At the National People’s Congress held in early March 2025, the government work report mentioned that the focus of economic policy has shifted more to benefiting people’s livelihood, promoting consumption, and promoting more capital and resources to be “invested in people”. Prof. Liu Xinghua of Tongji SEM,has long been engaged in economic and social development theory and policy research. He noticed that “invest in people” is a new expression. In his view, this is an important symbol of China’s urbanization into the 2.0 era, which means that the city construction from the “object-oriented” investment to the “people-centered” investment, the city development mode from the main “physical urbanization” to ‘human-centered’ urbanization.

Where will urbanization go in the future? How to “invest in people”? In response to these questions, the Southern Weekend reporter talked to Liu Xinghua.

Urbanization still has more room for growth

Q: When did you notice the change in China’s urbanization development pattern?

Liu Xinghua: China’s urbanization 1.0 started in the early 1980s. in 2014, there was a historic change in the proportion of primary, secondary and tertiary employment to the total number of people employed in China: 29.5% of employment in the primary industry, 29.9% of employment in the secondary industry, and 40.6% of employment in the tertiary industry. In the same year, for the first time, the number of employed people in cities and towns exceeded the number of employed people in rural areas, and the average number of years of education for people of working age nationwide reached more than 10 years between 2014 and 2015. This was a historic change in China’s economic and social development, which began the process of China’s urbanization 2.0.

Also in 2014, in order to adapt to the new situation of economic and social development and rationally guide the orderly transfer of the agricultural population to cities and towns, the State Council issued the Opinions on Further Promoting the Reform of the Household Registration System. This is a timely response of the national household registration policy to the reality of economic and social development. Since then, I have been paying attention to the major shift in China’s urbanization development model.

Q: What other features are worth noting during the transition from the 1.0 to the 2.0 era of urbanization?

Liu Xinghua: Data from the National Bureau of Statistics (NBS) and related research results show that around 2014 is the point in time when China’s economic structure and development pattern underwent important changes. For example, in 2013, the contribution of consumption to economic growth exceeded investment, and the pull of the tertiary industry on economic growth exceeded that of the secondary industry; in 2015, the growth rate of investment in fixed assets of the whole society fell to 8.6%, and has been declining in successive years since then; from the point of view of the GDP growth rate, China’s GDP growth rate in 2015 fell to 6.9%, which is the first time that the GDP growth rate has fallen below 7% since 1990.

From the point of view of foreign trade data, China’s foreign trade dependence has been in an upward trend since its accession to the World Trade Organization in 2001, but since 2015, foreign trade dependence has dropped to below 40%, and has been around 33% in recent years. In terms of outward investment, in 2015, China’s outward direct investment flow reached $145.67 billion, realizing net capital export. By 2023, China’s OFDI flow will be $177.29 billion, accounting for 11.4% of the global share, ranking in the top three globally for 12 consecutive years, and accounting for more than 10% of the global share for eight consecutive years.

This shows that China’s economic structure has begun to undergo significant changes, and the development pattern has also changed: China’s economy is shifting from being driven mainly by investment and exports to being driven mainly by consumption, from being a manufacturing power to synergizing the development of manufacturing and service industries, from being a major country that attracts foreign investment to being both a major country that attracts foreign investment and a major country that makes foreign investment, from being a major exporting country to being both a major exporting country and a major importing country, and domestic demand is gradually becoming a major country that attracts foreign investment. It is shifting from a big exporting country to a big exporting country as well as a big importing country, and domestic demand is gradually becoming the main driving force and stabilizing anchor of economic growth. This also marks that China’s urbanization has entered the 2.0 era.

Q: What are the new changes in China’s urbanization process in the past two years?

Liu Xinghua: Starting from 2024, the trend of China’s urbanization 2.0 becomes more obvious. There are two important signs, one is that China’s per capita GDP will reach 13,400 US dollars in 2024, which is very close to the global per capita GDP level measured by the World Bank, and this is an important sign of China’s stride to catch up with the times since the reform and opening up; the second is that the urbanization rate of China’s household population will reach 49.26% in 2024, which is already very close to 50%. Second, the urbanization rate of China’s household population will reach 49.26% in 2024, which is already very close to 50%. Over the past decade or so, China has achieved a shift from an urbanization rate of 50% for the resident population to 50% for the household population. This is an important symbol of China’s progress from a traditional agricultural country to a post-industrialized country.

The resident population is defined as the population of Chinese citizens who have actually resided regularly in an area for more than half a year; the household population is defined as the population of citizens who have registered a permanent household registration with the public security household registration authority in the place where they usually reside.

There is still a gap of 18 percentage points between the urbanization rate of the household population and the urbanization rate of the resident population, as published by the National Bureau of Statistics. This means that nearly 200 million agricultural transfer population has yet to be fully urbanized. Citizenship of the agricultural transfer population is the top priority of China’s urbanization 2.0, and the most important task in realizing “people-centered” urbanization.

Q: Compared with the urbanization rate of over 80% in developed economies, how much room is there for improvement in China’s current urbanization level?

Liu Xinghua: As early as the mid-1920s, the urbanization rate of the United States had already reached 51%, which is nearly two percentage points higher than the current urbanization rate of China’s household population. The urbanization rate of China’s household population has only reached the world average level of the mid-1990s. Even in terms of the urbanization rate of the resident population, there is still a gap of more than 13 percentage points between China and the current urbanization rate of more than 80% in the developed economies of the world; in particular, there is still a big gap between China and the level of comprehensive urban development in developed countries.

However, this also shows that there is still much room for urbanization in China. According to the estimation of the National Development and Reform Commission, an increase of 1 percentage point in China’s urbanization rate can stimulate the demand for new investment of trillions of yuan, and the demand for consumption of more than 200 billion yuan can be increased every year. This means that urbanization will continue to play an important role in promoting economic growth.

The urbanization of “people” is particularly important.

Q: In the era of urbanization 2.0, what are the new features of population flow?

Liu Xinghua: In the era of urbanization 2.0, although the urban population will continue to increase, the growth rate will slow down, while the structural adjustment will increase significantly. Population flow will gradually shift from “country-city” flow to “city-city” flow, and part of it will be “city-country” flow.

The “city-city” flow refers to the flow of population from counties to medium-sized cities, and from medium-sized cities to large cities with industrial support and employment capacity.

As for “urban-rural” mobility, it does not mean that city dwellers will go back to the countryside to work as farmers, but rather that a portion of the urban population will go to the countryside to engage in modern agriculture, and to develop rural farming, processing and distribution, recreational tourism and rural services. Although the size of this part of the population is small, it can play an important role in the integrated development of urban and rural areas and rural revitalization.

Q: Will the development of metropolitan areas, city clusters and city belts be a trend? What is the development path of modernized industrial system in Chinese cities in the future?

Liu Xinghua: In the future, more of the world’s population will be concentrated in metropolitan areas, city clusters and urban belts. China’s Beijing-Tianjin-Hebei, Yangtze River Delta, Greater Bay Area, Northeast, Chengdu-Chongqing city clusters and city belts, as well as metropolitan areas such as Wuhan, Zhengzhou, Changsha, and Xi’an, will form a much larger scale of population concentration. If China reaches the average urbanization level of developed countries by mid-century, nearly 1.1 billion people will live in urban areas.

To build a modernized industrial system in Chinese cities, it is necessary to strengthen the construction of modern urban infrastructure, optimize the urban industrial layout and development environment, enhance the carrying capacity of urban industries, promote the integration of industry and cities, and realize industrial upgrading. At present, 22 mega mega cities with a resident population of more than 5 million in urban areas account for 22.6% of the country’s population and more than 30% of the country’s GDP. The mega mega cities and regional center cities should comprehensively play the functions of scientific and technological innovation source, high-end industry leader and global resource allocation, and orderly dissolve the general manufacturing industry and non-core functions such as trade and logistics bases, so as to create space for the development of the surrounding small and medium-sized cities, and at the same time, extend to the high-end of the global industrial chain. Small and medium-sized cities should give full play to their own advantages, upgrade traditional industries, undertake supporting industries, and create characteristic industries. Large, medium and small cities should complement each other’s strengths, cooperate with each other in the division of labor, create a perfect industrial chain and supply chain, and form a modernized industrial system based on metropolitan areas, city clusters and city belts with systematization, specialization and differentiation.

Q: How to understand “investing in people”?

Liu Xinghua: Simply expanding the size of cities and gathering population will bring a series of challenges and problems. We cannot simply say that the bigger the city and the higher the urbanization rate, the better. Some countries hovering in the “middle-income trap” have a high urbanization rate, even exceeding that of many developed countries, but these countries have a large gap in national income, serious class solidification, low employment levels, and a series of social problems, which in turn affects the upgrading of the urbanization level.

The coordinated development of economy, society, culture and environment is the real high-quality urbanization, in which the urbanization of “people” is especially important.

For the first time, “investing in people” will be included in the 2025 government work report, which is a scientific response to the main contradiction in Chinese society. Investing in people” is the distinctive symbol of the 2.0 era of China’s urbanization, meaning that urban construction has shifted from ‘object-oriented’ investment to ‘human-centered’ investment, and the way of urban development has shifted from ‘urbanization of things’ to ‘urbanization of people’. It means that urban construction has shifted from “object-oriented” investment to “human-centered” investment, and urban development has shifted from “object urbanization” to “human-centered” urbanization. It is believed that in the future, more capital and resources will be invested in people and serve people’s livelihoods, supporting the expansion of employment, promoting residents’ income and burden reduction, encouraging residents’ consumption, and forming a virtuous cycle of economic development and improvement of people’s livelihoods.

Specifically, “investing in people” and realizing “people-centered” urbanization requires focusing on the following aspects. First, strengthening the livelihood orientation of macro policies, so that investments can be more precise and efficient, and better meet the multi-dimensional needs and comprehensive development of people; second, balancing the cultivation of human resources quality dividend and moderately raising the fertility level of urban population, so that cities can maintain the advantage of human resources; third, creating a livable and workable urban business environment and government service environment, and improving the service function of the city and the quality of life of its residents; and fourth, constructing a “people-centered” urbanization system. a coordinated and complementary system of primary, redistribution and third distribution, striving to increase the income growth rate of low-income people, steadily expanding the size of the middle-income group, and moderately increasing the per capita disposable income of residents as a percentage of per capita GDP; fifthly, continuously improving the education level and cultural quality of the urban population, strengthening vocational education and training, and enhancing the employability of those engaged in the workforce; and sixthly, realizing the equalization of basic public services. In particular, the agricultural transfer population should be allowed to enjoy the same rights as the household population in the place of relocation in terms of social insurance, housing security, and compulsory education for children who have moved with them. New space for economic growth.

Consumption is not just a “spending” behavior.

Q: In terms of the speed and quality of economic growth, what will change in the era of urbanization 2.0?

Liu Xinghua: Although China’s urbanization still has more room for development, it is unlikely that China’s economy will maintain a high growth rate in the future. There are several reasons for this: First, China’s GDP today is already twice what it was a decade ago, and the incremental growth of China’s economy in 2024 will be equivalent to the total economic output of a country that ranks around 20th in the world. It is too difficult to maintain a high growth rate when the total economic base has become large, which is also the general law of economic development; secondly, the “Lewis inflection point” has already appeared, and the rate of urbanization is gradually decreasing, and the economic growth rate will inevitably be slowed down; thirdly, China’s economic growth is facing the constraints of an aging population and environmental resources; and fourthly, the complexity and changeability of the international political and economic environment has resulted in greater risks and uncertainties. Fourth, the international political and economic environment is complicated and volatile, creating greater risks and uncertainties. Under the influence of various factors, it is difficult to return to the growth rate of over 7%. In this regard, we need to have a clear and objective understanding and judgment.

It should also be noted that China’s GDP growth rate has slowed to 7.43% since 2014, and fell below 7% in 2016, with a three-year average growth rate of 4.5% for the new crown epidemic, 5.4% in 2023, and 5% in 2024. Historical experience shows that there are many catching-up countries where the downturn in economic growth tends to be abrupt rather than gradual. After years of high-speed growth, these countries encountered a crisis either internally or externally, or internally and externally intertwined, and their economies suddenly decelerated and declined significantly into the medium-speed growth range, but they were not able to stay in the medium-speed range for a few years, and then they entered the long-term low-speed growth or even negative growth range.

We need to summarize and learn from these historical lessons. The next five to ten years, during the Fifteenth and Sixteenth Five-Year Plan periods, will be a critical stage for China’s economic growth to continue at a moderate pace, while at the same time realizing transformational development. This is a major test. The key lies in giving full play to the advantages of large-scale market, industrial supporting capacity and human resources, seizing the major opportunities of the new round of scientific and technological revolution and industrial change, building the new kinetic energy of the “Troika”, and promoting the urbanization from epitaxial and quantitative growth to connotative and qualitative enhancement, so as to achieve high-quality development of the national economy on the basis of maintaining a certain speed. This will realize the high-quality development of the national economy while maintaining a certain speed.

Q: What is the future trend of fixed asset investment? Will real estate still be the pillar industry of the city in the future?

Liu Xinghua: Over the past decade or so, the growth rate of national fixed asset investment has been on a downward trend year by year. This is both a problem facing China’s economic growth and an opportunity for China’s economic restructuring and power transformation.

From the perspective of real estate investment, one of the three pillars of fixed asset investment, the growth rate is less likely to rebound significantly. The current real estate market is undergoing deep adjustment and change, shifting from a period of rapid expansion to a stage of stock optimization. In the future, the real estate industry is unlikely to return to the status of the city’s pillar industry, but there will be structural changes. By policy support, industrial upgrading, economic growth levels, population flows and other factors, the real estate market between regions and cities will be significantly differentiated, first-tier cities and some second-tier cities with strong economic strength because of the collection of various resource elements, the real estate market may stabilize and even have the potential to rebound, and those who lack industrial support and net population outflow of small and medium-sized cities will continue to face the pressure of going to the inventory. Inventory pressure.

In the era of China’s urbanization 2.0, urban infrastructure and real estate will shift from focusing on incremental expansion to focusing on green, low-carbon, digital and intelligent incremental construction and stock transformation and operation and maintenance. Infrastructure construction has two investment priorities, one is to make up for the short board of traditional infrastructure, such as renovating old urban neighborhoods, strengthening the construction of comprehensive underground pipeline corridors and upgrading old pipelines, and establishing a sustainable urban renewal model; the other is to moderately advance the investment in the construction of new infrastructure for digitally-intelligent, networked, and green cities. This will not only boost current economic growth and employment, but also enable new and traditional infrastructure to work in synergy. In addition, high importance should be attached to investment in high-tech industries and advanced manufacturing industries, so as to improve the effectiveness of investment in general and create conditions for building a modernized industrial system and creating new momentum for economic growth in the era of urbanization 2.0.

Q: You mentioned before that the contribution of consumption to economic growth has exceeded investment since 2013. Does this mean that the importance of consumption to economic growth is increasing?

Liu Xinghua: Currently China’s economy is in a critical period of shifting from quantitative growth to quality improvement. In terms of the way of urban economic development, for more than 40 years, China has been familiar with the way of promoting economic growth and urbanization through large-scale investment at all levels of government. Today, however, the role played by investment is clearly weakening, and the efficiency of investment in traditional industries is also significantly reduced. It is necessary to find a truly effective way as soon as possible to get rid of the dependence on the path of economic growth and urbanization that has developed over the years.

Of course, I am not saying that investment is not important, or exports are not important, but that future policymaking and investment direction should pay more attention to the residents’ consumption tendency, the domestic and international market demand, as well as the essence of China’s urbanization 2.0 era of high-quality development requirements, to take the “boost consumption” and “improve the efficiency of investment” mutually reinforcing. Adopting the strategy of “boosting consumption” and “improving investment efficiency” to promote each other, gradually realizing the strategic transformation from “investment-driven” to “demand-driven”. This will not only enable us to proactively respond to the restructuring of the global economic landscape, but will also help us to resolve the structural contradiction of “high savings and low consumption” in the domestic economy. This requires a comprehensive approach to stabilizing employment, increasing income, benefiting people’s livelihoods, and “people-centered” urbanization, so as to promote the development of cities to achieve a new historic leap.

Q: The lack of domestic demand is considered the biggest problem of China’s economy. In your opinion, how to improve people’s consumption power?

Liu Xinghua: Consumption cannot be generated simply by “stimulation”. Consumption is a function of income, and income is a function of employment. Behind consumption is the labor productivity of society as a whole, the ability of consumers to pay and the needs of human nature. In essence, consumption is not a mere act of “spending money”, but a comprehensive reflection of the scientific and technological progress of human society, the modernization of the country, as well as industrialization, urbanization, population size, demographic structure, industrial structure, the level of national income, the level of social security, lifestyles and values.

From the comprehensive view of both supply and consumption, consumption is not only created by consumers, but also guided and stimulated by enterprises, and encouraged and protected by the government. Only if enterprises improve the supply structure, enhance the level of supply, provide products and services more in line with the needs of consumers, and create a richer consumption scenario; only if the government vigorously builds a safe, fair and perfect consumption environment, effectively breaks through the consumption blockage and pain points, and effectively meets the multi-level and diversified consumption needs of consumers, the whole society can increase more consumption.

What needs to be pointed out here in particular is that, as urbanization continues to advance and the industrial structure is optimized and adjusted, although residents’ incomes will continue to grow in general, the income gap between regions, industries, and social groups may further widen instead. This requires the government to introduce policies to increase employment and residents’ incomes, reform and improve the income distribution system, further reduce the tax burden of ordinary urban wage earners, improve the social security system, provide richer and more convenient public services, give low-income groups corresponding consumption subsidies, promote coordinated development in the region, effectively safeguard social equity, and maintain the mobility of the social strata, so as to raise the overall consumption level of the whole society. consumption level.

Q: According to your observation, what are the new trends of consumption in the future?

Liu Xinghua: Under the background of China’s urbanization 2.0, consumption will show the following trends: Firstly, the overall consumption of the whole society will be upgraded and upgraded. Second, residents’ consumption mode and consumption tendency are richer and more diversified. Third, the proportion of service consumption and green consumption in the consumption structure is gradually increasing. Fourthly, the digital and experience-based consumption of the new generation is growing significantly. Fifth, the aging society will produce a series of new age-appropriate consumption while reducing part of the traditional consumption.

It is necessary to grasp and adapt to these new trends, improve the supply structure, upgrade the supply level, effectively meet the multi-level and diversified consumption demands of the whole society, fully release the potential of domestic demand in the era of China’s urbanization 2.0, and at the same time expand the opening up of rules, regulations, management, standards and other systems to build a new development pattern based on the domestic macro-circulation and the mutual promotion of the domestic and international double-circulation, so as to create new space for economic growth in the high level of opening up. Creating new space for economic growth through high-level liberalization.