When provinces fought back against reform

Here is an interesting and little-known episode from the early days of China’s reform era, dealing with the early days of the household responsibility system in the 1980s. The adoption of this system, a fancy name for allowing individual farmers to manage their own plots, is one of the most storied episodes in Chinese economic reform, and is often portrayed as a kind of bottom-up revolution by farmers fed up with collectives.

The household responsibility system did indeed spread rapidly once Deng Xiaoping and the central government endorsed it, but there were some holdouts. The governments of the three northeastern provinces–sometimes called the “little Soviet Union”–had a strong attachment to Soviet- and Mao-style collectives that could practice large-scale mechanized farming, and fought back against the household responsibility system:

Because the problems of collective farming were so widely recognized for so long, unless the center’s preference did not differ, many provinces were willing and eager to adopt the system of household farming. If the new policy could bring about enhanced productivity and increased income, there would be little lost on the part of the provincial authorities. Furthermore, household-based experiments of the 1960s provided some assurance about the workability of the new system.

The same could not be said of a few “resisters”: Heilongjiang, Jilin, and Liaoning. The average compliance rate for these three provinces was only 26.9 percent in December 1982. Even in December 1983, the rate stood at 92.1 percent, still lower than the national average by 6.2 percent. The common factor for these Northeast provinces was a complex relationship between the size of land available to individual households, the average size of a production team, and the specific type of mechanization pursued there. Unlike elsewhere in China, the Northeast provinces had an exceptionally large plot of land for each household, which was not susceptible to manual labor or even small machinery-based mechanization.

Spread of HRS

Heilongjiang, for instance, highlighted the unique characteristics of the province as follows: “Our province has one outstanding difference from the rest of the country: our province is a region of modernized large-scale agriculture…with a mechanization level of 60 percent…. This indicates the advanced level of our production forces. Therefore, the implementation of the household responsibility systems should proceed in accordance with these local characteristics.”

Even after Central Document No. 1 [of 1982] was issued, Heilongjiang was still of the position that the scope of household-based farming was to be confined only to poor teams (accounting for 15 percent of all teams there) with low levels of mechanization and that the pace of implementation should be gradual in accordance with the principle of safeguarding local interests. Liaoning’s and Jilin’s positions differed little from that of Heilongjiang throughout 1982–1983.

Over time, Beijing came to identify the pace of local compliance with the legitimacy of the policy, thereby raising the level of urgency for the reform. Soon, Beijing put political pressure on the noncomplying provinces, starting in the second half of 1982. In July, Premier Zhao Ziyang visited Liaoning and called for an immediate popularization of the household responsibility reform in the Northeast. In August, Hu Yaobang went to Heilongjiang, where he criticized the sluggish pace of decollectivization there. In October, Du Runsheng of the Rural Development Research Center issued a stern warning: “In carrying out the household responsibility reform, we have to continue liberating our ideology and relax control…. A few regions are still unwilling to act on the demands of the masses by refusing to change the ‘one big bowl’ situation.”

Beijing’s pressure reached its apex with the speech by Wan Li, vice-premier in charge of agriculture at the National Agricultural Secretaries Conference in November. Wan remarked: “Comparatively speaking, the household responsibility reform has not been successful in all corners of our countryside. In fact, there exists certain ‘passivity’ in many areas and, in some areas, such passivity is of a very bad sort…. The implementation of contracting to the household has not been very smooth due to the obstruction on the part of some leading cadres.”

Heilongjiang and its first party secretary, Yang Yichen, did not succumb to the pressure from Beijing. One day after the publication of Wan’s speech, Yang delivered his own at the Prefecture, County and City Party Secretaries’ Work Conference: “In determining which responsibility system to implement, we have to value the opinions of the masses that will eventually choose a system on the basis of their local conditions.”

The center drew the last card: personnel reshuffle. In February 1983, Yang Yichen was transferred to Beijing as the supreme people’s procurator-general. Given that his transfer had already been decided in December 1982, Yang’s speech was apparently the last expression of his firm stance on the household responsibility reform. With Yang’s departure, Heilongjiang’s pace of implementation skyrocketed within two months, from 12 percent in December 1982 to 73 percent in February 1983. Because Yang’s successor, Li Li’an, was known to be sympathetic to the decollectivization reform, Heilongjiang’s household responsibility reform took off thereafter.

The quote is from Jae Ho Chung’s Centrifugal Empire: Central-Local Relations in China.

The topic of local resistance to reform seems timely, as it’s emerged as a persistent theme under Xi Jinping. Premier Li Keqiang made headlines in 2014 when he called local officials “passive” and “lax,” and this year Xi Jinping devoted much of a meeting of his reform task force to urging better implementation of reform plans.

The comparison with the 1980s episode helps clarify some of the differences: it doesn’t look like China is experiencing ideologically driven local opposition to specific reforms. Rather, as investigations into the resistance to reform have found, the central government is making huge numbers of contradictory demands on local officials, and then punishing them severely when things go wrong. The result is an understandable lack of willingness to take risks and make commitments, quite the opposite of the valorization of local initiative and experiments in the 1980s.

The socialist urbanization series

In 2014, China adopted what it called a “new-style” urbanization policy. But it was more like “everything old is new again.” Rather than resetting priorities, the policy reinforced many of the existing tendencies: a desire to control and even reduce the population of the largest cities, and a preference for pushing population flows into smaller cities.

These goals are now being backed by ever more forceful measures, as the government adopts coercive methods to reduce the population of Beijing and Shanghai, and launches megaprojects to resettle people in entirely new cities. Understanding this development has been a recent obsession of mine. Here’s what I have learned so far:

 

Friedrich Engels is still shaping Chinese cities, 120 years after his death

In my last post I wrote about how China’s distinctive urbanization policies–capping the population of big cities and encouraging population flows to smaller and inland cities–are a holdover from the planned-economy era. In the 1950s, the new People’s Republic adopted much of the Soviet model including its urban strategy, which guaranteed good benefits to the existing residents of big cities but tried to avoid extending those benefits to many more people, instead promoting the growth of smaller urban centers.

But where does this distinctive set of ideas about the right way to organize cities come from? After doing some more reading, I have come to the conclusion that these are not just arbitrary choices of authoritarian governments, but part of the intellectual heritage of socialism itself. It goes all the way back to the founding fathers.

Marx’s collaborator and editor Friedrich Engels (1820-1895) argued that socialism should pursue not only the public ownership of the means of production, but also a significant geographical redistribution of population and industry in order to reduce their concentration in large cities. These ideas are stated most clearly in a passage from his Anti-Dühring. Although long by blog standards, I’m reproducing all of it here so that the logic of the original is not lost:

Water-power was local; steam-power is free. While water-power is necessarily rural, steam-power is by no means necessarily urban. It is capitalist utilisation which concentrates it mainly in the towns and changes factory villages into factory towns. But in so doing it at the same time undermines the conditions under which it operates. The first requirement of the steam-engine, and a main requirement of almost all branches of production in modern industry, is relatively pure water. But the factory town transforms all water into stinking manure. However much therefore urban concentration is a basic condition of capitalist production, each individual industrial capitalist is constantly striving to get away from the large towns necessarily created by this production, and to transfer his plant to the countryside. This process can be studied in detail in the textile industry districts of Lancashire and Yorkshire; modern capitalist industry is constantly bringing new large towns into being there by constant flight from the towns into the country. The situation is similar in the metal-working districts where, in part, other causes produce the same effects.

Once more, only the abolition of the capitalist character of modern industry can bring us out of this new vicious circle, can resolve this contradiction in modern industry, which is constantly reproducing itself. Only a society which makes it possible for its productive forces to dovetail harmoniously into each other on the basis of one single vast plan can allow industry to be distributed over the whole country in the way best adapted to its own development, and to the maintenance and development of the other elements of production.

Accordingly, abolition of the antithesis between town and country is not merely possible. It has become a direct necessity of industrial production itself, just as it has become a necessity of agricultural production and, besides, of public health. The present poisoning of the air, water and land can be put an end to only by the fusion of town and country; and only such fusion will change the situation of the masses now languishing in the towns, and enable their excrement to be used for the production of plants instead of for the production of disease.

Capitalist industry has already made itself relatively independent of the local limitations arising from the location of sources of the raw materials it needs. The textile industry works up, in the main, imported raw materials. Spanish iron ore is worked up in England and Germany and Spanish and South-American copper ores, in England. Every coalfield now supplies fuel to an industrial area far beyond its own borders, an area which is widening every year. Along the whole of the European coast steam-engines are driven by English and to some extent also by German and Belgian coal. Society liberated from the restrictions of capitalist production can go much further still. By generating a race of producers with an all-round development who understand the scientific basis of industrial production as a whole, and each of whom has had practical experience in a whole series of branches of production from start to finish, this society will bring into being a new productive force which will abundantly compensate for the labour required to transport raw materials and fuel from great distances.

The abolition of the separation of town and country is therefore not utopian, also, in so far as it is conditioned on the most equal distribution possible of modern industry over the whole country. It is true that in the huge towns civilisation has bequeathed us a heritage which it will take much time and trouble to get rid of. But it must and will be got rid of, however, protracted a process it may be.

This is a complex and not totally consistent set of ideas. Both Marx and Engels did on various occasions praise the intellectual and other advances that accompanied 19th century urbanization. But, as in the above passage, they also criticized environmental degradation and the living conditions of the urban proletariat. Engels saw urbanization and industrialization as a necessary part of progress, but not as the ultimate end goal. So while he did not oppose urbanization and industrialization per se, he thought they should be done differently under socialism. It’s this commitment to pushing back against the natural dynamics of urbanization that became a hallmark of socialism.

These ideas would likely have remained vague and unformed suggestions had they not been put into very forceful practice by the leadership of the Soviet Union. The following remark by Lenin in 1914 show particularly clearly how he was influenced by this strand of Engels’ thought:

Capitalism breaks for all time the ties between agriculture and industry, but at the same time, through its highest developed, it prepares new elements of those ties, a union between industry and agriculture based on the conscious application of science and the concentration of collective labor, and on a redistribution of the human population–thus putting an end both to rural backwardness, isolation and barbarism, and to the unnatural concentration of vast masses of people in big cities.

Lenin was particularly fond of talking about what Engels called the “abolition of the antithesis between town and country”. Agricultural collectivization was a big part of this concept: making agriculture more like industry, organized into big, capital-intensive state farms. The enormous suffering and dislocation that were caused by collectivization in both the Soviet Union and China are well known. But the drive for geographic redistribution of industry and the urban population is a less widely appreciated aspect of the same concept. Since cities spring up around industry, spreading industry evenly around the country also means spreading cities evenly.

The evidence for how important these ideas about geographical redistribution is less in what leaders said than in what the Soviet Union did. It did in fact pursue a massive redistribution of the population across Russia’s vast expanses, founding many new cities and attempting to limit the concentration of population in Moscow. Even today Russia and Ukraine have much less concentrated and more distributed urban populations than is the global norm:

socialism-urban-concentration

China today has an even lower degree of urban population concentration than Russia, probably because it has been practicing socialist-style urbanization policies fairly consistently since the 1960s. Indeed, Mao followed Lenin and Stalin in being a proponent of Engels-style “equal distribution of industry.” Here is a passage from his famous 1956 speech on the economy, “On the Ten Major Relationships“:

In the past our industry was concentrated in the coastal regions. By coastal regions we mean Liaoning, Hopei, Peking, Tientsin, eastern Honan, Shantung, Anhwei, Kiangsu, Shanghai, Chekiang, Fukien, Kwangtung and Kwangsi. About 70 per cent of all our industry, both light and heavy, is to be found in the coastal regions and only 30 percent in the interior. This irrational situation is a product of history. The coastal industrial base must be put to full use, but to even out the distribution of industry as it develops we must strive to promote industry in the interior. …

It does not follow that all new factories should be built in the coastal regions. Without doubt, the greater part of the new industry should be located in the interior so that industry may gradually become evenly distributed; moreover, this will help our preparations against war. But a number of new factories and mines, even some large ones, may also be built in the coastal regions.

What scholars politely call China’s “distributed” pattern of urbanization could therefore more accurately be called the “socialist” pattern of urbanization. Given that two of the world’s largest countries have this pattern, a big chunk of the Eurasian landmass is affected. It is rather amazing that some 19th century polemics against urbanization would have such an enormous effect on the physical landscape and living conditions of hundreds of millions of people.

Is this just a costless esthetic preference for a different type of urban layout, or a more serious economic problem? I increasingly incline to the latter view. The World Bank’s unbelievably thorough Urban China report from 2014 amounts to an extended argument about the economic costs and lost opportunities resulting from a distributed urbanization policy and the limits to migration in the hukou system:

In an economic sense, these administrative barriers work like an expensive tax on migration; based on current productivity differences between agriculture and urban occupations in industry or services, every 1 percent more migration from rural to urban areas would yield 1.2 percent more GDP. At the current level of mechanization, agricultural surplus labor is estimated to be 105 million people, and this could increase as China’s agricultural modernization accelerates. If China’s migration rates had matched those of Korea’s in the past, China’s economy would be nearly 25 percent larger today.

The report argues that China does not need to particularly favor big cities, but that it should adopt neutral urbanization policies rather than continuing to try to limit overall migration and redirect population flows into smaller inland cities. But that argument has not been successful: the “new-style” urbanization plan adopted in 2014 in fact reinforced measures to restrict growth of the largest cities, in the much the same terms as in the 1950s. China is becoming more not less committed to the socialist pattern of urbanization.

In Beijing’s population cap, echoes of the Maoist and Soviet eras

One of the most visible Chinese government policies of late is the campaign to reduce the population of Beijing (and Shanghai); in order to push out migrants, their children have been expelled from local schools, and the shops and markets they work at have been demolished. Lucy Hornby at the Financial Times has a good summary:

The Chinese capital will cap its population at 23m “long-term residents” by 2020 “and keep it at that level for the long term”, a city government notice said. The permanent population of Beijing’s central districts dropped by 353,000 last year, according to municipal data released last week. The capital’s official population is now close to 22m. …

In the past two years Beijing has torn down wholesale markets and made it harder for children to attend school in order to force out migrant families. In 2016 the capital tore down 30m square metres of small shops, restaurants and fruit stands deemed “illegal construction”. It is targeting the destruction of 40m sq m this year, shrinking the land zoned for construction to 2,760 sq km by 2030 while expanding parks and gardens.

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Former shops in Beijing’s Tuanjiehu neighborhood

In both the population caps and the increasingly harsh methods used to implement them, it is easy to hear echoes of the planned-economy era. In 1955, for instance, State Planning Commission chairman Li Fuchun launched China’s first five-year plan with an exhortation to control the size of large cities and shunt population elsewhere:

Our present task in urban construction is not to develop the large cities on the coast, but to develop medium and small cities in the interior and to restrict appropriately the expansion of the large cities. The present blind development of the coastal cities is a problem that has to be corrected.

60 years later, the government is still capping the growth of China’s largest cities, and Premier Li Keqiang is still saying “We will promote the development of small towns and small and medium-sized cities in the central and western regions”–a rather striking continuity.

The justifications that 1950s planners offered for controlling the growth of big cities also sound very familiar. Here is an excerpt from a 1958 article in the Workers’ Daily by one Zhao Qingwu, entitled “Why Must We Reduce Urban Population?” (translated in Christopher Howe & Kenneth R. Walker, The Foundations of the Chinese Planned Economy: A Documentary Survey, 1953-65):

Urban public communications, hotels, restaurants, department stores, hospitals, cultural establishments, and many other public places, were overcrowded and inconvenient. None of the measures proposed to alleviate this were able to keep pace with the requirements of the increased population, and this has placed a heavy burden on the cities. Moreover, since the rural population, which is blindly flowing into the cities, cannot find work, hardships easily arise in those peoples’ lives. They drift about the streets to such an extent that a minority get led astray by bad elements. They steal, swindle and engage in other criminal activities that endanger the normal social order of cities. From analysis of the above circumstances, we can see clearly that we must reduce urban population, restrict peasants from blindly flowing into the cities, and lighten the cities’ burden.

Again, the contemporary narrative about overcrowding and the “city disease” is very similar.

Chinese planners seem to have inherited this distaste for large cities from the Soviet Union, which was the direct inspiration for much of what China did in the 1950s. The following discussion is from Fiona Hill and Clifford Gaddy’s The Siberian Curse: How Communist Planners Left Russia Out in the Cold, a very interesting book on Soviet economic geography:

In addition, in the 1950s and 1960s, Soviet urban planners became concerned about the impact on the USSR of trends in the West toward increasingly large cities. They attempted to prevent the development of so-called “city-giants” by trying to cap the population of large Soviet cities at 250,000– 300,000. …

From the very beginning of the Soviet regime, state planners sought to limit Moscow’s population. The internal passport and propiska system of 1932 [a Soviet analogue to China’s hukou system] was designed not only to control internal migration in the USSR, but also to prevent a massive influx into the Russian capital. In 1935 the Communist Party Central Committee tried to cap Moscow’s population at five million, but in the aftermath of World War II, postwar reconstruction efforts drew more and more villagers from surrounding areas to Moscow.

The interesting question is why there is such a strong continuity in how Chinese officials think about cities, since so much else has changed in China. For instance, one of the planned-economy justifications for controlling urban populations was that it was necessary to economize on “unproductive” investment in housing in order to put more money into heavy industry. Contemporary China has if anything completely reversed this logic, going to ever greater lengths to continue high levels of investment in housing. But it is still trying to “economize” on urbanization by limiting access to the higher-quality and more-expensive social services offered to residents of the big cities.

The decision to cap the population of Beijing and Shanghai also shows a very clear judgment that the potential decrease in welfare of existing residents (through crowding and congestion) is more important than the potential increase in welfare of new migrants (through higher incomes). The government thinks it should provide more amenities to the extremely well-off residents of megacities rather than allow more people to become well-off residents of megacities.

Such a deeply inegalitarian value judgment is embedded in China’s hukou system, which divides the population into groups with different rights and privileges. Increasingly the hukou system is not just enforcing a division between urban and rural people, but between different tiers of urban people. Here is a passage from “The Origins and Social Consequences of China’s Hukou System,” a 1994 article by Tiejun Cheng and Mark Selden, that I found enlightening:

Throughout the People’s Republic policymakers have consistently assumed both that the countryside could absorb virtually unlimited supplies of labour, and that feeding the rural population was the responsibility of each locality. The administrative and welfare responsibilities of the state would in essence be confined to the small minority of the population living in urban areas. One reason for this hypersensitivity to urban problems is the fact that the new state accepted more or less axiomatically from the start (presumably derived from Soviet practice) a responsibility that no previous Chinese state had ever assumed: to provide jobs and subsidized food and housing for all urban residents.

While the planned economy that guaranteed jobs and housing for all urban residents may be gone, it seems that some of the underlying political assumptions–that the state should look after the welfare of some urban residents first–still remain.

Somehow I’m not surprised that Chinese housing subsidies also mainly benefit the better-off

By now a fair amount of research has established that the U.S. tax deduction for mortgage interest, though often called a middle-class tax break, mainly benefits wealthier people. China differs from the U.S. in that it tends to deliver its subsidies less through the tax system and more through elaborate bureaucracies.

But some interesting new research indicates that China’s main main housing subsidy–a kind of “housing savings account” with an employer match–is also very unequal in its impact. These are what seem to be the key findings of a report on the housing fund by the China Institute for Income Distribution (Caixin has a summary of the report in English and Chinese; unfortunately I can’t find the full text of the report online):

  • About 124 million workers were paying into the housing fund in 2015, or approximately 40% of the urban workforce. Which means that roughly 60% of the urban workforce does not benefit from the subsidies available through the fund.
  • Coverage of the fund is also highly skewed to public-sector workers. About 90% of workers in public institutions (schools, hospitals) are covered by the fund, as are 70% of workers in state-owned enterprises (who generally have above-average incomes). But only 50% of workers at foreign-invested enterprises are covered, and only 10% at domestic private firms, probably because fewer private employers want to pay for the benefit.
  • The number of workers who actually use the money in the fund is relatively small, probably because the application process is difficult and takes several months. The report estimates that only about 30% of the workers who have ever paid into the fund have actually withdrawn money from it.
  • Use of the fund is also highly skewed by income. The report estimates that on an annual basis, 0.9% of workers in the bottom 20% of urban incomes withdraw from the fund, while 4.7% of workers in the top 20% of urban incomes do so.

Perhaps, despite the many other major differences between China and the U.S., the political economy of “middle-class” housing subsidies is ultimately pretty similar.

The caveat to this is that the housing fund is far from the only form of housing subsidy out there; since 2010 China has engaged in a massive government-sponsored effort to build low-income urban housing. But that program has also been dogged by suspicion that its cheap apartments go to people with connections rather than the deserving poor.

 

 

New industry clusters are springing up in the same old places

You have to love the fact that all four of China’s main private-sector express-delivery companies–the guys shuttling all those Taobao packages around the country–are from the same tiny place. Gabriel Wildau at the Financial Times recently did a nice piece on the phenomenon, and Bloomberg has also picked up on it. It’s one of the most striking examples of the “cluster” phenomenon you can find.

tonglu

But here’s the thing: the Tonglu cluster, for one of the biggest new-economy growth sectors, is right next to a bunch of other, older clusters. Zhejiang is famous for its specialized light-industry concentrations; a very good World Bank history of these clusters tells the stories of Haining for warp-knit cloth, Qiaotou for buttons, Yiwu for zippers, Yongkang for metalware; Wenzhou for cigarette lighters is another well-known one. Years ago I visited Zhili, a children’s clothing cluster, to write a piece for the WSJ.

At the time it was common to worry about the future of these places because of rising labor costs. But exports from China and Zhejiang have in fact held up better than many expected. And the Tonglu example suggests that Zhejiang’s real competitive advantage is not low labor costs, but a highly flexible and entrepreneurial economy that can adapt quickly to changing trends. This structure has deep historical roots: Zhejiang (along with Jiangsu) has had one of the least state-dominated economies of any Chinese province for as long as statistics have been kept.

If the coastal provinces are transitioning successfully from export-oriented industry to high technology and services, then patterns of regional advantage are being entrenched rather than overturned by structural changes in the economy. Enrico Moretti, in his The New Geography of Jobs, argued that “the knowledge economy has an inherent tendency toward geographical agglomeration.” China certainly seems to demonstrate the point: Just six provinces–Beijing, Shanghai, Guangdong, Jiangsu, Zhejiang, and Shandong–account for about 60% of national R&D spending. The same six provinces account for about 40% of national investment in information technology and software. The clusters of the future seem likely to appear not very far from the clusters of the past.

 

Ren Zhiqiang has an acerbic take on Xi Jinping’s urban planning

There’s been an extraordinary amount of hype about the government’s plan to build a new city southwest of Beijing; some are saying it could be China’s biggest public-works project ever. The plan for the Xiongan New Area was personally overseen by Xi Jinping himself, according to an official account, and it has been lauded as a qian nian da ji, or roughly a “great plan for the next millennium.”

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Xi Jinping inspects the Xiongan New Area

Xiongan is the latest development in the Beijing-Tianjin-Hebei integration plan, a pet project of Xi’s that aims to develop the regions around the capital. The official line is that the creation of the new city will ease Beijing’s pollution and congestion problems by allowing some less essential facilities and functions to be relocated out of the capital. But the enormous propaganda blitz has not permitted much detailed discussion of the specific benefits and costs of these initiatives.

So this seems like a good moment to air some critical views, which are not being permitted much space domestically. The piece below was published by the outspoken property tycoon Ren Zhiqiang in August 2015, before Ren was censured for his public criticism of Xi Jinping’s policies. The article has been repeatedly deleted from Chinese internet sites, though it can still be found by searching for its title. Since the Xiongan announcement, the piece has been getting forwarded around again, and its argument is still relevant.

Here is my somewhat abridged translation:

Once again a new wave of construction is being prepared, in the name of Beijing-Tianjin-Hebei integration and to support the development of the capital. It has really made everyone excited! But after reading these propaganda documents and summaries, I do not see there is anything that should make people happy.

China has shouted out the slogan of “urban-rural integration” before, but why was there no way to achieve such a goal? The root cause is that there was no way to break down the restrictions on free movement and migration in the hukou system. And this has produced a whole series of related problems.

In the planned economy era, population movements were restricted, and the people’s communes used the so-called “integration of government administration and economic management” to tie farmers to the land. After the reform of the household responsibility system and national identity cards, farmers could leave their land and go to the cities. But the hukou system did not allow them to change their identity as peasants. “Rural migrant workers” took the place of the working class. Social security, healthcare, education, housing, family–all are still linked to the land.

Whenever I see these slogans of “urban-rural integration” and “Beijing-Tianjin-Hebei integration” I think, if we cannot make human rights equal, and completely eliminate all vestiges of these differences [created by the hukou system], then how can we discuss integration? Can Hebei and Tianjin people equally share all the rights of Beijing hukou holders? Can they share Beijing’s benefits of education, health care, social security, employment and so on?

This so-called integration is nothing more than Beijing squeezing out the industries, businesses, and people that it doesn’t want, and arranging them in Hebei and Tianjin. In this way Beijing can still enjoy the goods and services they provide, but does not have to bear the burden they put on Beijing. The end result of this so-called integration is to dump a big burden on the surrounding areas, in order to ensure that Beijing can meet its goal of strictly controlling its population.

Even the purchase of housing in Tongzhou [a suburb of Beijing where some city government offices are being relocated] by people who have a Beijing hukou and pay taxes in Beijing has become a barrier that integration cannot cross. So how can the population of Hebei and Tianjin be integrated?

Urban density is the result of market competition, and also the result of a choice between urban and rural areas. Not to acknowledge the role of competition and choice, and to attempt to use the government’s administrative power to force integration, must result in failure.

Market competition necessarily leads to concentration of technology, resources, human capital and innovative capability; these resources will be matched with the most advantageous areas, where their returns are highest. Currently they are being concentrated in cities, especially large cities. No administrative power can change these flows and this concentration. Economic rules cannot be changed by decree.

Some people say the equalization of public services and public resources can solve this problem. Can public services really be equalized? Yes, they can. But this requires the whole society to have reached a relatively high level of economic development. Currently even developed countries like the U.S., U.K., Germany, and Japan cannot achieve this goal, so how can China in its current circumstances achieve it?

Let me ask a question: to punch someone with the most force, do you open your fingers, or close them into a fist? If we took those great professors who are concentrated in Peking University and Tsinghua University and “equalized” them by sending them to backward regions, would this raise or lower the overall level of education? If all of Beijing’s good doctors were “equalized” out into backward areas, would this improve the level of health and research capabilities?

Does the process of “integration” and “equalization” raise the efficiency of resources? Or is it just the use of [political] authority to redo the allocation of industries and human resources? And will the market agree?

When Tongzhou prevents people who do not have a local hukou from entering, can it develop talents on its own? It is hard to see how blocking talented people from moving in can benefit Tongzhou’s overall development. When Beijing strengthens these kind of restrictions in order to control its population, can it attract talented people? How can you know who can become a great entrepreneur or political leader?

When urban incomes are so far above rural incomes, when incomes in Beijing are so far above those in Hebei and Tianjin, how can people not be allowed to seek those high-income jobs? 38% of China’s rural population is engaged in agricultural work, but this only generates 9.5% of its GDP. This is root cause of the urban-rural divide and income gap. If urbanization cannot be used to lead more farmers to change their economic role, how can this income gap be eliminated?

All countries in the world have faced the same conflicts in the process of urbanization, but there is not one that has used administrative power to limit urbanization. All have dealt with it by using market methods and allowing people to freely choose. And in fact when people in the cities can get along harmoniously, this raises the efficiency of cities. …

After many years of reform in which China has moved from complete public ownership to allowing some private ownership, most people have already become property owners. Even more people are working hard in hopes of becoming property owners. So the allocation of financial and other assets is decided by their owners, not by administrative power. If it limits property owners’ freedom to deploy their assets, then they will have no choice but to move abroad.

The backward areas of Hebei may feel that these industries that Beijing is getting rid of are actually an advance for them. Those industries that Beijing thinks use too many resources and generate too much pollution can perhaps generate higher incomes than agriculture. But is it only possible to reduce pollution in advanced regions, or is it also possible to reduce pollution in backward regions? Is this kind of transfer of industries being more responsible to society and to nature, or is it just passing off responsibility?

Perhaps the final goal is still to integrate Beijing, Tianjin, and Hebei, and to optimize the city of Beijing. But this goal is not one that can be decided by administrative power.

Today China Mobile just canceled roaming charges among the three regions [of Beijing, Tianjin, Hebei]. But how many restrictive policies have not yet been canceled? Can cars without Beijing license plates freely enter Beijing? Why can Beijing create restrictions, but Tianjin and Hebei cannot? Can this lead to integration?

When a society based on small farmers modernizes, individuals become the main actors in both economic production and social life. The prosperity of a region or a city, and even of a nation and a people, depends on the innovative capabilities of individuals, and is decided by the depth and extent of innovation. It is not something that can be decided by administrative power. When any administrative official limits or blocks an individual’s innovative capacities and ability to choose their environment, it must weaken the spirit and development of innovation, and harm the overall economy.

This so-called integration is not a market-based process. A shift to rely once again on administrative power to arrange the pattern of economic development must ultimately be a failure.

In conclusion, when CCTV is cheering for Beijing-Tianjin-Hebei integration, a rational understanding of the story behind it may be necessary. A clear head leads to fewer mistakes.

I don’t really agree with Ren’s market fundamentalism, which is rather explicitly a counsel of despair for everywhere but the most developed urban centers. It is however another example of how economically-liberal thinkers in China are increasingly hostile to the government’s regional development policies, which they see as a huge waste of resources recalling the failures of the planned economy.

But I think Ren is right to call attention to how the grand plans for “integration” call for lots of more-or-less forcible relocations of people and industries, but do nothing to break down the hukou system’s institutionalized discrimination based on geographic origin. On the whole I think China could do with less focus on building new development zones and more focus on liberalizing migration.