"Premier Li Keqiang has rejected an urbanization proposal drafted by theNational Development and Reform Commission (NDRC), seeking changes to put more emphasis on economic reform, according to the sources, who are familiar with the matter".
State-owned China Development Bank recently pledged to lend 150 billion yuan ($24.47 billion) to southeastern Fujian province to support its urbanization and channel 30 billion yuan into urban projects in central Anhui province, according to Chinese media.
State-owned China Development Bank recently pledged to lend 150 billion yuan ($24.47 billion) to southeastern Fujian province to support its urbanization and channel 30 billion yuan into urban projects in central Anhui province, according to Chinese media.
“The urbanization plan could be delayed. Top leaders have seen potential risks if the program cannot be kept on the right path,” said an economist at a top think-tank which advises the cabinet.
China plans to spend some 40 trillion yuan ($6.5 trillion) to bring 400 million people to its cities over the next decade as leaders such as Li try to sustain economic growth that slowed to a 13-year low of 7.8 percent in 2012.
''China is still dealing with the side effects of its 4 trillion yuan stimulus package launched in 2008 to counter the global financial crisis, which left local governments with a 10.7 trillion dollar according to Government sources and sent real state prices speculatively higher''.
To fund the urbanization plan, local governments would issue long-term bonds.
But a fiscal revamp is needed because local governments don’t have a steady flow of tax revenues to back the issuance of bonds. Under China’s tax structure, in place since 1994, the central government gets most receipts; while local governments do the spending,and their only source of revenues are land sales.
''Beijing needs to overhaul its land and tax codes as well as free up the rigid residency registration, or “hukou”, system to give migrant workers access to education, health and other services where they work, experts have said. Li wanted more detail on these sorts of reforms in the plan'', the sources said.
“The focus of the urbanization drive should be land and hukou reforms. It’s doomed if China continues to rely on local government spending to support urbanization,” said Yi Xianrong, senior economist at the Chinese Academy of Social Sciences (CASS), a leading government think-tank in Beijing.
''China’s housing inflation accelerated to its fastest pace in April in two years, despite stricter measures by Beijing to calm a frothy real estate market.
Li Yining, the premier’s former teacher at Peking University, recently said Chinese banks could be dragged into another spending binge that could spark a financial crisis.
But Premier Li is unlikely to backpedal on the urbanisation drive, with his interest in the issue seen as far back as the early 1990s when he wrote a doctoral thesis on the subject. One of his key arguments was to reform the hukou system''.
Source: Reuters May 2013
