Wednesday, January 13, 2010

Urbanization Trends in China

(For those of you anxious to know more about Iraq, don't worry I'm continuing to chew away on it in the background.  It's just that now I'm digging into the technical petroleum engineering and geological literature, and it takes a while.  In the meantime, making graphs from Chinese stats is easy and fun).

As far as I can see, the big picture in China is that the communist government has a grand master multi-decade plan to turn the place into a developed country as fast as possible.  They are doing this using a fairly unique hybrid of capitalism and communism.  While they are doing a variety of things to upset western countries, so far, the project seems to be fairly successful on its own terms.

One metric of how far things have gone is the level and trend of urbanization in the country.  Generally speaking, the more developed a country is, the smaller the agricultural population - eg see this next graph that I made for this Oil Drum piece of Jason Bradford's.

It is the process of urbanization and industrialization that drives the demand for huge amounts of concrete, steel, coal, oil, etc, which undeveloped economies (eg Malawi) do not use very much of.  To explore this in the context of China, I looked at this census data, in order to make this graph of the rural and urban population:

As you can see, the rural population probably peaked around 1990 and is now declining, while the urban population is growing rapidly.  According to this European Chamber of Commerce in China report:

1% of China’s population moves each year from rural areas
into urban ones. The major housing development that results from this migration
creates massive domestic demand for construction machinery, building materials,
steel, cement, and chemical products.
1% of the population moving from the country to the city creates a 2% per year change in the urbanization rate.  I show the urbanization rate based on the same data next:

The purplish line is the data, and the red dashed line is my hand-constructed wild assed scenario for the the future of the process, assuming China does not run into either serious resource constraints or major economic/political turmoil of some kind.  Basically, in a single lifetime, China will have been transformed from a largely undeveloped agricultural country to a fully developed urbanized country.  The process appears to be somewhere around the half-way point.

One question I had is how much of the urban population is in reasonably decent officially approved housing, and how much is in the irregular slums that tend to be such a prominent feature of third world cities.  Thus, it's interesting to look at this housing data, which shows the average size of dwelling being constructed in the country over time.  Here's the amount of space per inhabitant in newly constructed urban dwellings according to the official statistics:

At this point, China is up to 300 square feet per person - a 600 sq. ft. apartment for a couple, or a 1200 sq. ft. dwelling for a family of four. This sounds perfectly perfectly civilized - probably about where the US was in the 1950s or 1960s. Clearly, dwelling size is continuing to increase steadily.

However, do the official statistics really capture the situation, or are there large numbers of people falling through the cracks into the slums?  One way to assess this is to look at the same housing data, which provides estimates of how much new housing is being constructed each year, and divide by the per-person space to get an estimate of how many people are being housed each year in officially recognized new construction in the cities.  That looks like this:

So China is officially creating new housing for the something like the equivalent of the entire population of Iraq each year.  However, given that during this period, 0.5-1% of the population was moving to the city, and the population is now 1.3 billion, the official statistics are obviously failing to account for the situation in a major way.  1% of 1.3 billion is 130 million, about a factor four larger than the peak of the graph above.  That suggests that either most people moving to the city end up in the slums, or occupancy of housing units is much higher than the official figures suggest.

Ah, that would be 1% of 1.3 billion being 13 million, suggesting the amount of housing being produced is significantly more than is required for migration. Unclear what is going on here - whether the stats are bad, a lot of older smaller housing is being retired or what...


porsena said...

The largest proportion of Chinese migrants into cities fall between the cracks for reasons related to an official system of 'houkou'(pdf). Houkou are, essentially, residential permits or authorizations that carry with them the right to access government services such as housing. The linked report by Fan says:

"The bulk of rural migrants occupy the lowest social and occupational rungs of urban society, are treated as outsiders and have poor prospect of assimilation in cities (Fan 2002; Solinger 1995). Under the dualistic structure, rural Chinese are shut out of a system of entitlements designed only for urbanites. Thus, rural migrants do not have access to retirement, health and unemployment benefits, government-sponsored housing schemes, jobs that prioritize urban residents, and the urban education system (Lu 2005)."

As impressive as the need to create urban housing for three New Yorks every year is the expansion of rural housing facilities to induce people to stay on the farm. The housing statistics Stuart linked above show that that more housing space is being built in rural than urban areas. All that cement production....

Stuart Staniford said...

Thanks for the great link. Also of interest in understanding what the Chinese government thinks it is doing is the Wiki entry for Xiaokang:

Chinese leader Deng Xiaoping used the terms Xiaokang society in 1979 as the eventual goal of Chinese modernization.

The vision of a xiaokang society is one in which most people are moderately well off and middle class, and in which economic prosperity is sufficient to move most of the population in mainland China into comfortable means, but in which economic advancement is not the sole focus of society. Explicitly incorporated into the concept of a Xiaokang society is the idea that economic growth needs to be balanced with sometimes conflicting goals of social equality and environmental protection.

The current usage of the term also invokes ancient Chinese thought in support of modern Chinese Marxism. In ancient Chinese writing a xiaokang society was the predecessor to the great unity. There is a rough correspondence between this progression and the progression in Chinese Marxism between a market socialist society and world communism.

The revival of the concept of a Xiaokang Society was in part a criticism of social trends in mainland China in the 1990s under Jiang Zemin, in which many in China felt was focusing too much on the newly rich and not enough on mainland China's rural poor. Furthermore there has been a fear in some circles that Chinese society has become too materialistic placing material wealth above all other social needs.

In contrast to previous concepts such as the spiritual civilization and the campaigns against bourgeois liberalization in the 1980s, the concept of the Xiaokang society does not involve heroic self-sacrifice and does not place the material and the spiritual in opposition. The vision of a Xiaokang society sees the need for economic growth to provide prosperity, but it sees the need for this prosperity to be broadly distributed.

In addition, the concept of a Xiaokang society is the first time in which the Communist Party of China has used a classical Chinese concept to legitimize its vision for the future of China. Its recent use has been associated with Hu Jintao and Wen Jiabao as a goal for mainland China to reach by the year 2020.

gu said...


one correction:
1% of 1.3 billon is 13million, which changes the conclusion significantly.

best regards

porsena said...

The Xiaokang concept finds its latest expression in the "one country, two systems" slogan used by the government.

I should have mentioned in my earlier reply that residency authorizations in China are separated into urban and rural categories and, beyond that, that they are tied to a locality. A Chinese moving from the country to the city, or even from one city to another, without official permission basically falls out of the State safety net and becomes reliant on his or her own resources.

I was fortunate to be an official guest several times in the late 80's early 90's, when migration to the cities was starting to gather steam. Then and now, the Houtou system was a way to limit migration from one place to another for, officially, the greater good of the country.

Stuart Staniford said...

Gunter - ah, that's very embarrassing. Tomorrow I resolve to have a second latte before the final readover. Text amended above.

JackRussell said...

They have a huge housing bubble over there - prices are skyrocketing, and people are falling all over each other to buy the things.

For investors, many of the usual bubble warning signs are flashing. Fueled by low interest rates, prices in Shanghai and Beijing doubled in less than four years, then doubled again. Most Chinese home buyers expect that today's high prices will climb even higher tomorrow, so they are stretching to pay prices at the edge of their means or beyond. Brokers say it is common for buyers to falsely inflate income statements for bank loans.

Stuart Staniford said...

Jack - yes, that seems like a key thing to understand, but I don't think I do understand it yet. The newspaper article is suggestive, but as usual it's hard to know how much credence to give a series of anecdotes with just a very little bit of actual data sprinkled amongst them. I guess I need to investigate this more, since it seems like a key uncertainty about the globe. A serious recession in China would have absolutely profound impacts on the global economy.

gu said...

now Your conclusion just looks about right ;)
I can add two anecdotes:
1) 'Entire Chinese City Sits Empty'
Find it on Youtube.
A whole city for 1 million residents, completely empty!

2) The biggest mall in the world, empty, except for ten or so small shops.
Twice as large as the largest mall in the US.
(video, sorry no link)
Built by one of the local tycoons of a medium sized city with no airport or local customer base.

From the energy-saving point these look very wasteful and inefficient.
(In Germany here we have currently the low-energy-housing requirement, leading -hopefully to zero-energy in a couple of years)

So this looks like a complete misallocation of housing standards from a 2015 point of view.

The result: These investments are 90% speculation (the empty city is mostly already sold to speculators, who have already a home, but the lower income strata cannot afford to move in.)

As we know, chinese statistics are notoriously unreliable.

One of the VERY worrying trends is, to conceal the facts by trimming the data. See for the US case.

A similar tendency can be observed in Germany, and I am sure in other countries as well. Governments try to hide the facts, like the REAL number of the unemployed.

The result: Governments deceive the citizens AS WELL AS themselves.
If You add, that complex societies (even if not democratic) depend on reliable information on basic data, then this is a warning sign of epic proportions.

The difficulty ofcourse is, that You need anecdotal evidence, combined with hard numbers where available, combined with common sense, combined with a sense for the nonsense talk of people with an interest muddying the waters, combined with a the hedonistic interests of a populace, which prefers being deceived, because that makes them feel better, combined with the inflated egos of people like the chinese mall-investor.

I digress.
Sorry for the rant.

Best regards


gu said...

some afterthoughts about misallocation.

Follow-up to my previous post.

As You show in Your graph in the preceding post, the Chinese 'plan' to about double the amount of highway-miles in the next one or two decades.

What is the 'plan' here?
Is it efficient?
Under what circumstances?

My local experience is, that a highway (2x3lanes) is 'efficient' with a throughput of about 5-10K cars/hr.
If its 1K, its not efficient. If its 20K, its not efficient (saturated).
Even in a mature society like say Germany, there is considerable misallocation, eg in Eastern Germany.
My estimate is, that societies need some 50 years to allocate resources
(roads in this case) efficiently, and is best done by incremental trial and incremental error.

In China, this is ofcourse different.
Mao made this error alreay (big leap).
So I would suggest that the limited capabilities of the human mind and his capability to move without significant stress is also limited.

And is further reduced by corruption or insufficient information, which a society produces.

There is nearly a constant: The misunderstanding of financial and political actors of the needs and process-time of society as a whole.
How many miles in diameter is the circle, a supertanker needs with speed X and energy Y?

Engineers an Physicists have that in their bones, so to say. but the 'deciders' do not!

This is a tragedy.

Societies are quite similar.
If societies are forced to change direction too fast, this leads to a misallocation of resources.

The German Re-Unification is an example on that, and widely underappreciated in its significance:
For a society to change direction, it takes AT LEAST the same time as the duration of the divergence, if it was as significant as socialist DDR and
capitalist BRD. 40 years minimum, 60-80years more realistic.

This is how a society works: Like a supertanker, with limited maneuvrability.

There is a very insightful short book by a Swiss, named "the 20% Planet", dated approximately 2002, which is -I am sure- completely unknown to the English-speaking world:
The author tried to to 'construct' a society, which should be as 'modern' as possible, but use only 20% of 2002(Swiss)-resources, especially energy.

He came up with a hierarchy of many small-few larger centers (cities), which are used as rarely as needed, to minimize energy.

Up to now I never encountered a concept as 'realistic' as that.
Maybe I should translate it (the author used a pseudonym,so I can not contact him.

The Chinese currently seem to make some monumuental mistakes, because they ignore the experience of mature societies, and rely on the big-leap illusion, which is equivalent to a monumantal misallocation.

True: Small countries can make big mistakes. But what about big ones like China, being 100times als big as Switzerland?

The communist party is trying to save its butt, which is quite natural, but NOT universal.

The chinese butt-saving method is quite similar from a psychological point of view, to the US.

Both will fail, I/we suspect, but for different reasons:
The US by sticking to the wrong past, the Chinese by sticking to the wrong future.

Both are variants of misallocation.

I am not quite sure whether 'misallocation' can be universalized.

If we use graphs spanning 50 or more years (e.g. 1870-2100), we tend to underestimate decisions and overestimate processes.

Or is a decision only a 'rationalzation' of the underlying process?

Those are haunting questions, at least for me.

Best regards

Stuart Staniford said...

Gunter - thanks for the comments! I agree these are key issues to explore. It's not easy to form a clear impression of the scale of them - how do we distinguish between genuine misallocation, and capacity that has just gotten a little ahead of itself - the road isn't fully yet, but it will be in a few years as the rest of the economy continues to grow.

Getting Around in China said...

Porsena, that's "hukou" ( 户口), in the interest of accuracy....

Fred Richardson