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China's Planners Push Urbanization as Main Growth Driver

AP

China's planned urbanization drive will be main engine of growth for domestic economic activity in the years ahead, giving the government scope to boost domestic demand and infrastructure investment, a senior planning official said on Wednesday.

China plans to spend 40 trillion yuan ($6.4 trillion) to bring 400 million people to cities over the next decade as the government tries to turn the country into a wealthy world power with economic growth generated by an affluent consumer class.

"Urbanization is the biggest potential force driving China's domestic demand in the years ahead," Zhang Ping, head of the National Development and Reform Commission (NDRC), China's top economic planning agency, told reporters.

Sources told Reuters on Friday that China plans major bondmarket reforms to help fund the 40 trillion plan.

Guidelines for urbanization would be launched during the first half of this year, Zhang told a news conference on the sidelines of the annual meeting of the National People's Congress (NPC), China's parliament.

"We need to pay more attention to the quality of urbanization and align the process with China's environmental capability and resources," Zhang said.

(Read More: Why China's Property Market Is Getting Scary)

The government hopes 60 percent of the population of almost 1.4 billion will be urban residents by 2020 and will build homes, roads, hospitals and schools for them.

The NDRC's annual report to the NPC, published on Tuesday,said China's urbanization rate would climb to 53.37 percent this year, up from 52.57 percent in 2012.

Consumption Key

Outgoing Premier Wen Jiabao said on Tuesday that consumption was the key to unlocking the full potential of domestic demand in the economy and would reduce excess, inefficiency and inequality.

It would also help deliver growth of 7.5 percent in 2013 - a level China barely beat in 2012 when growth eased to its slowest pace in 13 years, expanding by 7.8 percent.

Urbanization is a policy priority for China's government which wants to create a true consumer class that will help rebalance growth drivers away from the investment-heavy,export-oriented model it has followed for three decades.

The factory-fueled, breakneck economic expansion that has lifted hundreds of millions from rural poverty so far has also led to mis-allocation of resources, massive industrial inefficiency and exacerbated pollution.

Widespread public anger and rare media criticism over pollution was triggered recently after smog enveloped swathes of the north of the country, grounding flights, forcing people indoors and forcing measures such as factory closures.

Zhang said China would continue to push forward with economic reforms to better clarify the different roles that the government and markets played in the economy.

(Read More: Before People's Congress in China, Vows of Change and Raised Hopes)

He restated government pledges to carry out reforms in the years ahead, including fiscal, financial, pricing and income distribution reform, but gave no further details.

Zhang said China's longer-term strategy remained focused on boosting domestic consumption in the economy.

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