Even though the Chinese economy posted 11.9-percent growth in the first quarter of 2010, nerves are raw in Zhongnanhai – China's governmental headquarters in Beijing. As the rest of the world seems to sink into economic quicksand with no end to the global crisis in sight, Chinese leaders scramble to stimulate domestic demand by pushing for the urbanization of rural China.

Things have changed in China's fourth-, fifth- and sixth-tier municipalities. The women in these small towns and villages might still make a living working in the fields, but they don't look like field workers anymore. The typical small-town woman wears jewelry, high heels and make-up, and occasionally stops in at the beauty shop in town to buy some skin-care products. Young male migrant workers use their spare time to surf the Internet in their cramped dormitory rooms. They play online games and order the latest consumer electronics from the big cities online. The rural population already accounts for one quarter of China's Internet users, exceeding 100 million people.

Fueled by China's "reform and opening-up" policy, the urban sprawl that began in the cities and towns on the affluent east coast has been constantly expanding further inland. Some 300 million farmers have moved to urban areas, and as a result the number of Chinese cities has exploded from 86 sixty years ago to 665 today.

Professor Lu Bin, head of the Department of Urban and Regional Planning at Peking University, notes that in the beginning the goal of urbanization was to achieve balanced regional development.

The Chinese government has promoted various schemes to forge tighter connections among the country's 40,000 towns. In the 1990s it introduced the "Go West" policy to develop China's interior around Chongqing, and the transformation of old industrial bases in the northeast. Since 2000 it has promoted the "Rise of Central China" strategy, which aims to merge six central provinces into one economic region, and the establishment of a nationwide high-speed rail network with four vertical and four horizontal lines.

The latest example is the establishment of a model zone for industry transfer in the Wanjiang city belt in Anhui Province. The project, which was just approved by the State Council and has been strongly promoted by Chinese president Hu Jintao, is the first regional development project that focuses on industry relocation.

Under the project Hefei, Wuhu, Tongling, Ma'anshan and Anqing cities are to take over industries from the Yangtze River Delta region, thanks to their geographic proximity. So far more than 500 companies have moved to the Wanjiang city belt, more than half of them from the Yangtze River Delta.

Based on the current speed of development, the consulting firm McKinsey projects that one billion Chinese will live in cities by 2030. As many as 221 Chinese cities will have a population of 1 million or more compared with 35 such cities in Europe today.

Unbalanced Development

Why is China promoting urbanization so aggressively? It's because leaders have discovered that while the Chinese economy has grown rapidly over the past three decades thanks to market reforms, the rising affluence cannot conceal that development has been vastly uneven across the country.

Executive president of China (Hainan) Reform and Development Research Institute and respected economist Chi Fulin notes in the 2009 Annual Report on China's Reform, which he edited, that thirty years of reform have caused structural imbalances such as "high investment, low consumption," "weak domestic demand, strong external demand," "high industrialization, low urbanization," and "high carbon consumption, low carbon reduction."

Regarding "high investment, low consumption," Chi notes that China's economic growth has always been driven by massive government investment.

Statistics by the National Bureau of Statistics of China show that retail sales of consumer goods increased from 0.8 trillion yuan in 1990 to 12 trillion yuan in 2009, but consumption still grew at a slower pace than government investment during the same period.

From 2000 up to today, the weighting of investment as share of GDP increased from 35 percent to 45 percent, while the weighting of consumption decreased from 62 percent to 48 percent, with private consumption even shrinking to 35 percent.

Chi notes that due to the continued decline of the consumption share of GDP, China is being forced to depend even more than before on the international market to absorb its massive overproduction, worsening the imbalance between weak domestic demand and strong external demand. As a result, China's reliance on exports has rapidly increased from 33.8 percent in 2000 to 67 percent now. Chi warns that China will remain highly dependent on external markets for a long time to come.

Pressure has been mounting on China as consumer markets outside Asia remain depressed. Chinese leaders hope that increased domestic demand will help offset shrinking exports.

And they hope that urbanization will boost China's industrial transformation.

Urbanization Derailed

Currently, the secondary sector of the Chinese economy is large and still rapidly expanding, growing from 45.9 percent of GDP in 2000 to 49 percent today. Moreover, about 85 percent of that growth stems from high-polluting heavy chemical industry. The tertiary sector currently accounts for about 40 percent of GDP, far below the 70 percent seen in the United States and other advanced countries, and still lagging behind other populous and fast-growing markets such as India, Brazil or Mexico.

Urbanization is certainly able to attract villagers to larger towns and cities, where they buy homes and settle down. The rising population in turn has led to the emergence of a local service industry and a better educated, more skilled labor force.

These are, of course, the beautiful dreams of urbanization. But behind its pretty facade, urbanization has left many scars. Resource-rich inner Mongolia is one of the most rapidly growing regions of China, yet several ghost towns there bear witness to urbanization drives gone awry.

Qingshuihe County belongs to the regional capital of Hohhot. The government of the poverty-stricken county, which has an annual revenue of just 30 million yuan, planned to build a new county government district over ten years with a total investment of several billion yuan. In 2008 the project was abandoned for lack of funds with just a few buildings completed, many more still under construction, and no residents having moved into the district.

Another example of local officials boosting GDP with large-scale construction is the coal-mining town of Ordos, where the Kangbashi District was started as a public works project to house one million people. While the city government has moved into its new premises in the sparkling new district, the public library, the Ordos Museum, and Ordos Culture and Art Center gather dust. Hardly anyone has moved into the district's middle-class duplexes and apartment buildings.

On its official website the Ordos municipal government declares that the city wants to become a service industry center, home to corporate headquarters and a transport and logistics hub. It is hard to imagine that a city that draws its wealth from coal mining is positioning itself exactly the same way as Shanghai.

Peking University's Lu observes that many emerging cities in central and western China emulate the development patterns of coastal cities or urban centers in the East. They see land development including the construction of entire new districts as key to attracting people and new businesses.

"In the end, they fail to attract real industries, and the people who come, don't stay," says Lu.

This craze for creating cities from scratch has already derailed China's urbanization process and taken a heavy toll on the environment.

A prime example are the cities whose economies depend on one or more natural resources such as coal, oil, natural gas or minerals. In the 1980s a dozen such resource-based cities fell into crisis as their resources dried up. Last year another 44 cities were confirmed to have run out of the natural resources that were their mainstay. With the resources gone, these local economies have quickly collapsed.

Invisible City Dwellers

Excavators tear down cities, historic towns, alleyways, and temples, while residents are forced to relocate to make way for high-class residential areas. In Europe and North America, the kind of urban renewal that displaces the poor came under fire as "gentrification" as long as thirty years ago, yet it is highly popular these days in China for various reasons.

Chinese provincial leaders still take GDP growth as the major yardstick for their political track record, and public works projects immediately boost GDP. In order to increase land tax revenues, local governments forcibly expropriate property and fence off land for development. Eventually, land developers get involved, triggering property speculation.

It's not just the land that is weeping. The displaced peasants who flock to the cities harboring beautiful illusions about urban life are victimized as well.

In Tangjialing, a dusty village on the outskirts of Beijing's Haidian District, a yellow bulldozer prepares to tear down a few small houses. Many struggling college graduates, often referred to as "ants," and unemployed workers live here. After the book The Ant Tribe exposed the harsh life of college-educated youngsters and other migrants in Tangjialing, the municipal government decided that the village was ripe for a makeover. A renewal project is supposed to let gloomy Tangjialing shine bright again.

However, the only ones who definitely will have a bright future are real estate developers. They have already begun to grab land and drive up prices. In contrast, those who came to Tangjialing to find greener pastures will only be driven further out of the city to even more desperate places. About one third of migrant workers in Beijing live in the basements of apartment blocks, in restaurants or in the rural outskirts of the city.

These people from outside the cities are like "semi-urbanites" or "invisibles," who live in villages within the city. They are the byproduct of thirty years of urbanization.

Beijing Normal University professor Li Shi argues that originally urbanization was meant to allow peasants to become city people. The main reason so many peasants have failed to become true urban residents is that they don't have stable jobs and therefore use the city only as a temporary lodging place.

For 52 years China has been practicing a household registration system that discriminates between urban and rural households. Since farmers needed special permits to move to the cities, the system engendered a lack of class mobility. However, for the past three years, reforming the household registration system has been the most important issue on the agenda of China's two major political decision-making bodies, the National People's Congress and the Chinese People's Political Consultative Conference. Earlier this year the State Council also clearly stated that it will become easier for peasants to legally move to small and medium-sized towns.

But do the cities offer enough employment opportunities? Will the newly arrived peasants be able to adjust to city life and blend into urban society?

A survey by the Chinese Academy of Social Sciences shows that unemployment in cities and towns has already reached 9.4 percent, twice as much as the official figure. The prejudices that city people hold toward displaced peasant and migrant workers, which partly result from discriminatory government policies against them, cannot be changed over night.

China is still 20 years away from 2030 when 1 billion Chinese will live in urban areas. So far the country's urbanization is only halfway complete.

Out of concern over possible social disruption, the Chinese government is eager to improve the social welfare of migrant workers who have moved to the cities. In Beijing, for instance, a new policy has been implemented earlier this year which grants free compulsory education to the children of migrant workers. In the past the government tried to discourage migrant workers from bringing their children with them by slapping them with special fees if their children attended urban schools.

China's urbanization still remains incomplete and fragmented.

For the coming decade stimulating domestic demand will be the Chinese government's foremost task. China regards urbanization as a tool for achieving its goal of transforming from a "major manufacturing nation" into a "major consumer nation." But such a shift will also involve such issues as structural adjustment and innovative management.

Such a transformation will amount to a second round of reforms, following up on the original capitalist-market "reform and opening-up" policy of Deng Xiaoping. If China does not address the severe stratification of its urban population, rein in sprawling urban development, and stop environmental destruction and the wasting of resources, the country will have to pay a painful price for its unbalanced urbanization ten years from now.

Translated from the Chinese by Susanne Ganz