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100 million, 100,000 yuan, or more

May 9, 2014

Investigation states net cost to change villager to urban resident is 100,000 yuan per individual

2014-03-03

http://finance.china.com.cn/roll/20140303/2227020.shtml

The various problems involved in transitioning the agricultural population, such as educating their children, providing guaranteed housing, what will be the net cost? According to the investigation organized by Vice chairman Gu Shengzu of the National People’s Congress, the cost per individual is approximately 100,000 yuan[$16,244], although this may differ somewhat from area to area.

The investigation involved interviews and on site research in 10 provinces, including Hubei, Hebei, and Shandong. The investigation pointed out that in order to drive forward urbanization, the key was to transition the agricultural population into urban residents. Institutional reform of the public service system is necessary to make this possible.

Among the required costs, one that stands out with some urgency is housing. A large portion of those that come to the city from rural areas belong to a low income group, and cannot afford market price housing. According to data collected by public security in Shandong province, 62% of migrant workers live in rentals, 35.8% live in dormitories, those who possess their own homes is only 2.3%. This is a great obstacle preventing them from becoming urban residents.

Gu Shengzu considers that investment in guaranteed housing [low cost public housing] by the central and provincial government will be insufficient. To incite a trend of the people using their capital to build guaranteed housing, it is necessary for the government’s “visible hand” and the market’s “invisible hand” to be linked, to form a double engine of the “government pushing forward” and and the “market dragging in.” This will encourage the people to vigorously participate in construction of guaranteed housing, melting away the problem of under-capitalization that would be the case if the government was the dominant actor.

 

An example of transitioning the rural population to urban residents: in Hefei [capitol of Anhui] the net cost is 155,000 yuan [$25,124]

2014-04-09

http://news.sina.com.cn/c/2014-04-09/034629890130.shtml

Zhang Jing 张静

How expensive will urbanization be? The Hefei local government has given one example: it has estimated the net cost to transform one person into an urban resident is 155,000 yuan. This data was put up yesterday on the Ministry of Finance website. The costs to turn the transitioning rural population into urban residents consists of compulsory education, guaranteed housing, medical and old age insurance, various types of aid and social management, infrastructure etc.

Taking Hefei as an example, if we suppose that every year 200,000 people are urbanized, every year the net cost will increase by 30 billion, by 2020 it will reach 240 billion, by 2030 it will be 540 billion (approximately $87.5 billion). In 2012 Hefei spent 11.3 billion yuan on the above costs. Assuming an annual increase of 20%, 2.26 billion will be added to this every year.

The post states that by 2015 the urbanization of Anhui will be at 50%, during 2012-2015 3,500,000 people will be transitioned to urban residents. By 2020 Anhui will have reached the national average, with 8,500,000 people urbanized. By 2030 the province will be close to 70% urbanized, the transitioned population will number 17,000,000.

Calculating roughly, if the net cost to urbanize one person is rounded off to 10,000 yuan, then the net cost to urbanize 3,500,000 is 35 billion yuan (3500 hundred million yi).

Yesterday Wang Bao’an, vice-minister of Finance said that by 2020 the rate of urbanization would reach 60%. This would cost 45 trillion yuan, with some of the money coming from social investment (non-governmental sources).

Previously the State Council estimated the urbanization cost at 10,000 yuan per person. According to the plan goal of transitioning 100 million people by 2020, this would mean an outlay every year of 1 trillion yuan for the next 7 years.

Last year the national budget was 14 trillion yuan. Of that, 6.4 trillion went to social security, employment insurance, health, etc., (including the amount of tax returned from the central government to local governments) costs related to transitioning rural people to urbanization. However, this amount is not wholly devoted to urbanization, but also consists of the usual yearly expenditures to support both urban and rural populations.

The Anhui Department of Finance post states that, “Looking at the net costs, the local governments will be unable to keep with with the yearly financial demands, and the government at all levels will be overwhelmed.” To really implement an equitable distribution of social services over the long term will involve a huge investment.

Pangoal Consulting Group urbanization research fellow Yi Peng thinks that the amount indicated in the research plan, 10 trillion yuan, will not all come from public financing. The local governments will also contribute funds through their investment companies [local government financial vehicles –see note below] and by selling off land. The government, current urban residents, and businesses, will make up three sources for the necessary funds.

Public -private partnerships (PPP) will be an important source of funding.The Ministry of Finance website proposes widening investment channels. To divide up responsibility for the net cost, the government proposes that it take a role in leading social investment, through government purchases, franchising, contracts with private firms, farming out social services, selling off land for development, etc.

The second proposal is to transform the rural property which originally belonged to the villagers. The government will entrust the villagers with a greater ability to control and manage their assets: the land, homesteads, buildings, and village collective property will become shareholders rights, which they can carry with them into the city. Through this they will cross over the threshold of net costs, and all the better enjoy the benefits of public services.

The responsibilities between the various layers of government are not clearly determined. 70% of the employment opportunity fund comes from the province level or above –the county government shoulders very little of this. In 2012 Anhui province paid 14,417,000,000 (14.4 billion) in medical insurance. The provincial government and central government paid 87.5%.
As for the employment opportunity fund, the province and central government paid 77.65%

Therefore, the proposal suggests that more responsibility for payments is shifted down to the county and township levels.

Wang Bao’an believes that “the PPP model is the key that will enable us to solve the problem of funding the urbanization project.” They are considering how to launch a trial project using the PPP model. The thought is to pick a fairly large scale governmental enterprise that has already been successful in generating a steady rate of profit over the long term, and gradually converting that to partially private investment and operation. “For instance, a municipal water company, sewage disposal, trash pick-up, or public housing construction corporation.” The Ministry is currently combing through both pre-existing and new infrastructure construction projects to pick a suitable one for the trial.

konjaku: more or less the same figures, stated slightly differently:

How much will it cost to urbanize rural residents?

http://www.nbd.com.cn/articles/2014-04-08/824151.html

According to government data, in Hefei the net cost to turn each migrant into an urban resident is 154,900 yuan. This includes compulsory education, low income guaranteed housing, medical insurance, various kinds of social aid and social management, basic infrastructure, etc.

Looking at the entire nation, at present urbanization is at 53%. According to the plan, by 2020 it is supposed to reach 60%. This means that in the next 7 years another 6.3% of the population will be urbanized. If the total population is 1.34 billion, this means about 84 million people.
If we round off the cost to urbanize one person to 10,000 yuan, in the next 7 years the nation will spend 8.4 trillion yuan.

Looking at the nation’s finances, last year the government took in 13 trillion yuan in income, and it paid out 14 trillion. Of this, the amount paid for social security, employment aid, medical and sanitation services, education, guaranteed housing, etc., plus the amount paid to urbanize rural residents, and also the amount the of tax income the central government returned to local administrations, was 6.4 trillion yuan, or 46% of the total budget expenditure. The government is paying out for social services in cities, towns, and rural areas, and urbanization is an expense on top of these already existing commitments.

On 03-20, Ministry of Finance Vice-Minister Wang Bao’an wrote on the Ministry website that it would take 42 trillion yuan to achieve 60% urbanization by 2020. Some of this will have to come from social (non-governmental) investment. Up to now, funds for building up cities have come from selling off land, but this has led to various abuses. In order for the urbanization process to be transparent and maintain standards, Wang Bao’an has proposed that the PPP model of public-private partnerships will be the key to solve the funding problem for urbanization.
http://economy.caixin.com/2014-04-09/100662774.html

The Heifei figure of 155,000 yuan per person is clearly higher than previous estimates. Research agencies attached to the State Council estimated the net cost per person at 80,000-100,000 yuan. Perhaps because Hefei is a provincial capital city in the central region of China, with a flourishing economy, the costs are higher.

Consistent with other provinces, Anhui’s spending on public services is seriously unbalanced, There is a concentration of government spending on cities, while public services in rural areas is on a village-generated “as needed” basis (一事一议).
If every year 200,000 rural residents transition to become urban residents, Hefei’s spending will increase annually by 30 billion yuan, by 2020 it will become 240 billion yuan. In 2012 Hefei spent 11.3 billion on infrastructure and social aid programs such as compulsory education, medical and social security, housing, etc. If this increases yearly by 20%, this will add every year 2.26 billion yuan. To add on top of that the costs to urbanize rural residents will simply overwhelm the resources available, and cause huge problems. Therefore the PPP model is proposed to solve this difficulty.

konjaku: If we take 100,000 as the net cost, multiply that by 100 million, the amount of people to be transitioned by 2020, then divide that by 6 (the 6 years from 2014-2020), the result is 1.67 trillion, as the amount the nation has to spend each year till 2020 to reach its goal (10 trillion altogether). As we see above, the figure the government gives is either 8.4 trillion or 42 trillion, based on  different calculations, which is a huge increase to the current budget of approximately 16 trillion, already running a slight deficit. This is why the government is looking at privatization. The PPP model, public-private partnerships, is not to be confused with the more common use of the abbreviation PPP, “purchasing power parity” a calculation used in comparing economies of different nations. Privatization has its own set of risks.

However, if all the costs are spread out over a longer period of years( social security would be like this anyway), the net cost projections are much more manageable. Kam Wing Chan has analyzed the cost of urbanizing the rural population here:

https://www.chinadialogue.net/article/show/single/en/6432-A-road-map-for-reforming-China-s-hukou-system

 

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