China Prepares for Urban Revolution

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"As the global economy deteriorates, we may soon see a negative growth of [China's] processing trade."

Angry Protests

The export slowdown is already hurting the Pearl River Delta, long a prime destination for China's urban migrants. Reported figures show 1,300 companies have shut down or suspended business in the two cities of Dongguan and Shenzhen in the first nine months of the year, and the real number is probably far larger. As workers lose their jobs, they are responding with often angry protests. When 7,000 laid-off workers protested after a top Hong Kong toymaker shuttered its two Dongguan factories in October, the local government had to step in, paying $3.5 million in back wages.

To help ailing manufacturers and protect jobs, Beijing also announced that as part of its stimulus plan it would cut all value-added taxes starting Jan. 1, saving companies $17.6 billion in taxes next year. It also said it would earmark funds aimed at helping China's most vulnerable, both in the city and those still living in the countryside. Those are to go toward low-income housing, health care, education, and increased welfare benefits for China's poorest. Meanwhile, grain prices for those in the countryside are also to be raised. Equally important, however, will be new job creation. "The No. 1 challenge for China will be creating enough jobs—and many of those will have to come from the service sector," says Woetzel.

Through measures like those included in the stimulus package, Beijing is hoping to limit the potential social instability of urbanization. At a U.N.-sponsored forum on urbanization that drew 7,900 government officials and community activists from Africa, Europe, and Latin America to the eastern Chinese city of Nanjing in early November, "harmonious urbanization"—ensuring that the poorest in China benefit as society shifts to the city—was the slogan promoted by local Chinese officials. "China will continue accelerating urbanization as it brings huge changes to rural areas," said Vice-Premier Zhang Dejiang in his speech at the conference on Nov. 4. But at the same time, China must "continue its efforts to promote the development of a harmonious society," Zhang warned.

For more, see BusinessWeek.com's slide show of China's megacities.

Roberts is BusinessWeek's Asia News Editor and China bureau chief.