What is the urbanization bubble? It's when local governments, driven by GDP growth impulses,

What is the urbanization bubble? It's when local governments, driven by GDP growth impulses, artificially raise the rate of urbanization and build cities on a large scale without the support of real industries or consumption bases. This phenomenon manifests as farmers being forcibly urbanized in terms of population statistics, government office relocations driving real estate development in terms of planning, and economic development zones being abandoned or becoming ghost cities as a result.

China’s urban structure system can be described as follows: first-tier cities are the flowers of the nation, second-tier cities are the main trunks, third-tier cities are the branches, and fourth-tier cities are the roots. (The author defines first, second, third, and fourth-tier cities in an easy-to-understand and categorized way. First-tier cities include municipalities plus Shenzhen and Guangzhou; second-tier cities are provincial capitals and sub-provincial cities; third-tier cities are prefecture-level cities; and fourth-tier cities are county-level cities.) The Great Leap Forward-style urbanization model will inevitably lead to a massive urbanization bubble, and the consequences of this bubble will undoubtedly be severe.

Firstly, the urbanization bubble leads to the economic decline of fourth-tier cities.

Where does the massive investment come from? From banks. This is the current urbanization model for most fourth-tier cities in China: using urban investment companies as financing platforms to solve funding issues; utilizing administrative center planning to increase land value, selling land to develop housing projects, and using proceeds from land sales to fill fiscal gaps.

The financial bubble derived from asset debt is the root cause of the local government debt crisis. Currently, many county-level cities in China have construction scales that far exceed the fiscal burden capacity of the counties, forcing them to seek financing through various channels. Some construction projects will be hard-pressed to generate future profits and can only rely on land sales to repay debts. As such, the urbanization bubble continues to grow larger, and once the real estate bubble bursts, it will inevitably lead to a debt crisis and fiscal crisis, ultimately endangering the economic stability and sustainable development of the counties, leading to the economic decline of county economies.

Secondly, the urbanization bubble will lead to the decline of people's livelihoods in fourth-tier cities. In China, many counties have no real industries, yet there are massive construction sites around each county, including towns and some village-level streets that are frenzied construction sites.

The government treats real estate as the only lifeline, even demolishing factories to build housing developments. However, we see that in some counties, housing prices have been inflated to over 3000 yuan per square meter, yet apartments cannot be rented out at 200 yuan per month. This is what asset hollowing looks like.

The original industrial worker families in the county are gradually marginalized, losing their economic foundation and facing increasingly difficult circumstances. Farmers who lose or abandon their land, which was their means of survival, lack new survival skills and also lose their economic foundation, making their situation even more difficult.

In summary, fourth-tier cities are the foundation of the country, the core base of social stability and economic development in China. Many core issues in China's future economy, such as solving the 'three rural issues' (agriculture, rural areas, and farmers), achieving integrated urban-rural development, expanding domestic demand, and realizing economic restructuring, all depend on the social stability and economic development of fourth-tier cities. Urbanization bubbles will lead to the economic decline of fourth-tier cities and also result in the decline of people's livelihoods in these cities. Related links: