Hello, welcome to visit Shanghai Forum
[The difficulty with the current approach is that there is too much concern with delivering infrastructure. Almost without worrying about whether it is in the right place, at the right time and whether it meets the requirements of the uses of that infrastructure. ]
Reporter: Our interview today will mainly about the urbanization and the producer service industry. How do you see the changes happening in China's producer industry?
Peter Daniels: I'd say the changes are very quick, but there remains a gap relative to economies elsewhere in Asia as well as in other parts of the world. In Europe, or in North America, services comprise some 70-80% of employment and maybe 70% plus of GDP. Whereas in China, the figures are more like 42% of services in GDP, and a bit less perhaps in total employment. So there is change and it's impressive, but I would say that China as a whole still has some catching-up to do. Not only is catching-up important, part of that will be in the form of an increase in the share of what I call, and what other colleagues call, producer services. These are the services that other services and activities such as manufacturing use as inputs to the production of goods and/or services; accounting services, design services, marketing services, and so on. There are services that are knowledge-intensive and information-intensive (they are also sometimes referred to as advanced services).
Reporter: We know China's urbanization is kind of government-determined model. To some extent, even the direction of our urbanization is led by executive orders. For example, some cities regulate the inflow of labor workers. Some scholars think that this government-dominant way is very arbitrary, and not very resilient. But some others hold that this is the best way to help China avoid detours. What do you think of this? Do you think there can be a balance between the two?
Peter Daniels: Well we have to stand back, I think, and to recognize that in China the development process is within the framework of what I would call a socialist market economy, in which the central government executive exercises a great deal more influence on the development process than is the case in what we would think of as free market economies. You could, I suppose, argue that this is just a stage in China’s development since the opening up after 1979. Such is the scale of the changes needed to bring China up to the level of the advanced economies that the process needs to take place within the structured framework provided by central directives, administrations and so on. At this stage it is complimented by a limited degree of private sector engagement. But as the development process becomes more advanced, one might expect the central involvement to diminish, allowing the market to take over more, control more, make more contributions to the patterns of development and so on.
I guess the difficulty with the current approach is that there is too much concern with delivering infrastructure, almost without worrying about whether it is in the right place, at the right time and whether it meets the requirements of the uses of that infrastructure. By infrastructure I don’t just mean railroads and highways, but I include the office buildings, business parks, retail parks, and related spaces that are appearing across Chinese cities and regions at an enormous rate. But based on what I have seen in the Chinese cities that I have visited, I get the sense that the priority is to deliver the infrastructure, rather to match the supply of infrastructure with expressed demand. The theory seems to be that if you build a new center on the outskirt of a city, for example, you move a university campus there, you provide some office buildings and you provide some housing, that will create conditions that will attract and encourage business industries to thrive. No one seems to ask what does business want? The market is perhaps better at discriminating/identifying what is required and more inappropriately, where the required infrastructure should be located? There are numerous large-scale investments and housing projects by the government or sometimes by the government in partnership with the private sector? It is striking how many of these projects are standing empty or only partially occupied? Is it because they are in the wrong place? Have they been provided at the wrong time? Or is it because they don’t match demand?
Reporter: Do you know the city Zhengzhou in Henan Province? Some people call it ghost city because in lots of its areas, there are many advanced modern office buildings but no companies move in.
Peter Daniels: Indeed, many of the buildings may not all be empty but some may never be used. So I think that perhaps that is one of the down sides of urban development system at present which is so directed by central elites and policy planners. But perhaps over time we will see a gradual transition to a freer market system where the allocation of resources is more carefully matched with demand and the needs of the market. I understand that in China, many of the new buildings and projects in the provinces and in the provincial cities are initiated or led by local politicians who need to show to the central government that they are delivering such projects.
Reporter: I also read an article from the Financial Times a few days ago that the World Bank calls for China to keep increasing its urban density, whether it’s population density or space density. But as far as I see, with masses of people continually flowing in, the city is already so crowded, and we can see the city’s infrastructures are already failing in providing services. And different social issues are still up in the air. So what do you think of the view of World Bank? Shall we keep increasing our intensity?
Peter Daniels: I think if you keep on increasing the intensity, in some respects, you might say that is good because it will help to sustain important benefits from agglomeration economies. These benefit both employers and employees provided that the infrastructure is put in place. I mean the thing about large Chinese cities is that some of them are not only a third the size of United Kingdom in terms of population e.g. Shanghai or Chongqing, but they are also quite extensive. Then you get the question, if you keep them tight, the infrastructure investment is perhaps lower, but it has to be high quality and it has to support the high densities. The other disadvantage of encouraging continuing high density is the negative externalities to do with environment, such as air pollution, traffic congestion, waste management, and all the other negative aspects of high density urbanizations. Further, if there is a continuation in the preference for high density living, that is also going to have consequences for the cost living in cities. The inflated property prices in Shanghai or in Beijing and many of the other big cities are in part a function of these issues.
The problem would perhaps be mitigated if cities were allowed to spread at low density. I haven’t seen that kind of report for Chinese cities, but certainly there is some experience from Europe. European cities grew to a certain level and then as the negative externalities began to increase people and businesses started to express a preference for moving out into the rural areas and so on. In some cases this was encouraged using government-initiated policies for decentralization to new towns or for relocating civil servants – so there is a place for government involvement in city development market economies as well. The sift to lower densities has been sustainable because agriculture productivity has increased so that the loss of agriculture land has not necessarily been so important. But my understanding in China is that that this is a big consideration. At this stage, there are so many dimensions that I think that the high density versus low density debate has a long way to go in China.
Reporter: It has been reported that the infrastructures of big cities in China like Shanghai and Beijing are not fully used. In Paris there are about 133 crossroads per square kilometers, in Tokyo there are 211, but in Shanghai Pudong District there are only 17. So they think we still need to build more infrastructures and increase the density.
Peter Daniels: yes, but it is worth noting that Paris or London were developed in a very different time period when the transport facilities that were available were far more limited in terms of the ability of cities to spread. I am not sure that it’s reasonable to make a comparison with the density of intersections in Paris. That’s a historical thing. Whereas in cities like Beijing much of the way they have grown has been shaped by transportation technology available in the last thirty years which is totally different to the technology and capacity of the transport technology available in central Paris in say the early eighteenth century.
Reporter: Can we say that we are not in the same urban development stage?
Peter Daniels: Yes, I don’t think China is at the same development stage. Again, it is lagging for entirely understandable reasons. I guess if you ask most Chinese who live in cities at present what their preference is, perhaps it is to live in a house rather than an apartment, perhaps in a rural low density location, which is the ambition of many families in the UK for example? I am not sure that’s the case in China. You either live in a rural area in China where you are a part of the rural economy, or you move to the city and you are a part of the city economy. In much of Europe, the cities rely, in terms of sustaining their functions and their economy, on substantial commuting. In most Chinese cities commuting does not appear to be anything like as important as in European cities. There is commuting in Chinese cities, but for now it within the city rather than from outside into the city.
Reporter: But work for the city.
Peter Daniels: In Europe they work for the city, they work in the city, but they live their daily home lives in the countryside. For example, I work 45km from where I chose to live when we I started working at the University of Birmingham (which is located very near to the centre of the city) in 1993. We wanted to live in the countryside and the cost of commuting in time and energy was a price that I was prepared to pay in order to be able enjoy living in a rural setting while working for the city. In the case of London, for example, over one million people commute into the city by train and car every day, many living 80km and more away from, say, the City of London. So in that sense you could argue that city development in China is behind the European model. Eventually one assumes that as the urban economy matures, and as income continues to increase and as families are able to exercise more choice in where they live and how they live, maybe you will see more city residents choosing to live outside and commute. But the problem for China will be that this threatens land resources that are really scarce and which would become even more so if more people wanted to live outside the cities. So that’s a dilemma.
Reporter: But as far as I know, more and more Shanghai people buy houses in nearby cities like Suzhou and Kunshan, but they work in Shanghai.
Peter Daniels: Oh really? Those who can afford to live in the city will live in the city. But because China still has so many people who are still living in rural areas and who will want to move in the cities when the chance comes. Maybe that’s part of the thinking of World Bank that you create more cities, or simply increase the density of existing cities. If the Hukou system is relaxed, that is going to increase the pressure. And I understand that initially the relaxation will not permit people to move into cities like Shanghai and Beijing, but it will allow migration to the small and medium-sized cities in the center of the country and in the west. And that’s part of a bigger vision for economic development in the west that will boost the economy and help to reduce the imbalance relative to the coastal provinces. Producer services will be an important part of this strategy since they are relatively beyond the coastal provinces
So another complication is the role of relaxation of Hukou system. I understand that the central government has indicated that they will begin to relax it gradually, and it will take a long time. But it seems to me that whether you continue to encourage the existing cities to become larger and denser or not, the pattern of urban development will have consequence. For example, in some way being larger will cause land shortage and food security issues. Therefore, maybe you have more choice, but to go for reinforcing, there still exist problems.
Reporter: Is there anything else that you would like to add?
Peter Daniels: From a producer services development perspective, we know from European evidence that they tend to concentrate disproportionately in large cities where they are able to access the clients most likely to require their expertise as well as the highly-skilled labor that they require. There is no reason to think that this behavior is not found in China as well, so at least for now the dominance of large and fast-growing cities as part of China’s urbanization is creating the appropriate conditions to sustain the further growth and diversification of these crucial service activities.
Peter Daniels
Peter Daniels is Emeritus Professor of Geography at the University of Birmingham, UK. He was previously a Deputy Pro-Vice-Chancellor at the University. He is a Founder Member and past President of the European Research Network on Services (RESER), a Director of Merlin Venture Ltd., Castle Vale, Birmingham (a not-for-profit economic and social enterprise), and was Honorary Secretary of the Institute of British Geographers.
