Rapid urbanization in China and its impact on the world economy

As the most populous economy in the world, China has experienced an unprecedented pace of urbanization since the start of its economic reforms in the late 1970s. The rapid urbanization was accompanied by large flows of rural to urban migration and a growing demand for a clearer specification of the rural land ownership. Since the 2000s, when the conventional restrictions on rural to urban migration were partially removed, rural to urban migration made dominant contributions to China’s urban population growth. This paper examines the impact of reforms in both China’s rural land and labor markets on the aggregate economic welfare in China and the rest of the world. Propositions derived from a theoretical model include that while the labor market liberalization generates unambiguous gains, the land reform may have some impact on income distribution. When the labor intensive industries gain, the capital intensive industries suffer in China. The impact on the rest of the world varies across different regions. The hypotheses are tested tentatively by running simulations on a simplified 10x10 GTAP Model. Several different modeling scenarios including 1) an accelerated urbanization as a result of free mobility of the rural labor; 2) a de facto privatization of the rural land ownership and 3) a combination of both (1) & (2) are used to capture different market environments. Policy implications are developed based on these simulation results. Paper prepared for the 16th Annual Conference on Global Economic Analysis "New Challenges for Global Trade in a Rapidly Changing World", Shanghai Institute of Foreign Trade, June 12-14, 2013. Shanghai, China.