Inputs and Materials: Economic Policy Dialogue among Asian Transition Countries “Urbanisation and Inclusive Growth”

Regional Economic Cooperation and Integration in Asia

INPUTS AND MATERIALS

Conference

Economic Policy Dialogue among Asian Transition Countries

“Urbanisation and Inclusive Growth”

Imprint

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Text

Eric Herbstreit and Torben Niemeier

GIZ is responsible for the content of this publication. The findings and conclusions expressed in this documentation are entirely

those of the authors. They do not necessarily represent the view of the Deutsche Gesellschaft für Internationale Zusammenar-

beit (GIZ). The information provided is without warranty of any kind.

On behalf of the

German Federal Ministry for Economic Cooperation and Development (BMZ)

Economic Policy Dialogue among Asian Transition Countries 2

Contents

List of Abbreviations 3

1. Introduction 4

2. Welcoming Remarks 6

3. Advancing Transformation of Scale-oriented Urbanisation into Population Urbanisation

8

4. Fiscal Constraints and Political Challenges 11 4.1 Citizenisation of migrant workers from the perspective of Inclusive Growth 11 4.2 New-type urbanisation and reform of public finance systems 12 4.3 Urban Development and SEZ in Lao PDR 13

Comment by Gerhart Maier 13

5. Rural Population and Administrative Reform 14 5.1 Urbanisation should be advanced actively and steadily 14 5.2 New-type urbanisation and support of public finance 15 5.3 Rural-Urban Integration and Economic Growth 16 5.4 Urbanization development and inclusive growth. The case of Lao PDR 17

Comment by Dr. Robert Haas 19 Comment by Farhodhon Jurahonov 19

6. Sustainable Urban Population Development 20 6.1 Urban Population Development in Mongolia 20 6.2 The Specific Character of Urbanisation in Kyrgyzstan 21 6.3 Mongolia: Urban Population Development 22 6.4 Urbanisation in two core cities (Hanoi and Ho Chi Minh City): highlights, challenges and policy orientations for inclusive growth

23

Comment by Fuad Jafarly 25

7. Conclusion 26

3 Economic Policy Dialogue among Asian Transition Countries

List of Abbreviations

ADB Asian Development Bank

CIEM Central Institute for Economic Management

CIRD China Institute for Reform and Development

EU European Union

GDP Gross Domestic Product

GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH

GNI Gross National Income

GTI Greater Tumen Initiative

ODA Official Development Assistance

RCI Regional Economic Cooperation and Integration in Asia Programme

RMB Renminbi

SEZ Special Economic Zone

UN United Nations

UNDP United Nations Development Programme

UN HABITAT United Nations Human Settlements Programme


Introduction

From 27th to 28

th of April 2013, the China Institute for Reform and Development (CIRD) and the Cen-

tral Institute for Economic Management (CIEM) of Viet Nam in cooperation with Deutsche Gesell-

schaft für Internationale Zusammenarbeit (GIZ) GmbH convened an Economic Policy Dialogue

among Asian Transition Countries on “Urbanisation Development and Inclusive Growth” in Haikou,

People's Republic of China. The following pages summarise the themes and results of this event.

Detailed information including the content of lectures and discussions can be retrieved from the re-

spective summaries. The conference handbook provided during the conference holds additional in-

formation

Purpose

The annual conference, which was initially started in 2004 as Sino-Vietnamese Economic Reform

Dialogue by CIRD and CIEM, over time has expanded to become an established forum with other

Asian transition countries. It is based on the recognition of similarities in economic reform needs and

approaches in Asian transitional economies and aims at hastening the pace of respective reform

processes while at the same time enhancing their sustainability through mutual learning and the ex-

change of lessons learnt. This years' forum was attended by more than 200 delegates, including offi-

cials, senior policy experts and researchers from Azerbaijan, Cambodia, China, Kyrgyzstan, Lao Peo-

ple's Democratic Republic, Mongolia, Viet Nam and Uzbekistan, as well as representatives from the

Greater Tumen Initiative (GTI) and from the organising bodies CIRD, CIEM and GIZ.

Background

Urbanisation rates in Asia in the last three decades are unprecedented in history. According to “Key

Indicators for Asia and the Pacific 2012” issued by the Asian Development Bank (ADB), more than a

billion people have settled to cities in Asia between 1980 and 2010 which makes this a topic of utmost

importance. While urbanisation bears great potential for economic development for Asian transition

countries, problems have emerged which require a change of strategy and therefore a profound dis-

cussion on suitable policies.

These are needed as it seems more evident than ever that scale-oriented urbanisation cannot be

upheld by Asian countries in the near future because negative impacts have grown too large to cope

with. These negative impacts can primarily be found in the social and environmental context: rising

inequality, social tensions as well as steadily worsening air and water pollution to name just a few. On

the other hand it is widely accepted that urbanisation itself constitutes an important component to

achieve economic development.

To be able to extract positive features of urbanisation, important policy changes were proposed at the

conference, which include for instance a reform of the fiscal and the household registration (hukou)

system in China to lay grounds for the country’s transformation towards a consumption-driven econ-

omy. Additionally, country-specific best practices and perspectives were shared, such as the provision

of public accommodation in Viet Nam. Moreover, experiences with special economic zones from Laos

were discussed in order to evaluate their contribution to economic development.


A wide consensus among participants of the conference was that urbanisation represents a potential

driver of inclusive economic growth. However, the full potential can only be unleashed, if it is carried

out in a thoughtful, sustainable way.


2. Welcoming remarks

2.1. Welcoming Remarks by Mr. Wang Lu, Vice Governor, Hainan Provincial People’s Govern-

ment, PR China

In his welcoming remark, Mr. Wang stressed the importance of a shift from mass urbanisation towards

a socially more sustainable type of urbanisation. In this context, he underlined the importance of en-

hancing the quality of life of migrant workers who recently moved to urban areas. In his point of view,

urbanisation processes nevertheless need to come hand in hand with an agglomeration of industry

sectors in order to lift economic well-being and hereby create the prerequisite for a more prosperous

life. In Hainan, industries that seem the most prone to be able to deliver this task are the service sec-

tor, particularly tourism, and primary industries.

2.2. Welcoming Remarks by Mr. Jürgen Steiger, Deputy Country Director, GIZ China

Dear Mr. Chairman, dear Governor Wang Lu, dear Prof. Chi Fulin, Excellencies, distinguished guests,

dear friends, ladies and gentlemen:

I would like to welcome you on behalf of GIZ to our economic

policy dialogue and roundtable among Asian countries in transi-

tion here in Haikou, Hainan. I am very happy and proud that we

can celebrate the 10th

anniversary of the Economic Policy Dia-

logue today that started in 2004 in Hanoi and was held in Haikou

and Hanoi on rotation as well as one time ‒ in 2010 ‒ in Tash-

kent, Uzbekistan. I am very happy to see you all again here in

Haikou. I am happy to see old friends and new faces, from

Southeast, Central and North East Asian transition countries and

from Tumen Secretariat as well as of course our host country

China.

Let me express my heartfelt gratitude and recognition to the China Institute for Reform and Develop-

ment, CIRD, for organising this conference. I am looking forward to our exchange of views and to

draw on your collective knowledge and wisdom.

Trends and challenges in the context of urbanisation

Throughout the coming days the topic of our deliberations will be urbanisation and inclusive growth.

Urbanisation is likely to shape economic, social, environmental and political interactions in the coming

years. In 1950s, 29.4% of the world population lived in urban areas. 50 years later, in 2010, this num-

ber has increased to 51.6% and is projected to reach 67.2% by 2050 (UN Department of Economic

and Social Affairs). More importantly, in the developing and emerging countries of Asia and Africa,

almost 2.3 billion people live in urban areas. This number is twice as high, as the total number of in-

habitants of industrialised nations.


But when we talk about urbanisation, we have to be careful not to equate urbanisation with urban

construction and expanding the size of cities. If urbanisation, like the title of our forum, is to contribute

to inclusive growth, we have to consider the “human” side of urbanisation. We can call it “population

urbanisation”, or – a new term which has been coined here in China, Citizenisation of new urban

dwellers. People who come to cities hope to find better jobs in the developing industries. The cities,

on the other hand, have to cope with rapid population growth and increased demand for housing,

access to water and energy, education and healthcare.

More questions than answers

Many questions remain unanswered and need further discussion. I will just name a few. Who can

finance, who can coordinate? How to integrate rural-urban migrants into the urban structure? How to

enable them to make a legal transfer from informal employment into legality? How to enable their

access to basic public services?

All transition economies in Asia are facing similar challenges, but of course, in different dimensions

and only if we can address them, will cities be drivers of sustainable economic development, hubs of

ideas and thereby catalysts for economic wealth.

We tend – in principle – to see cities or urban centres as the panacea for growth and development.

More and more tasks are assigned: to be an innovative city, a social city, an economic centre, a smart

city, a low carbon, green, clean, energy city, a city of tomorrow, a future city, the new urban factory

and urban farming knowledge and wisdom.

Concluding remarks

Let us, ladies and gentleman, be pragmatic in the next 2 days, when we will have the chance to listen

to different practices and experiences from Asian transition economies, to exchange ideas, to learn

with and from each other.

I want to wish all of us a successful and interesting forum and fruitful discussions.


3. Advancing Transformation of Scale-oriented Urbanisation into Population

Urbanisation

Keynote Speech by Mr. Chi Fulin, President, CIRD

In his speech, Mr. Chi Fulin advocated a transformation from scale-oriented towards population ur-

banisation and recommended a variety of policy and system innovations which he sees as necessary

to bring about this urgently needed shift. In the following lines, his main points will be summarised.

Scale-oriented urbanisation has become difficult to sustain

Scale-oriented urbanisation has been one of the main drivers of

economic growth, specifically in China. Some major changes

however will make this process unsustainable in the years to

come. Firstly, scale-oriented urbanisation has always been de-

pendent on low cost factors and resources. The urbanisation of

rural land between 1990 and 2000 for instance was 1.71 times

that of urbanisation of rural population. It seems obvious that this

method cannot be upheld for much longer, as per-capita arable

land has shrunken tremendously. Moreover, China’s inefficient

use of energy will soon hamper urbanisation efforts. As of now,

energy consumption per unit of GDP is twice as high as the

world’s average. With rising dependence on foreign mineral re-

sources and generally rising energy prices, this will pose a seri-

ous threat to urbanisation in the way it is currently carried out.

Additionally, implications of scale-oriented urbanisation for the environment are now more obvious

than ever. Despite the fact that this type of urbanisation has led to extraordinary high growth rates,

environmental degradation can no longer be ignored. Water pollution as well as continually worsening

air quality in major cities will make the social costs of scale-oriented urbanisation very, if not too high.

Secondly, profound changes can be detected in society’s expectations towards urbanisation.

This can be seen in people’s demand for quality jobs, housing as well as a growing rejection of a

separation of families. The fact that most migrant workers nowadays have no intention to move back

to rural areas, but plan to establish a complete family life in urban areas, constitutes a major reason

for the lack of sustainability of scale-oriented urbanisation.

Thirdly, the role and function of cities will change as China moves to middle and late stages of indus-

trialisation. In the early years of industrialisation, the expansion of production is seen as crucial.

Scale-oriented urbanisation has contributed to the achievement of this expansion and hereby to high

economic growth. As production is expected to stall in later stages of industrialisation and as the soci-

ety is set to gradually change to be consumption-dominated, a new type of urbanisation needs to be

implemented that takes these major changes into account.


Population urbanisation will release the largest development potential

Urbanisation itself has large potentials for economic growth in China and everywhere else. Yet, this

potential can only be realised if urbanisation is carried out in a smart way. Generally, the population

urbanisation rate can be doubled in the next 20 years. It would then peak at 65-70% and hereby con-

tribute to two important factors that trigger economic growth in a more sustainable way. Firstly, mi-

grant workers which move to urban areas increase their per capita consumption by 171%. If they are

properly citizenised, their consumption will grow by 214%. Through this, domestic demand and in-

vestment would be boosted immensely. Secondly, population urbanisation would drive transformation

processes and an upgrading of the industrial structure. More precisely, the industrial structure would

move towards being more service sector oriented and hereby more sustainable.

The current priority of population urbanisation is to citizenise migrant workers

As mentioned before, a trend can be observed that migrant workers tend to settle down and do not

plan on returning to rural areas as in previous centuries. Yet, in most cities they do not receive the

usual benefits citizens are entitled to as a hukou is often not granted to them. As most of them stay

nevertheless, China is observing a ticking time bomb with social conflicts and tensions not too far

away. It therefore needs to be of high political priority to reform the household registration system and

to further equalize urban and rural residents with regards to public services. In this context, it is es-

sential to enable migrant workers to fully integrate themselves into urban public services. This way, it

can be ensured that the family will be able to find housing and that their children will have access to

public schooling. If citizenisation of migrant workers is done properly, social conflicts can be avoided

and economic growth can be triggered through the described transformation towards a service sector

driven economy.

Advancing institutional innovations with reforming the household registration system as the

focus

The urban-rural dualistic household registration system has been in place for more than 50 years now

and has turned out as a major source of inequality between urban and rural residents. It therefore

needs to be replaced by a residents’ registration system.

This new system needs to ensure that benefits are allocated to migrant workers.

In small and medium sized cities it would be possible to introduce such a system within 3-5

years.

Nationwide, including all major cities, this system should be in place in no more than 5-8

years.

Furthermore, land property rights needs to be reformed in order to ease urbanisation processes.

In case of expropriation, land needs to be compensated properly and farmers ought to be ac-

cepted as negotiator with certain rights. Hereby, land will become an asset and not a liability.

Rural markets need to be developed.


Farmers need to be enabled to use their land as mortgage to have access to credit in the

same way that enterprises can use theirs.

Ways for farmers to sell their property and hereby raise money in order to move to urban ar-

eas need to be enhanced.

Lastly, China’s welfare system needs to be reformed so that more citizens of the middle and lower

class have access to public services. As of now, China not only spends a relatively low amount of its

budget on welfare but faces the problem, that the upper class receives most of it and those in need

are not granted access. If this can be reversed, equality could be minimised and the way to a more

prosperous system was laid out.

Urbanisation has tremendous potential, economically and socially, for China and other Asian coun-

tries. This is mainly due to a shift towards a more service-driven economy with rising domestic de-

mand. Nevertheless, population urbanisation requires a set of institutional changes that need to be

implemented in order for this potential to be fully released.


4. Fiscal Constraints and Political Challenges

4.1 Citizenisation of Migrant Workers from the Perspective of Inclusive Growth

Expert Input by Ms. Feng Qiaobin, Professor for Economics, Chinese Academy of Governance (CAG)

In her presentation Prof. Feng Qiaobin presented some of the latest research of the Chinese Acad-

emy of Governance on the topic of financing the urbanisation process in China. In what follows, her

main points will be laid out.

Background

The academy has conducted a considerable amount of research on how to turn migrant workers into

full citizens. It is beyond doubt that this should be seen and carried out as a “people-oriented” process.

Yet, one also has to acknowledge, that this process is expensive for the government and hence re-

quires sound analysis. CAG has therefore built a model which calculates the cost of citizenisation of

migrant workers in China and enables one to develop needed reforms of the funding process. The

Academy has compared different schemes and recognises that its model is subject to controversial

discussions.

Four building blocks of citizenisation

Generally, the model assumes that citizenisation of migrant workers is composed of 4 building blocks.

Firstly, the government needs to provide education for migrant workers. Mainly this means that new

schools ought to be build and maintained. Secondly, migrant workers need to have access to social

security provision. More precisely, this means that a minimum living standard can be guaranteed with

health care and a suitable pension. Thirdly, the government needs to ensure that reasonable accom-

modation opportunities are available for workers moving to urban areas. In this context the model

calculates with the required minimum standard of 13m², as set by Chinese law. Lastly, it is the gov-

ernment’s task to provide employment opportunities in cities by public spending on job creation and

training.

In the calculation of CAG, it is assumed that there are 160 Million migrant workers in Chinese cities.

Additionally, it is acted on the assumption that 10 Million will be added each year. The model delivers

a projected outcome of 1.8 Trillion RMB annually to cover the cost of citizenisation, which is equal to

about 15% of gross fiscal revenue. It neglects regional disparities and uses average costs across the

country. However it does not yet take into account the growing number of migrant workers as well as

a potential rise in government subsidies. Hence, the actual amount that needs to be spent might be

underestimated by the model.

Policy implications

Knowing the costs, it is then inevitable to think carefully about the division of this financial burden.

Some areas see more migration than others and the costs need to be divided between local and fed-

eral governments. Moreover, middle-sized cities will most likely be home to the largest proportion of

new working migrants and need to be financially supported.


The question whether China can afford urbanisation should not be up for debate however. Instead,

urban-rural readjustment, interregional as well as fiscal transfers from central to local government

agencies should be discussed. The federal government needs to incentivise local governments to

fulfil their duty in this context and financial support is the most promising to persuade local govern-

ments and thereby achieve this goal. If the costs are shared between regions, cities and the local as

well as the federal government, a people-oriented urbanisation is possible. The model developed by

CAG can hereby function as a useful tool.

4.2 New-type Urbanisation and Reform of Public Finance Systems

Expert Input by Mr. Cao Yuanzheng, Chief Economist Bank of China

In his presentation Cao Yuanzheng laid out why China needs to change from encouraging production

and investment towards encouraging consumption as well as how urbanisation fits into this picture. In

what follows, his main points will be summarised.

Background

It has to be acknowledged that the Chinese fiscal system in its current condition is deeply flawed.

Despite the fact that government revenue has grown tremendously over the last years, local govern-

ments see themselves in dangerous financial situations. This is mainly due to the fact that the federal

government receives a larger share of revenues and yet local governments have to pay most of the

social benefits to their citizens. Consequently, alternative sources of funding had to be found for local

governments. We need to ask ourselves whether we should continue with the traditional system and

expand land based revenue or whether we should try to find alternative funding sources. The costs of

the former are high. Local governments will not be able to sell unlimited areas of land to regain fiscal

balance, without seriously hampering the region’s welfare. The system of land based revenue is

therefore doomed to lead to failure and therefore alternative financing models need to be constructed.

How urbanisation contributes to the needed shift

Urbanisation plays an increasingly growing role in the needed shift of China’s economy from one that

was primarily investment- to a consumption-based society, from one that used to rely heavily on ex-

ports but is now starting to be built on domestic demand. As urbanisation describes the process of

equalisation of public services to migrant workers, vast potentials are being created when the latter

are being enabled to consume. For this to happen effectively however, policies which tackle the de-

scribed problems, need to be implemented simultaneously, otherwise, the public finance system will

not be sustainable for much longer. Most importantly, a fiscal transfer from the federal to the local

government needs to be established.

Lastly, it is essential not only to grant migrant workers access to basic social services but to create job

possibilities for them. Doing so, a gradual shift towards the service sector should be conducted.

These supporting policies, in combination with better access to social benefits for migrant workers

would stimulate domestic demand and hereby contribute to China’s needed shift towards a consump-

tion-driven economy.


4.3 Urban Development and SEZ in Lao People’s Democratic Republic

Expert Input by Mr. Thanouxay Khoutphaythoune, Deputy Director, Planning Division, Secre-

tariat to the Lao National Committee for Special Economic Zones

Mr. Khoutphaythoune’s presentation focused on the Lao Country Strategy 2020 and Urban Develop-

ment in selected SEZs which are of significant importance for the development of Lao PDR’s econ-

omy.

SEZs as an opportunity for urban development

The concept of SEZ development was introduced in 2000 when the first friendship bridge between

Lao PDR and Thailand was constructed in the Savannakhet province. According to the Country Strat-

egy, by 2020, many SEZs will be established and become one of the most important driving forces,

contributing decisively to the success of regional integration and poverty reduction in the country

through job creation, generation of revenue, and technology as well as transfer of knowledge. The

National Strategy for SEZ development proposes investments in the fields of tourism and related ser-

vices, fostering trade, agriculture, light and other manufacturing industries.

That Luang is exemplary for the development of SEZs in Laos PDR. In this case, empty rural land

area is transformed into a new urban city centre. Taking the balance between environmental issues

and rapid economic growth into consideration, future urban planning must combine water reservoirs,

water treatment systems, tree plantations and needs to include green energy systems in order to built

sustainable infrastructure and housing facilities.

Comment by Mr. Gerhart Maier, Senior Advisor, GIZ

In his comment, Mr. Maier stressed the importance

of an integrated approach to absorb negative con-

sequences of structural adjustments due to migra-

tion. He proposed the abolishment of high barriers

for migrants and cited good experiences with this

policy from Germany. At the same time he pointed to

measures by the German government and the

European Union (EU) that incentivise migration but

at the same time financially help to overcome struc-

tural adjustment processes in some sectors.


5. Rural Population and Administrative Reform

5.1 Urbanisation should be advanced actively and steadily

Expert Input by Mr. Chen Huai, Director-General, China Institute of Urban-rural Construction

Economics

In his presentation Chen Huai outlined the history of urbanisation in China and proposed policies

which could make urbanisation more sustainable. The following lines will summarise his main points.

Background

Generally, one needs to bear in mind that urbanisation is not a process in which the government tries

to push people to move to cities. On the contrary, it should be seen as an inevitable, natural process

which has great potential for a society. Nevertheless, it should also be acknowledged, that severe

mismanagement has taken place over the last decades which has led to unsustainable consequences.

Slums, shantytowns, and rising pollution are just a few among many. Most of these problems which

become obvious today are related to or a direct consequence of policy priorities in the 1980s and

1990s. During these times, urbanisation was seen as the main driver of economic growth and cities

were created that in today’s view do not deserve to be called cities but can merely be seen as places

of industrial accumulation. Policies have retained people in the countryside and township enterprises

were not encouraged to develop.

Additionally social imbalances were starting to build up as migrant worker, having moved to urban

areas, were not treated equally and were deprived from urban benefits. As development then only

proceeded in the Chinese mega cities, they saw vast price increases for housing combined with stag-

nating prices in the rest of China. This at least partly was also due to misguided policies which did not

pay attention to development in all parts of China but were restricted to creating and supporting indus-

trial hubs located in mega cities.

How to overcome problems associated with urbanisation

In order to achieve more prosperous lives for the entire Chinese population, it is inevitable to create a

more balanced path towards development and to dissolve social inequality. Urbanisation can help to

achieve both, but only if it is carried out correctly. Therefore, the following aspects need to be kept in

mind:

social tensions need to be prevented by creating equal access to public services such as

education and health care

equal payment for equal work: migrant workers should not be discriminated

housing infrastructure needs to be improved so that migrant workers can afford accommoda-

tion

land property rights are unfavourable for the rural population and need to be reformed

Lastly, urbanisation and resource consumption cannot go hand in hand as they did in the 1980s and

90s. If these steps are being followed and policies are implemented accordingly, urbanisation will be

more sustainable and will lead to a more balanced development of China.


5.2 New-type Urbanisation and Support of Public Finance

Expert Input by Mr. Jia Kang, Director-General, Institute of Fiscal Science, Ministry of Fi-

nance, PR China

In his presentation Mr. Jia Kang laid out problematic developments in the context of urbanisation and

proposed policy reforms to alter them. In the following, his main points will be summarised.

Background

The ability of major cities, such as Beijing and Shanghai, to provide basic public services to migrant

workers is lagging behind demand. This has led to socially unsustainable circumstances which are

characterised by only 20% of migrant workers able to bring their spouse along with them to the city.

Even more alarming is the fact that only 10% of children are being taken along, triggering an increas-

ing number of “left-behind-children” in rural areas. These children hardly have a bright future and the

government lacks capacity to effectively help them. In smaller cities the situation used to be superior

as it was a lot easier to acquire citizenship. Thereby, access to public services for migrant workers

was ensured. However, these cities could not afford the service in the long run and for political reason,

citizenship has again been more difficult to attain since then and to this day.

Policy implications for the “Chinese Dream”

It is beyond doubt that urbanisation bears great potential as it triggers domestic demand and hereby

boosts economic growth. And yet the conditions under which it is implemented are very important. In

order to achieve greater sustainability and to create the prerequisites for more people to live the “Ch i-

nese Dream”, the following aspects need to be kept in mind:

The need for a unified public resource allocation plan: all of the government’s revenue should

be collected and injected into one single budget. This budget can then be reallocated to

places where it is needed the most.

The allocation of public services needs to be non-discriminatory. As household registration

(hukou) holders are treated favourable to non-holders, the process of receiving a hukou

needs to be simplified. Children need to have equal access to public services, such as educa-

tion and families need to be able to afford housing.

Government needs to address a variety of concerns with regional development, including land

property rights, fiscal transfers to local governments beyond others.

The integration of migrant workers into urban areas as well as the creation of favourable conditions is

at the heart of the debate. Reforms are urgently needed on various levels to make urbanisation more

sustainable and thereby foster inclusive growth.


5.3 Rural-Urban Integration and Economic Growth

Expert Input by Mr. Sok Sopheak, Director-General for International Trade, Ministry of Com-

merce, Kingdom of Cambodia

In his comment, Sok Sopheak gave a short briefing on rural-urban integration and economic growth in

the case of Cambodia. As in all Asian countries, issues of urban-rural development and inequality in

Cambodia need to be seen in the context of Cambodia’s stage of development and development

strategy.

Background

Cambodia is not yet highly urbanised. Almost 80 per cent of the

population lives in rural areas and the share of urban dwellers in

total population is much below the Asian average. But on the other

hand, some numbers indicate that urbanisation is steadily increasing.

Cambodia is experiencing rapid population growth, with urban popu-

lation growing at about 2.5% per annum in the last five years, and

rural population growing at about half that rate. Mr. Sok also pointed

out that Cambodia is internationally competitive or at least potentially

competitive referring to a wide range of agricultural products. Fur-

thermore, the rural sector has considerable potential to prosper.

The sector grew by 5 per cent in the last five years, contributing 1.5% to overall economic growth. In

general Cambodia is at the very early stages of industrialization. Recently manufacturing output con-

sisted almost entirely of production of garments and footwear for export. Another important role in

Cambodian economy play the nearly 200 special economic zones located in the rural area neighbour-

ing Viet Nam and Thailand.

Cambodian experiences

The particular features of recent Cambodian development process affect the way that the urban and

rural economies interact. There are several hundred garment & footwear factories (about 400 facto-

ries) located in the outskirt of Phnom Penh City and along the Growth Corridor from Phnom Penh

Capital City to the main seaport of Cambodia. Garment & footwear workers (around 400,000) are

mainly female migrating from the surrounding countryside. They remit a high proportion of their earn-

ings back to their families in rural areas. Most of them, after working for several years, will return to

their rural homes. This creates considerable income linkages between urban and rural areas.

Manufactures other than garments are usually located in SEZs, which are spread around the country,

especially near Cambodia’s borders. With the exception of one zone near Phnom Penh, these SEZs

are not in or near urban areas. Thus, the rise of manufacturing in Cambodia has so far contributed

only modestly to urbanisation. It follows that the pace of urbanisation has also been slowed by the

rapid expansion of agricultural incomes.


Cambodia’s production of paddy rice has almost doubled during the past decade (2011-2012: 8.5

million tons of paddies produced), and other crops such as cassava, rubber, and palm oil have also

expanded rapidly. In consequence The Royal Government developed a detailed strategy for increas-

ing further paddy production and expanding sharply the export of milled rice (one million tons by

2015). It has also targeted a large increase in rubber plantings.

At the political level, the Royal Government has pursued a policy of de-centralization designed to give

provinces and their respective communities greater control over their development.

Conclusion

While urbanisation is clearly a feature of the current landscape, Cambodia has not yet experienced a

head-long rush of population from rural to urban areas. Moreover is just at the very beginning of the

process of assessing the issues of equity and inclusiveness associated with urbanisation.

5.4 Urbanization Development and Inclusive Growth:. The Case of Lao PDR

Expert Input by Mr. Pheuiphanh Ngaosrivathana, Senior Macroeconomic Specialist, GIZ Laos

Dr. Pheuiphanh Ngaosrivathana gave an introduction to urbanisation and inclusive growth in the case

of Lao PDR. He explained that Laos has undergone some major transformations over the past dec-

ade, especially when it comes to structural changes of the economy. For example, urbanisation rate

as estimated by UN Habitat amounts to the range of 4.9% per year.

Background

From a more general perspective, the economy of Lao PDR

looks to become the fastest growing in Southeast Asia. This

years’ economic growth is on track to reach 8.3%. Main driving

forces come from resource sectors such as hydropower and

mining. These two combined accounted for about one third of

the country’s economic growth between 2005 and 2010. Al-

though external shocks like the recent global economic and

financial crisis had some impact on less developed countries,

GDP increased by 7.9% over the past 10 years and is expected

to grow by 7.6% per year until 2015.Nevertheless, Lao PDR is

still a very small economy with a population of 6 million and an

annual average growth of 1.5%, Lao GDP was valued at just

US$ 8 billion in 2011. Neighbouring Thailand, in comparison,

had a GDP of US$ 345 billion.


Economic growth helps to reduce poverty and lowers Inflation

In 2011, Lao PDR reached a GNI per capita of US$ 1,010, and as such, moved up from its lower in-

come status to become classified as a lower-middle income economy. At this pace, Lao PDR is on

track to achieve its long term vision: to graduate from the Least Developed Country status by 2020.

Additionally, a Government report implies that the number of poor families in Laos has dropped to 17%

and the government expects to lower the percentage of poor families even further to 15% by the end

of this year and 10% by 2015. Nevertheless, more efforts are needed in remote regions where pov-

erty highly concentrates and is probably going to persist.

Urbanisation in the most rural country in Southeast Asia

Three out of four Lao people currently live in rural areas. Out of these, approximately 38% live below

the poverty line and aside of that population growth continues to be concentrated in the rural areas. In

conclusion, the government is acutely aware of the need to promote rural and agricultural develop-

ment. Policy reforms and public investments have contributed to robust agricultural sector growth of

4.7% per year over the last decade.

On the other hand, urban population increased from 17% in 1995 to 27% in 2005. Most of the people

(about 41%) who migrated across provinces went to Vientiane Capital to seek better employment

chances, education and healthcare whereby other districts observed net emigration. Laos has in-

vested substantially to transform from a land-locked disadvantaged into a land-linked nation. This led

to a major improvement in transportation linkage between both, within the country and with neighbour-

ing countries. This was mostly promoted and aided by the construction of three major international

bridges, with three more under consideration or in construction, and the establishment of SEZs.

At the same time, this rapid growth in the population of Vientiane presents a challenge in terms of

provision of adequate and sufficient public services and infrastructure including improvements in basic

sanitation, access to safe drinking water, all-weather roads and electricity.

Rural poverty remains high

To ventilate another grievance, income per capita in the agrarian economy is less than half of the

national average and referring to an UNDP report from 2009, labour productivity in agriculture is 4-10

times lower than in non-agricultural areas. Furthermore, other findings meet poverty assumptions in

the case of Lao PDR:

Large inequalities between the interior in the north and centre-south (less developed and

poorer), and areas that border the Mekong-river and plains in the centre-west (developed and

less poor).

Poverty proportion in the north is 12 % higher than in the centre or south.

The interior, which remains relatively isolated, is characterised by a very heterogenic society,

consisting of many different ethnic groups, implying that these populations are less integrated

into the overall development process. (UNDP Report 2009).

Female workers experience higher unemployment.


Child malnutrition rates are still too high as 41% of children under the age of 5 suffer from

chronic malnutrition.

Conclusion

The challenge ahead for the country will be to further shift the focus from absolute growth levels to

improving the quality of growth. In this context it will be essential to ensure the country will follow an

inclusive and sustainable growth path which will be based on the development of non-resource indus-

tries as well as on better urban planning. SEZs in remote areas of the country will prove to be of high

significance for this process.

Comment by Mr. Robert Haas, Senior Advisor, GIZ

In his comment Dr. Haas stressed the importance of education as the key to social mobility and

successful citizenisation of migrant workers. He cited experiences with migrants from the former

Soviet Union as well as other migrants in Germany. Access to education enabled the second gen-

eration of these migrants to improve their situation relatively to the generation of their parents and

to have a more prosperous life. As China will eventually also head towards an economy with less

low-skilled and low-paid jobs, it is urgent to grant migrant workers access to education so that they

can upgrade their skills and qualify themselves for skilful and higher paid work. If this step is left

out, social tensions as well as economic problems will soon arise.

Comment by Mr. Farhodhon Jurahonov, Acting Deputy Director, Institute of Forecasting and Macroeconomic Research (IFMR) under the Cabinet of Ministers of the Republic of Uzbekistan

In his comment, Mr. Jurahonov laid out how the government of the Republic of Uzbekistan plans to

solve the problem of a lack of suitable accommodation for the rural population. In the following lines

his major points will be summarised.

Uzbekistan, neighbouring the states of Turkmenistan, Kyrgyzstan, Kazakhstan and Tajikistan is

home to 30 Million inhabitants, 54% of them live in urban areas. A territory of 470.000 km² makes

Uzbekistan about 1.5 times as big as Germany.

2009 was declared as the year of “Rural Development and Welfare” by the government. More pre-

cisely, a state program was adopted which built on the idea that “the more the village advances, the

higher the quality of our lives and prosperous the country”. This program was then preceded by two

presidential resolutions (in 2009 and 2010) which expanded construction of houses in standard

design in rural areas. Through this funding close to 25.000 houses had been constructed between

2009 and 2012 and additional 10.000 were set to be built in 2013. The latter number reflects an

increase in the program’s budget by 54% relative to 2012. By 2015 around 40.000 houses will be

constructed with the financial assistance of this program and will thereby contribute to further equal-

ization of urban and rural population.


6. Sustainable Urban Population Development

6.1 Urban Population Development in Mongolia

Expert Input by Mr. Yadam Sumkhuu, Officer, Department of Urban Development and Land

Affairs Policy Coordination, Ministry of Construction and Urban Development, Mongolia

In his presentation Mr Sumkhuu from the Ministry of Construction and Urban Development talked

about the current situation, trends and challenges as to give a comprehensive overview about urbani-

sation and inclusive growth in Mongolia. The following lines summarise the main points of his presen-

tation.

Background

Mongolia, with its 1,564,116 km², is the world‘s 19th-largest country in the world. Its wide space of

unused land is blessed with vast amounts of natural resources such as copper, zinc, gold, silver and

coal etc. Neighbouring only with the People’s Republic of China and the Russian Federation, leaves

opportunity to trade via maritime transportation only through mentioned countries.

Mongolian population has increased from 647,500 in 1918 to 2,647,500 in 2010. From 1990 until now

population growth first slowed down caused by low fertility and high mortality, but as estimated by the

National Statistics Office will increase to at least 3,750,000 in 2040. According to the new Mongolian

constitution of 1992, people are guaranteed the right of free choice of residency. On this legal basis

founds the ongoing internal migration process. Over the last 50 years rural migrants primarily moved

to Ulaanbaatar. As a consequence, about 60% of urban population and 44.4% of all Mongolians live

in the dominating capital nowadays. At the same time 88.2% of government bodies, banks, universi-

ties, hospitals, retail wholesales and theatres accumulate in the core city centre. A recent sustainable

urban development plan for Ulaanbaatar provides policies such as migration control, reconstruction of

existing buildings, decentralisation which includes the development of satellite cities, better economic

and social infrastructure and stresses the need to elaborate and reform legislation.

The focus lies on harnessing urbanisation to deliver equitable and inclusive growth as well as poverty

alleviation. Policy discussions should start with the possible contributions by institutions, and specific

instruments need to be identified which can promote economic density and manage social and envi-

ronmental externalities. In order to foster inclusive growth, Mr. Sumkhuu suggested a wide range of

key policies:

Targeting migration and rural development

Disproportionate rise in urban population is not economically or environmentally favourable.

Construction of regional vocational centres for the unemployed to acquire practical knowledge,

skills and foster employment in local aimags.

New soum centre universities and training centres will provide educational and employment

opportunities for the young.


Target regional employment growth in strategic sectors of the economy, particularly in com-

modities, mining and oil industries.

Financial investment & support for remote and poorly developed regions. This will include

loans and grants for local residents.

Boosting job growth and education

Boosting structural employment

- Vocational training centres to bolster employment among the young population, which

has dropped.

- Universities and college campuses must be built in regional districts as well as in Ulaan-

baatar.

Sector-specific training

- Specialised training for engineers and for sector specific vocations, such as service-

sector employment, which is edging higher.

- Supporting and incentivizing small to medium-sized (SME) enterprises in both aimags

and soums.

6.2 The Specific Character of Urbanisation in Kyrgyzstan

Expert Input by Mr. Sultanbek Usenov, Construction and Architect Consultant, Kyrgyz Invest-

ment and Credit Bank (KICB)

In his presentation Sultanbek Usenov emphasised the close connection between urbanisation and

economic growth referring to the World Development Report of 2009. He explained that low level of

urbanisation is explained by structure changes in economies often characterised by a reduction of

industry sector in the state’s economy. He concludes that no country ever reached a high income

level without large and economically successful cities.

Historical background

The former Soviet republic of Kyrgyzstan is neighbouring the People’s Republic of China and has to

deal with environmental limits. Kyrgyzstan is an extremely mountainous country with only 15% flat

land. Its urbanisation rate was 33.9% as of 2012. The number reflects downward tendencies in ur-

banisation after the collapse of the Soviet Union and is in fact the lowest since the early 1960s. His-

torically, in the period between 1920 and 1990 urbanisation process in Kyrgyzstan had been a result

of industrialisation. Urban policy in the Soviet period was centralised and directly linked to interests of

a militarised economy, which led to industrial agglomerations to support export hydro-related re-

sources and other raw materials.

The next two decades were characterised by an even stronger continuous outflow of population from

rural areas which fostered decent urbanisation rates mainly in the two biggest cities: capital city Bish-


kek, where nearly half of all urban dwellers in Kyrgyzstan live and so called “southern capital” Osh.

During this time administrative reorganization of villages was not supported by a clear city-orientated

development. Later Kyrgyzstan chose a model of decentralization in order to reform city government.

Unfortunately it occurred that individual power between central, regional and local authorities missed

a clear distribution of responsibilities and budgeting. In fact, some critics observed that executive au-

thority bodies dominated local self-governments.

Policy implications for Kyrgyzstan

National programs of urbanisation development in Kyrgyzstan have not clearly formulated urban pol-

icy, which lead to misbalance of spatial development. The government tried to focus on policies to

create equal opportunities for people but irrespective of their place of living. This is just one example

for activities that must be revised. According to Mr Usenov, authorities need to undertake several

reforms and other activities such as:

Regional and Spatial Program Development.

Reform of local government system with emphasis on cities and municipalities

Reform of city budget system and inter-budget relations

Industrial development programs by sectors

Migration process management

Tax policy for stimulating industrial development in cities

Housing policies

Urban planning development

6.3 Mongolia: Urban Population Development

Expert Input by Ms. Bolormaa Tsogtsaihan, Professor at School of Economic Study, National

University of Mongolia

In her presentation Dr. Bolormaa focused on trends and impacts of population growth and explained

which challenges urbanisation process has brought to the country. She focused on causes and pres-

sure of urbanisation and urban growth.

Problems of urbanisation

Urbanisation can create environmental hazards which affect the health and safety of the population

and especially of the poorest dwellers. It could be observed that urban growth has led to a deteriora-

tion of air and water quality and land degradation. At the same time, it has also aggravated a solid

waste management problem. On the other hand, the rising number of urban dwellers has led to insuf-

ficient land and housing supply and furthermore, a rapid demand for services such as water supply,

sanitation, solid waste collection and transportation occurred due to the inability to provide basic envi-

ronmental infrastructure.


The reasons for this primarily lie in the domination of

government’s monopoly and heavily regulated prices

and subsidies as well as in a poorly functioning urban

land and housing market.

Additionally, air pollution is another important issue that

needs to be tackled. The increased motorisation and as

a consequence overcrowded roads have a strong nega-

tive impact on environmental well-being of the inhabi-

tants of major cities in Mongolia. In addition, house-

holds often use fuels of low quality and release even

more carbon dioxide or other climatically detrimental

substances.

Due to unsustainable extraction linked to uncontrolled industrial effluent, unclear property rights and

confusing treatment as a free resource, ground water depletes and is in fact contaminated by waste.

Policy implications

Based on these observations Dr. Bolormaa defined four essential recommendations for future sus-

tainable development:

Development strategy for cities

Environmental public awareness

Public awareness and citizen pressure on governments and polluters are some of the most

important factors in motivating environmental reform

Private sector involvement is key to sustainable urban environmental improvements

6.4 Urbanisation in two Core Cities (Hanoi and Ho Chi Minh City): Highlights, Chal-

lenges and Policy Orientations for Inclusive Growth

Expert Input by Mr. Tran Kim Chung, Vice President, CIEM

In his presentation Tran Kim Chung introduced urbanisation processes in Viet Nam, specifically in

Hanoi and Ho Chi Minh City, and elaborated on positive and negative aspects of these processes as

well as possible policy recommendations. The following lines will summarise his main points.

Background information on urbanisation in Viet Nam

As of today, only 34% of the total population are urban residents which points to a great potential be-

cause this level of urbanisation was already reached by most Asian states about 10 years ago. If ur-

banisation continues at the current pace, the percentage of Vietnamese, living in urban areas is esti-

mated to reach 45% by 2020 and 50% by 2025. Most of these urbanisation processes are concen-

trated on the nation’s two major cities Hanoi and Ho Chi Minh City. Hanoi has seen tremendous


growth in population in the last decade in which the total number of inhabitants grew by almost 4 Mil-

lion from 2.67 to 6.5 Million in 2000 and 2009, respectively. Population will continue to grow and will

pass 8.5 Million by 2020. While Hanoi accounts for nearly 14% of national GDP, Ho Chi Minh City has

established itself as the largest economic centre in Viet Nam and contributes 47% of the state’s eco-

nomic output.

Positive and negative aspects of urbanisation in these two cities

Urbanisation in Viet Nam has contributed immensely to eco-

nomic development. Average income in the two cities has in-

creased by a factor of 2 to 3 relative to the average income of

Viet Nam. Even more important, poverty rates in both cities are

low. For 2009 only 1.27% of the population in Hanoi and 0.31%

in Ho Chi Minh City lived below the national poverty line.

Slumps, as can be witnessed in basically every major city

around the globe, are nonexistent in neither Hanoi, nor Ho Chi

Minh City. This is mainly due to provision of public accommoda-

tion. Even more so, the state not only prohibits the demolition of

old buildings but on the contrary, encourages upgrading and

renovation. Large investments in infrastructure, mainly with

ODA money, have been made. Consequently, water supply,

drainage, lighting and traffic are largely under control.

Taken together, one can say that most people, even in the low-income segment can potentially live a

comfortable life in these two cities.

There are however also a few challenges. The construction of urban areas leaves many inhabitants of

rural areas landless. Even though compensation is paid, a large proportion, about 37%, mishandles

the amount of money that has been given to them and eventually faces poverty.

Additionally, mass migration has led to imbalances in the labour force. Moreover, problems arise be-

cause city planning has been done insufficiently in some areas. This has led to many unsuitable loca-

tions of commercial areas and service centres. Environmental problems can unfortunately also be

witnessed in Viet Nam. The number of green spaces, ponds and lakes has eroded over the last dec-

ade. Moreover, signs of massive pollution are starting to show in many areas. Air quality has wors-

ened specifically in the two major cities. In some parts serious traffic congestions occur as the number

of car owners has increased drastically.

Some policy recommendations in the Vietnamese context

Many policy recommendations have been proposed for Hanoi and Ho Chi Minh City. More generally,

the Vietnamese government will focus on the following:

Further development of transport infrastructure: construction of ring roads, link-belt satellite

roads, connection of urban and rural areas, as well as crossroads and bridges.

Increase the use of public transportation systems in cities.


Further construction of urban housing so that new people can move to urban areas.

Reduction and gradual termination of the development of high-rise buildings, paired with re-

quirements for construction standards for old apartments.

Development of environmentally friendly city and eco-cities. Protection of “green belts” and

raise awareness among the population.

Taken together, one can conclude, that Viet Nam is on a solid path towards sustainable urbanisation.

Good efforts have been made with positive results in many areas. Yet, challenges remain and policies

need to be pursued that take these into account. If this is done properly however, Viet Nam could

witness more prosperous years as the potential of urbanisation has not yet been released, as meas-

ured by the relative low urbanisation rate.

Comment by Mr. Fuad Jafarly, Urban Initiative-Azerbaijan, Urban Planning and Public Transportation Consultant

In his presentation Fuad Jafarly gave an overview of urbanisation processes in Azerbaijan with a

specific focus on the greater Baku area. Azerbaijan had been the fastest growing economy be-

tween 2002 and 2010 and reached per capita income of 7000$ in 2011. The total population as of

2009 was 9 Million and is estimated to grow moderately in the future. 3.3 Million of these live in the

Baku area which has a significantly higher population growth rate than the rest of the country.

The Baku area itself makes up for roughly 90% of Azerbaijan’s GDP and nearly 85% of the state’s

budget revenue is created within this region. The fact that Baku is the single most important eco-

nomic centre of Azerbaijan can be demonstrated when one closer examines the nation’s employ-

ment structure. In every important sector of economic activity, Baku accounts for more than 90% of

the national output. The city is characterized by a distinct cluster system which scatters firms of

similar industries in the same place. Despite the economic success of Baku, problems are existent that need to be addressed by politi-

cians. Most prominently is a problem Mr. Jafarly calls the existence of two cities within one, a term

which refers to rising social imbalances. The government of Azerbaijan has therefore launched a

program is supposed to target these undesirable circumstances. The main locus hereby lies on

equalisation of rural and urban population as well as boosting job quality within Baku.


7. Conclusion

Urbanisation bears great potential for Asian transition economies. This can mainly be attributed to

rising income of migrant workers leaving rural areas and taking up employment in cities. The higher

salary then leads to a more prosperous life of the individual worker and directly effects the national

economy as domestic demand grows. Through this mechanism, urbanisation can lead to massive

economic growth as can be seen in China and other Asian states.

In recent years however, problems related to urbanisation processes have become apparent that

demand the attention of policy makers in the region. Most prominent in the public debate are negative

impacts in the environmental and social context. Cities are confronted with quickly increasing pollution

of air and water and social tensions have started to arise in many areas. Inequality between migrant

workers and residents as well as between the rural and urban population is rising. Slums, shanty-

towns and other undesirable living conditions have left a growing part of the cities’ migrant worker

population in poverty instead of enabling them to become market participants. Additionally environ-

mental degradation has continued as can for instance be measured by the rapidly decreasing number

of lakes and forests.

The main purpose of this conference was to bring together senior policy makers, researchers and

practitioners from Asian transition countries to find and discuss answers to these pressing problems.

The conference hereby provided a platform for mutual learning and transfer of professional experi-

ence. GIZ’ RCI Programme contributed to the productivity of the conference through its international

network and its ability to mobilize renowned experts from across Asia.

Many policy proposals were introduced by participants and discussed in formal and informal settings.

Among them, a reform of the hukou system in China, a serious attempt to create equal opportunities

for migrant workers, combined with an urgently needed change of the country’s fiscal system, seemed

to be of general consensus. For Viet Nam and Lao PDR, the need for further housing opportunities

was underlined and Mongolia stressed its need for more environmental friendly solutions. All of the

participating countries still see vast potential for economic development through urbanisation proc-

esses. This potential is specifically high in countries that as of today do not have a very high urbanisa-

tion rate, as Lao PDR for instance.

Scale-oriented urbanisation as carried out in the past will not be sustainable in the future. People-

oriented urbanisation has to take its place to guarantee that more people are enabled to live a pros-

perous life in cities. To achieve this, reform needs to be undertaken in areas of public administration,

public finance and environmental policy, to name just a few. Urbanisation will unleash its full potential

only if this is done accurately.

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Documents

Inputs and Materials: Economic Policy Dialogue among Asian Transition Countries “Urbanisation and Inclusive Growth”