Chapter 4: The strategic shift towards a domestic market, service enhancement and urban competitiveness in China
Market reforms and increased globalization have accelerated urbanization in China. The process started in the rural areas where market reforms first took place in 1978, giving rise to a rapid industrialization and urbanization of the countryside throughout the 1980s. Since the 1990s, a new wave of urbanization has emerged in which large cities, after lagging behind their rural counterparts for a long while, have reasserted their leading positions in the national and regional economy. Between 1995 and 2005, the number of large and extra-large cities increased dramatically from 75 to 118, whereas the number of small and medium-sized cities dropped from 565 to 543. The total urban built-up area expanded by nearly 60 per cent, from 20,465 to 32,520 square kilometres, during the same period. Interestingly, this substantial expansion of cities, especially large cities, has taken place at a time when, in 1994, the central government instituted a tax-sharing system to claim a larger share of local revenue while reducing its financial input in local developmental affairs. What are the principal incentives for local governments to upgrade counties to cities: economic growth or fiscal performance? Is the upgrading of a county to city status the result of a bargaining or the result of an incentive mechanism to align local interests with central ones? Does this upgrading (city-creation) lead to a higher economic efficiency and productivity and an increasing bargaining power of local governments with central government?
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