New city clusters and satellite towns to be major boosters for China's economy

The 14th Five-Year Plan, China's economic blueprint for 2021 and 2025, sets a target of 65 per cent for the urbanisation rate. PHOTO: AFP

BEIJING - China will build more city clusters and ramp up urbanisation in a bid to maintain its current speed of growth.

It also wants to double its middle class in 10 to 15 years to support its new economic strategy, as it pivots away from traditional propellers like property, infrastructure investments and trade that have secured China's dizzying economic growth for more than 30 years.

Speaking with the media on Monday (March 7) night on the sidelines of the annual parliamentary session, Mr Liu Shijin, deputy director of the economic affairs committee under China's top political advisory body, said the economic priority now is to speed up urbanisation in a plan he dubbed "1+3+2".

The 1 refers to China's urbanisation push, while 3 refers to current weaknesses in its economy, and 2 represents new areas for growth.

"The city clusters will be the main drivers for growth in the future, and open up new areas for development," said Mr Liu.

He estimated that these city clusters will contribute between 70 per cent and 80 per cent of China's growth in the future, given their tendency to draw investments and raise the area's productivity.

The 14th Five-Year Plan, the country's economic blueprint for 2021 and 2025, sets a target of 65 per cent for the urbanisation rate. The rate exceeded 60 per cent as at end-2020.

Professor of economics Tan Kong Yam at Nanyang Technological University said that central and western China, which are less developed, have more scope to grow as they have a relatively low urbanisation rate of between 45 per cent and 60 per cent.

They can hit 75 per cent in the next 15 to 20 years, added Prof Tan, who is also deputy chairman at APS Asset Management (China).

On the 1+3+2 plan, Mr Liu said: "Fulfilling these areas should put China on a path of high-quality and sustainable growth in the long term."

On its three weaknesses, China will need to work harder at expanding its middle class, raising the productivity of basic industries such as iron and steel, and strengthening its basic research and development (R&D), he added.

Green development and the digital economy are the two wings of growth that China will focus on.

Mr Liu pointed to how Songshan Lake was previously known only as a beauty spot, but IT giant Huawei's move to set up its R&D campus there in 2018 spurred the lake's economic productivity.

The campus is about a 40-minute drive from Huawei's headquarters in tech hub Shenzhen.

Mr Liu said another example of satellite towns is to develop small towns around main cities for the elderly in China, who are looking for retirement homes where they can grow fruits, vegetables and flowers. China faces a fast-greying society.

"There is a demand for such towns, and this is where property developers have the potential to grow," he said, adding that demand for transport will increase as well, with the rise in metropolises. As a result, infrastructure investment will grow.

China is also aiming to double its middle class, which numbers about 400 million people now, in about 10 to 15 years.

Growing this group is in line with the national common prosperity drive, which emphasises an olive-shaped economic profile - where the majority are in the middle class - for a fairer society, he added.

Dr Tommy Wu, lead economist at Oxford Economics in Hong Kong, said the urbanisation strategy "fits well into achieving the goal of common prosperity".

"This will also help to rebalance China's economy away from debt-fuelled, investment-driven towards innovative, consumption-driven."

The changes need to happen as China's economy matures and needs to find more sustainable ways to grow, Mr Liu said.

China was the first major economy to bounce back from Covid-19, recording 2.3 per cent growth in 2020. Last year, growth was 8.1 per cent, but much of that came in the first half, with the economy slowing to just 4 per cent in the fourth quarter.

At the opening of the top legislature, the National People's Congress, last Saturday, Premier Li Keqiang announced that China is aiming to grow its economy by 5.5 per cent, a target he said the government will have to work hard for.

Economists have questioned whether Beijing has set its sights too high this year, considering the tepid growth in the last quarter of 2021.

Mr Liu said the target of 5.5 per cent was based on China's growth for 2020 and 2021, which averaged 5.1 per cent.

The 5.5 per cent reflects China's "underlying potential, and we need to work hard to hit this target", he said.

He noted that China's growth in the "many years to come" will average between 5 per cent and 5.5 per cent.

Premier Li predicts that China's economy will peak in the third quarter this year, following a slow start in the first quarter because of the weak sentiment that lasted into the new year.

He expects the government's efforts to start showing in the second and third quarters' figures before growth starts to slow down again in the fourth quarter as the year winds down.

Expanding 5.5 per cent this year would be China's lowest level of growth in decades.

Its growth has been slowing in the past 10 years, with its pre-pandemic growth hovering between 6 per cent and 6.5 per cent, down from the double-digit growth when it opened up its economy in the 1990s.

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