How the urban-rural divide is undermining China's economic success

China's household registration policy ensured that rural migrant workers could never fully integrate themselves into the cities. (STR/AFP via Getty Images)

Throughout the late 20th and early 21st centuries, China was the most rapidly urbanising country in the world. As a reporter for Business Week and then Bloomberg, Dexter Roberts got to report on this epic story and earlier this year, drawing on his experiences, he published a book called The Myth of Chinese Capitalism.  

As one of the longest serving English-language correspondents in China, he reported from 1995 to 2018 and saw the country’s economy grow to be the second largest in the world. Along the way, he covered everything from the emergent tech sector to labour strife in the factory towns of the Yangtze and Pearl River deltas. Within China’s spectacular rise, Roberts also reported on inequalities baked into the Communist Party’s carefully managed system that could hinder the nation’s continued growth.  

Written before the Covid-19 pandemic, Roberts centers his narrative on the divide between the rural population and the nation’s wealthier urbanites, which he argues is one of the principal issues holding China back. CityMetric spoke with him about segregation in Chinese urban centers and what Western political leaders got so wrong about China’s rise. 


In your book you argue that the divide between China’s rural and urban populations is one of the central challenges facing the country and its economic model.  But a lot of nations have rural-urban divides. Why do you think that China’s is so destabilising? 

When I moved to China in January 1995, people were making about three times as much in the cities as those registered in rural areas. Today, that number is roughly the same. There was a clear government priority trying to narrow the gap back then and there still is today. But we've seen very little progress. The country has gotten much wealthier and living standards have gone up for everyone, but that stubborn gap is still there. 

The other big issue that makes China unique is its internal passport system, the household registration or "hukou" system. Back then, it ensured that people born in the countryside were not free to migrate to the cities. Today, they can migrate but, in most cases, they can't access social welfare benefits – healthcare or education or pensions – in the cities even when they live there. They have to pay for private clinics in the cities or travel all the way back to the countryside for healthcare.  

So, yes, there are urban-rural wealth gaps all around the world. But China is notable by how large it is and by this policy that underpins it.  

Why has household registration, a holdover from the Mao era, become so embedded in Chinese society?  

The household registration policy became a pillar of the post-Mao economic model, which made China a factory to the world. At its most basic it became a mechanism that would ensure China continued to have very low wages. It did that by ensuring that these migrants could never fully integrate themselves into the cities, putting them in a very poor bargaining position when it came to demanding wage rises and better working conditions. 

But if you look at where a good portion of the resistance to reform is coming from, a lot of it is from relatively privileged people with urban household registration. They have grown up in a system that ensures that half the population doesn't have access to their city schools or medical facilities. We've actually seen protests in cities by urbanites against well-meaning efforts by the central government to try to better integrate the migrants into the cities.  

Most commonly it's been related to education. You've seen urbanites protest outside the local education bureau when the government announces they're going to allow more migrant children into the local schools. It's already genuinely difficult to get your kid into one of the better schools in a city, even if you're lucky enough to have an urban household registration. The last thing they want to see is competition from migrants.  

Then the way the system works in China, local governments are responsible for most social welfare costs, not the central government. They are the ones that would have to pay any cost of bringing migrant kids into the schools and expanding the capabilities of health facilities. There is a perception amongst some local officials in China that the cost of integrating migrants into cities would be exorbitant. There's a real bias against rural migrants.  

What does this say about the theories from various Western thinkers and leaders, including Bill Clinton, that as China became wealthier the middle class would grow and demand political change? 

They were wrong. The reality is that, in general, as people become wealthier and better educated in China they're less likely to push back against the systemcertainly in a forceful way like with protests. 

There's this implicit bargain which, until today, has served the government in urban China well, which is this idea that as long as they guarantee ever higher living standards the people of China will not demand civil rights. You will not demand the right to organise, to push back against the policies you don't like, or the corruption you see in the party. That bargain was already fraying for those that don't have urban hukou. Now the big question going forward, with the economic downturn in China, is how that bargain will change for people in the cities. But, so far, urbanites have not been the source of pushing for more political freedoms in China.  

You argue that Western policymakers and intellectuals also miscalculated how big the Chinese middle class would become. 

That's another big myth, that the middle class in China will just continue to grow larger and larger. To be clear, it's already very big but it will no longer continue to grow as long as China maintains these legacy policies that ensure half the population is held back and kept in this second-class status.  

China for years has been trying to grow the proportion of its economy driven by household consumption. They are trying to move away from this reliance on an export-oriented economy, which is now under threat from both the trade war with the US and from Covid-19. But China today really struggles to increase household consumption. That is because almost half the population are stuck and do not have the spending power or the confidence to spend like people in the cities. The dilemma for the Chinese government is that in order to make a successful economic transition, they need the middle class to keep growing. But they're not taking the steps to make that happen. 

Many have predicted doom for China's economy and none of those predictions have come to pass. Why do you think your dire predictions are different? Even now, with Covid-19, China’s economy seems to be doing pretty well.  

I'm not predicting the collapse of China. What I am predicting is that the economy has problems that are not being dealt and which will ensure that the growth we've seen over the last couple of decades, and that the world has gotten used to, will not continue. 

Also, the idea that they are sailing happily through Covid-19 unscathed is completely wrong. If you look at their economy, there are huge challenges right now. Much of the narrative of them coming back to life and sailing through this crisis is based on only looking at the cities. If you look at the countryside, you see a very different picture, you see large numbers of migrant workers that are unable to return to their jobs, that are still stranded, that no longer have income.  

You also have a bunch of the service economy still shut down in China, which has become an increasingly important source of employment for the migrant workers, even more important than manufacturing and construction. Then you've got the fact that China, despite some progress in trying to become a more self-reliant economy, is still very reliant on exports to the rest of the world. They will be hit harder later this year by the global economic downturn.  

Throughout the world, groups that are already discriminated against are becoming scapegoats during the pandemic. Is that happening in Chinese cities to people with rural household registrations? 

They've always been scapegoats. They get blamed for pollution, which is absurd. They're blamed for crime, for congestion in the cities. But there's even more backlash now. Many migrants, because of an accident of fate, were taking vacation for the Lunar New Year when Covid-19 hit China. They were out of the cities and when they wanted to come back, when things started to get a little better, they met resistance.  

Right now, with Covid-19, there are two potential paths forward. One is positive. The government in China has long known that it needs to make a transition toward relying more on the spending power of its own people and less on the global economy. The trade war made it more obvious. Covid-19 makes it painfully obvious. They need to end these legacy policies that ensure this permanent underclass and change the system so that migrants and rural people can actually see their incomes grow more strongly. 

The flip side is discrimination. The track record when the Chinese government says it is going to reform these policies is very poor. They've been talking about it for many, many years. In 2013 there was a huge announcement about how they were going to do away with household registration and the dual land policy.  

The progress has been extremely limited since then, there have been little piecemeal pilot programmes in cities around the country, often allowing migrants to settle in places they don't want to go, where the economies are not doing very well, and there are no jobs. The track record is not good. And the early signs from Covid-19 are that the discrimination against them, certainly amongst urbanites, is only growing. 

Jake Blumgart is a staff writer for CityMetric.

 
 
 
 

Outdoor dining is a lifeline for restaurants, but cities don’t always make it easy

(Jamie McCarthy/Getty Images)

In downtown Toronto, café owners Toula and Peter Bekiaris were recently granted something to help them through the Covid-19 pandemic: a piece of the street outside their doors.

They got this space for their pastry and coffee shop, Filosophy, through a city-led initiative called CaféTO, created in response to the pandemic. The programme helps clusters of neighbouring restaurants want to set up outdoor patios on streets or sidewalks. As part of the initiative, Filosophy was able to expand from a two-seater bench out front to an eight-seat curbside patio, allowing it to welcome back patrons to a plot of the street separated from traffic by orange and black pylons.

“To have that little slice of pre-Covid feeling is rejuvenating for sure,” Toula Bekiaris says.


As the pandemic brings a generation of bars and restaurants to the brink of collapse, cities everywhere are seeing businesses spill out of their front doors and onto nearby sidewalks and streets. For many desperate small business owners, it’s their last best hope to claw back any business at all.

Bekiaris said the program brought her block back to life – but it also left her with a question. Toronto bylaws don’t normally make it easy for bars and restaurants to have sidewalk and curbside patios. She wondered, “My gosh, why are we not able to do this more regularly?”

Many cities have long had strict rules and steep fees that govern outdoor dining in public spaces. In places that were slow to adapt, or that haven’t adapted at all, this has caused tension for restaurant owners who are just trying to survive.

In Tel Aviv, for example, a schnitzel restaurant owner was filmed begging police to not issue him a ticket for having tables on the sidewalk outside of his shop. In New York City, businesses openly flouted rules that initially forbade outdoor eating and drinking. In the typically traffic-clogged Lima – the capital of Peru, one of the hardest-hit nations in the world for Covid – patios are scattered across sidewalks, but don’t have access to street space, which is still mainly centred around cars. “In the present-day context, the street has never been more important,” urban designer Mariana Alegre writes in a Peruvian newspaper.

As the terrasse aesthetic made famous by Paris and Montreal finds footing in cities that aren’t typically known for outdoor patronage, business owners and officials alike are finding that it’s not as simple as setting up some tables and chairs outside. The experiences of five different cities trying to embrace outdoor patios offer some useful lessons for understanding what can go wrong, and how it can be done right.

Vilnius


Vilnius was an early adopter of the outdoor dining trend. (Petras Malukas/AFP via Getty Images)

In April, the Lithuanian capital made global headlines for promising to allow bars and restaurants to use public space to set up a “giant outdoor café.”

“Plazas, squares, streets – nearby cafés will be allowed to set up outdoor tables free of charge this season,” Vilnius’s mayor Remigijus Šimašius said at the time.

There were good intentions behind the plan, but a report by nightlife consultancy VibeLab suggests the city didn’t quite pull it off. The Vilnius case study in the report says physical distancing was hard to maintain on narrow streets. There was a lack of government planning and communication. The city didn’t measure the economic impact of the initiative. Locals complained about street noise.

Mark Adam Harold, Vilnius’s night mayor and the founder of Vilnius Night Alliance, said in the VibeLab report that the “appearance of vibrancy in the streets of Vilnius led to a decrease in public support for the still-struggling hospitality sector, as people assumed the economic crisis was over.”

Still, the political will to do something radical – even if it meant mistakes were made in the process – can be a foreign concept in some places. Vilnius showed that change, often so slow in municipal politics, can happen fast in extenuating circumstances.

In July, Vilnius took it a step further, closing down some central streets to car traffic as a way to lure different kinds of people to the Old Town. “Cars cannot dominate the most sensitive and beautiful part of our city. Vilnius is choosing to be a city of the future now,” said Šimašius.  

New York City


New York City plans to bring back outdoor dining again in the spring of 2021. (Theo Wargo/Getty Images)

As soon as it was warm enough to eat and drink outside, New Yorkers were doing it. The empty streets and desolate sidewalks made it easy to claim a piece of pavement – prompting some to jump the gun on Phase 2 reopening. “I need every dollar I can get,” a Little Italy restaurant owner said, explaining his guerrilla patio to Eater back in June. “I’m hanging on by a shoestring here.”

Since those early pandemic days, New York City has moved to formalise outdoor dining, launching its Open Restaurants and Open Streets programmes. They allow establishments to set up sidewalk and curbside patios for patrons, and in some cases, even extend their restaurant’s real estate right across the street. The city says more than 9,000 businesses have signed up for Open Restaurants since June. It’s been such a success that the mayor’s office said it would do it again in the spring of 2021.

"In just two months, Open Restaurants has helped re-imagine our public spaces – bringing New Yorkers together to safely enjoy outdoor dining and helping to rescue a critical industry at the same time," said DOT Commissioner Polly Trottenberg in a news release announcing the 2021 extension.

Kristin Vincent is an owner of Sel Rrose, Home Sweet Home and Figure 19 in New York City, as well as a Sel Rrose location in Montauk. She says she already had a sidewalk patio permit for Sel Rrose in Manhattan’s Lower East Side prior to the pandemic, for which she pays approximately $25,000 annually, usually paid in three-month installments. When the last installment came due, the city waived payment.

Vincent says the city’s also been more lax about monitoring the sidewalk, which she has warmly welcomed. “They used to police outdoor seating – if you went an inch outside the zone of where you’re supposed to be, you’d get a ticket. If you stayed open for 10 minutes past when you were supposed to [close], you’d get a ticket. If neighbours were complaining that you’re outside, they’d pull your outdoor seating away. It was such an ‘honour’ to have outdoor seating,” she says.

Vincent sincerely hopes the city reconsiders its entire approach to outdoor seating even after the pandemic has ended – but she isn’t sure that’s realistic. While Home Sweet Home and Figure 19 have remained closed because of lack of outdoor space, she has had to manage a never-ending list of changing rules for the two Sel Rrose locations. Most recently, she’s had to contend with New York City’s ban on selling alcoholic drinks without food.

“Why can’t it just be drinks?” she asks. If the goal is to prevent the spread of Covid-19, she wonders why they’re still enforcing Prohibition-style rules on to-go drinks. Those little details add up, Vincent says, making it challenging for bars and restaurants to make money. Right now, the Lower East Side location is earning around 30% of the sales it made this time last year.

The nitpicking isn’t unique to New York City. At the Montauk location, she built an outdoor patio in preparation for opening only to be told it was in the wrong place. That said, that location is doing better (about 65% of sales) because the area is a phase ahead of the city, allowing for 50% indoor seating capacity.

She says allowing indoor seating will be critical to New York City bars and restaurants as summer turns to fall, and fall turns to winter. “We have to open inside – have to. We’ll even take 50%,” she says.

Montreal


Montreal reduced its usual fee for terrasse permits. (Eric Thomas/AFP via Getty Images)

Sergio Da Silva’s Montreal bar and music venue, Turbo Haüs, has been skating by on the thinnest of margins. The Latin Quarter business was closed for months, finally reopening as a terrasse-only bar in the second week of July. 

In terms of Covid measures, Montreal has pedestrianised key streets including St-Denis, where Turbo Haüs is located (for what it’s worth, it normally pedestrianises St-Denis during the summer). It also reduced the terrasse permit fee, and in Turbo Haüs’s case waived the $3,000–$4,000 it would have owed the city as reimbursement for the three metered parking spaces taken over by its mega-terrasse. But Da Silva still paid $2,000 to comply with the rest of the permitting process, including the $500 in permit fees he paid prior to the Covid discount.

Anecdotally, he says, it seems the city’s invitation to businesses to set up terrasses hasn’t been met with the kind of speed some businesses were hoping for. His neighbour across the street applied for a permit, and was still waiting even after Turbo Haüs opened. “The entire process just seemed more difficult than it was before,” he says.

It’s been a frustrating summer. It was supposed to be the bar’s time to squirrel away money for the quieter winter season. Instead, Da Silva says, he’s mostly just making enough to stay open right now. “This would have been a really, really good summer for us. We had everything in place to put a giant dent in all our debts, and we were looking forward to actually paying ourselves a livable sum. And then this kind of thing happened,” he says. He predicts this winter is when the thread that so many bars and restaurants are holding onto will finally snap.

“You should wait to see what it looks like in the winter slow season,” he says. “That's when a lot of places are actually going to be shutting down.”

Assuming most bars and restaurants won’t be able to operate at 50% or greater capacity in the winter, a small business rent forgiveness programme that gives money to tenants (rather than directly to landlords) may be the only way governments can prevent mass closures.

Tel Aviv


Tel Aviv's approach to outdoor dining left many restaurants wondering if they would be able to survive. (Jack Guez/AFP via Getty Images)

Tel Aviv’s outdoor patio story has emerged in fits and starts. In May, Israeli Prime Minister Benjamin Netanyahu told people to “Go out and have a good time”.

In early July, The Times of Israel published the video of the schnitzel restaurateur pleading with police not to fine him for having a couple of tables and chairs out on the sidewalk. “Business owners give this city culture, entertainment. There’s no work and I’m even fined! I have three kids to feed, where will I get the money from?” he cried.

Three days later, the Israeli metropolis published a news release saying it was sacrificing road space for on-street dining platforms in its trendy restaurant district, on Chayim Vital Street. The city also pedestrianised 11 streets, placing chairs and umbrellas in the new car-free zones to encourage people to use their new public space. The following day, the city gave restaurants only a few hours’ warning about an open-ended closure order, which many restaurateurs vowed to disobey. They won, but within the same month, 34 restaurants were fined for serving unmasked patrons.

The backlash Tel Aviv has received from the bar and restaurant industry has been deserved. The lack of clear guidelines, ever-changing rules and unavailability of aid and support has left many businesses in the lurch, wondering if they’ll ever be able to come back from Covid.

Toronto

In pre-Covid times, Harsh Chawla says his popular Indian restaurant Pukka would routinely turn around 250 seats on a normal Saturday. Now, in a summer without tourism, nor Toronto’s Summerlicious restaurant festival, nor indoor dining, his 24-seat curbside patio has been a saving grace. “I always say, anything better than zero is a win for us,” he says.

Chawla says he helped rally his neighbours around CaféTO’s proposal of shutting down on-street parking spaces in favor of dining nooks. He came up against worries that reduced parking would mean reduced business for them – a common concern that a growing body of research demonstrates is not actually true. Eventually his stretch of St. Clair Street West came to a compromise allowing for the conversion of some parking spots.

Trevor McIntyre, global director of placemaking at IBI Group, is a consultant on the CaféTO programme. He sees the lane and parking spot closures as big wins in a city that allocates an incredible amount of space to cars, even with mounting pedestrian and cyclist deaths. “We've slowed down traffic considerably – cars slow down, the whole pace slows down. You take away the on-street parking, and it encourages people to get out and walk. You start seeing higher volumes of people,” says McIntyre.

In this experiment, curbside patios and more heavily pedestrianised areas are driving more business to areas than parking does. Chawla likes the results.

“Hopefully we do this next year, and the year after, and the year after, because I think it gives us character to the street, it gives character to the neighbourhood,” says the restaurateur. “Our summers are so short-lived in Canada, in Toronto – so why not have more spaces outside so people can enjoy it?”

Tracey Lindeman is a freelance writer based in Ottawa.