China's Big Cities Fought a "War for Talent" in 2018. What Is a Population Worth to a City? | 2018 Business Events ⑨

Population is falling, labor is scarce, and the old model of urban growth can no longer hold — so bringing in talent has become a new path to growth

Some are the product of continuous change — change that will go on reshaping our lives. Some are the intrusions of even less controllable forces into the business world, forcing market participants to keep adjusting their strategies. And some come from companies themselves: how a company, once it reaches a certain size, makes its peace with the public, with consumers, with public authority, and with everything else around it.

A country gets the companies it deserves. In 2018, as always, the business world changed a great deal. The year's biggest business events only confirm it.

In an earlier series called "Population Is a Problem," QDaily interviewed 22 people living in five cities, along with their families.

In 2018, the unpredictable household-registration (hukou) policies of China's big cities churned up all kinds of lives.

As early as December 2016, the Shenzhen city government was the first to lower the bar sharply: anyone under 35 with at least an associate degree could apply for a talent hukou. Xi'an, Urumqi, Fuzhou, Chengdu, Changsha, Jinan, Xiamen and other cities soon followed with policies roughly as loose.

But the scramble for talent did not become a public preoccupation until April 2018. That month the Xi'an city government announced that more than 300,000 people had obtained Xi'an hukou in the first four months of the year alone. Tianjin's Haihe Talent Plan, released in May, was the climax of the whole show: nearly 300,000 people registered through its app within 24 hours.

The hukou policies of 2018 set off a new wave of movement, one entirely unlike China's earlier migration patterns. Second-tier cities such as Xi'an, Tianjin, Wuhan and Chengdu overtook Beijing, Shanghai, Guangzhou and Shenzhen as the places people chose to settle.

When local governments tallied up their achievements for 2018, they had a new number to boast about. Alongside GDP and fiscal revenue, they now trumpeted just as happily how many talented people the city had drawn in over the past year.

On December 11, the Xi'an city government announced that since it lowered the hukou threshold in 2017, one million people had obtained Xi'an hukou under the new policy, more than 750,000 of them in 2018 alone. At the end of the year, the government of Chengdu's High-tech Zone announced that since its Golden Panda Talent Plan launched in April 2018, more than 30,000 college graduates had registered there, bringing the district's total stock of talent to 525,000. In Wuhan, 205,000 college graduates registered hukou over three quarters — twice the figure a year earlier.

Meanwhile the big cities showed no sign of slowing down. In January 2019, Xinjiang launched a Tianshan Craftsman Plan and said it would train 12,000 highly skilled workers. Shenzhen issued its first support policy aimed specifically at financial talent, with rewards of up to 100,000 yuan a person. Guangzhou relaxed the age limit on talent-based hukou applications on January 11. Even Beijing announced that highly skilled workers could apply for hukou through its talent-introduction rules — though the city had said two months earlier that it would hold its permanent population under 23 million through 2020.

In our earlier reporting, we wanted to know what these announcements — which read more like statistical bulletins — actually meant for the people living inside them.

When we met Zhang Xia at the administrative service center in Tianjin that handles hukou applications, she was worrying about the chain of problems attached to her household registration. She had lived in Beijing since childhood and worked at a state-owned enterprise there, but had never got a Beijing hukou. With marriage and children ahead, she was afraid her child would not be able to go to school in Beijing; she did not want to go back to her registered hometown in Henan either. So she decided to try her luck in Tianjin.

Wang Yuan, from Xi'an, was in the same position. In 2015 she finished a master's degree at a "211" university — one tier of China's elite universities — in Beijing. She had studied computer science, so the obvious ideal was a job at an internet company in Beijing: good salary, decent life. But she worried the hukou question would never be settled and would weigh on her later, so she went back to Xi'an, used her local hukou to buy an apartment, and settled into a nine-to-five.

Liu Yu, 31, rents in Tianjin and now has to show the place to prospective buyers from time to time: prices went up after the Haihe plan came out, and his landlord decided to sell. Liu studied 3D art design in college. Of the 15 people in his year, ten did not stay in Tianjin; those who did all ended up doing outsourced 3D modeling and texturing for the same game company — "fairly low-end work," he says.

Chen Juan, 64, worked at the construction company under Benxi Steel and is now retired. She spends half of every year at her son's home in Shanghai, going back to Benxi in the spring to pick up some work and earn a little more. She has plenty of complaints about Benxi now: the medical-insurance reimbursement ceiling has come down, and the good doctors have all left. "It won't even take two years — Benxi's pension money is finished," she said. Liu Yuan, a 24-year-old civil servant there, told us: "Somewhere in the back of my mind I feel I should be working somewhere else, that I shouldn't have come back."

Yuan Qi, 28, from Xi'an, had planned to earn money in Shanghai and buy a home in Xi'an, but she gave that up as Xi'an prices kept climbing. If she couldn't afford a home either way, why not just stay in Shanghai?

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In every interviewee, in every city, we could see how much hukou shapes an individual life: career choices, marriage and children, personal growth, even how people spend. Whether or not you are bound by it decides the course of your life, and your attitude toward life. Turned around, the lives of these 22 people also became a reflection of the state of the cities they live in.

Both in that earlier series and here, we have tried to lay out the main background to the shift in population policy around 2018, and the levels at which it will take effect. Most of all: China's urbanization is still going on, and what now looks like a way of balancing resources — can it actually ease these problems at the root?

1

For a long stretch of time, governments at every level in China were unfriendly toward population — wary of it, even. Too many people, they believed, were a drag on economic growth.

Years of political instability had left China extremely poor. World Bank figures put the Engel coefficient — the share of household spending that goes to food — at 57.6% for China's urban population in 1976, and as high as 67.6% in the countryside; by the standard measure, anything above 60% counts as poverty. Of China's 930 million people at the time, 770 million lived in villages.

With no industrial base to speak of, labor was in effect in surplus. Cai Fang, vice president of the Chinese Academy of Social Sciences, draws on the Nobel-winning economist Arthur Lewis to argue that enormous numbers of Chinese workers were then stuck in the countryside and, limited by low productivity and poor conditions, never worked at full capacity — you could almost say they produced nothing at all. If labor efficiency is the measure of a person's worth, surplus labor was worth nothing by that measure, and was pure consumption. This was one of the forces behind the full rollout of compulsory family planning from the 1980s on.

That has changed in recent years. Forty years of fast growth has absorbed huge amounts of rural labor. A 2004 report from the Development Research Center of the State Council noted that 20% of the country's rural areas had little surplus labor left. A 2012 report in Chongqing Morning Post went further: close to a third of the country's farm workforce was over 50; in central and western China 80% of farmers were over 50; and nearly 30 million mu (about 4.9 million acres) of cropland was left fallow each year.

Today Chinese labor has gone from surplus to shortage. "Industrialization and the loosening of the hukou system have moved mostly young workers from the countryside into the cities. China has reached a stage of full employment, and its labor has gone from surplus to shortage," writes the Japanese economist Kwan Chi Hung.

What makes Chinese labor look scarcer still is the aftermath of family planning, and 2018 made it plainer. Numbers released region by region showed that births in China fell sharply that year. Even Shandong, which had the highest fertility rate in the country, was headed for a marked decline.

China's once-vast dividend of young people is about to disappear. On January 3, 2019, the Green Book of Population and Labor (《人口与劳动绿皮书》), published by the Chinese Academy of Social Sciences, used the United Nations' estimate of China's fertility rate to project that the country's total population could begin shrinking as early as 2027, falling to about 1.172 billion by 2065.

For any city this is an enormous problem. Every year a city government pays out huge sums in pensions to support the old, while the number of working young people paying in falls year by year. Sooner or later the pension fund runs a massive deficit — big enough to disturb the normal working of a whole city.

Some Chinese cities are already there. In Benxi, Liaoning, the registered population fell from 1.571 million in 2000 to 1.499 million in 2016. Within that, the 18-to-35 group dropped from 362,000 in 2010 to 309,000 in 2016, the steepest fall of any age group.

Benxi's fiscal revenue has slid too, as its pillar industry, Benxi Steel, has struggled. In 2015 the city took in just 40% of the previous year's revenue. Residents already feel the shrinking reimbursement ceilings at the hospitals. Some believe that in another two or three years, paying local pensions will become a real problem.

Research by the Tsinghua University urban-planning scholar Long Ying and colleagues found that over a decade, 180 of China's 654 cities lost population. Heilongjiang, the province that lost the most, was down 423,000 people between 2010 and 2017; its natural population growth rate of -0.41% was the lowest in the country. Heilongjiang also became the first province to run its pension fund dry — the Social Insurance Administration Center of the Ministry of Human Resources and Social Security put the shortfall at 23.2 billion yuan.

2

Chinese governments began paying attention to population not only because people are getting scarcer, but also because population now counts for more against the other factors of production.

Since reform and opening, capital and land are what local governments have relied on to grow their economies. With the tax-sharing reform of 1994, land transfer fees were classified as local revenue, and selling land to raise revenue — "land finance" — became a development path for many cities. Ministry of Finance figures show that in 2017 the national take from transferring state-owned land-use rights reached 5.21 trillion yuan, equal to 57.25% of local governments' own general public budget revenue, excluding subsidies.

But property developers have been under real pressure lately. Sales revenue growth slowed sharply while their debts kept growing, and they have clearly cut back on land. Figures from the China Index Academy show that in the first 11 months of this year, the 10 developers who spent the most on land cut both the value and the area of what they bought by more than half from the year before. Over the same period the failed-auction rate for residential land across 35 Chinese cities was 22.8%, a high since the 2008 financial crisis.

"As the costs of land requisition and demolition keep rising, along with the costs of building urban infrastructure, what local governments net from land transfers falls year after year. At the same time, land-backed financing and local government debt have replaced land-transfer revenue as the most important form of local land finance. The rapid expansion of local debt has created enormous hidden risks for the Chinese economy. The existing land-finance model cannot be sustained," writes Tian Chuanhao, a professor at Zhejiang University's School of Public Affairs, in his book Tracing the Rise and Fall of the Land System (《土地制度兴衰探源》).

Returns on infrastructure built with capital have kept falling too. National Bureau of Statistics data show infrastructure's contribution to GDP growth sliding from 8% in 2009 all the way to 2.21% in 2017. Much of that infrastructure has turned out to be pure waste. A 2013 report in China Business Journal noted that several industrial parks in Wuhan covering more than 10,000 mu (about 1,650 acres) had been planned for around 1,500 companies but had drawn only about 50. Xinhua, citing figures from the relevant State Council departments, reported that as of May 2016 there were more than 3,500 new towns and new districts at or above the county level nationwide, with a combined planned population of 3.4 billion — two Chinas.

Tianjin is a case in point. A research report from Shenyin & Wanguo Securities noted that failed land auctions in Tianjin rose markedly in 2018 from the year before. One parcel that went unsold in May was re-auctioned in November with its starting price cut from 1.74 billion yuan to 1.07 billion. Overall, the premium on land sales in Tianjin fell by more than 70%.

Binhai New Area, meant to pull Tianjin's economy along, has never worked either. In January 2018 the Tianjin city government released Binhai's GDP with the inflated portion stripped out: the district's 2016 GDP dropped from 1 trillion yuan to 665.4 billion. Binhai was planned as a free-standing new city, and in 2015 Baidu listed it as a "ghost city," having tracked mobile Baidu data and concluded that too few people were active there. By 2018 little had changed — many office buildings still sat empty, and there were not many people on the streets.

When land finance and infrastructure no longer bring in what they used to, the only way left for a city to grow is to bring in people. That is probably why Tianjin was in such a hurry to launch the Haihe Talent Plan in May 2018.

Population can drive a city's growth in several ways. First, more people help hold up home prices, and with them the city's fiscal revenue. Xi'an is the example: from 2010 to 2015 prices there rose slowly, sitting around 7,000 to 8,000 yuan for years. Once the city lowered its hukou threshold in 2017, prices began to climb — what locals felt, after the 2017 Spring Festival, was a rise of roughly 1,000 yuan a month.

National Bureau of Statistics figures show that in the first half of 2016 the year-on-year rise in Xi'an's new-home price index ran between 0.2% and 3%. By March 2017 it was above 10%, and by July above 15%. The local paper Huashang Bao reported: "As of July 23, 2018, the average price of a second-hand home in Xi'an was 12,244 yuan, up 57.10% from a year earlier."

The same thing happened in Tianjin. In June this year several Tianjin estate agents said that after the Haihe Talent Plan, prices in outlying districts such as Wuqing had risen by 1,000 to 2,000 yuan, and downtown prices by 2,000 to 3,000. The most optimistic forecast had Tianjin prices rising a cumulative 8,000 yuan within the year. With land auctions failing repeatedly in Tianjin in 2018, price rises driven by hukou policy could bring developers back to invest in the city and keep land finance going a while longer.

Beyond that, a dense labor force is itself something a city cannot develop without. The American social historian James Barrett, who studied the relationship between urban growth and industrialization in twentieth-century America, argued that because industrialization pushed the division of labor, getting the largest possible production efficiency meant having enough workers to fill every station on the line. In that sense, populous, densely settled cities got more chances to develop, and got them faster, than the countryside.

Now that technology matters more to growth, a dense population also raises the odds of innovation through frequent contact. The Harvard economist Edward Glaeser calls this the effect of proximity. "Why does innovation cluster in places like Silicon Valley? Because ideas cross corridors and streets more easily than they cross continents and oceans… For an economy to prosper, a city must attract elites from every walk of life and let them work together. Without human capital, a city cannot succeed."

3

But unlike economists, who stress density, China's big cities attach an extra condition to the people they want: "high quality." Even Xi'an, which claims the lowest hukou threshold in the country, asks applicants to be at least graduates of an ordinary college or vocational school.

A hukou policy that genuinely treats everyone alike does not exist. A report in The Paper in April quoted Han Chengxiang, a public-interest advocate who follows hukou reform: "Opening hukou to migrant workers is still rare nationwide." Among the few examples, Zhengzhou announced in July 2017 that several groups — rural migrants who had worked and lived in urban areas for five years or more, and agricultural transfer populations moving as whole households — could register there.

"When the talk is about economic growth, the floating population is a demographic dividend. When the talk is about public services, that same floating population is a burden." Caixin quoted Li Nan, who initiated a report on healthcare policy for migrant children, and the line catches exactly the opportunism Chinese governments at every level show when they face population questions.

In March 2018 Beijing issued a new hukou policy letting qualified talent register directly. Qualifying meant, among other things, having raised 150 million yuan in equity financing over the past three years; or being an R&D professional whose annual taxable income over the past three years ran six to eight times the previous year's average wage for the city's workforce; or being a Chinese citizen selected for the "Thousand Talents Plan" or the "Hai Ju Program." Almost nobody meets these conditions.

Meanwhile Beijing has been holding its population down by moving certain industries out. In late November 2018 the Beijing Municipal Development and Reform Commission announced that the effort had worked: the permanent population of the six central districts fell by 740,000 between 2016 and 2017. As a result Beijing's total permanent population fell for the first time in 20 years, to 21.707 million in 2017. Even that was not enough — officials said the target of cutting the six central districts' permanent population by about 15 percentage points from 2014 levels by 2020 remained a hard task.

Having launched the Haihe Talent Plan in May, Tianjin patched it in a hurry, above all with a rule that new hukou holders must not hold a job or social insurance elsewhere — shutting out people who wanted Tianjin's schooling and social security without paying tax in Tianjin.

Even Xi'an does not think population is an unmixed good. In May it issued management guidelines calling for 30,000 people to be moved out of key historical and cultural districts. Xiao Qingli, deputy director of the Xi'an Municipal Planning Bureau, said buildings that were too dense and population that was too concentrated had produced a run of urban problems: a monotonous skyline, air pollution that would not disperse, traffic jams, schools and hospitals unable to meet demand. So, he said, the overly dense buildings and population of large and mid-sized cities need to be dispersed in an orderly way.

Even some people who had already registered in Xi'an were not guaranteed the rights that came with it. In May 2018, for instance, the city government issued a notice requiring anyone who had registered after November 21, 2017 to go back to their original place of registration to sit that year's gaokao, the college entrance exam. Getting a hukou did not mean getting the full rights of the city.

Behind this way of handling population is a pragmatism popular in China. If everything has two sides, then take the good and throw out the bad. Cities welcome talent with more growth potential and push out residents who make trouble. The odd part is that a city's "growth" and its "problems" are defined entirely by one group's imagination of what the city ought to be.

Sometimes that imagination matches most people's — a science-fiction utopia. The rows of towers in novels, the clean streets, the uniform look: for many people that may still be the final picture of a city making a better life. Other times the imagination carries a political and historical stamp, as the Oxford anthropologist Xiang Biao suggested when he commented on this round of moving non-capital functions out of Beijing: "Old Beijing, centered on the Forbidden City, will become a central administrative zone with no spontaneous social life of its own. It is like a brand-new, modern way of imagining central power — something like the computer control center in an airport."

What these ideas share is that they treat the city as an organism that exists on its own — as if planning its buildings and spaces sensibly were enough to approach a perfect model. But towers, green space and elevated rail do not by themselves make a city; a city works only when residents move through it and live in it. Machu Picchu and Angkor Wat were once magnificent; abandoned, they count as tourist sites, not real cities.

"The power that comes of people working together is the central reason civilization succeeds, and the main reason cities exist… Never forget that a real city is made of residents, not concrete," Glaeser writes.

Most economists reject this way of treating population as a resource to be summoned and dismissed at will. Beyond arguing that it is not ethical, Glaeser also makes the case from the country's overall utility. People come to cities, he believes, because cities offer more opportunity and more amenities than the villages they left. So "increasing investment in urban infrastructure, so that more people benefit from it, is also more cost-effective for the country as a whole."

4

In the Chinese context, one example might be the schooling of left-behind children. In the countryside, as villages hollow out, many village schools have been shut one after another for lack of pupils, leaving left-behind children without enough education. If they can follow their parents into the city, schools for migrant workers' children take over — until the authorities force some of those schools to close.

The right answer is not to shut population out but to fold people into how the city runs, by providing fuller public services. "Economic agglomeration and urban expansion are objective laws of development. On the positive side, agglomeration and the growth of cities produce agglomeration effects, and a city's economies of scale are good for economic development and for people's quality of life," writes Lu Ming, an economist at Shanghai Jiao Tong University, in his book Great Nation, Great City (《大国大城》). By improving social management and raising the level of technology, he argues, the carrying capacity of a big city like Shanghai can be expanded further, rather than capped at its current 25 million permanent residents.

Economists have in fact always seen the relationship between cities and population as a dynamic equilibrium. Because people all enjoy some degree of freedom to move, going to live in a particular city — absent some irresistible force — is the result of weighing costs against benefits. Population flows naturally toward the cities where people think they will get more back.

Looking at 2018, the mainstream political view still treats population as a resource that can be allocated by administrative means. Over the past year and a bit, the ways localities have attracted talent come down to two: give them a hukou, or give them a subsidy. To some extent this does change some people's short-term plans, but it is not enough to be a reason to move for the longer run.

Take Xi'an. Loosened policy or not, the people who actually registered were still mostly those who had already worked in the city for years. Lian Yunjie, the one-millionth person to register in Xi'an, had worked for years at the Northwest branch of China Construction Third Engineering Bureau there, and had been named a model worker of Shaanxi Province. With support from the relevant authorities, Huashang Bao surveyed 200 people newly registered in Xi'an; close to 60% had been working in Xi'an before they registered. Among 50 people surveyed in one of Xi'an's main urban districts, 57% had been working in Xi'an before registering, and 43% had still not found work in Xi'an after registering.

Many young locals have not given up wanting to leave these cities. Journalism students think there is no mature commercial media at home, so there is little room to rise. Design graduates would rather go to Beijing or Shanghai, where the design industry is further along. Computer science graduates, needless to say, nearly all try for jobs in Beijing, Hangzhou or Shenzhen, where Alibaba, Baidu and Tencent pay better and offer more of a future.

In that sense, it is hard to say what the talent-grabbing policies China's big cities rolled out in 2018 will do over a longer stretch. A city's competitiveness has always rested on many things — infrastructure, climate, prospects — and not on short-term policies like these.

Cover and banner images are stills from Last Train Home and Modern Times, respectively.