Anthony Yeh: The Interplay of Urban Development and Economic Transition in China


On September 26, 2016, Prof. Anthony Yeh of the University of Hong Kong delivered the second lecture in the fall 2016 China Talk Series, in which he highlighted the evolution of China’s urbanization process. Prof. Yeh visited the STL Lab and delivered his talk to an audience of roughly 30 students, faculty, staff, and guests.

Prof. Yeh began by explaining that the transition from a planned economy to a market economy in China has led to dramatic economic restructuring and urban transformation since 1978. In this context, Prof. Yeh argued that the definition of urbanization has changed over time, divided into four major waves of urbanization. He also emphasized the interaction of the state and the market in producing different forms of urban development in China.

To address the four waves of urbanization, Prof. Yeh began by explaining how the 1953 population census in China recorded 77.26 million urban residents, accounting for only 13.26 percent of the total population. Prof. Yeh went on to present his urbanization model, which explains the four major waves of urbanization by integrating the pattern of urbanization with underlying mechanisms.

Prof. Yeh used this model to explain China’s urban development. The pre-reform period (1949-1978) constituted the first wave of urban transformation in China. The socialist state internalized all types of market activity to achieve rapid industrial development. The commodity market was replaced by a hierarchical distribution system. Labor and capital goods were subject to internal allocations between the departments of the state. Because of the state control on mobility, the common problems of early-stage urbanization in many developing countries did not occur in China.

The second wave of urbanization lasted through the early reform and rural industrialization (1978-1987). Ideological changes and economic transition significantly altered the relationship between the state and the market during this period. Over the longer term, the Chinese state externalized the market over the last 40 years by dramatically expanding its scope. However, unlike Russia and other Eastern European countries, the market transition in China was gradual. Prof. Yeh explained that China’s urban development strategy in the 1980s was to ‘leave the land but not the village’ and ‘enter the factory but not the city’. This demonstrated that even though the state externalized the market, it still controlled the resources and factors of production.

The third wave (1988-2001) of urbanization was centered in land, according to Prof. Yeh’s argument. Rapid urban transformation occurred most prominently in this third wave, enabled by the urban land reform in 1988 as well as the concomitant housing reform. The reform stimulated the consumption of housing as a commodity, which in turn provided much-needed capital to the local government to develop infrastructure. With better infrastructure, the government attracted more foreign investment and used market forces to transform cities. Prof. Yeh also compared the land leasing strategy of Hong Kong with that of the mainland; though both governments raised capital through land auctions, Hong Kong has built more public housing while the mainland local governments invested more in developing the market economy.

The fourth wave (2001-present) has been characterized by the rise of producer services. The entrance into the WTO and the externalization of the service market in China has led to the dramatic expansion of the service sector and changed the distribution of job opportunities. The contribution of the service sector to the national economy rose from 32.9 percent of GDP in 1995 to 46.1 percent in 2013, and from 24.8 percent to 38.5 percent of total employment.

Prof. Yeh concluded his talk by arguing that while urban development in China can be understood through these four waves, it is hard to predict the next stage. As the control of the government becomes weaker and the strength of the market increases, more people may flow into big cities due to economic incentives, which in turn can create social, environmental, and economic problems.

Following Prof. Yeh’s talk, Yu-Hung Hong of STL Lab acted as a discussant to stimulate a wider conversation. Dr. Hong asked about the role of civil society in the framework of the four waves of urbanization in China. Prof. Yeh answered that the government has been and would likely remain a lead player in the urbanization process, but he would expect that the younger generation would play an increasingly important role, in particular demanding more rights like their counterparts in Hong Kong. He explained that in the 1970s, the youth in Hong Kong only cared about making money. But after their annual income leveled off, they began to think about other values such as the environment and quality of life.

Dr. Hong and Prof. Yeh’s discussion also touched on the issue of property tax. Prof. Yeh explained that the inexistence of property tax was largely a result of policy decisions in the 1980s. He said that when the World Bank first suggested that China start leasing land, the Bank also recommended that property tax be collected. Government officials at that time were worried that Chinese citizens were too poor to bear the tax burden and were not familiar with paying personal taxes. Thus, they delayed the enactment of property tax until now.

The forum was then opened to questions from the audience, which covered a wide variety of topics, including a question on what is next for Chinese cities. Prof. Yeh said that China was unique in that it had a national urban development policy from the beginning of its urbanization process, which was not the case in other countries. This has mitigated potential problems such as pseudo-urbanization, which occurs when a large city forms in an area without supporting infrastructure. He also pointed out that the Chinese government has been able to mobilize more resources than other governments around the world. This may help local governments to build satellite cities in order to solve urban problems in the future. For example, the New Town development in Hong Kong failed because there were no local jobs to support the residents of public housing, which in effect created a depressed bedroom community. In China, however, there are SOEs, which the government could relocate to new towns as an economic stimulus. In addition, with the recent failure to meet the target GDP growth rate, local governments may focus on making cities more friendly to their citizens.

Wangke Wu, a Graduate Fellow in the STL Lab, ended the talk by thanking Prof. Yeh, Dr. Hong, the STL Lab, and the audience for the second of many insightful discussions planned to take place as part of the fall 2016 China Talk Series.

-- Wangke Wu, second year MCP DUSP student and STL Fellow

Prof. Anthony G.O. Yeh is Chan To-Hann Professor in Urban Planning and Design and Chair Professor of Department of Urban Planning and Design and Director of GIS Research Centre, and former Dean of Graduate School, Director of Centre of Urban Studies and Urban Planning,  Institute of Transport Studies, and Head of Department of Urban Planning and Design at the University of Hong Kong. He is an Academician of the Chinese Academy of Sciences and Academy of Social Sciences in the UK and a Fellow of TWAS (The Academy of Sciences for the Developing World), Hong Kong Institute of Planners (HKIP), Royal Town Planning Institute (RTPI), Planning Institute of Australia (FPIA), Royal Institution of Chartered Surveyors (RICS) and Chartered Institute of Logistics and Transport (CILT). 

The transition of the Chinese economy from plan to market has led to dramatic economic restructuring and urban transformation since the economic reforms and open door policy in 1978. The state and the market, which are the two basic regulating mechanisms, have significantly changed their role in economic and urban development in this transition in China. We attempt to examine the interplay of the state and the market in facilitating economic growth and producing‘new’ urban space after replacing socialism with state capitalism. Four major waves of urbanization and urban development have been identified, in terms of the interaction of the state and the market in producing different forms of urban development which also bring about economic transition in China. We further examine the new form of urban development in the fourth stage of urbanization which is represented by the rapid growth of producer services and the resulting development of central business districts. Economic transition and urban transformation in China seem to converge with the development pattern of developed and other developing countries. However, embedded in a different state–market interplay, the experience of Chinese cities may be different and not be easily imitated by cities in other developing countries.

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Economic transition and urban transformation of China: The interplay of the state and the market