the government credit can be effectively transformed into repayment cash flow. This is known as the "local financing platform" model.

Since 2000, in addition to CDB, more and more local governments and commercial banks have participated in this model. In particular, in 2008, in order to combat the recession brought about by the global financial crisis, China launched an unprecedented "4 trillion" economic stimulus package, with a substantial increase in new infrastructure projects under construction, in addition to financial investment. more local governments have adopted the method of debt investment, and the local financing platform model is very popular. At the same time, the credit constraints of the financial system on urban infrastructure investment have also been greatly relaxed, which also provides convenient conditions for debt investment. The balance sheets of thousands of government companies are expanding rapidly and their liabilities are rising rapidly.

According to a 2011 audit by the National Audit Office, 48.85% of the local government debt balance in 2010 occurred after 2008. At the same time, local debt is nationwide. At the end of 2010, only 54 county-level governments of 2779 counties across the country did not borrow government debt. In addition, all provincial, municipal and county governments have borrowed money. At the same time, the development of local government debt is accelerating. In the audit conducted by the Audit Office in 2013, all local government debt, including liability, guarantee liability and other corresponding debt, rose from 10.7 trillion in 2010 to 17.99 trillion in June 2013, with an average annual growth rate of nearly 20 per cent. Among them, the government debt at the county level grew the fastest, at 26.59%, followed by the city at 17.36%, and at the provincial level at 14.41%.