By Kam Wing Chan

Kam Wing Chan, professor of geography at the University of Washington, is an expert on Chinese population statistics and is a guest contributor to the Dragonbeat blog this week.

How big are Chinese cities? That depends on how you measure them.

Back in 2005, Time magazine proclaimed that Chongqing had become “the largest city not only in China but in the world”, with a population in excess of 30m.

But any Chinese citizen will tell you that Beijing and Shanghai, both with real urban populations below 15m, are larger than their supposed competitor in China’s southwest.

Common confusion over the true population size of Chongqing and other Chinese cities reflects the fact that China has highly complex and confusing urban and city statistical data.

By Tom Miller

Beijing and Shanghai are currently the only two Chinese cities that have unquestionable “megacity” status, with populations well in excess of 10m.

But over the next 15 years, 60 new cities with populations of 1.5m-5m are likely to sprout in China, including six new cities – Tianjin, Guangzhou, Shenzhen, Chongqing, Chengdu and Wuhan – with real urban populations exceeding 10m.

Managing this vast migration in a sustainable manner will require more than steel and cement: creating patterns of urban growth that use resources efficiently and avoid irreversible urban sprawl will determine whether the country’s cities become livable economic centres or urban dystopias fugged up with exhaust fumes.

Most important, creating a viable social welfare system may determine whether these mega-cities are paved with gold or strewn with beggars.

By Tom Miller and Will Freeman

Beijingers call the hot and sticky months of July and August the “sauna” season. On muggy summer evenings, sensible locals sweat it out in the capital’s old lanes with sticks of fatty lamb kebabs and cold bottles of Yanjing beer.

But real men roll up their T-shirts under their armpits, ditch the pansy lager, and instead glug down the local firewater known as baijiu – a potent mash of sorghum, rice, unhusked barley and other grains.

For foreign businessmen forced to drink the stuff at countless banquets, baijiu provides an infamous challenge for the unconditioned palate. But this white spirit – generally 40-60 per cent alcohol by volume, but sometimes 70 per cent plus – is a mainstay of Chinese culture, first popularised during the Xia dynasty 4,000 years ago.

Baijiu, the world’s largest spirits category by volume, traditionally dominated the domestic booze market. But in recent years, sales volumes of China’s national liquor declined as beer, a foreign upstart, gulped up market share.

Now baijiu makers are fighting back with a proliferation of new luxury varieties designed to appeal to the country’s growing band of big spenders. Revenues are shooting up at major distilleries and baijiu is giving beer a run for its money.

By Tom Miller

When the global financial crisis began to batter China’s exports, some Chinese officials saw it as a useful opportunity to dispense a large dose of bitter, but necessary, medicine.

Wang Yang, the Communist Party boss of Guangdong province and a confidant of China’s president Hu Jintao, clearly relished the chance to fulfill the province’s long-held ambition to replace low-end manufacturing with something bigger, more advanced and more “modern”.

“Without the current serious economic situation, it would be much more difficult for Guangdong to accomplish economic restructuring,” Mr Wang informed the local press.

Mr Wang called the plan to dump labour-intensive manufacturers and replace them with higher-value heavy industry and services “emptying the bird cage for new birds to settle down”. It sounded like a fine idea – so long as the new birds were ready.

By Tom Miller

They may not be as sexy as their Martini-sipping namesake, but bonds are important. A properly functioning bond market helps allocate capital efficiently and allows central bankers to set appropriate interest rates.

But the stunted Chinese bond market has long been a weak link in China’s bank-dominated financial system.

Two years ago, when Beijing ditched a quota system that limited annual corporate bond issuances to Rmb100bn and required that all bonds be underwritten by state-owned banks, hopes were high that the corporate bond market would spark into life. The new regulations were expected to give a new funding avenue to listed companies with weaker links to the state, and provide all listed companies with access to cheaper credit.

After a good start, however, corporate bond issuances, or gongsi zhai, fizzled this year: issuance in the first four months was a round, fat zero.

But there are signs that the bond market is picking up elsewhere – namely under the guise of medium-term notes, or zhongqi piaoju. Mid-term note issuance reached Rmb280bn in January to April, 60 per cent more than total issuance in 2008.

At Galanz’s main factory in Shunde, an industrial town an hour’s drive south of Guangzhou, hundreds of blue-shirted young men bend over 200m-long trestle tables, drilling screws into a line of shiny new microwaves.

Galanz, a household name in China but still unknown in much of the world, makes one of every two microwaves found in households across the globe.

This scene, repeated in thousands of factories lining the Pearl River Delta in Guangdong province, is an example of what the “factory of the world” does best: marshalling millions of migrant workers to produce cheap consumer products in dizzying quantities. Galanz’s 47,000 workers have the capacity to produce 28m microwaves per year.

But if countless media reports are to be believed, Galanz – along with thousands of other export processors in the PRD – should be in its death throes. With export markets collapsing across the developed world, thousands of manufacturers are teetering on the verge of collapse.

And with government statistics indicating that more than 60,000 factories shut their gates last year alone, armies of unemployed migrants are preparing to rampage across southern China, leaving destruction in their wake.

Dragonbeat is off on a tour of the Pearl River Delta this week, but will return with some thoughts next Monday.

When the Communist Party announced last October that it was reforming rural property rights, it was initially greeted as a radical move that would finally set Chinese farmers free from the shackles of the state.

The Party communiqué was actually far less revolutionary than the headlines suggested – largely ratifying existing practices and assuring farmers that their land rights would be solidified. Most importantly, Beijing remained opposed to granting individual farmers the right to mortgage their land.

But a new pilot project in the northeast province of Liaoning, where 151 rural households have been allowed to use their land-use rights as collateral for mortgages, shows that change may be afoot. By giving farmers practical access to credit for the first time, the pilot project has the potential to turn rural households into economically significant players.

Liaoning’s Faku county is the first to be selected as part of an experiment launched by the People’s Bank of China to allow a handful of rural counties in nine provinces to pilot new financial products. Whether this experiment is extended to other counties will indicate whether a breakthrough in rural financing is likely.

Extending the project nationwide would boost agricultural productivity and increase rural household incomes. Beijing wants to expand credit to help farmers weather the economic downturn in the short term and to boost rural consumption in the long term.

Under current law, farmers are allowed to transfer their individual land-use rights but cannot use them as collateral for mortgages. This massively restricts farmers’ ability to invest and consume.

The legal regime for rural land developed over the past three decades. After decollectivisation in the early 1980s, farmers received 15-year individual cultivation rights for a set amount of agricultural land. These were subsequently extended to 30 years in the 1990s.

Since then, various laws have gradually turned these informal use-rights into much more formal and secure property rights. Together, these laws supposedly grant individual farmers an indivisible, perpetual property right to their land – including the ability to lease out or transfer their use-rights.

However, Beijing views land reform as a trade-off between economic development and social stability: privatising land would create huge assets and increase agricultural productivity and rural incomes, but it would also risk separating farmers from their ultimate source of financial security – their land.

Although the broad trajectory of land reform supports more flexible rural land-use rights, Beijing has opposed granting individual farmers the right to mortgage their land for social and, therefore, political reasons.

Partly, the government fears a return to the dark old days of pre-Communist China when, according to Party propaganda, peasants were rent slaves bound to unscrupulous and rapacious lenders. But today’s prohibition on mortgaging farmland, which prevents farmers from improving their circumstances through better access to capital and credit, amounts to an alternative form of economic servitude.

If Liaoning’s pilot project were extended nationwide, it would boost agricultural productivity and increase rural household incomes – a vital step towards shifting the economy to a more sustainable, consumption-based model.

Fears that landless farmers potentially pose a risk to social stability could scupper any genuine reform – but any loosening of the shackles that tie farmers to the land is a positive development. Watch this space.

By Tom Miller and Arthur Kroeber

A couple of months ago, a number of excitable reports predicted that mass lay-offs in China’s export heartlands could spell social chaos. Twenty million angry migrant workers had lost their jobs and revolt was in the air, we were told.

So just how bad is the labour situation? Not nearly as bad as many people feared.

According to a recent survey of 68,000 migrant households in 31 provinces by the National Bureau of Statistics, 23m of 140m migrant workers failed to find jobs after this year’s lunar New Year in January. While 11m returned to the cities to look for work after the holiday, 12m stayed at home.

Since then, reports from individual provinces suggest that many of those workers have also returned to the factories and building sites.

In Guangdong province – a major export region that is home to around 20m migrant workers – the local government estimates that of the 10m migrant workers who went home for the lunar New Year, 9.5m have returned to the province. Of these, about 5 per cent (or 460,000 people) had not found jobs. As the FT’s South China correspondent Tom Mitchell pointed out, in the context of a province with a total population of 110m, half a million migrants is a sizeable but manageable army of unemployed.

Evidence from Henan province, one of the biggest sources of migrant labour in the country, confirms this trend. Many more migrants stayed at home after the New Year than in past years, but most have since returned to work or found local employment.

According to one survey of migrants in Xinyang, a prefecture-level city in southern Henan, 500,000 of the 650,000 migrants who returned home for the holiday had left again by mid-February. Of the 150,000 who remained, 50,000 found local work, leaving 100,000 – or 4 per cent of the total 2.7m area migrants – temporarily unemployed.

Aside from some localised protests directed at a handful of individual factories, laid-off workers have been far busier finding new jobs than venting their rage. This is unsurprising: migrants working in export factories and construction sites are accustomed to finding work where they can get it and many have been laid off before. Chinese migrant labourers are among the most flexible in the world.

Past experience also suggests that temporary economic hardship may provoke isolated protests but is unlikely to cause widespread social or political tensions. Between 1995 and 2005, China’s state enterprises shed 50m jobs. The laid-off workers lost what they had believed were jobs for life, which also provided them with food, education, health care and pensions. They had no skills and were effectively unemployable elsewhere.

Inevitably there were riots, particularly in the hard-hit northeast – but these were aimed at specific factories rather than the government or political system in general. And there was no serious, long-term damage done to China’s social fabric.

This is not to make light of the current situation: millions of vulnerable migrants have lost their jobs and times are tough. But the resilience of China’s workers should not be underestimated, and fears of social unrest caused by unemployed migrants have been greatly exaggerated.

By Tom Miller and Will Freeman

“Rebalancing the global economy” is the mantra of the day – and China, we are told, must play its part. That means shifting China’s economy away from an unhealthy reliance on exporting goods to foreign consumers and instead boosting consumption at home.

Last week, we argued that China’s fast pace of urbanisation, which is projected to see the urban population rise from 600m today to more than 1bn by 2030, would keep demand for commodities high. It seems a small leap of logic to conclude that growing urbanisation – and the accompanying rise of an “urban middle class” – will have a similar impact on consumer goods.

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