Nepal can learn from urbanization in China

OVER the last 100 years, Asia chased the urban dream. Dirt roads gave way to concrete and glass-covered high-rises dwarfed ancient valleys as cities grew.

China in particular grew incredibly fast, with industrialization and urban growth moving at stunning speed.

Since the dawn of China’s economic reforms in 1978, mushrooming urban epicentres have lifted many out of poverty and improved livelihoods for hundreds of millions.

China now hopes to share its successful urban experience through the Belt and Road Initiative which will fund infrastructure on trade routes through neighboring countries.

What then can Nepal learn from this and why does Chinese urbanization matter to Nepal?

In part of course because Nepal needs much higher rates of growth to meet the goal of emerging from Least Developed Country status, as well as becoming a middle-income country. It would be good to understand why China succeeded in growing so quickly and also how it has minimized the squalor that has been part and parcel of urban growth in so many Asian countries.

Part of the answer is that, in opening up to the world, China adopted a market-oriented growth strategy. Yet planned urbanization stayed at the core of almost everything.

How can “planning” and “market” share the same sentence? In periods of fast development — from the 1980s to 2000s, Chinese planners went for concentrated yet decentralized growth. Concentrated because they never aimed at the same growth across the country; decentralized because land and housing reforms helped local bodies drive growth. Cities on the coast experimented with export processing zones and new land laws. There was no private ownership of land, but local governments instead sold 50-70 year land leases.

The housing and infrastructure that ensued brought revenues which enriched local governments, in turn funding more urban development. Tax policy meant land tax became an important extra-budgetary revenue for local governments, giving them strong incentives to stimulate local growth. Armed with an abundance of funding, local governments then competed against each other to attract enterprises.

In this way, cities concentrated wealth, population and investment. They kept enterprises at their core, with infrastructure a major component, helping cities on the coast reap the benefits of export trade. Special Economic Zones, export processing zones, and free trade zones offered generous tax breaks and sanctuary from China’s domestic business environment. Foreign companies and joint ventures established there, driving growth and employment and so further boosting revenues to local governments.

The downside is that Chinese central and far western regions developed at a relatively slower pace, at least until now. Safety nets prevented extreme poverty, pending an expected trickle down of wealth from the strong growth on the coast. The Belt and Road Initiative now aims to tackle this by linking lagging regions to markets inside and outside China, with physical and enterprise infrastructure at the core, thereby mirroring the policies which led to the coastal boom.

City regions

But it’s of course not all rosy. Coordination is sometimes a problem. Multi-layered plans by different national agencies and ministries coexist alongside local governments’ separate visions. And there is still urban marginalization, albeit on a lower scale than elsewhere in Asia. In the 13th Five Year Plan, the government grouped smaller and medium-sized cities close to mega-cities into city regions. This is not uniquely Chinese. The notion of city regions also forms part of European and American economic visions.

What does this mean for Nepal? Like China, Nepal’s economy is very concentrated and mainly in Kathmandu, Pokhara and other smaller cities, including those on the open southern border with India.

Does this matter? Probably not for now since development has never been equal, even in high income countries, with concentration and agglomeration acting as driving forces in growth.

There are also great opportunities, most obviously in the new provincial capitals, to plan urbanization and make it work for people living in towns and for the enterprise development that Nepal so badly needs.

And, if the Chinese experience is a guide, good planning will minimize urban sprawl and squalor for better human development, while unleashing growth of enterprises. The impending designation of the new provincial capitals thus provides the obvious trigger for growth-based urban planning, while also keeping human development as a core concern.

Intervening in urbanization to make it work for people and enterprise can lead to better outcomes in terms of economic and human development, as China has so firmly demonstrated.

Nick Maddock is an adviser on livelihoods and employment, United Nations Development Programme, Nepal. Co-author Gloria Xiecun Li is a student of economics at Johns Hopkins University. The article was first published in myRepública.