How urbanization can help the poor

The Chinese authorities are well aware of these issues and have announced plans for a new model of urbanization, "people-oriented" urbanization. The World Bank and the Development Research Center of China's State Council (the country's cabinet) have just issued a joint report on how such a new model - more efficient, inclusive and environmentally sustainable urbanization - can become reality. If implemented, China's next phase of urbanization can make a big difference to its urban and rural poor.

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Central to the agenda is better land policies. Land has a special status in China. According to the Constitution, urban land is owned by the State and rural land by collectives. Reforms over the past three decades have already created land-use rights for individuals and enterprises, but rural land rights reforms have lagged behind that of urban rights. Stronger property rights on land for farmers and stricter limits on local governments to requisition land for urban growth would lead to more compact, efficient cities that require less energy to run. Better-defined property rights on farmland will help in consolidating that land and facilitate better farming techniques.

Land reforms can also improve the distribution of income and wealth, because rural land prices are likely to rise with stronger property rights. One estimate is that the total compensation that farmers received on their land in the past 20 years was about 2 trillion yuan ($321.34 billion) below market value, or 4 percent of China's GDP in 2013. If this money had made a return equal to China's growth rate, it would now add up to 5 trillion yuan, or almost 10 percent of GDP.

Second, by reforming the hukou system, China could increase productivity of its labor force, accelerate urbanization and reduce income inequality. Despite rapid urbanization, China's urban population is still lower than the country's development level would suggest. Moreover, one-third of city dwellers do not have urban hukou, and they and their families have limited access to public services. The hukou system effectively discourages migration to cities, holding back China's transformation and keeping too many people working the land in agriculture, which keeps agricultural labor productivity and wages low.